Table of Contents
As filed with the Securities and Exchange Commission on
September 26, 2008
Registration
No. 333-153091
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
McJUNKIN RED MAN HOLDING
CORPORATION
(Exact Name of Registrant as
Specified in Its Charter)
| Delaware | 1311 | 20-5956993 | ||
|
(State or Other Jurisdiction
of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
|
8023 East 63rd Place
|
835 Hillcrest Drive | |
|
Tulsa, Oklahoma 74133
|
Charleston, West Virginia 25311 | |
|
(918) 250-8541
|
(304) 348-5211 | |
|
(Address, Including Zip Code,
and Telephone Number,Including Area Code, of Registrant’s
Principal Executive Offices)
|
||
Andrew Lane
8023 East 63rd Place
Tulsa, Oklahoma 74133
(918) 250-8541
(Name, Address, Including Zip
Code, and Telephone Number,
Including Area Code, of Agent for Service)
Including Area Code, of Agent for Service)
With a copy to:
|
Stuart H. Gelfond
|
Richard A. Drucker | |
|
Michael A. Levitt
|
Davis Polk & Wardwell | |
|
Fried, Frank, Harris, Shriver & Jacobson LLP
|
450 Lexington Avenue | |
|
One New York Plaza
|
New York, New York 10017 | |
|
New York, New York 10004
|
(212) 450-4000 | |
|
(212) 859-8000
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large accelerated
filer o
|
Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if smaller reporting company)
CALCULATION OF REGISTRATION FEE
|
Proposed Maximum |
||||||
|
Title of Each Class of |
Aggregate Offering |
Amount of |
||||
| Securities to be Registered | Price (1)(2) | Registration Fee | ||||
|
Common Stock, $0.01 par value
|
$750,000,000 | $29,475 (3) | ||||
| (1) | Includes offering price of shares of common stock which the underwriters have the option to purchase. | |
| (2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. |
| (3) | Previously paid. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
Table of Contents
|
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted. |
Subject to Completion. Dated
September 26, 2008.
Shares
McJunkin Red Man Holding
Corporation
Common Stock
This is an initial public offering of shares of common stock of
McJunkin Red Man Holding Corporation. The selling stockholder
identified in this prospectus is offering all of the shares to
be sold in the offering. We will not receive any of the proceeds
from the sale of the shares. PVF Holdings LLC intends to
distribute the net proceeds of this offering, after giving
effect to the underwriting discount, to its members, which
include certain members of our board of directors and senior
management team and various of their affiliates, and affiliates
of Goldman Sachs & Co., which is one of the
book-running managers for this offering.
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$ and
$ . We intend to apply to have our
common stock listed on the New York Stock Exchange under the
symbol “MRC”.
See “Risk Factors” beginning on
page 18 to read about factors you should consider
before buying shares of the common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
| Per Share | Total | |||||||
|
Initial public offering price
|
$ | $ | ||||||
|
Underwriting discount
|
$ | $ | ||||||
|
Proceeds, before expenses, to the selling stockholder
|
$ | $ | ||||||
To the extent that the underwriters sell more
than shares
of common stock, the underwriters have the option to purchase up
to an
additional shares
from the selling stockholder at the initial public offering
price less the underwriting discount.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2008.
| Goldman, Sachs & Co. | Lehman Brothers |
| JPMorgan | Deutsche Bank Securities |
| Robert W. Baird & Co. | Credit Suisse | Stephens Inc. |
Prospectus
dated ,
2008.
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TABLE OF
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| EX-10.21 | ||||||||
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| EX-10.31 | ||||||||
| EX-16 | ||||||||
| EX-21.1 | ||||||||
| EX-23.1 | ||||||||
| EX-23.2 | ||||||||
| EX-23.3 | ||||||||
Through and
including ,
2008 (the 25th day after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer’s obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus or any free writing prospectus prepared by or on
behalf of us. You must not rely on any unauthorized information
or representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
Table of Contents
PROSPECTUS
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus. You should carefully read the
entire prospectus, including the “Risk Factors” and
the consolidated financial statements and related notes included
elsewhere in this prospectus, before making an investment
decision. In this prospectus, all references to “the
Company”, “McJunkin Red Man”, “we”,
“us”, and “our” refer to McJunkin Red Man
Holding Corporation and its consolidated subsidiaries, unless
the context otherwise requires or where otherwise indicated, and
references to the “Red Man Transaction” are to the
October 2007 business combination of McJunkin Corporation
(“McJunkin”) and Red Man Pipe & Supply Co.
(“Red Man”). We use non-GAAP measures in this
prospectus, including Adjusted EBITDA. For a reconciliation of
this measure to Net income, see footnote 3 under
“— Summary Consolidated Financial
Information.”
Our
Business
We are the largest North American distributor of pipe, valves
and fittings (“PVF”) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are diversified
by geography and end market and we seek to provide best-in-class
service to our customers by satisfying the most complex,
multi-site needs of some of the largest companies in the energy
and industrials sectors as their primary supplier. As a result,
we have an average relationship of over 20 years with our
top ten customers and our pro forma sales in 2007 were over
twice as large as our nearest competitor in the energy industry.
We believe the critical role we play in our customers’
supply chain, our unmatched scale and extensive product
offering, our broad North American geographic presence, our
customer-linked scalable information systems and our efficient
distribution capabilities serve to solidify our long-standing
customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (“MRO”)
contracts where we have demonstrated an over 99% average annual
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. In addition, for the
eleven months ended December 31, 2007, without giving pro
forma effect to the Red Man Transaction, we generated sales of
$2,124.9 million, EBITDA of $171 million and net
income of $56.9 million, and for the twelve months ended
October 31, 2007, before giving effect to the Red Man
Transaction, Red Man generated sales of $1,982.0 million,
EBITDA of $170 million and net income of $82.2 million.
We have established a position as the largest North American PVF
distributor to the energy industry based on sales. We distribute
products throughout North America and the Gulf of Mexico,
including in PVF intensive, rapidly expanding oil and natural
gas production areas such as the
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Bakken, Barnett, Fayetteville, Haynesville and Marcellus
shales. Growth in these oil and natural gas production areas is
driven by improved production technology, favorable market
trends and robust capital expenditure budgets. Furthermore, our
Canadian subsidiary Midfield Supply ULC and its subsidiaries
(“Midfield”), one of the three largest Canadian PVF
distributors based on sales, provides PVF products to oil and
gas companies operating primarily in Western Canada, including
the Western Canadian Sedimentary Basin, Alberta Oil Sands and
heavy oil markets. These regions are still in the early stages
of infrastructure investment with numerous companies seeking to
facilitate the long-term harvesting of difficult to extract and
process crude oil.
McJunkin Red Man
Locations
Across our extensive North American platform we offer a broad
complement of products and services to the upstream, midstream
and downstream sectors of the energy industry, as well as other
industrial (including general manufacturing, pulp and paper,
food and beverage) and other energy (power generation, liquefied
natural gas, coal, alternative energy) end markets. During the
twelve months ended December 31, 2007 on a pro forma basis,
approximately 46% of our sales were attributable to upstream
activities, approximately 22% were attributable to midstream
activities and approximately 32% were attributable to downstream
and other processing activities which include the refining,
chemical and other industrial and energy end markets. In
addition, before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007, approximately 36% of our sales were attributable to
upstream activities, approximately 18% were attributable to
midstream activities and approximately 46% were attributable to
downstream and other processing activities.
We offer more than 100,000 products including an extensive array
of PVF, oilfield supply, automation, instrumentation and other
general and specialty products to our customers across our
various end markets. Due to the demanding operating conditions
in the energy industry and high costs associated with equipment
failure, customers prefer highly reliable products and vendors
with established qualifications and experience. As our PVF
products typically represent a fraction of the total cost of the
project, our customers place a premium on service given the high
cost to them of maintenance or new project delays. Our products
are typically used in high-volume, high-stress, abrasive
applications such as the gathering and transmission of oil and
natural gas, in high-pressure,
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extreme temperature and high-corrosion applications such as in
heating and desulphurization in the processing and refining
industries and in steam generation units in the power industry.
With over 250 locations servicing the energy and industrial
sectors, we are an important link between our more than 10,000
customers and our more than 10,000 suppliers. We add value to
our customers and suppliers in a number of ways:
| • | Broad Product Offering and High Customer Service Levels: The breadth and depth of our product offering enables us to provide a high level of service to our energy and industrial customers. Given our North American inventory coverage and branch network, we are able to fulfill orders more quickly, including orders for less common and specialty items, and provide our customers with a greater array of value added services, including multiple daily deliveries, volume purchasing, product testing and supplier assessments, inventory management and warehousing, technical support, just-in-time delivery, order consolidation, product tagging and tracking, and system interfaces customized to customer and supplier specifications, than if we operated on a smaller scale and/or only at a local or regional level. Thus our clients, particularly those operating throughout North America, can quickly and efficiently source the most suitable products with the least amount of downtime and at the lowest total transaction cost. | |
| • | Approved Manufacturer List (“AML”) Services: Our customers rely on us to provide a high level of quality control for their PVF products. We do this by regularly auditing many of our suppliers for quality assurance through our Supplier Registration Process. We use our resulting Approved Supplier List (the “MRM ASL”) to supply products across many of the markets we support, particularly for downstream and midstream customers. This process has enabled us to achieve a preferred vendor status with many key end users in the industry that utilize our AML services to help devise and maintain their own approved manufacturer listings. In this manner, we seek to ensure that our customers timely receive reliable and high quality products without incurring additional administrative and procurement expenses. Our suppliers in turn look to us as a key partner, which has been important in establishing us as an important link in the supply chain and a leader in the industry. | |
| • | Customized and Integrated Service Offering: We offer our customers integrated supply services including product procurement, product quality assurance, physical warehousing, and inventory management and analysis using our proprietary customized information technology platform. This is part of an overall strategy to promote a “one stop” shop for PVF purchases across the upstream-midstream-downstream spectrum and throughout North America through integrated supply agreements and MRO contracts that enable our customers to focus on their core operations and increase the efficiency of their business. |
Our
Industry
We primarily serve the North American oil and gas industry,
generating over 90% of our sales from supplying PVF products and
various services to customers throughout the energy industry.
Given the diverse requirements and various factors that drive
the growth of the upstream, midstream and downstream energy
markets, our sales to each sector may vary from time to time,
though the overall strength of the global energy market is
typically a good indicator of our performance. The
underinvestment in North American energy infrastructure,
together with production and capacity constraints and
anticipated strength in the oil, natural gas, refined products
and petrochemical markets, have spurred high levels of expansion
and maintenance capital expenditures in our energy end markets
by our customers. Furthermore, as participants in the energy
industry continue to focus on raising operating efficiency, they
have been increasingly looking to outsource their procurement
and related administrative functions to distributors like us.
Beyond the oil and gas industry, we also supply products and
services to other energy sectors such as coal, power generation,
liquefied natural gas and alternative energy facilities. We also
provide
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products such as automation and instrumentation products and
corrosion resistant piping products to more general industrial
end markets such as pulp and paper, metals processing,
fabrication, pharmaceutical, food and beverage and manufacturing
companies.
Our Competitive
Strengths
We consider the following to be our key competitive strengths:
Market Leader with Complete North American Coverage and
Significant Scale. We are the leading North
American distributor of PVF and related products to the energy
industry based on sales, with at least twice the sales of our
nearest competitor in the energy industry in 2007. Our North
American network of over 250 locations in 38 U.S. states
and in Canada gives us a significant market presence and
provides us with substantial economies of scale that we believe
make us a more effective competitor. The benefits of our size
and extensive North American presence include: (1) the
ability to act as a single-source supplier to large,
multi-location customers operating across all segments of the
energy industry; (2) the ability to commit significant
financial resources to further develop our operating
infrastructure, including our information systems, and provide a
strong platform for future expansion; (3) volume purchasing
benefits from our suppliers; (4) an ability to leverage our
extensive North American inventory coverage to provide greater
overall breadth and depth of product offerings; (5) the
ability to attract and retain effective managers and
salespeople; and (6) a business model exhibiting a high
degree of operating leverage. Our presence and scale have also
enabled us to establish an efficient supply chain and logistics
platform, allowing us to better serve our customers and further
differentiate us from our competitors.
High Level of Integration and MRO Contracts with a Blue
Chip Customer Base. We have a diversified
customer base with over 10,000 active customers and serve as the
sole or primary supplier in all end markets or in specified end
markets or geographies for many of our customers. Our top ten
customers, with whom we have had relationships for more than
20 years on average, accounted for less than 30% of 2007
pro forma sales and no single customer accounted for more than
5% of 2007 pro forma sales. Before giving pro forma effect to
the Red Man Transaction, our top ten customers accounted for
approximately 30% of our 2007 sales and our largest customer
accounted for approximately 6% of our 2007 sales. We enjoy fully
integrated relationships, including interconnected technology
systems and daily communication, with many of our customers and
we provide an extensive range of integrated and outsourced
supply services, allowing us to market a “total transaction
cost” concept as opposed to individual product prices. We
provide such services as multiple daily deliveries, zone stores
management, valve tagging, truck stocking and significant system
support for tracking and replenishing inventory, which we
believe results in deeply integrated customer relationships. We
sell products to many of our customers through multi-year MRO
contracts which are typically renegotiated every three to five
years. Although there are typically no guaranteed minimum
purchase amounts under these contracts, these MRO customers,
representing over 50% of both our 2007 historical and pro forma
sales, provide a relatively stable revenue stream and help
mitigate against industry downturns. We believe we have been
able to retain customers by ensuring a high level of service and
integration, as evidenced by our annual average MRO contract
retention rate of over 99% since 2000. Furthermore, we have
recently signed new MRO contracts displacing competitors that
provide opportunities for us to gain new customers and broaden
existing customer relationships.
Business and Geographic Diversification in High-Growth
Areas. We are well diversified across the
upstream, midstream and downstream operations of the energy
industry, as well as through our participation in selected
industrial end markets. During the twelve months ended
December 31, 2007 on a pro forma basis, we generated
approximately 46% of our sales in the upstream sector, 22% in
the midstream sector, and 32% in the downstream, industrial and
other energy end markets. Before giving pro forma effect to the
Red Man Transaction, during the twelve months ended
December 31, 2007, approximately 36% of our sales were
attributable to upstream
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activities, approximately 18% were attributable to midstream
activities and approximately 46% were attributable to downstream
and other processing activities. This diversification affords us
some measure of protection in the event of a downturn in any one
end market while providing us the ability to offer “one
stop” shopping for most of our integrated energy customers.
In addition, our more than 250 branches are located near major
hydrocarbon and refining regions throughout North America,
including rapidly expanding oil and natural gas exploration and
production (“E&P”) areas in North America, such
as the Bakken, Barnett, Fayetteville, Haynesville and Marcellus
shales. Our geographic diversity enhances our ability to respond
to customers quickly, gives us a strong presence in these high
growth E&P areas and reduces our exposure to a downturn in
any one region.
Strategic Supplier Relationships. We
have extensive relationships with our suppliers and have key
supplier relationships dating back in certain instances over
60 years. We purchased approximately $1 billion of
products from our top ten suppliers for the twelve months ended
December 31, 2007 on a pro forma basis, representing
approximately 32% of our purchases. Before giving pro forma
effect to the Red Man Transaction, during the twelve months
ended December 31, 2007 we purchased approximately
$431 million of products from our top ten suppliers,
representing approximately 30.7% of our purchases. We believe
our customers view us as an industry leader for the formal
processes we use to evaluate vendor performance and product
quality. We employ individuals, certified by the International
Registry of Certificated Auditors, who specialize in conducting
manufacturer assessments both domestically and internationally.
Our Supplier Registration Process (“SRP”), which
allows us to maintain the MRM ASL, serves as a significant
strategic advantage to us in developing, maintaining and
institutionalizing key supplier relationships. For our
suppliers, being included on the MRM ASL represents an
opportunity for them to increase their product sales to our
customers. The SRP also adds value to our customers, as they
collaborate with us regarding specific manufacturer performance,
our past experiences with products and the results of our
on-site
supplier assessments. Having a timely, uninterrupted supply of
those mission critical products from approved vendors is an
essential part of our customers’ day-to-day operations and
we work to fulfill that need through our SRP.
A Leading IT Platform Focused on Customer
Service. Our business is supported by our
integrated, scalable and customer-linked customized information
systems. These systems and our more than 3,400 employees
are linked by a wide area network. We are currently implementing
an initiative, expected to be completed in 2009, that will
combine our business operations onto one enterprise server-based
system. This will enable real-time access to our business
resources, including customer order processing, purchasing and
material requests, distribution requirements planning,
warehousing and receiving, inventory control and accounting and
financial functions. Significant elements of our systems include
firm-wide pricing controls resulting in disciplined pricing
strategies, advanced scanning and customized bar-coding
capabilities, allowing for efficient warehousing activities at
customer as well as our own locations, and significant levels of
customer-specific integrations. We believe that the customized
integration of our customers’ systems into our own
information systems has increased customer retention by reducing
their expenses, thus creating switching costs when comparing us
to alternative sources of supply. Typically, smaller regional
and local competitors do not have IT capabilities that are as
advanced as ours.
Highly Efficient, Flexible Operating Platform Drives
Significant Free Cash Flow Generation. We
place a particular emphasis on practicing financial discipline
as evidenced by our strong focus on return on assets, minimal
capital expenditures and high free cash flow generation. Our
disciplined cost control, coupled with our active asset
management strategies, result in a business model exhibiting a
high degree of operating leverage. As is typical with the
flexibility associated with a distribution operating model, our
variable cost base includes substantially all of our cost of
goods sold and a significant portion of our operating costs.
Furthermore, our maintenance capital expenditures were less than
0.2% of our pro forma sales for the year ended December 31,
2007. This cost structure allows us to adjust to changing
industry dynamics and, as a result, during
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periods of decreased sales activity, we typically generate
significant free cash flow as our costs are reduced and working
capital contracts.
Experienced and Motivated Management
Team. Our senior management team has an
average of over 25 years of experience in the oilfield and
industrial supply business, the majority of which has been with
McJunkin Red Man or its predecessors. After giving effect to
this offering, senior management will
own % of our company indirectly
through their equity interests in PVF Holdings LLC. We also seek
to incentivize and align management with shareholder interests
through equity-linked compensation plans. Furthermore, executive
compensation is based on profitability and
return-on-investment
targets which we believe drives accountability and further
aligns the organization with our shareholders.
Our Business
Strategy
Our goal is to become the largest global distributor of PVF and
related products to the energy and industrials sectors. We
intend to grow our business by leveraging our existing position
as the largest North American distributor of PVF products and
services to the energy industry based on sales. Our strategy is
focused on pursuing growth by increasing organic market share
and growing our business with current customers, expanding into
new geographies and end markets, further penetrating the
Canadian Oil Sands and downstream sector, pursuing selective
strategic acquisitions and investments, increasing recurring
revenues through integrated supply, MRO and project contracts,
and continuing to increase our operational efficiency.
Increase Organic Market Share and Grow Business with
Current Customers. We are committed to
expanding upon existing deep relationships with our current
customer base while at the same time striving to secure new
customers. To accomplish this, we are focused on providing a
“one stop” PVF procurement solution throughout North
America and across the upstream, midstream and downstream
sectors of the energy industry, cross-selling by leveraging our
expanded product offering resulting from the business
combination between McJunkin Corporation (“McJunkin”)
and Red Man Pipe & Supply Co. (“Red Man”) in
October 2007, and increasing our penetration of existing
customers’ new multiyear projects.
The migration of existing customer relationships to sole or
primary sourcing arrangements is a core strategic focus. We seek
to position ourselves as the sole or primary provider of a broad
complement of PVF products and services for a particular
customer, often by end market and/or geography, or in certain
instances across all of a customer’s North American
upstream, midstream and downstream operations. Several of our
largest customers have recently switched to sole or primary
sourcing contracts with us. Additionally, we believe that
significant opportunities exist to expand upon heritage McJunkin
and Red Man existing deep customer and supplier relationships
and thereby increase our market share. While we believe that the
heritage McJunkin and Red Man organizations each maintained
robust product offerings, there also remain opportunities to
cross-sell certain products into the other heritage
organization’s customer base and branch network. As part of
these efforts, we are working to further strengthen our service
offerings by augmenting our product portfolio, management
expertise and sales force.
We also aim to increase our penetration of our existing
customers’ new projects. For example, while we often
provide nearly 100% of the PVF products for certain customers
under MRO contracts, increased penetration of those
customers’ new downstream and midstream projects remains a
strategic priority. Initiatives are in place to deepen
relationships with engineering and construction firms and to
extend our product offering into certain niches. We recently
integrated core project groups in several locations to focus
solely on capturing new multi-year project opportunities and we
are encouraged by these initial efforts.
Expand into New Geographies and End
Markets. We intend to selectively establish
new branches in order to facilitate our expansion into new
geographies, and enter end markets where
6
Table of Contents
extreme operating environments generate high PVF product
replacement rates. We continue to evaluate establishing branches
and service and supply centers, entering into joint ventures,
and making acquisitions in select domestic and international
regions. While we believe that we are one of three PVF
distributors with branches throughout North America, there is
opportunity to expand via new branch openings in certain
geographic areas.
While our near term strategy is to continue to expand within
North America, we believe that attractive opportunities exist to
expand internationally. Though we currently maintain only one
branch outside North America, we continue to actively evaluate
opportunities to extend our offering to key international
markets, particularly in West Africa, the Middle East, Europe
and South America. The E&P opportunity and current
installed base of energy infrastructure internationally is
significantly larger than in North America and as a result we
believe represents an attractive long term opportunity both for
ourselves and our largest customers. While our near term focus
internationally will be centered on growing our business with
our already largely global customer base, the increased focus,
particularly by
foreign-owned
integrated oil companies, on efficiency, cost savings, process
improvements and core competencies has also generated potential
growth opportunities to add new customers that we will continue
to monitor closely.
We also believe opportunities exist for expansion into new and
under penetrated end markets where PVF products are used in
specialized, highly corrosive applications. These end markets
include pulp and paper, food and beverage and other general
industrial markets, in addition to other energy end markets such
as power generation, liquefied natural gas, coal, nuclear and
ethanol. We believe our extensive North American branch
platform, comprehensive PVF product offering, and reputation for
high customer service and technical expertise positions us to
participate in the growth in these end markets.
We believe there also remains an opportunity to continue to
expand into certain niche and specialty products that complement
our current extensive product offering. These products include
automated valves, instrumentation, stainless, chrome and high
nickel alloy PVF, large diameter carbon steel pipe and certain
specialty items, including steam products.
Further Penetrate the Canadian Oil Sands, Particularly the
Downstream Sector. The Canadian Oil Sands
region and its attendant downstream markets represent very
attractive growth areas for our company. Improvements in mining
and in-situ technology are driving significant investment in the
area and, according to the Alberta Energy and Utilities Board,
the Canadian Oil Sands contain an ultimately recoverable crude
bitumen resource of 315 billion barrels, with established
reserves of almost 173 billion barrels at December 2007.
Canada has the second largest recoverable crude oil reserves in
the world, behind Saudi Arabia. Capital and maintenance
investments in the Canadian Oil Sands are expected to experience
dramatic growth due to rising global energy demand and
advancements in recovery and upgrading technologies. According
to the Alberta Ministry of Energy, an estimated CDN$67 billion
(US$66.2 billion) was invested in Canadian Oil Sands projects
from 2000 to 2007. These large facilities require significant
ongoing PVF maintenance well in excess of traditional energy
infrastructure, given the extremely harsh operating environments
and highly corrosive conditions. According to the Alberta
Ministry of Energy, almost CDN$170 billion (US$168 billion) in
Canadian Oil Sands-related projects were underway or proposed as
of June 2008, which we estimate could generate significant PVF
expenditures.
While Midfield has historically focused on the upstream and
midstream sectors in Canada, we believe that a significant
opportunity exists to penetrate the Canadian Oil Sands
downstream market which includes the upgrader and refinery
markets. We are the leading provider of PVF products to the
downstream market in the U.S. and believe this sector expertise
and existing customer relationships can be utilized by our
upstream and midstream Canadian operations to grow our
downstream sector presence in this region. We also believe there
is a significant opportunity to penetrate the Canadian Oil Sands
extraction market involving in-situ recovery methods, including
SAGD (steam assisted gravity drainage) and CSS (cyclic steam
stimulation) techniques used to extract the bitumen. We have
7
Table of Contents
formed a full team overseen by senior management, have made
recent inventory and facility investments in Canada, including a
new 60,000 square foot distribution center facility located near
Edmonton, and have opened additional locations in Western Canada
to address this opportunity. Finally, we also believe that an
attractive opportunity exists to more fully penetrate the MRO
market in Canada, including refineries, petrochemical
facilities, utilities and pulp and paper and other general
industrial markets.
Pursue Selective Strategic Acquisitions and
Investments. Acquisitions have been a core
focus and acquisition integration a core competency for us. We
continue to seek opportunities to strengthen our franchise
through selective acquisitions and strategic investments. In
particular, we will consider investments that enhance our
presence in the energy infrastructure market and enable us to
leverage our existing operations, either through acquiring new
branches or by acquiring companies offering complementary
products or end market breadth. Our industry remains highly
fragmented and we believe a significant number of small and
larger acquisition opportunities remain that offer favorable
synergy potential and attractive growth characteristics.
Acquisitions have been a core focus for both the heritage
McJunkin and Red Man organizations which we plan to continue. In
addition to the business combination between McJunkin and Red
Man, since 2000 we have integrated 19 acquisitions which
collectively represented over $900 million in sales in the
year of acquisition. Important recent acquisitions include
Midfield, one of the three largest oilfield supply companies in
Canada with 68 branches, and Midway-Tristate Corporation
(“Midway”), a leading oilfield distributor primarily
serving the Rockies and Appalachia regions. Historically, our
operating scale and integration capabilities have enabled us to
realize important synergies, while minimizing execution risk,
which we intend to focus on with future acquisitions.
Increase Recurring Revenues through Integrated Supply, MRO
and Project Contracts. We have entered into
and continue to pursue integrated supply, MRO and project
contracts with certain of our customers. These arrangements
generally designate us as the sole or primary source provider of
the upstream, midstream,
and/or
downstream requirements of our customers. In certain instances
we are the sole or primary source provider for our customers
across all the energy sectors and/or North American geographies
within which the customer operates.
Our customers have, over time, increasingly moved toward
centralized PVF procurement management at the corporate level
rather than at individual local units. While these developments
are partly due to significant consolidation among our customer
base, sole or primary sourcing arrangements allow customers to
focus on their core operations and provide economic benefits by
generating immediate savings for the customer through
administrative cost and working capital reductions, while
providing for increased volumes, more stable revenue streams and
longer term visibility for us. We believe we are well positioned
to obtain these arrangements due to our (1) geographically
diverse and strategically located branch network,
(2) experience, technical expertise and reputation for
premier customer service operating across all segments of the
energy industry, (3) breadth of available product lines and
value added services, and (4) existing deep relationships
with customers and suppliers.
We also have exclusive and non-exclusive MRO contracts and new
project contracts in place. Our customers are increasing their
maintenance and capital spending, which is being driven by aging
infrastructure, their increased utilization of existing
facilities and the decreasing quality of energy feedstocks. Our
customers benefit from MRO agreements through lower inventory
investment and the reduction of transaction costs associated
with the elimination of the bid submission process, and our
company benefits from the recurring revenue stream that occurs
with an MRO contract in place. We believe there are additional
opportunities to utilize MRO arrangements for servicing the
requirements of our customers and we are actively pursuing such
agreements.
Continued Focus on Operational
Efficiency. We strive for continued
operational excellence. Our branch managers, regional management
and corporate leadership team continually examine branch
profitability, working capital management, and return on managed
assets and utilize this
8
Table of Contents
information to optimize national, regional and local strategies,
reduce operating costs and maximize cash flow generation. As
part of this effort, management incentives are centered on
meeting EBITDA and return on assets targets.
In order to improve efficiencies and profitability, we work to
leverage operational best practices, optimize our vendor
relationships, purchasing, and inventory levels, and source
inventory internationally when appropriate. As part of this
strategy, we have integrated our heritage purchasing functions
and believe we have developed strong relationships with vendors
that value both our national footprint and volume purchasing
capabilities. Because of this, we are often considered the
preferred distribution channel. As we continue to consolidate
our vendor relationships, we plan to devote additional resources
to assist our customers in identifying products that improve
their processes, day-to-day operations and overall operating
efficiencies. We believe that offering these value added
services maximizes our value to our customers and helps
differentiate us from competitors.
Risk
Factors
While our business has grown in recent years, we face various
risks. For example, decreased capital expenditures in the energy
industry could lead to decreased demand for our products and
services and could therefore have a material adverse effect on
our business, results of operations and financial condition. We
face other risks including, among others, fluctuations in steel
prices, economic downturns, our lack of long-term contracts with
many of our customers and suppliers and the absence of minimum
purchase obligations under the long-term customer contracts that
we do have, and risks associated with the integration of our
predecessor companies, McJunkin and Red Man. Additionally, we
have significant indebtedness. As of June 26, 2008, we had
total debt outstanding of $1,284.7 million and we had
borrowing availability of $542.5 million under our credit
facilities. Our significant indebtedness could limit our ability
to obtain additional financing, our ability to use operating
cash flow in other areas of our business, and our ability to
compete with other companies that are less leveraged, and could
have other negative consequences. See “Risk Factors”
for a more detailed discussion of these risks and other risks
associated with our business.
Recent
Developments
On July 31, 2008, we acquired the remaining approximate 49%
minority voting interest in our Canadian subsidiary, Midfield
Supply ULC, one of the three largest oilfield supply companies
in Canada with 68 branches, for total payments of
approximately $135.67 million.
On September 5, 2008, we entered into an agreement to
acquire LaBarge Pipe & Steel Company (“LaBarge”).
LaBarge is engaged in the sale and distribution of carbon steel
pipes (predominantly large diameter pipe) for use primarily in
the North American energy infrastructure market and had net
sales revenue of $200.6 million in 2007. We agreed to pay $160
million for LaBarge on a debt-free,
cash-free
basis, subject to a working capital adjustment and customary
indemnification provisions, plus up to an additional $45 million
if LaBarge meets certain EBITDA targets in 2008 and 2009. The
transaction is expected to close early in the fourth quarter of
2008 and is subject to the satisfaction or waiver of several
customary closing conditions, including regulatory approval.
9
Table of Contents
Organizational
Structure
The following chart illustrates our organizational structure
upon the completion of this offering:
| * | PVF Holdings LLC is offering all of the shares to be sold in this offering. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain of our directors and executive officers. See the table on page 139 for information regarding the amount of offering proceeds to be distributed to each of our directors and executive officers. |
10
Table of Contents
The
Offering
| Issuer | McJunkin Red Man Holding Corporation. | |
| Common stock offered by the selling stockholder | shares. | |
| Option to purchase additional shares of common stock from the selling stockholder | shares. | |
| Common stock outstanding immediately after the offering | shares. | |
| Use of proceeds | The proceeds from the sale of shares of our common stock in the offering are solely for the account of PVF Holdings LLC, the selling stockholder. We will not receive any proceeds from the sale of our common stock by the selling stockholder. See “Use of Proceeds”. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain members of our board of directors and senior management team and various of their affiliates. See “Principal and Selling Stockholders” and “Underwriting”. Additionally, affiliates of Goldman, Sachs & Co. own a majority interest in PVF Holdings LLC. Accordingly, such affiliates will receive a significant portion of the proceeds from this offering. See “Underwriting”. | |
| Proposed New York Stock Exchange symbol | “MRC”. |
| Risk Factors | See “Risk Factors” beginning on page 18 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common |
stock.
The number of shares of common stock to be outstanding after the
offering:
| • | gives effect to a for split of our common stock to be effected prior to the pricing of this offering; | |
| • | excludes shares of common stock issuable upon the exercise of stock options granted to certain of our employees and directors pursuant to the McJ Holding Corporation 2007 Stock Option Plan; and | |
| • | excludes shares of non-vested restricted stock awarded to certain of our employees pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan. |
McJunkin Red Man Holding Corporation (formerly known as McJ
Holding Corporation) was incorporated in Delaware on
November 20, 2006. Our principal executive offices are
located at 8023 East 63rd Place, Tulsa, Oklahoma 74133 and
835 Hillcrest Drive, Charleston, West Virginia 25311. Our
telephone number is
(918) 250-8541.
Our website address is www.mcjunkinredman.com. Information
contained on our website is not a part of this prospectus.
The data included in this prospectus regarding the industrial
and oilfield pipe, valves and fittings distribution industry,
including trends in the market and our position and the position
of our competitors within this industry, are based on our
estimates, which have been derived from management’s
knowledge and experience in the areas in which our business
operates, and
11
Table of Contents
information obtained from customers, suppliers, trade and
business organizations, internal research, publicly available
information, industry publications and surveys and other
contacts in the areas in which our business operates. We have
also cited information compiled by industry publications,
governmental agencies and publicly available sources.
Depending on market conditions at the time of pricing of this
offering and other considerations, the selling stockholder may
sell fewer or more shares than the number set forth on the cover
page of this prospectus.
In this prospectus, unless otherwise indicated, Canadian dollar
amounts are converted into U.S. dollar amounts at the
exchange rate in effect on June 26, 2008, the last day of
our second quarter.
12
Table of Contents
Summary
Consolidated Financial Information
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of the entity now known as McJunkin Red
Man Corporation (then known as McJunkin Corporation) (the
“GS Acquisition”). In this prospectus, the term
“Predecessor” refers to McJunkin Corporation and its
subsidiaries prior to January 31, 2007 and the term
“Successor” refers to the entity now known as McJunkin
Red Man Holding Corporation and its subsidiaries on and after
January 31, 2007. As a result of the change in McJunkin
Corporation’s basis of accounting in connection with the GS
Acquisition, Predecessor’s financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successor’s financial data for the eleven
months ended December 31, 2007 and subsequent periods.
McJunkin Corporation completed a business combination
transaction with Red Man Pipe & Supply Co. (the
“Red Man Transaction”) on October 31, 2007. At
that time McJunkin Corporation was renamed McJunkin Red Man
Corporation. Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man Pipe & Supply Co. (“Red Man”) for the
two months after the business combination on October 31,
2007. Accordingly, our results for the 11 months ended
December 31, 2007 are not comparable to McJunkin’s
results for the years ended December 31, 2006 and 2005.
The summary consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the one month ended January 30, 2007
(Predecessor) and the eleven months ended December 31,
2007, and the summary consolidated financial information
presented below under the caption Balance Sheet Data as of
December 31, 2007, have been derived from the consolidated
financial statements of McJunkin Red Man Holding Corporation
included elsewhere in this prospectus that have been audited by
Ernst & Young LLP, independent registered public
accounting firm. The summary consolidated financial information
presented below as of and for the years ended December 31,
2005 and 2006 has been derived from the consolidated financial
statements of our predecessor, McJunkin Corporation, included
elsewhere in this prospectus that have been audited by Schneider
Downs & Co., Inc., independent registered public
accounting firm.
The summary unaudited interim consolidated financial information
presented below under the captions Statement of Operations Data
and Other Financial Data for the six months ended June 26,
2008 and the five months ended June 28, 2007, and the
summary unaudited consolidated financial information presented
below under the caption Balance Sheet Data as of June 26,
2008, have been derived from our unaudited interim consolidated
financial statements, which are included elsewhere in this
prospectus and have been prepared on the same basis as our
audited consolidated financial statements. In the opinion of
management, the interim data reflect all adjustments, consisting
of normal and recurring adjustments, necessary for a fair
presentation of results for these periods. Operating results for
the six months ended June 26, 2008 include the results of
McJunkin Corporation and Red Man for the full period. Operating
results for the five-month period ending June 28, 2007 do
not reflect the operating results of Red Man, as the Red Man
Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 are not comparable to the results for the five months ended
June 28, 2007. In addition, operating results for the
six-month period ended June 26, 2008 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2008.
The summary unaudited pro forma consolidated statements of
operations data for the six months ended June 28, 2007 and
the year ended December 31, 2007 give pro forma effect to
(1) the GS Acquisition and the Red Man Transaction, as if
each such transaction had occurred on January 1, 2007, and
(2) our entering into our $575 million term loan
facility and our $700 million revolving credit facility, as
if we had entered into these facilities on January 1, 2007.
The pro forma statement of operations data for the six months
ended June 28, 2007 includes McJunkin Corporation’s
results for the one month ended January 30, 2007 (before
the GS
13
Table of Contents
Acquisition), McJunkin Red Man Holding Corporation’s
results for the five months ended June 28, 2007 (before the
Red Man Transaction), and Red Man’s results for the six
months ended April 30, 2007. The pro forma statement of
operations data for the year ended December 31, 2007
includes McJunkin Corporation’s results for the one month
ended January 30, 2007, McJunkin Red Man Holding
Corporation’s results for the eleven months ended
December 31, 2007 (reflecting the results of McJunkin
Corporation for the full eleven months but excluding the results
of Red Man for the two months ended December 31, 2007), and
Red Man’s results for the twelve months ended
October 31, 2007.
All information in this prospectus assumes that in conjunction
with the initial public offering, we will effect
a
for stock
split.
The historical data presented below has been derived from
financial statements that have been prepared using United States
generally accepted accounting principles, or GAAP. This data
should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and
related notes included elsewhere in this prospectus.
| Predecessor | Successor | Pro Forma | Successor | ||||||||||||||||
|
One Month |
Five Months |
Six Months |
Six Months |
||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
||||||||||||||||
|
January 30, |
June 28, |
June 28, |
June 26, |
||||||||||||||||
|
2007
|
2007
|
2007
|
2008
|
||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
| (In millions, except per share and share data) | |||||||||||||||||||
|
Statement of Operations Data:
|
|||||||||||||||||||
|
Sales
|
$ | 142.5 | $ | 784.9 | $ | 1,862.1 | $ | 2,196.0 | |||||||||||
|
Costs and expenses
|
|||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
114.6 | 635.9 | 1,529.9 | 1,803.8 | |||||||||||||||
|
Selling, general and administrative expenses
|
14.6 | 80.7 | 169.2 | 200.1 | |||||||||||||||
|
Depreciation and amortization
|
0.3 | 1.7 | 5.4 | 5.2 | |||||||||||||||
|
Amortization of intangibles(1)
|
— | 4.6 | 12.3 | 15.6 | |||||||||||||||
|
Profit sharing
|
1.3 | 5.6 | 11.3 | 13.5 | |||||||||||||||
|
Stock-based compensation
|
— | 1.3 | 2.3 | 3.3 | |||||||||||||||
|
Total costs and expenses
|
130.8 | 729.8 | 1,730.4 | 2,041.5 | |||||||||||||||
|
Operating income
|
11.7 | 55.1 | 131.7 | 154.5 | |||||||||||||||
|
Other income (expense)
|
|||||||||||||||||||
|
Interest expense
|
(0.1 | ) | (24.3 | ) | (30.4 | ) | (35.0 | ) | |||||||||||
|
Minority interests
|
(0.4 | ) | — | (0.1 | ) | (0.1 | ) | ||||||||||||
|
Other, net
|
— | (0.9 | ) | (0.7 | ) | (0.3 | ) | ||||||||||||
|
Total other income (expense)
|
(0.5 | ) | (25.2 | ) | (31.2 | ) | (35.4 | ) | |||||||||||
|
Income before income taxes
|
11.2 | 29.9 | 100.5 | 119.1 | |||||||||||||||
|
Income tax expense
|
4.6 | 12.3 | 37.7 | 43.2 | |||||||||||||||
|
Net income(2)
|
$ | 6.6 | $ | 17.6 | $ | 62.8 | $ | 75.9 | |||||||||||
|
Pro forma earnings per share, basic
|
|||||||||||||||||||
|
Pro forma earnings per share, diluted
|
|||||||||||||||||||
|
Pro forma weighted average shares, basic
|
|||||||||||||||||||
|
Pro forma weighted average shares, diluted
|
|||||||||||||||||||
|
Other Financial Data:
|
|||||||||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 6.6 | $ | 1.9 | — | $ | 70.5 | ||||||||||||
|
Net cash provided by (used in) investing activities
|
(0.2 | ) | (933.3 | ) | — | (16.4 | ) | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(8.3 | ) | 945.9 | — | (55.2 | ) | |||||||||||||
|
Adjusted EBITDA(3)
|
26.0 | 151.3 | 163.4 | 249.9 | |||||||||||||||
14
Table of Contents
| Predecessor | Successor | Pro Forma | ||||||||||||||||||||
|
Year |
Year |
One Month |
Eleven Months |
Year |
||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
||||||||||||||||||
|
December 31, |
December 31, |
January 30, |
December 31, |
December 31, |
||||||||||||||||||
|
2005
|
2006
|
2007
|
2007
|
2007
|
||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||
| (In millions, except per share and share data) | ||||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||||
|
Sales
|
$ | 1,445.8 | $ | 1,713.7 | $ | 142.5 | $ | 2,124.9 | $ | 3,952.7 | ||||||||||||
|
Costs and expenses
|
||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
1,177.1 | 1,394.3 | 114.6 | 1,734.6 | 3,229.2 | |||||||||||||||||
|
Selling, general and administrative expenses
|
155.7 | 173.9 | 14.6 | 201.9 | 365.7 | |||||||||||||||||
|
Depreciation and amortization
|
3.7 | 3.9 | 0.3 | 5.4 | 10.8 | |||||||||||||||||
|
Amortization of intangibles
|
0.3 | 0.3 | — | 10.5 | (1) | 24.6 | (1) | |||||||||||||||
|
Profit sharing
|
13.1 | 15.1 | 1.3 | 13.2 | 13.5 | |||||||||||||||||
|
Stock-based compensation
|
— | — | — | 3.0 | 2.9 | |||||||||||||||||
|
Total costs and expenses
|
1,349.9 | 1,587.5 | 130.8 | 1,968.6 | 3,646.7 | |||||||||||||||||
|
Operating income
|
95.9 | 126.2 | 11.7 | 156.3 | 306.0 | |||||||||||||||||
|
Other income (expense)
|
||||||||||||||||||||||
|
Interest expense
|
(2.7 | ) | (2.8 | ) | (0.1 | ) | (61.7 | ) | (60.8 | ) | ||||||||||||
|
Minority interests
|
(2.8 | ) | (4.1 | ) | (0.4 | ) | (0.1 | ) | 0.0 | |||||||||||||
|
Other, net
|
(1.3 | ) | (1.4 | ) | — | (1.1 | ) | (3.9 | ) | |||||||||||||
|
Total other income (expense)
|
(6.8 | ) | (8.3 | ) | (0.5 | ) | (62.9 | ) | (64.7 | ) | ||||||||||||
|
Income before income taxes
|
89.1 | 117.9 | 11.2 | 93.4 | 241.3 | |||||||||||||||||
|
Income tax expense
|
36.6 | 48.3 | 4.6 | 36.5 | 90.5 | |||||||||||||||||
|
Net income(2)
|
$ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | $ | 150.8 | ||||||||||||
|
Pro forma earnings per share, basic
|
||||||||||||||||||||||
|
Pro forma earnings per share, diluted
|
||||||||||||||||||||||
|
Pro forma weighted average shares, basic
|
||||||||||||||||||||||
|
Pro forma weighted average shares, diluted
|
||||||||||||||||||||||
|
Other Financial Data:
|
||||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | 30.4 | $ | 18.4 | $ | 6.6 | $ | 110.2 | — | |||||||||||||
|
Net cash (used in) investing activities
|
(6.7 | ) | (3.3 | ) | (0.2 | ) | (1,788.9 | ) | — | |||||||||||||
|
Net cash (used in) provided by financing activities
|
(21.1 | ) | (17.2 | ) | (8.3 | ) | 1,687.2 | — | ||||||||||||||
|
Adjusted EBITDA(3)
|
115.6 | 139.1 | 26.0 | 344.9 | 370.4 | |||||||||||||||||
| Predecessor | Successor | ||||||||||||||||||||
|
Actual |
As Adjusted(4) |
||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
June 26, |
June 26, |
|||||||||||||||||
|
2005
|
2006
|
2007
|
2008
|
2008
|
|||||||||||||||||
| (In millions) | |||||||||||||||||||||
|
Balance Sheet Data:
|
|||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 5.9 | $ | 3.7 | $ | 10.1 | $ | 8.8 | $ | 8.8 | |||||||||||
|
Working capital
|
129.0 | 212.3 | 663.5 | 686.1 | 686.1 | ||||||||||||||||
|
Total assets
|
434.0 | 481.0 | 2,925.0 | 3,294.3 | 3,294.3 | ||||||||||||||||
|
Total debt, including current portion
|
3.1 | 13.0 | 868.4 | 1,284.7 | 1,390.1 | ||||||||||||||||
|
Minority interest in subsidiaries
|
11.5 | 15.6 | 100.7 | 95.2 | — | ||||||||||||||||
|
Stockholders’ equity
|
168.8 | 242.6 | 1,210.0 | 824.4 | 819.0 | ||||||||||||||||
| (1) | Represents amortization of intangibles included as a result of the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction, plus associated transaction fees. |
15
Table of Contents
| (2) | The following are certain charges and costs incurred in each of the relevant periods that are meaningful to understanding our net income and in evaluating our performance: |
| Predecessor | Successor | Pro Forma | Successor | Pro Forma | Successor | |||||||||||||||||||||||||||
|
One |
Eleven |
Five |
Six |
Six |
||||||||||||||||||||||||||||
|
Year |
Year |
Month |
Months |
Year |
Months |
Months |
Months |
|||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||||||||||||||||||
|
December 31, |
December 31, |
January 30, |
December 31, |
December 31, |
June 28, |
June 28, |
June 26, |
|||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2007
|
2007
|
2007
|
2007
|
2008
|
|||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
|
LIFO expense
|
$ | 20.2 | $ | 12.2 | — | $ | 10.3 | $ | 10.3 | $ | 3.0 | $ | 3.0 | $ | 55.6 | |||||||||||||||||
|
Amortization of intangibles
|
0.3 | 0.3 | — | 10.5 | 24.6 | 4.6 | 12.3 | 15.6 | ||||||||||||||||||||||||
|
Amortization of financing fees
|
— | — | — | 8.0 | 3.8 | 1.6 | 1.9 | 2.3 | ||||||||||||||||||||||||
| (3) | Adjusted EBITDA is used in our senior secured term loan facility, senior secured revolving credit facility, and junior term loan facility in the ratio of consolidated total debt to consolidated adjusted EBITDA, and is also used in our senior secured term loan facility and junior term loan facility in the ratio of consolidated adjusted EBITDA to consolidated interest expense. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Revolving Credit Facility and Term Loan Facility — Covenants”. Adjusted EBITDA is defined in our credit facilities as net income plus depreciation and amortization, amortization of intangibles, interest expense, income tax expense, stock-based compensation, LIFO expense, certain non-recurring and transaction-related expenses (including transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction), minority interest, charges in connection with an employee profit sharing plan for certain employees of our subsidiary Midfield Supply ULC, and certain other adjustments, including franchise taxes and pro forma adjustments relating to acquisitions. We present Adjusted EBITDA because it is a material component of material covenants in our senior secured term loan facility and junior term loan facility. In addition, we believe it is a useful indicator of our operating performance. We believe this for the following reasons: |
| • | Our management uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections, as well as for determining a significant portion of the compensation of our executive officers; | |
| • | Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items, such as interest expense, income tax expense, and depreciation and amortization, that can vary substantially from company to company depending upon their financing and accounting methods, the book value of their assets, their capital structures and the method by which their assets were acquired; and | |
| • | securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies. |
| Particularly, we believe that Adjusted EBITDA is a useful indicator of our operating performance because: |
| • | Our lenders believed Adjusted EBITDA was the appropriate performance measure for the key operational covenants in our senior secured term loan facility and junior term loan facility (see “Description of Our Indebtedness”); | |
| • | Adjusted EBITDA measures our company’s operating performance without regard to LIFO expense, which is high due to recent inflation and therefore reflects an overstatement of the cost of goods sold over recent periods, and we believe that this adjustment assists in comparing us to our peers, because many of our peers do not use the LIFO method of inventory valuation; and | |
| • | Adjusted EBITDA measures our company’s operating performance without regard to non-recurring and transaction-related expenses incurred in connection with business combination transactions such as the Red Man Transaction. |
| Adjusted EBITDA, however, does not represent and should not be considered as an alternative to net income, cash flow from operations, or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similar measures reported by other companies because other companies may not calculate Adjusted EBITDA in the same manner as we do. Although we use Adjusted EBITDA as a measure to assess the operating performance of our business, Adjusted EBITDA has significant limitations as an analytical tool because it excludes certain material costs. For example, it does not include interest expense, which has been a necessary element of our costs. Because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue. In addition, the omission of the amortization expense associated with our intangible assets further limits the usefulness of this measure. Adjusted EBITDA also does not include the payment of certain taxes, which is also a necessary element of our operations. Furthermore, Adjusted EBITDA does not account for LIFO expense, and therefore to the extent that recently purchased inventory accounts for a relatively large portion of our sales, Adjusted EBITDA may overstate our operating performance. Because Adjusted EBITDA does not account for certain expenses, its utility as a measure of our operating performance has material limitations. Because of these limitations management does not view Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income and sales, to measure operating performance. |
16
Table of Contents
| The following table presents a reconciliation of Adjusted EBITDA to Net income: |
| Predecessor | Successor | Pro Forma | Successor | Pro Forma | Successor | |||||||||||||||||||||||||||
|
One |
Eleven |
Five |
Six |
Six |
||||||||||||||||||||||||||||
|
Year |
Year |
Month |
Months |
Year |
Months |
Months |
Months |
|||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||||||||||||||||||
|
December 31, |
December 31, |
January 30, |
December 31, |
December 31, |
June 28, |
June 28, |
June 26, |
|||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2007
|
2007
|
2007
|
2007
|
2008
|
|||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Net income
|
$ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | $ | 150.8 | $ | 17.6 | $ | 62.8 | $ | 75.9 | ||||||||||||||||
|
Plus:
|
||||||||||||||||||||||||||||||||
|
Interest expense
|
2.7 | 2.8 | 0.1 | 61.7 | 60.8 | 24.3 | 30.4 | 35.0 | ||||||||||||||||||||||||
|
Income tax expense
|
36.6 | 48.3 | 4.6 | 36.5 | 90.5 | 12.3 | 37.7 | 43.2 | ||||||||||||||||||||||||
|
Amortization of intangibles
|
0.3 | 0.3 | — | 10.5 | 24.6 | 4.6 | 12.3 | 15.6 | ||||||||||||||||||||||||
|
Depreciation and amortization
|
3.7 | 3.9 | 0.3 | 5.4 | 10.8 | 1.7 | 5.4 | 5.2 | ||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | — | 3.0 | 2.9 | 1.3 | 2.3 | 3.3 | ||||||||||||||||||||||||
|
Red Man pre-merger contribution
|
— | — | 13.1 | 142.2 | — | 74.5 | — | — | ||||||||||||||||||||||||
|
Midway pre-acquisition contribution
|
— | — | 1.0 | 2.8 | 3.8 | 2.8 | — | — | ||||||||||||||||||||||||
|
LIFO expense
|
20.2 | 12.2 | — | 10.3 | 10.3 | 3.0 | 3.0 | 55.6 | ||||||||||||||||||||||||
|
Non-recurring and transaction-related expenses(a)
|
— | 0.4 | — | 12.7 | 12.7 | 9.1 | 9.1 | 11.9 | ||||||||||||||||||||||||
|
Minority interest / Midfield employee profit sharing plan
|
— | — | 0.4 | 0.9 | 1.3 | — | 0.4 | 3.1 | ||||||||||||||||||||||||
|
Transaction cost savings
|
— | — | — | 1.1 | 1.1 | — | — | — | ||||||||||||||||||||||||
|
Other(b)
|
(0.4 | ) | 1.6 | (0.1 | ) | 0.9 | 0.8 | 0.1 | — | 1.1 | ||||||||||||||||||||||
|
Adjusted EBITDA
|
$ | 115.6 | $ | 139.1 | $ | 26.0 | $ | 344.9 | $ | 370.4 | $ | 151.3 | $ | 163.4 | $ | 249.9 | ||||||||||||||||
|
(a)
|
Includes transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction. | |
|
(b)
|
Includes franchise tax expense, certain consulting fees, gains and losses on the sale of assets and other nonrecurring items. |
In addition, we have also presented in this prospectus our
EBITDA for the eleven months ended December 31, 2007 and
Red Man’s EBITDA for the twelve months ended
December 31, 2007. The most comparable GAAP measure to
EBITDA is Net income. We calculate our EBITDA for the eleven
months ended December 31, 2007 ($171 million) by
adding our Net income for this period ($56.9 million) with
our interest expense ($61.7 million), income tax expense
($36.5 million), amortization of intangibles
($10.5 million), and depreciation and amortization
($5.4 million) for the same period. We calculate Red
Man’s EBITDA for the twelve months ended October 31,
2007 ($170 million) by adding Red Man’s Net income for
this period ($82.2 million) with Red Man’s interest
expense ($20.6 million), income tax expense
($57.6 million), and depreciation and amortization
($9.7 million) for the same period.
We present EBITDA because we believe it is a useful indicator of
our operating performance, as described above with respect to
Adjusted EBITDA. EBITDA, however, does not represent and should
not be considered an alternative to measures of financial
performance calculated and presented in accordance with GAAP, as
described above with respect to Adjusted EBITDA.
|
(4)Adjusted to give effect
(1) to an estimated $5.4 million of expenses incurred
in connection with this offering and (2) for our purchase
on July 31, 2008 of the approximate 49% minority voting
interest in Midfield Supply ULC, one of our subsidiaries. Our
total debt, including current portion, would increase by
$5.4 million due to
offering-related
expenses based on our estimate of such expenses. In connection
with our purchase of the minority voting interest in Midfield,
our total debt, including current portion, increased from
$1,284.7 million to $1,384.7 million because we
incurred an additional $100 million of debt in order to
fund the purchase. Our minority interest in subsidiaries was
eliminated upon consummation of the purchase because we had no
minority interest in subsidiaries other than the purchased
interest. Our stockholders’ equity has decreased from
$824.4 million to $819.0 million, or by
$5.4 million, on account of the $5.4 million of
offering-related expenses.
|
17
Table of Contents
RISK
FACTORS
You should carefully consider each of the following risks and
all of the information set forth in this prospectus before
deciding to invest in our common stock. If any of the following
risks and uncertainties develops into actual events, our
business, results of operations and financial condition could be
materially and adversely affected. In that case, the price of
our common stock could decline and you could lose some or all of
your investment.
Risks Related to
Our Business
Decreased
capital expenditures in the energy industry, which can result
from decreased oil and natural gas prices among other things,
can materially and adversely affect our business, results of
operations and financial condition.
A large portion of our revenue depends upon the level of capital
expenditures in the oil and gas industry, including capital
expenditures in connection with exploration, drilling,
production, gathering, transportation, refining and processing
operations. Demand for our products and services is particularly
sensitive to the level of exploration, development and
production activity of, and the corresponding capital
expenditures by, oil and natural gas companies. A material
decline in oil or natural gas prices could depress levels of
exploration, development and production activity, and therefore
could lead to a decrease in our customers’ capital
expenditures. If our customers’ capital expenditures
decline, our business will suffer.
Prices for oil and natural gas are subject to large fluctuations
in response to relatively minor changes in the supply of and
demand for oil and natural gas, market uncertainty, and a
variety of other factors that are beyond our control. Oil and
natural gas prices are currently at levels higher than
historical long term averages, and worldwide oil and gas
drilling and exploration activity is also at very high levels. A
decline in oil and natural gas prices could result in decreased
capital expenditures in the oil and gas industry, and could
therefore have a material adverse effect on our business,
results of operations and financial condition.
Many factors affect the supply of and demand for energy and
therefore influence oil and gas prices, including:
| • | the level of domestic and worldwide oil and gas production and inventories; | |
| • | the level of drilling activity and the availability of attractive oil and gas field prospects, which may be affected by governmental actions, such as regulatory actions or legislation, or other restrictions on drilling, including those related to environmental concerns; | |
| • | the discovery rate of new oil and gas reserves and the expected cost of developing new reserves; | |
| • | the actual cost of finding and producing oil and gas; | |
| • | depletion rates; | |
| • | domestic and worldwide refinery overcapacity or undercapacity and utilization rates; | |
| • | the availability of transportation infrastructure and refining capacity; | |
| • | increases in the cost of the products that we provide to the oil and gas industry, which may result from increases in the cost of raw materials such as steel; | |
| • | shifts in end-customer preferences toward fuel efficiency and the use of natural gas; | |
| • | the economic and/or political attractiveness of alternative fuels, such as coal, hydrocarbon, wind, solar energy and biomass-based fuels; |
18
Table of Contents
| • | increases in oil and gas prices and/or historically high oil and gas prices, which could lower demand for oil and gas products; | |
| • | worldwide economic activity including growth in countries that are not members of the Organisation for Economic Co-operation and Development (“non-OECD countries”), including China and India; | |
| • | interest rates and the cost of capital; | |
| • | national government policies, including government policies which could nationalize or expropriate oil and gas exploration, production, refining or transportation assets; | |
| • | the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and prices for oil; | |
| • | the impact of armed hostilities, or the threat or perception of armed hostilities; | |
| • | pricing and other actions taken by competitors that impact the market; | |
| • | environmental regulation; | |
| • | technological advances; | |
| • | global weather conditions and natural disasters; | |
| • | an increase in the value of the U.S. dollar relative to foreign currencies; and | |
| • | tax policies. |
Oil and gas prices have been and are expected to remain
volatile. This volatility has historically caused oil and gas
companies to change their strategies and expenditure levels from
year to year. We have experienced in the past, and we will
likely experience in the future, significant fluctuations in
operating results based on these changes. In particular, such
volatility in the oil and gas markets could materially adversely
affect our business, results of operations and financial
condition.
Our business,
results of operations and financial condition may be materially
and adversely affected by general economic
conditions.
Many aspects of our business, including demand for our products
and the pricing and availability of supplies, are affected by
U.S. and global general economic conditions. General
economic conditions and predictions regarding future economic
conditions also affect our forecasts, and a decrease in demand
for our products or other adverse effects resulting from an
economic downturn may cause us to fail to achieve our
anticipated financial results. General economic factors beyond
our control that affect our business and end markets include
interest rates, recession, inflation, deflation, consumer credit
availability, consumer debt levels, performance of housing
markets, energy costs, tax rates and policy, unemployment rates,
commencement or escalation of war or hostilities, the threat or
possibility of war, terrorism or other global or national
unrest, political or financial instability, and other matters
that influence spending by our customers. Increasing volatility
in financial markets may cause these factors to change with a
greater degree of frequency or increase in magnitude. An
economic downturn could adversely affect our business, results
of operations and financial condition and could also lead to a
decrease in the market price of our common stock.
We may be
unable to compete successfully with other companies in our
industry.
We sell our products and services in very competitive markets.
In some cases, we compete with large oilfield services providers
with substantial resources and smaller regional players that may
increasingly be willing to provide similar products and services
at lower prices. Our revenues and earnings could be adversely
affected by competitive actions such as price reductions,
improved delivery and other actions by competitors. Our
business, results of operations and financial condition could be
materially and adversely affected to the extent that our
competitors are successful in
19
Table of Contents
reducing our customers’ purchases of our products and
services. Competition could also cause us to lower our prices
which could reduce our margins and profitability.
Demand for our
products could decrease if manufacturers of our products were to
sell a substantial amount of goods directly to end users in the
markets we serve.
We do not manufacture any of the products that we distribute.
Historically, users of PVF and related products in the United
States, in contrast to users of PVF and related products outside
the United States, have purchased such products through
distributors and not directly from manufacturers. If customers
were to purchase the products that we sell directly from
manufacturers, or if manufacturers sought to increase their
efforts to sell directly to end users, our business, results of
operations and financial condition could be materially and
adversely affected. These or other developments that remove us
from, or limit our role in, the distribution chain, may harm our
competitive position in the marketplace and reduce our sales and
earnings.
We may
experience unexpected supply shortages.
We distribute products from a wide variety of manufacturers and
suppliers. Nevertheless, in the future we may have difficulty
obtaining the products we need from suppliers and manufacturers
as a result of unexpected demand or production difficulties.
Also, products may not be available to us in quantities
sufficient to meet our customer demand. Our inability to obtain
sufficient products from suppliers and manufacturers, in
sufficient quantities, could have a material adverse effect on
our business, results of operations and financial condition.
We may
experience cost increases by suppliers, which we may be unable
to pass on to our customers.
In the future, we may face supply cost increases due to, among
other things, unexpected increases in demand for supplies,
decreases in production of supplies or increases in the cost of
raw materials or transportation. Our inability to pass supply
price increases on to our customers could have a material
adverse effect on our business, results of operations and
financial condition. For example, we may be unable to pass
increased supply costs on to our customers because significant
amounts of our sales are derived from stocking program
arrangements, contracts and maintenance, repair and operations
(“MRO”) arrangements which provide our customers time
limited price protection, which may obligate us to sell products
at a set price for a specific period. In addition, if supply
costs increase, our customers may elect to purchase smaller
amounts of products or may purchase products from other
distributors. While we may be able to work with our customers to
reduce the effects of unforeseen price increases because of our
relationships with them, we may not be able to reduce the
effects of such cost increases. In addition, to the extent that
competition leads to reduced purchases of our products or
services or reduction of our prices, and such reductions occur
concurrently with increases in the prices for selected
commodities which we use in our operations, including steel,
nickel and molybdenum, the adverse effects described above would
likely be exacerbated and could result in a prolonged downturn
in profitability.
We do not have
contracts with most of our suppliers. The loss of a significant
supplier would require us to rely more heavily on our other
existing suppliers or to develop relationships with new
suppliers, and such a loss may have a material adverse effect on
our business, results of operations and financial
condition.
Given the nature of our business, and consistent with industry
practice, we do not have contracts with most of our suppliers.
Purchases are generally made through purchase orders. Therefore,
most of our suppliers have the ability to terminate their
relationships with us at any time. Approximately 32% of our
total purchases during 2007 on a pro forma basis were from our
ten largest suppliers. Before giving pro forma effect to the Red
Man Transaction, approximately 30.7% of our total purchases
during 2007 were from our ten largest suppliers. Although we
believe there are numerous
20
Table of Contents
manufacturers with the capacity to supply our products, the loss
of one or more of our major suppliers could have a material
adverse effect on our business, results of operations and
financial condition. Such a loss would require us to rely more
heavily on our other existing suppliers or develop relationships
with new suppliers, which may cause us to pay higher prices for
products due to, among other things, a loss of volume discount
benefits currently obtained from our major suppliers.
Price
reductions by suppliers of products sold by us could cause the
value of our inventory to decline. Also, such price reductions
could cause our customers to demand lower sales prices for these
products, possibly decreasing our margins and profitability on
sales to the extent that our inventory of such products was
purchased at the higher prices prior to supplier price
reductions and we are required to sell such products to our
customers at the lower market prices.
The value of our inventory could decline as a result of price
reductions by manufacturers of products sold by us. We believe
the risk of a material reduction in the value of our inventory
is mitigated due to the fact that we do not carry a significant
amount of speculative inventory, our significant supply
commitments are generally for relatively short-term periods, and
we have been selling the same types of products to our customers
for many years (and therefore do not expect that our inventory
will become obsolete). However, there is no assurance that a
substantial decline in product prices would not result in a
write-down of our inventory value. Such a write-down could have
a material adverse effect on our financial condition.
Also, decreases in the market prices of products sold by us
could cause customers to demand lower sale prices from us. These
price reductions could reduce our margins and profitability on
sales with respect to such lower-priced products to the extent
that we purchase such products at the higher prices prior to
supplier price reductions and we are required to sell such
products to our customers at the lower market prices. Reductions
in our margins and profitability on sales could have a material
adverse effect on our business, results of operations, and
financial condition.
A substantial
decrease in the price of steel could significantly lower our
gross profit.
We distribute many products manufactured from steel and, as a
result, our business is significantly affected by the price and
supply of steel. When steel prices are lower, the prices that we
charge customers for products may decline, which affects our
gross profit. The steel industry as a whole is cyclical and at
times pricing and availability of steel can be volatile due to
numerous factors beyond our control, including general domestic
and international economic conditions, labor costs, sales
levels, competition, consolidation of steel producers,
fluctuations in the costs of raw materials necessary to produce
steel, import duties and tariffs and currency exchange rates.
This volatility can significantly affect the availability and
cost of steel for our suppliers. When steel prices decline,
customer demands for lower prices and our competitors’
responses to those demands could result in lower sale prices
and, consequently, lower gross profit.
If steel
prices rise, we may be unable to pass along the cost increases
to our customers.
We maintain inventories of steel products to accommodate the
lead time requirements of our customers. Accordingly, we
purchase steel products in an effort to maintain our inventory
at levels that we believe to be appropriate to satisfy the
anticipated needs of our customers based upon historic buying
practices, contracts with customers and market conditions. Our
commitments to purchase steel products are generally at
prevailing market prices in effect at the time we place our
orders. If steel prices increase between the time we order steel
products and the time of delivery of such products to us, our
suppliers may impose surcharges that require us to pay for
increases in steel prices during such period. Demand for our
products, the actions of our competitors, and other factors will
influence whether we will be able to pass such steel cost
increases and surcharges on to our customers, and we may be
unsuccessful in doing so.
21
Table of Contents
We do not have
long-term contracts with many of our customers and while we
generated more than 50% of our pro forma sales in 2007 from
multi-year maintenance, repair and operations (“MRO”)
contracts, our contracts, including our MRO contracts, generally
do not commit our customers to any minimum purchase volume. The
loss of a significant customer may have a material adverse
effect on our business, results of operations and financial
condition.
Given the nature of our business, and consistent with industry
practice, we do not have
long-term
contracts with many of our customers and our contracts,
including our maintenance, repair and operations contracts,
generally do not commit our customers to any minimum purchase
volume. Therefore, a significant number of our customers may
terminate their relationships with us or reduce their purchasing
volume at any time, and even our MRO customers are not required
to purchase products from us. Furthermore, the long-term
customer contracts that we do have are generally terminable
without cause on short notice. Our 10 largest customers
represented approximately 29% of our total pro forma sales for
the fiscal year ended December 31, 2007. Before giving pro
forma effect to the Red Man Transaction, our ten largest
customers represented approximately 30% of our total sales for
the fiscal year ended December 31, 2007. The products that
we may sell to any particular customer depend in large part on
the size of that customer’s capital expenditure budget in a
particular year and on the results of competitive bids for major
projects. Consequently, a customer that accounts for a
significant portion of our sales in one fiscal year may
represent an immaterial portion of our sales in subsequent
fiscal years. The loss of a significant customer, or a
substantial decrease in a significant customer’s orders,
may have a material adverse effect on our business, results of
operations and financial condition.
Changes in our
customer and product mix could cause our gross margin percentage
to fluctuate.
From time to time, we may experience changes in our customer mix
and in our product mix. Changes in our customer mix may result
from geographic expansion, daily selling activities within
current geographic markets, and targeted selling activities to
new customer segments. Changes in our product mix may result
from marketing activities to existing customers and needs
communicated to us from existing and prospective customers. If
customers begin to require more lower-margin products from us
and fewer higher-margin products, our business, results of
operations and financial condition may suffer.
We face risks
associated with our business combination with Red Man
Pipe & Supply Co. in October 2007, and this business
combination may not yield all of its intended
benefits.
We are currently continuing the process of integrating the
McJunkin and Red Man businesses, which were previously operated
independently and sometimes competed with one another. If we
cannot successfully integrate these two businesses, there may be
a material adverse effect on our combined business, results of
operations and financial condition. The difficulty of combining
the companies presents challenges to our management, including:
| • | operating a significantly larger combined company with operations in more geographic areas and with more business lines; | |
| • | integrating personnel with diverse backgrounds and organizational cultures; | |
| • | coordinating sales and marketing functions; | |
| • | retaining key employees, customers or suppliers; | |
| • | integrating the information systems; | |
| • | preserving the collaboration, distribution, marketing, promotion and other important relationships; and | |
| • | consolidating other corporate and administrative functions. |
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If the risks associated with the Red Man Transaction materialize
and we are unable to sufficiently address them, there is a
possibility that the results of operations of our combined
company could be less successful than the separate results of
operations of McJunkin and Red Man, taken together, if the Red
Man Transaction had never occurred.
We may be
unable to successfully execute or effectively integrate
acquisitions.
One of our key operating strategies is to selectively pursue
acquisitions, including large scale acquisitions, in order to
continue to grow and increase profitability. However,
acquisitions, particularly of a significant scale, involve
numerous risks and uncertainties, including intense competition
for suitable acquisition targets; the potential unavailability
of financial resources necessary to consummate acquisitions in
the future; increased leverage due to additional debt financing
that may be required to complete an acquisition; dilution of our
stockholders’ net current book value per share if we issue
additional equity securities to finance an acquisition;
difficulties in identifying suitable acquisition targets or in
completing any transactions identified on sufficiently favorable
terms; and the need to obtain regulatory or other governmental
approvals that may be necessary to complete acquisitions. In
addition, any future acquisitions may entail significant
transaction costs and risks associated with entry into new
markets.
In addition, even when acquisitions are completed, integration
of acquired entities can involve significant difficulties, such
as:
| • | failure to achieve cost savings or other financial or operating objectives with respect to an acquisition; | |
| • | strain on the operational and managerial controls and procedures of our business, and the need to modify systems or to add management resources; | |
| • | difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies; | |
| • | amortization of acquired assets, which would reduce future reported earnings; | |
| • | possible adverse short-term effects on our cash flows or operating results; | |
| • | diversion of management’s attention from the ongoing operations of our business; | |
| • | failure to obtain and retain key personnel of an acquired business; and | |
| • | assumption of known or unknown material liabilities or regulatory non-compliance issues. |
Failure to manage these acquisition growth risks could have a
material adverse effect on our business, results of operations
and financial condition.
Our
significant indebtedness may affect our ability to operate our
business, and may have a material adverse effect on our
business, results of operations and financial
condition.
We have now and will likely continue to have a significant
amount of indebtedness. As of June 26, 2008, we had total
debt outstanding of $1,284.7 million and we had borrowing
availability of $542.5 million under our credit facilities.
We and our subsidiaries may incur significant additional
indebtedness in the future. If new indebtedness is added to our
current indebtedness, the risks described below could increase.
Our significant level of indebtedness could have important
consequences, such as:
| • | limiting our ability to obtain additional financing to fund our working capital, acquisitions, expenditures, debt service requirements or other general corporate purposes; | |
| • | limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt; |
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| • | limiting our ability to compete with other companies who are not as highly leveraged; | |
| • | subjecting us to restrictive financial and operating covenants in the agreements governing our and our subsidiaries’ long-term indebtedness; | |
| • | exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained in our or our subsidiaries’ debt instruments that could have a material adverse effect on our business, results of operations and financial condition; | |
| • | increasing our vulnerability to a downturn in general economic conditions or in pricing of our products; and | |
| • | limiting our ability to react to changing market conditions in our industry and in our customers’ industries. |
In addition, borrowings under our credit facilities bear
interest at variable rates. If market interest rates increase,
such variable-rate debt will create higher debt service
requirements, which could adversely affect our cash flow. Our
pro forma interest expense for the twelve months ended
December 31, 2007 was $60.8 million. Without giving
pro forma effect to the Red Man Transaction, our interest
expense for the eleven months ended December 31, 2007 was
$61.7 million.
Our ability to make scheduled debt payments, to refinance our
obligations with respect to our indebtedness and to fund capital
and non-capital expenditures necessary to maintain the condition
of our operating assets, properties and systems software, as
well as to provide capacity for the growth of our business,
depends on our financial and operating performance, which, in
turn, is subject to prevailing economic conditions and
financial, business, competitive, legal and other factors. Our
business may not generate sufficient cash flow from operations,
and future borrowings may not be available to us under our
credit facilities in an amount sufficient to enable us to pay
our indebtedness or to fund our other liquidity needs. We may
seek to sell assets to fund our liquidity needs but may not be
able to do so. We may also need to refinance all or a portion of
our indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
In addition, we are and will be subject to covenants contained
in agreements governing our present and future indebtedness.
These covenants include and will likely include restrictions on
certain payments and investments, the redemption and repurchase
of capital stock, the issuance of stock of subsidiaries, the
granting of liens, the incurrence of additional indebtedness,
dividend restrictions affecting us and our subsidiaries, asset
sales, transactions with affiliates and mergers and
acquisitions. They also include financial maintenance covenants
which contain financial ratios we must satisfy each quarter. Any
failure to comply with these covenants could result in a default
under our credit facilities. Upon a default, unless waived, the
lenders under our secured credit facilities would have all
remedies available to a secured lender, and could elect to
terminate their commitments, cease making further loans,
institute foreclosure proceedings against our or our
subsidiaries’ assets, and force us and our subsidiaries
into bankruptcy or liquidation.
In addition, any defaults under our credit facilities or our
other debt could trigger cross defaults under other or future
credit agreements and may permit acceleration of our other
indebtedness. If our indebtedness is accelerated, we cannot be
certain that we will have sufficient funds available to pay the
accelerated indebtedness or that we will have the ability to
refinance the accelerated indebtedness on terms favorable to us
or at all. For a description of our credit facilities, please
see “Description of Our Indebtedness”.
We are a
holding company and depend upon our subsidiaries for our cash
flow.
We are a holding company. Our subsidiaries conduct all of our
operations and own substantially all of our assets.
Consequently, our cash flow and our ability to meet our
obligations or to pay dividends or make other distributions in
the future will depend upon the cash flow of our subsidiaries
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and the payment of funds by our subsidiaries to us in the form
of dividends, tax sharing payments or otherwise. In addition,
McJunkin Red Man Corporation, our direct subsidiary and the
primary obligor under our $1,275 million senior secured
credit facilities, is also dependent to a significant extent on
the cash flow of its subsidiaries in order to meet its debt
service obligations.
The ability of our subsidiaries to make any payments to us will
depend on their earnings, the terms of their current and future
indebtedness, tax considerations and legal and contractual
restrictions on the ability to make distributions. In
particular, our subsidiaries’ credit facilities currently
impose significant limitations on the ability of our
subsidiaries to make distributions to us and consequently our
ability to pay dividends to our stockholders. Subject to
limitations in our credit facilities, our subsidiaries may also
enter into additional agreements that contain covenants
prohibiting them from distributing or advancing funds or
transferring assets to us under certain circumstances, including
to pay dividends.
Our subsidiaries are separate and distinct legal entities. Any
right that we have to receive any assets of or distributions
from any of our subsidiaries upon the bankruptcy, dissolution,
liquidation or reorganization of any such subsidiary, or to
realize proceeds from the sale of their assets, will be junior
to the claims of that subsidiary’s creditors, including
trade creditors and holders of debt issued by that subsidiary.
Changes in our
credit profile may affect our relationship with our suppliers,
which could have a material adverse effect on our
liquidity.
Changes in our credit profile may affect the way our suppliers
view our ability to make payments and may induce them to shorten
the payment terms of their invoices, particularly given our high
level of outstanding indebtedness. Given the large dollar
amounts and volume of our purchases from suppliers, a change in
payment terms may have a material adverse effect on our
liquidity and our ability to make payments to our suppliers, and
consequently may have a material adverse effect on our business,
results of operations and financial condition.
Our business,
results of operations and financial condition could be
materially and adversely affected if restrictions on imports of
line pipe, oil country tubular goods, or certain of the other
products that we sell are lifted.
U.S. law currently imposes tariffs and duties on imports
from certain foreign countries of line pipe and oil country
tubular goods, and, to a lesser extent, on imports of certain
other products that we sell. If these restrictions are lifted,
if the tariffs are reduced or if the level of such imported
products otherwise increases, and these imported products are
accepted by our customer base, our business, results of
operations and financial condition could be materially and
adversely affected to the extent that we would then have
higher-cost products in our inventory or if prices and margins
are driven down by increased supplies of such products. If
prices of these products were to decrease significantly, we
might not be able to profitably sell these products and the
value of our inventory would decline. In addition, significant
price decreases could result in a significantly longer holding
period for some of our inventory, which could also have a
material adverse effect on our business, results of operations
and financial condition.
We are subject
to strict environmental, health and safety laws and regulations
that may lead to significant liabilities.
We are subject to a variety of federal, state, local, foreign
and provincial environmental, health and safety laws and
regulations, including those governing the discharge of
pollutants into the air or water, the management, storage and
disposal of hazardous substances and wastes, the responsibility
to investigate and cleanup contamination and occupational health
and safety. Fines and penalties may be imposed for
non-compliance with applicable environmental, health and safety
requirements and the failure to have or to comply with the terms
and conditions of required permits. Historically, the costs to
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comply with environmental and health and safety requirements
have not been material. However, the failure by us to comply
with applicable environmental, health and safety requirements
could result in fines, penalties, enforcement actions, third
party claims for property damage and personal injury,
requirements to clean up property or to pay for the costs of
cleanup, or regulatory or judicial orders requiring corrective
measures, including the installation of pollution control
equipment or remedial actions.
Under certain laws and regulations, such as the federal
Superfund law, the obligation to investigate and remediate
contamination at a facility may be imposed on current and former
owners or operators or on persons who may have sent waste to
that facility for disposal. Liability under these laws and
regulations may be without regard to fault or to the legality of
the activities giving rise to the contamination. Although we are
not aware of any active litigation against us under the federal
Superfund law or its state equivalents, contamination has been
identified at several of our current and former facilities, and
we have incurred and will continue to incur costs to investigate
and remediate these conditions.
Moreover, we may incur liabilities in connection with
environmental conditions currently unknown to us relating to our
existing, prior, or future sites or operations or those of
predecessor companies whose liabilities we may have assumed or
acquired. We believe that indemnities contained in certain of
our acquisition agreements may cover certain environmental
conditions existing at the time of the acquisition, subject to
certain terms, limitations and conditions. However, if these
indemnification provisions terminate or if the indemnifying
parties do not fulfill their indemnification obligations, we may
be subject to liability with respect to the environmental
matters that may be covered by such indemnification obligations.
In addition, environmental, health and safety laws and
regulations applicable to our business and the business of our
customers, including laws regulating the energy industry, and
the interpretation or enforcement of these laws and regulations,
are constantly evolving and it is impossible to predict
accurately the effect that changes in these laws and
regulations, or their interpretation or enforcement, may have
upon our business, financial condition or results of operations.
In particular, legislation and regulations limiting emissions of
greenhouse gases, including carbon dioxide associated with the
burning of fossil fuels, are at various stages of consideration
and implementation, and if fully implemented, could negatively
impact the market for our products and, consequently, our
business. Should environmental laws and regulations, or their
interpretation or enforcement, become more stringent, our costs
could increase, which may have a material adverse effect on our
business, financial condition and results of operations.
We may not
have adequate insurance for potential liabilities, including
liabilities arising from litigation.
In the ordinary course of business, we have and in the future
may become the subject of various claims, lawsuits and
administrative proceedings seeking damages or other remedies
concerning our commercial operations, products, employees and
other matters, including potential claims by individuals
alleging exposure to hazardous materials as a result of our
products or operations. Some of these claims may relate to the
activities of businesses that we have acquired, even though
these activities may have occurred prior to our acquisition of
such businesses. Our products are sold primarily for use in the
energy industry, which is subject to inherent risks that could
result in death, personal injury, property damage, pollution or
loss of production. In addition, defects in our products could
result in death, personal injury, property damage, pollution or
damage to equipment and facilities. Actual or claimed defects in
the products we distribute may give rise to claims against us
for losses and expose us to claims for damages.
We maintain insurance to cover certain of our potential losses,
and we are subject to various self-retentions, deductibles and
caps under our insurance. It is possible, however, that
judgments could be rendered against us in cases in which we
would be uninsured and beyond the amounts that
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we currently have reserved or anticipate incurring for such
matters. Even a partially uninsured claim, if successful and of
significant size, could have a material adverse effect on our
business, results of operations and financial condition.
Furthermore, we may not be able to continue to obtain insurance
on commercially reasonable terms in the future, and we may incur
losses from interruption of our business that exceed our
insurance coverage. Finally, even in cases where we maintain
insurance coverage, our insurers may raise various objections
and exceptions to coverage which could make uncertain the timing
and amount of any possible insurance recovery.
Due to our
position as a distributor, we are subject to personal injury,
product liability and environmental claims involving allegedly
defective products.
Certain of our products are used in potentially hazardous
applications that can result in personal injury, product
liability and environmental claims. A catastrophic occurrence at
a location where our products are used may result in us being
named as a defendant in lawsuits asserting potentially large
claims, even though we did not manufacture the products, and
applicable law may render us liable for damages without regard
to negligence or fault. Particularly, certain environmental laws
provide for joint and several and strict liability for
remediation of spills and releases of hazardous substances.
Certain of these risks are reduced by the fact that we are a
distributor of products produced by third-party manufacturers,
and thus in certain circumstances we may have third-party
warranty or other claims against the manufacturer of products
alleged to have been defective. However, there is no assurance
that such claims could fully protect us or that the manufacturer
would be able financially to provide such protection. There is
no assurance that our insurance coverage will be adequate to
cover the underlying claims and our insurance does not provide
coverage for all liabilities (including liability for certain
events involving pollution).
We are a
defendant in asbestos-related lawsuits, and exposure to these
and any future lawsuits could have a material adverse effect on
our business, results of operations and financial
condition.
We are a defendant in lawsuits involving approximately 835
plaintiffs as of September 24, 2008 alleging, among other
things, personal injury, including mesothelioma and other
cancers, arising from exposure to asbestos-containing materials
included in products distributed by us in the past. The
complaints in these lawsuits typically name many other
defendants. In the majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs’ alleged injuries or their connection with the
products we distributed. Based on our experience with asbestos
litigation to date, as well as the existence of certain
insurance coverage, we do not believe that the outcome of these
cases will have a material impact on us. However, the potential
liability associated with asbestos lawsuits is subject to many
uncertainties, including negative developments in the cases
pending against us, the current or future insolvency of
co-defendants, adverse changes in relevant laws or the
interpretation thereof, and the extent to which insurance will
be available to pay for defense costs, judgments or settlements.
Further, we expect that additional claims will be filed against
us in the future, but we are unable to predict the number,
timing and magnitude of such future claims with any certainty.
Therefore, we cannot assure you that pending or future asbestos
litigation will not ultimately have a material adverse effect on
our business, results of operations and financial condition. See
“Risk Factors — We may not have adequate
insurance for potential liabilities, including liabilities
arising from litigation”, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Contractual Obligations, Commitments and
Contingencies — Legal Proceedings” and
“Business — Overview of Our Business —
Legal Proceedings” for more information.
If we lose any
of our key personnel, we may be unable to effectively manage our
business or continue our growth.
Our future performance depends to a significant degree upon the
continued contributions of our management team and our ability
to attract, hire, train and retain qualified managerial, sales
and
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marketing personnel. Particularly, we rely on our sales and
marketing teams to create innovative ways to generate demand for
our products. The loss or unavailability to us of any member of
our management team or a key sales or marketing employee could
have a material adverse effect on our business, results of
operations and financial condition to the extent we are unable
to timely find adequate replacements. We face competition for
these professionals from our competitors, our customers and
other companies operating in our industry. We may be
unsuccessful in attracting, hiring, training and retaining
qualified personnel, and our business, results of operations and
financial condition could be materially and adversely effected
under such circumstances.
Interruptions
in the proper functioning of our information systems or failure
to timely and properly complete our current information systems
integration project could disrupt operations and cause increases
in costs and/or decreases in revenues.
The proper functioning of our information systems is critical to
the successful operation of our business. We depend on our
information technology systems to process orders, track credit
risk, manage inventory and monitor accounts receivable
collections. Our information systems also allow us to
efficiently purchase products from our vendors and ship products
to our customers on a timely basis, maintain
cost-effective
operations and provide superior service to our customers.
Although our information systems are protected through physical
and software safeguards and remote processing capabilities
exist, information systems are still vulnerable to natural
disasters, power losses, telecommunication failures and other
problems. If critical information systems fail or are otherwise
unavailable, our ability to procure products to sell, process
and ship customer orders, identify business opportunities,
maintain proper levels of inventories, collect accounts
receivable and pay accounts payable and expenses could be
adversely affected. Our ability to integrate our systems with
our customers’ systems would also be significantly
affected. We maintain information systems controls designed to
protect against, among other things, unauthorized program
changes and unauthorized access to data on our information
systems. If our information systems controls do not function
properly, we face increased risks of unexpected errors and
unreliable financial data.
In addition, we are currently integrating the information
systems of our predecessor companies McJunkin Corporation and
Red Man Pipe & Supply Co. and our Canadian subsidiary,
Midfield Supply ULC. Our failure to timely and properly complete
this project and train our staff in the use of the integrated
system could cause similar negative effects.
The loss of
third-party
transportation providers upon whom we depend, or conditions
negatively affecting the transportation industry, could increase
our costs or cause a disruption in our operations.
We depend upon
third-party
transportation providers for delivery of products to our
customers. Strikes, slowdowns, transportation disruptions or
other conditions in the transportation industry, including, but
not limited to, shortages of truck drivers, disruptions in rail
service, increases in fuel prices and adverse weather
conditions, could increase our costs and disrupt our operations
and our ability to service our customers on a timely basis. We
cannot predict whether or to what extent recent increases or
anticipated increases in fuel prices may impact our costs or
cause a disruption in our operations going forward.
We may need
additional capital in the future and it may not be available on
acceptable terms.
We may require more capital in the future to:
| • | fund our operations; | |
| • | finance investments in equipment and infrastructure needed to maintain and expand our distribution capabilities; |
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| • | enhance and expand the range of products we offer; and | |
| • | respond to potential strategic opportunities, such as investments, acquisitions and international expansion. |
We cannot assure you that additional financing will be available
on terms favorable to us, or at all. The terms of available
financing may place limits on our financial and operating
flexibility. If adequate funds are not available on acceptable
terms, we may be forced to reduce our operations or delay, limit
or abandon expansion opportunities. Moreover, even if we are
able to continue our operations, the failure to obtain
additional financing could reduce our competitiveness.
Hurricanes or
other adverse weather events could negatively affect our local
economies or disrupt our operations, which could have an adverse
effect on our business or results of operations.
Certain areas in which we operate in the United States,
including areas in the southeastern United States, are
susceptible to hurricanes and other adverse weather conditions.
Such weather events can disrupt our operations, result in damage
to our properties and negatively affect the local economies in
which we operate. Additionally, we may experience communication
disruptions with our customers, vendors and employees. In late
August 2005 and September 2005, Hurricanes Katrina and Rita
struck the Gulf Coast of Louisiana, Mississippi, Alabama and
Texas and caused extensive and catastrophic physical damage to
those market areas. Hurricanes can cause physical damage to our
branches and require us to close branches in order to secure our
employees. Additionally, our sales order backlog and shipments
can experience a temporary decline immediately following
hurricanes.
We cannot predict whether or to what extent damage caused by
future hurricanes and tropical storms will affect our operations
or the economies in regions where we operate. Such adverse
weather events could result in disruption of our purchasing
and/or distribution capabilities, interruption of our business
that exceeds our insurance coverage, our inability to collect
from customers and increased operating costs. Our business or
results of operations may be adversely affected by these and
other negative effects of hurricanes or other adverse weather
events.
The failure of
Red Man Distributors LLC to continue to be certified as a
minority business enterprise could result in the loss of
customers or volume which may have a material adverse effect on
our business, results of operations and financial
condition.
Our wholly owned subsidiary, McJunkin Red Man Corporation owns
49% of the outstanding equity interests in Red Man Distributors
LLC (“RMD”), an Oklahoma limited liability company
formed on November 1, 2007 for the purposes of distributing
oil country tubular goods in North America as a certified
minority supplier. RMD is currently certified by each of the
Oklahoma Minority Supplier Development Council and the North
Central Texas Regional Certification Agency as a minority
business enterprise. If for any reason RMD ceases to be
certified as a minority business enterprise, then customers who
may derive advantages from purchasing products from RMD as a
result of its status as a certified minority business enterprise
could terminate their relationships with RMD or reduce their
purchasing volume. The loss of a significant customer of RMD, or
a significant decrease in a customer’s orders, may have a
material adverse effect on our business, results of operations
and financial condition.
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We have a
substantial amount of goodwill and other intangibles recorded on
our balance sheet, partly because of our recent acquisitions and
business combination transactions. The amortization of acquired
assets will reduce our future reported earnings and,
furthermore, if our goodwill or other intangible assets become
impaired, we may be required to recognize charges that would
reduce our income.
As of June 26, 2008, we had $1.8 billion of goodwill
and other intangibles recorded on our balance sheet. A
substantial portion of these intangible assets result from our
use of purchase accounting in connection with the GS
Acquisition, our acquisition of Midway-Tristate Corporation, and
the Red Man Transaction. In accordance with the purchase
accounting method, the excess of the cost of purchased assets
over the fair value of such assets is assigned to intangible
assets and is amortized over a period of time. The amortization
expense associated with our intangible assets will have a
negative effect on our future reported earnings. Many other
companies, including many of our competitors, will not have the
significant acquired intangible assets that we have because they
have not participated in recent acquisitions and business
combination transactions similar to ours. Thus, their reported
earnings will not be as negatively affected by the amortization
of intangible assets as our reported earnings will be.
Additionally, under U.S. generally accepted accounting
principles, goodwill and certain other intangible assets are not
amortized but must be reviewed for possible impairment annually,
or more often in certain circumstances if events indicate that
the asset values are not recoverable. Such reviews could result
in an earnings charge for the impairment of goodwill, which
would reduce our income and negatively affect our stock price
even though there would be no impact on our underlying cash flow.
We face risks
associated with conducting business in markets outside of North
America.
Nigeria is currently the only country outside of North America
in which we conduct business, though we are aware that our
customers use our products outside of North America as well. In
addition, we are evaluating the possibility of establishing
distribution networks in certain other foreign countries,
particularly in West Africa, the Middle East, Europe and South
America. Though our revenue from business in developing
countries is currently not significant, our business, results of
operations and financial condition could be materially and
adversely affected by changes in the developing countries in
which we do business in the future or in which we expand our
business, particularly those countries which have historically
experienced a high degree of political
and/or
economic instability. Examples of risks inherent in such
non-North
American activities include changes in the political and
economic conditions in the countries in which we operate,
including civil uprisings and terrorist acts, unexpected changes
in regulatory requirements, changes in tariffs, the adoption of
foreign or domestic laws limiting exports to certain foreign
countries, fluctuations in currency exchange rates and the value
of the U.S. dollar, restrictions on repatriation of
earnings, expropriation of property without fair compensation,
governmental actions that result in the deprivation of contract
or proprietary rights, the acceptance of business practices
which are not consistent with or antithetical to prevailing
business practices we are accustomed to in North America, and
governmental sanctions. If we begin doing business in a foreign
country in which we do not presently operate, we may also face
difficulties in operations and diversion of management time in
connection with establishing our business there.
The
requirements of being a public company, including compliance
with the reporting requirements of the Exchange Act and the
requirements of the Sarbanes-Oxley Act, may strain our
resources, increase our costs and distract management, and we
may be unable to comply with these requirements in a timely or
cost-effective manner.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, or the
Exchange Act, and the corporate governance standards of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the
New York Stock Exchange. These requirements may place a strain
on our management, systems and resources. The Exchange Act will
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require that we file annual, quarterly and current reports with
respect to our business and financial condition within specified
time periods. The Sarbanes-Oxley Act will require that we
maintain effective disclosure controls and procedures and
internal control over financial reporting. Due to our limited
operating history, our disclosure controls and procedures and
internal controls may not meet all of the standards applicable
to public companies subject to the Sarbanes-Oxley Act. In order
to maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, significant resources and management oversight will
be required. This may divert management’s attention from
other business concerns, which could have a material adverse
effect on our business, financial condition, results of
operations and the price of our common stock.
We also expect that it could be difficult and will be
significantly more expensive to obtain directors’ and
officers’ liability insurance, and we may be required to
accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for us to attract and retain
qualified persons to serve on our board of directors or as
executive officers. Advocacy efforts by shareholders and third
parties may also prompt even more changes in governance and
reporting requirements. We cannot predict or estimate the amount
of additional costs we may incur or the timing of such costs.
We will be
exposed to risks relating to evaluations of controls required by
Section 404 of the Sarbanes-Oxley Act.
We are in the process of evaluating our internal controls
systems to allow management to report on, and our independent
auditors to audit, our internal control over financial
reporting. We will be performing the system and process
evaluation and testing (and any necessary remediation) required
to comply with the management certification and auditor
attestation requirements of Section 404 of the
Sarbanes-Oxley Act, and will be required to comply with
Section 404 in our annual report for the year ended
December 31, 2009 (subject to any change in applicable SEC
rules). Furthermore, upon completion of this process, we may
identify control deficiencies of varying degrees of severity
under applicable U.S. Securities and Exchange Commission,
or SEC, and Public Company Accounting Oversight Board, or PCAOB,
rules and regulations that remain unremediated. As a public
company, we will be required to report, among other things,
control deficiencies that constitute a “material
weakness” or changes in internal controls that, or that are
reasonably likely to, materially affect internal control over
financial reporting. A “material weakness” is a
significant deficiency or combination of significant
deficiencies in internal control over financial reporting that
results in a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be
prevented or detected on a timely basis.
If we fail to implement the requirements of Section 404 in
a timely manner, we might be subject to sanctions or
investigation by regulatory authorities such as the SEC or the
PCAOB. If we do not implement improvements to our disclosure
controls and procedures or to our internal controls in a timely
manner, our independent registered public accounting firm may
not be able to certify as to the effectiveness of our internal
control over financial reporting pursuant to an audit of our
internal control over financial reporting. This may subject us
to adverse regulatory consequences or a loss of confidence in
the reliability of our financial statements. We could also
suffer a loss of confidence in the reliability of our financial
statements if our independent registered public accounting firm
reports a material weakness in our internal controls, if we do
not develop and maintain effective controls and procedures or if
we are otherwise unable to deliver timely and reliable financial
information. Any loss of confidence in the reliability of our
financial statements or other negative reaction to our failure
to develop timely or adequate disclosure controls and procedures
or internal controls could result in a decline in the price of
our common stock. In addition, if we fail to remedy any material
weakness, our financial statements may be inaccurate, we may
face restricted access to the capital markets and our stock
price may be adversely affected.
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We are a
“controlled company” within the meaning of the New
York Stock Exchange rules and, as a result, will qualify for,
and may rely on, exemptions from certain corporate governance
requirements.
A company of which more than 50% of the voting power is held by
an individual, a group or another company is a “controlled
company” within the meaning of the New York Stock Exchange
rules and may elect not to comply with certain corporate
governance requirements of the New York Stock Exchange,
including:
| • | the requirement that a majority of our board of directors consist of independent directors; | |
| • | the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| • | the requirement that we have a compensation committee that is composed entirely of independent directors. |
Following this offering, we will rely on all of the exemptions
listed above. Accordingly, you will not have the same
protections afforded to stockholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange.
We are a newly
combined company with a limited combined operating history, and
the financial statements presented in this prospectus may
therefore not give you an accurate indication of what our future
results of operations are likely to be.
The Red Man Transaction closed on October 31, 2007 and we
have operated as a combined company only since that time. Our
limited combined operating history may make it difficult to
forecast our future operating results and financial condition.
Because of the significance of the Red Man Transaction, the
financial statements for periods prior to the transaction are
not comparable with those after the transaction, and the lack of
comparable data may make it difficult to evaluate our results of
operations and future prospects. The only historical financial
statements of our combined company included in this prospectus
are audited financial statements for the eleven months ended
December 31, 2007 (which includes McJunkin’s results
for the full eleven-month period and Red Man’s results for
only the two months following October 31, 2007) and
unaudited financial statements for the six months ended
June 26, 2008. Pro forma financial information that assumes
that the Red Man Transaction closed on January 1, 2007 as
opposed to the actual closing date of October 31, 2007 is
presented with respect to the twelve months ended
December 31, 2007 and the six months ended June 28,
2007. However, due to our limited combined operating history,
these historical financial statements and the related pro forma
information may not give you an accurate indication of what our
actual results would have been if the combination had been
completed at the beginning of the periods presented or of what
our future results of operations and financial condition are
likely to be. In addition, we acquired Midway-Tristate
Corporation in April 2007, and we acquired the remaining
approximate 49% minority voting interest in Midfield in July
2008, but our pro forma financial statements do not (and are not
required to) give effect to either of these transactions.
Additionally, other historical financial statements reflecting
the separate historical results of operations, financial
position and cash flows of McJunkin and Red Man prior to the Red
Man Transaction are also included in this prospectus. These
financial statements reflect the results of operations,
financial condition and cash flows of McJunkin and Red Man as
stand-alone companies and thus they may not give you an accurate
indication of what our combined results would have been if the
Red Man Transaction had been completed at an earlier time or of
what our future results of operations and financial condition
are likely to be.
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Risks Related to
this Offering and our Common Stock
There is no
existing market for our common stock, and we do not know if one
will develop to provide you with adequate liquidity. If our
stock price fluctuates after this offering, you could lose a
significant part of your investment.
Prior to this offering, there has not been a public market for
our common stock. If an active trading market does not develop,
you may have difficulty selling any of our common stock that you
buy. The initial public offering price for the shares will be
determined by negotiations among the Company, the selling
stockholder and the underwriters and may not be indicative of
prices that will prevail in the open market following this
offering. Consequently, you may not be able to sell shares of
our common stock at prices equal to or greater than the price
you paid in this offering. The market price of our common stock
may be influenced by many factors including:
| • | fluctuations in oil and natural gas prices; | |
| • | the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts; | |
| • | announcements by us or our competitors of significant contracts or acquisitions or other business developments; | |
| • | variations in quarterly results of operations; | |
| • | loss of a large customer or supplier; | |
| • | U.S. and international general economic conditions; | |
| • | increased competition; | |
| • | terrorist acts; | |
| • | future sales of our common stock or the perception that such sales may occur; and | |
| • | investor perceptions of us and the industries in which our products are used. |
As a result of these factors, investors in our common stock may
not be able to resell their shares at or above the initial
offering price. In addition, the stock market in general has
experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of companies like us. These broad market and
industry factors may significantly reduce the market price of
our common stock, regardless of our operating performance.
Following the
completion of this offering, certain affiliates of The Goldman
Sachs Group, Inc. will continue to control us and may have
conflicts of interest with other stockholders. Conflicts of
interest may arise because affiliates of our principal
stockholder have continuing agreements and business
relationships with us.
Upon completion of this offering, certain affiliates of The
Goldman Sachs Group, Inc. (the “Goldman Sachs Funds”)
will control % of our outstanding
common stock, or % if the
underwriters exercise their option in full. As a result, the
Goldman Sachs Funds will continue to be able to control the
election of our directors, determine our corporate and
management policies and determine, without the consent of our
other stockholders, the outcome of any corporate transaction or
other matter submitted to our stockholders for approval,
including potential mergers or acquisitions, asset sales and
other significant corporate transactions. The Goldman Sachs
Funds will also have sufficient voting power to amend our
organizational documents.
Conflicts of interest may arise between our principal
stockholder and us. Affiliates of our principal stockholder
engage in transactions with our company. One affiliate of our
principal stockholder, Goldman Sachs Credit Partners, L.P., is
the joint lead arranger for our $1,275 million senior
secured credit facilities and our $450 million term loan
facility. See “Certain Relationships and Related Party
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Transactions”. Further, the Goldman Sachs Funds are in the
business of making investments in companies and may, from time
to time, acquire and hold interests in businesses that compete
directly or indirectly with us and they may either directly, or
through affiliates, also maintain business relationships with
companies that may directly compete with us. In general, the
Goldman Sachs Funds or their affiliates could pursue business
interests or exercise their voting power as stockholders in ways
that are detrimental to us but beneficial to themselves or to
other companies in which they invest or with whom they have a
material relationship. Conflicts of interest could also arise
with respect to business opportunities that could be
advantageous to the Goldman Sachs Funds and they may pursue
acquisition opportunities that may be complementary to our
business, and as a result, those acquisition opportunities may
not be available to us. Under the terms of our amended and
restated certificate of incorporation, the Goldman Sachs Funds
will have no obligation to offer us corporate opportunities. See
“Description of Our Capital Stock — Corporate
Opportunities”.
As a result of these relationships, the interests of the Goldman
Sachs Funds may not coincide with the interests of our company
or other holders of our common stock. So long as the Goldman
Sachs Funds continue to control a significant amount of the
outstanding shares of our common stock, the Goldman Sachs Funds
will continue to be able to strongly influence or effectively
control our decisions, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions. See “Certain Relationships and Related Party
Transactions”.
We do not
currently intend to pay dividends in the foreseeable
future.
It is uncertain when, if ever, we will declare dividends to our
stockholders. We do not currently intend to pay dividends in the
foreseeable future. Our ability to pay dividends is constrained
by our holding company structure under which we are dependent on
payments by our subsidiaries. Additionally, we and our
subsidiaries are parties to credit agreements which restrict our
ability and their ability to pay dividends. See “Dividend
Policy” and “Description of our Indebtedness”.
You should not rely on an investment in us if you require
dividend income. In the foreseeable future, the only possible
return on an investment in us would come from an appreciation of
our common stock and there can be no assurance that our common
stock will appreciate after this offering.
Shares
eligible for future sale may cause the price of our common stock
to decline.
Sales of substantial amounts of our common stock in the public
market, or the perception that these sales may occur, could
cause the market price of our common stock to decline. This
could also impair our ability to raise additional capital
through the sale of our equity securities. Under our amended and
restated certificate of incorporation, we are authorized to
issue up
to shares
of common stock, of
which shares
of common stock are currently outstanding. Of these shares,
the shares
of common stock sold in this offering will be freely
transferable without restriction or further registration under
the Securities Act by persons other than “affiliates”,
as that term is defined in Rule 144 under the Securities
Act. Our principal stockholder, directors and executive
officers, who collectively beneficially
own shares,
will enter into
lock-up
agreements, pursuant to which they will agree, subject to
certain exceptions, not to sell or transfer, directly or
indirectly, any shares of our common stock for a period of
180 days from the date of this prospectus, subject to
extension in certain circumstances. Upon the expiration of these
lock-up
agreements, all of these shares of common stock will be tradable
subject to limitations imposed by Rule 144 under the
Securities Act. See “Shares Eligible for Future Sale”.
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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Statements
that are predictive in nature, that depend upon or refer to
future events or conditions or that include the words
“believe”, “expect”, “anticipate”,
“intend”, “estimate” and other expressions
that are predictions of or indicate future events and trends and
that do not relate to historical matters identify
forward-looking statements. Our forward-looking statements
include, among others, statements about our business strategy,
our industry, our future profitability, and the costs of
operating as a public company. These statements involve known
and unknown risks, uncertainties and other factors, including
the factors described under “Risk Factors”, that may
cause our actual results and performance to be materially
different from any future results or performance expressed or
implied by these forward-looking statements. Such risks and
uncertainties include, among other things:
| • | decreases in oil and gas prices; | |
| • | decreases in oil and gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; | |
| • | increased usage of alternative fuels, which may negatively affect oil and gas industry expenditure levels; | |
| • | U.S. and international general economic conditions; | |
| • | our ability to compete successfully with other companies in our industry; | |
| • | the risk that manufacturers of our products will sell a substantial amount of goods directly to end users in the markets that we serve; | |
| • | unexpected supply shortages; | |
| • | cost increases by our suppliers; | |
| • | our lack of long-term contracts with most of our suppliers; | |
| • | increases in customer, manufacturer and distributor inventory levels; | |
| • | price reductions by suppliers of products sold by us, which could cause the value of our inventory to decline; | |
| • | decreases in steel prices, which could significantly lower our profit; | |
| • | increases in steel prices, which we may be unable to pass along to our customers, which could significantly lower our profit; | |
| • | our lack of long-term contracts with many of our customers and our lack of contracts with customers that require minimum purchase volumes; | |
| • | changes in our customer and product mix; | |
| • | the potential adverse effects associated with integrating Red Man into our business and whether the Red Man Transaction will yield its intended benefits; | |
| • | ability to integrate acquired companies into our business; | |
| • | the success of our acquisition strategies; | |
| • | our significant indebtedness; | |
| • | the dependence on our subsidiaries for cash to meet our debt obligations; | |
| • | changes in our credit profile; | |
| • | a decline in demand for certain of our products if import restrictions on these products are lifted; |
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| • | environmental, health and safety laws and regulations; | |
| • | the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation; | |
| • | product liability claims against us; | |
| • | pending or future asbestos-related claims against us; | |
| • | the potential loss of key personnel; | |
| • | interruption in the proper functioning of our information systems or failure to timely and properly complete our current information systems integration project; | |
| • | loss of third-party transportation providers; | |
| • | potential inability to obtain necessary capital; | |
| • | risks related to hurricanes and other adverse weather events; | |
| • | the failure of Red Man Distributors LLC to continue to be certified as a minority business enterprise; | |
| • | impairment of our goodwill or other intangible assets; | |
| • | adverse changes in political or economic conditions in the countries in which we operate; | |
| • | potential increases in costs and distraction of management resulting from the requirements of being a public company; | |
| • | risks relating to evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; | |
| • | the operation of our company as a “controlled company”; and | |
| • | our limited operating history as a combined company. |
You should not place undue reliance on our forward-looking
statements. Although forward-looking statements reflect our good
faith beliefs, reliance should not be placed on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors, which may cause our actual
results, performance or achievements to differ materially from
anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. We
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new
information, future events, changed circumstances or otherwise.
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USE OF
PROCEEDS
We will not receive any of the proceeds from the sale of shares
of our common stock by PVF Holdings LLC, the selling
stockholder. PVF Holdings LLC intends to distribute the net
proceeds of this offering, after giving effect to the
underwriting discount, to its members, which include certain
members of our board of directors and senior management team and
various of their affiliates. See “Principal and Selling
Stockholders”.
Additionally, affiliates of Goldman, Sachs & Co. own a
majority interest in PVF Holdings LLC. Accordingly, such
affiliates will receive a significant portion of the proceeds
from this offering. See “Underwriting”.
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Table of Contents
DIVIDEND
POLICY
Following the completion of this offering, we do not anticipate
paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings from our business, if
any, to finance operations and the expansion of our business.
Any future determination to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon
our financial condition, results of operations, capital
requirements and other factors that the board deems relevant. In
addition, the covenants contained in our subsidiaries’
credit facilities limit the ability of our subsidiaries to pay
dividends to us, which limits our ability to pay dividends to
our stockholders. Our ability to pay dividends is also limited
by the covenants contained in our $450 million term loan
facility, and our ability to pay dividends may be further
limited by covenants contained in the instruments governing
future indebtedness that we or our subsidiaries may incur in the
future. See “Description of Our Indebtedness”.
On May 21, 2008, our board of directors approved a dividend
of $475 million to our stockholders, of which $474,096,204
was distributed to PVF Holdings LLC and $903,796 was held by us
in accordance with the terms of our restricted stock award
agreements with holders of our restricted stock. PVF Holdings
LLC distributed its share of the proceeds of the dividend to its
members, including certain members of our board of directors and
management team, in accordance with the terms and conditions of
the Limited Liability Company Agreement of PVF Holdings LLC. See
“Certain Relationships and Related Party
Transactions — Transactions with the Goldman Sachs
Funds — May 2008 Dividend”. For a list of our
executive officers and directors who received proceeds of this
dividend and the amount of proceeds that each received, see the
table in “Certain Relationships and Related Party
Transactions — Transactions with Executive Officers
and Directors — May 2008 Dividend” on
page 147. This dividend is not indicative of future
dividends we may pay to our stockholders.
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CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of June 26, 2008:
| • | on an actual basis; and |
| • | on an as adjusted basis to give effect to (1) the payment of expenses in connection with this offering and (2) transactions in connection with our purchase of the minority interest in Midfield Supply ULC, one of our subsidiaries, on July 31, 2008. |
You should read this table in conjunction with “Unaudited
Pro Forma Consolidated Financial Statements”,
“Selected Historical Consolidated Financial Data”,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the consolidated
financial statements and related notes included elsewhere in
this prospectus.
| June 26, 2008 | ||||||||
|
Actual
|
As Adjusted
|
|||||||
| (in millions) | ||||||||
|
Cash and cash equivalents
|
$ | 8.8 | $ | |||||
|
Debt (including current portion):
|
||||||||
|
Senior secured revolving credit facility(1)
|
204.4 | |||||||
|
Senior secured term loan facility
|
567.8 | |||||||
|
Junior term loan facility
|
450.0 | |||||||
|
Midfield revolving credit facility(2)
|
51.7 | |||||||
|
Midfield term loan facility
|
9.8 | |||||||
|
Midfield notes payable
|
1.0 | |||||||
|
Total debt before Midfield shareholder loans
|
1,284.7 | |||||||
|
Midfield shareholder loans(3)
|
29.1 | |||||||
|
Total debt
|
1,313.8 | |||||||
|
Minority interest in subsidiaries(3)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Common stock, $0.01 par value per
share; shares
authorized, shares
issued and outstanding(4)
|
||||||||
|
Preferred stock, $0.01 par value per share; no shares
authorized, issued or outstanding,
actual; shares
authorized; no shares issued and outstanding as adjusted
|
||||||||
|
Additional paid-in capital
|
||||||||
|
Total stockholders’ equity
|
825.7 | |||||||
|
Total capitalization
|
$ | $ | ||||||
| (1) | As of June 26, 2008, we had outstanding $204.4 million of borrowings and availability of $490.9 million under our senior secured revolving credit facility. |
| (2) | As of June 26, 2008, we had outstanding $51.7 million of borrowings and availability of $51.6 million under the Midfield revolving credit facility. The as adjusted amount includes $5.4 million in drawings under our revolving credit facility for purposes of paying expenses in connection with this offering. |
| (3) | The as adjusted column gives effect to total payments made in connection with our purchase on July 31, 2008 of all of the minority interest in Midfield Supply ULC, one of our subsidiaries. Total |
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| payments consisted of CDN$90.04 million (US$87.97 million) paid to shareholders of and lenders to Midfield Holdings (Alberta) Ltd., the holder of the minority interest, and approximately US$47.7 million paid to former shareholders of Red Man pursuant to the stock purchase agreement entered into in connection with the Red Man Transaction. In connection with the purchase of the minority interest, the Midfield shareholder loans were paid in full. Our minority interest in subsidiaries was eliminated upon consummation of the purchase because we had no minority interest in subsidiaries other than the purchased interest. |
| (4) | The number of shares of common stock outstanding on an actual and as adjusted basis: |
| • | excludes shares of common stock issuable upon the exercise of stock options granted to certain of our employees pursuant to the McJ Holding Corporation 2007 Stock Option Plan; and | |
| • | excludes shares of non-vested restricted stock awarded to certain of our employees and directors pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan. |
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DILUTION
Our pro forma net tangible book value per share as of
June 26, 2008, both before and after giving effect to this
offering, was approximately
$ million. Pro forma net
tangible book value per share represents the amount of tangible
assets less total liabilities divided by the pro forma number of
shares of common stock outstanding (giving effect to
the
for split of our
common stock which will occur prior to the pricing of this
offering). There will be no increase in our pro forma net
tangible book value per share on account of this offering
because we will not receive any proceeds from the sale of shares
in this offering. Purchasers of shares in this offering will not
incur immediate dilution because our pro forma net tangible book
value per share will not be affected by this offering.
The following table sets forth as of June 26, 2008 the
number of shares of common stock purchased from us or to be
purchased from the selling stockholder, total consideration paid
or to be paid and the average price per share paid by our
existing stockholders and by new investors, on a pro forma basis
to give effect to
the
for
split of our common stock which will occur prior to the pricing
of this offering:
| Shares Purchased | Total Consideration |
Average Price |
||||||||||||||||||
|
Number
|
Percent
|
Amount
|
Percent
|
Per Share
|
||||||||||||||||
|
Existing stockholders(1)
|
% | $ | % | $ | ||||||||||||||||
|
New investors(2)(3)
|
||||||||||||||||||||
|
Total
|
% | $ | % | $ | ||||||||||||||||
| (1) | Total consideration and average price per share paid by the existing stockholders give effect to the $475 million distribution made to the existing stockholders in May 2008 using proceeds from our senior secured revolving credit facility and junior term loan facility. If the table were adjusted to not give effect to these payments, existing stockholders’ total consideration for their shares would be $ with an average share price of $ . | |
| (2) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $ million, assuming the number of shares offered by the selling stockholder, as set forth on the cover page of the prospectus, remains the same. | |
| (3) | If the underwriters exercise their option to purchase shares from the selling stockholder in full, then new investors would purchase shares, or approximately % of shares outstanding, and the total consideration paid by new investors would increase to $ , or % of the total consideration paid (based on the midpoint of the range set forth on the cover page of this prospectus). |
As of June 26, 2008, there were options outstanding to
purchase shares of our common stock, with exercise prices
ranging from $ to
$ per share and a weighted average
exercise price of $ per share
(after taking into account
the
for
split of our common stock which will occur prior to the pricing
of this offering). Also, as of June 26, 2008, there
were shares
of unvested restricted stock outstanding (after giving effect to
the stock split). The tables and calculations above assume that
those options have not been exercised and the restricted stock
has not vested. If these options were exercised at the weighted
average exercise price and the restricted stock was fully
vested, the additional dilution per share to new investors would
be $ .
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SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of the entity now known as McJunkin Red
Man Corporation (then known as McJunkin Corporation) (the
“GS Acquisition”). In this prospectus, the term
“Predecessor” refers to McJunkin Corporation and its
subsidiaries prior to January 31, 2007 and the term
“Successor” refers to the entity now known as McJunkin
Red Man Holding Corporation and its subsidiaries on and after
January 31, 2007. As a result of the change in McJunkin
Corporation’s basis of accounting in connection with the GS
Acquisition, Predecessor’s financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successor’s financial data for the eleven
months ended December 31, 2007 and subsequent periods.
McJunkin Corporation completed a business combination
transaction with Red Man Pipe & Supply Co. (the
“Red Man Transaction”) on October 31, 2007. At
that time McJunkin Corporation was renamed McJunkin Red Man
Corporation. Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man Pipe & Supply Co. (“Red Man”) for the
two months after the business combination on October 31,
2007. Accordingly, our results for the 11 months ended
December 31, 2007 are not comparable to McJunkin’s
results for the years ended December 31, 2006 and 2005.
The selected consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the one month ended January 30, 2007
(Predecessor) and the eleven months ended December 31,
2007, and the selected consolidated financial information
presented below under the caption Balance Sheet Data as of
December 31, 2007, have been derived from the consolidated
financial statements of McJunkin Red Man Holding Corporation
included elsewhere in this prospectus that have been audited by
Ernst & Young LLP, independent registered public
accounting firm. The selected consolidated financial information
presented below as of and for the years ended December 31,
2005 and 2006 has been derived from the consolidated financial
statements of our Predecessor, McJunkin Corporation, included
elsewhere in this prospectus that have been audited by Schneider
Downs & Co., Inc., independent registered public
accounting firm. The selected consolidated financial information
presented below as of and for the years ended December 31,
2003 and 2004 has been derived from the audited consolidated
financial statements of our predecessor, McJunkin Corporation,
that are not included in this prospectus.
The selected unaudited interim consolidated financial
information presented below under the captions Statement of
Operations Data and Other Financial Data for the six months
ended June 26, 2008 and the five months ended June 28,
2007, and the selected unaudited consolidated financial
information presented below under the caption Balance Sheet Data
as of June 26, 2008, have been derived from our unaudited
interim consolidated financial statements, which are included
elsewhere in this prospectus and have been prepared on the same
basis as our audited consolidated financial statements. In the
opinion of management, the interim data reflect all adjustments,
consisting of normal and recurring adjustments, necessary for a
fair presentation of results for these periods. Operating
results for the six months ended June 26, 2008 include the
results of McJunkin Corporation and Red Man for the full period.
Operating results for the five-month period ending June 28,
2007 do not reflect the operating results of Red Man, as the Red
Man Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 are not comparable to the results for the five months ended
June 28, 2007. In addition, operating results for the
six-month period ended June 26, 2008 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2008.
The purchase price allocation for the GS Acquisition has been
finalized but the purchase price allocation for the Red Man
Transaction has not been finalized. We expect the purchase price
allocation for the Red Man Transaction to be finalized by
October 31, 2008. The purchase price has been finalized for
both the GS Acquisition and the Red Man Transaction and the
consideration for such transactions will not increase.
42
Table of Contents
The selected historical consolidated financial data presented
below has been derived from financial statements that have been
prepared using United States generally accepted accounting
principles, or GAAP. This data should be read in conjunction
with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the
consolidated financial statements and related notes included
elsewhere in this prospectus.
| Predecessor | Successor | ||||||||||||
|
One Month |
Five Months |
Six Months |
|||||||||||
|
Ended |
Ended |
Ended |
|||||||||||
|
January 30, 2007
|
June 28, 2007
|
June 26, 2008
|
|||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||
| (In millions, except per share and share data) | |||||||||||||
|
Statement of Operations Data:
|
|||||||||||||
|
Sales
|
$ | 142.5 | $ | 784.9 | $ | 2,196.0 | |||||||
|
Costs and expenses
|
|||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
114.6 | 635.9 | 1,803.8 | ||||||||||
|
Selling, general and administrative expenses
|
14.6 | 80.7 | 200.1 | ||||||||||
|
Depreciation and amortization
|
0.3 | 1.7 | 5.2 | ||||||||||
|
Amortization of intangibles
|
— | 4.6 | 15.6 | ||||||||||
|
Profit sharing
|
1.3 | 5.6 | 13.5 | ||||||||||
|
Stock-based compensation
|
— | 1.3 | 3.3 | ||||||||||
|
Total costs and expenses
|
130.8 | 729.8 | 2,041.5 | ||||||||||
|
Operating income
|
11.7 | 55.1 | 154.5 | ||||||||||
|
Other income (expense)
|
|||||||||||||
|
Interest expense
|
(0.1 | ) | (24.3 | ) | (35.0 | ) | |||||||
|
Minority interests
|
(0.4 | ) | — | (0.1 | ) | ||||||||
|
Other, net
|
— | (0.9 | ) | (0.3 | ) | ||||||||
|
Total other income (expense)
|
(0.5 | ) | (25.2 | ) | (35.4 | ) | |||||||
|
Income before income taxes
|
11.2 | 29.9 | 119.1 | ||||||||||
|
Income tax expense
|
4.6 | 12.3 | 43.2 | ||||||||||
|
Net income
|
$ | 6.6 | $ | 17.6 | $ | 75.9 | |||||||
|
Earnings per share, basic
|
$ | 376.70 | $ | 171.69 | $ | 245.41 | |||||||
|
Earnings per share, diluted
|
376.70 | 171.36 | 244.92 | ||||||||||
|
Weighted average shares, basic
|
17,510 | 102,594 | 309,421 | ||||||||||
|
Weighted average shares, diluted
|
17,510 | 102,792 | 310,034 | ||||||||||
|
Pro forma earnings per share, basic
|
|||||||||||||
|
Pro forma earnings per share, diluted
|
|||||||||||||
|
Pro forma weighted average shares, basic
|
|||||||||||||
|
Pro forma weighted average shares, diluted
|
|||||||||||||
|
Dividends per common share
|
$ | — | $ | — | $ | 1,523 | |||||||
|
Balance Sheet Data:
|
|||||||||||||
|
Cash and cash equivalents
|
$ | 2.0 | $ | 16.5 | $ | 8.8 | |||||||
|
Working capital
|
211.1 | 324.0 | 686.1 | ||||||||||
|
Total assets
|
474.2 | 1,551.7 | 3,294.3 | ||||||||||
|
Total debt, including current portion
|
4.8 | 747.4 | 1,284.7 | ||||||||||
|
Minority interest in subsidiaries
|
16.0 | — | 95.2 | ||||||||||
|
Stockholders’ equity
|
245.2 | 392.9 | 824.4 | ||||||||||
|
Other Financial Data:
|
|||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 6.6 | $ | 1.9 | $ | 70.5 | |||||||
|
Net cash provided by (used in) investing activities
|
(0.2 | ) | (933.3 | ) | (16.4 | ) | |||||||
|
Net cash provided by (used in) financing activities
|
(8.3 | ) | 945.9 | (55.2 | ) | ||||||||
43
Table of Contents
| Predecessor | Successor | ||||||||||||||||||||||||
|
Year |
Year |
Year |
Year |
One Month |
11 Months |
||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
January 30, |
December 31, |
||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
2007
|
||||||||||||||||||||
| (In millions, except as otherwise indicated) | |||||||||||||||||||||||||
|
Statement of Operations Data:
|
|||||||||||||||||||||||||
|
Sales
|
$ | 798.2 | $ | 1,081.2 | $ | 1,445.8 | $ | 1,713.7 | $ | 142.5 | $ | 2,124.9 | |||||||||||||
|
Costs and expenses
|
|||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
644.5 | 867.6 | 1,177.1 | 1,394.3 | 114.6 | 1,734.6 | |||||||||||||||||||
|
Selling, general and administrative expenses
|
118.7 | 140.5 | 155.7 | 173.9 | 14.6 | 201.9 | |||||||||||||||||||
|
Depreciation and amortization
|
4.3 | 3.9 | 3.7 | 3.9 | 0.3 | 5.4 | |||||||||||||||||||
|
Amortization of intangibles
|
0.5 | 0.5 | 0.3 | 0.3 | — | 10.5 | |||||||||||||||||||
|
Profit sharing
|
5.1 | 11.5 | 13.1 | 15.1 | 1.3 | 13.2 | |||||||||||||||||||
|
Stock-based compensation
|
— | — | — | — | — | 2.9 | |||||||||||||||||||
|
Total costs and expenses
|
773.1 | 1,024.0 | 1,349.9 | 1,587.5 | 130.8 | 1,968.5 | |||||||||||||||||||
|
Operating income
|
25.1 | 57.2 | 95.9 | 126.2 | 11.7 | 156.4 | |||||||||||||||||||
|
Other income (expense)
|
|||||||||||||||||||||||||
|
Interest expense
|
(2.5 | ) | (2.5 | ) | (2.7 | ) | (2.8 | ) | (0.1 | ) | (61.7 | ) | |||||||||||||
|
Minority interests
|
(0.6 | ) | (1.9 | ) | (2.8 | ) | (4.1 | ) | (0.4 | ) | (0.1 | ) | |||||||||||||
|
Other, net
|
(0.9 | ) | (0.1 | ) | (1.3 | ) | (1.4 | ) | — | (1.1 | ) | ||||||||||||||
|
Total other income (expense)
|
(4.0 | ) | (4.5 | ) | (6.8 | ) | (8.3 | ) | (0.5 | ) | (62.9 | ) | |||||||||||||
|
Income before income taxes
|
21.1 | 52.7 | 89.1 | 117.9 | 11.2 | 93.5 | |||||||||||||||||||
|
Income tax expense
|
8.9 | 21.3 | 36.6 | 48.3 | 4.6 | 36.6 | |||||||||||||||||||
|
Net income
|
$ | 12.2 | $ | 31.4 | $ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | |||||||||||||
|
Earnings per share — Class A, basic
|
$ | 2,994.24 | $ | 2,960.24 | $ | 2,952.12 | $ | 3,972.08 | — | — | |||||||||||||||
|
Earnings per share — Class A, diluted
|
$ | 2,994.24 | $ | 2,960.24 | $ | 2,952.12 | $ | 3,972.08 | — | — | |||||||||||||||
|
Weighted average shares — Class A, basic
|
16,940 | 16,940 | 16,940 | 16,940 | — | — | |||||||||||||||||||
|
Weighted average shares — Class A, diluted
|
16,940 | 16,940 | 16,940 | 16,940 | — | — | |||||||||||||||||||
|
Earnings per share — Class B, basic
|
$ | 3,190.49 | $ | 4,200.98 | $ | 4,442.12 | $ | 4,012.08 | — | — | |||||||||||||||
|
Earnings per share — Class B, diluted
|
$ | 3,190.49 | $ | 4,200.98 | $ | 4,442.12 | $ | 4,012.08 | — | — | |||||||||||||||
|
Weighted average shares — Class B, basic
|
570 | 570 | 570 | 570 | — | — | |||||||||||||||||||
|
Weighted average shares — Class B, diluted
|
570 | 570 | 570 | 570 | — | — | |||||||||||||||||||
|
Earnings per share, basic
|
— | — | $ | 376.70 | $ | 410.64 | |||||||||||||||||||
|
Earnings per share, diluted
|
— | — | $ | 376.70 | $ | 409.84 | |||||||||||||||||||
|
Weighted average shares, basic
|
— | — | 17,510 | 138,627 | |||||||||||||||||||||
|
Weighted average shares, diluted
|
— | — | 17,510 | 138,899 | |||||||||||||||||||||
|
Pro forma earnings per share, basic
|
|||||||||||||||||||||||||
|
Pro forma earnings per share, diluted
|
|||||||||||||||||||||||||
|
Pro forma weighted average shares, basic
|
|||||||||||||||||||||||||
|
Pro forma weighted average shares, diluted
|
|||||||||||||||||||||||||
|
Dividends per common share, Class A
|
$ | 975 | $ | 6,200 | $ | 1,490 | $ | 40 | $ | — | $ | — | |||||||||||||
|
Dividends per common share, Class B
|
$ | 1,950 | $ | 12,400 | $ | 2,980 | $ | 80 | $ | — | $ | — | |||||||||||||
44
Table of Contents
| Predecessor | Successor | ||||||||||||||||||||||||
|
Year |
Year |
Year |
Year |
One Month |
11 Months |
||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
January 30, |
December 31, |
||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
2007
|
||||||||||||||||||||
| (In millions, except as otherwise indicated) | |||||||||||||||||||||||||
|
Balance Sheet Data:
|
|||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 6.3 | $ | 10.4 | $ | 5.9 | $ | 3.7 | $ | 2.0 | $ | 10.1 | |||||||||||||
|
Working capital
|
112.3 | 115.6 | 129.0 | 212.3 | 211.1 | 663.5 | |||||||||||||||||||
|
Total assets
|
265.3 | 323.9 | 434.0 | 481.0 | 474.2 | 2,925.0 | |||||||||||||||||||
|
Total debt, including current portion
|
24.7 | 14.2 | 3.1 | 13.0 | 4.8 | 868.4 | |||||||||||||||||||
|
Minority interest in subsidiaries
|
6.8 | 8.7 | 11.5 | 15.6 | 16.0 | 100.7 | |||||||||||||||||||
|
Stockholders’ equity
|
120.9 | 132.3 | 168.8 | 242.6 | 245.2 | 1,210.0 | |||||||||||||||||||
|
Other Financial Data:
|
|||||||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | 25.1 | $ | 32.3 | $ | 30.4 | $ | 18.4 | $ | 6.6 | $ | 110.2 | |||||||||||||
|
Net cash (used in) investing activities
|
(8.5 | ) | (1.4 | ) | (6.7 | ) | (3.3 | ) | (0.2 | ) | (1,788.9 | ) | |||||||||||||
|
Net cash (used in) provided by financing activities
|
(15.5 | ) | (26.8 | ) | (21.1 | ) | (17.2 | ) | (8.3 | ) | 1,687.2 | ||||||||||||||
45
Table of Contents
PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2007, McJunkin Red Man Holding Corporation,
an affiliate of The Goldman Sachs Group, Inc., acquired a
majority of the equity of McJunkin Red Man Corporation (then
known as McJunkin Corporation) (the “GS Acquisition”).
In connection with the GS Acquisition, McJunkin Corporation
entered into a $575 million term loan facility on
January 31, 2007. On October 31, 2007, McJunkin
Corporation completed a business combination transaction with
Red Man Pipe & Supply Co. (the “Red Man
Transaction”). At that time McJunkin Corporation was
renamed McJunkin Red Man Corporation. McJunkin Red Man
Corporation entered into a $650 million revolving credit
facility on October 31, 2007 in connection with the Red Man
Transaction. This revolving credit facility was upsized to
$700 million on June 10, 2008.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the twelve months ended
December 31, 2007 has been derived from (1) the
audited consolidated statement of income of McJunkin Corporation
for the one month ended January 30, 2007 (before the GS
Acquisition), (2) the audited consolidated statement of
income of McJunkin Red Man Holding Corporation for the eleven
months ended December 31, 2007 (which includes the results
of McJunkin for 11 months and the results of Red Man for
the two months ended December 31, 2007), and (3) the
audited statement of operations of Red Man Pipe &
Supply Co. for the twelve months ended October 31, 2007.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the twelve months ended
December 31, 2007 has been adjusted to exclude the results
of Red Man for the two months ended December 31, 2007 and
to give pro forma effect to (1) the GS Acquisition and the
Red Man Transaction as if each such transaction had occurred on
January 1, 2007, and (2) our entering into our
$575 million term loan facility and our $700 million
revolving credit facility, as if we had entered into these
facilities on January 1, 2007.
The unaudited pro forma consolidated income statement of
McJunkin Red Man Holding Corporation for the six months ended
June 28, 2007 has been derived from (1) the audited
consolidated statement of income of McJunkin Corporation for the
one month ended January 30, 2007 (before the GS
Acquisition), (2) the unaudited consolidated statement of
income of McJunkin Red Man Holding Corporation for the five
months ended June 28, 2007 (before the Red Man
Transaction), and (3) the unaudited consolidated statement
of operations of Red Man Pipe & Supply Co. for the six
months ended April 30, 2007. The unaudited pro forma
consolidated income statement of McJunkin Red Man Holding
Corporation for the six months ended June 28, 2007 has been
adjusted to give pro forma effect to (1) the GS Acquisition
and the Red Man Transaction as if each such transaction had
occurred on January 1, 2007, and (2) our entering into
our $575 million term loan facility and our
$700 million revolving credit facility, as if we had
entered into these facilities on January 1, 2007.
The purchase price allocation for the GS Acquisition has been
finalized but the purchase price allocation for the Red Man
Transaction has not been finalized. We expect the purchase price
allocation for the Red Man Transaction to be finalized by
October 31, 2008. The purchase price has been finalized for
both the GS Acquisition and the Red Man Transaction and the
consideration for such transactions will not increase.
The unaudited pro forma consolidated financial statements do not
give effect to our acquisition of Midway-Tristate Corporation
(“Midway”) on April 30, 2007 and therefore do not
include Midway’s results for the four months ended
April 30, 2007 nor do they give pro forma effect to Midway
as if the acquisition had occurred on January 1, 2007.
Midway was not a “significant” acquisition within the
meaning of
Rule 3-05
of
Regulation S-X.
The unaudited pro forma income statements also do not give
effect to our purchase of the approximate 49% minority voting
interest in Midfield, one of our subsidiaries, on July 31,
2008. Red Man originally acquired 51% of Midfield in 2005 and
the purchase of the remaining 49% in July 2008 was not a
“significant” acquisition within the meaning of Rule
3-05 of
Regulation
S-K. The
assets and liabilities of Midfield are included in the audited
consolidated financial statements of MRM at December 31,
2007.
The unaudited pro forma consolidated financial statements are
provided for informational purposes only and do not purport to
represent or be indicative of the results that actually would
have been obtained
46
Table of Contents
had the transactions described above occurred on
January 1, 2007 and are not intended to project our
consolidated financial position or results of operations for any
future period. The pro forma adjustments are based on available
information and certain assumptions that we believe are
reasonable. The pro forma adjustments and certain assumptions
are described in the accompanying notes. Other information
included under this heading has been presented to provide
additional analysis. We will expense the costs of this offering.
The unaudited pro forma consolidated financial statements below
should be read in conjunction with the historical financial
statements, the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this prospectus.
PRO FORMA INCOME
STATEMENT FOR THE SIX MONTHS ENDED JUNE 28, 2007
|
McJunkin |
||||||||||||||||||||||||
| McJunkin | Red Man | Red Man | Pro Forma | |||||||||||||||||||||
|
One Month |
Five Months |
Six Months |
Combined Six |
|||||||||||||||||||||
|
Ended |
Ended |
Ended |
Months Ended |
|||||||||||||||||||||
|
January 30, |
June 28, |
April 30, |
Pro Forma |
June 28, |
||||||||||||||||||||
|
2007
|
2007
|
2007
|
Adjustments
|
2007
|
||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Sales
|
$ | 142.5 | $ | 784.9 | $ | 934.7 | $ | 1,862.1 | ||||||||||||||||
|
Costs and expenses
|
||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
114.6 | 635.9 | 779.4 | 1,529.9 | ||||||||||||||||||||
|
Selling, general and administrative expenses
|
14.6 | 80.7 | 73.9 | 169.2 | ||||||||||||||||||||
|
Depreciation and amortization
|
0.3 | 1.7 | 2.8 | 0.6 | (a) | 5.4 | ||||||||||||||||||
|
Amortization of intangibles
|
— | 4.6 | 1.6 | 6.1 | (b) | 12.3 | ||||||||||||||||||
|
Profit sharing
|
1.3 | 5.6 | 4.4 | 11.3 | ||||||||||||||||||||
|
Stock-based compensation
|
— | 1.3 | 1.0 | 1.0 | (c) | 3.3 | ||||||||||||||||||
|
Total costs and expenses
|
130.8 | 729.8 | 863.1 | 7.7 | 1,731.4 | |||||||||||||||||||
|
Operating income
|
11.7 | 55.1 | 71.6 | (7.7 | ) | 130.7 | ||||||||||||||||||
|
Other income (expense)
|
||||||||||||||||||||||||
|
Interest expense
|
(0.1 | ) | (24.3 | ) | (9.1 | ) | 3.1 | (d) | (30.4 | ) | ||||||||||||||
|
Minority interest
|
(0.4 | ) | — | (0.1 | ) | 0.4 | (e) | (0.1 | ) | |||||||||||||||
|
Other, net
|
— | (0.9 | ) | 0.2 | (0.7 | ) | ||||||||||||||||||
|
Total other income (expense)
|
(0.5 | ) | (25.2 | ) | (9.0 | ) | 3.5 | (31.2 | ) | |||||||||||||||
|
Income before income taxes
|
11.2 | 29.9 | 62.6 | (4.2 | ) | 99.5 | ||||||||||||||||||
|
Income tax expense
|
4.6 | 12.3 | 23.4 | (3.1 | )(f) | 37.7 | ||||||||||||||||||
|
Net income
|
$ | 6.6 | $ | 17.6 | $ | 39.2 | $ | (1.4 | ) | $ | 61.8 | |||||||||||||
|
Earnings per share, basic
|
$ | 376.70 | $ | 171.69 | $ | 220.22 | — | — | ||||||||||||||||
|
Earnings per share, diluted
|
376.70 | 171.36 | 220.22 | — | — | |||||||||||||||||||
|
Weighted average shares, basic
|
17,510 | 102,594 | 178,000 | — | — | |||||||||||||||||||
|
Weighted average shares, diluted
|
17,510 | 102,792 | 178,000 | — | — | |||||||||||||||||||
|
Pro forma earnings per share, basic
|
||||||||||||||||||||||||
|
Pro forma earnings per share, diluted
|
||||||||||||||||||||||||
|
Pro forma weighted average shares, basic(g)
|
||||||||||||||||||||||||
|
Pro forma weighted average shares, diluted(g)
|
||||||||||||||||||||||||
| (a) | Reflects the increase in depreciation resulting from the revaluation of our property, plant and equipment in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. All significant assets that were acquired in each of these transactions were revalued to their estimated fair value. The pro forma adjustment was determined by dividing the fair value of each asset over the newly determined life of the respective asset as determined as of the date of the transactions. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Utilizing this asset-by-asset approach, we determined that six months of depreciation for the assets acquired in the GS Acquisition would have equated to $2.5 million, and six months of depreciation for the assets acquired in the Red Man Transaction would have equated to $2.9 million. Therefore, the pro forma adjustment includes a $544,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $80,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $624,000 overall. |
47
Table of Contents
| Fair Value of Fixed Assets Acquired in the GS Acquisition | ||||||||
|
Asset Description
|
Fair Value | Average Life | ||||||
| (in millions) | ||||||||
|
Land
|
$ | 5.0 | ||||||
|
Buildings and improvements
|
10.1 | 40 | ||||||
|
Machinery, shop equipment, and vehicles
|
15.7 | 5 | ||||||
|
Furniture, fixtures, and office equipment
|
2.9 | 3 | ||||||
| Fair Value of Fixed Assets Acquired in the Red Man Transaction | ||||||||
|
Asset Description
|
Fair Value | Average Life | ||||||
| (in millions) | ||||||||
|
Land
|
$ | 1.3 | ||||||
|
Buildings and improvements
|
3.2 | 40 | ||||||
|
Machinery, shop equipment, and vehicles
|
4.4 | 8 | ||||||
|
Furniture, fixtures, and office equipment
|
6.1 | 3 | ||||||
| (b) | Reflects the increase in amortization of intangibles in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. In accordance with the purchase accounting method, the fair value of certain identifiable assets is amortized over the asset’s estimated life. The pro forma adjustment was determined by dividing the fair value of the intangible asset over the estimated life of the asset. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Using straight line amortization, we determined that the six month amortization expense for the assets related to the GS Acquisition is $5.3 million, and the six month amortization expense for the assets related to the Red Man Transaction is $6.9 million. Therefore the pro forma adjustment includes a $707,500 increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $5,371,000 increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $6,078,500 overall. |
| GS Acquisition-related Amortizable Intangibles | ||||||||||||
|
Amortizable Intangible
|
Value | Estimated Life (in Years) | ||||||||||
| (in millions) | ||||||||||||
|
Backlog
|
$ | 1.6 | 1 | |||||||||
|
Customer Base
|
356.0 | 40 | ||||||||||
|
Non-Compete Agreements
|
1.0 | 5 | ||||||||||
| Red Man Transaction-related Amortizable Intangibles | ||||||||||||
|
Amortizable Intangible
|
Value | Estimated Life (in Years) | ||||||||||
| (in millions) | ||||||||||||
|
Red Man Backlog
|
$ | 2.0 | 1 | |||||||||
|
Red Man Customer Base
|
229.0 | 17 | ||||||||||
| (c) | Reflects compensation expense relating to the equity awards granted to certain employees in connection with the GS Acquisition and the Red Man Transaction, as if each had occurred on January 1, 2007. A Black-Scholes option pricing model was used to estimate the fair value of the stock options granted in 2007. For purposes of measuring compensation, we relied on a calculated value that requires certain assumptions including the volatility based on the appropriate industry sector. For a discussion of these assumptions, see Note 9 to our historical financial statements for the eleven months ended December 31, 2007. This adjustment was calculated based on the actual expense recorded in June 2008, because this would have reflected six months of stock-based compensation expense using the aforementioned assumptions. Any forfeitures would have been immaterial in determining this adjustment. |
| (d) | Reflects the interest expense for (1) interest resulting from our entering into our $575 million term loan facility and the $700 million revolving credit facility, as if we entered into these facilities on January 1, 2007 and (2) amortization of the related deferred financing costs. To calculate interest expense, an average interest rate of 7.11% based on LIBOR was multiplied by an average annual debt balance of $802 million. The total annual interest expense based on the assumptions described is $57.5 million, and the total for six months would be $28.5 million. The total adjustment to the pro forma financials for interest expense is a decrease of $3.3 million. Deferred financing fees for both the GS Acquisition and the Red Man Transaction were recorded at the closing dates, and the pro forma adjustment assumes that both transactions occurred as of January 1, 2007. The deferred financing fees for the GS Acquisition were $15.5 million and the deferred financing fees for the Red Man Transaction were $7.7 million. These fees are amortized using the straight line amortization method over 74 months. Therefore, the six month amortization expense related to the deferred financing fees for six months is $1,896,000. The total adjustment to the pro forma financials for deferred financing fees is an increase of $326,000. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A 1/8% change in interest rates would have resulted in a $501,000 change in interest expense for the six-month period. No pro forma adjustment has been made to reflect an increase in interest expense that would have resulted had we entered into our $450 million junior term loan facility at any time during the six-month period because our entry into this facility was not related to funding the Red Man Transaction or the GS Acquisition. |
| (e) | Reflects elimination of our minority interest related to McJunkin Appalachian Oilfield Supply Company in connection with the GS Acquisition on January 31, 2007 as if we acquired the minority interest on January 1, 2007. |
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| (f) | Reflects the reduction in income tax expense as a result of (1) the pro forma adjustments described above, which resulted in a lower amount of pre-tax income, and (2) the lower effective income tax rate applicable to our combined company, which is lower than the historical income tax rates applicable to McJunkin and Red Man separately, as if our combined company’s current income tax rate was in effect from January 1, 2007 onward. The tax rate assumed in this calculation was 37.5%. The total adjustment necessary was calculated by multiplying this rate with the total adjusted pre-tax income. The adjustment needed is the difference between this calculated rate and the tax recorded in the respective financial statements. |
| (g) | Stock options are disregarded in the calculation of earnings per share if they are determined to be anti-dilutive. At June 28, 2007, the company’s anti-dilutive stock options totaled 1,169. |
PRO FORMA INCOME
STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007
|
McJunkin |
Red Man |
||||||||||||||||||||||||||||
| McJunkin | Red Man | Red Man | Adjustments | Pro Forma | |||||||||||||||||||||||||
|
Combined |
|||||||||||||||||||||||||||||
|
Eleven |
Twelve |
Twelve |
|||||||||||||||||||||||||||
|
One Month |
Months |
Months |
Two Months |
Months |
|||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||||||||||||||||||
|
January 30, |
December 31, |
October 31, |
December 31, |
Pro Forma |
December 31, |
||||||||||||||||||||||||
|
2007
|
2007
|
2007
|
2007*
|
Adjustments
|
2007
|
||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Sales
|
$ | 142.5 | $ | 2,124.9 | $ | 1,982.0 | $ | (296.7 | ) | $ | 3,952.7 | ||||||||||||||||||
|
Costs and expenses
|
|||||||||||||||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
114.6 | 1,734.6 | 1,632.3 | (252.3 | ) | 3,229.2 | |||||||||||||||||||||||
|
Selling, general and administrative expenses
|
14.6 | 201.9 | 176.9 | (27.7 | ) | 365.7 | |||||||||||||||||||||||
|
Depreciation and amortization
|
0.3 | 5.4 | 6.0 | (1.1 | ) | 0.2 | (a) | 10.8 | |||||||||||||||||||||
|
Amortization of intangibles
|
— | 10.5 | 3.7 | 10.4 | (b) | 24.6 | |||||||||||||||||||||||
|
Profit sharing
|
1.3 | 13.2 | (1.0 | ) | 13.5 | ||||||||||||||||||||||||
|
Stock-based compensation
|
— | 2.9 | 3.7 | (c) | 6.6 | ||||||||||||||||||||||||
|
Total costs and expenses
|
130.8 | 1,968.5 | 1,818.9 | (282.1 | ) | 14.6 | 3,650.4 | ||||||||||||||||||||||
|
Operating income
|
11.7 | 156.4 | 163.1 | (14.6 | ) | (14.6 | ) | 302.3 | |||||||||||||||||||||
|
Other income (expense)
|
|||||||||||||||||||||||||||||
|
Interest expense
|
(0.1 | ) | (61.7 | ) | (20.6 | ) | 7.3 | 14.3 | (d) | (60.8 | ) | ||||||||||||||||||
|
Minority interests
|
(0.4 | ) | (0.1 | ) | — | 0.1 | 0.4 | (e) | 0.0 | ||||||||||||||||||||
|
Other, net
|
— | (1.1 | ) | (2.7 | ) | (0.1 | ) | (3.9 | ) | ||||||||||||||||||||
|
Total other income (expense)
|
(0.5 | ) | (62.9 | ) | (23.3 | ) | 7.3 | 14.7 | 64.7 | ||||||||||||||||||||
|
Income before income taxes
|
11.2 | 93.5 | 139.8 | (7.3 | ) | 0.1 | 237.6 | ||||||||||||||||||||||
|
Income tax expense
|
4.6 | 36.6 | 57.6 | (2.4 | ) | (7.3 | )(f) | 89.1 | |||||||||||||||||||||
|
Net income
|
$ | 6.6 | $ | 56.9 | $ | 82.2 | $ | (4.9 | ) | $ | 7.4 | $ | 148.5 | ||||||||||||||||
|
Earnings per share, basic
|
$ | 376.70 | $ | 410.64 | $ | 461.70 | — | — | — | ||||||||||||||||||||
|
Earnings per share, diluted
|
376.70 | 409.84 | $ | 461.70 | — | — | — | ||||||||||||||||||||||
|
Weighted average shares, basic
|
17,510 | 138,627 | 178,000 | — | — | — | |||||||||||||||||||||||
|
Weighted average shares, diluted
|
17,510 | 138,899 | 178,000 | — | — | — | |||||||||||||||||||||||
|
Pro forma earnings per share, basic
|
|||||||||||||||||||||||||||||
|
Pro forma earnings per share, diluted
|
|||||||||||||||||||||||||||||
|
Pro forma weighted average shares, basic(g)
|
|||||||||||||||||||||||||||||
|
Pro forma weighted average shares, diluted(g)
|
|||||||||||||||||||||||||||||
| * | Represents actual amounts recorded by Red Man during the period; no transaction-related costs have been reversed. |
| (a) | Reflects the increase in depreciation resulting from the revaluation of our property, plant and equipment in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. All significant assets that were acquired in each of these transactions were revalued to their estimated fair value. The pro forma adjustment was determined by dividing the fair value of each asset over the newly determined life of the respective asset as determined as of the date of the transactions. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Utilizing this asset-by-asset approach, we determined that a full year of depreciation for the assets acquired in the GS Acquisition would have equated to $5.1 million, and the full year of |
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| depreciation for the assets acquired in the Red Man Transaction would have equated to $5.7 million. Therefore, the pro forma adjustment includes a $590,000 decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $760,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $170,000 overall. |
|
Fair Value of Fixed Assets Acquired in the GS Acquisition
|
||||||||
|
Asset Description
|
Fair Value | Average Life | ||||||
| (in millions) | ||||||||
|
Land
|
$ | 5.0 | ||||||
|
Buildings and improvements
|
10.1 | 40 | ||||||
|
Machinery, shop equipment, and vehicles
|
15.7 | 5 | ||||||
|
Furniture, fixtures, and office equipment
|
2.9 | 3 | ||||||
|
Fair Value of Fixed Assets Acquired in the Red Man
Transaction
|
||||||||
|
Asset Description
|
Fair Value | Average Life | ||||||
| (in millions) | ||||||||
|
Land
|
$ | 1.3 | ||||||
|
Buildings and improvements
|
3.2 | 40 | ||||||
|
Machinery, shop equipment, and vehicles
|
4.4 | 8 | ||||||
|
Furniture, fixtures, and office equipment
|
6.1 | 3 | ||||||
| (b) | Reflects the increase in amortization of intangibles in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. In accordance with the purchase accounting method, the fair value of certain identifiable assets is amortized over the asset’s estimated life. The pro forma adjustment was determined by dividing the fair value of the intangible asset over the estimated life of the asset. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Using straight line amortization, we determined that the full year amortization expense for the assets related to the GS Acquisition is $10.7 million, and the full year amortization expense for the assets related to the Red Man Transaction is $13.9 million. Therefore, the pro forma adjustment includes a $190,000 increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $10,250,000 increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $10,440,000 overall. |
|
GS Acquisition-related Amortizable Intangibles
|
||||||||
|
Amortizable Intangible
|
Value
|
Estimated Life (in Years)
|
||||||
| (in millions) | ||||||||
|
Backlog
|
$ | 1.6 | 1 | |||||
|
Customer Base
|
356.0 | 40 | ||||||
|
Non-Complete Agreements
|
1.0 | 5 | ||||||
|
Red Man Transaction-related Amortizable Intangibles
|
||||||||
|
Amortizable Intangible
|
Value
|
Estimated Life (in Years)
|
||||||
| (in millions) | ||||||||
|
Red Man Backlog
|
$ | 2.0 | 1 | |||||
|
Red Man Customer Base
|
229.0 | 17 | ||||||
|
Midfield Customer Base
|
31.4 | 13 | ||||||
| (c) | Reflects compensation expense relating to the equity awards granted to certain employees in connection with the GS Acquisition and the Red Man Transaction, as if each had occurred on January 1, 2007. A Black-Scholes option pricing model was used to estimate the fair value of the stock options granted in 2007. For purposes of measuring compensation, we relied on a calculated value that requires certain assumptions including the volatility based on the appropriate industry sector. For a discussion of these assumptions, see Note 9 to our audited historical statements for the eleven months ended December 31, 2007 for these assumptions. This adjustment was calculated based on the actual expense recorded in June 2008, because this would have reflected six months of stock based-compensation expense using the aforementioned assumptions. The adjustment was calculated by annualizing the actual 2008 expense. Any forfeitures would have been immaterial in determining this adjustment. |
| (d) | Reflects the interest expense for (1) interest resulting from our entering into our $575 million term loan facility and the $700 million revolving credit facility, as if we entered into these facilities on January 1, 2007 and (2) amortization of the related deferred financing costs. To calculate interest expense, an average interest rate of 7.11% based on LIBOR was multiplied by an average annual debt balance of $802 million. The total annual interest expense based on the assumptions described is $57.5 million. The total adjustment to the pro forma financials for interest expense is a decrease of $14.6 million. Deferred financing fees for both the GS Acquisition and the Red Man Transaction were recorded at the closing date, and the pro forma adjustment assumes that both transactions occurred as of January 1, 2007. The deferred financing fees for the GS Acquisition were $15.5 million and the deferred financing fees for the Red Man Transaction were $7.7 million. These fees are amortized using the straight line amortization method over 74 months. Therefore, the amortization expense related to the deferred financing fees for the full year is $3,792,000. The total adjustment to the pro forma financials for deferred financing fees is an increase of $338,000. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A 1/8% change in interest rates would have resulted in a $1,002,000 change in interest expense for the twelve-month period. No pro forma adjustment has been made to reflect an increase in interest |
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Table of Contents
| expense that would have resulted had we entered into our $450 million junior term loan facility at any time during the twelve-month period because our entry into this facility was not related to funding the Red Man Transaction or the GS Acquisition. |
| (e) | Reflects elimination of our minority interest related to McJunkin Appalachian Oilfield Supply Company in connection with the GS Acquisition on January 31, 2007 as if we acquired the minority interest on January 1, 2007. |
| (f) | Reflects the reduction in income tax expense as a result of (1) the pro forma adjustments described above, which resulted in a lower amount of pre-tax income, and (2) the lower effective income tax rate applicable to our combined company, which is lower than the historical income tax rates applicable to McJunkin and Red Man separately, as if our combined company’s current income tax rate was in effect from January 1, 2007 onward. The tax rate assumed in this calculation was 37.5%. The total adjustment necessary was calculated by multiplying this rate with the total adjusted pre-tax income. The adjustment needed is the difference between this calculated rate and the tax recorded in the respective financial statements. |
| (g) | Stock options are disregarded in the calculation of earnings per share if they are determined to be anti-dilutive. At December 31, 2007, the company’s anti-dilutive stock options totaled 3,533. |
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Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction
with our financial statements and related notes included
elsewhere in this prospectus. This discussion and analysis
contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including, but
not limited to, those set forth under “Risk Factors”,
“Cautionary Note Regarding Forward-Looking Statements”
and elsewhere in this prospectus.
Overview
We are the largest North American distributor of pipe, valves
and fittings (“PVF”) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are diversified
by geography and end market and we seek to provide
best-in-class
service to our customers by satisfying the most complex,
multi-site needs of some of the largest companies in the energy
and industrial sectors as their primary supplier. As a result,
we have an average relationship of over 20 years with our
top ten customers and our pro forma sales in 2007 were over
twice as large as our nearest competitor in the energy industry.
We believe the critical role we play in our customers’
supply chain, our unmatched scale and extensive product
offering, our broad North American geographic presence, our
customer-linked scalable information systems and our efficient
distribution capabilities serve to solidify our long-standing
customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (“MRO”)
contracts where we have demonstrated an over 99% average annual
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. During the twelve months
ended December 31, 2007 on a pro forma basis, approximately
46% of our sales were attributable to upstream activities,
approximately 22% were attributable to midstream activities, and
approximately 32% were attributable to downstream activities. In
addition, for the eleven months ended December 31, 2007,
without giving pro forma effect to the Red Man Transaction, we
generated sales of $2,124.9 million, EBITDA of
$171 million and net income of $56.9 million, and for
the twelve months ended October 31, 2007, before giving
effect to the Red Man Transaction, Red Man generated sales of
$1,982.0 million, EBITDA of $170 million and net
income of $82.2 million.
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Table of Contents
Key Factors
Affecting Our Business
Our revenues are predominantly derived from the sale of PVF and
other oilfield service supplies to the energy industry in North
America. Our business is therefore dependent upon conditions in
the energy sector and, in particular, maintenance and
expansionary capital expenditures by our customers in the
upstream, midstream and downstream sectors of the energy
industry. Growth in spending has been, and we believe will
continue to be, driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints, and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. The outlook for future oil, natural gas, refined
products and petrochemical prices are influenced by numerous
factors, including but not limited to the factors listed in
“Risk Factors” beginning on page 18 as well as
the following factors:
| • | Oil and gas price volatility. Proceeds from the sale of PVF and related products to the oil and gas industry constitute a significant portion of our sales. As a result, we depend upon the oil and gas industry and its ability and willingness to make capital expenditures to explore for, develop and produce oil and gas and refined products. If these expenditures decline due to declining prices or otherwise, our business will suffer. | |
| • | Fluctuations in steel prices. Fluctuations in steel prices can lead to volatility in the pricing of our products, which can influence the buying patterns of our customers and have a negative impact on our results of operations. | |
| • | Economic downturns. The demand for our products is dependent on the general economy, the energy and industrials sectors and other factors. Downturns in the general economy or in the energy and industrials sectors (domestically or internationally) could cause demand for our products to materially decrease. | |
| • | Increases in customer, manufacturer and distributor inventory levels of PVF and related products. Customer, manufacturer and distributor inventory levels of PVF and related products can change significantly from period to period. Increases in our customers’ inventory levels can have a direct adverse affect on the demand for our products when customers draw from inventory rather than purchase new products. Reduced demand, in turn, would likely result in reduced sales volume and overall profitability. Increased inventory levels by manufacturers or other distributors can cause an oversupply of PVF and related products in our markets and reduce the prices that we are able to charge for our products. Reduced prices, in turn, would likely reduce our profitability. |
History
McJunkin Corporation (“McJunkin”) and Red Man
Pipe & Supply Co. (“Red Man”), two leading
national PVF distributors, completed a business combination
transaction in October 2007 to create our combined company
(“McJunkin Red Man”). The combination created the
largest North American PVF distributor to the energy industry
based on sales, with pro forma sales of more than twice those of
our nearest competitor in the energy industry.
McJunkin
Corporation
McJunkin Corporation (formerly known as McJunkin Supply Company)
was founded in 1921 in Charleston, West Virginia by
brothers-in-law
Jerry McJunkin and H. Bernard Wehrle and initially primarily
served the local oil and gas industry. Following post-war
economic expansion, by the end of the 1960s McJunkin had 29
branches in 18 states with sales of approximately
$60 million, focusing primarily on the downstream sector.
In 1989 McJunkin broadened its upstream presence by merging its
oil and gas division with Appalachian Pipe & Supply
Co. to form McJunkin Appalachian Oilfield Supply Company
(“McJunkin Appalachian”), which focused primarily on
upstream oil and gas customers. Since 2001, McJunkin Corporation
has integrated eight acquisitions, with pro forma
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Table of Contents
revenues in the respective years of acquisition totaling
approximately $300 million, and became a leading supplier
of PVF products to customers in the Appalachian region and
California.
In January 2007, affiliates of Goldman Sachs Capital Partners
(the “Goldman Sachs Funds”) acquired a controlling
interest in McJunkin Corporation. The Goldman Sachs Funds are
part of Goldman Sachs’ Principal Investment Area, a leading
private equity and mezzanine investor.
Red Man
Pipe & Supply Co.
Red Man was founded in 1977 in Tulsa, Oklahoma by the late Lewis
B. Ketchum, a member and former Chief of the Delaware Indian
Tribe headquartered in Oklahoma. The heritage and tradition of
the Delaware Indian was very important to Mr. Ketchum and
was the basis upon which he gave the company the name “Red
Man”. Red Man began as a distributor to the upstream energy
sector and subsequently expanded into the midstream and
downstream energy sectors. Since then, Red Man has grown
organically and through a number of acquisitions in the United
States. In 2005, Red Man acquired an approximate 51% voting
interest in Canadian oilfield distributor Midfield, giving Red
Man a significant presence in the Western Canadian Sedimentary
Basin. We acquired the remaining voting interest and equity
interest in Midfield on July 31, 2008.
In October 2007, McJunkin and Red Man completed a business
combination transaction (the “Red Man Transaction”) to
form the combined company, McJunkin Red Man.
Results of
Operations
Our results of operations for the year ended December 31,
2007 consist of McJunkin Red Man Holding Corporation’s
results of operations for the eleven months ended
December 31, 2007 and McJunkin Corporation’s results
of operations for the one month ended January 30, 2007. Our
financial statements for 2007 include two reporting periods
because on January 31, 2007, the entity now known as
McJunkin Red Man Holding Corporation, an affiliate of the
Goldman Sachs Funds, acquired a majority of the equity of the
entity now known as McJunkin Red Man Corporation (then known as
McJunkin Corporation, or McJunkin), and McJunkin’s basis of
accounting was deemed to have changed on that date. As a result,
we have compared below (1) our results of operations for
the six months ended June 26, 2008 with our results of
operations for the five months ended June 28, 2007 and
McJunkin’s results of operations for the one month ended
January 30, 2007, (2) our results of operations for
the eleven months ended December 31, 2007 and
McJunkin’s results of operations for the one month ended
January 30, 2007 with McJunkin’s results of operations
for the year ended December 31, 2006, and
(3) McJunkin’s results of operations for the year
ended December 31, 2006 with McJunkin’s results of
operations for the year ended December 31, 2005. McJunkin
Red Man Holding Corporation’s results of operations for
periods subsequent to January 30, 2007 (before the GS
Acquisition occurred) may not be comparable to McJunkin’s
results of operations prior to that date.
Operating results for the eleven-month period ended
December 31, 2007 include the results of McJunkin Red Man
Holding Corporation for the full period and the results of Red
Man for the two months after the business combination on
October 31, 2007. Accordingly, results for the year ended
December 31, 2006 (which do not reflect the operating
results of Red Man) are not comparable to the results for the
eleven months ended December 31, 2007 (which include the
operating results of Red Man for two months). Operating results
for the five-month period ending June 28, 2007 do not
reflect the operating results of Red Man, as the Red Man
Transaction did not occur until October 31, 2007.
Accordingly, the results for the six months ended June 26,
2008 (which include the operating results of Red Man for the
full period) are not comparable to the results for the five
months ended June 28, 2007.
Given the materiality of Red Man’s financial results to our
business, we have also compared (1) the results of
operations of Red Man for the year ended October 31, 2007
with Red Man’s results
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Table of Contents
of operations for the year ended October 31, 2006 and
(2) the results of operations of Red Man for the year ended
October 31, 2006 with Red Man’s results of operations
for the year ended October 31, 2005. Red Man’s results
of operations are included in our results of operations
beginning after October 31, 2007.
Six Months
Ended June 26, 2008 (Successor) Compared to the Five Months
Ended June 28, 2007 (Successor) and the One Month Ended
January 30, 2007 (Predecessor)
Sales. Sales include the revenue
recognized from the sales of our products and services to
customers and freight billings to customers, less cash discounts
taken by customers in return for their early payment of our
invoices to them. Our sales were $2,196 million for the six
months ended June 26, 2008 as compared to $785 million
for the five months ended June 28, 2007 and McJunkin’s
sales of $143 million for the one month ended
January 30, 2007. The increase of $1,268 million for
the six months ended June 26, 2008 as compared to the
combined six-month period ended June 28, 2007 was due to
the inclusion of $1,047 million of Red Man sales in the six
months ended June 26, 2008, as well as the inclusion of
Midway Tri-State’s sales for the full six months of 2008
compared with only May and June of 2007 of approximately
$48 million and significant increases in our exploration
and production and petroleum refining business.
Cost of Sales. Cost of sales consists
of the cost of our products at their weighted average actual
cost, in-bound and out-bound freight expense, LIFO expense,
manufacturers’ rebates, physical inventory gains/losses,
and inventory obsolescence charges, less cash discounts that we
earn by early payment of vendor invoices. Our cost of sales was
$1,804 million for the six months ended June 26, 2008
as compared to $636 million for the five months ended
June 28, 2007 and McJunkin’s cost of sales of
$115 million for the one month ended January 30, 2007.
As a percentage of sales, cost of sales was 82.1% for the six
months ended June 26, 2008 as compared to 81.0% for the
five months ended June 28, 2007 and 80.4% for the one-month
period ended January 30, 2007. The increase of
$1.053 billion for the six months ended June 26, 2008
as compared to the combined
six-month
period ended June 28, 2007 was due to the inclusion of
$882 million of Red Man cost of sales, the inclusion of
Midway’s cost of sales for the full six months of 2008
compared with only May and June of 2007 of approximately
$40 million, increases in our exploration and production
and petroleum refining business, and additional LIFO expense
resulting from greater rates of inflation in the cost of our
products in 2008. Certain purchasing costs and warehousing
activities (including receiving, inspection, stocking, picking
and packing costs), as well as general warehousing expenses, are
included in selling, general and administrative expenses and not
in cost of sales. As such, our gross profit may not be
comparable to others who may include these expenses as a
component of cost of goods sold. Purchasing and warehousing
activities costs approximated $24.0 million for the six
months ended June 26, 2008 compared to $11.4 million
for the five months ended June 28, 2007 and McJunkin’s
$2.3 million expense for the one month ended
January 30, 2007.
Selling, General and Administrative
Expenses. Costs such as salaries, wages,
employee benefits, rent, utilities, communications, insurance,
fuel, and taxes (other than state and federal income taxes) that
are necessary to operate our branch and corporate operations are
included in selling, general and administrative expenses. Also
contained in this category are certain items that are
non-operational in nature, including certain costs of acquiring
and integrating other businesses. Our selling, general and
administrative expenses were $200.1 million for the six
months ended June 26, 2008 as compared to
$80.7 million for the five months ended June 28, 2007
and McJunkin’s selling, general and administrative expenses
of $14.6 million for the one month ended January 30,
2007. As a percentage of sales, selling, general and
administrative expenses were 9.1% for the six months ended
June 26, 2008 as compared to 10.3% for the combined
six-month period ended June 28, 2007. The increase of
$104.8 million for the six months ended June 26, 2008
as compared to the combined
six-month
period ended June 28, 2007 was due to the inclusion of Red
Man’s $98.7 million of selling, general and
administrative expenses; the absence of $8.6 million of
expenses incurred in the 2007 periods related to the GS
Acquisition (including payments of $6.2 million to former
McJunkin
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Appalachian shareholders); an increase in wages and benefits of
$8.7 million; Red Man integration expenses of
$2.3 million; and an increase in fuel expense of
$0.8 million.
Depreciation and Amortization. Our
depreciation and amortization was $5.2 million for the six
months ended June 26, 2008 as compared to $1.7 million
for the five months ended June 28, 2007 and McJunkin’s
depreciation and amortization of $0.3 million for the one
month ended January 30, 2007. The increase of
$3.2 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due to the inclusion of depreciation on the Midway
Supply and Red Man assets from the date of each transaction as
well as the write up of assets to fair value in purchase
accounting for the GS Acquisition and the Midway and Red Man
transactions. Depreciation increased $234,000 due to the
Midway transaction, and $2.6 million due to the Red Man
transaction.
Amortization of Intangibles. In
connection with the January 2007 acquisition of a controlling
interest in McJunkin by the Goldman Sachs Funds, the April 2007
acquisition of Midway Tristate by McJunkin, and the October 2007
business combination between Red Man and McJunkin, the fair
values of intangible assets were determined based upon
assumptions related to future cash flows, discounts rates and
asset lives. These amortizable intangible assets consist of
sales order backlog at the date of the transactions, the
customer base of each entity, and non-compete agreements which
are amortized over a weighted average amortization period of
30.3 years. Our amortization of intangibles was
$15.6 million for the six months ended June 26, 2008
as compared to $4.6 million for the five months ended
June 28, 2007 and McJunkin’s amortization of
intangibles of $0.02 million for the one month ended
January 30, 2007. The increase of $11.0 million for
the six months ended June 26, 2008 as compared to the
combined six-month period ended June 28, 2007 was the
result of the timing of each of the three transactions described
above. In particular, the six months ended June 26, 2008
included $10.5 million of amortization expense associated
with the Red Man Transaction for which there were no
corresponding amounts for the five months ended June 28,
2007 and one month ended January 30, 2007. This
$10.5 million of amortization expense includes
$2.6 million of amortization which was estimated in 2007
because the business combination occurred late in the year and
the purchase price allocation was preliminary pending receipt of
appraisals and valuations at year-end. Further, amortization of
intangibles increased $335,000 for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 due to amortization expense related to
the Midway transaction.
Profit Sharing. We have a qualified,
defined-contribution plan for employees who meet eligibility
requirements, generally six months of service. This plan
provides for annual discretionary contributions generally based
upon company operating results. Our profit sharing expense was
$13.5 million for the six months ended June 26, 2008
as compared to $5.6 million for the five months ended
June 28, 2007 and McJunkin’s profit sharing of
$1.3 million for the one month ended January 30, 2007.
The increase of $6.6 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was due to an increase in the number of
our employees primarily as a result of the Midway and Red Man
transactions. Profit sharing increased $7.1 million due to
the Red Man Transaction.
Stock-Based Compensation. Our
equity-based compensation consists of restricted common units in
PVF Holdings LLC, profit units in PVF Holdings LLC, restricted
stock and non-qualified stock options. In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds, certain key
employees received restricted common units in PVF Holdings LLC,
and in conjunction with the acquisition of McJunkin by the
Goldman Sachs Funds and the Red Man Transaction, certain key
employees received profits units in PVF Holdings LLC. In
addition, effective March 27, 2007, our board of directors
approved the formation of the 2007 Restricted Stock Plan and the
2007 Stock Option Plan. The purpose of these plans is to aid us
in recruiting and retaining key employees, directors and
consultants of outstanding ability and to motivate such key
employees, directors and consultants to exert their best efforts
on our behalf by providing them incentives in the form of
restricted stock and stock options. It is expected that the
Company will benefit from the added interest
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which such key employees, directors and consultants will have
in the welfare of the Company as a result of their proprietary
interest in the Company’s success. Our
stock-based
compensation was $3.3 million for the six months ended
June 26, 2008 as compared to $1.3 million for the five
months ended June 28, 2007 and no stock-based compensation
for the one month ended January 30, 2007. The increase of
$2.0 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due to the adoption of our equity plans in January and
March 2007 and the addition of incremental participants as a
result of the Red Man Transaction in October 2007. Stock-based
compensation increased $1.7 million due to the addition of
the Red Man participants in October 2007.
Operating Income. As a result of the
aforementioned items, our operating income was
$154.5 million for the six months ended June 26, 2008
as compared to $55.1 million for the five months ended
June 28, 2007 and McJunkin’s operating income of
$11.7 million for the one month ended January 30,
2007, an increase of $87.7 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007.
Interest Expense. Our interest expense
was $35.0 million for the six months ended June 26,
2008 as compared to $24.3 million for the five months ended
June 28, 2007 and McJunkin’s interest expense of
$0.1 million for the one month ended January 30, 2007.
The increase of $10.6 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was primarily due to increased amounts
of debt incurred
and/or
assumed in conjunction with the GS Acquisition and the Midway
and Red Man transactions, including Midfield’s Canadian
debt. We incurred approximately $83 million of debt on our
asset-backed revolving credit facility in connection with the
acquisition of Midway resulting in an increase in interest
expense of approximately $1.4 million. Interest expense was
further increased by approximately $8.4 million as a result
of the incurrence of approximately $190 million of
incremental borrowings under our asset-backed revolving credit
facility and the assumption of approximately $68 million of
debt in connection with the Red Man Transaction. Interest
expense for the six months ended June 26, 2008 also
reflects approximately $2.6 million of expense associated
with the Junior Term Loan Facility which was entered into on
May 22, 2008, the proceeds of which were used to fund a
dividend to our shareholders.
Minority Interests. Our minority
interests were $0.1 million for the six months ended
June 26, 2008 (all related to Midfield) as compared to none
for the five months ended June 28, 2007 and McJunkin’s
minority interests of $0.4 million for the one month ended
January 30, 2007 (which was due to McJunkin Appalachian).
The decrease of $0.3 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007 was due to the repurchase of the
minority interest held by McJunkin Appalachian’s management
in January 2007. In connection with our 1989 transaction with
Appalachian Pipe and Supply which formed our McJunkin
Appalachian subsidiary, certain members of Appalachian’s
management group retained a minority ownership in the combined
company. As part of the acquisition of McJunkin by the Goldman
Sachs Funds in January 2007, these minority shareholders were
bought out and McJunkin Appalachian became a wholly owned
subsidiary of McJunkin. On December 31, 2007, McJunkin
Appalachian was merged into McJunkin Red Man Corporation. In
addition, in 2005 Red Man acquired an approximate 51% interest
in Midfield.
Other Income (Expense), Net. Our other
expense, net was $0.3 million for the six months ended
June 26, 2008 as compared to other expense, net of
$0.9 million for the five months ended June 28, 2007
and McJunkin’s other expense, net of $15,000 for the one
month ended January 30, 2007. The decrease of
$0.6 million for the six months ended June 26, 2008 as
compared to the combined six-month period ended June 28,
2007 was due in part to $0.4 million derivatives expense,
$0.1 million increase in bank charges, and
$0.1 million increase in directors’ fees.
Income Tax Expense. Our income tax
expense was $43.2 million for the six months ended
June 26, 2008 as compared to $12.3 million for the
five months ended June 28, 2007 and McJunkin’s income
tax expense of $4.6 million for the one month ended
January 30, 2007. The increase of
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$26.3 million for the six months ended June 26, 2008
as compared to the combined six-month period ended June 28,
2007 was due to the inclusion of Red Man’s results, which
added $10.3 million to our income tax expense, and higher
pre-tax income, partially offset by certain tax savings in the
six months ended June 26, 2008. Our effective tax rates
were 36.26% for the six months ended June 26, 2008, 41.18%
for the five months ended June 28, 2007 and 41.08% for the
one month ended January 30, 2007. These rates differ from
the federal statutory rate of 35% principally as a result of
state income taxes. The rate for the six months ended
June 26, 2008 is lower than the rates for the five months
ended June 28, 2007 and the one month ended
January 30, 2007 primarily due to lower state taxes.
Net Income. Our net income was
$75.9 million for the six months ended June 26, 2008
as compared to $17.6 million for the five months ended
June 28, 2007 and McJunkin’s net income of
$6.6 million for the one month ended January 30, 2007.
Net income increased $51.7 million for the six months ended
June 26, 2008 as compared to the combined six-month period
ended June 28, 2007.
Eleven Months
Ended December 31, 2007 (Successor) and One Month Ended
January 30, 2007 (Predecessor) Compared to Year Ended
December 31, 2006 (Predecessor)
Sales. Our sales were $2.1 billion
for the eleven months ended December 31, 2007 and
McJunkin’s sales were $142.5 million for the one month
ended January 30, 2007, as compared to McJunkin’s
sales of $1.7 billion for the year ended December 31,
2006. The increase of $554 million for the combined
twelve-month period ended December 31, 2007 as compared to
the year ended December 31, 2006 was due to the inclusion
of Red Man’s sales of $297 million and Midway’s
sales of approximately $98 million during the 2007 periods,
and increases in our exploration and production and petroleum
refining business.
Cost of Sales. Our cost of sales was
$1.7 billion for the eleven months ended December 31,
2007 and McJunkin’s cost of sales was $115 million for
the one month ended January 30, 2007, as compared to
McJunkin’s cost of sales of $1.4 billion for the year
ended December 31, 2006. As a percentage of sales, cost of
sales was 81.6% for the combined twelve-month period ended
December 31, 2007 as compared to 81.4% for the year ended
December 31, 2006. The increase in cost of sales of
$455 million for the combined twelve-month period ended
December 31, 2007 as compared to the year ended
December 31, 2006 was due to the inclusion of Red
Man’s cost of sales of $252 million and Midway’s
cost of sales of approximately $83 million, and increases
in our exploration and production and petroleum refining
business, partially offset by a decrease in LIFO expense of
$6.5 million due to decreased inflation rates in the cost
of our products in 2007. Certain purchasing costs and
warehousing activities (including receiving, inspection,
stocking, picking and packing costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of cost of goods sold. Purchasing
and warehousing activities costs approximated $34.1 million
for the year ended December 31, 2007 compared to
$26.9 million for the year ended December 31, 2006.
Selling, General and Administrative
Expenses. Our selling, general and
administrative expenses were $201.9 million for the eleven
months ended December 31, 2007 and McJunkin’s selling,
general and administrative expenses were $14.6 million for
the one month ended January 30, 2007, as compared to
McJunkin’s selling, general and administrative expenses of
$173.9 million for the year ended December 31, 2006.
As a percentage of sales, selling, general and administrative
expenses were 9.5% for the combined twelve-month period ended
December 31, 2007 as compared to 10.1% for the year ended
December 31, 2006. The increase of $42.6 million for
the combined twelve-month period ended December 31, 2007 as
compared to the year ended December 31, 2006 was due to the
inclusion of two months of Red Man’s selling, general and
administrative expenses totaling $28.0 million in the
twelve-months ended December 31, 2007; payments of
$6.2 million to the former McJunkin Appalachian
shareholders in 2007; eight months of expenses of approximately
$4.4 million from the Midway operations acquired at the end
of April 2007; $4.2 million of expenses
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related to the GS Acquisition in 2007; an increase in franchise
taxes of $1.3 million due to the increase in shareholders
equity resulting from the GS Acquisition; $0.8 million
in acquisition and integration expenses related to Red Man; a
$0.6 million increase in fuel costs; and $0.3 million
in acquisition and integration expenses related to Midway.
Depreciation and Amortization. Our
depreciation and amortization was $5.4 million for the
eleven months ended December 31, 2007 and McJunkin’s
depreciation and amortization was $0.3 million for the one
month ended January 30, 2007, as compared to
McJunkin’s depreciation and amortization of
$3.9 million for the year ended December 31, 2006. The
increase of $1.8 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was primarily due to the recording
of depreciation expense with respect to the Red Man and Midway
transactions in 2007, and the write up of McJunkin’s assets
to fair value in conjunction with the GS Acquisition in January
2007. Depreciation increased $143,000 in connection with the
write up of the fixed assets related to the GS Acquisition.
Depreciation also increased $1.1 million and $235,000 due
to the Red Man and Midway transactions, respectively.
Amortization of Intangibles. Our
amortization of intangibles was $10.5 million for the
eleven months ended December 31, 2007 and McJunkin’s
amortization of intangibles was $16,000 for the one month ended
January 30, 2007, as compared to McJunkin’s
amortization of intangibles of $0.3 million for the year
ended December 31, 2006. The increase of $10.2 million
for the combined twelve-month period ended December 31,
2007 as compared to the year ended December 31, 2006 was
due to the acquisition of McJunkin by the Goldman Sachs Funds in
January 2007 ($9.8 million) and the Midway acquisition in
April 2007 ($0.7 million). Intangibles amortization
totaling $2.6 million with respect to the Red Man
Transaction was recorded in the six months ended June 26,
2008.
Profit Sharing. Our profit sharing was
$13.2 million for the eleven months ended December 31,
2007 and McJunkin’s profit sharing was $1.3 million
for the one month ended January 30, 2007, as compared to
McJunkin’s profit sharing of $15.1 million for the
year ended December 31, 2006. The decrease of
$0.6 million for the combined twelve-month period ended
December 31, 2007 as compared to the year ended
December 31, 2006 was due to lower
non-qualified
plan contributions as a result of the departure of several
members of management who left the company in connection with
the GS Acquisition, offset in part by an increase of
approximately 100 employees added with the Midway
acquisition on April 30, 2007.
Stock-Based Compensation. Our
stock-based compensation was $3.0 million for the eleven
months ended December 31, 2007. McJunkin had no stock based
compensation for the one month ended January 30, 2007 or
for the year ended December 31, 2006. Our equity-based
compensation consists of restricted common units in PVF Holdings
LLC, profit units in PVF Holdings LLC, restricted stock and
non-qualified stock options. In conjunction with the acquisition
of McJunkin by the Goldman Sachs Funds, certain key employees
received restricted common units in PVF Holdings LLC, and in
conjunction with the acquisition of McJunkin by the Goldman
Sachs Funds and the Red Man Transaction, certain key employees
received profits units in PVF Holdings LLC. In addition,
effective March 27, 2007 our board of directors approved
the formation of the 2007 Restricted Stock Plan and the 2007
Stock Option Plan.
Operating Income. Our operating income
was $156.3 million for the eleven months ended
December 31, 2007 and McJunkin’s operating income was
$11.7 million for the one month ended January 30,
2007, as compared to McJunkin’s operating income of
$126.2 million for the year ended December 31, 2006.
Operating income increased by $41.9 million for the
combined twelve-month period ended December 31, 2007 as
compared to the year ended December 31, 2006 as a result of
the items mentioned above.
Interest Expense. Our interest expense
was $61.7 million for the eleven months ended
December 31, 2007 and McJunkin’s interest expense was
$0.1 million for the one month ended January 30, 2007,
as compared to McJunkin’s interest expense of
$2.8 million for the year ended December 31, 2006. The
increase of $59.0 million for the combined twelve-month
period ended
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December 31, 2007 as compared to the year ended
December 31, 2006 was primarily due to our entering into
and borrowing under our then-existing $300 million
asset-backed revolving credit facility and our $575 million
term loan facility to finance the acquisition of McJunkin by the
Goldman Sachs Funds on January 31, 2007.
Minority Interests. Our minority
interests were $0.1 million for the eleven months ended
December 31, 2007 and McJunkin’s minority interests
were $0.4 million for the one month ended January 30,
2007, as compared to McJunkin’s minority interests of
$4.1 million for the year ended December 31, 2006. The
decrease of $3.6 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was primarily due to the minority
shareholders in McJunkin Appalachian selling their interests as
part of the January 2007 acquisition of McJunkin by the Goldman
Sachs Funds whereby McJunkin Appalachian became a wholly owned
subsidiary.
Other Income (Expense), Net. Our other
expense, net was $1.1 million for the eleven months ended
December 31, 2007 and McJunkin’s other expense, net
was $15,000 for the one month ended January 30, 2007, as
compared to McJunkin’s other expense, net of
$1.4 million for the year ended December 31, 2006. The
decrease of $0.2 million expense for the combined
twelve-month period ended December 31, 2007 as compared to
the year ended December 31, 2006 was due to a change in our
corporate charitable contributions policy in 2007 which reduced
contribution expense in 2007 by $0.4 million and a decrease
in board of directors’ fees of $0.2 million, offset in
part by the absence of gains from the sales of various parcels
of real estate ($0.5 million) and life insurance proceeds
received by McJunkin upon the deaths of certain stockholders not
actively involved in management of the company, which were lower
in 2007 as compared to 2006 by $0.3 million.
Income Tax Expense. Our income tax
expense was $36.5 million for the eleven months ended
December 31, 2007 and McJunkin’s income tax expense
was $4.6 million for the one month ended January 30,
2007, as compared to McJunkin’s income tax expense of
$48.3 million for the year ended December 31, 2006.
The decrease of $7.2 million for the combined twelve-month
period ended December 31, 2007 as compared to the year
ended December 31, 2006 was due to (1) a decrease in
pretax income of $13.2 million, permanent items decreased
by $3.5 million due to one month of minority interest
compared to 12 months in 2006, (2) a decrease in state
taxable income of $14.6 million which resulted in a
decrease in state income tax expense, and (3) a foreign tax
credit of $.8 million in 2007 which we did not have in
2006, offset in part by an increase of $2.4 million
relating to the inclusion of Red Man’s results for the last
two months of 2007.
The total provision for income taxes varied from the
U.S. federal statutory rate due to the following:
| Successor | Predecessor | |||||||||||||||||||||||
| Period | Period | Period | ||||||||||||||||||||||
|
Eleven |
||||||||||||||||||||||||
|
Months |
One Month |
Year |
||||||||||||||||||||||
|
Ended |
Ended |
Ended |
||||||||||||||||||||||
|
December 31, |
January 30, |
December 31, |
||||||||||||||||||||||
|
2007
|
2007
|
2006
|
||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
|
Federal tax expense at statutory rate
|
$ | 32,721 | 35 | % | $ | 3,918 | 35 | % | $ | 41,270 | 35 | % | ||||||||||||
|
State taxes net of federal income tax benefit
|
3,971 | 4.2 | % | 502 | 4.5 | % | 5,653 | 4.8 | % | |||||||||||||||
|
Non-deductible expenses
|
424 | 0.5 | % | 26 | 0.2 | % | 409 | 0.3 | % | |||||||||||||||
|
Foreign
|
(827 | ) | (0.9 | )% | 0 | 0.0 | % | 0 | 0.0 | % | ||||||||||||||
|
Other
|
270 | 0.3 | % | 153 | 1.4 | % | 1,008 | 0.9 | % | |||||||||||||||
|
Income tax provision
|
$ | 36,559 | 39.1 | % | $ | 4,599 | 41.1 | % | $ | 48,340 | 41.0 | % | ||||||||||||
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Net Income. Our net income was
$56.9 million for the eleven months ended December 31,
2007 and McJunkin’s net income was $6.6 million for
the one month ended January 30, 2007, as compared to
McJunkin’s net income of $69.6 million for the year
ended December 31, 2006. The decrease of $6.1 million
for the combined twelve-month period ended December 31,
2007 as compared to the year ended December 31, 2006 was
due to the factors described above.
Year Ended
December 31, 2006 (Predecessor) Compared to the Year Ended
December 31, 2005 (Predecessor)
Sales. McJunkin’s sales were
$1.7 billion for the year ended December 31, 2006 as
compared to $1.4 billion for the year ended
December 31, 2005. The increase of $268 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to increases in our sales
to the exploration and production, gas transmission and
distribution, and petroleum refining end markets.
Cost of Sales. McJunkin’s cost of
sales was $1.4 billion for the year ended December 31,
2006 as compared to $1.2 billion for the year ended
December 31, 2005. As a percentage of sales,
McJunkin’s cost of sales was 81.4% for the year ended
December 31, 2006 as compared to 81.4% for the year ended
December 31, 2005. The increase of $217 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to increases in our sales
to the exploration and production, gas transmission and
distribution, and petroleum refining end markets, partially
offset by a decrease in LIFO expense of $7.9 million
resulting from a decrease in the inflation rate experienced in
the cost of our products. Certain purchasing costs and
warehousing activities (including receiving, inspection,
stocking, picking and packing costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of cost of goods sold. Purchasing
and warehousing activities costs approximated $26.9 million
for the year ended December 31, 2006 compared to
$25.1 million for the year ended December 31, 2005.
Selling, General and Administrative
Expenses. McJunkin’s selling, general
and administrative expenses were $173.9 million for the
year ended December 31, 2006 as compared to
$155.7 million for the year ended December 31, 2005.
As a percentage of sales, McJunkin’s selling, general and
administrative expenses were 10.2% for the year ended
December 31, 2006 as compared to 10.8% for the year ended
December 31, 2005. The increase of $18.2 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to an $8.4 million
increase in incentive compensation expense due to higher levels
of sales and profitability; a $4.6 million increase in
employee salaries, wages, overtime, benefits, and temporary
labor due to increased sales activity; $3.0 million of
consulting fees for strategic planning services; an increase in
fuel costs of $0.6 million; and $0.4 million of
expenses related to the acquisition of McJunkin by the Goldman
Sachs Funds. Additionally, in 2005 we recorded losses of
$0.7 million related to Hurricanes Katrina and Rita on
which insurance recoveries were higher than anticipated. As a
result of these insurance recoveries, 2006 expenses were reduced
by $0.3 million.
Depreciation and
Amortization. McJunkin’s depreciation
and amortization was $3.9 million for the year ended
December 31, 2006 as compared to $3.7 million for the
year ended December 31, 2005. The increase of
$0.2 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to the
depreciation recorded in 2006 regarding certain distribution
center expansions that were made in 2005.
Amortization of
Intangibles. McJunkin’s amortization of
intangibles was $0.3 million for the year ended
December 31, 2006 and $0.3 million for the year ended
December 31, 2005.
Profit Sharing
Expenses. McJunkin’s profit sharing
expenses were $15.1 million for the year ended
December 31, 2006 as compared to $13.1 million for the
year ended December 31, 2005. The increase of
$2.0 million for the year ended December 31, 2006 as
compared to the year ended
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December 31, 2005 was due to increased compensation,
primarily management incentive compensation, increased
profitability and an increase in the number of employees from
year to year.
Operating Income. As a result of the
items mentioned above, McJunkin’s operating income was
$126.2 million for the year ended December 31, 2006 as
compared to $95.9 million for the year ended
December 31, 2005, an increase of $30.3 million.
Interest Expense. McJunkin’s
interest expense was $2.8 million for the year ended
December 31, 2006 as compared to $2.7 million for the
year ended December 31, 2005, an increase of
$0.1 million attributable to marginally higher levels of
debt.
Minority Interests. McJunkin’s
minority interests were $4.1 million for the year ended
December 31, 2006 as compared to $2.8 million for the
year ended December 31, 2005. The increase of
$1.3 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to a
$9.5 million increase in net income at McJunkin Appalachian
to $28.7 million for the year ended December 31, 2006
from $19.2 million for the year ended December 31,
2005.
Other Expenses, Net. McJunkin’s
other expenses, net were $1.4 million for the year ended
December 31, 2006 as compared to $1.3 million for the
year ended December 31, 2005. The increase of
$0.1 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was partly due
to a $0.3 million increase in allowance for doubtful
accounts receivable, offset by a decrease in charitable
contributions expense in 2006 of $0.6 million due to the
absence in 2006 of certain special contributions made in 2005,
including $0.1 million in contributions made to Hurricane
Katrina relief efforts. Additionally, we realized a gain of
$0.7 million on the sale of real estate in 2006, realized a
gain of $0.9 million on the sale of stock in PrimeEnergy in
2005, and received income of $0.5 million from swap
valuation in 2005 (the swap instrument expired in 2005).
Income Tax Expense. McJunkin’s
income tax expense was $48.3 million for the year ended
December 31, 2006 as compared to $36.6 million for the
year ended December 31, 2005. The increase of
$11.7 million for the year ended December 31, 2006 as
compared to the year ended December 31, 2005 was due to
pre-tax income increased $28.8 million and permanent items
increased $1.0 million primarily due to increased minority
interest income related to McJunkin Appalachian.
The total provision for income taxes varied from the
U.S. federal statutory rate due to the following:
| Predecessor | ||||||||||||||||
| Period | Period | |||||||||||||||
|
Year |
Year |
|||||||||||||||
|
Ended |
Ended |
|||||||||||||||
|
December 31, |
December 31, |
|||||||||||||||
|
2006
|
2005
|
|||||||||||||||
| (dollars in thousands) | ||||||||||||||||
|
Federal tax expense at statutory rate
|
$ | 41,270 | 35 | % | $ | 31,193 | 35 | % | ||||||||
|
State taxes net of federal income tax benefit
|
5,653 | 4.8 | % | 4,254 | 4.8 | % | ||||||||||
|
Non-deductible expenses
|
409 | 0.3 | % | 372 | 0.4 | % | ||||||||||
|
Other
|
1,008 | 0.9 | % | 764 | 0.9 | % | ||||||||||
|
Income tax provision
|
$ | 48,340 | 41.0 | % | $ | 36,583 | 41.0 | % | ||||||||
Net Income. McJunkin’s net income
was $69.6 million for the year ended December 31, 2006
as compared to $52.5 million for the year ended
December 31, 2005. The increase of $17.1 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005 was due to the factors described
above.
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Red Man: Year
Ended October 31, 2007 Compared to the Year Ended
October 31, 2006.
Sales. Red Man’s sales were
$2.0 billion for the year ended October 31, 2007 as
compared to $1.8 billion for the year ended
October 31, 2006. The increase of $166.7 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due primarily to an increase of
$179.5 million in Red Man US sales to $1,499.2 million
for the year ended October 31, 2007 as compared to
$1,319.7 million for the year ended October 31, 2006,
partially offset by a $12.8 million decrease in Midfield
sales to $482.8 million for the year ended October 31,
2007 as compared to $495.6 million for the year ended
October 31, 2006. The increase in Red Man US sales was
primarily attributable to growth in upstream and midstream
oil & gas operations reflecting higher spending by
exploration, production and field services companies associated
with increased drilling and completion activities. The decrease
in Midfield sales was attributable to a slowing of spending by
exploration, production and field services companies associated
with decreased drilling and completion activities in Canada.
Cost of Products Sold. Red Man’s
cost of products sold was $1.6 billion for the year ended
October 31, 2007 as compared to $1.6 billion for the
year ended October 31, 2006. As a percentage of sales, Red
Man’s cost of products sold was 82.4% for the year ended
October 31, 2007 as compared to 85.4% for the year ended
October 31, 2006. The increase of $81.2 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due primarily to an increase in
sales of $166.7 million to $1,982.0 million in the
year ended October 31, 2007 as compared to
$1,815.3 million for the year ended October 31, 2006
due primarily to growth in upstream and midstream
oil & gas operations reflecting higher spending by
exploration, production and field services companies associated
with increased drilling and completion activities. The decrease
in the percentage of cost of product sold of 82.4% in 2007 as
compared with 85.4% in 2006 was due to lower cost of product
sold percentages for both the Midfield business and the Red Man
US business in 2007 as compared to 2006, due to lower cost of
product sold percentages of other pipe, valve and fittings
partially offset by an overall increase in tubulars cost of
product sold percentages in 2007 as compared to 2006. Also, Red
Man had an $8.0 million decrease in the LIFO reserve in
2007 as compared to a $35.9 million increase in the LIFO
reserve in 2006. Certain purchasing costs and warehousing
activities (including receiving, inspection, stocking, picking
and packing costs), as well as general warehousing expenses, are
included in selling, general and administrative expenses and not
in cost of products sold. As such, our gross profit may not be
comparable to others who may include these expenses as a
component of cost of goods sold. Purchasing and warehousing
activities costs approximated $17.2 million for the year
ended October 31, 2007 compared to $14.8 million for
the year ended October 31, 2006.
Selling, General and Administrative
Expenses. Red Man’s selling, general and
administrative expenses were $186.6 million for the year
ended October 31, 2007 as compared to $172.2 million
for the year ended October 31, 2006. As a percentage of
sales, Red Man’s selling, general and administrative
expenses were 9.4% for the year ended October 31, 2007 as
compared to 9.5% for the year ended October 31, 2006. The
increase of $14.4 million, or 8.4%, for the year ended
October 31, 2007 as compared to the year ended
October 31, 2006 was due to an increase in sales of
$166.7 million in 2007 compared with 2006, which represents
a 9.2% increase in sales, which resulted in increased selling,
general and administrative expenses commensurate with the sales
activity increase.
Operating Income. Red Man’s
operating income was $163.1 million for the year ended
October 31, 2007 as compared to $92.0 million for the
year ended October 31, 2006. The increase of
$71.1 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was due to the
factors described above.
Interest Expense. Red Man’s
interest expense was $20.6 million for the year ended
October 31, 2007 as compared to $15.0 million for the
year ended October 31, 2006. The increase of
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$5.6 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was due to
higher average borrowings during 2007 as compared to 2006.
Other Income (Expense), Net. Red
Man’s other income (expense), net was $(2.7) million
for the year ended October 31, 2007 as compared to
$3.3 million for the year ended October 31, 2006. The
decrease of $6.0 million for the year ended
October 31, 2007 as compared to the year ended
October 31, 2006 was primarily due to a goodwill impairment
loss on Midfield of $5.1 million recorded in the year ended
October 31, 2007. Red Man performed an impairment analysis
for its goodwill and intangible assets and engaged an
independent valuation specialist to determine the fair values of
Red Man’s business units. The valuation analysis determined
that the fair value of the Nusco pipe division’s goodwill
and intangible assets was lower than their carrying value as of
July 31, 2007.
Income Tax Expense. Red Man’s
income tax expense was $57.6 million for the year ended
October 31, 2007 as compared to $26.5 million for the
year ended October 31, 2006. The increase of
$31.1 million for the year ended October 31, 2007 as
compared to the year ended October 31, 2006 was primarily
due to an increase in earnings before income taxes of
$59.5 million to $139.8 million for the year ended
October 31, 2007 as compared to $80.3 million for the
year ended October 31, 2006 as well as an increase in the
effective income tax rate in 2007 as compared to 2006.
Non-Controlling Interest. Red
Man’s non-controlling interest was $0.1 million for
the year ended October 31, 2007 as compared to
$0.2 million for the year ended October 31, 2006.
Earnings From Discontinued
Operations. Red Man earnings from
discontinued operations were $(2.2) million for the year
ended October 31, 2006. These earnings are associated with
Nusco Mfg., a division of Midfield Supply ULC, which was
disposed of in June 2006.
Gain on Sale of Discontinued
Operations. Red Man recorded a gain on sale
of discontinued operations of $8.2 million for the year
ended October 31, 2006 in connection with the disposition
in June 2006 of Nusco Mfg., a division of Midfield Supply ULC.
Net Income. Red Man’s net income
was $82.2 million for the year ended October 31, 2007
as compared to $59.6 million for the year ended
October 31, 2006. The increase of $22.6 million for
the year ended October 31, 2007 as compared to the year
ended October 31, 2006 was due to the factors described
above.
Red Man: Year
Ended October 31, 2006 Compared to the Year Ended
October 31, 2005.
Sales. Red Man’s sales were
$1.8 billion for the year ended October 31, 2006 as
compared to $1.2 billion for the year ended
October 31, 2005. The increase of $591.2 million for
the year ended October 31, 2006 as compared to the year
ended October 31, 2005 was primarily due to the acquisition
of a controlling interest in Midfield in June 2005. Sales of
Midfield were $495.6 million for the year ended
October 31, 2006 as compared with $158.7 million for
the year ended October 31, 2005, an increase of
$336.9 million due to a full year of sales in 2006. In
addition, Red Man US sales were $1,319.7 million for the
year ended October 31, 2006 as compared with
$1,065.4 million for the year ended October 31, 2005,
an increase of $254.3 million due primarily to growth in
upstream and midstream oil & gas operations reflecting
higher spending by exploration, production & field
services companies associated with increased drilling and
completion activities.
Cost of Products Sold. Red Man’s
cost of products sold was $1.6 billion for the year ended
October 31, 2006 as compared to $1.0 billion for the
year ended October 31, 2005. As a percentage of sales, Red
Man’s cost of products sold was 85.4% for the year ended
October 31, 2006 as compared to 83.6% for the year ended
October 31, 2005. The increase of $528.1 million for
the year ended October 31, 2006 as compared to the year
ended October 31, 2005 was primarily due to the acquisition
of Midfield in June 2005 and growth in upstream and midstream
oil and gas operations in the United States. In addition, Red
Man US cost of products sold was $1,132.5 million for the
year ended October 31, 2006 as compared with
$886.7 million for the year ended October 31, 2005, an
increase of $245.8 million, primarily due to growth in
upstream and midstream oil and gas operations
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reflecting higher spending by exploration, production and field
services companies associated with increased drilling and
completion activities. The increase in cost of product sold as a
percentage of sales of 85.4% in 2006 as compared with 83.6% in
2005 was due to higher cost of product sold percentages for the
Midfield business which was a larger percentage of the overall
Red Man business in 2006 as compared to 2005 and an overall
increase in tubulars cost of product sold percentages in the
United States in 2006 as compared to 2005, partially offset by
lower cost of product sold percentages of other pipe, valve and
fittings business in the United States. Also, Red Man had a
$35.9 million increase in the LIFO reserve in 2006, which
increased its cost of products sold as a percentage of sales as
compared with a $0.7 million reduction in 2005, which
decreased its cost of products sold as a percentage of sales.
Certain purchasing costs and warehousing activities (including
receiving, inspection, stocking, picking and packing costs), as
well as general warehousing expenses, are included in selling,
general and administrative expenses and not in cost of products
sold. As such, our gross profit may not be comparable to others
who may include these expenses as a component of cost of goods
sold. Purchasing and warehousing activities costs approximated
$14.8 million for the year ended October 31, 2006
compared to $10.0 million for the year ended
October 31, 2005.
Selling, General and Administrative
Expenses. Red Man’s selling, general and
administrative expenses were $172.2 million for the year
ended October 31, 2006 as compared to $100.2 million
for the year ended October 31, 2005. As a percentage of
sales, Red Man’s selling, general and administrative
expenses were 9.5% for the year ended October 31, 2006 as
compared to 8.2% for the year ended October 31, 2005. The
increase of $72.0 million for the year ended
October 31, 2006 as compared to the year ended
October 31, 2005 was due primarily to an additional
$47.7 million in expenses for Midfield due to including
them for a full year in 2006. In addition, there was an
additional $18.2 million in employee related expenses in
the United States due primarily to a 12.4% increase in the
overall average headcount in 2006 as compared with 2005 due to
increased business activities. The increase in selling, general
and administrative expenses as a percentage of sales of 9.5% in
2006 as compared with 8.2% in 2005 was primarily due to higher
Midfield expenses as a percentage of overall expenses in 2006 as
compared with 2005.
Operating Income. Red Man’s
operating income was $92.0 million for the year ended
October 31, 2006 as compared to $100.9 million for the
year ended October 31, 2005. The decrease of
$8.9 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due to an
increase in the LIFO reserve of $35.9 million in 2006 as
compared to a $0.7 million reduction in 2005, and an
increase in selling, general and administrative expenses to
$172.2 million in 2006 as compared to $100.2 million
in 2005, partially offset by an increase in pre-LIFO gross
margin of $300.1 million in 2006 as compared to
$200.4 million in 2005.
Interest Expense. Red Man’s
interest expense was $15.0 million for the year ended
October 31, 2006 as compared to $8.4 million for the
year ended October 31, 2005. The increase of
$6.6 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due
primarily to $7.3 million of interest on debt of Midfield
for the year ended October 31, 2006 as compared to
$2.2 million for the year ended October 31, 2005. This
increase was primarily due to a full year of interest in 2006 as
compared to four and one-half months in 2005 due to the
acquisition of Midfield in June 2005. In addition, Red Man U.S.
interest expense for the year ended October 31, 2006 was
$7.7 million as compared to $6.2 million for the year
ended October 31, 2005 due primarily to increased
borrowings in 2006 versus 2005.
Other Income (Expense), Net. Red
Man’s other income (expense), net was $3.3 million for
the year ended October 31, 2006 as compared to
$1.0 million for the year ended October 31, 2005. The
increase of $2.3 million for the year ended
October 31, 2006 as compared to the year ended
October 31, 2005 was primarily due to an insurance
settlement related to Hurricanes Katrina and Rita in 2006.
Income Tax Expense. Red Man’s
income tax expense was $26.5 million for the year ended
October 31, 2006 as compared to $34.2 million for the
year ended October 31, 2005. The decrease of
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$7.7 million for the year ended October 31, 2006 as
compared to the year ended October 31, 2005 was due
primarily to a decrease in earnings before income taxes of
$13.2 million in 2006 as compared to 2005 as well as a
lower effective income tax rate in 2006 as compared to 2005.
Non-Controlling Interest. Red
Man’s non-controlling interest was $0.2 million for
the year ended October 31, 2006 as compared to none for the
year ended October 31, 2005.
Earnings From Discontinued
Operations. Red Man’s earnings from
discontinued operations were $(2.2) million for the year
ended October 31, 2006 as compared to $0.5 million for
the year ended October 31, 2005. These earnings are
associated with Nusco Mfg., a division of Midfield Supply ULC,
which was disposed of in June 2006.
Gain on Sale of Discontinued
Operations. Red Man recorded a gain on sale
of discontinued operations of $8.2 million for the year
ended October 31, 2006 in connection with the disposition
by Midfield of Nusco Mfg. in June 2006.
Net Income. Red Man’s net income
was $59.6 million for the year ended October 31, 2006
as compared to $59.8 million for the year ended
October 31, 2005, a decrease of $0.2 million.
Liquidity and
Capital Resources
Our primary sources of liquidity consist of cash generated from
our operating activities, existing cash balances and borrowings
under our existing revolving credit facilities. Our ability to
generate sufficient cash flows from our operating activities
will continue to be primarily dependent on our sales of pipe,
valves, fittings and other products and services to our
customers at margins sufficient to cover fixed and variable
expenses. As of June 26, 2008 we had cash and cash
equivalents of $8.8 million and up to $542.5 million
available under our revolving credit facilities.
We believe our sources of liquidity will be sufficient to
satisfy the anticipated cash requirements associated with our
existing operations for at least the next twelve months.
However, our future cash requirements could be higher than we
currently expect as a result of various factors. Additionally,
our ability to generate sufficient cash from our operating
activities depends on our future performance, which is subject
to general economic, political, financial, competitive and other
factors beyond our control.
Our credit facilities consist of a $575 million term loan
facility, a $700 million revolving credit facility, a
$450 million junior term loan facility, and the two credit
facilities of our subsidiary Midfield. The $575 million
term loan facility was entered into for purposes of financing
the GS Acquisition in January 2007, and was subsequently amended
in connection with the Red Man Transaction in October 2007. The
$700 million revolving credit facility was entered into for
purposes of financing the Red Man Transaction in October 2007.
The $450 million junior term loan facility was entered into
in connection with our May 2008 recapitalization and the
proceeds of the facility were distributed by way of a dividend
to stockholders of McJunkin Red Man Holding Corporation.
Revolving
Credit Facility and Term Loan Facility
Our subsidiary McJunkin Red Man Corporation is the borrower
under a $700 million revolving credit facility (the
“Revolving Credit Facility”) and a $575 million
term loan facility (the “Term Loan Facility” and,
together with the Revolving Credit Facility, the “Senior
Secured Facilities”). $204.4 million of borrowings
were outstanding and $490.9 million were available under the
Revolving Credit Facility as of June 26, 2008. Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. are co-lead
arrangers and joint bookrunners for each of these facilities.
McJunkin Red Man Corporation entered into the Term Loan
Facility, as well as a $300 million asset-backed revolving
credit facility with The CIT Group/Business Credit, Inc., and
the other financial institutions party thereto, in January 2007
for purposes of financing the acquisition of McJunkin
Corporation by affiliates of Goldman Sachs. The Term Loan
Facility was amended, and the Revolving
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Credit Facility was entered into, for purposes of financing the
Red Man Transaction in October 2007 and refinancing the
$300 million asset-backed revolving credit facility. The
Revolving Credit Facility was upsized on June 10, 2008 from
$650 million to $700 million.
Letter of Credit and Swingline
Sublimits. The Revolving Credit Facility
provides for the extension of both revolving loans and swingline
loans and the issuance of letters of credit. The aggregate
principal amount of revolving loans outstanding at any time
under the Revolving Credit Facility may not exceed
$700 million, subject to adjustments based on changes in
the borrowing base and less the sum of aggregate letters of
credit outstanding and the aggregate principal amount of
swingline loans outstanding, provided that the borrower may
elect to increase the limit on the revolving loans or term loans
outstanding as described in “— Incremental
Facilities” below. There is a $60 million sub-limit on
swingline loans and the total letters of credit outstanding at
any time may not exceed $60 million.
Maturity. The revolving loans have a
maturity date of October 31, 2013 and the swingline loans
have a maturity date of October 24, 2013. Any letters of
credit outstanding under the Revolving Credit Facility will
expire on October 24, 2013. The maturity date of the term
loans under the Term Loan Facility is January 31, 2014.
Interest Rate and Fees. The term loans
bear interest at a rate per annum equal to, at the
borrower’s option, either (i) the greater of the prime
rate and the federal funds effective rate plus 0.50%, plus in
either case 2.25%; or (ii) LIBOR plus 3.25%. On
June 26, 2008, $567.8 million was outstanding under
the Term Loan Facility and the interest rate on these loans was
6.13%.
The revolving loans bear interest at a rate per annum equal to,
at the borrower’s option, either (i) the greater of
the prime rate and the federal funds effective rate plus 0.50%,
plus in either case (a) 0.50% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (b) 0.25% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (c) 0.00% if such ratio is less than 2.00
to 1.00; or (ii) LIBOR plus (a) 1.50% if the
borrower’s consolidated total debt to consolidated adjusted
EBITDA ratio is greater than or equal to 2.75 to 1.00,
(b) 1.25% if such ratio is greater than or equal to 2.00 to
1.00 but less than 2.75 to 1.00, or (c) 1.00% if such ratio
is less than 2.00 to 1.00. Interest on swingline loans is
calculated on the basis of the rate described in clause (i)
of the preceding sentence. The weighted average interest rate on
the revolving loans as of June 26, 2008 was 4.14% and the
interest rate on the swingline loans was 5.25%.
Additionally, the borrower is required to pay a commitment fee
with respect to unutilized revolving credit commitments at a
rate per annum equal to (i) 0.375% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00 and (ii) 0.25% if
such ratio is less than 2.75 to 1.00. The borrower is also
required to pay fees on the stated amounts of outstanding
letters of credit for the account of all revolving lenders at a
per annum rate equal to (i) 1.375% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (ii) 1.125% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (iii) 0.875% if such ratio is less than
2.00 to 1.00. The borrower is required to pay a fronting fee for
the account of the letter of credit issuer in respect of each
letter of credit issued by it at a rate for each day equal to
0.125% per annum on the average daily stated amount of such
letter of credit. The borrower is also obligated to pay directly
to the letter of credit issuer upon each issuance of, drawing
under,
and/or
amendment of, a letter of credit issued by it such amount as the
borrower and the letter of credit issuer agree upon for
issuances of, drawings under or amendments of, letters of credit
issued by the letter of credit issuer.
Prepayments. The borrower may
voluntarily prepay revolving loans, swingline loans and term
loans in whole or in part at the borrower’s option, in each
case without premium or penalty. If the borrower refinances the
term loans on certain terms prior to October 31, 2008, the
borrower will be
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subject to a prepayment penalty of 1.00% of the aggregate
principal amount of such payment. The borrower is required to
prepay outstanding term loans with 100% of the net cash proceeds
of:
| • | a disposition of any business units, assets or other property of the borrower or any of the borrower’s restricted subsidiaries not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
| • | a casualty event with respect to collateral for which the borrower or any of its restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
| • | the issuance or incurrence by the borrower or any of its restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
| • | any sale-leaseback transaction permitted under the Term Loan Facility. |
Not later than the date that is 90 days after the last day
of any fiscal year, the borrower under the Term Loan Facility
will be required to prepay the outstanding term loans under the
Term Loan Facility with an amount equal to (i) 50% of
“excess cash flow” for such fiscal year, provided that
(a) the percentage will be reduced to 25% if the
borrower’s ratio of consolidated total debt to consolidated
EBITDA for the most recent four consecutive fiscal quarters is
no greater than 2.50 to 1.00 but greater than 2.00 to 1.00, and
(b) no prepayment of term loans with excess cash flow is
required if the borrower’s ratio of consolidated total debt
to consolidated EBITDA for the most recent four consecutive
fiscal quarters is no greater than 2.00 to 1.00, minus
(ii) the principal amount of term loans under the Term Loan
Facility voluntarily prepaid during such fiscal year.
In addition, if at any time the aggregate amount of outstanding
loans, unreimbursed letter of credit drawings and undrawn
letters of credit under the Revolving Credit Facility exceeds
the total revolving credit commitments and (ii) the
borrowing base, the borrower will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Revolving
Credit Facility is less than 7% of total revolving credit
commitments for any period of five consecutive business days, or
an event of default pursuant to certain provisions of the
Revolving Credit Facility has occurred, the borrower would be
required to transfer funds from certain blocked accounts daily
into a collection account under the exclusive control of the
agent under the Revolving Credit Facility.
Amortization. The term loans are
repayable in quarterly installments in an amount equal to the
principal amount of the term loans outstanding on the quarterly
installment date multiplied by 0.25%, with the balance of the
principal amount due on the term loan maturity date of
January 31, 2014.
Incremental Facilities. Subject to
certain terms and conditions, the borrower may request an
increase in revolving loan commitments and term loan
commitments. The increase in revolving loan commitments may not
exceed the sum of (i) $150 million, plus
(ii) only after the entire amount in the preceding
clause (i) is drawn, an amount such that on a pro forma
basis after giving effect to the new revolving credit
commitments and certain other specified transactions, the
secured leverage ratio will be no greater than 4.75 to 1.00. The
borrower’s ability to borrow under such incremental
facilities, however, would still be limited by the borrowing
base. The incremental term loan commitments may not exceed the
difference between (i) up to $100 million, and
(ii) the sum of all incremental revolving commitments and
incremental term loan commitments taken together. Any lender
that is offered to provide all or part of the new revolving loan
commitments or new term loan commitments may elect or decline,
in its sole discretion, to provide such new commitments. No
lender is required to fund any of such amounts.
Collateral and Guarantors. The
obligations under the Senior Secured Facilities are guaranteed
by the borrower’s wholly owned domestic subsidiaries. The
obligations under the Revolving Credit Facility are secured,
subject to certain significant exceptions, by substantially all
of
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the assets of the borrower and the subsidiary guarantors,
including (i) a first-priority security interest in
personal property consisting and arising from inventory and
accounts receivable; (ii) a second-priority pledge of
certain of the capital stock held by the borrower or any
subsidiary guarantor; and (iii) a second-priority security
interest in, and mortgages on, substantially all other tangible
and intangible assets of the borrower and each subsidiary
guarantor. The obligations under the Term Loan Facility are
secured, subject to exceptions, by substantially all of the
assets of the borrower and the subsidiary guarantors, including
(i) a second-priority security interest in personal
property consisting of and arising from inventory and accounts
receivable; (ii) a first-priority pledge of certain of the
capital stock held by the borrower or any subsidiary guarantor;
and (iii) a first-priority security interest in, and
mortgages on, substantially all other tangible and intangible
assets of the borrower and each subsidiary guarantor.
Covenants. The Senior Secured
Facilities contain customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, engage in mergers,
consolidations or sales of assets, dispose of subsidiary
interests, make investments, loans or advances, pay dividends,
make payments with respect to subordinated indebtedness, enter
into sale and leaseback transactions, change the business
conducted by the borrower and its subsidiaries taken as a whole,
and enter into agreements that restrict subsidiary dividends or
limit the ability of the borrower or any subsidiary guarantor to
create or keep liens for the benefit of the lenders with respect
to the obligations under the Senior Secured Facilities. The
Senior Secured Facilities require the borrower to enter into
interest rate swap, cap and hedge agreements for purposes of
ensuring that no less than 50% of the aggregate principal amount
of the total indebtedness of the borrower and its subsidiaries
then outstanding is either subject to such interest rate
agreements or bears interest at a fixed rate.
The Term Loan Facility requires the borrower to maintain a
maximum ratio of consolidated total debt to consolidated
adjusted EBITDA and a minimum ratio of consolidated adjusted
EBITDA to consolidated interest expense. Each of these ratios is
calculated for the period that is four consecutive fiscal
quarters prior to the date of calculation. These financial
covenants are set forth in the table below:
|
Maximum |
Minimum |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Total Debt to |
Adjusted EBITDA to |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Adjusted EBITDA |
Interest Expense |
|||||||
|
Four Consecutive Fiscal
Quarters Ending on:
|
Ratio
|
Ratio
|
||||||
|
June 30, 2008
|
4.25:1.00 | (a) | 3.00:1.00 | (b) | ||||
|
September 30, 2008
|
4.25:1.00 | 3.00:1.00 | ||||||
|
December 31, 2008
|
4.25:1.00 | 3.00:1.00 | ||||||
|
March 31, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
June 30, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
September 30, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
December 31, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
March 31, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
June 30, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
September 30, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
December 31, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
March 31, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
June 30, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
September 30, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
December 31, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
March 31, 2012 and thereafter
|
2.50:1.00 | 3.50:1.00 | ||||||
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| (a) | The borrower’s actual consolidated total debt to consolidated Adjusted EBITDA ratio was 2.44:1.00 for the four fiscal quarters ending on December 31, 2007 and was 1.95:1.00 for the four fiscal quarters ending on June 30, 2008. |
| (b) | The borrower’s actual consolidated Adjusted EBITDA to consolidated interest expense ratio was 5.27:1.00 for the four fiscal quarters ending on December 31, 2007 and was 6.86:1.00 for the four fiscal quarters ending on June 30, 2008. |
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then within ten days
after the date on which financial statements for the applicable
period are due under the Term Loan Facility, the Goldman Sachs
Funds and other investors in the borrower (or any direct or
indirect parent of the borrower) have a cure right which allows
any of them to make a direct or indirect equity investment in
the borrower or any restricted subsidiary of the borrower in
cash. If such cure right is exercised, the consolidated total
debt to consolidated adjusted EBITDA ratio of the borrower will
be recalculated to give pro forma effect to the net cash
proceeds received from the exercise of the cure right. The cure
right is subject to certain limitations. For the four prior
consecutive fiscal quarters, there must be at least one fiscal
quarter in which the cure right is not exercised. Additionally,
the equity investment contributed under the cure right may not
exceed the amount necessary to bring the borrower back into
compliance with the restrictions regarding the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio.
The computation of the consolidated total debt to consolidated
adjusted EBITDA ratio and the consolidated adjusted EBITDA to
consolidated interest expense ratio are governed by the specific
terms of the Term Loan Facility. The computation of these ratios
requires a calculation of consolidated adjusted EBITDA. In
general, under the terms of our Revolving Credit Facility, Term
Loan Facility and our Junior Term Loan Facility (as described
below), adjusted EBITDA is defined as consolidated net income,
plus (without duplication and to the extent already deducted in
arriving at consolidated net income):
| • | total interest expense and to the extent not reflected in such total interest expense, any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains on such hedging obligations and costs of surety bonds in connection with financing activities; |
| • | provisions for taxes based on income, profits or capital, including state, franchise and similar taxes and foreign withholding taxes paid or accrued; |
| • | depreciation and amortization; |
| • | other non-cash charges; |
| • | extraordinary losses and unusual or non-recurring charges, severance, relocation costs and curtailments or modifications to pension and post-retirement employee benefit plans; |
| • | restructuring charges or reserves; |
| • | any deductions attributable to minority interests; |
| • | management, monitoring, consulting and advisory fees and related expenses paid to the Goldman Sachs Funds and their affiliates; |
| • | any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of McJunkin Red Man Corporation or net cash proceeds of an issuance of stock or stock equivalents of McJunkin Red Man Corporation; and |
| • | (i) for any period that includes a fiscal quarter occurring prior to the fifth fiscal quarter occurring after January 31, 2007, certain specified cost savings and (ii) for any period that includes a fiscal quarter occurring thereafter, the amount of net cost savings that we project in good faith to be realized as a result of specified actions taken by us in connection with certain |
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Table of Contents
| specified transactions, including the Red Man Transaction (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions, subject to certain limitations and exceptions with respect to clause (ii) above; |
less, without duplication and to the extent included in arriving
at consolidated net income, the sum of the following:
| • | extraordinary gains and unusual or non-recurring gains; |
| • | non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced consolidated net income in any prior period); |
| • | gains on asset sales (other than asset sales in the ordinary course of business); |
| • | any net after-tax income from the early extinguishment of indebtedness or hedging obligations or other derivative instruments; and |
| • | all gains from investments recorded using the equity method; |
provided that certain adjustments, such as certain currency
translation gains and losses and adjustments resulting from the
application of Statement of Financial Accounting Standards
No. 133, shall be excluded from the calculation of
consolidated adjusted EBITDA to the extent they are included in
consolidated net income. Additionally, to the extent included in
consolidated net income, the adjusted EBITDA of properties,
businesses or assets acquired during the applicable period shall
be included in the calculation of consolidated adjusted EBITDA
to the extent not subsequently disposed of, and the adjusted
EBITDA of properties, businesses and assets sold during the
applicable period shall be excluded from the calculation of
adjusted EBITDA.
Also, the calculation of consolidated adjusted EBITDA with
respect to any period includes, to the extent included in
consolidated net income, for the four consecutive fiscal
quarters last ended to the extent such four-quarter period
includes all or any part of a fiscal quarter included in a
“post-acquisition
period” (a period beginning on the date that a permitted
acquisition is consummated and ending on the last day of the
fourth full fiscal quarter immediately following the date that
the permitted acquisition is consummated), a pro forma
adjustment equal to the increase or decrease in consolidated
adjusted EBITDA projected by us in good faith as a result of
(i) actions taken during such post-acquisition period for
the purposes of realizing reasonably identifiable and factually
supportable cost savings or (ii) any additional costs
incurred during such post-acquisition period, in each case in
connection with the combination of the operations of such
acquired entity or business with our operations. For purposes of
this calculation, it may be assumed that such cost savings will
be realizable during the entirety of the four consecutive fiscal
quarters last ended, and that any such pro forma increase or
decrease to consolidated adjusted EBITDA shall be without
duplication for cost savings or additional costs already
included in consolidated adjusted EBITDA for the four
consecutive fiscal quarters last ended.
We present consolidated adjusted EBITDA, or Adjusted EBITDA,
because it is a material component of material covenants within
our Term Loan Facility and Junior Term Loan Facility and also
affects the interest rate charged on revolving loans under our
Revolving Credit Facility. As such, it has a material impact on
our liquidity and financial position. However, Adjusted EBITDA
is not a defined term under GAAP and should not be considered as
an alternative to net income as a measure of
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operating results or as an alternative to cash flows as a
measure of liquidity. Adjusted EBITDA is calculated as follows:
| Predecessor | Successor | Pro Forma | Successor | Pro Forma | Successor | |||||||||||||||||||||||||||
|
Year |
Year |
One Month |
Eleven Months |
Year |
Five Months |
Six Months |
Six Months |
|||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||||||||||||||||||
|
December 31, |
December 31, |
January 30, |
December 31, |
December 31, |
June 28, |
June 28, |
June 26, |
|||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2007
|
2007
|
2007
|
2007
|
2008
|
|||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
|
Net income
|
$ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | $ | 150.8 | $ | 17.6 | $ | 62.8 | $ | 75.9 | ||||||||||||||||
|
Plus:
|
||||||||||||||||||||||||||||||||
|
Interest expense
|
2.7 | 2.8 | 0.1 | 61.7 | 60.8 | 24.3 | 30.4 | 35.0 | ||||||||||||||||||||||||
|
Income tax expense
|
36.6 | 48.3 | 4.6 | 36.5 | 90.5 | 12.3 | 37.7 | 43.2 | ||||||||||||||||||||||||
|
Amortization of intangibles
|
0.3 | 0.3 | — | 10.5 | 24.6 | 4.6 | 12.3 | 15.6 | ||||||||||||||||||||||||
|
Depreciation and amortization
|
3.7 | 3.9 | 0.3 | 5.4 | 10.8 | 1.7 | 5.4 | 5.2 | ||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | — | 3.0 | 2.9 | 1.3 | 2.3 | 3.3 | ||||||||||||||||||||||||
|
Red Man pre-merger contribution
|
— | — | 13.1 | 142.2 | — | 74.5 | — | — | ||||||||||||||||||||||||
|
Midway pre-acquisition contribution
|
— | — | 1.0 | 2.8 | 3.8 | 2.8 | — | — | ||||||||||||||||||||||||
|
LIFO expense
|
20.2 | 12.2 | — | 10.3 | 10.3 | 3.0 | 3.0 | 55.6 | ||||||||||||||||||||||||
|
Non-recurring and transaction-related expenses(a)
|
— | 0.4 | — | 12.7 | 12.7 | 9.1 | 9.1 | 11.9 | ||||||||||||||||||||||||
|
Minority interest / Midfield employee profit sharing plan
|
— | — | 0.4 | 0.9 | 1.3 | — | 0.4 | 3.1 | ||||||||||||||||||||||||
|
Transaction cost savings
|
— | — | — | 1.1 | 1.1 | — | — | — | ||||||||||||||||||||||||
|
Other(b)
|
(0.4 | ) | 1.6 | (0.1 | ) | 0.9 | 0.8 | 0.1 | — | 1.1 | ||||||||||||||||||||||
|
Adjusted EBITDA
|
$ | 115.6 | $ | 139.1 | $ | 26.0 | $ | 344.9 | $ | 370.4 | $ | 151.3 | $ | 163.4 | $ | 249.9 | ||||||||||||||||
| (a) | Includes transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction. | |
| (b) | Includes franchise tax expense, certain consulting fees, gains and losses on the sale of assets and other nonrecurring items. |
Although the Revolving Credit Facility does not require the
borrower to comply with any financial ratio maintenance
covenants, if less than 7% of the then-outstanding credit
commitments are available to be borrowed under the Revolving
Credit Facility at any time, the borrower will not be permitted
to borrow additional amounts unless its pro forma ratio of
consolidated adjusted EBITDA to consolidated fixed charges is at
least 1.00 to 1.00.
The Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $25 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
Events of Default. The Senior Secured
Facilities contain customary events of default. The events of
default include the failure to pay interest and principal when
due, failure to pay fees and any other amounts owed under the
Senior Secured Facilities when due, a breach of certain
covenants in the Senior Secured Facilities, a breach of any
representation or warranty contained in the Senior Secured
Facilities in any material respect, defaults in payments with
respect to any other indebtedness in excess of $15 million
(under the Term Loan Facility) or in excess of $30 million
(under the Revolving Credit Facility), defaults with respect to
other indebtedness in excess of $15 million (under the Term
Loan Facility) or in excess of $30 million (under the
Revolving Credit Facility) that has the effect of accelerating
such indebtedness, bankruptcy, certain events relating to
employee benefits plans, failure of a material subsidiary’s
guarantee to remain in full force and effect, failure of the
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security agreement, pledge agreements pursuant to which the
stock of any material subsidiary is pledged, or any mortgage for
the benefit of the lenders under the Term Loan Facility to
remain in full force and effect, entry of one or more judgments
or decrees against the borrower or its restricted subsidiaries
involving a liability of $15 million or more in the
aggregate (under the Term Loan Facility) or $30 million or
more in the aggregate (under the Revolving Credit Facility), and
the invalidation of subordination provisions of any document
evidencing permitted additional debt having a principal amount
in excess of $15 million.
The Senior Secured Facilities also contain an event of default
upon the occurrence of a change of control. Under the Senior
Secured Facilities, a “change of control” shall have
occurred if (i) the Goldman Sachs Funds and certain of
their affiliates shall cease to beneficially own at least 35% of
the voting power of the outstanding voting stock of the borrower
(other than as a result of one or more widely distributed
offerings of the common stock of the borrower or any direct or
indirect parent of the borrower); or (ii) any person,
entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) shall have acquired beneficial ownership of a
percentage of the voting power of the outstanding voting stock
of the borrower that exceeds the percentage of the voting power
of such voting stock then beneficially owned, in the aggregate,
by the Goldman Sachs Funds and certain of their affiliates,
unless, in the case of either clause (i) or
(ii) above, the Goldman Sachs Funds and certain of their
affiliates have, at such time, the right or the ability by
voting power, contract or otherwise to elect or designate for
election at least a majority of the board of directors of the
borrower; or (iii) a majority of the board of directors of
the borrower ceases to consist of “continuing
directors”, defined as individuals who (a) were
members of the board of directors of the borrower on
October 31, 2007 (or January 31, 2007 for purposes of
determining whether an event of default has occurred under the
Term Loan Facility), (b) who have been a member of the
board of directors for at least 12 preceding months,
(c) who have been nominated to be a member of the board of
directors, directly or indirectly, by the Goldman Sachs Funds
and certain of their affiliates or persons nominated by the
Goldman Sachs Funds and certain of their affiliates or
(d) who have been nominated to be a member of the board of
directors by a majority of the other continuing directors then
in office.
Junior Term
Loan Facility
On May 22, 2008, McJunkin Red Man Holding Corporation, as
the borrower, entered into a $450 Million Term Loan Credit
Agreement (the “Junior Term Loan Facility”). Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. were the
co-lead arrangers and joint bookrunners under this facility. The
proceeds from the Junior Term Loan Facility, along with
$25 million in proceeds from revolving loans drawn under
the Revolving Credit Facility, were used to fund a dividend to
McJunkin Red Man Holding Corporation’s stockholders,
including PVF Holdings LLC. PVF Holdings LLC distributed the
proceeds it received from the dividend to its members, including
the Goldman Sachs Funds and certain of our directors and members
of our management. See “Certain Relationships and Related
Party Transactions — Transactions with the Goldman
Sachs Funds — May 2008 Dividend”. The term loans
under the Junior Term Loan Facility are not subject to
amortization and the principal of such loans must be repaid on
January 31, 2014.
Interest Rate and Fees. The term loans
under the Junior Term Loan Facility bear interest at a rate per
annum equal to, at the borrower’s option, either
(i) the greater of the prime rate and the federal funds
effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%.
Prepayments. We may voluntarily prepay
term loans under the Junior Term Loan Facility in whole or in
part at our option, without premium or penalty. After the
payment in full of the term loans
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Table of Contents
under the Term Loan Facility, we will be required to prepay
outstanding term loans under the Junior Term Loan Facility with
100% of the net cash proceeds of:
| • | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
| • | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
| • | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
| • | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
Also, after the payment in full of the term loans under the Term
Loan Facility, not later than the date that is 90 days
after the last day of any fiscal year, we will be required to
prepay the outstanding term loans under the Junior Term Loan
Facility with an amount equal to (i) 50% of “excess
cash flow” for such fiscal year, provided that (a) the
percentage will be reduced to 25% if the borrower’s ratio
of consolidated total debt to consolidated adjusted EBITDA for
the most recent four consecutive fiscal quarters is no greater
than 2.50 to 1.00 but greater than 2.00 to 1.00, and (b) no
prepayment of term loans with excess cash flow is required if
the borrower’s ratio of consolidated total debt to
consolidated adjusted EBITDA for the most recent four
consecutive fiscal quarters is no greater than 2.00 to 1.00,
minus (ii) the principal amount of term loans under the
Junior Term Loan Facility voluntarily prepaid during such fiscal
year.
We must also prepay the principal amount of the term loans under
the Junior Term Loan Facility with 50% of the cash proceeds
received by us from a “Qualified IPO”, net of
underwriting discounts and commissions and other related
reasonable costs and expenses. A “Qualified IPO” is
defined as a bona fide underwritten sale to the public of our
common stock or the common stock of any of our direct or
indirect subsidiaries or our direct or indirect parent companies
pursuant to a registration statement that is declared effective
by the SEC or the equivalent offering on a private exchange or
platform. Prepayment is only required if we or one of our
subsidiaries receives cash proceeds from the Qualified IPO.
Collateral. The term loans under the
Junior Term Loan Facility are secured by perfected security
interests in and liens on substantially all of the personal
property and certain real property of McJunkin Red Man Holding
Corporation, including the common stock we hold of McJunkin Red
Man Corporation. The term loans are not guaranteed by any of our
subsidiaries or by PVF Holdings LLC.
Certain Covenants and Events of
Default. The Junior Term Loan Facility
contains customary covenants for a holding company facility.
These agreements, among other things, restrict, subject to
certain exceptions, the ability of the borrower to incur
additional indebtedness, create liens on assets, and engage in
activities or own assets other than certain specified activities
and assets. Also, the Junior Term Loan Facility requires the
borrower to maintain a maximum ratio of consolidated total debt
to consolidated adjusted EBITDA and a minimum ratio of
consolidated adjusted EBITDA to consolidated interest expense.
Each of these ratios is calculated for the period that is four
consecutive
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Table of Contents
fiscal quarters prior to the date of calculation. These
financial covenants are set forth in the table below:
|
Maximum |
Minimum |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Total Debt to |
Adjusted EBITDA to |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Adjusted EBITDA |
Interest Expense |
|||||||
|
Four Consecutive Fiscal
Quarters Ending on:
|
Ratio
|
Ratio
|
||||||
|
June 30, 2008
|
4.75:1.00 | (a) | 2.50:1.00 | (b) | ||||
|
September 30, 2008
|
4.75:1.00 | 2.50:1.00 | ||||||
|
December 31, 2008
|
4.75:1.00 | 2.50:1.00 | ||||||
|
March 31, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
June 30, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
September 30, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
December 31, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
March 31, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
June 30, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
September 30, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
December 31, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
March 31, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
June 30, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
September 30, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
December 31, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
March 31, 2012 and thereafter
|
3.00:1.00 | 3.00:1.00 | ||||||
| (a) | The borrower’s actual consolidated total debt to consolidated Adjusted EBITDA ratio was 2.44:1.00 for the four fiscal quarters ending on December 31, 2007 and was 1.95:1.00 for the four fiscal quarters ending on June 30, 2008. |
| (b) | The borrower’s actual consolidated Adjusted EBITDA to consolidated interest expense ratio was 5.27:1.00 for the four fiscal quarters ending on December 31, 2007 and was 6.86:1.00 for the four fiscal quarters ending on June 30, 2008. |
Consolidated adjusted EBITDA is calculated under the Junior Term
Loan Facility in a similar manner as under the Senior Secured
Facilities. See “Description of Our
Indebtedness — Revolving Credit Facility and Term Loan
Facility — Covenants”.
The Junior Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $30 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then the Goldman Sachs
Funds and other investors in the borrower have a cure right that
is similar to the cure right provided with respect to the Term
Loan Facility. See “Description of Our
Indebtedness — Revolving Credit Facility and Term Loan
Facility — Covenants”.
The Junior Term Loan Facility also contains customary events of
default that are similar to the events of default under the
Senior Secured Credit Facilities, including an event of default
upon a change of control. See “Description of Our
Indebtedness — Revolving Credit Facility and Term Loan
Facility — Events of Default”.
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Purchases of Outstanding Loans. Subject
to certain terms and conditions, the Goldman Sachs Funds and
their affiliates may from time to time seek to purchase term
loans under the Junior Term Loan Facility from the lenders under
the facility pursuant to open market purchases in an aggregate
amount not to exceed 30% of the aggregate principal amount of
the loans outstanding under the Junior Term Loan Facility. The
Goldman Sachs Funds and their affiliates may contribute such
purchased loans to PVF Holdings LLC as an equity contribution in
return for equity interests in PVF Holdings LLC and PVF Holdings
LLC will then contribute such loans to the borrower under the
Junior Term Loan Facility as an equity contribution in return
for additional stock of the borrower. In the case of such
purchases of term loans by the Goldman Sachs Funds and their
affiliates followed by contributions of the purchased loans to
PVF Holdings LLC and then to the borrower, the loans subject to
such purchases and contributions shall be cancelled.
In addition, the borrower under the Junior Term Loan Facility
may from time to time seek to purchase, subject to certain terms
and conditions, term loans under the Junior Term Loan Facility
from the lenders under the facility pursuant to open market
purchases. In the case of such purchases by the borrower, the
loans subject to such purchases shall be cancelled.
Midfield
CDN$150 Million (US$148.26 Million) Revolving Credit
Facility
One of our subsidiaries, Midfield Supply ULC, is the borrower
under a CDN$150 million (US$148.26 million) revolving
credit facility (the “Midfield Revolving Credit
Facility”) with Bank of America, N.A. and certain other
lenders from time to time parties thereto. Proceeds from this
facility may be used by Midfield for working capital and other
general corporate purposes. As of June 26, 2008,
US$51.7 million of borrowings were outstanding and
US$51.6 million were available under the Midfield Revolving
Credit Facility. The facility provides for the extension of up
to CDN$150 million (US$148.26 million) in revolving
loans, subject to adjustments based on the borrowing base and
less the aggregate letters of credit outstanding under the
facility. Letters of credit may be issued under the facility
subject to certain conditions, including a CDN$10 million
(US$9.88 million) sub-limit. The revolving loans have a
maturity date of November 2, 2010. All letters of credit
issued under the facility must expire at least 20 business days
prior to November 2, 2010.
Interest Rate and Fees. The revolving
loans bear interest at a rate equal to either (i) the
Canadian prime rate, plus (a) 0.25% if the “average
daily availability” (as defined in the loan and security
agreement for the facility) for the previous fiscal quarter was
less than CDN$30 million (US$29.65 million) or
(b) 0.00% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million), or, at the
borrower’s option, (ii) the rate of interest per annum
equal to the rates applicable to Canadian Dollar Bankers’
Acceptances having a comparable term as the proposed loan
displayed on the “CDOR Page” of Reuter Monitor Money
Rates Service, plus (a) 1.75% if the average daily
availability for the previous fiscal quarter was less than
CDN$30 million (US$29.65 million), (b) 1.50% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CDN$30 million
(US$29.65 million) but less than CDN$60 million
(US$59.3 million), or (c) 1.25% if the if the average
daily availability for the previous fiscal quarter was greater
than or equal to CDN$60 million (US$59.3 million).
The borrower must pay a monthly unused line fee with respect to
unutilized revolving loan commitments equal to (i) 0.25% if
the outstanding amount of borrowings under the facility for the
immediately preceding fiscal quarter are greater than 50% of the
revolving loan commitments, or (ii) 0.375% if otherwise.
The borrower must pay a monthly fronting fee equal to 0.125% per
annum of the stated amount of letters of credit issued and must
also pay a monthly fee to the agent on the average daily stated
amount of letters of credit issued equal to (i) 1.75% if
the average daily availability for the previous fiscal quarter
was less than CDN$30 million (US$29.65 million),
(ii) 1.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million) but less than
CDN$60 million (US$59.3 million), or (iii) 1.25%
if the average daily availability for the previous fiscal
quarter was greater than or equal to CDN$60 million
(US$59.3 million).
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Prepayments. The borrower may prepay
the revolving loans from time to time without premium or penalty.
Collateral and Guarantors. The Midfield
Revolving Credit Facility is secured by substantially all of the
personal property of Midfield Supply ULC and its subsidiary
guarantors, Mega Production Testing Inc. and Hagan Oilfield
Supply Ltd.
Certain Covenants and Events of
Default. The Midfield Revolving Credit
Facility contains customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, make distributions, make
investments, sell, lease or transfer assets, make loans or
advances, pay certain debt, amalgamate, merge, combine or
consolidate with another entity, enter into certain types of
restrictive agreements, engage in any business other than the
business conducted by the borrower and its subsidiaries on the
closing date of the Midfield Revolving Credit Facility, enter
into transactions with affiliates, become a party to certain
employee benefit plans, enter into certain amendments with
respect to subordinated debt, make acquisitions, enter into
transactions which would reasonably be expected to have a
material adverse effect or cause a default, enter into sale and
leaseback transactions, and terminate certain agreements.
Additionally, the Midfield Revolving Credit Facility requires
the borrower to maintain a leverage ratio of no greater than
3.50 to 1.00 (measured on a monthly basis) and to maintain a
fixed charge coverage ratio of at least 1.15 to 1.00 (measured
on a monthly basis). The facility also prohibits the borrower
and its subsidiaries from making capital expenditures in excess
of $5 million in the aggregate during any fiscal year,
subject to exceptions for certain expenditures and provided that
if the actual amount of capital expenditures made in any fiscal
year is less than the amount permitted to be made in such fiscal
year, up to $250,000 of such excess may be carried forward and
used to make capital expenditures in the succeeding fiscal year.
The Midfield Revolving Credit Facility contains customary events
of default. The events of default include, among others, the
failure to pay interest, principal and other obligations under
the facility’s loan documents when due, a breach of any
representation or warranty contained in the loan documents,
breaches of certain covenants, the failure of any loan document
to remain in full force and effect, a default with respect to
other indebtedness in excess of $250,000 if the other
indebtedness may be accelerated due to such default, judgments
against the borrower and its subsidiaries in excess of $250,000
in the aggregate, the occurrence of any loss or damage with
respect to the collateral if the amount not covered by insurance
exceeds $100,000, cessation or governmental restraint of a
material part of the borrower’s or a subsidiary’s
business, insolvency, certain events related to benefits plans,
the criminal indictment of a senior officer of the borrower or a
guarantor or the conviction of a senior officer of the borrower
or a guarantor of certain crimes, an amendment to the
shareholders agreement among Midfield Supply ULC, the entity now
known as McJunkin Red Man Canada Ltd. and Midfield Holdings
(Alberta) Ltd. without the prior written consent of Bank of
America, N.A., and any event or condition that has a material
adverse effect on the borrower or a guarantor.
A “change of control” is also an event of default. A
“change of control” occurs if (i) McJunkin Red
Man Canada Ltd. ceases to own and control, directly or
indirectly, 51% or more of the voting equity interests of
Midfield Supply ULC, (ii) a change in the majority of
directors of Midfield Supply ULC occurs, unless approved by the
then-majority of directors, or (iii) all or substantially
all of Midfield Supply ULC’s assets are sold or transferred.
Midfield
CDN$15 Million (US$14.83 Million) Facility
One of our subsidiaries, Midfield Supply ULC, is also the
borrower under a CDN$15 million (US$14.83 million) credit
facility with Alberta Treasury Branches. The facility is secured
by substantially all of the real property and equipment of
Midfield Supply ULC and its subsidiary guarantors. The facility
contains customary covenants and events of default. The
borrower’s leverage
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ratio must not exceed 3.50 to 1.00, its fixed charge coverage
ratio must be at least 1.15 to 1.00, and its ratio of tangible
asset value to borrowings outstanding must be at least 2.00 to
1.00.
The Midfield CDN$15 million (US$14.83 million) facility and
the Midfield CDN$150 million (US$148.26 million) facility
are subject to an intercreditor agreement which relates to,
among other things, priority of liens and proceeds of sale of
collateral.
Cash
Flows
The following table sets forth our cash flows for the periods
indicated below:
| Red Man Standalone | Predecessor | Successor | ||||||||||||||||||||||||||||||||||||
|
Eleven |
Five |
Six |
||||||||||||||||||||||||||||||||||||
|
Year |
Year |
Month |
Months |
Months |
Months |
|||||||||||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||||||||||||||||||||||||||
| October 31, | December 31, | January 30, | December 31, | June 28, | June 26, | |||||||||||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2005
|
2006
|
2007
|
2007
|
2007
|
2008
|
||||||||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
|
Net cash provided by (used in)
|
||||||||||||||||||||||||||||||||||||||
|
Operating activities
|
$ | (11,419 | ) | $ | (56,459 | ) | $ | 102,284 | $ | 30,385 | $ | 18,352 | $ | 6,617 | $ | 110,226 | $ | 1,895 | $ | 70,497 | ||||||||||||||||||
|
Investing activities
|
(50,411 | ) | 3,497 | (12,510 | ) | (6,701 | ) | (3,262 | ) | (158 | ) | (1,788,920 | ) | (933,256 | ) | (16,437 | ) | |||||||||||||||||||||
|
Financing activities
|
60,904 | 52,663 | (78,170 | ) | (21,084 | ) | (17,207 | ) | (8,254 | ) | 1,687,188 | 945,860 | (55,233 | ) | ||||||||||||||||||||||||
|
Effect of exchange rates on cash and cash equivalents
|
18 | (161 | ) | 1,805 | — | — | — | (372 | ) | (141 | ) | |||||||||||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | (908 | ) | $ | (460 | ) | $ | 13,409 | $ | 2,600 | $ | (2,117 | ) | $ | (1,795 | ) | $ | 8,122 | $ | 14,499 | $ | (1,314 | ) | |||||||||||||||
Cash Flows
Provided by (Used in) Operating Activities
McJunkin Red
Man
Our net cash provided by operating activities for the six months
ended June 26, 2008 was $70.5 million. Cash provided
by operations was primarily attributable to net income of
$75.9 million plus non-cash charges, primarily
depreciation, amortization and stock-based compensation, of
$25.6 million. These increases were partially offset by
increases in operating assets of $200.9 million (primarily
accounts receivable and inventory) and increases in accounts
payable and other current liabilities of $169.9 million.
Our net cash provided by operating activities for the five
months ended June 28, 2007 was $1.9 million. Cash
provided by operations was primarily attributable to net income
of $17.6 million plus non-cash charges, primarily
depreciation, amortization and stock-option based compensation,
of $7.4 million. These increases were partially offset by
increases in operating assets of $33.2 million (primarily
accounts receivable) and increases in accounts payable and other
current liabilities of $10.0 million.
Net cash provided by Red Man’s operations is included in
our net cash provided by operating activities for the six months
ended June 26, 2008, but not in our net cash provided by
operating
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activities for the five months ended June 28, 2007. As a
result, our cash flows for the two periods are not necessarily
comparable.
Our net cash provided by operating activities for the eleven
months ended December 31, 2007 was $110.2 million.
Cash provided by operations was primarily attributable to net
income of $56.9 million plus non-cash charges, primarily
depreciation, amortization and stock-based compensation, of
$26.9 million. In addition, we had decreases in operating
assets of $78.7 million (primarily accounts receivable and
inventory), partially offset by decreases in accounts payable
and other current liabilities of $52.3 million.
McJunkin
McJunkin’s net cash provided by operating activities for
the one month ended January 31, 2007 was $6.6 million.
Cash provided by operations was primarily attributable to net
income of $6.6 million plus non-cash charges, primarily
depreciation, amortization and stock based compensation, of
$0.6 million. The company’s decrease in operating
assets of $10.1 million was offset by a decrease in
accounts payable and other current liabilities of
$10.7 million.
McJunkin’s net cash provided by operating activities for
the year ended December 31, 2006 was $18.4 million.
Cash provided by operations was attributable to net income of
$69.6 million plus non-cash charges, primarily
depreciation, amortization and deferred income taxes, of
$11.9 million, including $4.1 million relating to our
minority interest in McJunkin Appalachian. These increases were
partially offset by increases in operating assets of
$47.9 million (primarily inventory) and decreases in
accounts payable and other current liabilities of
$15.0 million.
McJunkin’s net cash provided by operating activities for
the year ended December 31, 2005 was $30.4 million.
Cash provided by operations was attributable to net income of
$52.5 million plus non-cash charges of $1.6 million
(primarily depreciation of $3.7 million, deferred taxes of
($4.9) million, and $2.8 million relating to our
minority interest in McJunkin Appalachian. In addition, McJunkin
had increases in operating assets of $83.1 million
(primarily accounts receivable and inventory) and increases in
accounts payable and other current liabilities of
$60.6 million.
Red Man
Red Man’s net cash provided by operating activities for the
year ended October 31, 2007 was $102.3 million. Cash
provided by operations was attributable to net income of
$82.2 million plus
non-cash
charges, primarily depreciation, amortization and write-off of
obsolete inventories and deferred income taxes, of
$20.0 million, plus a non-cash charge for impairment loss
on goodwill and intangible assets of $5.1 million, plus a
decrease in operating assets, including accounts receivable and
inventories, of $10.1 million, offset by a decrease in
accounts payable and other net liabilities of $15.1 million.
Red Man’s net cash used in operating activities for the
year ended October 31, 2006 was $56.5 million. Cash
used by operations was attributable to net income of
$59.7 million plus non-cash charges, primarily
depreciation, amortization and write-off of obsolete
inventories, of $9.4 million, plus an increase in accounts
payable and other net liabilities of $52.5 million, offset
by increases in operating assets, including accounts receivable
and inventories of $161.5 million and reduced by a gain on
discontinued operations of $16.6 million which was included
in net income.
Red Man’s net cash used in operating activities for the
year ended October 31, 2005 was $11.4 million. Cash
used by operations was attributable to net income of
$59.8 million plus non-cash charges, primarily
depreciation, amortization and deferred income taxes, of
$20.5 million, plus an increase in accounts payable and
other net liabilities of $32.6 million, offset by increases
in operating assets, including accounts receivable and
inventories of $124.3 million.
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Table of Contents
Cash Flows
Provided by (Used in) Investing Activities
McJunkin Red
Man
Our net cash used in investing activities for the six months
ended June 26, 2008 was $16.4 million. We used
$11.4 million in conjunction with the acquisition of Red
Man Pipe & Supply and $7.6 million for purchases
of property, plant and equipment.
Our net cash used in investing activities for the five months
ended June 28, 2007 was $933.3 million. This was
attributable to the GS Acquisition of McJunkin Corporation in
January 2007 ($849.1 million) and our acquisition of
Midway-Tristate Corporation in April 2007 ($83.3 million).
We also used $2.2 million to purchase property, plant and
equipment and had investment income of $1.3 million.
Our net cash used in investing activities for the eleven months
ended December 31, 2007 was $1.8 billion. This was
attributable to the GS Acquisition of McJunkin Corporation in
January 2007 ($849.1 million), our acquisition of
Midway-Tristate Corporation in April 2007 ($83.3 million),
and the business combination with Red Man ($852.4 million).
We also used $5.5 million to purchase property, plant and
equipment.
McJunkin
McJunkin’s net cash used in investing activities for the
one month ended January 31, 2007 was $0.2 million. The
company used $0.4 million to purchase property, plant and
equipment and received proceeds of $0.2 million from the
sale of certain investments.
McJunkin’s net cash used in investing activities for the
year ended December 31, 2006 was $3.3 million. The
company used $5.3 million to purchase property, plant and
equipment and received $1.6 million in life insurance
proceeds related to a shareholder who was not active in the
business.
McJunkin’s net cash used in investing activities for the
year ended December 31, 2005 was $6.7 million.
Primarily, the company used $8.7 million to purchase
property, plant and equipment and had net proceeds of
$1.0 million from the disposal of certain property, plant
and equipment. The company also received proceeds of
$1.0 million from the sale of certain investments.
Red Man
Red Man’s net cash used in investing activities for the
year ended October 31, 2007 was $12.5 million. The
company used $12.2 million to purchase property, plant and
equipment. In April and May, 2007, Red Man purchased 100%
interests in two separate companies in Canada for an aggregate
of $3.7 million. Red Man also had net proceeds of
$3.4 million from the disposal of certain property, plant
and equipment assets.
Red Man’s net cash provided by investing activities for the
year ended October 31, 2006 was $3.5 million. Red Man
sold the Nusco Manufacturing division of Midfield Supply ULC in
June 2006 for cash proceeds of $35.2 million. Red Man used
$14.4 million of cash to purchase property, plant and
equipment. In June 2006 Red Man purchased certain assets from
Bear Tubular, Inc. for $4.6 million in cash. In 2006
through a series of transactions, Red Man acquired 100%
interests in four separate companies in Canada for an aggregate
of $8.2 million in cash. Red Man also made cash advances to
a related party of $4.9 million. Red Man also had net
proceeds from other investing activities of $0.4 million.
Red Man’s net cash used in investing activities for the
year ended October 31, 2005 was $50.4 million. Red Man
purchased a 51% controlling interest in Midfield Supply ULC in
June 2005 for $45.9 million. In addition, $5.8 million
was used to purchase property, plant and equipment. These uses
were partially offset by proceeds from other investing
activities of $1.3 million.
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Table of Contents
Cash Flows
Provided by (Used in) Financing Activities
McJunkin Red
Man
Our net cash used in financing activities for the six months
ended June 26, 2008 was $55.2 million. We used
$31.4 million for payments on long-term obligations, as
well as $9.3 million for debt issuance costs. We received
cash equity contributions of $5.0 million and proceeds from
long-term obligations of $454.5 million, which was used to
fund $475 million of dividends to our shareholders.
Our net cash provided by financing activities for the five
months ended June 28, 2007 was $945.9 million. This
was attributable to financings for the acquisitions noted above
($747.4 million proceeds from long-term borrowings and cash
equity contributions of $226.2 million). We also made
payments of $4.9 million on other long-term obligations and
$22.8 million for debt issuance costs.
Our net cash used in financing activities for the eleven months
ended December 31, 2007 was $1.7 billion. This was
attributable to financings for the acquisitions noted above
($897.5 million proceeds from long-term borrowings and cash
equity contributions of $899.2 million). We also made
payments of $78.8 million on other long-term obligations
and $30.6 million for debt issuance costs.
McJunkin
McJunkin’s net cash used in financing activities for the
one month ended January 31, 2007 was $8.3 million,
which consisted of payments on long-term obligations.
McJunkin’s net cash used in financing activities for the
year ended December 31, 2006 was $17.2 million. We
paid dividends of $26.9 million to our shareholders which
were partially funded with $10.1 million of long-term debt.
McJunkin’s net cash used in financing activities for the
year ended December 31, 2005 was $21.1 million. The
company used $11.2 million to reduce long-term obligations
and paid $9.8 million in dividends to shareholders.
Red Man
Red Man’s net cash used in financing activities for the
year ended October 31, 2007 was $78.2 million. Red Man
used cash to pay down net borrowings of $45.3 million. In
addition, Red Man paid off its existing line of credit of
$120.0 million in connection with the merger transaction
with McJunkin. Also, Red Man paid $27.6 million on its
operating line of credit, $7.1 million on repayments of
notes payable and $6.2 million in payments to minority
shareholders. These amounts were partially offset by
$120.0 million in advances from McJunkin in connection with
the merger transaction and $6.2 million in capital
contributions associated with the merger. There was an
additional $1.8 million of cash provided by other net
financing activities.
Red Man’s net cash provided by financing activities for the
year ended October 31, 2006 was $52.7 million. Red Man
had cash provided by net borrowings on its line of credit of
$64.0 million. Additionally, Red Man had $13.1 million
provided in advances from minority shareholders. These amounts
of cash provided were partially offset by $20.4 million
used in payments of notes payable and net payments were
$4.0 million on other debt items.
Red Man’s net cash provided by financing activities for the
year ended October 31, 2005 was $60.9 million. Red Man
had cash provided by net borrowings on its line of credit of
$49.2 million. Additionally, Red Man had $20.4 million
provided by additional notes payable. These amounts of cash
provided were partially offset by $8.0 million in payments
to minority shareholders and net payments on $0.7 million
on other debt items.
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Table of Contents
Working
Capital
Our working capital at June 26, 2008 was
$686.1 million, consisting of $1,355.2 million in
current assets and $669.1 million in current liabilities.
Working capital at December 31, 2007 was $663.5 million,
consisting of $1,159.7 million in current assets and
$496.2 million in current liabilities. In addition, we had
available borrowing capacity under our revolving credit
facilities of $542.5 million at June 26, 2008 and
$384.0 million at December 31, 2007.
Contractual
Obligations, Commitments and Contingencies
Contractual
Obligations
The following table summarizes our minimum payment obligations
as of December 31, 2007 relating to long-term debt,
interest payments, capital leases, operating leases, purchase
obligations and other long-term liabilities for the periods
indicated.
| Amount of Commitment Expiration per Period | ||||||||||||||||||||
|
Less than |
More than |
|||||||||||||||||||
|
Total
|
1 year
|
1-3 years
|
3-5 years
|
5 years
|
||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Contractual Obligations
|
||||||||||||||||||||
|
Long-term debt(1)
|
$ | 868.4 | $ | 19.8 | $ | 62.5 | $ | 11.5 | $ | 774.6 | ||||||||||
|
Interest payments(2)
|
366.7 | 64.2 | 123.8 | 118.9 | 59.8 | |||||||||||||||
|
Interest rate swap
|
81.3 | 27.1 | 54.2 | |||||||||||||||||
|
Capital leases
|
10.1 | 0.9 | 1.9 | 1.9 | 5.4 | |||||||||||||||
|
Operating leases
|
46.9 | 18.3 | 18.9 | 7.5 | 2.2 | |||||||||||||||
|
Purchase obligations(3)
|
846.7 | 846.7 | ||||||||||||||||||
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
49.1 | 25.0 | 24.1 | — | — | |||||||||||||||
|
Total
|
$ | 2,269.2 | $ | 1,002.0 | $ | 285.4 | $ | 139.8 | $ | 842.0 | ||||||||||
| (1) | Long-term debt amortization is based on the contractual terms of our credit facilities. As of December 31, 2007, $868.4 million was outstanding under these facilities. On May 22, 2008, we entered into a $450 million junior term loan facility. As of June 26, 2008, giving effect to this new facility, a total of $1,284.8 million was outstanding under our credit facilities. See “Description of Our Indebtedness”. As of June 26, 2008, our total minimum amortization payments with respect to long-term debt were $1,284.8 million, with payments of $16.6 million due within less than one year from June 26, 2008, $63.2 million due within one to three years of that date, $11.5 million due within three to five years of that date, and $1,193.5 million due more than five years from that date. |
| (2) | Interest payments are based on interest rates in effect at December 31, 2007 and assume contractual amortization payments. |
| (3) | Purchase obligations reflect our commitments to purchase PVF products in the ordinary course of business. Information presented with respect to purchase obligations is presented (1) with respect to U.S. purchase obligations, as of June 26, 2008 and (2) with respect to Canadian purchase obligations, as of August 2008. |
Our ability to make payments on and to refinance our
indebtedness, to fund planned capital expenditures and to
satisfy our other capital and commercial commitments will depend
on our ability to generate cash flow in the future. This, to a
certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are
beyond our control. However, our business may not generate
sufficient cash flow from operations, and future borrowings may
not be available to us
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Table of Contents
under our credit facilities in an amount sufficient to enable us
to pay our indebtedness or to fund our other liquidity needs. We
may seek to sell assets to fund our liquidity needs but may not
be able to do so. We may also need to refinance all or a portion
of our indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
Standby
Letters of Credit
In the normal course of business with customers, vendors and
others, we are contingently liable for performance under standby
letters of credit and bid, performance and surety bonds. We were
contingently liable for approximately $8.2 million of
standby letters of credit and bid, performance and surety bonds
at December 31, 2007. Management does not expect any
material amounts to be drawn on these instruments.
Legal
Proceedings
We are a defendant in various legal proceedings, including
numerous asbestos claims. Although we believe that we have
currently established sufficient reserves with respect to these
claims, we cannot assure you that the assumptions on which our
reserves are based will not need to be revised in the future.
Accordingly, if our actual liability for current and future
asbestos claims is higher than the amounts reserved for these
claims, it could have a material adverse effect on our business,
results of operations and financial condition. See
“Business — Legal Proceedings” for more
information.
Seasonality
Our business experiences mild seasonal effects as demand for our
products is generally higher during the months of August,
September and October. Demand for our products during the months
of November and December and early in the year generally tends
to be lower due to a lower level of activity in our end markets
near the end of the calendar year. As a result, our results of
operations for the third quarter are generally stronger than
those for our fourth quarter. In addition, certain
E & P activities typically experience a
springtime reduction due to seasonal thaws and regulatory
restrictions, limiting the ability of drilling rigs to operate
effectively during these periods.
Off-Balance Sheet
Arrangements
We do not have any “off-balance sheet arrangements” as
such term is defined within the rules and regulations of the SEC.
Critical
Accounting Policies
We prepare our consolidated financial statements in accordance
with GAAP. In order to apply these principles, management must
make judgments and assumptions and develop estimates based on
the best available information at the time. Actual results may
differ based on the accuracy of the information utilized and
subsequent events. Our accounting policies are described in the
notes to our audited financial statements included elsewhere in
this prospectus. These critical accounting policies could
materially affect the amounts recorded in our financial
statements. We believe the following describes significant
judgments and estimates used in the preparation of our
consolidated financial statements:
Investments: Investments are carried at
fair value based on quoted market prices. Prior to the
acquisition of McJunkin by the Goldman Sachs Funds on
January 31, 2007, these available for sale investments were
recorded at fair value and reflected as investments on the
balance sheets. Changes to the fair value of the assets were
recorded in other comprehensive income, net of related deferred
taxes. On January 31, 2007, these investments were
reclassified as assets held for sale as more fully described in
Assets Held for Sale below.
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Assets Held for Sale: Certain of the
Company’s assets, consisting principally of certain
available for sale securities and certain real estate holdings,
were designated as non-core assets under the terms of the
acquisition of McJunkin by the Goldman Sachs Funds. The Company
has classified these as assets held for sale in the balance
sheet. A corresponding liability to predecessor shareholders,
net of related deferred income taxes, has been recognized to
reflect the obligation to the shareholders of record at the date
of the acquisition. Upon the sale of these assets, 95% of the
proceeds net of associated taxes will be distributed to the
predecessor shareholders. No gain or loss will be recognized as
the result of the sale of these assets.
Allowance for Doubtful Accounts: A
portion of our accounts receivable will not be collected due to
non-payment, bankruptcies and sales returns. Our accounting
policy for the provision for doubtful accounts requires
providing an amount based on the evaluation of the aging of
accounts receivable, trend analysis, detailed analysis of
potential high-risk customers’ accounts, and the overall
market and economic conditions of our customers. Because this
process is subjective and based on estimates, ultimate losses
may differ significantly from those estimates. Receivable
balances are written off when we determine that the balance is
uncollectible.
Derivatives and Hedging: The Company
uses derivative financial instruments, primarily interest rate
swaps to reduce its exposure to potential interest rate
increases. The Company records all derivatives on the balance
sheet at fair value, which is determined by independent market
quotes. The Company’s swap is designated as a cash flow
hedge and it measures the effectiveness of the hedge, or the
degree that the gain (loss) for the hedging instrument offsets
the loss (gain) on the hedged item, at each reporting period.
The effective portion of the gain (loss) on the derivative
instrument is recognized in other comprehensive income as a
component of equity and, subsequently, reclassified into
earnings when the forecasted transaction affects earnings. The
ineffective portion of a derivative’s change in fair value
is recognized in earnings immediately. Derivatives that do not
qualify for hedge treatment are recorded at fair value with
gains (losses) recognized in earnings in the period of change.
Goodwill and Other Intangible
Assets: Goodwill represents the excess of
cost over the fair value of net assets acquired. Recorded
goodwill balances are not amortized but, instead, are evaluated
for impairment annually or more frequently if circumstances
indicate that an impairment may exist.
Intangible assets are initially recorded at fair value at the
date of acquisition. The determination of fair value involves
key assumptions regarding discount rates and cash flow
estimates. Amortization is provided using the straight-line
method over their estimated useful lives. The carrying value of
intangible assets is subject to an impairment test on an annual
basis, or more frequently if events or circumstances indicate a
possible impairment. The measure of impairment is based on the
estimated fair values.
Income Taxes: Deferred tax assets and
liabilities are recorded for differences between the financial
and tax bases of assets and liabilities using the tax rate
expected to be in effect when tax benefits and costs will be
realized.
The Company adopted Financial Accounting Standards Board (FASB)
Interpretation (FIN) 48, Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement
No. 109, which provides specific guidance on the financial
statement recognition, measurement, reporting and disclosure of
uncertain tax positions taken or expected to be taken in a tax
return. We recognize the impact of our tax positions in our
financial statements if those positions will more likely than
not be sustained on audit, based on the technical merit of the
position.
Inventories: The Company’s
inventories are generally valued at the lower of cost
(principally
last-in,
first-out method) or market. The Company believes the LIFO
method more fairly presents the results of operations by more
closely matching current costs with current revenues. The use of
the last-in, first-out (LIFO) method of accounting for
inventories results in a substantial recognition of the
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effects of inflation in the Company’s financial
statements. LIFO expense or income is determined consistently
year to year in a manner which is in accordance with the
guidance in the 1984 AICPA LIFO Issues Paper,
“Identification and Discussion of Certain Financial
Accounting and Reporting Issues Concerning LIFO
Inventories.” Certain inventories held in Canada totaling
$78.6 million, at December 31, 2007, are valued at the
lower of weighted average cost or market. Periodically, the
Company evaluates inventory for estimated net realizable value
at the lower of cost or market based upon excess slow moving or
obsolete inventory.
Revenue Recognition: The Company
recognizes revenue as products are shipped, title has
transferred to the customer, and the customer assumes the risk
and rewards of ownership. Out-bound shipping and handling costs
are reflected in cost of goods sold, and freight charges billed
to customers are reflected in revenues. Unusual arrangements are
subject to management approval.
Equity-Based Compensation: The
Company’s equity-based compensation consists of restricted
common units, profit units, restricted stock and non-qualified
stock options. The cost of employee services received in
exchange for an award of an equity instrument is measured based
on the grant-date fair value of the award. The Company’s
policy is to expense stock-based compensation using the
fair-value of awards granted, modified or settled. Restricted
common units, profit units, and restricted stock are credited to
equity as they are expensed over their vesting periods based on
the current market value of the shares to be granted.
The fair value of non-qualified stock options is measured on the
grant date of the related equity instrument using the
Black-Scholes option-pricing model and is recognized as
compensation expense over the applicable vesting period.
Recently Issued
Accounting Standards
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 157, Fair Value
Measurements, which establishes a framework for reporting
fair values and expands disclosures about fair value
measurement. Certain provisions of SFAS 157 became
effective beginning January 1, 2008. The adoption of this
standard had no material impact on our financial position or
results of operations. At June 26, 2008, the only financial
assets and financial liabilities that are measured at fair value
on a recurring basis are our derivative instruments.
In February 2008, the FASB issued FASB Staff Position
157-2 which
defers the effective date of SFAS 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entity’s
financial statements on a recurring basis (at least annually).
We will be required to adopt SFAS 157 for these
nonfinancial assets and nonfinancial liabilities as of
January 1, 2009. Management has not determined the impact
that the adoption of SFAS 157 deferral provisions will have
on our financial position or earnings.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which allows entities to choose to measure
many financial instruments and certain other items at fair
value. The provisions of SFAS 159 were effective as of
January 1, 2008. We did not elect the fair value option for
any asset or liability. Therefore, the adoption of SFAS 159
did not impact our consolidated financial statements as of the
six months ended June 26, 2008.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. This statement defines the
acquirer as the entity that obtains control of one or more
businesses in the business combination, establishes the
acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets acquired,
liabilities assumed and any non-controlling interest at their
fair values as of the acquisition date. This statement also
requires that
acquisition-related
costs of the acquirer be recognized separately from the business
combination and such costs will generally be expensed as
incurred. We will be required to adopt this statement as of
January 1, 2009. The impact of adopting SFAS 141(R)
has not been determined.
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In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51.
SFAS 160 establishes accounting and reporting standards
for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160
requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other
requirements of SFAS 160 must be applied prospectively.
SFAS 160 is effective for us beginning January 1,
2009. We are currently evaluating the potential impact of the
adoption of SFAS 160 on our consolidated financial
statements
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities— an amendment of FASB Statement
No. 133. This statement will change the disclosure
requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about how
and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and how
derivative instruments and related hedged items affect an
entity’s financial position, net earnings, and cash flows.
We will be required to adopt this statement as of
January 1, 2009. The adoption of SFAS 161 is not
expected to have a material impact on our consolidated financial
statements.
Quantitative and
Qualitative Disclosures About Market Risk
The risk inherent in our market risk sensitive instruments and
positions is the potential loss from adverse changes in interest
rates.
As of June 26, 2008, all of our $1,284.7 million of
outstanding term debt was at floating rates. An increase of 1.0%
in the LIBOR rate would result in an increase in our interest
expense of approximately $10.2 million per year.
As of June 26, 2008, all of our $256.1 million of
outstanding revolving debt was at floating rates. If this amount
remained outstanding for an entire year, an increase of 1.0% in
the LIBOR rate would result in an increase in our interest
expense of approximately $2.6 million per year.
We use derivative financial instruments to help manage our
interest rate risk. On December 3, 2007, we entered into a
floating to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit our exposure to interest rate
increases relating to a portion of our floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At June 26, 2008, the fair value of our
interest rate swap agreement was a loss of approximately
$3.2 million, which amount is included in accrued
liabilities. As of the effective date of the interest rate swap
agreement, we designated the interest rate swap as a cash flow
hedge. As a result, the effective portion of changes in the fair
value of our swap was recorded as a component of other
comprehensive income. At June 26, 2008, $1.6 million
of unrecognized losses, net of tax, on the interest rate swap
agreement was included in other comprehensive income.
As a result of the interest rate swap agreement, our effective
interest rates as to the $700.0 million floating rate
indebtedness will be 4.868% for associated indebtedness on our
Revolving Credit Facility and 7.118% for associated indebtedness
on the Term Loan Facility per quarter through 2010 and result in
an average fixed rate of 6.672%.
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BUSINESS
General
We are the largest North American distributor of pipe, valves
and fittings (“PVF”) and related products and services
to the energy industry based on sales and the leading PVF
distributor serving this industry across each of the upstream
(exploration, production, and extraction of underground oil and
gas), midstream (gathering and transmission of oil and gas, gas
utilities, and the storage and distribution of oil and gas) and
downstream (crude oil refining and petrochemical processing)
markets. We have an unmatched presence of over 250 branches that
are located in the most active oil and gas regions in North
America. We offer an extensive array of PVF and oilfield
supplies encompassing over 100,000 products, we are
diversified by geography and end market and we seek to provide
best-in-class service to our customers by satisfying the most
complex, multi-site needs of some of the largest companies in
the energy and industrials sectors as their primary supplier. As
a result, we have an average relationship of over 20 years
with our top ten customers and our pro forma sales in 2007 were
over twice as large as our nearest competitor in the energy
industry. We believe the critical role we play in our
customers’ supply chain, our unmatched scale and extensive
product offering, our broad North American geographic presence,
our customer-linked scalable information systems and our
efficient distribution capabilities serve to solidify our
long-standing customer relationships and drive our growth.
We have benefited in recent years from several growth trends
within the energy industry including high levels of expansion
and maintenance capital expenditures by our customers. This
growth in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. While current prices for oil and natural gas are high
relative to historical levels, we believe that investment in the
energy sector by our customers would continue at prices well
below current levels. In addition, our products are often used
in extreme operating environments leading to the need for a
regular replacement cycle. As a result, over 50% of our
historical and pro forma sales in 2007 were attributable to
multi-year maintenance, repair and operations (“MRO”)
contracts where we have demonstrated an over 99% annual average
retention rate since 2000. The combination of these ongoing
factors has helped increase demand for our products and
services, resulting in record levels of customer orders to be
shipped as of September 2008. For the twelve months ended
December 31, 2007 on a pro forma basis, we generated sales
of $3,952.7 million, Adjusted EBITDA of $370.4 million
and net income of $150.8 million. In addition, for the
eleven months ended December 31, 2007, without giving pro
forma effect to the Red Man Transaction, we generated sales of
$2,124.9 million, EBITDA of $171 million and net
income of $56.9 million, and for the twelve months ended
October 31, 2007, before giving effect to the Red Man
Transaction, Red Man generated sales of $1,982.0 million,
EBITDA of $170 million and net income of $82.2 million.
We have established a position as the largest North American PVF
distributor to the energy industry based on sales. We distribute
products throughout North America and the Gulf of Mexico,
including in PVF intensive, rapidly expanding oil and natural
gas production areas such as the Bakken, Barnett, Fayetteville,
Haynesville and Marcellus shales. The Bakken shale is located in
the Williston Basin and is primarily in Montana, North Dakota
and Saskatchewan, the Barnett shale is located in the
Fort Worth Basin in Texas, the Fayetteville shale is
located in the Arkoma Basin and is primarily in northern
Arkansas, the Haynesville shale is located primarily in
southwestern Arkansas, northwestern Louisiana and east Texas,
and the Marcellus shale is located in the Appalachian Basin and
is primarily in Ohio, West Virginia, Pennsylvania and New York.
Growth in these oil and natural gas production areas is driven
by improved production technology, favorable market trends and
robust capital expenditure budgets. Furthermore, Midfield, one
of the three largest Canadian PVF distributors based on sales,
provides PVF products to oil and gas companies operating
primarily in Western Canada, including the Western Canadian
Sedimentary Basin, Alberta Oil Sands and heavy oil markets.
These regions are still in the early stages of infrastructure
investment with numerous companies seeking to facilitate the
long-term harvesting of difficult to extract and process crude
oil.
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McJunkin Red Man
Locations
Across our extensive North American platform we offer a broad
complement of products and services to the upstream, midstream
and downstream sectors of the energy industry, as well as other
industrial (including general manufacturing, pulp and paper,
food and beverage) and other energy (power generation, liquefied
natural gas, coal, alternative energy) end markets. During the
twelve months ended December 31, 2007 on a pro forma basis,
approximately 46% of our sales were attributable to upstream
activities, approximately 22% were attributable to midstream
activities and approximately 32% were attributable to downstream
and other processing activities which include the refining,
chemical and other industrial and energy end markets. In
addition, before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007, approximately 36% of our sales were attributable to
upstream activities, approximately 18% were attributable to
midstream activities and approximately 46% were attributable to
downstream and other processing activities.
We offer more than 100,000 products including an extensive array
of PVF, oilfield supply, automation, instrumentation and other
general and specialty products to our customers across our
various end markets. Due to the demanding operating conditions
in the energy industry and high costs associated with equipment
failure, customers prefer highly reliable products and vendors
with established qualifications and experience. As our PVF
products typically represent a fraction of the total cost of the
project, our customers place a premium on service given the high
cost to them of maintenance or new project delays. Our products
are typically used in high-volume, high-stress, abrasive
applications such as the gathering and transmission of oil and
natural gas, in high-pressure, extreme temperature and
high-corrosion applications such as in heating and
desulphurization in the processing and refining industries and
in steam generation units in the power industry.
With over 250 locations servicing the energy and industrial
sectors, we are an important link between our more than 10,000
customers and our more than 10,000 suppliers. We add value to
our customers and suppliers in a number of ways:
| • | Broad Product Offering and High Customer Service Levels: The breadth and depth of our product offering enables us to provide a high level of service to our energy and industrial customers. Given our North American inventory coverage and branch network, we are able to fulfill orders more quickly, including orders for less common and specialty items, and provide |
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| our customers with a greater array of value added services, including multiple daily deliveries, volume purchasing, product testing and supplier assessments, inventory management and warehousing, technical support, just-in-time delivery, order consolidation, product tagging and tracking, and system interfaces customized to customer and supplier specifications, than if we operated on a smaller scale and/or only at a local or regional level. Thus our clients, particularly those operating throughout North America, can quickly and efficiently source the most suitable products with the least amount of downtime and at the lowest total transaction cost. |
| • | Approved Manufacturer List (“AML”) Services: Our customers rely on us to provide a high level of quality control for their PVF products. We do this by regularly auditing many of our suppliers for quality assurance through our Supplier Registration Process. We use the resulting MRM ASL to supply products across many of the markets we support, particularly for downstream and midstream customers. This process has enabled us to achieve a preferred vendor status with many key end users in the industry that utilize our AML services to help devise and maintain their own approved manufacturer listings. In this manner, we seek to ensure that our customers timely receive reliable and high quality products without incurring additional administrative and procurement expenses. Our suppliers in turn look to us as a key partner, which has been important in establishing us as an important link in the supply chain and a leader in the industry. | |
| • | Customized and Integrated Service Offering: We offer our customers integrated supply services including product procurement, product quality assurance, physical warehousing, and inventory management and analysis using our proprietary customized information technology platform. This is part of an overall strategy to promote a “one stop” shop for PVF purchases across the upstream-midstream-downstream spectrum and throughout North America through integrated supply agreements and MRO contracts that enable our customers to focus on their core operations and increase the efficiency of their business. |
Industry Overview
and Trends
We primarily serve the North American oil and gas industry,
generating over 90% of our revenues from supplying PVF products
and various services to customers throughout the energy
industry. Given the diverse requirements and various factors
that drive the growth of the upstream, midstream and downstream
energy sectors, our sales to each sector may vary from time to
time, though the overall strength of the energy market is
typically a good indicator of our performance. Globally, the
energy industry is experiencing a number of favorable supply and
demand dynamics that have led companies to make substantial
investments to expand their physical infrastructure and
processing capacities. On the demand side, world energy markets
are benefiting from the increased consumption of energy, caused
in part by the industrialization of China, India, and other
non-OECD countries, as well as continued global energy
infrastructure expansion. At the same time, energy supply has
been constrained due to increasing scarcity of natural
resources, declining excess capacity of existing energy assets,
geopolitical instability, natural and other unforeseen
disasters, and more stringent regulatory, safety and
environmental standards. These demand and supply dynamics
underscore the need for investment in energy infrastructure and
the next level of global exploration, extraction, production,
transportation, refining and processing of energy inputs.
Upstream: Oil and Gas. Exploration and
production (“E&P”) companies, commonly referred
to as upstream companies, search for gas and oil underground and
extract it to the surface. Representative companies include BP
p.l.c., Chesapeake Energy Corporation, Chevron Corporation,
ConocoPhillips Company, Canadian Natural Resources Ltd., EnCana
Corporation, Exxon Mobil Corporation, Husky Energy Inc., Royal
Dutch Shell plc, and Suncor Corporation. Exploration and
production companies typically purchase oilfield supplies
including tools, sucker rods, pumps, storage
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tanks and meters while producers primarily purchase high density
polyethylene pipe, valves and general oilfield supplies.
The capital spending budgets of North American oil and gas
companies have grown in recent years as tight supply conditions
and strong global demand have spurred companies to expand their
operations. According to the June 2008 Drilling and Production
Outlook prepared by Spears & Associates, Inc., North
American drilling and completion spending has grown by a 30.5%
compound annual growth rate from 2002 to 2007 and is projected
to grow by 10.2% from 2008 to 2013. Much of this growth is
expected to come from a need to compensate for accelerating
depletion rates in existing domestic oil and natural gas
reservoirs, improved E&P technologies, increased demand for
natural gas, especially from power generation, and an
anticipated rebound in Canadian upstream activity.
North American
Oil and Gas Drilling and Completion Spending
|
Year Over Year % Increase
|
2003A | 2004A | 2005A | 2006A | 2007A | 2008E | 2009E | 2010E | 2011E | 2012E | 2013E | |||||||||||||||||||||||||||||||||
|
U.S.
|
34 | % | 64 | % | 23 | % | 41 | % | 10 | % | 6 | % | 16 | % | 9 | % | 9 | % | 8 | % | 7 | % | ||||||||||||||||||||||
|
Canada
|
49 | 25 | 46 | 13 | (31 | ) | 5 | 26 | 13 | 8 | 7 | 6 | ||||||||||||||||||||||||||||||||
|
North America
|
37 | 56 | 26 | 36 | 3 | 6 | 17 | 10 | 9 | 8 | 7 | |||||||||||||||||||||||||||||||||
Source: Spears & Associates
Due to this unprecedented level of exploration expenditures,
U.S. and Canadian rig counts are expected to increase at a
4.8% and a 5.7% compound annual growth rate, respectively,
between 2007 and 2012, according to the June 2008 Drilling and
Production Outlook prepared by Spears & Associates,
Inc. Furthermore, more technically sophisticated drilling
methods, such as deep and horizontal drilling, which tend to
have higher PVF requirements, coupled with higher oil and
natural gas prices relative to long term averages, are making
E&P in previously underdeveloped areas like Appalachia and
the Rockies more economically feasible. As part of this trend,
there has been growing commercial interest by our customers in
several shale deposit areas in the U.S., including the Bakken,
Barnett, Fayetteville, Haynesville and Marcellus shales, where
we have a strong local presence.
In Canada, improvements in mining and in-situ technology are
driving increased investment in the Canadian Oil Sands which,
according to the Alberta Energy and Utilities Board, contain
established reserves of almost 174 billion barrels. This
represents the second largest recoverable crude oil reserve in
the world, behind Saudi Arabia. As a result, according to
Canadian Oil Sands Supply Costs and Development Projects
(2007-2027), a report prepared by the Canadian Energy Research
Institute, projected annual capital expenditures in the Canadian
Oil Sands could increase
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from CDN$24.9 billion (US$24.61 billion) in 2008 to
CDN$53.1 billion (US$52.84 billion) by 2011, a 28.7%
compound annual growth rate, assuming that all Oil Sands
projects that are currently announced enter the production
phase. As a result of these factors, we believe that the North
American upstream market presents strong growth prospects on
which we are well positioned to capitalize.
Canadian Oil
Sands Production
Source: Canadian Association of Petroleum Producers
Midstream: Energy. The midstream sector
of the oil and gas industry is comprised of companies that
provide gathering, storage, transmission, distribution, and
other services related to the movement of oil, natural gas, and
refined petroleum products from sources of production to demand
centers. Representative midstream companies include Atmos Energy
Corporation, AGL Resources Inc., Buckeye Partners, L.P.,
Consolidated Edison, Inc., DCP Midstream Partners, LP,
Enterprise Products Partners L.P., Kinder Morgan Energy
Partners, L.P., Magellan Midstream Partners, L.P., NiSource,
Inc., Vectren Energy, and Williams Partners L.P. Core products
supplied for midstream infrastructure include carbon steel line
pipe for gathering and transporting oil and gas, actuation
systems for the remote opening and closing of valves, plastic
pipe for “last mile” transmission to end user
locations, and metering equipment for the measurement of oil and
gas delivery.
Midstream: Gas Utilities. The gas
utilities portion of the midstream sector has been one of
McJunkin Red Man’s fastest growing markets since regulatory
changes enacted in the late 1990s permitted utilities to
outsource their PVF purchasing and procurement needs.
Outsourcing provides significant labor and working capital
savings to customers through the consolidation of product
procurement spending and the delegation of warehousing
operations to us. We estimate that approximately one third of
gas utilities currently outsource and we anticipate that several
of the remaining large gas utilities will most likely switch
from the direct sourcing model to a distributor model.
Furthermore, gas utilities will increasingly seek operating
efficiencies as large natural gas pipelines and related
distribution networks continue to be built, and will
increasingly rely on companies such as ours to optimize their
supply chains.
Midstream: Oil and Gas
Transmission. The pipeline and transmission
sector is anticipated to exhibit significant growth over the
next three years due to the new discoveries of gas reserves in
various oil and natural gas shale gas fields and the need for
additional pipelines to carry heavy sour crude from Canada to
refineries in the United States. Recent heightened activity in
oil and gas fields such as the Bakken, Barnett, Fayetteville,
Haynesville and Marcellus shales remain largely
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unsupported by transmission facilities of the appropriate scale
necessary to bring the oil and natural gas to market. This need
for large pipelines to transport energy feedstocks to markets is
creating significant growth for PVF and other products we sell.
According to the EIA, 200 planned or approved projects (as of
April 2008), call for 10,100 miles of new pipeline between 2008
and 2010, more than twice the level from the prior three-year
period, and are estimated to cost over $28 billion. Drivers of
this pipeline development and growth include the development of
natural gas production in new geographies, the need for
increased pipeline interconnection to lower price differences
within regions, and the need to link facilities, liquefied
natural gas and otherwise, that may be developed over the next
decade.
The need for increased safety and governmental demands for
pipeline integrity has also accelerated the MRO cycle for PVF
products in this segment. After 2000, the U.S. Department
of Transportation mandated programs that hasten, based on
population densities and other considerations, the testing of
existing lines to ensure that the integrity of the pipe remains
consistent with its original design criteria. All pipe falling
outside the necessary performance criteria as it relates to
safety and overall integrity must be replaced. These new
regulations for pipeline integrity management will continue to
stimulate MRO demand for products as older pipelines are
inspected and eventually replaced.
Additions to
Natural Gas Pipeline Mileage
1998-2010
Source: EIA
Downstream and Other Processing Industries: Oil and
Gas. Typical downstream activities include
the refining of crude oil and the selling and distribution of
products derived from crude oil, as well as the production of
petrochemicals. Representative downstream companies include BP
plc, Chevron, ConocoPhillips Company, Exxon Mobil Corporation,
Marathon Oil Corporation, Shell Oil, and Valero Energy
Corporation. Refinery infrastructure products include carbon
steel line pipe and gate valves, fittings to construct piping
infrastructure and chrome or high alloy pipe and fittings for
high heat and pressure applications. Chemical/petrochemical
products include corrosive-resistant stainless steel or high
alloy pipes, multi-turn valves and quarter-turn valves.
Total U.S. refinery capacity utilization remains high,
averaging approximately 90% over the last twenty-three years
according to data provided by the Energy Information
Administration. No new refineries have been built in the
U.S. since 1976, and the number of refineries has declined
from 223 in 1985 to 149 in 2006 where it has since remained
constant. This continued high level of refinery utilization has
stressed the existing refinery infrastructure and accelerated
PVF product replacement
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rates. Furthermore, we expect that additional increases in
production to meet growing demand for refined products will
result in a greater number of expansion projects at existing
refineries. According to the EIA, cumulative capacity additions
are expected to increase nearly threefold, or from approximately
0.5 Mmbl/day in 2007 to approximately 1.4 Mmbl/day by
2010. We believe that this trend of increased new project and
MRO activities, coupled with continued high capacity utilization
and the need to reinvest in existing plants, will generate
significant new project and MRO contract opportunities for us.
U.S. Petroleum
Products Consumption vs. U.S. Refining Capacity
Source: EIA
As refineries look for ways to improve margins and value-added
capabilities, they are also increasingly investing in broadening
the crudes that they process to include heavier, sourer crude.
Increasingly heavy and sour crude is harsher and more corrosive
than light sweet crude and requires high-grade alloys in many
parts of the refining process. As a result of these corrosive
characteristics, processing heavier and sourer crudes shortens
product replacement cycles and, as a result, creates additional
MRO contract opportunities for us following project completion.
Thus, we believe that our specialty products will be in high
demand to meet this need. Our specialty products include, among
others, corrosion resistant components and steam products used
in various process applications in refineries.
Petrochemical plants generally use crude oil, natural gas, or
coal as a basis to produce a variety of primary petrochemicals
(e.g. ethylene and propylene) that are the building blocks for
most of the manufactured goods produced in the world today. The
burgeoning economies in China, India and other non-OECD
countries have generated increasing demand for petrochemicals
and we expect that future increases in demand will require
additional capital expenditures to increase capacity. Industry
participants include integrated oil and gas companies with
significant petrochemical operations and large industrial
chemical companies, such as BP Chemicals, Celanese Chemicals,
E.I. du Pont de Nemours and Company, Eastman Chemicals Company,
Exxon Mobil Corporation and Lyondell Chemical Company.
Other Industries Served. Beyond the oil
and gas industry, we also supply products to other energy
sectors such as coal, power generation, liquefied natural gas
and alternative energy facilities. We also serve more general
industrial end markets such as pulp and paper, metals
processing,
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fabrication, pharmaceutical, food and beverage and manufacturing
companies, which together make use of products such as corrosion
resistant piping products as well as automation and
instrumentation products. Some of the customers we serve in
these markets include Alcoa, Inc., Arcelor Mittal, Eli Lilly and
Company, Georgia Pacific Corporation, International Paper
Company and U.S. Steel Corporation. These other markets are
typically characterized by large physical plants requiring
significant ongoing maintenance and capital programs to ensure
efficient and reliable operations.
Overview of Our
Business
Competitive
Strengths
We consider the following to be our key competitive strengths:
Market Leader with Complete North American Coverage and
Significant Scale. We are the leading North
American distributor of PVF and related products to the energy
industry based on sales, with at least twice the sales of our
nearest competitor in the energy industry in 2007. Our North
American network of over 250 locations in 38 U.S. states
and in Canada gives us a significant market presence and
provides us with substantial economies of scale that we believe
make us a more effective competitor. The benefits of our size
and extensive North American presence include: (1) the
ability to act as a single-source supplier to large,
multi-location customers operating across all segments of the
energy industry; (2) the ability to commit significant
financial resources to further develop our operating
infrastructure, including our information systems, and provide a
strong platform for future expansion; (3) volume purchasing
benefits from our suppliers; (4) an ability to leverage our
extensive North American inventory coverage to provide greater
overall breadth and depth of product offerings; (5) the
ability to attract and retain effective managers and
salespeople; and (6) a business model exhibiting a high
degree of operating leverage. Our presence and scale have also
enabled us to establish an efficient supply chain and logistics
platform, allowing us to better serve our customers and further
differentiate us from our competitors.
High Level of Integration and MRO Contracts with a Blue
Chip Customer Base. We have a diversified
customer base with over 10,000 active customers and serve as the
sole or primary supplier in all end markets or in specified end
markets or geographies for many of our customers. Our top ten
customers, with whom we have had relationships for more than
20 years on average, accounted for less than 30% of 2007
pro forma sales and no single customer accounted for more than
5% of 2007 pro forma sales. Before giving pro forma effect to
the Red Man Transaction, our top ten customers accounted for
approximately 30% of our 2007 sales and our largest customer
accounted for approximately 6% of our 2007 sales. We enjoy fully
integrated relationships, including interconnected technology
systems and daily communication, with many of our customers and
we provide an extensive range of integrated and outsourced
supply services, allowing us to market a “total transaction
cost” concept as opposed to individual product prices. We
provide such services as multiple daily deliveries, zone stores
management, valve tagging, truck stocking and significant system
support for tracking and replenishing inventory, which we
believe results in deeply integrated customer relationships. We
sell products to many of our customers through multi-year MRO
contracts which are typically renegotiated every three to five
years. Although there are typically no guaranteed minimum
purchase amounts under these contracts, these MRO customers,
representing over 50% of both our 2007 historical and pro forma
sales, provide a relatively stable revenue stream and help
mitigate against industry downturns. We believe we have been
able to retain customers by ensuring a high level of service and
integration, as evidenced by our annual average MRO contract
retention rate of over 99% since 2000. Furthermore, we have
recently signed new MRO contracts displacing competitors that
provide opportunities for us to gain new customers and broaden
existing customer relationships.
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Business and Geographic Diversification in the High-Growth
Areas. We are well diversified across the
upstream, midstream and downstream operations of the energy
industry, as well as through our participation in selected
industrial end markets. During the twelve months ended
December 31, 2007 on a pro forma basis, we generated
approximately 46% of our sales in the upstream sector, 22% in
the midstream sector, and 32% in the downstream, industrial and
other energy end markets. Before giving pro forma effect to the
Red Man Transaction, during the twelve months ended
December 31, 2007, approximately 36% of our sales were
attributable to upstream activities, approximately 18% were
attributable to midstream activities and approximately 46% were
attributable to downstream and other processing activities. This
diversification affords us some measure of protection in the
event of a downturn in any one end market while providing us the
ability to offer “one stop” shopping for most of our
integrated energy customers. In addition, our more than 250
branches are located near major hydrocarbon and refining regions
throughout North America, including rapidly expanding oil and
natural gas E&P areas in North America, such as the Bakken,
Barnett, Fayetteville, Haynesville and Marcellus shales. Our
geographic diversity enhances our ability to respond to
customers quickly, gives us a strong presence in these high
growth E&P areas and reduces our exposure to a downturn in
any one region.
Strategic Supplier Relationships. We
have extensive relationships with our suppliers and have key
supplier relationships dating back in certain instances over
60 years. We purchased approximately $1 billion of
products from our top ten suppliers for the twelve months ended
December 31, 2007 on a pro forma basis, representing
approximately 32% of our purchases. Before giving pro forma
effect to the Red Man Transaction, during the twelve months
ended December 31, 2007 we purchased approximately
$431 million of products from our top ten suppliers,
representing approximately 30.7% of our purchases. We believe
our customers view us as an industry leader for the formal
processes we use to evaluate vendor performance and product
quality. We employ individuals, certified by the International
Registry of Certificated Auditors, who specialize in conducting
manufacturer assessments both domestically and internationally.
Our Supplier Registration Process (“SRP”), which
allows us to maintain the MRM ASL, serves as a significant
strategic advantage to us in developing, maintaining and
institutionalizing key supplier relationships. For our
suppliers, being included on the MRM ASL represents an
opportunity for them to increase their product sales to our
customers. The SRP also adds value to our customers, as they
collaborate with us regarding specific manufacturer performance,
our past experiences with products and the results of our
on-site
supplier assessments. Having a timely, uninterrupted supply of
those mission critical products from approved vendors is an
essential part of our customers’ day-to-day operations and
we work to fulfill that need through our SRP.
A Leading IT Platform Focused on Customer
Service. Our business is supported by our
integrated, scalable and customer-linked customized information
systems. These systems and our more than 3,400 employees
are linked by a wide area network. We are currently implementing
an initiative, expected to be completed in 2009, that will
combine our business operations onto one enterprise server-based
system. This will enable real-time access to our business
resources, including customer order processing, purchasing and
material requests, distribution requirements planning,
warehousing and receiving, inventory control and all accounting
and financial functions. Significant elements of our systems
include firm-wide pricing controls resulting in disciplined
pricing strategies, advanced scanning and customized bar-coding
capabilities, allowing for efficient warehousing activities at
customer as well as our own locations, and significant levels of
customer-specific integrations. We believe that the customized
integration of our customers’ systems into our own
information systems has increased customer retention by reducing
their expenses, thus creating switching costs when comparing us
to alternative sources of supply. Typically, smaller regional
and local competitors do not have IT capabilities that are as
advanced as ours.
Highly Efficient, Flexible Operating Platform Drives
Significant Free Cash Flow Generation. We
place a particular emphasis on practicing financial discipline
as evidenced by our strong focus on return on assets, minimal
capital expenditures and high free cash flow generation. Our
disciplined cost control, coupled with our active asset
management strategies, result in a
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business model exhibiting a high degree of operating leverage.
As is typical with the flexibility associated with a
distribution operating model, our variable cost base includes
substantially all our cost of goods sold and a significant
portion of our operating costs. Furthermore, our maintenance
capital expenditures were less than 0.2% of our pro forma sales
for the year ended December 31, 2007. This cost structure
allows us to adjust to changing industry dynamics and, as a
result, during periods of decreased sales activity, we typically
generate significant free cash flow as our costs are reduced and
working capital contracts.
Experienced and Motivated Management
Team. Our senior management team has an
average of over 25 years of experience in the oilfield and
industrial supply business, the majority of which has been with
McJunkin Red Man or its predecessors. After giving effect to
this offering, senior management will
own % of our company indirectly
through their equity interests in PVF Holdings LLC. We also seek
to incentivize and align management with shareholder interests
through equity-linked compensation plans. Furthermore, executive
compensation is based on profitability and
return-on-investment
targets which we believe drives accountability and further
aligns the organization with our shareholders.
Business
Strategy
Our goal is to become the largest global distributor of PVF and
related products to the energy and industrials sectors. We
intend to grow our business by leveraging our existing position
as the largest North American distributor of PVF products and
services to the energy industry based on sales. Our strategy is
focused on pursuing growth by increasing organic market share
and growing our business with current customers, expanding into
new geographies and end markets, further penetrating the
Canadian Oil Sands and downstream sector, pursuing selective
strategic acquisitions and investments, increasing recurring
revenues through integrated supply, MRO and project contracts,
and continuing to increase our operational efficiency.
Increase Organic Market Share and Grow Business with
Current Customers. We are committed to
expanding upon existing deep relationships with our current
customer base while at the same time striving to secure new
customers. To accomplish this, we are focused on providing a
“one stop” PVF procurement solution throughout North
America and across the upstream, midstream and downstream
sectors of the energy industry, cross-selling by leveraging our
expanded product offering resulting from the business
combination between McJunkin and Red Man in October 2007,
and increasing our penetration of existing customers’ new
multiyear projects.
The migration of existing customer relationships to sole or
primary sourcing arrangements is a core strategic focus. We seek
to position ourselves as the sole or primary provider of a broad
complement of PVF products and services for a particular
customer, often by end market
and/or
geography, or in certain instances across all of a
customer’s North American upstream, midstream and
downstream operations. Several of our largest customers have
recently switched to sole or primary sourcing contracts with us.
Additionally, we believe that significant opportunities exist to
expand upon heritage McJunkin and Red Man existing deep customer
and supplier relationships and thereby increase our market
share. While we believe that both heritage McJunkin and Red Man
organizations each maintained robust product offerings, there
also remain opportunities to cross-sell certain products into
the other heritage organization’s customer base and branch
network. As part of these efforts, we are working to further
strengthen our service offerings by augmenting our product
portfolio, management expertise and sales force.
We also aim to increase our penetration of our existing
customers’ new projects. For example, while we often
provide nearly 100% of the PVF products for certain customers
under MRO contracts, increased penetration of those
customers’ new downstream and midstream projects remains a
strategic priority. Initiatives are in place to deepen
relationships with engineering and construction firms and to
extend our product offering into certain niches. We recently
integrated core project groups in several locations to focus
solely on capturing new multi-year project opportunities and we
are encouraged by these initial efforts.
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Expand into New Geographies and End
Markets. We intend to selectively establish
new branches in order to facilitate our expansion into new
geographies, and enter end markets where extreme operating
environments generate high PVF product replacement rates. We
continue to evaluate establishing branches and service and
supply centers, entering into joint ventures, and making
acquisitions in select domestic and international regions. While
we believe that we are one of three PVF distributors with
branches throughout North America, there is opportunity to
expand via new branch openings in certain geographies and end
markets.
While our near term strategy is to continue to expand within
North America, we believe that attractive opportunities exist to
expand internationally. Though we currently maintain only one
branch outside of North America, we continue to actively
evaluate opportunities to extend our offering to key
international markets, particularly in West Africa, the Middle
East, Europe and South America. The E&P opportunity and
current installed base of energy infrastructure internationally
is significantly larger than in North America and as a result we
believe represents an attractive long term opportunity both for
ourselves and our largest customers. While our near term focus
internationally will be centered on growing our business with
our already largely global customer base, the increased focus,
particularly by foreign-owned integrated oil companies, on
efficiency, cost savings, process improvements and core
competencies has also generated potential growth opportunities
to add new customers that we will continue to monitor closely.
We also believe opportunities exist for expansion into new and
under penetrated end markets where PVF products are used in
specialized, highly corrosive applications. These end markets
include pulp and paper, food and beverage and other general
industrial markets, in addition to other energy end markets such
as power generation, liquefied natural gas, coal, nuclear and
ethanol. We believe our extensive North American branch
platform, comprehensive PVF product offering, and reputation for
high customer service and technical expertise positions us to
participate in the growth in these end markets.
We believe there also remains an opportunity to continue to
expand into certain niche and specialty products that complement
our current extensive product offering. These products include
automated valves, instrumentation, stainless, chrome and high
nickel alloy PVF, large diameter carbon steel pipe and certain
specialty items, including steam products.
Further Penetrate the Canadian Oil Sands, Particularly the
Downstream Sector. The Canadian Oil Sands
region and its attendant downstream markets represent very
attractive growth areas for our company. Improvements in mining
and in-situ technology are driving significant investment in the
area and, according to the Alberta Energy and Utilities Board,
the Canadian Oil Sands contain an ultimately recoverable crude
bitumen resource of 315 billion barrels, with established
reserves of almost 173 billion barrels at December 2007.
Canada has the second largest recoverable crude oil reserves in
the world, behind Saudi Arabia. Capital and maintenance
investments in the Canadian Oil Sands are expected to experience
dramatic growth due to rising global energy demand and
advancements in recovery and upgrading technologies. According
to the Alberta Ministry of Energy, an estimated
CDN$67 billion (US$66.2 billion) was invested in
Canadian Oil Sands projects from 2000 to 2007. These large
facilities require significant ongoing PVF maintenance well in
excess of traditional energy infrastructure, given the extremely
harsh operating environments and highly corrosive conditions.
According to the Alberta Ministry of Energy, almost
CDN$170 billion (US$168 billion) in Canadian Oil
Sands-related projects were underway or proposed as of June
2008, which we estimate could generate significant PVF
expenditures.
While Midfield has historically focused on the upstream and
midstream sectors in Canada, we believe that a significant
opportunity exists to penetrate the Canadian Oil Sands
downstream market which includes the upgrader and refinery
markets. We are the leading provider of PVF products to the
downstream market in the U.S. and believe this sector expertise
and existing customer relationships can be utilized by our
upstream and midstream Canadian operations to grow our
downstream sector presence in this region. We also believe there
is a significant opportunity to penetrate the Canadian
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Oil Sands extraction market involving in-situ recovery methods,
including SAGD (steam assisted gravity drainage) and CSS (cyclic
steam stimulation) techniques used to extract the bitumen. We
have formed a full team overseen by senior management, have made
recent inventory and facility investments in Canada, including a
new 60,000 square foot distribution center facility located near
Edmonton, and have opened additional locations in Western Canada
to address this opportunity. Finally, we also believe that an
attractive opportunity exists to more fully penetrate the MRO
market in Canada, including refineries, petrochemical
facilities, utilities and pulp and paper and other general
industrial markets.
Pursue Selective Strategic Acquisitions and
Investments. Acquisitions have been a core
focus and acquisition integration a core competency for us. We
seek opportunities to strengthen our franchise through selective
acquisitions and strategic investments. In particular, we will
consider investments that enhance our presence in the energy
infrastructure market and enable us to leverage our existing
operations, either through acquiring new branches or by
acquiring companies offering complementary products or end
market breadth. Our industry remains highly fragmented and we
believe a significant number of small and larger acquisition
opportunities remain that offer favorable synergy potential and
attractive growth characteristics. Acquisitions have been a core
focus for both the heritage McJunkin and Red Man organizations
which we plan to continue. In addition to the business
combination between McJunkin and Red Man, since 2000 we have
integrated 19 acquisitions which collectively represented over
$900 million in sales in the year of acquisition. Important
recent acquisitions include Midfield, one of the three largest
oilfield supply companies in Canada with 68 branches, and
Midway-Tristate Corporation (“Midway”), an oilfield
distributor primarily serving the Rockies and Appalachia
regions. Historically, our operating scale and integration
capabilities have enabled us to realize important synergies,
while minimizing execution risk, which we intend to focus on
with future acquisitions.
Increase Recurring Revenues through Integrated Supply, MRO
and Project Contracts. We have entered into
and continue to pursue integrated supply, MRO and project
contracts with certain of our customers. These arrangements
generally designate us as the sole source or primary provider of
the upstream, midstream,
and/or
downstream requirements of our customers. In certain instances
we are the sole or primary source provider for our customers
across all the energy sectors and/or North American geographies
within which the customer operates.
Our customers have, over time, increasingly moved toward
centralized PVF procurement management at the corporate level
rather than at individual local units. While these developments
are partly due to significant consolidation among our customer
base, sole or primary sourcing arrangements allow customers to
focus on their core operations and provide economic benefits by
generating immediate savings for the customer through
administrative cost and working capital reductions while
providing for increased volumes, more stable revenue streams and
longer term visibility for us. We believe we are well positioned
to obtain these arrangements due to our (1) geographically
diverse and strategically located branch network,
(2) experience, technical expertise and reputation for
premier customer service operating across all segments of the
energy industry, (3) breadth of available product lines and
value added services, and (4) existing deep relationships
with customers and suppliers.
We also have exclusive and non-exclusive MRO contracts and new
project contracts in place. Our customers are increasing their
maintenance and capital spending, which is being driven by aging
infrastructure, their increased utilization of existing
facilities and the decreasing quality of energy feedstocks. Our
customers benefit from MRO agreements through lower inventory
investment and the reduction of transaction costs associated
with the elimination of the bid submission process, and our
company benefits from the recurring revenue stream that occurs
with an MRO contract in place. We believe there are additional
opportunities to utilize MRO arrangements for servicing the
requirements of our customers and we are actively pursuing such
agreements.
Continued Focus on Operational
Efficiency. We strive for continued
operational excellence. Our branch managers and regional
management corporate leadership team continually examine
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branch profitability, working capital management, and return on
managed assets and utilize this information to optimize
national, regional and local strategies, reduce operating costs
and maximize cash flow generation. As part of this effort,
management incentives are centered on meeting EBITDA and return
on assets targets.
In order to improve efficiencies and profitability, we work to
leverage operational best practices, optimize our vendor
relationships, purchasing, and inventory levels and source
inventory internationally when appropriate. As part of this
strategy, we have integrated our heritage purchasing functions
and believe we have developed strong relationships with vendors
that value both our national footprint and volume purchasing
capabilities. Because of this, we are often considered the
preferred distribution channel. As we continue to consolidate
our vendor relationships, we plan to devote additional resources
to assist our customers in identifying products that improve
their processes, day-to-day operations and overall operating
efficiencies. We believe that offering these value added
services maximizes our value to our customers and helps
differentiate us from competitors.
Products
Through our over 250 strategic locations in North America, we
distribute over 100,000 products from over 10,000 suppliers
primarily used in specialized applications in the energy
infrastructure market. Our products are used in the
construction, maintenance, repair and overhaul of equipment used
in extreme operating conditions such as high pressure, high/low
temperature, high corrosive and high abrasive environments.
The breadth and depth of our product offerings and our extensive
North American presence allow us to provide high levels of
service to our customers. Due to our national inventory
coverage, we are able to fulfill more orders more quickly,
including those with lower volume and specialty items, than we
would be able to if we operated on a smaller scale
and/or only
at a local or regional level. Approximately two-thirds of our
pro forma sales for the twelve months ended December 31,
2007 consisted of sales of carbon, stainless and alloy pipe,
valves and specialty products. Sales of oilfield and industrial
supplies, fittings, gas products and other products comprised
the remainder. Before giving pro forma effect to the Red Man
Transaction, approximately three quarters of our sales for the
twelve months ended December 31, 2007 consisted of
sales of carbon, stainless and alloy pipe, valves and specialty
products, while sales of oilfield and industrial supplies,
fittings, gas products and other products comprised the
remainder. Key product groups are described below:
Carbon and Alloy Pipe. Carbon pipes are
typically used in high-yield, high-stress, abrasive applications
such as gathering and transmission of oil, natural gas and
phosphates. Steel alloy pipes are composed of iron, carbon, and
one or more other elements such as chromium, cobalt or nickel.
Alloy products are principally used in high-pressure, extreme
temperature and high-corrosion applications such as in heating
and desulphurization in the processing and refining industries
and in steam generation units in the power industry.
Valves and Specialty Products. Products
offered include ball, butterfly, gate, globe, check, needle and
plug valves which are manufactured from cast steel,
stainless/alloy steel, forged steel, carbon steel or cast and
ductile iron. Valves are generally used in oilfield and
industrial applications to control direction, velocity and
pressure of fluids and gases within transmission networks.
Specialty products include corrosion resistant components and
steam products used in various process applications in
refineries and petrochemical plants.
Oilfield and Industrial
Supplies. Products include high density
polyethylene pipe, valves, well heads, pumping units, rods and
other related oilfield and production equipment.
Carbon Fittings. Products include
carbon weld fittings, flanges and accessory items used primarily
to connect piping and valve systems for the transmission of
various liquids and gases.
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Gas Products. Products include risers,
meters, polyethylene pipe and fittings and various other gas
carrying materials that are used primarily in the distribution
of natural gas to residential and commercial customers.
Stainless Pipe and Fittings. Products
include stainless, alloy and corrosion resistant pipe, tubing,
fittings and flanges that are used primarily in chemical process
applications.
Services
We provide our customers, including our customers with MRO
contracts, with a comprehensive array of services including
multiple daily deliveries, zone stores management, valve
tagging, truck stocking and significant system interfaces that
directly tie the customer into our proprietary information
systems. Our proprietary information systems allow us to
interface with our customers’ IT systems, thereby providing
a seamless and integrated supply service. Such services
strengthen our position with our customers as we become more
integrated into the customer’s business and supply chain
and are able to market a “total transaction cost”
concept rather than individual product prices.
Our comprehensive information systems platform, which provides
for customer and supplier electronic integrations, information
sharing, and
e-commerce
applications, further strengthens our ability to provide high
levels of service to our customers. Our highly specialized
implementation group focuses on the integration of our
information systems and implementation of improved business
processes with those of a new customer during the initiation
phase. By maintaining a specialized team, we are able to utilize
best practices to implement our systems and processes, thereby
providing solutions to customers in a more organized, efficient
and effective manner. This approach is valuable to large,
multi-location customers who have demanding service requirements.
As major integrated and large independent energy companies have
implemented efficiency initiatives to focus on their core
business, many of these companies have begun outsourcing their
procurement and inventory management requirements. In response
to these initiatives and to satisfy customer service
requirements, we offer integrated supply services to customers
who wish to outsource all or a part of the administrative burden
associated with sourcing PVF and other related products, and we
also have employees
on-site at
many customer locations. Our integrated supply group offers
procurement-related services, physical warehousing services,
product quality assurance and inventory ownership and analysis
services.
Customers
Our principal customers are companies active in the upstream,
midstream and downstream sectors of the energy industry as well
as in other industrial and energy sectors. Due to the demanding
operating conditions in the energy industry and high costs
associated with equipment failure, customers prefer highly
reliable products and vendors with established qualifications
and experience. As our PVF products typically represent a
fraction of the total cost of the project, our customers place a
premium on service given the high cost to them of maintenance or
new project delays. We strive to build long-term relationships
with our customers by maintaining our reputation as a supplier
of high-quality, efficient and reliable products and value-added
services and solutions.
We have a diverse customer base with over 10,000 active
customers. We are not dependent on any one customer or group of
customers. A majority of our customers are offered terms of net,
30 days (due within 30 days of the customer’s
receipt of the invoice). Customers generally have a right to
return our products. However, returns have been immaterial to
our total sales. For the twelve months ended December 31,
2007, our top ten customers represented less than 30% of our pro
forma sales. For the twelve months ended December 31, 2007,
before giving pro forma effect to the Red Man Transaction, our
top ten customers accounted for approximately 30% of our sales.
For many of our largest customers, we are often their sole or
primary
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provider by end market or geography, their largest or second
largest supplier in aggregate, or in certain instances the sole
provider for their upstream, midstream and downstream
procurement needs. We believe that many customers for which we
are not the end market exclusive or comprehensive North American
sole source PVF provider will continue to reduce their number of
suppliers in an effort to reduce costs and administrative
burdens and focus on their core operations. As such, we believe
these customers will seek to select PVF distributors with the
most extensive product offering and broadest geographic
presence. Furthermore, we believe our business will strengthen
as companies in the energy industry continue to consolidate and
the larger, resulting companies look to larger distributors such
as ourselves as their sole or primary source PVF provider.
Suppliers
We source our products from more than 10,000 suppliers. Our
suppliers benefit from access to our diversified customer base
and, by consolidating customer orders, we benefit from stronger
purchasing power and preferred vendor programs. During the
twelve months ended December 31, 2007 on a pro forma basis,
we purchased approximately $1 billion of products from our
top 10 suppliers, representing approximately 32% of our
total purchases. Before giving pro forma effect to the Red Man
Transaction, during the twelve months ended December 31,
2007 we purchased approximately $431 million of products
from our top ten suppliers, representing approximately 30.7% of
our purchases. Our largest supplier accounted for approximately
9% of our total purchases in 2007 on a pro forma basis and
accounted for approximately 7% of our total purchases in 2007
before giving pro forma effect to the Red Man Transaction.
We source a significant majority of our products directly from
the manufacturer.
We believe our customers and suppliers recognize us as an
industry leader for the formal processes we use to evaluate the
performance of our vendors as well as the products they furnish
to our company. This assessment process is referred to as the
MRM Supplier Registration Process, which involves employing
individuals, certified by the International Registry of
Certificated Auditors, who specialize in conducting
on-site
assessments of our manufacturers as well as monitoring and
evaluating the quality of goods produced. The result of this
process is the MRM ASL. Products from the manufacturers on this
list are supplied across many of the end markets we support.
Given that many of our largest customers, especially those in
the refinery and chemical industries, maintain their own formal
AML listing, we are recognized as an important source of
information sharing with our key customers regarding the results
of our
on-site
assessment. For this reason, together with management’s
commitment to promote high quality products that bring the best
overall value to our customers, we often become the preferred
provider of AML products to these customers. Many of our
customers regularly collaborate with us regarding specific
manufacturer performance, our own experience with vendors’
products and the results of our
on-site
supplier assessments. The emphasis placed on the MRM ASL by both
our customers and suppliers helps secure our central and
critical position in the global PVF supply chain.
We utilize a variety of freight carriers in addition to our
corporate fleet to ensure timely and efficient delivery of our
product. Our strategy is to build volume with selected
“core” common carriers in order to obtain a pricing
advantage and to align responsibility for customer service.
Placing freight regularly with over 50 different carriers
provides us with a substantial pool of qualified carriers to
draw from as market conditions change.
Sales and
Marketing
We distribute our products to a wide variety of end-users. Our
broad distribution network and customer base allow us to
capitalize on our extensive inventory base. Local relationships,
depth of inventory, service and timely delivery are critical to
the sales process in the PVF distribution industry. Our
marketing efforts are customer and product driven, and provide a
system that is more responsive to changing customer and product
needs than a traditional, fully centralized structure.
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Our sales model applies a two-pronged approach to address both
the regional and national markets. Regional sales teams, led by
eight senior vice presidents with an average tenure of
26 years at McJunkin Red Man or its predecessors, are based
in our core geographic regions and the national accounts sales
team is focused on specific customer types, including large
national customers and gas utility customers, supported by
groups with specific expertise, including integrated supply and
implementation. Our overall sales force is internally divided
into outside and inside sales forces.
Our 342 (as of December 31, 2007) outside sales
representatives develop relationships with prospective and
existing customers in an effort to better understand their needs
and to increase the number of our products specified or approved
by a given customer. Outside sales representatives may be branch
outside sales representatives, focused on customer relationships
in specific geographies, or technical outside sales
representatives, who focus on specific products and provide
detailed technical support to customers.
In order to address the needs of our customer base, our inside
sales force of 762 individuals (as of December 31,
2007) is responsible for processing orders generated by new
and existing customers as well as by our outside sales force.
The inside sales force prepares packages based on specific
customer needs, interfaces with manufacturers to determine
product availability, ensures on-time delivery and establishes
pricing of materials and services based on guidelines and
predetermined metrics set by management.
Information
Systems
Our technology approach allows for extensive integration and
customization with our clients. We believe that this is
accretive to the customer’s value proposition and increases
customer loyalty. Thus, our customized information systems
enable on-line real-time access to appropriate resources and are
an integral part of our competitive advantage, particularly
among larger customers whose own information systems we
integrate with seamlessly.
Third party and web-based applications are incorporated in our
platform to further enhance the IT offering. Customer and
supplier electronic integrations, information sharing, and
e-commerce
applications help support and secure long-standing relationships
and foster additional business with our customers. Scanning and
customized bar-coding systems increase efficiency. Our corporate
Intranet also includes web-based applications such as its Sales
History Analysis Reporting Program (“SHARP”), a Wizard
Document and Report Library and a Document Imaging application
that includes more than 5 million documents and reports. As
of December 31, 2007, we had a staff of approximately 60 IT
professionals.
We currently operate two primary information systems inherited
from the combination of McJunkin and Red Man. Management has
thoroughly evaluated both systems for functionality, degree of
customer and internal integration, controls, accounting and
reporting capability, acquisition implementation, scalability,
reliability, speed and Sarbanes-Oxley upgradeability.
Information systems have been a critical focus and a three-step
integration plan has been put in place with the final transition
to an enhanced hybrid information system platform combining
certain elements of the heritage McJunkin and Red Man systems
expected to be fully completed in 2009. This plan enables the
company to leverage the benefits of both systems while reducing
the risk associated with any major system change.
Upon completion of our information systems integration
initiative, our branches will be linked by our wide area
networks into an existing integrated, scalable, enterprise
server-based system allowing online, real-time access to all
business resources including customer order processing,
purchasing and material request, distributing requirements
planning, warehousing and receiving, inventory control and all
accounting and financial functions. Prior to project completion,
we are merging geographically overlapping locations and
migrating these and certain other locations to the chosen
information systems platform. We have already successfully
transitioned 10 locations in this manner. This serves
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as both a validation of our approach and a confirmation of our
conversion process, a key to minimizing information systems risk
and any disruption to the business and customer base.
Employees
As of June 26, 2008, we had approximately
3,484 employees worldwide. Thirty employees belong to
the International Brotherhood of Teamsters and are covered by
collective bargaining agreements. We believe we have good
relationships with our employees and have not had any major
issues such as strikes or business interruptions during the past
several years.
Properties
We operate a modified hub and spoke model that is centered
around our 6 distribution centers in North America with more
than 250 locations which have inventory and local employees.
Additionally, in order to maintain strong customer
relationships, we hold inventory at approximately 700
on-site
customer locations.
The company maintains two corporate headquarters, the precedent
McJunkin headquarters in Charleston, WV, which focuses on
downstream, gas utilities (midstream), and Appalachian upstream
activities, and the precedent Red Man headquarters in Tulsa, OK,
which focuses on upstream and pipeline (midstream) activities.
We also maintain a main corporate office for our Canadian
operations in Calgary, Alberta.
Competition
We are the largest PVF distributor to the energy industry in
North America based on sales. The broad PVF distribution
industry is fragmented and includes large, nationally recognized
distributors, major regional distributors and many smaller local
distributors, with the potential for further consolidation. The
principal methods of competition include offering prompt local
service, fulfilment capability, breadth of product and service
offerings, price and total costs to the customer. Our
competitors include national recognized distributors, such as
Wilson Industries, Inc. (a subsidiary of Smith International,
Inc.) and National Oilwell Varco, Inc., several large regional
or product-specific competitors, and many local, family-owned
PVF distributors.
Environmental
Matters
We are subject to a variety of federal, state, local, foreign
and provincial environmental, health and safety laws and
regulations, including those governing the discharge of
pollutants into the air or water, the management, storage and
disposal of hazardous substances and wastes, the responsibility
to investigate and cleanup contamination and occupational health
and safety. Fines and penalties may be imposed for
non-compliance with applicable environmental, health and safety
requirements and the failure to have or to comply with the terms
and conditions of required permits. Historically, the costs to
comply with environmental and health and safety requirements
have not been material. We are not aware of any pending
environmental compliance or remediation matters that, in the
opinion of management, are reasonably likely to have a material
effect on our business, financial position or results of
operations. However, the failure by us to comply with applicable
environmental, health and safety requirements could result in
fines, penalties, enforcement actions, third party claims for
property damage and personal injury, requirements to clean up
property or to pay for the costs of cleanup, or regulatory or
judicial orders requiring corrective measures, including the
installation of pollution control equipment or remedial actions.
Under certain laws and regulations, such as the federal
Superfund law, the obligation to investigate and remediate
contamination at a facility may be imposed on current and former
owners or operators or on persons who may have sent waste to
that facility for disposal. Liability under these
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laws and regulations may be without regard to fault or to the
legality of the activities giving rise to the contamination.
Although we are not aware of any active litigation against us
under the federal Superfund law or its state equivalents,
contamination has been identified at several of our current and
former facilities, and we have incurred and will continue to
incur costs to investigate and remediate these conditions.
Moreover, we may incur liabilities in connection with
environmental conditions currently unknown to us relating to our
prior, existing or future sites or operations or those of
predecessor companies whose liabilities we may have assumed or
acquired.
In addition, environmental, health and safety laws and
regulations applicable to our business and the business of our
customers, including laws regulating the energy industry, and
the interpretation or enforcement of these laws and regulations,
are constantly evolving and it is impossible to predict
accurately the effect that changes in these laws and
regulations, or their interpretation or enforcement, may have
upon our business, financial condition or results of operations.
In particular, legislation and regulations limiting emissions of
greenhouse gases, including carbon dioxide associated with the
burning of fossil fuels, are at various stages of consideration
and implementation, and if fully implemented, could negatively
impact the market for our products and, consequently, our
business. Should environmental laws and regulations, or their
interpretation or enforcement, become more stringent, our costs
could increase, which may have a material adverse effect on our
business, financial condition and results of operations.
Legal
Proceedings
From time to time, we have been subject to various claims and
involved in legal proceedings incidental to the nature of our
businesses. We maintain insurance coverage to reduce financial
risk associated with certain of these claims and proceedings. It
is not possible to predict the outcome of these claims and
proceedings. However, in our opinion, there are no material
pending legal proceedings that are likely to have a material
effect on our business, financial condition or results of
operations, although it is possible that the resolution of
certain actual or threatened claims or proceedings could have a
material adverse effect on our business, financial condition or
results of operation in the period of resolution.
We are a defendant in lawsuits involving approximately 835
plaintiffs as of September 24, 2008 alleging, among other
things, personal injury, including mesothelioma and other
cancers, arising from exposure to
asbestos-containing
materials included in products distributed by us in the past.
The complaints in these lawsuits typically name many other
defendants. In the majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs’ alleged injuries or their connection with the
products we distributed. As of June 2008, lawsuits involving
approximately 11,240 claims have been brought against us. Of
these claims, approximately 10,414 have been resolved (7,140
have been dismissed, 33 have been settled and 3,241 were
resolved prior to 1995 as part of two mass settlements with
payments not allocated to individual claims). No asbestos
lawsuit has resulted in a judgment against us to date. In 2008,
we along with outside accounting and financial consultants,
conducted an analysis of pending and probable asbestos-related
claims to determine the adequacy of our accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on our historical settlement experience.
These estimates were applied to each of our pending individual
claims. Liability with respect to mass filings was estimated by
determining the number of individual plaintiffs included in the
mass filings likely to have claims resulting in settlements
based on our historical experience with mass filings. Finally,
likely claims expected to be asserted against us over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on our analysis
and the existence of certain insurance coverage, we do not
believe that the outcome of our pending and probable cases will
have a material impact on us. The potential liability associated
with asbestos lawsuits, however, is subject to many
uncertainties, including negative developments in the cases
pending against us, the current or future insolvency of co-
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defendants, adverse changes in relevant laws or the
interpretation thereof, and the extent to which insurance will
be available to pay for defense costs, judgments or settlements.
Further, we anticipate that additional claims will be filed
against us in the future, but are unable to predict the number,
timing and magnitude of such future claims with any certainty.
Therefore, we cannot assure you that the pending or future
asbestos litigation will not ultimately have a material adverse
effect on our business, results of operations and financial
condition.
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MANAGEMENT
Executive
Officers and Directors
The following table sets forth the names, ages (as of
June 26, 2008) and positions of each person who is an
executive officer or director of McJunkin Red Man Holding
Corporation and who will be an executive officer or director of
McJunkin Red Man Holding Corporation upon completion of this
offering.
|
Name
|
Age
|
Position
|
||
|
Andrew Lane
|
48 | Chief Executive Officer and Director | ||
|
James F. Underhill
|
53 | Executive Vice President and Chief Financial Officer | ||
|
Dee Paige
|
55 | Executive Vice President of Canadian Operations and Business Development | ||
|
Stephen D. Wehrle
|
55 | Executive Vice President — Branch Sales and Operations | ||
|
Jeffrey Lang
|
52 | Executive Vice President — Branch Sales and Operations | ||
|
Randy K. Adams
|
58 | Senior Corporate Vice President — Sales & Marketing (Upstream) | ||
|
Rory M. Isaac
|
58 | Senior Corporate Vice President — Sales & Marketing (Downstream/Gas Utilities) | ||
|
Gary A. Ittner
|
56 | Senior Corporate Vice President of Supply Chain Management (based in Charleston) | ||
|
Dennis Niver
|
60 | Senior Corporate Vice President of Supply Chain Management (based in Tulsa) | ||
|
Ken Hayes
|
52 | Senior Corporate Vice President of Standard and Line Pipe | ||
|
Stephen W. Lake
|
44 | Senior Corporate Vice President, General Counsel and Corporate Secretary | ||
|
David Fox, III
|
59 | Senior Regional Vice President of the Appalachian Region | ||
|
Craig Ketchum
|
51 | Chairman of the Board of Directors | ||
|
Rhys J. Best
|
61 | Director | ||
|
Henry Cornell
|
52 | Director | ||
|
Christopher A.S. Crampton
|
30 | Director | ||
|
John F. Daly
|
42 | Director | ||
|
Harry K. Hornish, Jr.
|
63 | Director | ||
|
Sam B. Rovit
|
50 | Director | ||
|
H.B. Wehrle, III
|
56 | Director |
Andrew Lane has served as the chief executive
officer of our company since September 2008. He has also served
as a director of our company since September 2008. From December
2004 to December 2007, he served as executive vice president and
chief operating officer of Halliburton Company, where he was
responsible for Halliburton’s overall operational
performance, managed over 50,000 employees worldwide and
oversaw several mergers and acquisitions integrations. Prior to
that, he held a variety of leadership roles within Halliburton,
serving as president and chief executive officer of Kellogg
Brown & Root, Inc. from July 2004 to November 2004, as
senior vice president, global operations of Halliburton Energy
Services Group from April 2004 to July 2004, as president of the
Landmark Division of Halliburton Energy Services Group from May
2003 to March 2004, and as president and chief executive officer
of Landmark Graphics Corporation from April 2002 to April 2003.
He was also chief operating officer of Landmark Graphics from
January 2002 to March 2002 and vice president, production
enhancement PSL, completion products PSL and tools/testing/TCP
of Halliburton Energy Services Group from January 2000 to
December 2001. Mr. Lane also served as a
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director of KBR, Inc. from June 2006 to April 2007. He began
his career in the oil and gas industry as a field engineer for
Gulf Oil Corporation in 1982, and later worked as a production
engineer in Gulf Oil’s Pipeline Design and Permits Group.
Mr. Lane received a B.S. in mechanical engineering from
Southern Methodist University. He is a member of the executive
board of the Southern Methodist University School of Engineering.
James F. Underhill has served as executive vice
president and chief financial officer of our company and of
McJunkin Red Man Corporation, our subsidiary, since November
2007. At McJunkin, he served as chief financial officer from May
2006 through October 2007, as senior vice president of
accounting and information services from 1994 to May 2006, and
vice president and controller from 1987 to 1994. Prior to 1987,
Mr. Underhill served as controller, assistant controller,
and corporate accounting manager. Mr. Underhill joined
McJunkin in 1980 and has since overseen McJunkin’s
accounting, information systems, and mergers and acquisitions
areas. He has been involved in numerous implementations of
electronic customer solutions and has had primary responsibility
for the acquisition and integration of more than 30 businesses.
Mr. Underhill was also project manager for the design,
development, and implementation of McJunkin’s FOCUS
operating system. He received a B.A. in accounting and economics
from Lehigh University in 1977 and is a certified public
accountant. Prior to joining McJunkin, Mr. Underhill worked
in the New York City office of the accounting firm of Main
Hurdman.
Dee Paige has served as executive vice president
with responsibilities for Canadian operations and business
development at our company and at McJunkin Red Man Corporation,
our subsidiary, since November 2007. Mr. Paige joined Red
Man in 1982 and worked as controller until 1986, when he was
named vice-president — finance. He was named chief
financial officer/treasurer of Red Man in 1995. He also served
on Red Man’s board of directors. Mr. Paige received
his undergraduate degree and master’s degree in accounting
from Oklahoma State University. Mr. Paige is a certified
public accountant.
Stephen D. Wehrle has served as executive vice
president — branch sales and operations at our company
and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. Mr. Wehrle began working at McJunkin in
1974 as an inside sales representative. He became senior vice
president of sales at McJunkin in 1987 and became executive vice
president of sales at McJunkin in 2004. Mr. Wehrle
graduated from the University of Colorado with a bachelor of
arts degree. He currently serves on the advisory board for the
University of Charleston Graduate School of Business and is a
director of the Chemical Alliance Zone in Charleston, West
Virginia, the Clay Center for the Arts and Sciences, the Library
Foundation of Kanawha Valley, Thomas Memorial Hospital, and the
West Virginia Hospital Association. He is also director emeritus
of Children’s Home Society of West Virginia. Stephen D.
Wehrle is the brother of H.B. Wehrle, III, one of our
directors.
Jeff Lang has served as executive vice
president — branch sales and operations at our company
since August 2008 and at McJunkin Red Man Corporation, our
subsidiary, since November 2007. Mr. Lang has over
25 years experience in distribution, operations and sales.
He served as senior vice president of branch sales and
operations at Red Man from March 2006 through October 2007.
Prior to joining Red Man in March 2006, he served as director of
Ingersoll Rand’s North American Sales and Service business
from January 2002 to March 2006. Mr. Lang worked at
Ingersoll Rand’s headquarters in various leadership and
management capacities. He also led Ingersoll Rand’s North
American Independent Distributor business from May 1999 to
December 2002. Mr. Lang received his undergraduate degree
from Ohio University and received an MBA from Averett College.
Randy Adams has served as senior corporate vice
president — sales & marketing (focusing on
upstream and midstream markets) at our company since August 2008
and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. Mr. Adams’ career in the PVF
distribution industry began in 1980 with Vinson Supply Co.,
which was acquired by Red Man in 1995. He has served in many
roles at Red Man, including as branch manager from 1995 to 1997,
manager — alliances and marketing from 1997 to 2000,
director —
e-commerce &
alliances from 2000 to 2002, and
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vice-president —
sales and marketing from 2002 to 2007. His current roles and
responsibilities include retention and growth of existing MRO
contracts and proactive growth in domestic and international oil
and gas markets. In addition to sales responsibilities, he also
manages the pricing strategy and marketing programs.
Mr. Adams received his business administration degree in
marketing from the University of North Texas.
Rory M. Isaac has served as senior corporate vice
president — sales & marketing (focusing on
downstream, industrials and gas utilities operations) at our
company since August 2008 and at McJunkin Red Man Corporation,
our subsidiary, since November 2007. He served as senior
corporate vice president — national accounts at
McJunkin from 1995 to 2000 and as senior corporate vice
president — national accounts, utilities and marketing
at McJunkin from 2000 to 2007. Mr. Isaac joined McJunkin in
1981. He has extensive experience in sales, customer relations
and management and has served at McJunkin as a branch manager,
regional manager and regional vice president. In 1995 he began
working in the corporate office of McJunkin in Charleston, West
Virginia as senior vice president for national accounts, where
he was responsible for managing and growing McJunkin’s
national accounts customer base and directing business
development efforts into integrated supply markets. In 1999 he
took on the additional responsibility of growing McJunkin’s
market share in key initiative areas including gas products and
marketing McJunkin’s capabilities. Prior to joining
McJunkin, Mr. Isaac worked at Consolidated Services, Inc.
and Charleston Supply Company. Mr. Isaac attended the
Citadel.
Gary A. Ittner has served as senior corporate vice
president of supply chain management at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He has specific responsibility for the
procurement of all industrial valves, automation, fittings and
alloy tubular products. Prior to November 2007, he served as
senior corporate vice president of supply management at McJunkin
(which became McJunkin Red Man Corporation after the Red Man
Transaction in October 2007) since March 2001. Before
joining the Supply Management Group, Mr. Ittner worked in
various field positions including branch manager, regional
manager, and senior regional vice president. He is a past
chairman of the executive committee of the American Supply
Association’s Industrial Piping Division. Mr. Ittner
began working at McJunkin in 1971 following his freshman year at
the University of Cincinnati and joined the company full-time
following his graduation in 1974.
Dennis Niver has served as senior corporate vice
president of supply chain management at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He joined Red Man in 1977 with founder Lew
Ketchum, helping to grow the company as it emerged as a major
player in its industry. He served as purchasing manager at Red
Man before he was named vice-president — purchasing in
1989. He served as vice-president — purchasing and
alliances at Red Man from 1993 through October 2007.
Mr. Niver received his education from the University of
Tulsa. He currently serves as chairman of the IPD executive
committee for the American Supply Association, as well as the
supply chain management committee for the Petroleum Equipment
Suppliers Association.
Ken Hayes has served as senior corporate vice
president of standard and line pipe at our company since August
2008 and at McJunkin Red Man Corporation, our subsidiary, since
November 2007. He leads and directs all activities associated
with the performance of the standard and line pipe product line.
Mr. Hayes has had 29 years of experience in the
industrial, oilfield and tubular distribution business. His
primary focus for the past 19 years has been on the carbon
steel standard and line pipe product line. He previously served
as director of standard and line pipe at Red Man from April 1999
through October 2007. He initially joined Red Man in 1979 as
division manager and served in sales in various locations.
Mr. Hayes received his bachelor of science degree in
business management from New Mexico State University.
Stephen W. Lake has served as senior corporate
vice president, general counsel and corporate secretary of our
company and of McJunkin Red Man Corporation, our subsidiary,
since June 2008.
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Prior to that date he was senior vice president —
general counsel of McJunkin Red Man Corporation since joining
McJunkin Red Man Corporation in January 2008. Previously,
Mr. Lake was a shareholder at the law firm
Gable & Gotwals in Tulsa, Oklahoma from
January 1, 1998 through January 6, 2008, where he
practiced in the areas of mergers and acquisitions and
securities law. He was a member of the board of directors of
Gable & Gotwals from January 1, 2005 through
January 6, 2008 and an associate of that firm from
September 1991 until becoming a shareholder in January 1998.
Mr. Lake graduated from Vanderbilt University in 1987 with
honors in economics and graduated first in his class from the
University of Oklahoma law school in 1991. He was
editor-in-chief
of the Oklahoma Law Review from
1990-1991.
David Fox, III has served as senior regional
vice president of the Appalachian region at our company since
August 2008 and at McJunkin Red Man Corporation, our subsidiary,
since February 2007. He served as executive vice president of
McJunkin Appalachian from 1989 to June 2008. Mr. Fox joined
McJunkin in 1989 when Appalachian Pipe merged with
McJunkin’s oil and gas division to form McJunkin
Appalachian. Mr. Fox founded Appalachian Pipe in 1984,
together with his brother Stephen G. Fox and Steven G. Park, as
a successor corporation to Branchland Pipe & Supply.
Branchland Pipe & Supply was started by
Mr. Fox’s grandfather, David Fox, in 1919.
Mr. Fox has spent his entire career in the oil and gas
distribution industry in the Appalachian area. Mr. Fox
graduated from Marshall University with a bachelor’s degree
in business administration.
Craig Ketchum has served as the chairman of our
board of directors since September 2008 and as a member of our
board of directors since October 2007. He was the president
and chief executive officer of our company and of McJunkin Red
Man Corporation, our subsidiary, from May 2008 to September
2008. Prior to that, he served as co-president and co-chief
executive officer of McJunkin Red Man Corporation since the
business combination between McJunkin and Red Man in
October 31, 2007. He has served at Red Man in various
capacities since 1979, including store operations and sales,
working at Red Man locations in Ardmore, Oklahoma, Tulsa,
Oklahoma, Denver, Colorado, and Dallas, Texas. He was named vice
president — sales at Red Man in 1991, executive vice
president of Red Man in 1994 and president and chief executive
officer in 1995. He also served on Red Man’s board of
directors. During his tenure as Red Man’s leader, Red Man
sales increased significantly and he led Red Man’s
acquisition of a majority voting interest in Midfield Supply
ULC, a successful Canadian oilfield distributor, as well as
other strategic acquisitions that provided opportunities for Red
Man to expand its product offering and geographic presence. In
2007 he led the key team players in the successful business
combination between McJunkin and Red Man. As president and chief
executive officer of our company, his expanded leadership
responsibilities in 2007 and 2008 included serving on our board
of directors, planning and formulating strategies for our
combined company, leading our combined senior management team,
communicating corporate strategy and vision to all employees,
and blending cultures and organizational structures.
Mr. Ketchum graduated from the University of Central
Oklahoma with a business degree and joined Red Man in 1979. He
has served as chairman of the Petroleum Equipment Suppliers
Association. He currently serves on the board of the
Metropolitan Tulsa Chamber of Commerce and is active in the
Young President’s Organization.
Rhys J. Best has been a member of our board of
directors since December 1, 2007. From 1999 until June
2004, Mr. Best was chairman, president and chief executive
officer of Lone Star Technologies, Inc., a company engaged in
producing and marketing casing, tubing, line pipe and couplings
for the oil and gas, industrial, automotive, and power
generation industries. From June 2004 until Lone Star was
acquired by the United States Steel Corporation in June 2007,
Mr. Best was chairman and chief executive officer of Lone
Star. Mr. Best retired in June 2007. Before joining Lone
Star in 1989, Mr. Best held several leadership positions in
the banking industry. In 1985 he was named president of First
City Bank Dallas, which, at that time, was the second largest
bank in the First City system. Earlier, he had worked at
Manufacturers Hanover Corporation of New York and Interfirst
Bank of Dallas. Mr. Best graduated from the University of
North Texas with a Bachelor of Business Administration Degree
and earned an M.B.A. from Southern Methodist University. He is a
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member of the board of directors of Cabot Oil & Gas
Corporation, an independent natural gas producer, Trinity
Industries, which owns a group of businesses providing products
and services to the industrial, energy, transportation, and
construction sectors, and Austin Industries, Inc., a
Dallas-based general construction company. He is also a member
of the board of directors of Crosstex Energy GP, LLC, the
general partner of the general partner of Crosstex Energy, L.P.,
an independent midstream energy services company. He is also
involved in a number of industry-related and civic
organizations, including the Petroleum Equipment Suppliers
Association (for which he has previously served as chairman) and
the Maguire Energy Institute of Southern Methodist University.
He serves on the board of advisors of the College of Business
Administration at the University of North Texas.
Henry Cornell has been a member of our board of
directors since November 29, 2006. Mr. Cornell is a
managing director in the Principal Investment Area of Goldman,
Sachs & Co., which he joined in 1984. He is a member
of the Investment Committee of the Principal Investment Area of
Goldman, Sachs & Co. Mr. Cornell also serves on
the board of directors of The First Marblehead Corporation and
Knight Inc. Mr. Cornell received a B.A. from Grinnell College
and a J.D. from New York Law School.
Christopher A.S. Crampton has been a member of our
board of directors since January 31, 2007. He is currently
a vice president in the Principal Investment Area of Goldman,
Sachs & Co., which he joined in 2003. From 2000 to
2003, he worked in the investment banking division of Deutsche
Banc Alex. Brown. He is a graduate of Princeton University.
John F. Daly has been a member of our board of
directors since January 31, 2007. Mr. Daly is a
managing director in the Principal Investment Area of Goldman
Sachs, where he has worked since 2000. In 1998 and from 1999 to
2000, he was a member of the Investment Banking Division of
Goldman Sachs. From 1991 to 1997, Mr. Daly was a Senior
Instructor of Mechanical & Aerospace Engineering at
Case Western Reserve University. He earned a B.S. and M.S. in
Engineering from Case Western Reserve University and an M.B.A.
from the Wharton School of Business. Mr. Daly currently
serves as a director of Cooper-Standard Automotive Inc. and
Hawker Beechcraft, Inc.
Harry K. Hornish, Jr. has been a member of
our board of directors since October 31, 2007. From October
2002 to November 2005, he was the president and chief executive
officer of National Waterworks, Inc., a distributor of products
used to build, repair and maintain water and wastewater
transmission systems. Mr. Hornish retired in November 2005.
Prior to joining National Waterworks, Mr. Hornish was the
president and chief operating officer of U.S. Filter
Distribution Group, Inc. since February 1998 and also served as
the executive vice president of U.S. Filter Distribution
from its inception in 1996 until February 1998. Prior to serving
at U.S. Filter Distribution Group, Mr. Hornish was the
president and chief executive officer of The Utility Supply
Group, Inc., which was acquired by U.S. Filter Distribution
Group in 1996 after it was spun off from CertainTeed Corporation
in 1994. Mr. Hornish was employed at CertainTeed
Corporation from 1987 to 1994, where he held executive positions
in both the Building Materials and the Utility Supply divisions.
His early career included several sales, marketing, and senior
management positions with the distribution division of Owens
Corning Fiberglas. He is currently a member of the board of
directors of Underground Solutions, Inc., a provider of
infrastructure technologies for water and sewer applications,
and Generac Corp., a manufacturer of standby and prime power
generators. Mr. Hornish received a B.A. in political
science from Marshall University.
Sam B. Rovit has been a member of our board of
directors since June 2008. Mr. Rovit was also a member of
the board of directors of McJunkin Corporation from 2001 until
January 2007. Mr. Rovit is a partner at Bain Corporate
Renewal Group, a unit of Bain & Company which provides
turnaround services. Mr. Rovit joined the Bain Corporate
Renewal Group in January 2008 and was a partner at
Bain & Company from 1989 to June 2005. From July 2005
to June 2007, he was the president and CEO of Swift &
Co., a meat processing company. Mr. Rovit earned an M.B.A.
from Harvard Business School and a Master of Arts in law and
diplomacy from the Fletcher School of Law and Diplomacy at
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Tufts University where he studied military strategy and
international business. He received a bachelor’s degree in
Public Policy from Duke University.
H.B. Wehrle, III has been a member of our
board of directors since January 31, 2007. He served as our
president and chief executive officer from January 31, 2007
to October 30, 2007. From October 31, 2007 to May
2008, Mr. Wehrle served as co-president and co-chief
executive officer of McJunkin Red Man Corporation, and from May
2008 until September 2008 he served as chairman of our board of
directors. Mr. Wehrle began his career with McJunkin
Corporation in 1973 in sales. He subsequently served as
treasurer and was later promoted to executive vice president. He
was elected president of McJunkin Corporation in 1987.
Mr. Wehrle graduated from Princeton University and received
an M.B.A. from Georgia State University. He is affiliated with
the American Supply Association and the Young Presidents’
Organization. He serves on the boards of the Central
WV Regional Airport Authority, the Mid-Atlantic Technology,
Research and Innovation Center and the National Institute for
Chemical Studies in Charleston, West Virginia. He also serves on
the board of the Mountain Company in Parkersburg, West Virginia.
H.B. Wehrle, III is the brother of Stephen D. Wehrle, our
executive vice president — branch sales and operations.
Each of our directors, except for Andrew Lane, is also a
director of PVF Holdings LLC, the selling stockholder in this
offering. Mr. Wehrle, one of our directors, is chairman of PVF
Holdings LLC.
Board of
Directors
Our board of directors consists of nine members. The current
directors are included above. Our directors are elected annually
to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified.
Prior to the completion of this offering, our board will
establish an audit committee and a compensation committee. Our
board of directors has determined that we are a “controlled
company” under the rules of the New York Stock Exchange
and, as a result, will qualify for, and may rely on, exemptions
from certain corporate governance requirements of the New York
Stock Exchange. Pursuant to the “controlled company”
exception to the board of directors and committee composition
requirements, we will be exempt from the rules that require that
(a) our board of directors be comprised of a majority of
“independent directors”, (b) our compensation
committee be comprised solely of “independent
directors” and (c) we establish a nominating and
corporate governance committee comprised solely of
“independent directors” as defined under the rules of
the New York Stock Exchange. The “controlled company”
exception does not modify the independence requirements for the
audit committee, and we intend to comply with the audit
committee requirements of the Sarbanes-Oxley Act and the New
York Stock Exchange, which require that our audit committee be
composed of at least one independent director at the closing of
this offering, a majority of independent directors within
90 days of this offering and all independent directors
within a year of this offering.
Audit Committee. Our audit committee
will be comprised
of , ,
and . will
be chairman of the audit committee. Our board of directors has
determined
that
qualifies as an “audit committee financial expert”.
The audit committee’s responsibilities will be to assist
the board of directors in monitoring our financial reporting
process, accounting functions and internal controls; to oversee
the qualifications, independence, appointment, retention,
compensation and performance of our independent registered
public accounting firm; to recommend to the board of directors
the engagement of our independent accountants; to review with
the independent accountants the plans and results of the
auditing engagement; and to oversee
“whistle-blowing”
procedures and certain other compliance matters.
Compensation Committee. Our
compensation committee will be comprised
of , ,
and . will
be chairman of the compensation committee. The principal
responsibilities of the compensation committee will be to
establish policies and periodically determine matters involving
executive compensation, recommend changes in employee benefit
programs, grant
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or recommend the grant of stock options and stock awards and
provide counsel regarding key personnel selection. See
“— Executive Compensation— Compensation
Discussion and Analysis”.
Executive
Compensation
Compensation
Discussion and Analysis
Introduction
Prior to this offering, the company has been privately owned. On
January 31, 2007, the Goldman Sachs Funds acquired a
controlling interest in McJunkin. In October 2007, McJunkin and
Red Man entered into a business combination transaction to form
the combined company, McJunkin Red Man Corporation. The Goldman
Sachs Funds are part of Goldman Sachs’ Principal Investment
Area, one of the world’s largest private equity and
mezzanine investors. The overriding objective of our owners and
management prior to this offering has been to increase the
economic value and size of the company during the period of
ownership. Our compensation philosophy has been primarily
designed to support achieving that objective. In addition,
compensation decisions during 2007 and 2008 have been made with
an eye toward successfully integrating the compensation programs
of McJunkin and Red Man.
To date, the compensation committee of the board of directors of
PVF Holdings LLC (our controlling stockholder, with over 98% of
our common stock prior to this offering) has overseen
companywide compensation practices, reviewed, developed and
administered executive compensation programs and made
recommendations to the board of directors of PVF Holdings LLC on
compensation matters. Harry K. Hornish, Peter C.
Boylan, III and John F. Daly serve as members of this
committee. In addition, the compensation committee of the board
of directors of the company, which, during fiscal year 2007 was
also composed of Messrs. Boylan, Hornish and Daly, has
overseen and made recommendations to the board of directors of
the company on compensation matters specific to the company.
With respect to compensation matters, in general, each
compensation committee makes recommendations to its
corresponding full board of directors, and each board of
directors has final decision-making authority. However, with
respect to certain compensation policies or plans, the boards of
directors of PVF Holdings LLC and the company may delegate to
their respective compensation committees the authority to make
decisions. In August 2008, the board of directors of the company
delegated the authority to its compensation committee to
administer the company’s stock option and restricted stock
plans.
Each compensation committee has established an advisory group
that develops recommendations and proposals. Each advisory group
consists of Craig Ketchum (the chairman of our board of
directors), H.B. Wehrle, III (a member of our board of
directors), James F. Underhill (our chief financial officer),
David Lewis (our senior vice president of human resources),
Diana Morris (our vice president of investor relations, payroll
and benefits) and Russ Hoos (our vice president of human
resources). Andrew Lane, our current chief executive officer,
will serve as chairman of these advisory groups. The advisory
group will continue to advise the compensation committee of the
company following this offering. The compensation committees of
PVF Holdings LLC and the company hold meetings on the same days
on which meetings of the boards of directors are held and at
other times as needed.
The compensation committee of PVF Holdings LLC has historically:
| • | Reviewed both performance and compensation to ensure that the company maintains its ability to attract and retain superior executives in key positions and that the compensation provided to those employees is competitive with the compensation paid to similarly situated executives at our peer companies; | |
| • | Reviewed and authorized the company to enter into employment, severance and other compensation agreements with senior executives; |
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| • | Administered the McJunkin Red Man Corporation Variable Compensation Plan (a general bonus plan), the Red Man Pipe & Supply Co. Retirement Savings Plan, the McJunkin Corporation Profit-Sharing and Savings Plan and Trust and the McJunkin Red Man Non-Qualified Deferred Compensation Plan; |
| • | Performed such duties and responsibilities as may be assigned by our board of directors under the terms of any other executive compensation plan and/or with respect to the issuance and management of profits units and common units in PVF Holdings LLC; and | |
| • | Reviewed and established perquisites and employee benefits policies. |
Following this offering, the compensation committee of the
company will generally take over the duties of the compensation
committee of PVF Holdings LLC. For purposes of this Compensation
Discussion and Analysis, “board of directors” and
“compensation committee” refer to the board of
directors and the compensation committee of PVF Holdings LLC
unless otherwise specified. We do not expect our overall
compensation philosophy to materially change as a result of the
compensation committee of the company taking over these
compensation-related duties.
Compensation
Philosophy and Objectives
Our compensation committee believes that our executive
compensation program should be structured to reward the
achievement of specific annual, long-term and strategic
performance goals of the company. The executive compensation
philosophy of the compensation committee is threefold:
| • | To align the interests of executive officers with those of our shareholders, thereby providing long-term economic benefit to the company’s shareholders; | |
| • | To provide competitive financial incentives in the form of salary, bonus and benefits, with the goal of attracting and retaining talented executive officers; and | |
| • | To maintain a compensation program whereby executive officers who demonstrate exceptional performance will have the opportunity to realize appropriate economic rewards. |
Following this offering, our executive compensation program will
continue to be structured to ensure an appropriate balance
between compensation and the company’s financial
performance and shareholder returns, as well as between
short-term and long-term performance.
Setting
Executive Compensation
Role of the
Compensation Committee
The compensation committee has established annual and long-term
cash and equity programs to motivate our executive officers to
achieve the business goals established by the company. In
addition to considering our philosophy and objectives, the
compensation committee considered the pre-acquisition
compensation packages of executive officers of McJunkin and Red
Man and their interests in PVF Holdings LLC through equity
rollovers and co-investments in establishing our compensation
program. Based on these factors, the compensation committee
devised a compensation program designed to keep our executive
officers highly incentivized.
Role of Executive
Officers
During 2007, H.B. Wehrle, III and Craig Ketchum (each of
whom served as chief executive officer), consulted with the
compensation committee regularly with respect to executive
compensation. Messrs. H.B. Wehrle and Ketchum made
recommendations to the compensation committee regarding the
total compensation packages for executive officers (except with
respect to their own compensation as chief executive officers),
including the amount and form of compensation. These
recommendations were presented to the compensation committee for
review, input and approval, and the compensation committee
either accepted or rejected such recommendations. The
compensation packages of
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Messrs. H.B. Wehrle and Ketchum were negotiated in
connection with the GS Acquisition and Red Man Transaction,
respectively. The compensation package of our current chief
executive officer, Andrew Lane, was negotiated as part of the
company’s offer of employment to Mr. Lane.
Role of
Compensation Consultant
Due to the nature of our ownership, the compensation committee
did not engage compensation consultants in connection with the
determination of executive compensation in 2007. However, the
company recently engaged Hewitt Associates, an outside global
human resources consulting firm, to review our compensation
program, including executive compensation. Hewitt Associates is
expected to produce a report late this year in which the
company’s compensation program is compared to the
compensation programs of a group of peer companies. To ensure
that our compensation program remains competitive with those of
our peers, we plan to continue to evaluate our program in
connection with our review of the Hewitt Associates report and
other relevant considerations.
Components of
Executive Compensation
The individuals who served as our chief executive officer or
chief financial officer in fiscal year 2007 and our next three
most highly compensated executive officers serving as of
December 31, 2007 were H.B. Wehrle, III, Craig Ketchum,
James F. Underhill, David Fox, III, Dee Paige and Stephen D.
Wehrle. In this prospectus, we refer to these individuals as our
named executive officers. For the fiscal year ended
December 31, 2007, the principal components of compensation
for our named executive officers were:
| • | Base salary | |
| • | Short-term incentive compensation | |
| • | Long-term equity incentive compensation | |
| • | Retirement and other benefits | |
| • | Perquisites and other personal benefits |
Base
Salary
The company provides named executive officers and other
employees with base salary to compensate them for services
rendered during the fiscal year. Base salary for each named
executive officer is determined based on his position and
responsibility and on available market data. During its annual
review of base salaries for executives, the compensation
committee primarily considers each executive officer’s
individual performance and an internal review of the
executive’s compensation, both individually and as compared
to that of other executive officers.
Short-term
Incentive Compensation
McJunkin Red Man Corporation maintains an annual cash bonus
plan, the Variable Compensation Plan. Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle participated in this plan in fiscal
year 2007 starting on February 1, 2007 following the GS
Acquisition. Messrs. Ketchum and Paige began participating
in this plan in fiscal year 2008. Each of the named executive
officers has a target annual incentive bonus equal to 100% of
annual base salary. The determination of awards pursuant to the
plan depends on the achievement of two corporate performance
objectives, one with respect to adjusted earnings before
interest, taxes, depreciation and amortization (“Adjusted
EBITDA”) and the other with respect to return on net assets
(“RONA”), the achievement of which constitutes
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80% and 20% of annual awards, respectively. For fiscal year
2007, the Adjusted EBITDA and RONA goals for the heritage
McJunkin Corporation under the Variable Compensation Plan were
as follows:
|
Adjusted |
Percent of Target |
|||||||||||
|
Performance Level
|
EBITDA
|
RONA
|
Award Payout
|
|||||||||
|
Threshold
|
$ | 146,639,160 | 34.87 | % | 5 | % | ||||||
|
Target
|
$ | 181,036,000 | 43.05 | % | 100 | % | ||||||
|
Maximum
|
$ | 181,036,000 | 43.05 | % | 100 | % | ||||||
These annual performance goals were determined by a budgeting
process that involved an examination of the company’s
markets, customers and general outlook and the setting of growth
targets based on these factors. The fiscal year 2007 performance
goals related solely to the performance of McJunkin, and
excluded the performance of Red Man. Starting in fiscal year
2008, the performance goals will relate to the performance of
the entire organization, not solely to that of McJunkin. No
awards are payable under the plan unless at least 81% of the
annual goal has been achieved. At 81% achievement, there is a
payout of 5% of each participant’s target annual incentive
bonus; this payout increases in 5% increments for each
additional percent of achievement up to full achievement of the
annual goal. Upon full achievement of the annual goal, 100% of
the target annual incentive bonus is paid, which is the maximum
award possible under the plan. Performance measures are
evaluated on an annual basis in connection with awards to the
named executive officers.
As a result of McJunkin meeting its fiscal year 2007 performance
goals, the named executive officers who participated in the plan
during 2007 were paid 100% of their target annual incentive
bonuses (with the exception of Mr. Fox, who earned 97.4% of
his target Variable Compensation Plan award for this period),
pro-rated to reflect participation for eleven months of the
year. The amounts paid under this plan for performance in fiscal
year 2007 are as follows: $632,500 for Mr. H.B. Wehrle,
$412,500 for Mr. Underhill, $513,643 for Mr. Fox and
$531,667 for Mr. S. Wehrle. As part of an agreement reached
with Messrs. Ketchum and Paige in connection with the Red
Man Transaction, they will be eligible to receive awards under
the Variable Compensation Plan starting in 2008.
During Red Man’s fiscal year ending on October 31,
2007, Messrs. Ketchum and Paige participated in the Red Man
bonus plan. The Red Man bonus pool for fiscal 2007, when Red Man
was a standalone company before the Red Man Transaction, was
determined by senior management of Red Man based on Red
Man’s overall profitability, including pre-tax
profitability and pre-LIFO (last-in,
first-out)
profitability, and was not determined based on a formulaic
method. After the bonus pool was determined, senior management
made a discretionary allocation to business unit leaders of the
organization, based on senior management’s assessment as to
each business unit’s contribution to overall profitability.
Business unit leaders, in turn, made discretionary awards to the
employees in their units. The amounts awarded to
Messrs. Ketchum and Paige for fiscal year 2007 under this
plan were determined by senior management in their discretion.
These awards are set forth in the bonus column of the Summary
Compensation Table below. On November 1, 2007 following the
Red Man Transaction, executive vice presidents, senior vice
presidents and other senior officers of Red Man (including
Messrs. Ketchum and Paige) were integrated into the
Variable Compensation Plan starting in fiscal year 2008. Certain
employees of Red Man continue to participate in the Red Man
bonus plan.
In addition to amounts earned by Messrs. H.B. Wehrle,
Underhill, Fox and S. Wehrle pursuant to the Variable
Compensation Plan during fiscal year 2007, they also earned
amounts pursuant to the pre-GS Acquisition McJunkin incentive
plan for performance during January 2007. These amounts are as
follows: $187,000 for Mr. H.B. Wehrle, $73,900 for
Mr. Underhill, $127,264 for Mr. Fox and $177,650 for
Mr. S. Wehrle. The McJunkin incentive plan is a formulaic
plan, pursuant to which such amounts were earned based on the
operating profitability of McJunkin. Senior vice presidents,
vice presidents and other senior officers of McJunkin were
integrated into the Variable Compensation Plan on
February 1, 2007 following the GS Acquisition. Certain
employees of McJunkin continue to participate in the McJunkin
incentive plan.
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Mr. H.B. Wehrle will no longer participate in the Variable
Compensation Plan as of October 1, 2008, the date his
employment agreement is scheduled to terminate pursuant to the
letter agreement dated as of September 24, 2008 between
Mr. H.B. Wehrle, PVF Holdings LLC and McJunkin Red Man
Corporation (the “Letter Agreement”).
Long-term Equity
Incentive Compensation
Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S.
Wehrle have been awarded profits units, and Mr. Fox has
been awarded restricted common units, each in respect of PVF
Holdings LLC, the terms of which are described in
Articles III and VII of the Limited Liability Company
Agreement of McJ Holdings LLC (currently known as PVF Holdings
LLC) (the “PVF LLC Agreement”). The profits units and
restricted common units granted to the named executive officers
have been granted pursuant to their employment agreements.
Although Mr. H.B. Wehrle’s employment agreement is
scheduled to terminate on October 1, 2008, his profits
units will continue to be governed pursuant to the terms of the
Letter Agreement and the PVF LLC Agreement. Prior to this
offering, PVF Holdings LLC owned over 98% of our common stock.
The named executive officers were not required to make any
capital contribution in exchange for their profits units and
restricted common units, which were awarded as compensation.
Profits units have no voting rights, whereas restricted common
units have voting rights with respect to that class of
interests. PVF Holdings LLC may from time to time distribute its
available cash to holders of common units and profits units.
Distributions are made, first, to holders of common units
(including restricted common units), pro rata in proportion to
the number of such units outstanding at the time of
distribution, until each holder has received an amount equal to
such holder’s aggregate capital contributions and, second,
to holders of all units (including profits units) pro rata in
proportion to the number of units outstanding at the time of
such distribution. Distributions in respect of restricted common
units, however, are held by the company until such restricted
common units become vested and are no longer subject to
forfeiture. Please see the table titled “Outstanding Equity
Awards at 2007 Fiscal Year-End” below for the number of
profits units and restricted common units held by the named
executive officers as of December 31, 2007.
Pursuant to the PVF LLC Agreement, profits units and restricted
common units generally become vested in one-third increments on
each of the third, fourth and fifth anniversaries of the date of
grant. In the event of a termination of employment other than
for “Cause” (as defined in the PVF LLC Agreement), the
named executive officers will forfeit all unvested profits units
and restricted common units. All profits units and restricted
common units, whether vested or unvested, will be forfeited upon
a termination of the named executive officer’s employment
for Cause. In the event of a termination by reason of death or
Disability (as defined in the PVF LLC Agreement), all unvested
profits units and restricted common units will be vested and
nonforfeitable. The PVF LLC Agreement also specifies that
profits units and restricted common units may be subject to more
favorable vesting schedules if approved by the board of
directors of PVF Holdings LLC.
The employment agreement of Mr. S. Wehrle provides for an
alternative vesting schedule for his profits units, with such
profits units vesting in equal installments on the fourth and
fifth anniversaries of the date of grant, which, for Mr. S.
Wehrle, was January 31, 2007. Profits units held by
Mr. S. Wehrle remain subject to the forfeiture provisions
set forth in the PVF LLC Agreement with respect to a termination
of employment other than for cause or by reason of death or
Disability (as described in the previous paragraph). The vesting
schedules of profits units held by Messrs. Underhill and
Paige and restricted common units held by Mr. Fox are
governed by the PVF LLC Agreement with respect to a termination
due to death or Disability, but each of their employment
agreements provides that in the event of the termination of
Mr. Underhill’s, Mr. Paige’s or
Mr. Fox’s employment by McJunkin Red Man Corporation
without “Cause” (as defined in the employment
agreement) or by Mr. Underhill, Mr. Paige or
Mr. Fox with “Good Reason” (as defined in the
employment agreement), all of the profits units held by
Messrs. Underhill and Paige and the restricted common units
held by Mr. Fox will vest and no longer be subject to
forfeiture. Messrs. Underhill and Paige will forfeit all
vested and unvested
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profits units held by them in the event of a termination for
Cause by McJunkin Red Man Corporation. With respect to
restricted common units held by Mr. Fox, in the event that
Mr. Fox is terminated for “Cause” (as defined in
the employment agreement), Mr. Fox will not forfeit his
restricted common units that are vested at the time of
termination, but PVF Holdings LLC will have the opportunity to
purchase vested restricted common units held by Mr. Fox at
“Fair Market Value” (as defined in the PVF LLC
Agreement). In the event of a termination by reason of death or
Disability, profits units and restricted common units held by
Messrs. Underhill, Paige and Fox become vested in
accordance with the PVF LLC Agreement. Profits units held by
Messrs. H.B. Wehrle and Ketchum are fully vested and not
subject to forfeiture under any circumstances, pursuant to
Mr. H.B. Wehrle’s Letter Agreement and
Mr. Ketchum’s employment agreement.
Profits units and restricted common units have been granted to
the named executive officers in connection with the GS
Acquisition and the Red Man Transaction. The number of profits
units and restricted common units awarded to the named executive
officers has been determined based on various factors, including
a consideration of what size award is required to adequately
incentivize the executives (as part of the executives’
overall compensation package), the extent to which the
executives have invested in the company and, most notably,
negotiations between executives and the company as part of the
overall negotiations relating to the GS Acquisition and the Red
Man Transaction.
Each of the named executive officers also holds common units in
PVF Holdings LLC. On January 31, 2007, Messrs. H.B.
Wehrle and S. Wehrle contributed shares of McJunkin and McJunkin
Appalachian to PVF Holdings LLC in exchange for common units in
PVF Holdings LLC and Mr. Fox contributed shares of
McJunkin Appalachian to PVF Holdings LLC in exchange for common
units in PVF Holdings LLC, which common units were subsequently
transferred to a trust established by Mr. Fox. Also on
January 31, 2007, Mr. Underhill purchased common units in PVF
Holdings LLC. On October 31, 2007, Mr. Ketchum
(through an LLC) contributed shares of Red Man to PVF Holdings
LLC in exchange for common units in PVF Holdings LLC. In
addition, Messrs. H.B. Wehrle, Underhill and S. Wehrle
purchased common units in PVF Holdings LLC on October 31,
2007. Mr. Paige purchased common units in PVF Holdings LLC
on November 29, 2007. Common units held by the named
executive officers were not awarded as part of their
compensation. Please see the section titled “Certain
Relationships and Related Party Transactions —
Transactions with Executive Officers and Directors —
Investments in PVF Holdings LLC” below for a more detailed
description of the common units and the number of common units
held by each named executive officer.
The company also maintains a restricted stock plan and two stock
option plans (one each for participants in the United States and
Canada). Pursuant to these plans, awards of restricted stock and
stock options may be granted to key employees, directors and
consultants of the company. Generally, shares of restricted
stock become vested in four installments on the second, third,
fourth and fifth anniversaries of the date of grant and stock
options become vested in three installments on the third, fourth
and fifth anniversaries of the date of grant, each conditioned
on continued employment and subject to accelerated vesting under
certain circumstances. The named executive officers have not
been granted any restricted stock or stock option awards due to
their receipt of profits units and restricted common units in
PVF Holdings LLC as part of their compensation packages and
their participation in equity rollovers and co-investments.
In connection with the hiring of our new chief executive
officer, Andrew Lane, on September 10, 2008, Mr. Lane
purchased $3 million of our common stock and was granted
stock options in respect of $31 million of our common
stock. Mr. Lane’s options will vest in equal
installments on the second, third, fourth and fifth
anniversaries of the date of grant, each conditioned on
continued employment and subject to accelerated vesting in the
event of certain terminations of employment or the occurrence of
a change in control (as defined in the employment agreement).
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Retirement and
Other Benefits
On December 31, 2007, the company adopted the McJunkin Red
Man Corporation Deferred Compensation Plan. Under the terms of
the plan, select members of management and highly compensated
employees may defer receipt of a specified amount or percentage
of cash compensation, including annual bonuses. The plan was
adopted in part to compensate certain participants for benefits
forgone in connection with the GS Acquisition. Each of the named
executive officers currently participates in the plan with the
exception of Mr. Paige. Mr. H.B. Wehrle will no longer
be eligible to receive company contributions pursuant to this
plan upon the termination of his employment agreement on
October 1, 2008. McJunkin Red Man Corporation makes
predetermined annual contributions to each participant’s
account, less any discretionary matching contributions made on
behalf of the participant by the company to a defined
contribution plan for such calendar year.
If a participant’s account balance as of the beginning of a
calendar year is less than $100,000, such balance will be
credited quarterly with interest at the “Prime Rate”
(as defined in the plan) plus 1%. If a participant’s
account balance at the beginning of a calendar year is $100,000
or greater, the participant may choose between being credited
quarterly with interest at the Prime Rate plus 1% or having his
or her account deemed converted into a number of phantom common
units of PVF Holdings LLC. If no investment election is made, a
participant’s account will be credited quarterly with
interest at the Prime Rate plus 1%. Mr. H.B. Wehrle, the
only named executive officer with a balance in excess of
$100,000 as of December 31, 2007, did not make this
election. As of December 31, 2007, all existing
participants were fully vested in their entire accounts,
including contributions by McJunkin Red Man Corporation. People
who become participants after December 31, 2007 will be
fully vested in their elective deferral amounts and shall become
vested in contributions by McJunkin Red Man Corporation as
determined by the administrator of the plan. For additional
information, please see the table titled “Nonqualified
Deferred Compensation for 2007” below.
Participants receive the vested balance of their accounts, in
cash, upon a “Separation from Service” (as defined in
Section 409A (“Section 409A”) of the
Internal Revenue Code (the “Code”)). Such amount is
paid in three annual installments (with interest) commencing on
January 1 of the second calendar year following the calendar
year in which the Separation from Service occurs. In the event
of a participant’s death or “Permanent
Disability” (as defined in the plan), or upon a
“Change in Control” (as defined in the plan) of
McJunkin Red Man Corporation, the full amount of a
participant’s account, vested and unvested, shall be paid
within 30 days following such event, to the
participant’s beneficiary in the case of death, or to the
participant, in the case of Permanent Disability or a Change in
Control. Notwithstanding the foregoing regarding the timing of
payments, distributions to “specified employees” (as
defined in Section 409A of the Code) may be required to be
delayed in accordance with Section 409A of the Code.
Perquisites and
Other Forms of Compensation
The company provides named executive officers with perquisites
and other personal benefits that the company and the
compensation committee believe are reasonable and consistent
with its overall compensation program. The compensation
committee reviews the perquisites and personal benefits provided
to named executive officers to ensure the reasonableness of such
programs. In addition to participation in the plans and programs
described above, the named executive officers are provided use
of company automobiles, club memberships and, in some cases,
reimbursement of reasonable relocation expenses.
Each of the named executive officers has entered into an
employment agreement with McJ Holding LLC (currently known as
PVF Holdings LLC) and McJunkin Corporation (currently known
as McJunkin Red Man Corporation) that contain provisions
regarding severance payments and benefits. These agreements are
designed to promote stability and continuity of senior
management at the company. Mr. H.B. Wehrle’s
employment agreement is scheduled to terminate on
October 1, 2008 in accordance with the Letter Agreement,
which does not provide for severance payments or benefits
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under any circumstances. Additional information regarding
payment under these severance provisions is provided below, in
the section titled “Potential Payments Made Upon
Termination or a Change in Control”.
Terminated
Arrangements
In connection with the GS Acquisition, McJunkin terminated
certain of its benefit plans, namely the McJunkin Supplemental
Executive Savings Plan and Trust and deferred compensation
arrangements entered into by McJunkin with certain executives.
The McJunkin Supplemental Executive Savings Plan and Trust was a
non-qualified deferred compensation plan designed to provide
executives with supplemental retirement benefits in addition to
the benefits provided under McJunkin’s qualified retirement
plan, which were limited by applicable law. The deferred
compensation arrangements were arrangements between McJunkin and
certain executives that provided for supplemental retirement
benefits, which were calculated as a percentage of five year
average earnings. Each of these plans was terminated on
January 31, 2007 in connection with the GS Acquisition.
Participants have received full distribution of benefits under
each of these plans.
Tax and
Accounting Implications
Deductibility of
Executive Compensation
Upon completion of the initial public offering,
Section 162(m) of the Code will limit the deductibility of
compensation in excess of $1 million paid out to any of our
executive officers unless specific and detailed criteria are
satisfied. We believe that it is in the company’s best
interest to deduct compensation paid to our executive officers.
We will consider the anticipated tax treatment to the company
and our executive officers in the review and determination of
compensation payments and incentives. We believe that the
compensation that historically has been paid and that will be
paid will meet the criteria and will be deductible. It will be
the intent of the company to preserve the deductibility of
compensation payments. No assurance, however, can be given that
compensation will be fully deductible under Section 162(m)
of the Code.
Nonqualified
Deferred Compensation
All deferred compensation arrangements have been structured in a
manner intended to comply with Section 409A of the Code.
Compensation
Committee Report
The compensation committee reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
compensation committee recommended to the company’s board
of directors that the Compensation Discussion and Analysis be
included in this Registration Statement.
The Compensation Committee
Harry K. Hornish
John F. Daly
Harry K. Hornish
John F. Daly
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Summary
Compensation Table for 2007
The following table sets forth certain information with respect
to compensation earned during the fiscal year ended
December 31, 2007 for all individuals who served as our
chief executive officer and our chief financial officer during
fiscal year 2007, and our next three most highly compensated
executive officers serving as of December 31, 2007. In this
prospectus, we refer to these individuals as our named executive
officers.
|
Non-Equity |
||||||||||||||||||||||||||||
|
Stock |
Incentive Plan |
All Other |
||||||||||||||||||||||||||
|
Name and Principal Position
|
Year
|
Salary(1)
|
Bonus
|
Awards(2)
|
Compensation(3)
|
Compensation
|
Total
|
|||||||||||||||||||||
|
H.B. Wehrle, III,
|
2007 | $ | 650,101 | — | $ | 213,500 | $ | 819,500 | $ | 242,862 | (5) | $ | 1,925,963 | |||||||||||||||
|
President and
Chief Executive Officer(4) |
||||||||||||||||||||||||||||
|
Craig Ketchum,
|
2007 | $ | 347,823 | $ | 1,100,000 | (7) | $ | 4,467 | — | $ | 43,686 | (8) | $ | 1,495,976 | ||||||||||||||
|
President and
Chief Executive Officer(6) |
||||||||||||||||||||||||||||
|
James F. Underhill,
|
2007 | $ | 445,933 | $ | 687,500 | (9) | $ | 334,483 | $ | 486,400 | $ | 127,230 | (10) | $ | 2,081,546 | |||||||||||||
|
Executive Vice President and
Chief Financial Officer |
||||||||||||||||||||||||||||
|
David Fox, III,
|
2007 | $ | 559,004 | — | $ | 373,027 | $ | 640,907 | $ | 2,638,930 | (11) | $ | 4,211,868 | |||||||||||||||
|
Senior Regional Vice President
of the Appalachian Region |
||||||||||||||||||||||||||||
|
Dee Paige,
|
2007 | $ | 239,763 | $ | 1,200,000 | (12) | $ | 6,700 | — | $ | 449,507 | (13) | $ | 1,895,970 | ||||||||||||||
|
Executive Vice President of Canadian Operations and Business
Development
|
||||||||||||||||||||||||||||
|
Stephen D. Wehrle,
|
2007 | $ | 548,387 | — | $ | 106,750 | $ | 709,317 | $ | 208,349 | (14) | $ | 1,572,803 | |||||||||||||||
|
Executive Vice President,
Branch Sales and Operations |
||||||||||||||||||||||||||||
| (1) | For Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle, these amounts represent the base salary paid to them by McJunkin for service during 2007, both prior to and following the GS Acquisition. Messrs. Ketchum and Paige became employed by McJunkin Red Man Corporation on October 31, 2007 in connection with the Red Man Transaction. For Messrs. Ketchum and Paige, these amounts represent the base salary paid to them for service during 2007, by Red Man prior to the Red Man Transaction and by McJunkin Red Man Corporation thereafter. | |
| (2) | These numbers reflect the amount recognized for financial statement reporting purposes in accordance with FAS 123R for the eleven months ended December 31, 2007 with respect to profits units in PVF Holdings LLC held by Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle and restricted common units in PVF Holdings LLC held by Mr. Fox. A discussion of the assumptions underlying the valuation of these profits units is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
| (3) | These amounts represent cash awards earned pursuant to the Variable Compensation Plan in respect of performance during the 2007 fiscal year. As a result of McJunkin meeting its fiscal year 2007 performance goals, the named executive officers who participated in the plan in 2007 were paid 100% of their target annual incentive bonuses (with the exception of Mr. Fox, who earned 97.4% of his target Variable Compensation Plan award for this period), pro-rated to reflect participation during eleven months of the year. Amounts paid under the Variable Compensation Plan for 2007 performance are as follows: $632,500 for |
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| Mr. H.B. Wehrle, $412,500 for Mr. Underhill, $513,643 for Mr. Fox and $531,667 for Mr. S. Wehrle. Messrs. Ketchum and Paige will be eligible to earn awards under the Variable Compensation Plan starting in fiscal year 2008. Please refer to the Compensation Discussion and Analysis and the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2007” table for a discussion of the 2007 performance goals. Amounts in this column also include amounts earned under the pre-GS-Acquisition McJunkin bonus plan for performance during the month of January 2007, in the amounts as follows: $187,000 for Mr. H.B. Wehrle, $73,900 for Mr. Underhill, $127,264 for Mr. Fox and $177,650 for Mr. S. Wehrle. |
| (4) | Mr. H.B. Wehrle was sole president and chief executive officer of McJunkin during 2007 until October 30, 2007 and co-president and co-chief executive officer with Mr. Ketchum from October 31, 2007 until May 6, 2008. On May 7, 2008, Mr. Ketchum became sole president and chief executive officer. | |
| (5) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $110,000 to Mr. H.B. Wehrle’s nonqualified deferred compensation plan account; (ii) a $49,293 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) a $21,224 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under a pre-GS Acquisition McJunkin deferred compensation arrangement, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (v) $19,620 attributable to a company-provided automobile; and (vi) $7,725 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. H.B. Wehrle. |
| (6) | Mr. Ketchum became co-president and co-chief executive officer of McJunkin Red Man Corporation on October 31, 2007 in connection with the Red Man Transaction. Mr. Ketchum served as sole president and chief executive officer from May 7, 2008 until September 9, 2008. On September 10, 2008 Mr. Ketchum became chairman of our board of directors when Andrew Lane was hired to serve as our chief executive officer. |
| (7) | This amount represents the annual bonus paid to Mr. Ketchum pursuant to the Red Man bonus plan for performance during the fiscal year ended October 31, 2007. | |
| (8) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $20,000 to Mr. Ketchum’s nonqualified deferred compensation plan account; (ii) with respect to the Red Man Pipe & Supply Co. Retirement Savings Plan, $10,338 representing a salary deferral match contribution; (iii) $5,600 attributable to a company-provided automobile, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction; and (iv) $7,748 with respect to country club dues paid on behalf of Mr. Ketchum, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction. | |
| (9) | In connection with the consummation of the GS Acquisition, Mr. Underhill received a $750,000 transaction bonus, to be paid in installments, and conditioned on Mr. Underhill’s continued service through each respective payment date. This amount represents the portion of Mr. Underhill’s transaction bonus earned in 2007. | |
| (10) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $64,167 to Mr. Underhill’s nonqualified deferred compensation plan account; (ii) a $10,861 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (iv) $12,948 attributable to a company-provided automobile; and (v) $4,254 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. Underhill. | |
| (11) | This amount includes (i) a payment of $2,480,000 to Mr. Fox in connection with the GS Acquisition as a gross-up for taxes in respect of restricted common units in PVF Holdings LLC granted to Mr. Fox; (ii) a contribution by McJunkin Red Man Corporation of $91,666 to Mr. Fox’s nonqualified deferred compensation plan account; (iii) a $15,705 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit- |
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| Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (v) $12,948 attributable to a company-provided automobile; and (vi) $3,611 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. Fox. | ||
| (12) | This amount represents (i) a $500,000 payment to Mr. Paige pursuant to the Red Man bonus plan for performance during the fiscal year ended October 31, 2007 and (ii) a $700,000 transaction bonus paid to Mr. Paige by Red Man in connection with the Red Man Transaction. | |
| (13) | This amount includes (i) a payment of $436,867 by PVF Holdings LLC to Mr. Paige on January 12, 2008 in partial settlement of phantom shares in Red Man surrendered by Mr. Paige plus interest, to which Mr. Paige became entitled as a result of services performed in 2007; (ii) with respect to the Red Man Pipe & Supply Co. Retirement Savings Plan, $7,831 representing a salary deferral match contribution; and (iii) $4,809 with respect to country club dues paid on behalf of Mr. Paige, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction. | |
| (14) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $82,500 to Mr. S. Wehrle’s nonqualified deferred compensation plan account; (ii) a $46,433 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) a $17,459 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under a pre-GS Acquisition McJunkin deferred compensation arrangement, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions, made by McJunkin Red Man Corporation; (v) $22,736 attributable to a company-provided automobile; and (vi) $4,221 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. S. Wehrle. |
Grants of
Plan-Based Awards in Fiscal Year 2007
|
All Other |
||||||||||||||||||||||||
|
Stock Awards: |
Grant Date |
|||||||||||||||||||||||
|
Number of |
Fair Value |
|||||||||||||||||||||||
|
Estimated Future Payouts Under Non- |
Shares of |
of Stock |
||||||||||||||||||||||
|
Grant |
Equity Incentive Plan Awards |
Stocks or |
and Option |
|||||||||||||||||||||
|
Name
|
Date(1)
|
Threshold(2)
|
Target(3)
|
Maximum(3)
|
Units (#)(4)
|
Awards(5)
|
||||||||||||||||||
|
H.B. Wehrle, III
|
1/31/07 | $ | 31,625 | $ | 632,500 | $ | 632,500 | 381.3098 | $ | 1,164,543 | ||||||||||||||
|
Craig Ketchum(6)
|
10/31/07 | — | — | — | 381.3098 | $ | 1,164,543 | |||||||||||||||||
|
James F. Underhill
|
1/31/07 | $ | 20,625 | $ | 412,500 | $ | 412,500 | 597.3853 | $ | 1,824,451 | ||||||||||||||
|
David Fox, III
|
1/31/07 | $ | 26,354 | $ | 527,083 | $ | 527,083 | 640.6004 | $ | 2,034,694 | ||||||||||||||
|
Dee Paige(6)
|
10/31/07 | — | — | — | 571.9647 | $ | 1,746,815 | |||||||||||||||||
|
Stephen D. Wehrle
|
1/31/07 | $ | 26,583 | $ | 531,667 | $ | 531,667 | 190.6549 | $ | 582,272 | ||||||||||||||
| (1) | These are the grant dates for the awards set forth in the sixth column of this table. | |
| (2) | Under the Variable Compensation Plan, no awards are payable unless there is at least 81% achievement of the annual performance goals, which are comprised of Adjusted EBITDA and RONA, during the relevant fiscal year. At 81% achievement, there is a payout of 5% of participants’ target annual incentive bonus. The named executive officers, except for Messrs. Ketchum and Paige, began participating in the Variable Compensation Plan on February 1, 2007. As a result, the amounts in this column reflect 5% of each named executive officer’s target annual incentive bonus that would have been paid upon 81% achievement of the performance goals, pro-rated to reflect participation during eleven months of the year. If the named executive officers had participated in the Variable Compensation Plan during the entire 2007 year, threshold payouts would have been as follows: $34,500 for Mr. H.B. Wehrle, $22,500 for Mr. Underhill, $28,750 for Mr. Fox and $29,000 for Mr. S. Wehrle. | |
| (3) | Payout under the Variable Compensation Plan increases in 5% increments for each additional percent of achievement beyond 81% up to full achievement of the annual goal. Upon full achievement of the annual goal, 100% of the target annual incentive bonus is paid, which is the maximum award possible under the plan. In 2007, 100% of the performance goals were attained (for all named executive officers other than Mr. Fox). The amounts in these columns reflect 100% of the named executive officers’ target annual incentive |
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| bonuses for 2007, pro-rated to reflect participation for eleven months of the year. These amounts are also the maximum payouts possible under the Variable Compensation Plan for 2007. If the named executive officers had participated in the Variable Compensation Plan during the entire 2007 year, target and maximum payouts would have been as follows: $690,000 for Mr. H.B. Wehrle, $450,000 for Mr. Underhill, $575,000 for Mr. Fox and $580,000 for Mr. S. Wehrle. Please refer to the Compensation Discussion and Analysis and the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2007” for a discussion of the specific 2007 performance goals. |
| (4) | For Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle, these amounts reflect the number of profits units in PVF Holdings LLC granted under the PVF LLC Agreement during 2007. For Mr. Fox, this amount reflects the number of restricted common units in PVF Holdings LLC granted under the PVF LLC Agreement during 2007. Pursuant to the PVF LLC Agreement, profits units and restricted common units generally become vested in equal increments on each of the third, fourth and fifth anniversaries of the date of grant subject to accelerated vesting under certain circumstances, but may be subject to more favorable vesting schedules if approved by the board of directors of PVF Holdings LLC. The employment agreements for Mr. S. Wehrle provides that his profits units become vested in equal increments on each of the fourth and fifth anniversaries of the date of grant. Profits units held by Messrs. Underhill and Paige and restricted common units held by Mr. Fox become vested in accordance with the terms of the PVF LLC Agreement, but each of their employment agreements provides that if, at any time, Mr. Underhill, Mr. Paige or Mr. Fox terminates his employment with Good Reason (as defined in the employment agreement) or McJunkin Red Man Corporation terminates Mr. Underhill’s, Mr. Paige’s or Mr. Fox’s employment without Cause (as defined in the employment agreement), all profits units and restricted common units held by them shall become vested. With respect to restricted common units held by Mr. Fox, in the event that Mr. Fox is terminated for “Cause” (as defined in the employment agreement), Mr. Fox will not forfeit his restricted common units that are vested at the time of termination, but PVF Holdings LLC will have the opportunity to purchase vested restricted common units held by Mr. Fox at “Fair Market Value” (as defined in the PVF LLC Agreement). Profits units held by Messrs. H.B. Wehrle and Ketchum are fully vested and not subject to forfeiture under any circumstances, pursuant to Mr. H.B. Wehrle’s Letter Agreement and Mr. Ketchum’s employment agreement. |
| (5) | These amounts represent the grant date fair value, computed in accordance with FAS 123R, of profits units (for Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle) and restricted common units (for Mr. Fox) in PVF Holdings LLC granted to the named executive officers in 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
| (6) | Messrs. Ketchum and Paige will be eligible to receive awards under the Variable Compensation Plan beginning in fiscal year 2008. |
Employment
Agreements
Named Executive
Officers
Each of the named executive officers entered into an employment
agreement with McJ Holding LLC (currently known as PVF Holdings
LLC) and McJunkin Corporation (currently known as McJunkin
Red Man Corporation) or McJunkin Red Man Holding Corporation.
Mr. Ketchum entered into an amended and restated employment
agreement with McJunkin Red Man Holding Corporation on
September 26, 2008. The employment agreements among McJ
Holding LLC, McJunkin Corporation and Mr. Underhill,
Mr. Fox and Mr. S. Wehrle were entered into on
December 4, 2006 with an effective date of January 31,
2007. The employment agreement among McJ Holding LLC, McJunkin
Corporation and Mr. Paige was entered into and became
effective on October 31, 2007. The employment agreement
among McJ Holding LLC, McJunkin Corporation and Mr. H.B. Wehrle
was entered into on December 4, 2006, became effective on
January 31, 2007, and is scheduled to terminate on
October 1, 2008 pursuant to the Letter Agreement. The
description of the employment agreements in the following
paragraph includes a description of Mr. H.B. Wehrle’s
employment agreement in order to assist in understanding the
information presented in the Summary Compensation Table and
Grants of Plan-Based Awards Table.
Each of the employment agreements has a term of three years and
provides for an initial annual base salary to be reviewed
annually and which may be adjusted upward at the discretion of
the board
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of directors of McJunkin Red Man Corporation (or a committee
thereof). Messrs. H.B. Wehrle’s and Ketchum’s
initial base salaries are each $690,000,
Mr. Underhill’s is $450,000, Mr. Fox’s is
$575,000, Mr. Paige’s is $338,750 and Mr. S.
Wehrle’s is $580,000. The employment agreements also
provide for an annual cash bonus to be based upon such
individual
and/or
company performance criteria to be established for each
respective fiscal year by the board of directors of McJunkin Red
Man Corporation in consultation with the chief executive
officer. The target annual cash bonus for each named executive
officer is equal to 100% of their respective base salaries in
effect at the beginning of the relevant fiscal year.
Participation in the Variable Compensation Plan began on
February 1, 2007 for Messrs. H.B. Wehrle, Underhill,
Fox and S. Wehrle and will begin in fiscal year 2008 for
Messrs. Ketchum and Paige.
The employment agreements provide for certain severance payments
and benefits following a termination of employment under certain
circumstances. These benefits are described below in the section
titled “Potential Payments Upon Termination or Change in
Control”.
Andrew
Lane
On September 10, 2008, we entered into an employment
agreement with Andrew Lane as our new chief executive officer
and as a member of our board of directors. The employment
agreement has a term of five years, which will automatically be
extended on the fifth anniversary of September 10, 2008,
the effective date of the agreement, and each subsequent
anniversary thereof for one year unless ninety days written
notice of non-extension is given by Mr. Lane or us to the
other party. The employment agreement provides for an initial
base salary of $700,000 to be reviewed annually and which may be
adjusted upward at the discretion of the board of directors (or
a committee thereof), and an annual cash bonus to be based upon
such individual
and/or
company performance criteria to be established for each
respective fiscal year by our board of directors, with a target
annual bonus of 100% of Mr. Lane’s base salary in
effect at the beginning of such fiscal year. As provided for in
the employment agreement, Mr. Lane purchased
$3 million of our common stock and was granted options in
respect of $31 million of our common stock.
If Mr. Lane’s employment is terminated during the term
by us other than for cause or disability (as each is defined in
the employment agreement), or by Mr. Lane for good reason
(as defined in the employment agreement), Mr. Lane shall be
entitled to: (i) compensation and benefits accrued but
unpaid as of the termination date (the “Accrued
Amounts”), (ii) a pro-rata bonus for the year in which
termination occurs (“Pro-Rata Bonus”), (iii) a
payment equal to
1/12
of base salary and
1/12
target annual bonus each month for eighteen months following
termination, (iv) continuation of medical benefits for
eighteen months on the same terms as senior executives of the
company and (v) pro-rata vesting of Mr. Lane’s
outstanding stock options, in accordance with the terms of the
employment agreement (“Pro-Rata Option Vesting”). All
of the foregoing benefits shall be subject to (i) the
execution of a general release, (ii) compliance with
restrictive covenants and (iii) any required delay of
payment under Section 409A of the Internal Revenue Code. If
Mr. Lane’s employment is terminated during the term by
reason of his death or disability, Mr. Lane (or his estate,
if applicable), will receive (i) the Accrued Amounts,
(ii) a Pro-Rata Bonus and (iii) Pro-Rata Option
Vesting. Mr. Lane is subject to covenants prohibiting
competition, solicitation of customers and employees and
interference with business relationships during his employment
and for eighteen months thereafter, and is also subject to
perpetual restrictive covenants regarding confidentiality,
non-disparagement and proprietary rights.
H.B.
Wehrle, III
On September 24, 2008, Mr. H.B. Wehrle, PVF Holdings
LLC and McJunkin Red Man Corporation entered into the Letter
Agreement, pursuant to which Mr. H.B. Wehrle’s
employment agreement will terminate by mutual agreement on
October 1, 2008. Pursuant to the Letter Agreement,
Mr. H.B. Wehrle will be paid an amount equal to
approximately $2,281,396, which represents the value of all
amounts to which he would have become entitled during the
remaining term of his employment agreement. Also pursuant to the
Letter Agreement, Mr. H.B. Wehrle will continue to hold
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his profits units in accordance with the terms of the Letter
Agreement and the PVF LLC Agreement. Also on September 24,
2008, Mr. H.B. Wehrle executed a release of claims in favor
of the company and its affiliates.
Profits Units and
Restricted Common Units
Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S.
Wehrle have been awarded profits units and Mr. Fox has been
awarded restricted common units, each in respect of PVF Holdings
LLC, the terms of which are described in Articles III and
VII of the PVF LLC Agreement. Profits units have no voting
rights, whereas restricted common units have voting rights with
respect to that class of interests. PVF Holdings LLC may from
time to time distribute its available cash to holders of common
units and profits units. Distributions are made, first, to
holders of common units (including restricted common units), pro
rata in proportion to the number of such units outstanding at
the time of distribution, until each holder has received an
amount equal to such holder’s aggregate capital
contributions and, second, to holders of all units (including
profits units) pro rata in proportion to the number of units
outstanding at the time of such distribution. Distributions in
respect of restricted common units, however, are held by the
company until such time as such restricted common units become
vested and are no longer subject to forfeiture.
Pursuant to the PVF LLC Agreement, profits units and restricted
common units generally become vested in equal increments on each
of the third, fourth and fifth anniversaries of the date of
grant. In the event of a termination of employment other than
for “Cause” (as defined in the PVF LLC Agreement), the
named executive officers will forfeit all unvested profits units
and restricted common units. All profits units and restricted
common units, whether vested or unvested, will be forfeited upon
a termination of the named executive officers’ employment
for Cause. In the event of a termination by reason of death or
Disability, all unvested profits units and restricted common
units would become vested. The PVF LLC Agreement also specifies
that profits units and restricted common units may be subject to
more favorable vesting schedules if approved by the board of
directors of PVF Holdings LLC.
The employment agreement of Mr. S. Wehrle provides for an
alternative vesting schedules for their profits units, which
will become vested in equal installments on the fourth and fifth
anniversaries of the date of grant, which was January 31,
2007. Profits units held by S. Wehrle remain subject to the
forfeiture provisions set forth in the PVF LLC Agreement with
respect to a termination of employment other than for cause or
by reason of death or Disability (as described in the previous
paragraph). The vesting schedules of profits units held by
Messrs. Underhill and Paige and restricted common units
held by Mr. Fox are governed by the PVF LLC Agreement, but
each of their employment agreements provides that in the event
of a termination of Mr. Underhill’s,
Mr. Paige’s or Mr. Fox’s employment by
McJunkin Red Man Corporation without “Cause” (as
defined in the employment agreement) or by Mr. Underhill,
Mr. Paige or Mr. Fox with “Good Reason” (as
defined in the employment agreement), all of the profits units
and restricted common units held by them will vest and no longer
be subject to forfeiture. Messrs. Underhill and Paige will
forfeit all vested and unvested profits units held by them in
the event of a termination for Cause by McJunkin Red Man
Corporation. With respect to restricted common units held by
Mr. Fox, in the event that Mr. Fox is terminated for
“Cause” (as defined in the employment agreement),
Mr. Fox will not forfeit his restricted common units that
are vested at the time of termination, but PVF Holdings LLC will
have the opportunity to purchase vested restricted common units
held by Mr. Fox at “Fair Market Value” (as
defined in the PVF LLC Agreement). In the event of a termination
by reason of death or Disability, profits units and restricted
common units held by Messrs. Underhill, Paige and Fox become
vested in accordance with the PVF LLC Agreement. Profits units
held by Messrs. H.B. Wehrle and Ketchum are fully vested
and not subject to forfeiture under any circumstances, pursuant
to Mr. H.B. Wehrle’s Letter Agreement and
Mr. Ketchum’s employment agreement.
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Table of Contents
Variable
Compensation Plan
McJunkin Red Man Corporation maintains an annual cash bonus
plan, the Variable Compensation Plan. Each of the named
executive officers participates in this plan and has a target
annual incentive bonus equal to 100% of his annual base salary.
The determination of awards pursuant to the plan depends upon
the achievement of two corporate performance measures, Adjusted
EBITDA and RONA, the achievement of which constitutes 80% and
20% of annual awards, respectively. These performance measures
are evaluated on an annual basis in connection with awards to
the named executive officers. No awards are payable under the
plan unless at least 81% of the annual goal has been achieved.
At 81% achievement, there is a payout of 5% of each
participant’s target annual incentive bonus; this payout
increases in 5% increments for each additional percent of
achievement up to full achievement of the annual goal. Upon full
achievement of the annual goal, 100% of the target annual
incentive bonus is paid, which is the maximum award possible
under the plan.
Starting on February 1, 2007, following the GS Acquisition,
Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle
participated in this plan. Messrs. Ketchum and Paige, who
joined the company on October 31, 2007, will be eligible to
receive awards under the plan starting in fiscal year 2008.
During the 2007 fiscal year, the performance goals were Adjusted
EBITDA of $181,036,000 and RONA of 43.05%. These 2007
performance goals related solely to the performance of McJunkin
Red Man Corporation, and excludes the performance of Red Man
Pipe & Supply Co. As a result of McJunkin meeting its
performance goals, the named executive officers who participated
in the plan during 2007 were paid 100% of their target annual
incentive bonus (with the exception of Mr. Fox, who earned
97.4% of his target Variable Compensation Plan award for this
period), pro-rated to reflect participation for eleven months of
the year. Amounts earned by the named executive officers under
this plan in 2007 were as follows: $632,500 for Mr. H.B.
Wehrle, $412,5000 for Mr. Underhill, $513,643 for
Mr. Fox and $531,667 for Mr. S. Wehrle. Mr. H.B.
Wehrle will no longer participate in the Variable Compensation
Plan upon the termination of his employment agreement on
October 1, 2008.
Outstanding
Equity Awards at 2007 Fiscal Year-End
| Stock Awards | ||||||||
|
Number of Shares |
Market Value of Shares |
|||||||
|
or Units of Stock That |
or Units of Stock That |
|||||||
|
Name
|
Have Not Vested
(#)(1)
|
Have Not Vested(2)
|
||||||
|
H.B. Wehrle, III
|
381.3098 | $ | 0 | |||||
|
Craig Ketchum
|
381.3098 | $ | 0 | |||||
|
James F. Underhill
|
597.3853 | $ | 0 | |||||
|
David Fox, III
|
640.6004 | $ | 0 | |||||
|
Dee Paige
|
571.9647 | $ | 0 | |||||
|
Stephen D. Wehrle
|
190.6549 | $ | 0 | |||||
| (1) | Reflects profits units granted to Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle in 2007 and restricted common units granted to Mr. Fox in 2007, each in respect of PVF Holdings LLC pursuant to the PVF LLC Agreement. Pursuant to the PVF LLC Agreement, profits units and restricted common units generally become vested in equal increments on each of the third, fourth and fifth anniversaries of the date of grant, but may be subject to more favorable vesting schedules if approved by the board of directors of PVF Holdings LLC. The employment agreement for Mr. S. Wehrle provides that his profits units become vested in equal increments on each of the fourth and fifth anniversaries of the date of grant subject to accelerated vesting under certain circumstances. Profits units held by Messrs. Underhill and Paige and restricted common units held by Mr. Fox become vested in accordance with the PVF LLC Agreement, but each of their employment agreements provides that if, at any time, Mr. Underhill, Mr. Paige or Mr. Fox terminate their employment with “Good Reason” (as defined in the employment agreement) or McJunkin |
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| Red Man Corporation terminates Mr. Underhill’s, Mr. Paige’s or Mr. Fox’s employment without “Cause” (as defined in the employment agreement), all profits units and restricted common units held by them shall become vested. With respect to restricted common units held by Mr. Fox, in the event that Mr. Fox is terminated for “Cause” (as defined in the employment agreement), Mr. Fox will not forfeit his restricted common units that are vested at the time of termination, but PVF Holdings LLC would have the opportunity to purchase vested restricted common units held by Mr. Fox at “Fair Market Value” (as defined in the PVF LLC Agreement). The date of grant for Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle was January 31, 2007 and for Messrs. Ketchum and Paige was October 31, 2007. Profits units held by Messrs. H.B. Wehrle and Ketchum are fully vested and not subject to forfeiture under any circumstances, pursuant to Mr. H.B. Wehrle’s Letter Agreement and Mr. Ketchum’s employment agreement. |
| (2) | The market value of unvested profits units and restricted common units in PVF Holdings LLC on December 31, 2007 was $0. |
Nonqualified
Deferred Compensation for 2007
|
Registrant |
Aggregate |
|||||||
|
Contributions in |
Balance |
|||||||
|
Name
|
Last FY(1)
|
at Last FYE
|
||||||
|
H.B. Wehrle, III
|
$ | 110,000 | $ | 110,000 | ||||
|
Craig Ketchum
|
$ | 20,000 | $ | 20,000 | ||||
|
James F. Underhill
|
$ | 64,167 | $ | 64,167 | ||||
|
David Fox, III
|
$ | 91,666 | $ | 91,666 | ||||
|
Dee Paige
|
$ | 0 | $ | 0 | ||||
|
Stephen D. Wehrle
|
$ | 82,500 | $ | 82,500 | ||||
| (1) | These amounts are included in the All Other Compensation column of the Summary Compensation Table. |
McJunkin Red Man Corporation maintains the McJunkin Red Man
Corporation Deferred Compensation Plan, in which all named
executive officers participate with the exception of
Mr. Paige. Mr. H.B. Wehrle will no longer be eligible
to receive company contributions pursuant to this plan upon the
termination of his employment agreement on October 1, 2008.
Under the terms of the plan, select members of management and
highly compensated employees may defer receipt of a specified
amount or percentage of their cash compensation, including
annual bonuses. In addition, McJunkin Red Man Corporation makes
annual contributions to participants’ accounts. This plan
was adopted by McJunkin Red Man Corporation on December 31,
2007, on which date company contributions to accounts held by
the named executive officers set forth above were made by
McJunkin Red Man Corporation. There were no executive officer
contributions, earnings, withdrawals or distributions with
respect to these accounts during 2007.
If a participant’s account balance as of the beginning of a
calendar year is less than $100,000, such balance will be
credited quarterly with interest at the “Prime Rate”
(as defined in the plan) plus 1%. If a participant’s
account balance at the beginning of a calendar year is $100,000
or greater, the participant may elect between being credited
quarterly with interest at the Prime Rate plus 1% or having his
or her account deemed converted into a number of phantom common
units of PVF Holding LLC. If no investment election is made, a
participant’s account will credited quarterly with interest
at the Prime Rate plus 1%. Mr. H.B. Wehrle, the only named
executive officer with a balance in excess of $100,000 as of
December 31, 2007, did not make this election.
The named executive officers are currently fully vested in their
accounts, including company contributions. Participants receive
the vested balance of their accounts, in cash, upon a
“Separation from Service” (as defined in
Section 409A). Such amount is paid in three annual
installments (with interest) commencing on January 1 of the
second calendar year following the calendar year in which
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Table of Contents
the Separation from Service occurs. In the event of a
participant’s death or “Permanent Disability” (as
defined in the plan), or upon a “Change in Control”
(as defined in the plan) of McJunkin Red Man Corporation, the
full amount of a participant’s account, vested and
unvested, shall be paid within 30 days following such
event, to the participant’s beneficiary, in the case of
death, or to the participant, in the case of Permanent
Disability or a Change in Control. Notwithstanding the foregoing
regarding the timing of payments, distributions to
“specified employees” (as defined in Section 409A
of the Code) may be required to be delayed in accordance with
Section 409A of the Code.
Director
Compensation for 2007
|
Fees Earned |
||||||||||||||||
|
or Paid |
Option |
All Other |
||||||||||||||
|
Name
|
in Cash
|
Awards(1)
|
Compensation
|
Total
|
||||||||||||
|
Harry K. Hornish
|
$ | 112,500 | — | $ | 4,901 | (2) | $ | 117,401 | ||||||||
|
Peter C. Boylan, III
|
$ | 16,667 | $ | 3,257 | (3)(4) | — | $ | 19,924 | ||||||||
|
Rhys Best
|
$ | 8,333 | $ | 1,584 | (5)(6) | — | $ | 9,917 | ||||||||
|
H.B. Wehrle, III(7)
|
— | — | — | — | ||||||||||||
|
Craig Ketchum(7)
|
— | — | — | — | ||||||||||||
|
Henry Cornell(7)
|
— | — | — | — | ||||||||||||
|
Christopher A.S. Crampton(7)
|
— | — | — | — | ||||||||||||
|
John F. Daly(7)
|
— | — | — | — | ||||||||||||
|
David A. Fox, III(7)
|
— | — | — | — | ||||||||||||
|
Kent Ketchum(7)
|
— | — | — | — | ||||||||||||
|
E. Gaines Wehrle(7)
|
— | — | — | — | ||||||||||||
| (1) | The aggregate number of shares of our common stock subject to option awards outstanding on December 31, 2007 was for each of Messrs. Boylan and Best (taking into account the stock split). | |
| (2) | Mr. Hornish participates in the company medical and dental plans that are offered to employees. The company pays all costs of this coverage for Mr. Hornish. This amount represents the annual cost to the company of providing such coverage, pro-rated to reflect Mr. Hornish’s coverage for two months of the 2007 year. Starting in 2008, Mr. Hornish will receive an annual fee of $100,000 for his service on our board of directors. In addition, starting in 2008, Mr. Hornish will no longer be eligible to participate in the company health and dental plans available to employees. | |
| (3) | Mr. Boylan was awarded stock options in respect of shares on December 24, 2007 (taking into account the stock split). The amount in the table reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R for the eleven months ended December 31, 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
| (4) | The grant date fair value of Mr. Boylan’s option award, computed in accordance with FAS 123R, was $1,281 using the Black Scholes method. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
| (5) | Mr. Best was awarded stock options in respect of shares on December 24, 2007 (taking into account the stock split). The amount in the table reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R for the fiscal year ended December 31, 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
| (6) | The grant date fair value of Mr. Best’s option award, computed in accordance with FAS 123R, was $1,226 using the Black Scholes method. A discussion of the assumptions underlying the valuation |
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Table of Contents
| is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | ||
| (7) | Each of these directors served on our board of directors during 2007, but did not receive any compensation for such service. Mr. Cornell has served on our board of directors since November 29, 2006. Messrs. Crampton and Daly have served on our board of directors since January 31, 2007. Craig Ketchum has served on our board of directors since October 31, 2007. Kent Ketchum served on our board of directors from October 31, 2007 until August 2008. Mr. Fox and Mr. Wehrle served on our board from January 31, 2007 until August 2008. |
Mr. Hornish was appointed to the board of directors of McJunkin
Red Man Corporation on March 20, 2007 and to our board of
directors on October 31, 2007. The amounts for Mr. Hornish
in the above table were earned by him for his service on the
board of directors of McJunkin Red Man Corporation and on the
board of directors of the company during 2007 following each
respective appointment date. Mr. Boylan was appointed to our
board of directors as of October 31, 2007 and Mr. Best
was appointed to our board of directors as of December 1,
2007. As a result, the cash fees received by Messrs. Boylan
& Best during fiscal year 2007 are also for a partial year
of service. For their service as directors in 2007,
Mr. Hornish was entitled to receive an annual fee of
$150,000 and Messrs. Boylan and Best were entitled to
receive an annual fee of $100,000. Starting in 2008,
Mr. Hornish will receive an annual fee of $100,000 for his
service on our board of directors. In addition, starting in
2008, Mr. Hornish will no longer be eligible to participate
in the company health and dental plans available to our
employees. On December 24, 2007, each of Messrs. Best
and Boylan was granted an option to
purchase
of our common shares, with an original exercise price of
$ (taking into account the stock
split). The exercise price was subsequently reduced to
$ (taking into account the stock
split) in connection with our recapitalization in May 2008.
Messrs. Hornish, Boylan and Best were the only directors to
receive compensation for services performed in 2007. All
directors are also reimbursed for travel expenses and other
out-of-pocket costs incurred in connection with their attendance
at meetings.
On June 16, 2008, Sam Rovit was appointed to serve on our
board of directors, for which he will be paid an annual cash fee
of $100,000 in respect of his services. Also in connection with
Mr. Rovit’s appointment, he was granted an option to
purchase
of our common shares at an exercise price of
$ (taking into account the stock
split).
All option grants made to directors were made pursuant to the
McJ Holding Stock Option Plan and generally vest in equal
increments on each of the third, fourth and fifth anniversaries
of the date of grant, conditioned on continued service and
subject to accelerated vesting under certain circumstances.
Potential
Payments upon Termination or Change in Control
Each of the named executive officers would be entitled to
certain payments and benefits following a termination of
employment under certain circumstances and upon a change in
control. These benefits are summarized below. The amounts of
potential post-employment payments and benefits in the table
following the narrative below assume that termination of
employment took place on December 31, 2007.
The narrative and table below describe our obligations to
Messrs. Ketchum, Underhill, Fox, Paige and S. Wehrle
pursuant to their employment agreements and to Mr. H.B.
Wehrle pursuant to the Letter Agreement, as well as our
obligations to the named executive officers pursuant to other
compensatory arrangements.
Voluntary
Separation
In the event of the voluntary separation of each named executive
officer except for Messrs. H.B. Wehrle and Ketchum,
all unvested profits units and restricted common units in PVF
Holdings LLC held by such officer (which, as of
December 31, 2007, included all profits units and
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Table of Contents
restricted common units held by each named executive officer)
would be forfeited pursuant to the PVF LLC Agreement. Pursuant
to the Letter Agreement and Mr. Ketchum’s employment
agreement, profits units held by H.B. Wehrle and Mr.
Ketchum would be vested and nonforfeitable. The fully vested
accounts in the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan held by each named executive officer
would become payable (subject to the requirements of
Section 409A of the Code). Each named executive officer
would also be paid the value of any accrued but unused vacation
time as of December 31, 2007.
Termination
Not for Cause and Termination for Good Reason
The employment agreements to which Messrs. Ketchum,
Underhill, Fox, Paige and S. Wehrle are parties provide
that if McJunkin Red Man Corporation terminates the named
executive officer’s employment other than for
“Cause” or “Disability” (as such terms are
defined in the employment agreement) or if the named executive
officer terminates his employment for “Good Reason”
(as such term is defined in the employment agreement), then the
named executive officer would be entitled to (i) all
accrued, but unpaid, obligations (including, but not limited to,
salary, bonus, expense reimbursement or vacation pay),
(ii) continuation of base salary for a period of
12 months at the rate in effect immediately prior to
termination, (iii) continuation of medical benefits for
12 months or until such earlier time as he becomes eligible
for medical benefits from a subsequent employer on the same
terms as active senior executives of McJunkin Red Man
Corporation and (iv) a pro-rata annual bonus for the fiscal
year in which termination occurs, based on actual performance
through the end of the fiscal year. However, because
Messrs. Ketchum and Paige did not participate in the
Variable Compensation Plan during fiscal year 2007, they would
not be entitled to a pro-rata annual bonus assuming a
termination date of December 31, 2007. The termination
payments and the provision of benefits described in this
paragraph are subject to the execution of a release and
compliance with restrictive covenants prohibiting competition,
solicitation of employees and interference with business
relationships during the restriction period applicable to each
named executive officer. The restriction period for each of
Messrs. Ketchum, Fox and S. Wehrle is the greater of
(i) five years following the effective date of the
employment agreement and (ii) the duration of employment
and 24 months following termination of employment, and the
restriction period for Messrs. Underhill and Paige is the
duration of employment and 12 months following termination
of employment.
Pursuant to the Letter Agreement, Mr. H.B. Wehrle is not
entitled to any severance payments or benefits in the event that
his service as chairman of the board of directors of PVF
Holdings LLC or as a member of our board of directors is
terminated under any circumstances. In addition, the Letter
Agreement does not contemplate severance in the event of a
termination of Mr. H.B. Wehrle’s service for good
reason. As a result, Mr. H.B. Wehrle would not be entitled
to base salary continuation, a pro-rata bonus or medical benefit
continuation in the event of his termination under these
circumstances. Mr. H.B. Wehrle is subject to restrictive
covenants during his service as a director and for the period
that ends on the later of (i) January 31, 2012 or
(ii) twenty-four (24) months following the date that
he ceases to serve either as chairman of the board of directors
of PVF Holdings LLC or as a member of the board of directors of
the company.
In addition, Messrs. H.B. Wehrle, Ketchum, Underhill, Paige
and S. Wehrle hold profits units and Mr. Fox holds
restricted common units, each in respect of PVF Holdings LLC.
The vesting schedules of these profits units and restricted
common units are described in the narrative following the
“Grants of Plan-Based Awards in Fiscal Year 2007”
table. As of December 31, 2007, all profits units and
restricted common units held by the named executive officers
were unvested. In the event of the termination of a named
executive officer’s employment by the company other than
for Cause or by a named executive officer for Good Reason, all
unvested profits units held by the named executive officers
would be forfeited, with the exception of the profits units held
by Messrs. Underhill and Paige, which would be fully vested
and nonforfeitable. Profits units held by Messrs. H.B.
Wehrle and Ketchum would be fully vested and not subject to
forfeiture. Under these circumstances Mr. Fox’s
restricted common units would also become fully vested and
nonforfeitable.
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Table of Contents
The fully vested account in the McJunkin Red Man Corporation
Nonqualified Deferred Compensation Plan held by each named
executive officer would become payable (subject to the
requirements of Section 409A) upon a termination by the
company of such named executive officer’s employment other
than for Cause or a termination of employment by such named
executive officer for Good Reason.
Each named executive officer would also be paid the value of any
accrued but unused vacation time as of December 31, 2007.
In determining the appropriate payment and benefit levels, the
compensation committee considers what level of compensation is
required to attract and motivate executive officers. In making
decisions regarding executive officer compensation, the
compensation committee considers the overall economic value of
the compensation packages for executive officers, which includes
a consideration of the payments and benefits to which an
executive officer would be entitled in the event of certain
qualifying terminations or a change in control.
Termination by
the Company for Cause
Pursuant to the PVF LLC Agreement, upon a termination of
employment by the company for Cause, profits units held by
Messrs. Ketchum, Underhill, Paige and S. Wehrle, whether or
not vested, would be forfeited immediately for no consideration.
Pursuant to the Letter Agreement, and Mr. Ketchum’s
employment agreement, profits units held by Messrs. H.B. Wehrle
and Ketchum would be fully vested and nonforfeitable. Unvested
restricted common units held by Mr. Fox would also be
forfeited immediately for no consideration in the event of
Mr. Fox’s termination by the company for Cause.
However, restricted common units held by Mr. Fox that are
vested at the date of his termination (none of
Mr. Fox’s restricted common units were vested as of
December 31, 2007) would not be forfeited, but would
be subject to a right of repurchase by McJunkin Red Man
Corporation. As described in the narrative following the
“Nonqualified Deferred Compensation” table, the fully
vested accounts in the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan held by each named executive officer
would become payable (subject to the requirements of
Section 409A). Each named executive officer would also be
paid the value of any accrued but unused vacation time as of
December 31, 2007.
Termination
due to Death or Disability
Pursuant to the employment agreements to which
Messrs. Ketchum, Underhill, Paige, Fox and S. Wehrle
are parties, upon a termination of employment due to the death
or disability, they (or their beneficiaries) would be entitled
to receive a pro-rata portion of the annual bonus for the fiscal
year in which termination occurs, based on actual performance
through the end of the fiscal year. However, because
Messrs. Ketchum and Paige did not participate in the
Variable Compensation Plan during fiscal year 2007, they would
not be entitled to a pro-rata annual bonus assuming a
termination date of December 31, 2007.
Pursuant to the Letter Agreement, Mr. H.B. Wehrle would not
be entitled to a pro-rata annual bonus for the fiscal year in
which his termination occurs because his participation in the
Variable Compensation Plan will end upon the termination of his
employment agreement. Pursuant to the PVF LLC Agreement, all
unvested profits units held by Messrs. H.B. Wehrle,
Ketchum, Underhill, Paige and S. Wehrle (which, as of
December 31, 2007, included all of their profits units)
would be fully vested and nonforfeitable in the event of a
termination due to death or “Disability” (as defined
in the PVF LLC Agreement). Mr. Fox’s restricted common
units would also become fully vested. In the event of
termination due to death or “Permanent Disability” (as
such term is defined in the McJunkin Red Man Nonqualified
Deferred Compensation Plan), the full amount of each named
executive officer’s account, whether or not vested, would
be payable. Each named executive officer (or their
beneficiaries) would also be paid the value of any accrued but
unused vacation time as of December 31, 2007.
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Change in
Control
The PVF LLC Agreement provides that in the event of a
Transaction (as defined in the PVF LLC Agreement), profits units
and restricted common units would be fully vested and
nonforfeitable. This accelerated vesting of the profits units
and restricted common units was negotiated as part of the PVF
LLC Agreement in connection with overall negotiations relating
to the GS Acquisition. The PVF LLC Agreement defines
“Transaction” as (i) any event which results in
the GSCP Members (as defined in the PVF LLC Agreement) and its
or their Affiliates (as defined in the PVF LLC Agreement)
ceasing to directly or indirectly beneficially own, in the
aggregate, at least 35% of the equity interests of McJunkin Red
Man Corporation that they beneficially owned directly or
indirectly as of January 31, 2007; or (ii) in a single
transaction or a series of related transactions, the occurrence
of the following event: a majority of the outstanding voting
power of PVF Holdings LLC, McJunkin Red Man Holding Corporation
or McJunkin Red Man Corporation, or substantially all of the
assets of McJunkin Red Man Corporation, shall have been acquired
or otherwise become beneficially owned, directly or indirectly,
by any Person (as defined in the PVF LLC Agreement) (other than
any Member (as defined in the PVF LLC Agreement) on the
effective date of the PVF LLC Agreement or any of its or their
Affiliates, or PVF Holdings LLC or any of its Affiliates) or any
two or more Persons (other than any Member on the date of the
PVF LLC Agreement or any of its or their Affiliates, or the
McJunkin Red Man Corporation or any of its Affiliates) acting as
a partnership, limited partnership, syndicate or other group,
entity or association acting in concert for the purpose of
voting, acquiring, holding or disposing of the voting power of
PVF Holdings LLC, McJunkin Red Man Holding Corporation or
McJunkin Red Man Corporation; it being understood that, for this
purpose, the acquisition or beneficial ownership of voting
securities by the public shall not be an acquisition or
constitute beneficial ownership by any Person or Persons acting
in concert. The table below assumes that a Transaction as so
defined has occurred.
Pursuant to the McJunkin Red Man Corporation Nonqualified
Deferred Compensation Plan, the full amount of a
participant’s account becomes vested to the extent not
already vested upon a Change in Control and shall be paid within
thirty days of such Change in Control. The plan defines
“Change in Control” as, in a single transaction or a
series of related transactions, the occurrence of the following
event: a majority of the outstanding voting power of PVF
Holdings LLC, McJunkin Red Man Holding Corporation or McJunkin
Red Man Corporation, or substantially all of the assets of
McJunkin Red Man Corporation, shall have been acquired or
otherwise become beneficially owned, directly or indirectly, by
any Person (as defined in the plan) (other than any Member (as
defined in the PVF LLC Agreement) or any of its or their
affiliates, or PVF Holdings LLC or any of its affiliates) or any
two or more Persons (other than any Member or any of its or
their affiliates, or PVF Holdings LLC or any of its affiliates)
acting as a partnership, limited partnership, syndicate or other
group, entity or association acting in concert for the purpose
of voting, acquiring, holding or disposing of the voting power
of PVF Holdings LLC, McJunkin Red Man Holding Corporation or
McJunkin Red Man Corporation; it being understood that, for this
purpose, the acquisition or beneficial ownership of voting
securities by the public shall not be an acquisition or
constitute beneficial ownership by any Person or Persons acting
in concert. The table below assumes that a Change in Control as
so defined has occurred. The accelerated vesting of accounts
under the McJunkin Red Man Corporation Nonqualified Deferred
Compensation Plan in the event of a change in control does not
provide an extra benefit to the named
132
Table of Contents
executive officers because each of their accounts was fully
vested as of the effective date of the plan, which was
December 31, 2007.
|
Deferred |
||||||||||||||||||||||||||||
|
Base |
Medical |
Compensation |
||||||||||||||||||||||||||
|
Accrued |
Salary |
Pro Rata |
Benefit |
Profits |
Account |
|||||||||||||||||||||||
|
Name
|
Obligations(1)
|
Continuation
|
Bonus(2)
|
Continuation
|
Units(3)
|
Balance
|
Total
|
|||||||||||||||||||||
|
H.B. Wehrle, III
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Not for Cause Termination
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Termination for Good Reason
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Involuntary for Cause Termination
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Death
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Disability
|
$ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
|
Change in Control
|
— | — | — | — | $ | 0 | $ | 110,000 | $ | 110,000 | ||||||||||||||||||
|
Craig Ketchum
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 66,346 | — | — | — | $ | 0 | $ | 20,000 | $ | 86,346 | |||||||||||||||||
|
Not for Cause Termination
|
$ | 66,346 | $ | 690,000 | $ | 0 | $ | 7,360 | $ | 0 | $ | 20,000 | $ | 783,706 | ||||||||||||||
|
Termination for Good Reason
|
$ | 66,346 | $ | 690,000 | $ | 0 | $ | 7,360 | $ | 0 | $ | 20,000 | $ | 783,706 | ||||||||||||||
|
Involuntary for Cause Termination
|
$ | 66,346 | — | — | — | $ | 0 | $ | 20,000 | $ | 86,346 | |||||||||||||||||
|
Death
|
$ | 66,346 | — | $ | 0 | — | $ | 0 | $ | 20,000 | $ | 86,346 | ||||||||||||||||
|
Disability
|
$ | 66,346 | — | $ | 0 | — | $ | 0 | $ | 20,000 | $ | 86,346 | ||||||||||||||||
|
Change in Control
|
— | — | — | — | $ | 0 | $ | 20,000 | $ | 20,000 | ||||||||||||||||||
|
James F. Underhill
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 43,270 | — | — | — | — | $ | 64,167 | $ | 107,437 | ||||||||||||||||||
|
Not for Cause Termination
|
$ | 43,270 | $ | 450,000 | $ | 412,500 | $ | 7,360 | $ | 0 | $ | 64,167 | $ | 977,297 | ||||||||||||||
|
Termination for Good Reason
|
$ | 43,270 | $ | 450,000 | $ | 412,500 | $ | 7,360 | $ | 0 | $ | 64,167 | $ | 977,297 | ||||||||||||||
|
Involuntary for Cause Termination
|
$ | 43,270 | — | — | — | — | $ | 64,167 | $ | 107,437 | ||||||||||||||||||
|
Death
|
$ | 43,270 | — | $ | 412,500 | — | $ | 0 | $ | 64,167 | $ | 519,937 | ||||||||||||||||
|
Disability
|
$ | 43,270 | — | $ | 412,500 | — | $ | 0 | $ | 64,167 | $ | 519,937 | ||||||||||||||||
|
Change in Control
|
— | — | — | — | $ | 0 | $ | 64,167 | $ | 64,167 | ||||||||||||||||||
|
David Fox, III
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 66,347 | — | — | — | — | $ | 91,666 | $ | 158,013 | ||||||||||||||||||
|
Not for Cause Termination
|
$ | 66,347 | $ | 575,000 | $ | 513,643 | $ | 7,360 | $ | 0 | $ | 91,666 | $ | 1,254,016 | ||||||||||||||
|
Termination for Good Reason
|
$ | 66,347 | $ | 575,000 | $ | 513,643 | $ | 7,360 | $ | 0 | $ | 91,666 | $ | 1,254,016 | ||||||||||||||
|
Involuntary for Cause Termination
|
$ | 66,347 | — | — | — | $ | 91,666 | $ | 158,013 | |||||||||||||||||||
|
Death
|
$ | 66,347 | — | $ | 513,643 | — | $ | 0 | $ | 91,666 | $ | 671,656 | ||||||||||||||||
|
Disability
|
$ | 66,347 | — | $ | 513,643 | — | $ | 0 | $ | 91,666 | $ | 671,656 | ||||||||||||||||
|
Change in Control
|
— | — | — | — | $ | 0 | $ | 91,666 | $ | 91,666 | ||||||||||||||||||
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|
Deferred |
||||||||||||||||||||||||||||
|
Base |
Medical |
Compensation |
||||||||||||||||||||||||||
|
Accrued |
Salary |
Pro Rata |
Benefit |
Profits |
Account |
|||||||||||||||||||||||
|
Name
|
Obligations(1)
|
Continuation
|
Bonus(2)
|
Continuation
|
Units(3)
|
Balance
|
Total
|
|||||||||||||||||||||
|
Dee Paige
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 32,572 | — | — | — | — | $ | 0 | $ | 32,572 | ||||||||||||||||||
|
Not for Cause Termination
|
$ | 32,572 | $ | 338,750 | $ | 0 | $ | 7,360 | $ | 0 | $ | 0 | $ | 378,682 | ||||||||||||||
|
Termination for Good Reason
|
$ | 32,572 | $ | 338,750 | $ | 0 | $ | 7,360 | $ | 0 | $ | 0 | $ | 378,682 | ||||||||||||||
|
Involuntary for Cause Termination
|
$ | 32,572 | — | — | — | — | $ | 0 | $ | 32,572 | ||||||||||||||||||
|
Death
|
$ | 32,572 | — | $ | 0 | — | $ | 0 | $ | 0 | $ | 32,572 | ||||||||||||||||
|
Disability
|
$ | 32,572 | — | $ | 0 | — | $ | 0 | $ | 0 | $ | 32,572 | ||||||||||||||||
|
Change in Control
|
$ | 32,572 | — | — | — | $ | 0 | $ | 0 | $ | 32,572 | |||||||||||||||||
|
Stephen D. Wehrle
|
||||||||||||||||||||||||||||
|
Voluntary Separation
|
$ | 66,924 | — | — | — | — | $ | 82,500 | $ | 149,424 | ||||||||||||||||||
|
Not for Cause Termination
|
$ | 66,924 | $ | 580,000 | $ | 531,667 | $ | 7,360 | — | $ | 82,500 | $ | 1,268,451 | |||||||||||||||
|
Termination for Good Reason
|
$ | 66,924 | $ | 580,000 | $ | 531,667 | $ | 7,360 | — | $ | 82,500 | $ | 1,268,451 | |||||||||||||||
|
Involuntary for Cause Termination
|
$ | 66,924 | — | — | — | — | $ | 82,500 | $ | 149,424 | ||||||||||||||||||
|
Death
|
$ | 66,924 | — | $ | 531,667 | — | $ | 0 | $ | 82,500 | $ | 681,091 | ||||||||||||||||
|
Disability
|
$ | 66,924 | — | $ | 531,667 | — | $ | 0 | $ | 82,500 | $ | 681,091 | ||||||||||||||||
|
Change in Control
|
— | — | — | — | $ | 0 | $ | 82,500 | $ | 82,500 | ||||||||||||||||||
| (1) | These amounts represent accrued but unused vacation time as of December 31, 2007. | |
| (2) | Each of the named executive officers has an annual target bonus of 100% of annual base salary at the beginning of the relevant fiscal year. Except for Messrs. Ketchum and Paige, who will be eligible to earn awards starting in fiscal year 2008, the named executive officers participated in the Variable Compensation Plan starting on February 1, 2007. The Adjusted EBITDA and RONA performance goals for the Variable Compensation Plan were satisfied in fiscal year 2007. As a result, assuming a termination as of December 31, 2007, pursuant to the terms of their employment agreements, Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle would be entitled to receive their target annual incentive bonus, pro-rated to reflect participation during eleven months of the year. | |
| (3) | In the event of a Transaction (as defined in the PVF LLC Agreement) or a termination by reason of death or Disability, the profits units and restricted common units in PVF Holdings LLC held by the named executive officers would become fully vested. |
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Table of Contents
Compensation
Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2007, our
compensation committee was comprised of Peter C.
Boylan, III, John F. Daly, and Harry K. Hornish Jr.
In connection with the Red Man Transaction, Red Man paid a fee
of $4 million to Boylan Partners LLC. On December 17,
2007, Mr. Boylan made an investment of $1 million in
PVF Holdings LLC in exchange for 254.2065 common units in PVF
Holdings LLC. Mr. Boylan made his investment in PVF
Holdings LLC through a limited liability company which he
controls. In May 2008, Mr. Boylan’s limited liability
company holding common units in PVF Holdings LLC received a
dividend of $389,653.01 in connection with our May 2008
recapitalization. See “Certain Relationships and Related
Party Transactions — Transactions with Executive
Officers and Directors — May 2008 Dividend”.
Mr. Daly is a managing director in the Principal Investment
Area of Goldman, Sachs & Co. For a description of the
company’s transactions with Goldman, Sachs & Co.
and certain of its affiliates, see “Certain Relationships
and Related Party Transactions — Transactions with the
Goldman Sachs Funds”.
On April 13, 2007, Harry K. Hornish, Jr. made an
investment of $1.5 million in PVF Holdings LLC in exchange
for 381.3098 common units in PVF Holdings LLC. The investment
consisted of $500,000 in cash and a $1 million promissory
note issued to PVF Holdings LLC. The $500,000 in cash and
$1 million promissory note were subsequently contributed to
McJunkin Red Man Holding Corporation by PVF Holdings LLC. In
connection with our May 2008 dividend, the amount of the note
was reduced to $498,467.01. Mr. Hornish repaid the note in
full on August 7, 2008. See “Certain Relationships and
Related Party Transactions — Transactions with
Executive Officers and Directors”.
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Table of Contents
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table presents information regarding beneficial
ownership of our common stock by:
| • | each of our directors; | |
| • | each of our named executive officers; | |
| • | each stockholder known by us to beneficially hold five percent or more of our common stock; | |
| • | each selling stockholder; and | |
| • | all of our executive officers and directors as a group. |
Beneficial ownership is determined under the rules of the SEC
and generally includes voting or investment power with respect
to securities. Unless indicated below, to our knowledge, the
persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of the date of
this prospectus are deemed to be outstanding and to be
beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Except as otherwise
indicated, the business address for each of our beneficial
owners is
c/o McJunkin
Red Man Holding Corporation, 8023 East 63rd Place, Tulsa,
Oklahoma 74133.
|
Shares Beneficially |
Shares Beneficially |
|||||||||||||||||||
| Owned Prior to the Offering |
Number of |
Owned After the Offering† | ||||||||||||||||||
|
Name and Address
|
Number
|
Percent
|
Shares Offered†
|
Number
|
Percent
|
|||||||||||||||
|
PVF Holdings LLC(1)
|
||||||||||||||||||||
|
The Goldman Sachs Group, Inc.(1)
|
||||||||||||||||||||
|
85 Broad Street
New York, New York 10004 |
||||||||||||||||||||
|
Andrew Lane(2)
|
||||||||||||||||||||
|
James F. Underhill(3)
|
||||||||||||||||||||
|
David Fox, III(4)
|
||||||||||||||||||||
|
Dee Paige(5)
|
||||||||||||||||||||
|
Stephen D. Wehrle(6)
|
||||||||||||||||||||
|
Craig Ketchum(7)
|
||||||||||||||||||||
|
Rhys J. Best(8)
|
||||||||||||||||||||
|
Henry Cornell(1)
|
||||||||||||||||||||
|
Christopher A.S. Crampton
|
||||||||||||||||||||
|
John F. Daly(1)
|
||||||||||||||||||||
|
Harry K. Hornish, Jr.(9)
|
||||||||||||||||||||
|
Sam B. Rovit(10)
|
||||||||||||||||||||
|
H.B. Wehrle, III(11)
|
||||||||||||||||||||
|
All directors and executive officers, as a group
(20 persons)(12)
|
||||||||||||||||||||
| † | PVF Holdings LLC has granted the underwriters the option to purchase from it an aggregate of additional shares. If the option to purchase additional shares were exercised in full, after the offering PVF Holdings LLC and The Goldman Sachs Group, Inc. would own shares, or %, of our common stock, and all of our directors and executive officers, as a group, would own shares, or %, of our common stock. | |
| * | Less than 1%. | |
| (1) | PVF Holdings LLC directly owns shares of common stock. GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG, GS Capital Partners V Institutional, L.P., GS Capital Partners VI Fund, L.P., GS Capital Partners VI Offshore Fund, L.P., GS Capital Partners VI Parallel, L.P., and GS Capital Partners VI GmbH & Co. KG (collectively, the “Goldman Sachs |
136
Table of Contents
| Funds”) are members of PVF Holdings LLC and own common units of PVF Holdings LLC. The Goldman Sachs Funds’ common units in PVF Holdings LLC correspond to shares of common stock. The Goldman Sachs Group, Inc., and Goldman, Sachs & Co. may be deemed to beneficially own indirectly, in the aggregate, all of the common stock owned by PVF Holdings LLC because (i) affiliates of Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. are the general partner, managing general partner, managing partner, managing member or member of the Goldman Sachs Funds and (ii) the Goldman Sachs Funds control PVF Holdings LLC and have the power to vote or dispose of all of the common stock of the Company owned by PVF Holdings LLC. Goldman, Sachs & Co. is a direct and indirect wholly owned subsidiary of The Goldman Sachs Group, Inc. Goldman, Sachs & Co. is the investment manager of certain of the Goldman Sachs Funds. Shares of common stock that may be deemed to be beneficially owned by the Goldman Sachs Funds that correspond to the Goldman Sachs Funds’ common units of PVF Holdings LLC consist of: (1) shares of common stock deemed to be beneficially owned by GS Capital Partners V Fund, L.P. and its general partner, GSCP V Advisors, L.L.C., (2) shares of common stock deemed to be beneficially owned by GS Capital Partners V Offshore Fund, L.P. and its general partner, GSCP V Offshore Advisors, L.L.C., (3) shares of common stock deemed to be beneficially owned by GS Capital Partners V Institutional, L.P. and its general partner, GS Advisors V, L.L.C., (4) shares of common stock deemed to be beneficially owned by GS Capital Partners V GmbH & Co. KG and its managing limited partner, GS Advisors V, L.L.C., (5) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Fund, L.P. and its general partner, GSCP VI Advisors, L.L.C., (6) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Offshore Fund, L.P. and its general partner, GSCP VI Offshore Advisors, L.L.C., (7) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Parallel, L.P. and its general partner, GS Advisors VI, L.L.C., and (8) shares of common stock deemed to be beneficially owned by GS Capital Partners VI GmbH & Co. KG and its managing limited partner, GS Advisors VI, L.L.C. Henry Cornell and John F. Daly are managing directors of Goldman, Sachs & Co. Mr. Cornell, Mr. Daly, The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. each disclaims beneficial ownership of the shares of common stock owned directly or indirectly by PVF Holdings LLC and the Goldman Sachs Funds, except to the extent of their pecuniary interest therein, if any. |
| (2) | Mr. Lane owns shares directly. Mr. Lane also owns options to purchase shares of our common stock at an exercise price of . The date of grant for Mr. Lane’s options was September 10, 2008. These options will generally vest in one-fourth annual increments on the second, third, fourth and fifth anniversaries of the date of grant. |
| (3) | Mr. Underhill owns no shares of common stock directly. Mr. Underhill owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Underhill does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Underhill also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Underhill beneficial ownership of any shares of our common stock because they do not give Mr. Underhill the power to vote or dispose of any such shares. |
| (4) | Mr. Fox owns no shares of common stock directly. Mr. Fox has transferred all of his common units (including his restricted common units) in PVF Holdings LLC, corresponding to shares of our common stock, to a trust for the benefit of members of his family. Neither Mr. Fox nor the trust has the power to vote or dispose of the common units of PVF Holdings LLC held by the trust, which correspond to shares of our common stock, and therefore neither Mr. Fox nor the trust has beneficial ownership of these shares of our common stock. | |
| (5) | Mr. Paige owns no shares of common stock directly. Mr. Paige owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Paige does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Paige also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Paige beneficial ownership of any shares of our common stock because they do not give Mr. Paige the power to vote or dispose of any such shares. | |
| (6) | Mr. Wehrle owns no shares of common stock directly. Mr. Wehrle owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Wehrle does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Wehrle also owns profits units in PVF |
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Table of Contents
| Holdings LLC. These profits units do not give Mr. Wehrle beneficial ownership of any shares of our common stock because they do not give Mr. Wehrle the power to vote or dispose of any such shares. |
| (7) | Mr. Ketchum owns no shares of common stock directly. Mr. Ketchum owns common units in PVF Holdings LLC both directly and through a limited liability company which correspond to shares of common stock owned by PVF Holdings LLC. Mr. Ketchum does not have the power to vote or dispose of shares of common stock that correspond to his ownership or his limited liability company’s ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Ketchum also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Ketchum beneficial ownership of any shares of our common stock because they do not give Mr. Ketchum the power to vote or dispose of any such shares. |
| (8) | Mr. Best owns no shares of common stock directly. Mr. Best owns shares indirectly due to his limited liability company’s ownership of common units in PVF Holdings LLC. Mr. Best does not have the power to vote or dispose of shares of common stock that correspond to such limited liability company’s ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Best also owns options to purchase shares of our common stock at an exercise price of $ . The date of grant for these options was December 24, 2007. These options will generally vest in one-third annual increments on the third, fourth and fifth anniversaries of the date of grant. |
| (9) | Mr. Hornish owns no shares of common stock directly. Mr. Hornish owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Hornish does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. |
| (10) | Mr. Rovit owns no shares of common stock directly. Mr. Rovit owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Rovit does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Rovit also owns options to purchase shares of our common stock at an exercise price of $ . The date of grant for these options was June 27, 2008. These options will generally vest in one-third annual increments on the third, fourth and fifth anniversaries of the date of grant. |
| (11) | Mr. Wehrle owns no shares of common stock directly. Mr. Wehrle owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Wehrle does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Wehrle also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Wehrle beneficial ownership of any shares of our common stock because they do not give Mr. Wehrle the power to vote or dispose of any such shares. |
| (12) | The number of shares of common stock owned by all directors and executive officers, as a group, reflects (i) all shares of common stock directly owned by PVF Holdings LLC, with respect to which Henry Cornell and John F. Daly may be deemed to share beneficial ownership, and (ii) shares of our common stock held by Andrew Lane, our chief executive officer and a director of our company. |
The following table sets forth, as of June 26, 2008, the
number of common units and profits units of PVF Holdings LLC
held by each of our directors, executive officers and beneficial
owners of more than five percent of our common stock. The table
also sets forth the amount of proceeds that each of these unit
holders will receive from this offering upon PVF Holdings
LLC’s distribution of the net proceeds of this offering to
its unit holders and the percentage of proceeds to be received
in proportion to all unit holders. Pursuant to the amended and
restated limited liability company agreement of PVF Holdings
LLC, distributions of the net proceeds of this offering will be
allocated as follows: first, to the holders of common units pro
rata in proportion to the number of common units outstanding at
the time of such distribution, until each common unit holder has
received an amount equal to such holder’s aggregate capital
contributions made to PVF Holdings LLC in exchange for
138
Table of Contents
common units; and second, to the holders of all units (including
profits units), pro rata in proportion to the number of units
(including profits units) outstanding at the time of such
distribution.
|
Percentage of |
||||||||||||||||
|
Common |
Profits |
Proceeds from |
Proceeds from this |
|||||||||||||
|
Units Owned |
Units Owned |
this Offering to |
Offering Received |
|||||||||||||
|
Name of |
Directly or |
Directly or |
be Distributed to |
in Proportion to |
||||||||||||
|
Beneficial Owner
|
Indirectly
|
Indirectly
|
the Unit Holder
|
All Unit Holders
|
||||||||||||
|
The Goldman Sachs Funds
|
||||||||||||||||
|
Craig Ketchum
|
||||||||||||||||
|
James F. Underhill
|
||||||||||||||||
|
David Fox, III(1)
|
||||||||||||||||
|
Dee Paige
|
||||||||||||||||
|
Stephen D. Wehrle
|
||||||||||||||||
|
Jeffrey Lang
|
||||||||||||||||
|
Randy K. Adams
|
||||||||||||||||
|
Rory M. Isaac
|
||||||||||||||||
|
Gary A. Ittner
|
||||||||||||||||
|
Dennis Niver
|
||||||||||||||||
|
Ken Hayes
|
||||||||||||||||
|
Stephen W. Lake
|
||||||||||||||||
|
Rhys J. Best
|
||||||||||||||||
|
Henry Cornell
|
||||||||||||||||
|
Christopher A.S. Crampton
|
||||||||||||||||
|
John F. Daly
|
||||||||||||||||
|
Harry K. Hornish, Jr.
|
||||||||||||||||
|
Sam B. Rovit
|
||||||||||||||||
|
H.B. Wehrle, III
|
||||||||||||||||
|
The Goldman Sachs Funds and all of our directors and executive
officers, as a group
|
||||||||||||||||
|
Other holders of common units of PVF Holdings LLC, as a group
|
||||||||||||||||
|
Total
|
100 | % | ||||||||||||||
| (1) | Of the proceeds received on account of common units issued to Mr. Fox, $ will be received on account of restricted common units. No proceeds will be distributed by PVF Holdings LLC on account of these restricted common units until they vest. |
139
Table of Contents
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
This section describes related party transactions between
McJunkin Red Man Holding Corporation and its directors,
executive officers and 5% stockholders and their immediate
family members.
Transactions with
the Goldman Sachs Funds
Prior to this offering, certain affiliates of The Goldman Sachs
Group, Inc., including GS Capital Partners V Fund, L.P., GS
Capital Partners VI Fund, L.P. and related entities, or the
Goldman Sachs Funds, were the majority owners of PVF Holdings
LLC, our direct parent company. Following the consummation of
this offering, PVF Holdings LLC will remain the majority owner
of our company and the Goldman Sachs Funds will continue to be
the majority owners of PVF Holdings LLC.
McJunkin
Acquisition
On December 4, 2006, the entity now known as McJunkin Red
Man Corporation entered into a definitive agreement to be
acquired by the entity now known as McJunkin Red Man Holding
Corporation, an indirect subsidiary of the Goldman Sachs Funds
(the “GS Acquisition”). Shareholders of McJunkin Red
Man Corporation received consideration in the form of cash or a
combination of cash and common units in PVF Holdings LLC (as
described in further detail below). On January 31, 2007,
the GS Acquisition closed and a direct wholly owned subsidiary
of McJunkin Red Man Holding Corporation merged with and into
McJunkin Red Man Corporation, with McJunkin Red Man Corporation
surviving the merger and becoming a direct subsidiary of
McJunkin Red Man Holding Corporation. Immediately prior to the
closing of the merger, certain shareholders of McJunkin Red Man
Corporation and McJunkin Appalachian Oilfield Supply Company
(“McJunkin Appalachian”, which entity was a subsidiary
of McJunkin Red Man Corporation, but has since been merged out
of existence) contributed their shares of McJunkin Red Man
Corporation and McJunkin Appalachian, as applicable, to the
entity now known as PVF Holdings LLC in exchange for common
units in PVF Holdings LLC. We refer to these common unit holders
as the “McJunkin Rollover Equity Holders”.
The acquisition of McJunkin Red Man Corporation was financed by
a $225.6 million capital contribution by certain Goldman
Sachs Funds in PVF Holdings LLC, investments in PVF Holdings LLC
by the McJunkin Rollover Equity Holders valued at
$166.5 million (including restricted common units valued at
$7 million), $575.0 million in term loans and
$75.0 million in revolver borrowings.
In connection with the GS Acquisition, McJunkin Red Man
Corporation paid (i) a $10 million sponsor fee to an
affiliate of the Goldman Sachs Funds, (ii) a
$2.5 million investment banking advisory fee to an
affiliate of the Goldman Sachs Funds, and (iii) an
$8.5 million debt financing fee to an affiliate of the
Goldman Sachs Funds.
Red Man
Transaction
West Oklahoma PVF Company, our indirect subsidiary, entered into
a Stock Purchase Agreement on July 6, 2007 with Red Man
Pipe & Supply Co. (“Red Man”), PVF Holdings
LLC, Craig Ketchum, and the holders of 100% of the outstanding
common stock of Red Man, pursuant to which West Oklahoma PVF
Company acquired all of the outstanding capital stock of Red Man
in a business combination transaction (the “Red Man
Transaction”). Shareholders of Red Man received
consideration in the form of cash or a combination of cash and
common units in PVF Holdings LLC (as described in further detail
below). The Red Man Transaction was consummated on
October 31, 2007.
The Goldman Sachs Funds made a capital contribution of
$574.3 million in PVF Holdings LLC for purposes of
financing the Red Man Transaction. Additionally, prior to making
such capital contribution, the Goldman Sachs Funds offered to
each of the McJunkin Rollover Equity Holders the option of
making an additional equity investment in PVF Holdings LLC in an
amount required to
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Table of Contents
preserve such holder’s pro rata interest in PVF Holdings
LLC relative to the other equity holders in PVF Holdings LLC
prior to the Red Man Transaction. The McJunkin Rollover Equity
Holders were also given the option to redeem their interests in
PVF Holdings LLC at a fixed price per unit, or to continue to
hold their interests without any additional subscriptions or
redemptions. Certain McJunkin Rollover Equity Holders chose to
exercise their option to make an additional equity investment in
PVF Holdings LLC and consequently contributed $83.9 million
to PVF Holdings LLC in exchange for common units of PVF Holdings
LLC for purposes of financing the Red Man Transaction.
Immediately prior to the closing of the Red Man Transaction,
certain shareholders of Red Man (the “Red Man Rollover
Equity Holders”) contributed their shares of Red Man to PVF
Holdings LLC in exchange for common units in PVF Holdings LLC.
The Red Man Transaction was also financed by $322.5 million
in revolving loans under McJunkin Red Man Corporation’s
revolving credit facility. Immediately following the closing of
the Red Man Transaction, an immediate family member of Craig
Ketchum remitted to McJunkin Red Man Corporation the amount of
$517,366.12 to fund McJunkin Red Man Corporation’s
payment of withholding taxes on such immediate family
member’s account, relating to the transfer to such
immediate family member of certain assets that were excluded
from the Red Man Transaction.
In connection with the Red Man Transaction, McJunkin Red Man
Corporation paid certain affiliates of the Goldman Sachs Funds a
$10 million merger and acquisition advisory fee and a
$2 million investment banking advisory fee. McJunkin Red
Man Corporation also paid a $4 million advisory fee to
Boylan Partners LLC, which is owned by Peter Boylan.
May 2008
Dividend
On May 22, 2008, McJunkin Red Man Corporation borrowed
$25 million in revolving loans under its revolving credit
facility and distributed the proceeds of the loans to McJunkin
Red Man Holding Corporation. On the same date, McJunkin Red Man
Holding Corporation borrowed $450 million in term loans
under its term loan facility and distributed the proceeds of the
term loans, together with the proceeds of the revolving loans,
to its stockholders, including PVF Holdings LLC. PVF Holdings
LLC used the proceeds from the dividend to fund distributions to
members of PVF Holdings LLC in May 2008. The Goldman Sachs Funds
received $311,722,411.39 in such distribution.
Credit
Facilities
Goldman Sachs Credit Partners L.P., an affiliate of Goldman,
Sachs & Co., or Goldman Sachs, is one of the lenders
under our Revolving Credit Facility, Term Loan Facility and
Junior Term Loan Facility. Goldman Sachs Credit Partners is also
a co-lead arranger and joint bookrunner under each of these
facilities and is also the syndication agent under the Term Loan
Facility and the Junior Term Loan Facility. Goldman Sachs Credit
Partners was also a lender, co-lead arranger, joint bookrunner
and syndication agent under the revolving credit facility that
we entered into in January 2007. The January 2007 revolving
credit facility was entered into in connection with the
financing of the GS Acquisition and, at that time, we paid this
Goldman Sachs affiliate an $8.5 million financing fee. The
January 2007 revolving credit facility was terminated in October
2007 in connection with our entering into the Revolving Credit
Facility and the Red Man Transaction. In conjunction with
entering into the Revolving Credit Facility and the Term Loan
Facility in October 2007, we paid a $4.9 million financing
fee to Goldman Sachs Credit Partners. We also paid a
$4.4 million fee to Goldman Sachs Capital Partners in May
2008 in connection with the Junior Term Loan Facility and a fee
of $0.5 million to Goldman Sachs Credit Partners in June
2008 in connection with the $50 million upsizing of our
Revolving Credit Facility. See “Description of Our
Indebtedness”.
Transactions with
Prideco
In November/December 2007, and continuing in 2008, Red Man, a
subsidiary of McJunkin Red Man Corporation, has leased and
continues to lease certain equipment and buildings from Prideco,
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Table of Contents
LLC, an entity owned by Craig Ketchum (the chairman of our
board of directors and our former president and chief executive
officer) and certain of his immediate family members. Craig
Ketchum owns a 25% interest in Prideco, LLC. Red Man paid
Prideco, LLC an aggregate rental amount of $535,985 in
November/December 2007. Under four separate real property
leases, Red Man leases office and warehouse space for the
wholesale distribution of pipes, valves and fittings from
Prideco, LLC. The total rental amount for November/December 2007
under these leases was $21,100. The location of the leased
property, monthly rent in 2007, term, expiration date, square
footage of the leased premises and renewal option for each of
these leases are included in the table below:
|
Monthly 2007 |
Square |
|||||||||||||||
|
Location
|
Rent | Term | Expiration | Feet | Renewal Option | |||||||||||
|
Artesia, NM
|
$ | 2,000 | 5 years | May 31, 2013 | 8,750 |
One five-year renewal option |
||||||||||
|
Lovington, NM
|
$ | 2,350 | 3 years | September 30, 2009 | 6,000 | None | ||||||||||
|
Tulsa, OK
|
$ | 2,700 | 3 years | March 31, 2009 | 7,500 |
One three-year renewal option |
||||||||||
|
Woodward, OK
|
$ | 3,500 | 5 years | July 31, 2012 | 6,000 | None | ||||||||||
Additionally, under one master lease, Prideco, LLC leases
approximately 498 trucks, cars and sports utility vehicles to
Red Man. All of these vehicles are used in Red Man’s
operations. Under the master lease, most vehicles are leased for
a term of 36 months. The total rental amount for
November/December 2007 under this lease was $514,885.
We believe the rental amounts under Red Man’s leases with
Prideco, LLC are generally comparable to market rates negotiable
among unrelated third parties.
Transactions with
Hansford Associates Limited Partnership
McJunkin Red Man Corporation leases certain land and buildings
from Hansford Associates Limited Partnership, a limited
partnership in which H. B. Wehrle, III (a member of our
board of directors) and E. Gaines Wehrle (a former member of our
board of directors) and Stephen D. Wehrle (one of our executive
officers) and certain of their immediate family members are
limited partners. Together, these three persons and their
immediate family members have a 50% ownership interest in the
limited partnership. McJunkin Red Man Corporation (and its
predecessor) paid Hansford Associates Limited Partnership an
aggregate rental amount of $2,583,184 in 2007, $2,403,240 in
2006, and $2,343,240 in 2005.
Transactions with
Appalachian Leasing Company
McJunkin Red Man Corporation leases certain land and buildings
from Appalachian Leasing Company, an entity in which David
Fox, III, one of our executive officers, and certain of
Mr. Fox’s immediate family members have an ownership
interest. Mr. Fox and his immediate family members have a
67.5% ownership interest in Appalachian Leasing Company.
McJunkin Red Man Corporation (and its predecessor) paid
Appalachian Leasing Company an aggregate rental amount of
$146,064 in 2007, $153,144 in 2006, and $154,344 in 2005. Under
two separate leases, McJunkin Red Man Corporation leases office
and warehouse space for the wholesale distribution of pipes,
valves and fittings from Appalachian Leasing Company. The
location of the leased property, monthly rent as of
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Table of Contents
September 2008, term, expiration date, square footage of the
leases premises and renewal option for each of these leases are
included in the table below:
|
Monthly Rent |
||||||||||||||||
|
as of |
Square |
|||||||||||||||
|
Location
|
September 2008 | Term | Expiration | Feet | Renewal Option | |||||||||||
|
Hurricane, WV
|
$ | 10,005.00 | 3 years | December 31, 2010 | 6,500 |
Four three-year renewal options |
||||||||||
|
Corbin, KY
|
$ | 3,752.50 | 3 years | May 31, 2009 | 8,000 | None | ||||||||||
We believe that the rental amounts under McJunkin Red Man
Corporation’s leases with Appalachian Leasing Company are
generally comparable to market rates negotiable among unrelated
third parties.
Transactions with
Executive Officers and Directors
Investments in
PVF Holdings LLC
Certain of our current and former executive officers and
directors are members of PVF Holdings LLC, our majority
stockholder. These executive officers and directors do not have
or share the right to vote or dispose of the shares of our
common stock held by PVF Holdings LLC and thus do not have
beneficial ownership of such shares. See “Principal and
Selling Stockholders”.
On January 31, 2007, in connection with the GS Acquisition,
certain of our current and former executive officers and
directors contributed shares of McJunkin Red Man Corporation and
McJunkin Appalachian to PVF Holdings LLC in exchange for common
units in PVF Holdings LLC. The number of shares of McJunkin Red
Man Corporation and McJunkin Appalachian contributed by each
such executive officer and director, the value of such
contribution, and the number of common units of PVF Holdings LLC
received in consideration for such contribution are indicated in
the table below.
|
Number of |
||||||||||||||||
|
Shares of |
Shares of |
Common Units of |
||||||||||||||
|
McJunkin |
McJunkin |
Value of |
PVF Holdings LLC |
|||||||||||||
|
Corporation |
Appalachian |
Shares |
Received |
|||||||||||||
|
Name
|
Contributed
|
Contributed
|
Contributed
|
in Exchange
|
||||||||||||
|
H.B. Wehrle, III
|
310.0000 | 31.89 | $ | 17,173,005.47 | 4,365.4898 | |||||||||||
|
David Fox, III(1)
|
0.0000 | 459.18 | $ | 2,548,646.04 | 647.8824 | |||||||||||
|
E. Gaines Wehrle
|
218.9688 | 31.89 | $ | 12,180,895.82 | 3,096.4630 | |||||||||||
|
Stephen D. Wehrle
|
215.8000 | 31.89 | $ | 12,008,413.81 | 3,052.6170 | |||||||||||
|
Michael H. Wehrle
|
212.5521 | 31.89 | $ | 11,829,133.40 | 3,007.0427 | |||||||||||
|
Martha G. Wehrle
|
26.4688 | — | $ | 1,451,019.99 | 368.8587 | |||||||||||
|
Russell L. Isaacs
|
2.4063 | — | $ | 131,910.91 | 33.5326 | |||||||||||
|
Other Wehrle Family Members(2)
|
850.4147 | — | $ | 46,619,540.83 | 11,850.9908 | |||||||||||
| (1) | Mr. Fox’s common units in PVF Holdings LLC were transferred to a trust established by Mr. Fox. | |
| (2) | As used in this table, “Other Wehrle Family Members” include the immediate family members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D. Wehrle and Michael H. Wehrle. |
On January 31, 2007, Mr. Fox was awarded 640.6004
restricted common units in PVF Holdings LLC. At the time these
units were awarded, they had a value of $2.52 million. Also
on January 31, 2007, certain of our executive officers and
directors received profits units in PVF Holdings LLC in
connection with the GS Acquisition. Each of Rory Isaac, Gary
Ittner and James F. Underhill received profits units as follows:
381.3098 profits units for Mr. Isaac, 381.3098 profits
units for Mr. Ittner, and 597.3853 profits units for
Mr. Underhill. Each of Messrs. Isaac, Ittner, and
Underhill also contributed
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Table of Contents
$857.14 in cash to PVF Holdings LLC in exchange for 0.2179
common units. H.B. Wehrle, III received 381.3098 profits
units and Stephen D. Wehrle received 190.6549 profits units on
January 31, 2007.
On April 13, 2007, Harry K. Hornish, Jr., a member of
our board of directors, made an investment of $1.5 million
in PVF Holdings LLC in exchange for 381.3098 common units. The
investment consisted of $500,000 in cash and a $1 million
promissory note issued to PVF Holdings LLC. The $500,000 in cash
and $1 million promissory note were subsequently
contributed to McJunkin Red Man Holding Corporation by PVF
Holdings LLC. In connection with the May 2008 dividend, the
amount of the note was reduced to $498,467.01. Mr. Hornish
repaid the note in full on August 7, 2008.
On October 31, 2007, in connection with the Red Man
Transaction, E. Gaines Wehrle, Martha G. Wehrle, Michael H.
Wehrle and Russell Isaacs, each a McJunkin Rollover Equity
Holder, exercised their option to purchase additional common
units in PVF Holdings LLC. See “— Transactions
with the Goldman Sachs Funds — Red Man
Transaction” above. Mr. E. Gaines Wehrle
purchased 1,669.9676 additional common units for a price of
$6,569,334.58. On April 30, 2008, Mr. Wehrle
transferred all of his common units to a trust that he
established. The trust received 4,766.4306 common units.
Ms. Martha G. Wehrle purchased an additional 198.9309
common units for a price of $782,556.17. Mr. Michael H.
Wehrle purchased 1,621.7420 additional common units for a price
of $6,379,623.97. Mr. Russell Isaacs purchased 56.0408
additional common units for a price of $220,453.93. In
connection with the Red Man Transaction, the immediate family
members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D.
Wehrle and Michael H. Wehrle exercised their option to purchase
10,555.4465 additional common units for a price of
$41,523,116.19.
Additionally, in October 2007, PVF Holdings LLC provided an
opportunity for select employees of PVF Holdings LLC and its
subsidiaries to purchase common units (“McJunkin Management
Coinvest”). Certain executive officers and directors
purchased common units in the McJunkin Management Coinvest on
October 31, 2007. The number of common units purchased and
the amount paid for such units is set forth in the table below:
|
Amount Contributed |
Number of Common Units |
|||||||
|
Name
|
to PVF Holdings LLC
|
of PVF Holdings LLC
Received
|
||||||
|
H.B. Wehrle, III
|
$ | 3,000,000.00 | 762.6195 | |||||
|
Stephen D. Wehrle
|
$ | 5,000,000.00 | 1,271.0376 | |||||
|
Rory Isaac
|
$ | 500,000.00 | 127.1033 | |||||
|
Gary Ittner
|
$ | 100,000.00 | 25.4207 | |||||
|
James F. Underhill
|
$ | 200,000.00 | 50.8413 | |||||
As part of the Red Man Transaction, on October 31, 2007,
Craig Ketchum contributed 9,634 shares of Red Man to PVF
Holdings LLC. The value of the shares of Red Man contributed by
Mr. Ketchum was $44,135,969.59. As part of the
consideration payable to Mr. Ketchum in connection with the
Red Man Transaction, on October 31, 2007, April 10,
2008 and May 16, 2008, 10,510.7577, 674.2538 and 34.6394
common units of PVF Holdings LLC respectively were issued.
Mr. Ketchum holds the 11,219.6509 common units of PVF
Holdings LLC received in connection with the Red Man Transaction
through a limited liability company which he controls.
As part of the Red Man Transaction, on October 31, 2007,
Kent Ketchum contributed 3,745 shares of Red Man to PVF
Holdings LLC. As part of the consideration payable to Kent
Ketchum in connection with the Red Man Transaction, on
October 31, 2007, April 10, 2008 and May 16,
2008, 4,203.6296, 269.6583 and 13.8536 common units of PVF
Holdings LLC respectively were issued. Mr. Ketchum holds
the 4,487.1415 common units of PVF Holdings LLC received in
connection with the Red Man Transaction through a limited
liability company which he controls. In connection with the Red
Man Transaction, Craig Ketchum, Kent Ketchum, and their
immediate family members received 28,257.6087 common units of
PVF Holdings LLC in exchange for consideration with a value of
$111,160,050.30.
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Table of Contents
In November 2007, PVF Holdings LLC provided an opportunity for
select employees of PVF Holdings LLC and its subsidiaries to
purchase common units (“Red Man Management Coinvest”).
Certain executive officers and directors purchased common units
in the Red Man Management Coinvest. The number of common units
purchased, the date such units were issued and the amount paid
for such units is set forth in the table below:
|
Number of |
||||||||||||
|
Amount Contributed |
Common Units of PVF |
Date Units |
||||||||||
|
Name
|
to PVF Holdings LLC
|
Holdings LLC Received
|
Were Issued
|
|||||||||
|
Randy Adams
|
$ | 15,735.24 | 4.0000 | November 29, 2007 | ||||||||
|
Ken Hayes
|
$ | 212,425.74 | 54.0000 | November 29, 2007 | ||||||||
|
Stephen W. Lake
|
$ | 200,000.00 | 50.8413 | February 5, 2008 | ||||||||
|
Jeffrey Lang
|
$ | 100,000.00 | 25.4207 | December 14, 2007 | ||||||||
|
Dee Paige
|
$ | 200,000.00 | 50.8413 | November 29, 2007 | ||||||||
On November 30, 2007, Rhys J. Best made an investment of
$500,000 in PVF Holdings LLC in exchange for 127.1033 common
units and on December 17, 2007, Peter C. Boylan, III
made an investment of $1 million in PVF Holdings LLC in
exchange for 254.2065 common units. Both of these directors made
their investments in PVF Holdings LLC through limited liability
companies which they control.
On December 21, 2007, the board of directors of PVF
Holdings LLC granted profits units to the following executive
officers and directors in the amounts indicated: Craig Ketchum
(381.3098 profits units), Kent Ketchum (190.6549 profits units),
Randy Adams (381.3098 profits units), Dee Paige (571.9647
profits units), Ken Hayes (127.1033 profits units), and Jeffrey
Lang (381.3098 profits units). In connection with the issuance
of profits units to Craig Ketchum and Kent Ketchum, on
May 14, 2008 each of these directors contributed $857.14 to
PVF Holdings LLC in exchange for 0.2179 common units each.
On January 7, 2008, 127.1033 profits units were issued to
Stephen W. Lake. In connection with this issuance, on
January 7, 2008 Mr. Lake contributed $857.14 to PVF
Holdings LLC in exchange for 0.2179 common units. On
January 9, 2008, 254.2065 profits units were issued to
Dennis Niver. In connection with this issuance, on
January 9, 2008 Mr. Niver contributed $857.14 to PVF
Holdings LLC in exchange for 0.2179 common units.
On July 7, 2008, Sam B. Rovit made an investment of
$300,000 in PVF Holdings LLC in exchange for 69.6675 common
units.
Investments in
McJunkin Red Man Holding Corporation
On September 10, 2008, Andrew Lane made an investment of
$3,000,000 in our company in exchange for 340.4379 shares
of our common stock.
McJunkin
Acquisition
Under the terms of the merger agreement for the GS Acquisition,
McJunkin Red Man Corporation was required to use its
commercially reasonable efforts promptly following the closing
of the merger to sell certain of its assets (the “Non-Core
Assets”) for cash and to distribute 95% of the net proceeds
of such sales, less 40% of taxable gains, to McJunkin Red Man
Corporation’s shareholders of record immediately prior to
the merger. The Non-Core Assets included (i) approximately
20% of the outstanding common stock of PrimeEnergy Corporation,
(ii) approximately 32% of the ownership interests of Vision
Exploration & Production Co., LLC, (iii) certain
real property located in Charleston, West Virginia, including a
building, (iv) an apartment located in New York, New York,
(v) a farm located in Union, West Virginia, and (vi) a
vacant lot located in Charleston, West Virginia. At
December 31, 2006, these assets had a net book value of
approximately $27.1 million. Of the Non-Core Assets, the
ownership interest of Vision Exploration &
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Table of Contents
Production Co., LLC, the apartment located in New York, New
York, and the farm located in Union, West Virginia have each
been sold, and in 2007 aggregate proceeds of $2.552 million
were distributed to those individuals and entities who were
shareholders of record of McJunkin Red Man Corporation
immediately prior to the merger. In connection with such sale of
Non-Core Assets, H.B. Wehrle, III (one of our directors)
received $180,751, E. Gaines Wehrle (a former director of our
company) received $198,972, Stephen D. Wehrle (one of our
executive officers) received $157,282, Michael H. Wehrle (a
former director of our company) received $193,141, Martha G.
Wehrle (a former director of our company) received $24,052 and
their immediate family members received $933,781 due to their
status as shareholders of record of McJunkin Red Man Corporation
immediately prior to the merger. Of the Non-Core Assets sold,
McJunkin Red Man Corporation sold its ownership interest in
Vision Exploration & Production Co., LLC to E. Gaines
Wehrle, a former director of our company, for $250,000. McJunkin
Red Man Corporation is currently in the process of selling the
remaining Non-Core Assets.
In connection with the GS Acquisition, on December 4, 2006
we entered into an indemnity agreement with certain former
shareholders of McJunkin Red Man Corporation, including H.B.
Wehrle, III and Stephen D. Wehrle. Under the indemnity
agreement, certain former shareholders of McJunkin Red Man
Corporation agreed to jointly and severally indemnify
(i) McJunkin Red Man Corporation, (ii) McJunkin Red
Man Holding Corporation and (iii) the wholly owned
subsidiary of McJunkin Red Man Holding Corporation which merged
with and into McJunkin Red Man Corporation in connection with
the GS Acquisition, and their respective shareholders, members,
partners, officers, directors, employees, attorneys,
accountants, affiliates, agents, other advisors and successors,
from and against all costs incurred by such indemnified parties
relating to the holding and disposition of the Non-Core Assets,
and the distribution of net proceeds with respect to such
disposition, to the extent the costs for each non-core asset
exceeds the net proceeds received in the sale of such non-core
asset.
Additionally, the indemnity agreement provided that from and
after the effective time of the merger that was consummated in
connection with the GS Acquisition, the indemnifying
shareholders would jointly and severally indemnify the
indemnified parties for (i) any amounts paid or payable by
McJunkin Red Man Corporation or any of its subsidiaries to any
of its officers, directors or employees in excess of $965,000 in
the nature of any “stay-pay bonuses” as a result of
the merger, other than payments to certain specific employees,
and (ii) any failure to properly withhold any amounts
required to be withheld by McJunkin Red Man Corporation or any
of its subsidiaries relating to stay-pay bonuses or any similar
such payments (which indemnity only applied to withholding
obligations that arose before the effective time of the merger
on January 31, 2007).
May 2008
Dividend
Certain members of our management team and certain current and
former members of our board of directors are members of PVF
Holdings LLC and therefore participated in PVF Holdings
LLC’s cash distributions to its members in May 2008. See
“— Transactions with the Goldman Sachs
Funds — May 2008 Dividend” above. The table below
sets forth the proceeds of the distributions
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Table of Contents
received on account of the profits units and common units held
by our current and former executive officers and directors who
are members of PVF Holdings LLC:
|
Proceeds from Distributions |
Proceeds from Distributions |
|||||||||||
|
Name
|
Received on Common
Units
|
Received on Profits
Units
|
Total
|
|||||||||
|
Randy K. Adams
|
$ | 6,131.28 | $ | 48,420.00 | $ | 54,551.28 | ||||||
|
Rhys J. Best(1)
|
$ | 194,826.51 | — | $ | 194,826.51 | |||||||
|
Peter C. Boylan, III(2)
|
$ | 389,653.01 | — | $ | 389,653.01 | |||||||
|
David Fox, III(3)
|
$ | 1,975,013.20 | — | $ | 1,975,013.20 | |||||||
|
Ken Hayes
|
$ | 82,772.33 | $ | 16,140.00 | $ | 98,912.33 | ||||||
|
Harry K. Hornish, Jr.
|
$ | 584,479.57 | — | $ | 584,479.57 | |||||||
|
Rory M. Isaac
|
$ | 195,160.51 | $ | 48,420.00 | $ | 243,580.51 | ||||||
|
Russell L. Isaacs
|
$ | 137,300.00 | — | $ | 137,300.00 | |||||||
|
Gary A. Ittner
|
$ | 39,299.30 | $ | 48,420.00 | $ | 87,719.30 | ||||||
|
Craig Ketchum(4)
|
$ | 17,198,047.58 | $ | 48,420.00 | $ | 17,246,467.58 | ||||||
|
Kent Ketchum(5)
|
$ | 6,878,317.54 | $ | 24,210.00 | $ | 6,902,527.54 | ||||||
|
Stephen W. Lake
|
$ | 78,264.59 | $ | 16,140.00 | $ | 94,404.59 | ||||||
|
Jeffrey Lang
|
$ | 38,965.30 | $ | 48,420.00 | $ | 87,385.30 | ||||||
|
Dennis Niver
|
$ | 333.99 | $ | 32,280.00 | $ | 32,613.99 | ||||||
|
Dee Paige
|
$ | 77,930.60 | $ | 72,630.00 | $ | 150,560.60 | ||||||
|
James F. Underhill
|
$ | 78,264.60 | $ | 75,858.00 | $ | 154,122.60 | ||||||
|
E. Gaines Wehrle(6)
|
$ | 7,306,083.68 | — | $ | 7,306,083.68 | |||||||
|
H.B. Wehrle, III
|
$ | 7,860,472.35 | $ | 48,420.00 | $ | 7,908,892.35 | ||||||
|
Stephen D. Wehrle
|
$ | 6,627,379.72 | $ | 24,210.00 | $ | 6,651,589.72 | ||||||
|
Michael H. Wehrle
|
$ | 7,095,097.13 | — | $ | 7,095,097.13 | |||||||
|
Martha G. Wehrle
|
$ | 870,319.63 | — | $ | 870,319.63 | |||||||
|
Other Wehrle Family Members(7)
|
$ | 34,345,051.67 | — | $ | 34,345,051.67 | |||||||
|
Other Ketchum Family Members(8)
|
$ | 19,238,151.48 | — | $ | 19,238,151.48 | |||||||
|
All executive officers, directors and their immediate family
members
|
$ | 111,297,315.58 | $ | 551,988.00 | $ | 111,849,303.58 | ||||||
| (1) | Mr. Best holds common units in PVF Holdings LLC through a limited liability company which he controls. | |
| (2) | Mr. Boylan holds common units in PVF Holdings LLC through a limited liability company which he owns and controls. | |
| (3) | The $1,975,013.20 that is indicated as being distributed on account of Mr. Fox’s common units (including common units) was distributed to a trust established by Mr. Fox. Of this sum, $993,087.61 was distributed with respect to common units and $81,345.60 was paid as a tax distribution with respect to restricted common units. The balance of this sum ($900,579.99) relates to proceeds of the dividend distributed with respect to restricted common units which are being held by PVF Holdings LLC subject to vesting of the restricted common units. | |
| (4) | Craig Ketchum received $17,197,713.60 in proceeds with respect to common units held by a limited liability company which he controls. Craig Ketchum received $333.99 in proceeds with respect to common units that he holds directly. | |
| (5) | Kent Ketchum received $6,877,983.55 in proceeds with respect to common units held by a limited liability company which he controls. Kent Ketchum received $333.99 in proceeds with respect to common units that he holds directly. | |
| (6) | The $7,306,083.68 that is indicated as being distributed with respect to Mr. Wehrle’s common units was distributed to a trust established by Mr. Wehrle. | |
| (7) | As used in this table, “Other Wehrle Family Members” include the immediate family members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D. Wehrle and Michael H. Wehrle. | |
| (8) | As used in this table, “Other Ketchum Family Members” include the immediate family members of Craig Ketchum and Kent Ketchum. |
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Phantom Shares
Surrender Agreements
In connection with the Red Man Transaction, on October 30,
2007, PVF Holdings LLC and Red Man entered into phantom shares
surrender agreements with each of Jeffrey Lang and Dee Paige,
who were then employees of Red Man. Pursuant to these
agreements, Mr. Lang and Mr. Paige surrendered all
phantom shares awarded to them under Red Man’s phantom
stock plan, which was terminated in connection with the Red Man
Transaction.
As consideration for Mr. Lang’s surrender of his
phantom shares, we are required to pay him $175,000 on each of
January 1, 2008, October 31, 2008, and January 1,
2009, in each case (i) provided that Mr. Lang is still
employed with us on the relevant payment date, (ii) plus
interest for the period from November 1, 2007 to the
payment date at a rate equal to 4.88%, and (iii) less any
withholding that we may be required to make. All of such
payments are immediately due and payable in certain
circumstances, including if Mr. Lang is terminated without
cause. As consideration for Mr. Paige’s surrender of
his phantom shares, we are required to pay him $433,333.33 on
each of January 1, 2008, October 31, 2008, and
October 31, 2009, in each case (i) provided that
Mr. Paige is still employed with us on the relevant payment
date, (ii) plus interest for the period from
November 1, 2007 to the payment date at a rate equal to
4.88%, and (iii) less any withholding that we may be
required to make. All of such payments are immediately due in
certain circumstances, including if Mr. Paige is terminated
without cause.
Employment of
Directors and Family Members
Stephen G. Fox, brother of David Fox, III (one of our
executive officers), is employed by our company pursuant to an
employment agreement and earned aggregate compensation of
$764,807 in 2005, $935,322 in 2006 and $3,006,556 in 2007. Betty
Ketchum, mother of Craig Ketchum, is employed by our company and
the pro rated portion of her compensation in November/December
2007 (following the Red Man Transaction) was $451,934. Betty
Ketchum will cease to be an employee of our company effective
October 31, 2008. Brian Ketchum, brother of Craig Ketchum,
is employed by our company and the pro rated portion of his
compensation in November/December 2007 (following the Red Man
Transaction) was $345,704. Kevin Ketchum, brother of Craig
Ketchum, is employed by our company and the pro rated portion of
his compensation in November/December 2007 (following the Red
Man Transaction) was $348,286. Kent Ketchum, brother of Craig
Ketchum and a former member of our board of directors, was
formerly employed by Red Man and the pro rated portion of his
compensation in November/December 2007 (following the Red Man
Transaction) was $481,532. Since January 2008, Kent Ketchum
has been employed by Red Man Distributors LLC. David
Fox, Jr., father of David Fox, III, was previously
employed by our company and earned aggregate compensation of
$246,523 in 2005 and $289,918 in 2006.
Anthony Zande,
brother-in-law
of H.B. Wehrle, III (one of our directors), was employed by
our company until June 2008 and earned aggregate compensation of
$160,409 in 2006 and $161,613 in 2007. Helen Lynne Wehrle Zande,
H.B. Wehrle, III’s sister, was employed by our company
until December 2007 and earned aggregate compensation of
$1,243,350 in 2005, $1,549,378 in 2006, and $258,535 in 2007.
E. Gaines Wehrle was a director of our company from January
2007 until August 2008. E. Gaines Wehrle was employed by
our company until January 31, 2007 and earned aggregate
compensation of $2,269,499 in 2005, $2,980,532 in 2006 and
$226,047 in 2007. Chilton Wehrle Mueller, sister of
E. Gaines Wehrle, was employed by our company until
January 31, 2007 and earned aggregate compensation of
$1,240,579 in 2005, $1,492,217 in 2006 and $110,060 in 2007.
Michael H. Wehrle, brother of E. Gaines Wehrle, was
employed by our company until January 31, 2007 and earned
aggregate compensation of $2,278,143 in 2005, $2,976,421 in 2006
and $223,519 in 2007. Cody Mueller,
brother-in-law
of E. Gaines Wehrle, was employed by our company until
April 15, 2008 and earned aggregate compensation of
$381,858 in 2006 and $495,185 in 2007.
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Transactions with
Bain & Company
Sam Rovit, a member of our board of directors, is a partner at
Bain Corporate Renewal Group, a unit of Bain &
Company. Mr. Rovit joined Bain Corporate Renewal Group in
January 2008 and was a partner at Bain & Company
from 1989 to June 2005. In 2006, Bain & Company
provided consulting services to the entity now known as McJunkin
Red Man Corporation and McJunkin Red Man Corporation paid
Bain & Company $2,976,432 for such services.
Registration
Rights Agreement
Prior to this offering, we intend to enter into a new
registration rights agreement with PVF Holdings LLC pursuant to
which we may be required to register the sale of our shares held
by PVF Holdings LLC. Under the registration rights agreement,
PVF Holdings LLC will have the right, including in connection
with this offering, to request that we use our reasonable best
efforts to register the sale of shares held by PVF Holdings LLC
on its behalf on up to six occasions including requiring us to
file shelf registration statements permitting sales of shares
into the market from time to time over an extended period. PVF
Holdings LLC’s right to demand registration will be subject
to certain limitations contained in the registration rights
agreement, including our right to decline to cause a
registration statement for a demand registration to be declared
effective within 180 days after the effective date of any
of our other registration statements.
In addition, PVF Holdings LLC will have the ability to exercise
certain piggyback registration rights with respect to its own
securities if we elect to register any of our equity securities.
The registration rights agreement will also include provisions
dealing with allocation of securities included in registration
statements, registration procedures, indemnification,
contribution and allocation of expenses. The registration rights
agreement will also provide that if PVF Holdings LLC is
dissolved, an amended and restated registration rights agreement
will become automatically effective and the existing agreement
will terminate. Pursuant to the terms of such amended and
restated registration rights agreement, the existing members of
PVF Holdings LLC would thereafter be entitled to certain
registration rights with respect to our shares which are
distributed to them in connection with any such dissolution of
PVF Holdings LLC.
Management
Stockholders Agreement
Each holder of a stock option
and/or
restricted stock award from the company, including the members
of our board of directors who have received stock option awards,
is a party to a management stockholders agreement. The
management stockholders agreement provides that upon the
termination of a restricted stock or stock option holder’s
employment with us (including, in the case of a non-employee
member of our board of directors, the termination of his or her
service on our board), we may exercise our right to purchase all
or a portion of the restricted stock
and/or stock
received upon the exercise of stock options held by such
employee or director (or his or her permitted transferee). In
the event of a termination by us with cause, the call option
price would be the lesser of (i) the fair market value on
the date of repurchase (determined in accordance with the
management stockholders agreement) or (ii) the price paid
for the stock by such employee or director. Under all other
circumstances, the call option price would be the fair market
value of the stock subject to the call option on the date of
repurchase (determined in accordance with the management
stockholders agreement).
The management stockholders agreement prohibits the transfer of
any shares of our stock (including restricted stock) by a
restricted stock or stock option holder, other than
(i) following the death of such holder pursuant to the
terms of any trust or will of the deceased or by the laws of
intestate succession or (ii) in connection with our
exercise of our call option.
In connection with the hiring of our new chief executive
officer, Andrew Lane, on September 10, 2008, Mr. Lane
purchased shares of our common stock and was granted stock
options in respect of our common stock. In connection with this
purchase and grant, Mr. Lane became a party to the
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management stockholders agreement. Upon the consummation of
this offering, Mr. Lane will no longer be a party to the
management stockholders agreement in respect of common stock
held by him, whether acquired by purchase or upon exercise of
his stock options.
Purchase of
Midfield Minority Interest
In June 2005, a subsidiary of Red Man, which is now known as
McJunkin Red Man Canada Ltd. (“CanHCo”) acquired an
equity interest in Midfield Supply ULC (“Midfield”).
This transaction is referred to as the “Midfield
Investment”. Midfield is an unlimited liability corporation
incorporated under the laws of Alberta and is one of the three
largest distributors of PVF products to the energy sector in the
four Western Canadian provinces. The headquarters of Midfield is
in Calgary, Alberta. Pursuant to the Midfield Investment, CanHCo
acquired an approximate 51% voting interest (constituting an
approximately 49% equity interest) in Midfield. The remainder of
the voting and equity interest was held by Midfield Holdings
(Alberta) Ltd. (“MinorityHCo”), an Alberta
corporation. The Midfield Investment was an acquisition
transaction whereby the existing shareholders of the predecessor
entity to Midfield partially liquidated their ownership
interests. There were in excess of 200 shareholders of the
predecessor entity, who were largely employees or former
employees of that entity. Prior to the Midfield Transaction
described below, employees of Midfield were shareholders of
MinorityHCo. These shareholders were largely employees or former
employees of Midfield or its predecessor. Certain employees of
Midfield own common units in PVF Holdings LLC.
In connection with the Midfield Investment, a shareholders
agreement was entered into among CanHCo, MinorityHCo and
Midfield. One of the features of the shareholders agreement was
the “Call Right”, which was held by CanHCo, and was a
right to acquire the securities of Midfield held by MinorityHCo.
This allowed CanHCo to acquire the remainder of the ownership in
Midfield that it did not acquire in June 2005 at the time of the
Midfield Investment. The Call Right was exercisable during a
six-month period which commenced on June 15, 2008. Pursuant
to the Call Right, CanHCo had the option to provide a purchase
notice to MinorityHCo, and was entitled to acquire the shares of
Midfield held by MinorityHCo at a price provided by formula. We
were required to concurrently acquire all related shareholder
loans owing by Midfield to Holdings. CanHCo had intended to
exercise the Call Right in the manner described above, however,
the Call Right transaction was ultimately structured as a
purchase by CanHCo of all of the outstanding securities of
MinorityHCo from its shareholders (the “Midfield
Transaction”). On July 31, 2008, we paid approximately
CDN$90.04 million (US$87.97 million) to the
shareholders of and lenders to MinorityHCo, of which
$2 million is being held in escrow for one year to satisfy
any potential indemnification claims against such shareholders
and lenders. On August 1, 2008, pursuant to the stock
purchase agreement entered into in connection with the Red Man
Transaction, a subsidiary of McJunkin Red Man Corporation paid
approximately $47.7 million to former shareholders of Red
Man, including Craig Ketchum, Kent Ketchum (brother of Craig
Ketchum), and an immediate family member of Craig Ketchum, who
received approximately $4.5 million, $6.2 million, and
$165,250 respectively.
Red Man
Distributors LLC
Red Man Distributors LLC (“RMD”) is an Oklahoma
limited liability company formed on November 1, 2007 for
the purposes of distributing oil country tubular goods in North
America as a certified minority supplier. McJunkin Red Man
Corporation is a member of RMD and owns 49% of the outstanding
equity interests of RMD. The other members of RMD, consisting of
Craig Ketchum, Kent Ketchum, Kevin Ketchum and Brian Ketchum,
own in the aggregate the remaining 51% of the outstanding equity
interests of RMD. RMD is managed by its members. McJunkin Red
Man Corporation is retained by RMD as an independent contractor
to provide general corporate and administrative services to RMD.
McJunkin Red Man Corporation is paid an annual services fee of
$725,000 by RMD to provide such services. In addition, McJunkin
Red Man Corporation is paid an annual license fee for the right
and license to use the name “Red Man”. McJunkin Red
Man
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Corporation pays RMD a specified percentage of RMD’s gross
monthly revenue for the relevant month from sales of products by
RMD that are sourced from McJunkin Red Man Corporation.
Related Party
Transaction Policy
Beginning on January 31, 2007, we had in place an informal
policy for the review, approval, ratification and disclosure of
related party transactions. Under this policy, related party
transactions were required to be entered into on an arms’
length basis. In addition, from January 31, 2007 until the
completion of this offering, we are bound by a provision in the
PVF LLC Agreement which provides that neither we nor any of our
subsidiaries may enter into any transactions with any of the
Goldman Sachs Funds or any of their affiliates except for
transactions which (i) are otherwise permitted or
contemplated by the PVF LLC Agreement, or (ii) are on fair
and reasonable terms not materially less favorable to us than we
would obtain in a hypothetical comparable arms’ length
transaction with a person that was not an affiliate of the
Goldman Sachs Funds. Our credit facilities also contain
covenants which, subject to certain exceptions, require us to
conduct all transactions with any of our affiliates on terms
that are substantially as favorable to us as we would obtain in
a comparable arms’ length transaction with a person that is
not an affiliate.
Prior to the completion of this offering, our board of directors
will adopt a Related Party Transaction Policy, which is designed
to monitor and ensure the proper review, approval, ratification
and disclosure of related party transactions involving us. This
policy applies to any transaction, arrangement or relationship
(or any series of similar transactions, arrangements or
relationships) in which we were, are or will be a participant
and the amount involved exceeds $120,000, and in which any
related party had, has or will have a direct or indirect
material interest. The audit committee of our board of directors
must review, approve and ratify a related party transaction if
such transaction is consistent with the Related Party
Transaction Policy and is on terms, taken as a whole, which the
audit committee believes are no less favorable to us than could
be obtained in an arms-length transaction with an unrelated
third party, unless the audit committee otherwise determines
that the transaction is not in our best interests. Any related
party transaction or modification of such transaction which our
board of directors has approved or ratified by the affirmative
vote of a majority of directors, who do not have a direct or
indirect material interest in such transaction, does not need to
be approved or ratified by our audit committee. In addition,
related party transactions involving compensation will be
approved by our compensation committee in lieu of our audit
committee.
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DESCRIPTION OF
OUR INDEBTEDNESS
The following summaries of the material terms of our revolving
credit facility, two term loan credit facilities and the debt of
our subsidiary Midfield Supply ULC are only general descriptions
and are not complete and, as such, are subject to and are
qualified in their entirety by reference to the provisions of
the revolving credit facility, the two term loan credit
facilities, and the agreements governing Midfield Supply
ULC’s debt, as applicable.
Revolving Credit
Facility and Term Loan Facility
Our subsidiary McJunkin Red Man Corporation is the borrower
under a $700 million revolving credit facility (the
“Revolving Credit Facility”) and a $575 million
term loan facility (the “Term Loan Facility” and,
together with the Revolving Credit Facility, the “Senior
Secured Facilities”). $204.4 million of borrowings
were outstanding and $490.9 million were available under
the Revolving Credit Facility as of June 26, 2008. Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. are co-lead
arrangers and joint bookrunners for each of these facilities.
McJunkin Red Man Corporation entered into the Term Loan
Facility, as well as a $300 million asset-backed revolving
credit facility with The CIT Group/Business Credit, Inc. and the
other financial institutions party thereto, in January 2007 for
purposes of financing the acquisition of McJunkin Corporation by
affiliates of Goldman Sachs. The Term Loan Facility was amended,
and the Revolving Credit Facility was entered into, for purposes
of financing the Red Man Transaction in October 2007 and
refinancing the $300 million asset-backed revolving credit
facility. The Revolving Credit Facility was upsized on
June 10, 2008 from $650 million to $700 million.
Letter of Credit and Swingline
Sublimits. The Revolving Credit Facility
provides for the extension of both revolving loans and swingline
loans and the issuance of letters of credit. The aggregate
principal amount of revolving loans outstanding at any time
under the Revolving Credit Facility may not exceed
$700 million, subject to adjustments based on changes in
the borrowing base and less the sum of aggregate letters of
credit outstanding and the aggregate principal amount of
swingline loans outstanding, provided that the borrower may
elect to increase the limit on the revolving loans or term loans
outstanding as described in “— Incremental
Facilities” below. There is a $60 million sub-limit on
swingline loans and the total letters of credit outstanding at
any time may not exceed $60 million.
Maturity. The revolving loans have a
maturity date of October 31, 2013 and the swingline loans
have a maturity date of October 24, 2013. Any letters of
credit outstanding under the Revolving Credit Facility will
expire on October 24, 2013. The maturity date of the term
loans under the Term Loan Facility is January 31, 2014.
Interest Rate and Fees. The term loans
bear interest at a rate per annum equal to, at the
borrower’s option, either (i) the greater of the prime
rate and the federal funds effective rate plus 0.50%, plus in
either case 2.25%; or (ii) LIBOR plus 3.25%. On
June 26, 2008, $567.8 million was outstanding under
the Term Loan Facility and the interest rate on these loans was
6.13%.
The revolving loans bear interest at a rate per annum equal to,
at the borrower’s option, either (i) the greater of
the prime rate and the federal funds effective rate plus 0.50%,
plus in either case (a) 0.50% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (b) 0.25% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (c) 0.00% if such ratio is less than 2.00
to 1.00; or (ii) LIBOR plus (a) 1.50% if the
borrower’s consolidated total debt to consolidated adjusted
EBITDA ratio is greater than or equal to 2.75 to 1.00,
(b) 1.25% if such ratio is greater than or equal to 2.00 to
1.00 but less than 2.75 to 1.00, or (c) 1.00% if such ratio
is less than 2.00 to 1.00. Interest on swingline loans is
calculated on the basis of the rate described in clause (i)
of the preceding sentence. The weighted average interest rate on
the revolving loans as of June 26, 2008 was 4.14% and the
interest rate on the swingline loans was 5.25%.
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Additionally, the borrower is required to pay a commitment fee
with respect to unutilized revolving credit commitments at a
rate per annum equal to (i) 0.375% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00 and (ii) 0.25% if
such ratio is less than 2.75 to 1.00. The borrower is also
required to pay fees on the stated amounts of outstanding
letters of credit for the account of all revolving lenders at a
per annum rate equal to (i) 1.375% if the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (ii) 1.125% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (iii) 0.875% if such ratio is less than
2.00 to 1.00. The borrower is required to pay a fronting fee for
the account of the letter of credit issuer in respect of each
letter of credit issued by it at a rate for each day equal to
0.125% per annum on the average daily stated amount of such
letter of credit. The borrower is also obligated to pay directly
to the letter of credit issuer upon each issuance of, drawing
under,
and/or
amendment of, a letter of credit issued by it such amount as the
borrower and the letter of credit issuer agree upon for
issuances of, drawings under or amendments of, letters of credit
issued by the letter of credit issuer.
Prepayments. The borrower may
voluntarily prepay revolving loans, swingline loans and term
loans in whole or in part at the borrower’s option, in each
case without premium or penalty. If the borrower refinances the
term loans on certain terms prior to October 31, 2008, the
borrower will be subject to a prepayment penalty of 1.00% of the
aggregate principal amount of such prepayment. The borrower is
required to prepay outstanding term loans with 100% of the net
cash proceeds of:
| • | a disposition of any business units, assets or other property of the borrower or any of the borrower’s restricted subsidiaries not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
| • | a casualty event with respect to collateral for which the borrower or any of its restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
| • | the issuance or incurrence by the borrower or any of its restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
| • | any sale-leaseback transaction permitted under the Term Loan Facility. |
Not later than the date that is 90 days after the last day
of any fiscal year, the borrower under the Term Loan Facility
will be required to prepay the outstanding term loans under the
Term Loan Facility with an amount equal to (i) 50% of
“excess cash flow” for such fiscal year, provided that
(a) the percentage will be reduced to 25% if the
borrower’s ratio of consolidated total debt to consolidated
EBITDA for the most recent four consecutive fiscal quarters is
no greater than 2.50 to 1.00 but greater than 2.00 to 1.00, and
(b) no prepayment of term loans with excess cash flow is
required if the borrower’s ratio of consolidated total debt
to consolidated EBITDA for the most recent four consecutive
fiscal quarters is no greater than 2.00 to 1.00, minus
(ii) the principal amount of term loans under the Term Loan
Facility voluntarily prepaid during such fiscal year.
In addition, if at any time the aggregate amount of outstanding
loans, unreimbursed letter of credit drawings and undrawn
letters of credit under the Revolving Credit Facility
exceeds the total revolving credit commitments or the
borrowing base, the borrower will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Revolving
Credit Facility is less than 7% of total revolving credit
commitments for any period of five consecutive business days, or
an event of default pursuant to certain provisions of the
Revolving Credit Facility has occurred, the borrower would be
required to transfer funds from certain blocked accounts daily
into a collection account under the exclusive control of the
agent under the Revolving Credit Facility.
Amortization. The term loans are
repayable in quarterly installments in an amount equal to the
principal amount of the term loans outstanding on the quarterly
installment date multiplied by
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0.25%, with the balance of the principal amount due on the term
loan maturity date of January 31, 2014.
Incremental Facilities. Subject to
certain terms and conditions, the borrower may request an
increase in revolving loan commitments and term loan
commitments. The increase in revolving loan commitments may not
exceed the sum of (i) $150 million, plus
(ii) only after the entire amount in the preceding
clause (i) is drawn, an amount such that on a pro forma
basis after giving effect to the new revolving credit
commitments and certain other specified transactions, the
secured leverage ratio will be no greater than 4.75 to 1.00. The
borrower’s ability to borrow under such incremental
facilities, however, would still be limited by the borrowing
base. The incremental term loan commitments may not exceed the
difference between (i) up to $100 million, and
(ii) the sum of all incremental revolving commitments and
incremental term loan commitments taken together. Any lender
that is offered to provide all or part of the new revolving loan
commitments or new term loan commitments may elect or decline,
in its sole discretion, to provide such new commitments.
Collateral and Guarantors. The
obligations under the Senior Secured Facilities are guaranteed
by the borrower’s wholly owned domestic subsidiaries. The
obligations under the Revolving Credit Facility are secured,
subject to exceptions, by substantially all of the assets of the
borrower and the subsidiary guarantors, including (i) a
first-priority security interest in personal property consisting
of and arising from inventory and accounts receivable;
(ii) a second-priority pledge of certain of the capital
stock held by the borrower or any subsidiary guarantor; and
(iii) a
second-priority
security interest in, and mortgages on, substantially all other
tangible and intangible assets of the borrower and each
subsidiary guarantor. The obligations under the Term Loan
Facility are secured, subject to certain significant exceptions,
by substantially all of the assets of the borrower and the
subsidiary guarantors, including (i) a second-priority
security interest in personal property consisting of and arising
from inventory and accounts receivable; (ii) a
first-priority pledge of certain of the capital stock held by
the borrower or any subsidiary guarantor; and (iii) a
first-priority security interest in, and mortgages on,
substantially all other tangible and intangible assets of the
borrower and each subsidiary guarantor.
Covenants. The Senior Secured
Facilities contain customary covenants. These agreements, among
other things, restrict, subject to certain exceptions, the
ability of the borrower and its subsidiaries to incur additional
indebtedness, create liens on assets, engage in mergers,
consolidations or sales of assets, dispose of subsidiary
interests, make investments, loans or advances, pay dividends,
make payments with respect to subordinated indebtedness, enter
into sale and leaseback transactions, change the business
conducted by the borrower and its subsidiaries taken as a whole,
and enter into agreements that restrict subsidiary dividends or
limit the ability of the borrower or any subsidiary guarantor to
create or keep liens for the benefit of the lenders with respect
to the obligations under the Senior Secured Facilities. The
Senior Secured Facilities require the borrower to enter into
interest rate swap, cap and hedge agreements for purposes of
ensuring that no less than 50% of the aggregate principal amount
of the total indebtedness of the borrower and its subsidiaries
then outstanding is either subject to such interest rate
agreements or bears interest at a fixed rate.
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The Term Loan Facility requires the borrower to maintain a
maximum ratio of consolidated total debt to consolidated
adjusted EBITDA and a minimum ratio of consolidated adjusted
EBITDA to consolidated interest expense. Each of these ratios is
calculated for the period that is four consecutive fiscal
quarters prior to the date of calculation. These financial
covenants are set forth in the table below:
|
Maximum |
Minimum |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Total Debt to |
Adjusted EBITDA to |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Adjusted EBITDA |
Interest Expense |
|||||||
|
Four Consecutive Fiscal
Quarters Ending on:
|
Ratio
|
Ratio
|
||||||
|
June 30, 2008
|
4.25:1.00 | 3.00:1.00 | ||||||
|
September 30, 2008
|
4.25:1.00 | 3.00:1.00 | ||||||
|
December 31, 2008
|
4.25:1.00 | 3.00:1.00 | ||||||
|
March 31, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
June 30, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
September 30, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
December 31, 2009
|
3.50:1.00 | 3.25:1.00 | ||||||
|
March 31, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
June 30, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
September 30, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
December 31, 2010
|
2.75:1.00 | 3.25:1.00 | ||||||
|
March 31, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
June 30, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
September 30, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
December 31, 2011
|
2.50:1.00 | 3.25:1.00 | ||||||
|
March 31, 2012 and thereafter
|
2.50:1.00 | 3.50:1.00 | ||||||
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then within ten days
after the date on which financial statements for the applicable
period are due under the Term Loan Facility, the Goldman Sachs
Funds and other investors in the borrower (or any direct or
indirect parent of the borrower) have a cure right which allows
any of them to make a direct or indirect equity investment in
the borrower or any restricted subsidiary of the borrower in
cash. If such cure right is exercised, the consolidated total
debt to consolidated adjusted EBITDA ratio of the borrower will
be recalculated to give pro forma effect to the net cash
proceeds received from the exercise of the cure right. The cure
right is subject to certain limitations. For the four prior
consecutive fiscal quarters, there must be at least one fiscal
quarter in which the cure right is not exercised. Additionally,
the equity investment contributed under the cure right may not
exceed the amount necessary to bring the borrower back into
compliance with the restrictions regarding the borrower’s
consolidated total debt to consolidated adjusted EBITDA ratio.
Although the Revolving Credit Facility does not require the
borrower to comply with any financial ratio maintenance
covenants, if less than 7% of the then-outstanding credit
commitments are available to be borrowed under the Revolving
Credit Facility at any time, the borrower will not be permitted
to borrow additional amounts unless its pro forma ratio of
consolidated adjusted EBITDA to consolidated fixed charges is at
least 1.00 to 1.00.
The Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $25 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
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Events of Default. The Senior Secured
Facilities contain customary events of default. The events of
default include the failure to pay interest and principal when
due, failure to pay fees and any other amounts owed under the
Senior Secured Facilities when due, a breach of certain
covenants in the Senior Secured Facilities, a breach of any
representation or warranty contained in the Senior Secured
Facilities in any material breach, defaults in payments with
respect to any other indebtedness in excess of $15 million
(under the Term Loan Facility) or in excess of $30 million
(under the Revolving Credit Facility), defaults with respect to
other indebtedness in excess of $15 million (under the Term
Loan Facility) or in excess of $30 million (under the
Revolving Credit Facility) that has the effect of accelerating
such indebtedness, bankruptcy, certain events relating to
employee benefits plans, failure of a material subsidiary’s
guarantee to remain in full force and effect, failure of the
security agreement, pledge agreements pursuant to which the
stock of any material subsidiary is pledged, or any mortgage for
the benefit of the lenders under the Term Loan Facility to
remain in full force and effect, entry of one or more judgments
or decrees against the borrower or its restricted subsidiaries
involving a liability of $15 million or more in the
aggregate (under the Term Loan Facility) or $30 million or
more in the aggregate (under the Revolving Credit Facility), and
the invalidation of subordination provisions of any document
evidencing permitted additional debt having a principal amount
in excess of $15 million.
The Senior Secured Facilities also contain an event of default
upon the occurrence of a change of control. Under the Senior
Secured Facilities, a “change of control” shall have
occurred if (i) the Goldman Sachs Funds and certain of
their affiliates shall cease to beneficially own at least 35% of
the voting power of the outstanding voting stock of the borrower
(other than as a result of one or more widely distributed
offerings of the common stock of the borrower or any direct or
indirect parent of the borrower); or (ii) any person,
entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) shall have acquired beneficial ownership of a
percentage of the voting power of the outstanding voting stock
of the borrower that exceeds the percentage of the voting power
of such voting stock then beneficially owned, in the aggregate,
by the Goldman Sachs Funds and certain of their affiliates,
unless, in the case of either clause (i) or
(ii) above, the Goldman Sachs Funds have, at such time, the
right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board
of directors of the borrower; or (iii) a majority of the
board of directors of the borrower ceases to consist of
“continuing directors”, defined as individuals who
(a) were members of the board of directors of the borrower
on October 31, 2007 (or January 31, 2007 for purposes
of determining whether an event of default has occurred under
the Term Loan Facility), (b) who have been a member of the
board of directors for at least 12 months preceding
October 31, 2007 or January 31, 2007, as the case may
be, (c) who have been nominated to be a member of the board
of directors, directly or indirectly, by the Goldman Sachs Funds
and certain of their affiliates or persons nominated by the
Goldman Sachs Funds and certain of their affiliates or
(d) who have been nominated to be a member of the board of
directors by a majority of the other continuing directors then
in office.
Junior Term Loan
Facility
On May 22, 2008, McJunkin Red Man Holding Corporation, as
the borrower, entered into a $450 Million Term Loan Credit
Agreement (the “Junior Term Loan Facility”). Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc. were the
co-lead arrangers and joint bookrunners under this facility. The
proceeds from the Junior Term Loan Facility, along with
$25 million in proceeds from revolving loans drawn under
the Revolving Credit Facility, were used to fund a dividend to
McJunkin Red Man Holding Corporation’s stockholders,
including PVF Holdings LLC. PVF Holdings LLC distributed the
proceeds it received from the dividend to its members, including
the Goldman Sachs Funds and certain of our directors and members
of our management. See “Certain Relationships and Related
Party Transactions — Transactions with the Goldman
Sachs Funds — May 2008 Dividend”. The term loans
under the Junior Term Loan Facility are not subject to
amortization and the principal of such loans must be repaid on
January 31, 2014.
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Interest Rate and Fees. The term loans
under the Junior Term Loan Facility bear interest at a rate per
annum equal to, at the borrower’s option, either
(i) the greater of the prime rate and the federal funds
effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%.
Prepayments. We may voluntarily prepay
term loans under the Junior Term Loan Facility in whole or in
part at our option, without premium or penalty. After the
payment in full of the term loans under the Term Loan Facility,
we will be required to prepay outstanding term loans under the
Junior Term Loan Facility with 100% of the net cash proceeds of:
| • | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
| • | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
| • | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
| • | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
Also, after the payment in full of the term loans under the Term
Loan Facility, not later than the date that is 90 days
after the last day of any fiscal year, we will be required to
prepay the outstanding term loans under the Junior Term Loan
Facility with an amount equal to (i) 50% of “excess
cash flow” for such fiscal year, provided that (a) the
percentage will be reduced to 25% if the borrower’s ratio
of consolidated total debt to consolidated adjusted EBITDA for
the most recent four consecutive fiscal quarters is no greater
than 2.50 to 1.00 but greater than 2.00 to 1.00, and (b) no
prepayment of term loans with excess cash flow is required if
the borrower’s ratio of consolidated total debt to
consolidated adjusted EBITDA for the most recent four
consecutive fiscal quarters is no greater than 2.00 to 1.00,
minus (ii) the principal amount of term loans under the
Junior Term Loan Facility voluntarily prepaid during such fiscal
year.
We must also prepay the principal amount of the term loans under
the Junior Term Loan Facility with 50% of the cash proceeds
received by us from a “Qualified IPO”, net of
underwriting discounts and commissions and other related
reasonable costs and expenses. A “Qualified IPO” is
defined as a bona fide underwritten sale to the public of our
common stock or the common stock of any of our direct or
indirect subsidiaries or our direct or indirect parent companies
pursuant to a registration statement that is declared effective
by the SEC or the equivalent offering on a private exchange or
platform. Prepayment is only required if we or one of our
subsidiaries receives cash proceeds from the Qualified IPO.
Collateral. The term loans under the
Junior Term Loan Facility are secured by perfected security
interests in and liens on substantially all of the personal
property and certain real property of McJunkin Red Man Holding
Corporation, including the common stock we hold of McJunkin Red
Man Corporation. The term loans are not guaranteed by any of our
subsidiaries or by PVF Holdings LLC.
Certain Covenants and Events of
Default. The Junior Term Loan Facility
contains customary covenants for a holding company facility.
These agreements, among other things, restrict, subject to
certain exceptions, the ability of the borrower to incur
additional indebtedness, create liens on assets, and engage in
activities or own assets other than certain specified activities
and assets. Also, the Junior Term Loan Facility requires the
borrower to maintain a maximum ratio of consolidated total debt
to consolidated adjusted EBITDA and a minimum ratio of
consolidated adjusted EBITDA to consolidated interest expense.
Each of these ratios is calculated for the period that is four
consecutive
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fiscal quarters prior to the date of calculation. These
financial covenants are set forth in the table below:
|
Maximum |
Minimum |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Total Debt to |
Adjusted EBITDA to |
|||||||
|
Consolidated |
Consolidated |
|||||||
|
Adjusted EBITDA |
Interest Expense |
|||||||
|
Four Consecutive Fiscal
Quarters Ending on:
|
Ratio
|
Ratio
|
||||||
|
June 30, 2008
|
4.75:1.00 | 2.50:1.00 | ||||||
|
September 30, 2008
|
4.75:1.00 | 2.50:1.00 | ||||||
|
December 31, 2008
|
4.75:1.00 | 2.50:1.00 | ||||||
|
March 31, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
June 30, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
September 30, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
December 31, 2009
|
4.00:1.00 | 2.75:1.00 | ||||||
|
March 31, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
June 30, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
September 30, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
December 31, 2010
|
3.25:1.00 | 2.75:1.00 | ||||||
|
March 31, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
June 30, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
September 30, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
December 31, 2011
|
3.00:1.00 | 2.75:1.00 | ||||||
|
March 31, 2012 and thereafter
|
3.00:1.00 | 3.00:1.00 | ||||||
Consolidated adjusted EBITDA is calculated under the Junior Term
Loan Facility in a similar manner as under the Senior Secured
Facilities. See “— Revolving Credit Facility and
Term Loan Facility — Covenants.”
The Junior Term Loan Facility provides that the borrower and its
restricted subsidiaries may not make, or commit to make, capital
expenditures in excess of $30 million in any year. If the
actual amount of capital expenditures made in any fiscal year is
less than the amount permitted to be made in such fiscal year,
the amount of such difference may be carried forward and used to
make capital expenditures in the succeeding fiscal year, though
the carried forward amount may not be used beyond the
immediately succeeding fiscal year.
If the borrower fails to comply with the consolidated total debt
to consolidated adjusted EBITDA ratio, then the Goldman Sachs
Funds and other investors in the borrower have a cure right that
is similar to the cure right provided with respect to the Term
Loan Facility. See “— Revolving Credit Facility
and Term Loan Facility — Covenants”.
The Junior Term Loan Facility also contains customary events of
default that are similar to the events of default under the
Senior Secured Credit Facilities, including an event of default
upon a change of control. See “— Revolving Credit
Facility and Term Loan Facility — Events of
Default”.
Purchases of Outstanding Loans. Subject
to certain terms and conditions, the Goldman Sachs Funds and
their affiliates may from time to time seek to purchase term
loans under the Junior Term Loan Facility from the lenders under
the facility pursuant to open market purchases in an aggregate
amount not to exceed 30% of the aggregate principal amount of
the loans outstanding under the Junior Term Loan Facility. The
Goldman Sachs Funds and their affiliates may contribute such
purchased loans to PVF Holdings LLC as an equity contribution in
return for equity interests in PVF Holdings LLC and PVF Holdings
LLC will then contribute such loans to the borrower under the
Junior Term Loan Facility as an equity contribution in return
for additional stock of the borrower. In the case of such
purchases of term loans by the Goldman Sachs Funds and their
affiliates followed by
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contributions of the purchased loans to PVF Holdings LLC and
then to the borrower, the loans subject to such purchases and
contributions shall be cancelled.
In addition, the borrower under the Junior Term Loan Facility
may from time to time seek to purchase, subject to certain terms
and conditions, term loans under the Junior Term Loan Facility
from the lenders under the facility pursuant to open market
purchases. In the case of such purchases by the borrower, the
loans subject to such purchases shall be cancelled.
Midfield CDN$150
Million (US$148.26 Million) Revolving Credit
Facility
One of our subsidiaries, Midfield Supply ULC, is the borrower
under a CDN$150 million (US$148.26 million) revolving
credit facility (the “Midfield Revolving Credit
Facility”) with Bank of America, N.A. and certain other
lenders from time to time parties thereto. Proceeds from this
facility may be used by Midfield for working capital and other
general corporate purposes. As of June 26, 2008,
US$51.7 million of borrowings were outstanding and
$51.6 million were available under the Midfield Revolving
Credit Facility. The facility provides for the extension of up
to CDN$150 million (US$148.26 million) in revolving
loans, subject to adjustments based on the borrowing base and
less the aggregate letters of credit outstanding under the
facility. Letters of credit may be issued under the facility
subject to certain conditions, including a CDN$10 million
or US$9.88 million sub-limit. The revolving loans have a
maturity date of November 2, 2010. All letters of credit
issued under the facility must expire at least 20 business days
prior to November 2, 2010.
Interest Rate and Fees. The revolving
loans bear interest at a rate equal to either (i) the
Canadian prime rate, plus (a) 0.25% if the “average
daily availability” (as defined in the loan and security
agreement for the facility) for the previous fiscal quarter was
less than CDN$30 million (US$29.65 million) or
(b) 0.00% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million, (US$29.65 million) or, at the
borrower’s option, (ii) the rate of interest per annum
equal to the rates applicable to Canadian Dollar Bankers’
Acceptances having a comparable term as the proposed loan
displayed on the “CDOR Page” of Reuter Monitor Money
Rates Service, plus (a) 1.75% if the average daily
availability for the previous fiscal quarter was less than
CDN$30 million (US$29.65 million), (b) 1.50% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CDN$30 million
(US$29.65 million) but less than CDN$60 million
(US$59.3 million), or (c) 1.25% if the if the average
daily availability for the previous fiscal quarter was greater
than or equal to CDN$60 million (US$59.3 million).
The borrower must pay a monthly unused line fee with respect to
unutilized revolving loan commitments equal to (i) 0.25% if
the outstanding amount of borrowings under the facility for the
immediately preceding fiscal quarter are greater than 50% of the
revolving loan commitments, or (ii) 0.375% if otherwise.
The borrower must pay a monthly fronting fee equal to 0.125% per
annum of the stated amount of letters of credit issued and must
also pay a monthly fee to the agent on the average daily stated
amount of letters of credit issued equal to (i) 1.75% if
the average daily availability for the previous fiscal quarter
was less than CDN$30 million (US$29.65 million),
(ii) 1.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CDN$30 million (US$29.65 million) but less than
CDN$60 million (US$59.3 million), or (iii) 1.25%
if the average daily availability for the previous fiscal
quarter was greater than or equal to CDN$60 million
(US$59.3 million).
Prepayments. The borrower may prepay
the revolving loans from time to time without premium or penalty.
Collateral and Guarantors. The Midfield
Revolving Credit Facility is secured by substantially all of the
personal property of Midfield Supply ULC and its subsidiary
guarantors, Mega Production Testing Inc. and Hagan Oilfield
Supply Ltd.
Certain Covenants and Events of
Default. The Midfield Revolving Credit
Facility contains customary covenants. These agreements, among
other things, restrict, subject to certain exceptions,
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Table of Contents
the ability of the borrower and its subsidiaries to incur
additional indebtedness, create liens on assets, make
distributions, make investments, sell, lease or transfer assets,
make loans or advances, pay certain debt, amalgamate, merge,
combine or consolidate with another entity, enter into certain
types of restrictive agreements, engage in any business other
than the business conducted by the borrower and its subsidiaries
on the closing date of the Midfield Revolving Credit Facility,
enter into transactions with affiliates, become a party to
certain employee benefit plans, enter into certain amendments
with respect to subordinated debt, make acquisitions, enter into
transactions which would reasonably be expected to have a
material adverse effect or cause a default, enter into sale and
leaseback transactions, and terminate certain agreements.
Additionally, the Midfield Revolving Credit Facility requires
the borrower to maintain a leverage ratio of no greater than
3.50 to 1.00 (measured on a monthly basis) and to maintain a
fixed charge coverage ratio of at least 1.15 to 1.00 (measured
on a monthly basis). The facility also prohibits the borrower
and its subsidiaries from making capital expenditures in excess
of $5 million in the aggregate during any fiscal year,
subject to exceptions for certain expenditures and provided that
if the actual amount of capital expenditures made in any fiscal
year is less than the amount permitted to be made in such fiscal
year, up to $250,000 of such excess may be carried forward and
used to make capital expenditures in the succeeding fiscal year.
The Midfield Revolving Credit Facility contains customary events
of default. The events of default include, among others, the
failure to pay interest, principal and other obligations under
the facility’s loan documents when due, a breach of any
representation or warranty contained in the loan documents,
breaches of certain covenants, the failure of any loan document
to remain in full force and effect, a default with respect to
other indebtedness in excess of $250,000 if the other
indebtedness may be accelerated due to such default, judgments
against the borrower and its subsidiaries in excess of $250,000
in the aggregate, the occurrence of any loss or damage with
respect to the collateral if the amount not covered by insurance
exceeds $100,000, cessation or governmental restraint of a
material part of the borrower’s or a subsidiary’s
business, insolvency, certain events related to benefits plans,
the criminal indictment of a senior officer of the borrower or a
guarantor or the conviction of a senior officer of the borrower
or a guarantor of certain crimes, an amendment to the
shareholders agreement among Midfield Supply ULC, the entity now
known as McJunkin Red Man Canada Ltd. and Midfield Holdings
(Alberta) Ltd. without the prior written consent of Bank of
America, N.A., and any event or condition that has a material
adverse effect on the borrower or a guarantor.
A “change of control” is also an event of default. A
“change of control” occurs if (i) McJunkin Red
Man Canada Ltd. ceases to own and control, directly or
indirectly, 51% or more of the voting equity interests of
Midfield Supply ULC, (ii) a change in the majority of
directors of Midfield Supply ULC occurs, unless approved by the
then-majority of directors, or (iii) all or substantially
all of Midfield Supply ULC’s assets are sold or transferred.
Midfield CDN$15
Million (US$14.83 Million) Facility
One of our subsidiaries, Midfield Supply ULC, is also the
borrower under a CDN$15 million (US$14.83 million)
credit facility with Alberta Treasury Branches. The facility is
secured by substantially all of the real property and equipment
of Midfield Supply ULC and its subsidiary guarantors. The
facility contains customary covenants and events of default. The
borrower’s leverage ratio must not exceed 3.50 to 1, its
fixed charge coverage ratio must be at least 1.15 to 1, and its
ratio of tangible asset value to borrowings outstanding must be
at least 2.00 to 1.
The Midfield CDN$15 million (US$14.83 million)
facility and the Midfield CDN$150 million
(US$148.26 million) facility are subject to an
intercreditor agreement which relates to, among other things,
priority of liens and proceeds of sale of collateral.
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Table of Contents
DESCRIPTION OF
OUR CAPITAL STOCK
Immediately following the completion of this offering, our
authorized capital stock will consist
of shares
of common stock, par value $0.01 per share,
and shares
of preferred stock, par value $0.01 per share, the rights and
preferences of which may be established from time to time by our
board of directors. Upon the completion of this offering, there
will
be
outstanding shares of common stock and no outstanding shares of
preferred stock. The following description of our capital stock
does not purport to be complete and is subject to and qualified
by our amended and restated certificate of incorporation and
bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.
Common
Stock
Holders of our common stock are entitled to one vote for each
share on all matters voted upon by our stockholders, including
the election of directors, and do not have cumulative voting
rights. Subject to the rights of holders of any then outstanding
shares of our preferred stock, our common stockholders are
entitled to any dividends that may be declared by our board of
directors. Holders of our common stock are entitled to share
ratably in our net assets upon our dissolution or liquidation
after payment or provision for all liabilities and any
preferential liquidation rights of our preferred stock then
outstanding. Holders of our common stock have no preemptive
rights to purchase shares of our stock. The shares of our common
stock are not subject to any redemption provisions and are not
convertible into any other shares of our capital stock. All
outstanding shares of our common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders
of our common stock will be subject to those of the holders of
any shares of our preferred stock we may issue in the future.
Our common stock will be represented by certificates, unless our
board of directors adopts a resolution providing that some or
all of our common stock shall be uncertificated. Any such
resolution will not apply to any shares of common stock that are
already certificated until such shares are surrendered to us.
Preferred
Stock
Our board of directors may, from time to time, authorize the
issuance of one or more series of preferred stock without
stockholder approval. We have no current intention to issue any
shares of preferred stock.
One of the effects of undesignated preferred stock may be to
enable our board of directors to discourage an attempt to obtain
control of our company by means of a tender offer, proxy
contest, merger or otherwise. The issuance of preferred stock
may adversely affect the rights of our common stockholders by,
among other things:
| • | restricting dividends on the common stock; | |
| • | diluting the voting power of the common stock; | |
| • | impairing the liquidation rights of the common stock; or | |
| • | delaying or preventing a change in control without further action by the stockholders. |
Limitation on
Liability and Indemnification of Officers and
Directors
Our amended and restated certificate of incorporation limits the
liability of directors to the fullest extent permitted by
Delaware law. The effect of these provisions is to eliminate the
rights of our company and our stockholders, through
stockholders’ derivative suits on behalf of our company, to
recover monetary damages against a director for breach of
fiduciary duty as a director, including breaches resulting from
grossly negligent behavior. However, our directors will be
personally liable to us and our stockholders for any breach of
the director’s duty of loyalty, for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, under Section 174 of
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the Delaware General Corporation Law or for any transaction from
which the director derived an improper personal benefit. In
addition, our amended and restated certificate of incorporation
and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We may
enter into indemnification agreements with our current directors
and executive officers prior to the completion of this offering.
We also maintain directors and officers insurance.
Corporate
Opportunities
Our amended and restated certificate of incorporation provides
that Goldman, Sachs & Co. and its affiliates (which
include the Goldman Sachs Funds) have no obligation to offer us
any opportunity to participate in business opportunities
presented to Goldman, Sachs & Co. or its affiliates
even if the opportunity is one that we might reasonably have
pursued, and that neither Goldman, Sachs & Co. nor its
affiliates will be liable to us or our stockholders for breach
of any duty by reason of any such activities unless, in the case
of any person who is a director or officer of our company, such
business opportunity is expressly offered to such director or
officer in writing solely in his or her capacity as an officer
or director of our company. Stockholders will be deemed to have
notice of and consented to this provision of our amended and
restated certificate of incorporation.
Delaware
Anti-Takeover Law
Our amended and restated certificate of incorporation provides
that we are not subject to Section 203 of the Delaware
General Corporation Law, which regulates corporate acquisitions.
This law provides that specified persons who, together with
affiliates and associates, own, or within three years did own,
15% or more of the outstanding voting stock of a corporation may
not engage in business combinations with the corporation for a
period of three years after the date on which the person became
an interested stockholder. The law defines the term
“business combination” to include mergers, asset sales
and other transactions in which the interested stockholder
receives or could receive a financial benefit on other than a
pro rata basis with other stockholders.
Removal of
Directors; Vacancies
Our amended and restated certificate of incorporation and bylaws
provide that any director or the entire board of directors may
be removed with or without cause by the affirmative vote of the
majority of all shares then entitled to vote at an election of
directors. Our amended and restated certificate of incorporation
and bylaws also provide that any vacancies on our board of
directors will be filled by the affirmative vote of a majority
of the board of directors then in office, even if less than a
quorum, or by a sole remaining director.
Voting
The affirmative vote of a plurality of the shares of our common
stock present, in person or by proxy will decide the election of
any directors, and the affirmative vote of a majority of the
shares of our common stock present, in person or by proxy will
decide all other matters voted on by stockholders, unless the
question is one upon which, by express provision of law, under
our amended and restated certificate of incorporation, or under
our bylaws, a different vote is required, in which case such
provision will control.
Action by Written
Consent
Our amended and restated certificate of incorporation and bylaws
provide that stockholder action can be taken by written consent
of the stockholders only if Goldman, Sachs & Co. and
its affiliates beneficially own more than 25.0% of the
outstanding shares of our common stock.
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Ability to Call
Special Meetings
Our amended and restated certificate of incorporation and bylaws
provide that special meetings of our stockholders can only be
called pursuant to a resolution adopted by a majority of our
board of directors or by the chairman of our board of directors.
Special meetings may also be called by the holders of not less
than 25% of the outstanding shares of our common stock if
Goldman, Sachs & Co. and its affiliates beneficially own
25% or more of the outstanding shares of our common stock. If
Goldman, Sachs & Co. and its affiliates beneficially own
less than 25% of the outstanding shares of our common stock,
stockholders will not be permitted to call a special meeting or
to require our board to call a special meeting.
Amending Our
Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation provides
that our certificate of incorporation may be amended by the
affirmative vote of a majority of the board of directors and by
the affirmative vote of the majority of all shares of our common
stock then entitled to vote at any annual or special meeting of
stockholders. In addition, our amended and restated certificate
of incorporation and bylaws provide that our bylaws may be
amended, repealed or new bylaws may be adopted by the
affirmative vote of a majority of the board of directors or when
a quorum is present at any meeting, by the vote of the holders
of a majority of the voting power of our common stock entitled
to vote thereon, present and voting, in person or represented by
proxy.
Advance Notice
Provisions for Stockholders
In order to nominate directors to our board of directors or
bring other business before an annual meeting of our
stockholders, a stockholder’s notice must be received by
the Secretary of the Company at the principal executive offices
of the Company not earlier than 120 calendar days and not
later than 90 calendar days before the first anniversary of
the previous year’s annual meeting of stockholders, subject
to certain exceptions contained in our bylaws. If the date of
the applicable annual meeting is more than 30 days before
or more than 30 days after such anniversary date, notice by
a stockholder to be timely must be so delivered not earlier than
120 calendar days before the date of such annual meeting
and not later than 90 calendar days before the date of such
annual meeting or, if the first public announcement of the date
of such annual meeting is less than 100 days prior to the
date of such annual meeting, the tenth day following the date on
which public announcement of the date of such meeting is first
made by the Company. The adjournment or postponement of an
annual meeting or the announcement shall not commence a new time
period for the giving of a stockholder’s notice as
described above.
Listing
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol “MRC”.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock
is .
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SHARES ELIGIBLE
FOR FUTURE SALE
Upon the completion of this offering, we will have
outstanding shares
of common stock.
The shares
sold in this offering plus any additional shares sold by the
selling stockholder upon exercise of the underwriters’
option will be freely tradable without restriction under the
Securities Act, unless purchased by our “affiliates”
as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include executive officers,
directors and our largest stockholders. Shares of common stock
purchased by affiliates will be subject to the resale
limitations of Rule 144.
The
remaining shares
outstanding following this offering are restricted securities
within the meaning of Rule 144. Restricted securities may
be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144
promulgated under the Securities Act, which is summarized below.
Our executive officers and directors and our principal
stockholder, PVF Holdings LLC, will enter into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, sell, contract to sell, or grant any
option to purchase or otherwise dispose of our common stock or
any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date
of this prospectus without the prior written consent of Goldman,
Sachs & Co.
Despite possible earlier eligibility for sale under the
provisions of Rule 144 under the Securities Act, any shares
subject to the
lock-up
agreement will not be salable until the
lock-up
agreement expires or is waived by Goldman, Sachs & Co.
Taking into account the
lock-up
agreement, and assuming that PVF Holdings LLC is not released
from its
lock-up
agreement, the shares held by
our affiliates will be eligible for future sale in accordance
with the requirements of Rule 144 upon the expiration of
the lock-up
agreement.
In general, under Rule 144 as currently in effect, after
the expiration of
lock-up
agreements, a person who has beneficially owned restricted
securities for at least six months would be entitled to sell
within any three-month period a number of shares that does not
exceed the greater of the following:
| • | one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or | |
| • | the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. |
Sales under Rule 144 by affiliates are also subject to
manner-of-sale requirements, notice requirements and the
availability of current public information about us.
PVF Holdings LLC, which will
hold shares
of our common stock upon the completion of this offering if the
underwriters’ option to purchase additional shares from PVF
Holdings LLC is not exercised
( shares
of our common stock upon completion of this offering if the
underwriters’ option is exercised in full), will enter into
a new registration rights agreement with us prior to the
consummation of this offering. Pursuant to this registration
rights agreement, PVF Holdings LLC can request that we use our
reasonable best efforts to register its shares with the SEC,
including in connection with this offering, on up to six
occasions, including pursuant to shelf registration statements.
In addition, under the registration rights agreement PVF
Holdings LLC will have the ability to exercise certain piggyback
registration rights with respect to its own securities if we
elect to register any of our equity securities. Immediately
after this offering, all of our shares held by PVF Holdings LLC
will be entitled to these registration rights.
The registration rights agreement will also provide that if PVF
Holdings LLC is dissolved, an amended and restated registration
rights agreement will become automatically effective and the
existing agreement will terminate. Pursuant to the terms of such
amended and restated registration rights agreement, the existing
members of PVF Holdings LLC would thereunder be entitled to
certain registration rights with respect to our shares which are
distributed to them in connection with any such dissolution of
PVF Holdings LLC.
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CERTAIN U.S.
FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS
The following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock by a
non-U.S. holder.
This discussion is for general information only and is not tax
advice. For purposes of this discussion, the term
“non-U.S. holder”
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
| • | an individual who is a citizen or resident of the United States or a former citizen or resident of the United States subject to taxation as an expatriate; | |
| • | a corporation (or other entity classified as a corporation for these purposes) created or organized in, or under the laws of, the United States or any political subdivision of the United States; | |
| • | a partnership (including any entity or arrangement classified as a partnership for these purposes); | |
| • | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
| • | a trust, if (1) a United States court is able to exercise primary supervision over the trust’s administration and one or more “United States persons” (within the meaning of the U.S. Internal Revenue Code of 1986, as amended, or the Code) has the authority to control all of the trust’s substantial decisions, or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. |
An individual may be treated as a resident of the United States
in any calendar year for U.S. federal income tax purposes,
instead of as a nonresident, by, among other ways, being present
in the United States on at least 31 days in that calendar
year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year. For
purposes of this calculation, an individual would count all of
the days present in the current year, one-third of the days
present in the immediately preceding year and one-sixth of the
days present in the second preceding year. Residents are taxed
for U.S. federal income purposes as if they were
U.S. citizens.
If a partnership (or other entity taxable as a partnership for
U.S. federal income tax purposes) owns our common stock,
the tax treatment of a partner of the partnership may depend
upon the status of the partner and the activities of the
partnership and upon certain determinations made at the partner
level. Partners in partnerships that own our common stock should
consult their own tax advisors as to the particular
U.S. federal income and estate tax consequences applicable
to them.
This discussion does not address all of the aspects of
U.S. federal income and estate taxation that may be
relevant to a
non-U.S. holder
in light of the
non-U.S. holder’s
particular investment or other circumstances. In particular,
this discussion only addresses a
non-U.S. holder
that holds our common stock as a capital asset (generally,
investment property) and does not address:
| • | special U.S. federal income tax rules that may apply to particular non-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, and dealers and traders in stocks, securities or currencies; | |
| • | non-U.S. holders holding our common stock as part of a conversion, constructive sale, wash sale or other integrated transaction or a hedge, straddle or synthetic security; | |
| • | any U.S. state and local or non-U.S. or other tax consequences; or | |
| • | the U.S. federal income or estate tax consequences for the beneficial owners of a non-U.S. holder. |
This discussion is based on provisions of the Code, applicable
U.S. Treasury regulations and administrative and judicial
interpretations, all as in effect or in existence on the date of
this prospectus.
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Subsequent developments in U.S. federal income or estate
tax law, including changes in law or differing interpretations,
which may be applied retroactively, could have a material effect
on the U.S. federal income and estate tax consequences of
owning and disposing of our common stock as set forth in this
discussion.
If you are considering purchasing our common stock, you
should consult your tax advisor regarding the U.S. federal,
state, local and
non-U.S. income,
estate and other tax consequences to you of owning and disposing
of our common stock.
Dividends
We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. See “Dividend
Policy”. In the event, however, that we pay dividends on
our common stock that are not effectively connected with a
non-U.S. holder’s
conduct of a trade or business in the United States, a
U.S. federal withholding tax at a rate of 30%, or a lower
rate under an applicable income tax treaty, will be withheld
from the gross amount of the dividends paid to such
non-U.S. holder.
In order to claim the benefit of an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly completed and executed
U.S. Internal Revenue Service
Form W-8BEN
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. Special rules apply
to partnerships and other pass-through entities and these
certification and disclosure requirements also may apply to
beneficial owners of partnerships and other pass-through
entities that hold our common stock. A
non-U.S. holder
that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by filing an
appropriate claim for a refund with the U.S. Internal
Revenue Service.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under a relevant income tax treaty and
the manner of claiming the benefits.
Dividends that are effectively connected with a
non-U.S. holder’s
conduct of a trade or business in the United States and, if
required by an applicable income tax treaty, are attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States, generally will be taxed on a net income
basis at the regular graduated rates and in the manner
applicable to United States persons. In that case, the
U.S. federal withholding tax discussed above will not apply
if the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8ECI
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. In addition, a
“branch profits tax” may be imposed at a 30% rate, or
a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected
with the conduct of a trade or business in the United States.
Gain on
disposition of our common stock
A non-U.S.
holder generally will not be taxed on any gain realized on a
disposition of our common stock unless:
| • | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; in these cases, the gain generally will be taxed on a net income basis at the regular graduated rates and in the manner applicable to United States persons (unless an applicable income tax treaty provides otherwise) and, if the non-U.S. holder is a foreign corporation, the “branch profits tax” described above may also apply; | |
| • | the non-U.S. holder is an individual who holds our common stock as a capital asset, is present in the United States for at least 183 days in the taxable year of the disposition and meets other requirements (in which case, except as otherwise provided by an applicable income tax treaty, the gain, which may be offset by U.S. source capital losses, generally will be subject to a flat |
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| 30% U.S. federal income tax, even though the non-U.S. holder is not considered a resident alien under the Code); or |
| • | we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held our common stock. |
Generally, a corporation is a “U.S. real property
holding corporation” if the fair market value of its
“U.S. real property interests” equals or exceeds
50% of the sum of the fair market value of its worldwide real
property interests plus its other assets used or held for use in
a trade or business. The tax relating to stock in a
U.S. real property holding corporation generally will not
apply to a
non-U.S. holder
whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock,
provided that our common stock was regularly traded on an
established securities market. We believe that we are not
currently, and we do not anticipate becoming in the future, a
U.S. real property holding corporation.
Federal estate
tax
Our common stock that is owned or treated as owned by an
individual who is not a U.S. citizen or resident of the
United States (as specially defined for U.S. federal estate
tax purposes) at the time of death will be included in the
individual’s gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax or other treaty
provides otherwise and, therefore, may be subject to
U.S. federal estate tax.
Information
reporting and backup withholding tax
Dividends paid to a
non-U.S. holder
may be subject to U.S. information reporting and backup
withholding. A
non-U.S. holder
will be exempt from backup withholding if the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8BEN
or otherwise meets documentary evidence requirements for
establishing its status as a
non-U.S. holder
or otherwise establishes an exemption.
The gross proceeds from the disposition of our common stock may
be subject to U.S. information reporting and backup
withholding. If a
non-U.S. holder
sells our common stock outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to the
non-U.S. holder
outside the United States, then the U.S. backup withholding
and information reporting requirements generally will not apply
to that payment. However, U.S. information reporting, but
not U.S. backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United
States, if a
non-U.S. holder
sells our common stock through a
non-U.S. office
of a broker that:
| • | is a United States person; | |
| • | derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; | |
| • | is a “controlled foreign corporation” for U.S. federal income tax purposes; or | |
| • | is a foreign partnership, if at any time during its tax year: |
| • | one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or | |
| • | the foreign partnership is engaged in a United States trade or business, |
unless the broker has documentary evidence in its files that the
non-U.S. holder
is not a United States person and certain other conditions are
met or the
non-U.S. holder
otherwise establishes an exemption.
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If a
non-U.S. holder
receives payments of the proceeds of a sale of our common stock
from or through a U.S. office of a broker, the payment is
subject to both U.S. backup withholding and information
reporting unless the
non-U.S. holder
provides a properly completed and executed U.S. Internal
Revenue Service
Form W-8BEN
certifying that the
non-U.S. Holder
is not a “United States person” or the
non-U.S. holder
otherwise establishes an exemption.
Backup withholding is not an additional tax. A
non-U.S. holder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed the
non-U.S. holder’s
U.S. federal income tax liability, if any, by filing a
refund claim with the U.S. Internal Revenue Service.
THE U.S. FEDERAL INCOME AND ESTATE TAX DISCUSSION SET
FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY.
YOU SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE
U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. TAX
CONSEQUENCES TO YOU OF OWNING AND DISPOSING OF OUR COMMON
STOCK.
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UNDERWRITING
The Company, the selling stockholder and the underwriters will
enter into an underwriting agreement with respect to the shares
being offered. Subject to certain conditions, each underwriter
has severally agreed to purchase the number of shares indicated
in the following table. Goldman, Sachs & Co. and
Lehman Brothers Inc. are the representatives of the underwriters
and the joint
book-running
managers for this offering.
|
Underwriters
|
Number of Shares
|
|||
|
Goldman, Sachs & Co.
|
||||
|
Lehman Brothers Inc.
|
||||
|
J.P. Morgan Securities Inc.
|
||||
|
Deutsche Bank Securities Inc.
|
||||
|
Robert W. Baird & Co. Incorporated
|
||||
|
Credit Suisse Securities (USA) LLC
|
||||
|
Stephens Inc.
|
||||
|
Total
|
||||
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised. We expect that the underwriting agreement
will provide that the obligations of the underwriters to take
and pay for the shares are subject to a number of conditions,
including, among others, the accuracy of the Company’s and
the selling stockholder’s representations and warranties in
the underwriting agreement, listing of the shares, receipt of
specified letters from counsel and the Company’s
independent registered public accounting firm, and receipt of
specified officers’ certificates.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional shares
from the selling stockholder. They may exercise that option for
30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table
above.
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters by the
selling stockholder. These amounts are shown assuming both no
exercise and full exercise of the underwriters’ option to
purchase
additional shares of common stock.
|
No Exercise
|
Full Exercise
|
|||||||
|
Per Share
|
$ | $ | ||||||
|
Total
|
$ | $ | ||||||
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover page of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount of
up to $ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters’ right to reject
any order in whole or in part.
The Company, its executive officers and directors and the
selling stockholder have agreed with the underwriters, subject
to certain exceptions, not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent
of the representatives. This agreement does not apply to any
existing employee benefit plans. See “Shares Eligible for
Future Sale” for a description of certain transfer
restrictions.
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The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period the Company issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
180-day
restricted period, the Company announces that it will release
earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Prior to this offering, there has been no public market for the
common stock. The initial public offering price will be
negotiated among the Company, the selling stockholder and the
representatives. The factors to be considered in determining the
initial public offering price of the shares include:
| • | the history and prospects for our industry; | |
| • | our historical performance, including our net sales, net income, margins and certain other financial information; | |
| • | estimates of our business potential and earnings prospects; | |
| • | an assessment of our management; | |
| • | investor demand for our shares of common stock; | |
| • | market valuations of companies that we and the representatives believe to be comparable; and | |
| • | prevailing securities markets at the time of this offering. |
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol “MRC”. In order to
meet the requirements for listing the common stock on the New
York Stock Exchange, the underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
In connection with this offering, the underwriters may purchase
and sell shares of the common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in this offering.
“Covered” short sales are sales made in an amount not
greater than the underwriters’ option to purchase
additional shares from the selling stockholder in this offering.
The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. “Naked” short sales are
any sales in excess of that option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares of common stock in the open
market after pricing that could adversely affect investors who
purchase in this offering. Stabilizing transactions consist of
various bids for or purchases of shares of common stock made by
the underwriters in the open market prior to the completion of
this offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of the shares of common stock and, together with
the imposition of the penalty bid, may stabilize, maintain or
otherwise affect the market price of the shares of common stock.
As a result, the price of the shares of common stock may be
higher than the
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price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued at any time.
These transactions may be effected on the New York Stock
Exchange, in the over-the-counter market or otherwise.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the sale of the shares in circumstances in
which Section 21(1) of the FSMA does not apply to the
Company; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
€43 million and (3) an annual net turnover of
more than €50 million, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by the Company of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
“offer of shares to the public” in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to
“professional investors” within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
“prospectus” within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to
171
Table of Contents
do so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to “professional
investors” within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (1) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore, or the SFA, (2) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (3) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries’ rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the “Securities
and Exchange Law”) and each underwriter has agreed that it
will not offer or sell any securities, directly or indirectly,
in Japan or to, or for the benefit of, any resident of Japan
(which term as used herein means any person resident in Japan,
including any corporation or other entity organized under the
laws of Japan), or to others for re-offering or resale, directly
or indirectly, in Japan or to a resident of Japan, except
pursuant to an exemption from the registration requirements of,
and otherwise in compliance with, the Securities and Exchange
Law and any other applicable laws, regulations and ministerial
guidelines of Japan.
The shares may not be offered, sold and delivered directly or
indirectly, or offered or sold to any person for reoffering or
resale, directly or indirectly, in Korea or to any resident of
Korea except pursuant to the applicable laws and regulations of
Korea, including the Korea Securities and Exchange Act and the
Foreign Exchange Transaction Law and the decrees and regulations
thereunder. The shares have not been registered with the
Financial Services Commission of Korea for public offering in
Korea. Furthermore, the shares may not be resold to Korean
residents unless the purchaser of the shares complies with all
applicable regulatory requirements (including but not limited to
government approval requirements under the Foreign Exchange
Transaction Law and its subordinate decrees and regulations) in
connection with the purchase of the shares.
This prospectus has not been and will not be registered as a
prospectus with the Registrar of Companies in India or with the
Securities and Exchange Board of India. This prospectus or any
other material relating to these securities is for information
purposes only and may not be circulated or distributed, directly
or indirectly, to the public or any members of the public in
India and in any event to not more than 50 persons in
India. Further, persons into whose possession this prospectus
comes are required to inform themselves about and to observe any
such restrictions. Each prospective investor is advised to
consult its advisors about the particular consequences to it of
an investment in these securities. Each prospective investor is
also advised that any investment in these securities by it is
172
Table of Contents
subject to the regulations prescribed by the Reserve Bank of
India and the Foreign Exchange Management Act and any
regulations framed thereunder.
No prospectus or other disclosure document (as defined in the
Corporations Act 2001 (Cth) of Australia (“Corporations
Act”)) in relation to the shares has been or will be lodged
with the Australian Securities & Investments
Commission (“ASIC”). This document has not been lodged
with ASIC and is only directed to certain categories of exempt
persons. Accordingly, if you receive this document in Australia:
(a) you confirm and warrant that you are either:
(i) a “sophisticated investor” under
section 708(8)(a) or (b) of the Corporations Act;
(ii) a “sophisticated investor” under
section 708(8)(c) or (d) of the Corporations Act and
that you have provided an accountant’s certificate to us
which complies with the requirements of section 708(8)(c)(i) or
(ii) of the Corporations Act and related regulations before
the offer has been made;
(ii) a person associated with the company under
section 708(12) of the Corporations Act; or
(iv) a “professional investor” within the meaning
of section 708(11)(a) or (b) of the Corporations Act,
and to the extent that you are unable to confirm or warrant that
you are an exempt sophisticated investor, associated person or
professional investor under the Corporations Act any offer made
to you under this document is void and incapable of acceptance;
and
(b) you warrant and agree that you will not offer any of
the shares for resale in Australia within 12 months of
those shares being issued unless any such resale offer is exempt
from the requirement to issue a disclosure document under
section 708 of the Corporations Act.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts without the prior
specific written approval of the customer.
The Company and the selling stockholder estimate that their
share of the total expenses of this offering will be
approximately $5.4 million.
The Company and the selling stockholder have agreed to indemnify
the several underwriters against specified liabilities,
including liabilities under the Securities Act.
Affiliates of Goldman, Sachs & Co. own more than 10%
of the Company’s outstanding common stock. As a result,
Goldman, Sachs & Co. is deemed to be an affiliate of
the Company under Rule 2720(b)(1) of the NASD Conduct Rules
and is deemed to have a conflict of interest under
Rule 2720 of such Rules. PVF Holdings LLC, the selling
stockholder in this offering, will receive the net proceeds of
this offering. Affiliates of Goldman, Sachs & Co. own
a majority interest in PVF Holdings LLC, which owns a majority
of our outstanding common stock. Accordingly, such affiliates
will receive approximately % of the
proceeds from this offering. This offering will be made in
compliance with the applicable provisions of Rule 2720 of
the NASD Conduct Rules as required by such Rules. Rule 2720
requires that the initial public offering price be no higher
than that recommended by a “qualified independent
underwriter”, as defined by the Financial Industry
Regulatory Authority (“FINRA”). Lehman Brothers Inc.
is serving as a qualified independent underwriter and will
assume the customary responsibilities of acting as a qualified
independent underwriter in pricing the offering and conducting
due diligence. We have agreed to indemnify Lehman Brothers Inc.
against any liabilities arising in connection with its role as a
qualified independent underwriter, including liabilities under
the Securities Act.
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Table of Contents
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory, investment banking,
commercial banking and other services for the company, for which
they received or will receive customary fees and expenses.
Furthermore, certain of the underwriters and their respective
affiliates may, from time to time, enter into arms-length
transactions with us in the ordinary course of their business.
Goldman Sachs Credit Partners L.P. is a co-lead arranger and
joint bookrunner under our Revolving Credit Facility, Term Loan
Facility and Junior Term Loan Facility. Goldman Sachs Credit
Partners L.P. is also the syndication agent under the Term Loan
Facility and the Junior Term Loan Facility. For a description of
other transactions between us and Goldman Sachs & Co.
and its affiliates, including payments of dividends and payments
under our credit facilities by us to such affiliates, see
“Certain Relationships and Related Party Transactions”.
Lehman Brothers Inc. is a co-lead arranger and joint bookrunner
under our Revolving Credit Facility, Term Loan Facility, and
Junior Term Loan Facility. Lehman Brothers Inc. is also the
syndication agent under the Term Loan Facility. Lehman
Commercial Paper Inc., an affiliate of Lehman Brothers Inc., is
an administrative agent and collateral agent under the Term Loan
Facility and the Junior Term Loan Facility.
JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan
Securities Inc., is a lender under the Revolving Credit Facility
and is also a co-documentation agent and reference lender under
that facility. JPMorgan Chase Bank, N.A. is also a reference
lender under the Term Loan Facility and the Junior Term Loan
Facility, and is a lender under the Midfield Revolving Credit
Facility.
A prospectus in electronic format may be made available on
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriter’s or selling group member’s web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
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Table of Contents
LEGAL
MATTERS
The validity of the shares of common stock offered by this
prospectus will be passed upon for our company by Fried, Frank,
Harris, Shriver & Jacobson LLP, New York, New York.
Davis Polk & Wardwell, New York, New York is acting as
counsel to the underwriters.
EXPERTS
The consolidated financial statements of McJunkin Red Man
Holding Corporation and subsidiaries as of December 31,
2007, and for the period from inception (January 31, 2007)
to December 31, 2007, and those of McJunkin Corporation and
subsidiaries predecessor to McJunkin Red Man Holding Corporation
for the period from January 1, 2007 to January 30,
2007, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
Schneider Downs & Co., Inc., independent registered
public accounting firm, has audited the financial statements of
McJunkin Corporation at December 31, 2005 and
December 31, 2006 and for the years ended December 31,
2005 and December 31, 2006, as set forth in their report.
We have included these financial statements in the prospectus
and elsewhere in the registration statement in reliance on the
report of Schneider Downs & Co., Inc., given on their
authority as experts in accounting and auditing.
The consolidated financial statements of Red Man Pipe and Supply
Company at October 31, 2007 and October 31, 2006 and
for each of the three years in the period ended October 31,
2007, included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The auditor of our predecessor, McJunkin Corporation, was
Schneider Downs & Co., Inc. through December 31,
2006. At the direction of our board of directors, Schneider
Downs & Co., Inc. was dismissed and on June 1, 2007
the company engaged Ernst & Young LLP as its independent
registered public accounting firm for the fiscal year ended
December 31, 2007. The reports of Schneider
Downs & Co., Inc. on our predecessor’s financial
statements for the past two fiscal years ended December 31,
2006 and 2005 did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the
audits of our predecessor’s financial statements for each
of the two fiscal years ended December 31, 2006 and in the
subsequent interim period through the date of appointment of
Ernst & Young, LLP, there were no disagreements with
Schneider Downs & Co., Inc. on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Schneider Downs & Co.,
Inc. would have caused Schneider Downs & Co., to make
reference to the matter in their report. In addition, no event
occurred which requires disclosure under Item 304(a)(2) of
Regulation S-K. The company has requested Schneider
Downs & Co., to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements.
A copy of that letter, dated August 18, 2008, is filed as
Exhibit 16 to the registration statement of which this
prospectus forms a part.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the common stock. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules to the
registration statement. For further
175
Table of Contents
information with respect to us and our common stock, we refer
you to the registration statement and the exhibits and schedules
filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. If
a contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract
or document that has been filed as an exhibit and reference
thereto is qualified in all respects by the terms of the filed
exhibit.
The registration statement, including exhibits and schedules,
may be inspected without charge at the Public Reference Room of
the SEC at 100 F Street, N.E., Washington, D.C.
20549, and copies of all or any part of it may be obtained from
that office after payment of fees prescribed by the SEC.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the SEC at
http://www.sec.gov.
176
Table of Contents
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidated Financial Statements of McJunkin Red Man Holding
Corporation and Subsidiaries
|
||||
|
Audited Financial Statements:
|
||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
|
Unaudited Financial Statements:
|
||||
| F-33 | ||||
| F-34 | ||||
| F-35 | ||||
| F-36 | ||||
|
Consolidated Financial Statements of McJunkin Corporation and
Subsidiaries
|
||||
|
Audited Financial Statements:
|
||||
| F-55 | ||||
| F-56 | ||||
| F-57 | ||||
| F-58 | ||||
| F-59 | ||||
| F-60 | ||||
| F-68 | ||||
| F-69 | ||||
|
Consolidated Financial Statements of Red Man Pipe &
Supply Co. and Subsidiaries
|
||||
|
Audited Financial Statements:
|
||||
| F-70 | ||||
| F-71 | ||||
| F-72 | ||||
| F-73 | ||||
| F-74 | ||||
| F-75 | ||||
| F-77 |
F-1
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of McJunkin Red Man Corporation and subsidiaries
We have audited the accompanying consolidated balance sheet of
McJunkin Red Man Holding Corporation and subsidiaries (the
Company) as of December 31, 2007, and the related
consolidated statements of income, shareholders’ equity,
and cash flows for the period from inception (January 31,
2007) to December 31, 2007. We have also audited the
accompanying consolidated statements of income,
shareholders’ equity and cash flows of McJunkin Corporation
and subsidiaries (McJunkin) predecessor to the Company for the
period from January 1, 2007 to January 30, 2007. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. The
financial statements of McJunkin as of December 31, 2006,
and for each of the two years in the period then ended were
audited by other auditors whose report dated January 13,
2007, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of McJunkin Red Man Holding Corporation and
subsidiaries at December 31, 2007, and the consolidated
results of their operations and their cash flows for the period
from inception (January 31, 2007) to December 31,
2007, and the consolidated results of operations and cash flows
of McJunkin Corporation and Subsidiaries, predecessor to the
Company for the period from January 1, 2007 to
January 30, 2007, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst
& Young llp
Charleston, West Virginia
August 15, 2008
F-2
Table of Contents
CONSOLIDATED
BALANCE SHEETS
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands)
| (Successor) | (Predecessor) | ||||||||
|
December 31, |
December 31, |
||||||||
|
2007
|
2006
|
||||||||
|
ASSETS
|
|||||||||
|
CURRENT ASSETS
|
|||||||||
|
Cash
|
$ | 10,075 | $ | 3,748 | |||||
|
Receivables, less allowances of $6,352 and $2,015
|
481,463 | 168,877 | |||||||
|
Inventories
|
666,188 | 225,304 | |||||||
|
Other current assets
|
1,937 | 3,122 | |||||||
|
TOTAL CURRENT ASSETS
|
1,159,663 | 401,051 | |||||||
|
INVESTMENTS AND OTHER ASSETS
|
|||||||||
|
Investments
|
1,680 | 40,985 | |||||||
|
Assets held for sale
|
37,500 | — | |||||||
|
Debt issuance costs
|
23,390 | — | |||||||
|
Notes receivable and other assets
|
4,376 | 2,995 | |||||||
| 66,946 | 43,980 | ||||||||
|
FIXED ASSETS
|
|||||||||
|
Property, plant, and equipment, net
|
80,120 | 27,208 | |||||||
|
PROPERTY HELD UNDER CAPITAL LEASES
|
1,925 | 2,104 | |||||||
|
INTANGIBLE ASSETS
|
|||||||||
|
Goodwill
|
1,092,379 | 6,274 | |||||||
|
Intangible assets
|
523,998 | 382 | |||||||
| 1,616,377 | 6,656 | ||||||||
| $ | 2,925,031 | $ | 480,999 | ||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|||||||||
|
CURRENT LIABILITIES
|
|||||||||
|
Trade accounts payable
|
$ | 306,509 | $ | 130,864 | |||||
|
Accrued expenses and other liabilities
|
70,778 | 46,471 | |||||||
|
Income taxes payable
|
11,996 | 2,500 | |||||||
|
Deferred revenue
|
6,552 | 4,715 | |||||||
|
Deferred income taxes
|
80,364 | 3,998 | |||||||
|
Term loans due on demand
|
10,228 | — | |||||||
|
Current portion of long-term obligations
|
|||||||||
|
Long-term debt
|
9,553 | — | |||||||
|
Capital leases
|
189 | 167 | |||||||
|
TOTAL CURRENT LIABILITIES
|
496,169 | 188,715 | |||||||
|
LONG-TERM OBLIGATIONS
|
|||||||||
|
Long-term debt
|
848,616 | 13,035 | |||||||
|
Payable to shareholders
|
49,164 | — | |||||||
|
Deferred income taxes
|
215,487 | 15,627 | |||||||
|
Capital leases
|
3,446 | 3,635 | |||||||
|
Other liabilities
|
1,415 | 1,799 | |||||||
| 1,118,128 | 34,096 | ||||||||
|
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS
|
100,700 | 15,601 | |||||||
|
STOCKHOLDERS’ EQUITY
|
|||||||||
|
Common stock, par value $0.01 — authorized 1,000,000;
issued and outstanding 299,891.4604 in 2007
|
— | — | |||||||
|
Common stock, Class A voting, par value $700 —
authorized 37,860; issued and outstanding 16,940 in 2006
|
— | 11,858 | |||||||
|
Common stock, Class B nonvoting, par value $700 —
authorized 5,000; issued and outstanding 570 in 2006
|
— | 399 | |||||||
|
Additional paid-in capital
|
1,154,148 | — | |||||||
|
Retained earnings
|
56,926 | 206,044 | |||||||
|
Other comprehensive (loss) income, net of deferred income taxes
of $162 and $14,759
|
(1,040 | ) | 24,286 | ||||||
| 1,210,034 | 242,587 | ||||||||
| $ | 2,925,031 | $ | 480,999 | ||||||
See notes to consolidated financial statements.
F-3
Table of Contents
CONSOLIDATED
STATEMENTS OF INCOME
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands, except per share data)
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven Months |
One Month |
||||||||||||||||
|
Ended |
Ended |
Year Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
SALES
|
$ | 2,124,919 | $ | 142,549 | $ | 1,713,679 | $ | 1,445,770 | |||||||||
|
COSTS AND EXPENSES
|
|||||||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
1,734,558 | 114,562 | 1,394,294 | 1,177,091 | |||||||||||||
|
Selling, general and administrative expenses
|
201,948 | 14,592 | 173,948 | 155,717 | |||||||||||||
|
Depreciation and amortization
|
5,402 | 344 | 3,936 | 3,743 | |||||||||||||
|
Amortization of intangibles
|
10,489 | 16 | 277 | 337 | |||||||||||||
|
Profit sharing
|
13,167 | 1,338 | 15,064 | 13,144 | |||||||||||||
|
Stock-based compensation
|
2,988 | — | — | — | |||||||||||||
|
TOTAL COSTS AND EXPENSES
|
1,968,552 | 130,852 | 1,587,519 | 1,350,032 | |||||||||||||
|
OPERATING INCOME
|
156,367 | 11,697 | 126,160 | 95,738 | |||||||||||||
|
OTHER INCOME (EXPENSE)
|
|||||||||||||||||
|
Interest expense
|
(61,703 | ) | (131 | ) | (2,845 | ) | (2,707 | ) | |||||||||
|
Minority interests
|
(89 | ) | (356 | ) | (4,142 | ) | (2,774 | ) | |||||||||
|
Other, net
|
(1,090 | ) | (15 | ) | (1,259 | ) | (1,133 | ) | |||||||||
| (62,882 | ) | (502 | ) | (8,246 | ) | (6,614 | ) | ||||||||||
|
INCOME BEFORE INCOME TAXES
|
93,485 | 11,195 | 117,914 | 89,124 | |||||||||||||
|
Income tax expense
|
36,559 | 4,599 | 48,340 | 36,583 | |||||||||||||
|
NET INCOME
|
$ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
|
Earnings per share — Class A, basic
|
— | — | $ | 3,972.08 | $ | 2,952.12 | |||||||||||
|
Earnings per share — Class A, diluted
|
— | — | $ | 3,972.08 | $ | 2,952.12 | |||||||||||
|
Weighted average shares — Class A, basic
|
— | — | 16,940 | 16,940 | |||||||||||||
|
Weighted average shares — Class A, diluted
|
— | — | 16,940 | 16,940 | |||||||||||||
|
Earnings per share — Class B, basic
|
— | — | $ | 4,012.08 | $ | 4,442.12 | |||||||||||
|
Earnings per share — Class B, diluted
|
— | — | $ | 4,012.08 | $ | 4,442.12 | |||||||||||
|
Weighted average shares — Class B, basic
|
— | — | 570 | 570 | |||||||||||||
|
Weighted average shares — Class B, diluted
|
— | — | 570 | 570 | |||||||||||||
|
Basic earnings per common share
|
$ | 410.64 | $ | 376.70 | — | — | |||||||||||
|
Diluted earnings per common share
|
$ | 409.84 | $ | 376.70 | — | — | |||||||||||
|
Dividends per common share, Class A
|
$ | — | $ | — | $ | 40 | $ | 1,490 | |||||||||
|
Dividends per common share, Class B
|
$ | — | $ | — | $ | 80 | $ | 2,980 | |||||||||
See notes to consolidated financial statements.
F-4
Table of Contents
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in
thousands, except per share data)
|
Class A |
Class B |
Accumulated |
||||||||||||||||||||||||||||||||||||||
|
Common |
Common |
Common |
Additional |
Other |
Total |
|||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock |
Paid-in |
Retained |
Comprehensive |
Stockholders’ |
||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income (Loss)
|
Equity
|
|||||||||||||||||||||||||||||||
|
PREDECESSOR:
|
||||||||||||||||||||||||||||||||||||||||
|
Balance at January 1, 2005
|
16,940 | $ | 11,858 | 570 | $ | 399 | — | $ | — | $ | — | $ | 111,592 | $ | 8,469 | $ | 132,318 | |||||||||||||||||||||||
|
Net income for the year 2005
|
— | — | — | — | — | — | — | 52,541 | — | 52,541 | ||||||||||||||||||||||||||||||
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $7,153 and reclassification adjustments for
gains included in net income of $585
|
— | — | — | — | — | — | — | — | 10,880 | 10,880 | ||||||||||||||||||||||||||||||
|
Net comprehensive income
|
63,421 | |||||||||||||||||||||||||||||||||||||||
|
Cash dividends on common stock
|
||||||||||||||||||||||||||||||||||||||||
|
On Class A, $1,490 per share
|
— | — | — | — | — | — | — | (25,242 | ) | — | (25,242 | ) | ||||||||||||||||||||||||||||
|
On Class B, $2,980 per share
|
— | — | — | — | — | — | — | (1,699 | ) | — | (1,699 | ) | ||||||||||||||||||||||||||||
|
Balance at December 31, 2005
|
16,940 | 11,858 | 570 | 399 | — | — | — | 137,192 | 19,349 | 168,798 | ||||||||||||||||||||||||||||||
|
Net income for the year 2006
|
— | — | — | — | — | — | — | 69,574 | — | 69,574 | ||||||||||||||||||||||||||||||
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $3,230
|
— | — | — | — | — | — | — | — | 4,937 | 4,937 | ||||||||||||||||||||||||||||||
|
Net comprehensive income
|
74,511 | |||||||||||||||||||||||||||||||||||||||
|
Cash dividends on common stock
|
||||||||||||||||||||||||||||||||||||||||
|
On Class A, $40 per share
|
— | — | — | — | — | — | — | (677 | ) | — | (677 | ) | ||||||||||||||||||||||||||||
|
On Class B, $80 per share
|
— | — | — | — | — | — | — | (45 | ) | — | (45 | ) | ||||||||||||||||||||||||||||
|
Balance at December 31, 2006
|
16,940 | 11,858 | 570 | 399 | — | — | — | 206,044 | 24,286 | 242,587 | ||||||||||||||||||||||||||||||
|
Net income for month ended January 30, 2007
|
— | — | — | — | — | — | — | 6,596 | — | 6,596 | ||||||||||||||||||||||||||||||
|
Change in unrealized gain on securities available for sale net
of deferred taxes of $2,589
|
— | — | — | — | — | — | — | — | (3,958 | ) | (3,958 | ) | ||||||||||||||||||||||||||||
|
Net comprehensive income
|
2,638 | |||||||||||||||||||||||||||||||||||||||
|
Balance at January 30, 2007
|
16,940 | $ | 11,858 | 570 | $ | 399 | — | $ | — | $ | — | $ | 212,640 | $ | 20,328 | $ | 245,225 | |||||||||||||||||||||||
|
SUCCESSOR:
|
||||||||||||||||||||||||||||||||||||||||
|
Net income for eleven months ended December 31, 2007
|
— | $ | — | — | $ | — | — | $ | — | $ | — | 56,926 | $ | — | $ | 56,926 | ||||||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | — | — | — | — | — | (791 | ) | (791 | ) | ||||||||||||||||||||||||||||
|
Derivative valuation adjustment (net of $162 of deferred taxes)
|
— | — | — | — | — | — | — | — | (249 | ) | (249 | ) | ||||||||||||||||||||||||||||
|
Net comprehensive income
|
55,886 | |||||||||||||||||||||||||||||||||||||||
|
Equity contribution to acquire controlling interest and
recognize new basis of accounting arising from change of
controlling interest of predecessor
|
— | — | — | — | 102,111 | — | 385,125 | — | — | 385,125 | ||||||||||||||||||||||||||||||
|
Carryover basis adjustment for continuing shareholders
|
— | — | — | — | — | — | (11,605 | ) | — | — | (11,605 | ) | ||||||||||||||||||||||||||||
|
Equity contribution associated with acquisition of Red Man
Pipe & Supply Co.
|
— | — | — | — | 26,472 | — | 104,136 | — | — | 104,136 | ||||||||||||||||||||||||||||||
|
Equity contribution
|
— | — | — | — | 171,309 | — | 674,537 | — | — | 674,537 | ||||||||||||||||||||||||||||||
|
Issuance of stock subscription receivable
|
— | — | — | — | — | — | (1,033 | ) | — | — | (1,033 | ) | ||||||||||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | — | — | — | — | 2,988 | — | — | 2,988 | ||||||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
— | $ | — | — | $ | — | 299,892 | $ | — | $ | 1,154,148 | $ | 56,926 | $ | (1,040 | ) | $ | 1,210,034 | ||||||||||||||||||||||
See notes to consolidated financial statements.
F-5
Table of Contents
CONSOLIDATED
STATEMENTS OF CASH FLOWS
McJUNKIN RED MAN
HOLDING CORPORATION
(Dollars in thousands)
(Dollars in thousands)
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven Months |
One Month |
||||||||||||||||
|
Ended |
Ended |
Year Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATIONS
|
|||||||||||||||||
|
Net income
|
$ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|||||||||||||||||
|
Depreciation and amortization
|
5,402 | 344 | 3,936 | 3,743 | |||||||||||||
|
Amortization of debt issuance costs
|
8,010 | — | — | — | |||||||||||||
|
Stock-based compensation
|
2,988 | — | — | — | |||||||||||||
|
Deferred income taxes
|
(750 | ) | — | 3,802 | (4,905 | ) | |||||||||||
|
Minority interest
|
89 | 356 | 4,142 | 2,774 | |||||||||||||
|
Amortization of intangibles
|
10,489 | 16 | 277 | 337 | |||||||||||||
|
Increase in fair market value of derivatives
|
— | — | — | (499 | ) | ||||||||||||
|
Provision for losses on receivables
|
380 | 35 | 414 | 90 | |||||||||||||
|
Reduction of inventory loss provision
|
(30 | ) | 13 | (260 | ) | (233 | ) | ||||||||||
|
Non-operating gains and other items not providing cash
|
297 | (153 | ) | (571 | ) | (1,001 | ) | ||||||||||
|
Changes to operating assets and liabilities:
|
|||||||||||||||||
|
Accounts receivable
|
46,974 | (1,363 | ) | (5,516 | ) | (53,444 | ) | ||||||||||
|
Inventories
|
27,821 | 6,700 | (35,835 | ) | (36,386 | ) | |||||||||||
|
Income taxes
|
1,778 | 4,595 | (6,016 | ) | 6,823 | ||||||||||||
|
Other current assets
|
2,169 | 139 | (580 | ) | (65 | ) | |||||||||||
|
Accounts payable
|
(35,130 | ) | (7,665 | ) | (14,432 | ) | 47,694 | ||||||||||
|
Deferred revenue
|
1,991 | — | — | — | |||||||||||||
|
Accrued expenses and other current liabilities
|
(19,178 | ) | (2,996 | ) | (583 | ) | 12,916 | ||||||||||
|
NET CASH PROVIDED BY OPERATIONS
|
110,226 | 6,617 | 18,352 | 30,385 | |||||||||||||
|
INVESTING ACTIVITIES
|
|||||||||||||||||
|
Purchases of property, plant and equipment
|
(5,521 | ) | (417 | ) | (5,314 | ) | (8,680 | ) | |||||||||
|
Proceeds from the disposition of property, plant and equipment
|
— | — | 354 | 955 | |||||||||||||
|
Acquisition of controlling interest in McJunkin by GSCP
|
(849,053 | ) | — | — | — | ||||||||||||
|
Acquisition of
Midway-Tristate
Corporation
|
(83,338 | ) | — | — | — | ||||||||||||
|
Acquisition of Red Man Pipe & Supply Co., net of cash
acquired of $13,866
|
(852,422 | ) | — | — | — | ||||||||||||
|
Other investment and notes receivable transactions
|
1,414 | 259 | 1,698 | 1,024 | |||||||||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(1,788,920 | ) | (158 | ) | (3,262 | ) | (6,701 | ) | |||||||||
|
FINANCING ACTIVITIES
|
|||||||||||||||||
|
Proceeds from issuance of long-term obligations
|
897,500 | — | 9,731 | — | |||||||||||||
|
Payments on long-term obligations
|
(78,834 | ) | (8,254 | ) | — | (11,319 | ) | ||||||||||
|
Cash equity contribution in conjunction with acquisition of
controlling interest in McJunkin by GSCP
|
225,653 | — | — | — | |||||||||||||
|
Cash equity contributions
|
673,505 | — | — | — | |||||||||||||
|
Debt issuance costs paid
|
(30,636 | ) | — | — | — | ||||||||||||
|
Dividends paid
|
— | — | (26,938 | ) | (9,765 | ) | |||||||||||
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
1,687,188 | (8,254 | ) | (17,207 | ) | (21,084 | ) | ||||||||||
|
Increase (decrease) in cash
|
8,494 | (1,795 | ) | (2,117 | ) | 2,600 | |||||||||||
|
Effect of foreign exchange rate on cash
|
(372 | ) | — | — | — | ||||||||||||
|
Cash — beginning of period
|
1,953 | 3,748 | 5,865 | 3,265 | |||||||||||||
|
CASH — END OF YEAR
|
$ | 10,075 | $ | 1,953 | $ | 3,748 | $ | 5,865 | |||||||||
See notes to consolidated financial statements.
F-6
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
| NOTE 1 — | SIGNIFICANT ACCOUNTING POLICIES |
Business Operations: McJunkin Red Man
Holding Corporation (the Company) is a holding company
co-headquartered in Charleston, West Virginia and Tulsa,
Oklahoma. Holding is a substantially owned subsidiary of PVF
Holdings LLC. The Company’s wholly owned subsidiary,
McJunkin Red Man Corporation and its subsidiaries (MRM) are
national distributors of pipe, valves, and fittings, with
locations in principal industrial, hydrocarbon producing and
refining areas throughout the United States and Canada. Major
customers represent the natural gas producing, petroleum
refining, chemical and other segments of the raw materials
processing and construction industries. Products are obtained
from a broad range of suppliers.
The Company operates as a single reportable segment, which
represents the Company’s business of providing industrial
pipe valves and fittings to various customers through our
distribution operations located throughout North America. The
Company has operations in eight geographic regions, which have
similar economic characteristics, and similar products and
services, types or classes of customers, distribution methods
and similar regulatory environments in each location. The total
consolidated net sales outside of the United States were 4.49%
for the eleven months ended December 31, 2007, 0.8% for the
one month ended January 30, 2007 and 0.8% and 1.0% for the
years ended December 31, 2006 and 2005, respectively. The
percentage of total consolidated assets outside of the United
States as of December 31, 2007 and 2006 was 11.0% and 0.7%,
respectively.
Basis of Presentation: PVF Holdings
LLC, (formerly known as McJ Holding LLC) was formed on
November 20, 2006 by affiliates of The Goldman Sachs Group,
Inc. (“Goldman Sachs”) and a control group of certain
shareholders of McJunkin Corporation (McJunkin) for the purpose
of acquiring McJunkin on January 31, 2007. The affiliates
of Goldman Sachs referred to in the previous sentence are
GS Capital Partners V Fund, L.P., GS Capital
Partners V Offshore Fund, L.P., GS Capital
Partners V GmbH & Co. KG, and GS Capital
Partners V Institutional, L.P. (collectively, the
“Goldman Sachs Funds”). Management and control of all
of the Goldman Sachs Funds is vested exclusively in their
general partners and investment managers, which are wholly owned
direct and indirect subsidiaries of Goldman Sachs. The
investment manager of each of the Goldman Sachs Funds is
Goldman, Sachs & Co., which is a wholly owned
subsidiary of Goldman Sachs. In connection with the acquisition
by the Goldman Sachs Funds of a controlling interest in
McJunkin, a new basis of accounting and reporting was
established that reflected the Goldman Sachs Funds’ cost of
the acquisition. This new accounting basis has been pushed down
to the Company’s accounts and is reflected in the
Company’s consolidated balance sheet (successor basis) at
December 31, 2007.
Because PVF Holdings LLC and the Company had no operations,
assets, or business prior to their acquisition of McJunkin,
McJunkin is the predecessor of MRM, the Company, and PVF
Holdings LLC. While these statements have been prepared to
present the financial position and results of operations for the
Company, such financial position and results would not be
significantly different if reported at either the PVF Holdings
LLC or the MRM levels of consolidation.
All references to the “Predecessor” relate to McJunkin
for periods prior to January 31, 2007. All references to
the “Successor” relate to the Company for periods
subsequent to January 31, 2007. As a result, the
consolidated income statements and statements of cash flows for
the eleven-month period ended December 31, 2007 consist of
the earnings and cash flows of the Company. The consolidated
income statements and statements of cash flows of the Company
for the month ended January 30, 2007 and for the years
ended December 31, 2006 and 2005, are presented as
Predecessor financial statements for comparison purposes.
F-7
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates. The consolidated financial statements include the
accounts of McJunkin Red Man Holding Corporation and its wholly
owned and majority owned subsidiaries. The residual ownership in
the equity and income of Midfield Supply ULC (Midfield), a 51%
owned, Canada-based subsidiary, is reflected as minority
interest. All significant intercompany transactions have been
eliminated.
Cash Equivalents: The Company considers
all highly liquid investments with maturities of three months or
less at the date of purchase to be cash equivalents.
Financial Instruments: In the normal
course of business, the Company invests in various financial
assets and incurs various financial liabilities. Financial
instruments that potentially could subject the Company to
concentrations of credit risk consist principally of trade
accounts and notes receivable and an interest rate swap
agreement. The Company’s financial assets and liabilities
are generally recorded in the consolidated balance sheets at
historical cost, which approximates fair value. Specific
treatment of certain financial instruments is discussed below.
Investments: Investments are carried at
fair market value based on quoted market prices. Prior to the
acquisition by the Goldman Sachs Funds on January 31, 2007,
these available for sale investments were recorded at fair value
and reflected as investments on the balance sheets. Changes to
the fair value of the assets were recorded in other
comprehensive income, net of related deferred taxes. On
January 31, 2007, these investments were reclassified as
assets held for sale as more fully described in Assets Held for
Sale below.
Short-Term and Long-Term
Borrowings: Borrowings under the credit
facilities have variable rates that reflect currently available
terms and conditions for similar debt. The carrying amount of
this debt is a reasonable estimate of its fair value.
Leases: Management estimated the fair
value of the Company’s lease obligations using discounted
cash flow analysis based on the Company’s current lease
rates for similar leases, and determined that the fair value is
not materially different from carrying values.
Derivatives: The Company utilizes
interest rate swaps to reduce its exposure to potential interest
rate increases. Changes in fair values of derivative instruments
were based upon independent market quotes.
Assets Held for Sale: Certain of the
Company’s assets, consisting principally of certain
available for sale securities and certain real estate holdings,
were designated as non-core assets under the terms of the
acquisition by the Goldman Sachs Funds . The Company has
classified these as assets held for sale in the balance sheet. A
corresponding liability to predecessor shareholders has been
recognized to reflect the obligation to the shareholders of
record at the date of the acquisition. Upon the sale of these
assets, the proceeds net of associated taxes will be distributed
to the predecessor shareholders. No gain or loss will be
recognized as the result of the sale of these assets.
Allowance for Doubtful
Accounts: Management’s evaluation of the
adequacy of the allowance for losses on receivables is based
upon periodic evaluation of accounts that may have a higher
credit risk using information available about the customer and
other relevant data. This formal analysis is inherently
subjective and requires management to make significant estimates
of factors affecting doubtful accounts, including customer
specific information, current economic conditions, volume,
growth and composition of the account, and other factors such as
financial statements, news
F-8
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
reports and published credit ratings. The amount of the
allowance for the remainder of the trade balance is not
evaluated individually but is based upon historical loss
experience. Because this process is subjective and based on
estimates, ultimate losses may differ from those estimates.
Receivable balances are written off when we determine that the
balance is uncollectible. Subsequent recoveries, if any, are
credited to the allowance when received. The provision for
losses on receivables, which is not material, is included in
other expenses in the accompanying consolidated statements of
income. Activity in the allowance for doubtful accounts is set
forth in the table below.
|
Additions |
||||||||||||||||
|
Charged to |
||||||||||||||||
|
Beginning |
Costs & |
Ending |
||||||||||||||
|
Balance
|
Expenses
|
Deductions
|
Balance
|
|||||||||||||
| (In thousands) | ||||||||||||||||
|
(Successor)
|
||||||||||||||||
|
Eleven months ended
|
||||||||||||||||
|
December 31, 2007
|
$ | 2,059.6 | $ | 4,450.2 | $ | 157.6 | $ | 6,352.2 | ||||||||
|
One month ended January 30, 2007
|
2,015.0 | 45.0 | 0.4 | 2,059.6 | ||||||||||||
|
(Predecessor)
|
||||||||||||||||
|
Year ended December 31, 2006
|
1,743.3 | 414.0 | 142.3 | 2,015.0 | ||||||||||||
|
Year ended December 31, 2005
|
1,722.0 | 90.0 | 68.7 | 1,743.3 | ||||||||||||
Concentration of Credit Risk: Most of
the Company’s business activity is with customers in the
chemical, petroleum, refining and other segments of the raw
materials processing industry. In the normal course of business
the Company grants credit to these customers in the form of
trade accounts receivable. These receivables could potentially
subject the Company to concentrations of credit risk; however,
the Company minimizes such risk by closely monitoring extensions
of trade credit. The Company generally does not require
collateral on its trade receivables.
The Company has a broad customer base doing business in all
regions of the United States as well as parts of Canada. During
2007, 2006 and 2005, the Company did not have sales to any
customers in excess of 10% of gross sales and at those
respective year-ends, no individual customer balances exceeded
10% of gross accounts receivable. Accordingly, no significant
concentration of credit risk is considered to exist.
Debt Issuance Costs: The Company defers
costs directly related to obtaining financing and amortizes them
over the term of the loan on a straight-line basis which is not
materially different than the effective interest method. Such
amounts are reflected in the consolidated income statement as a
component of interest expense.
Derivatives and Hedging: The Company
records all derivatives on the balance sheet at fair value. If a
derivative is designated as a cash flow hedge, the Company
measures the effectiveness of the hedge, or the degree that the
gain (loss) for the hedging instrument offsets the loss (gain)
on the hedged item, at each reporting period. The effective
portion of the gain (loss) on the derivative instrument is
recognized in other comprehensive income as a component of
equity and, subsequently, reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion
of a derivative’s change in fair value is recognized in
earnings immediately. Derivatives that do not qualify for hedge
treatment are recorded at fair value with gains (losses)
recognized in earnings in the period of change.
F-9
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
Fixed Assets: Land, buildings and
equipment are stated on the basis of cost. For financial
statement purposes, depreciation is computed over the estimated
useful lives of the assets principally by the straight-line
method; accelerated depreciation and cost recovery methods are
used for income tax purposes. When assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss
is reflected in income for the period. Maintenance and repairs
are charged to expense as incurred. Ranges of estimated useful
lives for financial reporting purposes are as follows:
|
Buildings and improvements
|
40 years | |||
|
Machinery, shop equipment and vehicles
|
3-10 years | |||
|
Furniture, fixtures and office equipment
|
3-10 years |
Foreign Currency Translation and
Transactions: Gains and losses from balance
sheet translation of operations outside of the United States
where the applicable foreign currency is the functional currency
are included as a component of accumulated other comprehensive
income within stockholders’ equity. Gains and losses
resulting from foreign currency transactions are recognized
currently in the consolidated income statements.
Goodwill and Other Intangible
Assets: Goodwill represents the excess of
cost over the fair value of net assets acquired. Recorded
goodwill balances are not amortized but, instead, are evaluated
for impairment annually or more frequently if circumstances
indicate that an impairment may exist.
Intangible assets are initially recorded at fair value at the
date of acquisition. Amortization is provided using the
straight-line method over their estimated useful lives. The
carrying value of intangible assets is subject to an impairment
test on an annual basis, or more frequently if events or
circumstances indicate a possible impairment. The measure of
impairment is based on the estimated fair values.
Income Taxes: Deferred tax assets and
liabilities are recorded for differences between the financial
reporting and tax bases of assets and liabilities using the tax
rate expected to be in effect when the taxes will actually be
paid or refunds received.
The Company adopted Financial Accounting Standards Board (FASB)
Interpretation (FIN) 48, Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement
No. 109, which clarifies the accounting and disclosure
for uncertain tax positions, as defined. FIN 48 requires
that a tax position meet a “probable recognition
threshold” for the benefit of the uncertain tax position to
be recognized in the financial statements. The impact of
adoption was not material.
Insurance: The Company is self-insured
for portions of employee healthcare and maintains a deductible
program as it relates to workers’ compensation, automobile
liability, asbestos claims and general liability claims
including, but not limited to, product liability claims, which
are secured by various letters of credit totaling
$3.1 million. Commercially comprehensive catastrophic
coverage is maintained. The company’s liability and related
expenses for claims are estimated based upon past experience.
The company’s historical claim data is used to project
anticipated losses. The reserves are deemed by the company to be
sufficient to cover outstanding claims including those incurred
but not reported as of the estimation date.
Under our Property & Casualty Program, we are self-insured
for automobile collision and automobile comprehensive coverage.
We are also self-insured for product recall. We also currently
self-insure
for ocean cargo shipments to Nigeria. The dollar volume of
product fluctuates depending on the particular shipment. For all
other coverage, we carry commercially reasonable and non-
F-10
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
material deductibles. We have an umbrella liability policy that
covers liabilities in excess of $1 million, except that
this policy only covers automobile-related liabilities in excess
of $3 million. We also have excess liability coverage for
liabilities in excess of $25 million.
Inventories: The Company’s
inventories are generally valued at the lower of cost
(principally
last-in,
first-out method) or market. The Company believes the LIFO
method more fairly presents the results of operations by more
closely matching current costs with current revenues. The
Company records an adjustment each month, if necessary, for the
expected annual effect of inflation, and these estimates are
adjusted to actual results determined at year-end. This practice
excludes certain inventories held in Canada totaling
$78.6 million, at December 31, 2007, that are valued
at the lower of weighted average cost or market.
Long-Lived Assets: The carrying value
of long-lived assets is evaluated whenever events or changes in
circumstances indicate that the carrying value of the asset may
be impaired. Upon the occurrence of such an event or change in
circumstance, an impairment loss is recognized when estimated
undiscounted future cash flows resulting from the use of the
asset, including disposition, is less than the carrying value of
the asset. Impairment is measured by the amount by which the
carrying amount exceeds the fair value.
Reclassifications: Certain immaterial
amounts in the prior years’ financial statements have been
reclassified to conform to the current year’s presentation.
Revenue Recognition: The Company
recognizes revenue as products are shipped, title has
transferred to the customer, and the customer assumes the risk
and rewards of ownership. Out-bound shipping and handling costs
are reflected in cost of goods sold, and freight charges billed
to customers are reflected in revenues.
Equity-Based Compensation: The
Company’s equity-based compensation consists of restricted
common units, profit units, restricted stock and non-qualified
stock options. The cost of employee services received in
exchange for an award of an equity instrument is measured based
on the grant-date fair value of the award. The Company’s
policy is to expense stock-based compensation using the
fair-value of awards granted, modified or settled. Restricted
common units, profit units, and restricted stock are credited to
equity as they are expensed over their vesting periods based on
the current market value of the shares to be granted.
The fair value of non-qualified stock options is measured on the
grant date of the related equity instrument using the
Black-Scholes option-pricing model and is recognized as
compensation expense over the applicable vesting period.
Earnings Per Share: Basic earnings per
share are computed based upon the weighted average number of
common units outstanding. Diluted earnings per share include the
dilutive effect of restricted stock and stock options.
Recent Accounting Pronouncements: In
December 2007, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 141R
(SFAS No. 141R), Business Combinations —
Revised. SFAS No. 141R requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition
date, measured at the fair values as of that date, with limited
exceptions specified in the statement. That replaces Statement
141’s cost-allocation process, which required the cost of
an acquisition to be allocated to the individual assets acquired
and liabilities assumed based on their estimated fair values.
The statement applies to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
F-11
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
2008. The Company has not yet completed the analysis necessary
to determine the impact adoption of this standard may ultimately
have on future financial reporting.
In September 2006, the FASB issued Statement on Financial
Accounting Standards No. 157 (SFAS No. 157),
Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007. The Company does
not expect adoption of SFAS No. 157 to have a material
effect on its results of operations or financial position.
In February 2007, the FASB issued Statement on Financial
Accounting Standards No. 159 (SFAS No. 159),
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 provides companies with
an option to report selected financial assets and liabilities at
fair value. It also established presentation and disclosure
requirements to facilitate comparisons between companies using
different measurement attributes for similar types of assets and
liabilities. This statement is effective for fiscal years
beginning after November 15, 2007. The Company does not
expect adoption of SFAS No. 159 to have a material
effect on its results of operations or financial position.
In December 2007, the FASB issued Statement on Financial
Accounting Standards No. 160 (SFAS No. 160),
Noncontrolling Interests in Consolidated Financial
Statements — an amendment of Accounting Research
Bulletin No. 51. SFAS No. 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parent’s
ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS No. 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. This
statement is effective for fiscal years beginning after
December 15, 2008. The Company has not yet completed the
analysis necessary to determine the impact adoption of this
standard may ultimately have on future financial reporting.
| NOTE 2 — | TRANSACTIONS |
Acquisition
of Controlling Interest in McJunkin by the Goldman Sachs
Funds
The acquisition of a controlling interest in McJunkin by the
Goldman Sachs Funds was accounted for in accordance with the
provisions of Emerging Issues Task Force
No. 88-16,
Basis in Leveraged Buyout Transactions
(EITF 88-16).
EITF 88-16
requires a partial or complete change in accounting basis when
there has been a change in control of voting interest. In this
transaction, the Goldman Sachs Funds, which had no previous
ownership interest in McJunkin, acquired an approximately 55%
ownership interest in McJunkin on a fully-diluted basis. The
purchase price paid to effect the acquisition was allocated to
the fair value of acquired assets and liabilities at
January 31, 2007.
Certain members of the Company’s executive management team
held equity interests in McJunkin, the Predecessor, prior to
this transaction and continue to hold equity interests in the
Successor. As outlined in
EITF 88-16,
such members of management are deemed to be part of the control
group and the basis of their interests in the Successor after
the acquisition was carried over at the basis of their interests
in the Predecessor prior to the acquisition as determined by the
lesser of their residual interest in the Predecessor and their
residual interest in the Successor. Because the 15.8% collective
ownership of these individuals prior to the transaction exceeded
the 8.3% collective ownership of these individuals subsequent to
the transaction, their basis in the Predecessor was
F-12
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
carried over to the Successor at a value equaling 8.3% of the
Company’s historical basis. The difference between this
historical basis and the fair value of these interests is
reflected in the purchase price allocation table below as a
carryover basis adjustment.
The purchase price was approximately $1,008.5 million. The
sources and uses of funds in connection with the acquisition are
summarized below (in millions):
|
Sources
|
||||
|
Asset-Based Revolving Credit Facility
|
$ | 75.0 | ||
|
Term Loan Facility
|
575.0 | |||
|
Equity contribution — cash
|
225.6 | |||
|
Equity contribution — non-cash
|
159.5 | |||
|
Total sources
|
$ | 1,035.1 | ||
|
Uses
|
||||
|
Consideration paid to stockholders (including non-cash
rollover by McJunkin and McApple stockholders of $159.5 million) |
$ | 983.4 | ||
|
Transaction costs
|
16.5 | |||
|
Debt issuance costs
|
22.8 | |||
|
General corporate purposes
|
7.6 | |||
|
Repayment of existing debt
|
4.8 | |||
|
Total uses
|
$ | 1,035.1 | ||
In connection with the purchase price allocation, the fair
values of long-lived and intangible assets were determined based
upon assumptions related to future cash flows, discount rates
and asset lives utilizing currently available information. As of
January 31, 2007, the Company recorded adjustments to
reflect property and equipment, inventory, intangible assets for
its tradename, customer-related intangibles, and backlog at
their estimated fair values. The Company also acquired the
minority interest in McJunkin Appalachian Oilfield Supply
Company (McJunkin Appalachian), which became wholly owned
concurrent with the acquisition by the Goldman Sachs Funds.
F-13
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The purchase price has been allocated as follows (in millions):
|
Cash consideration:
|
||||||||
|
Paid to shareholders
|
$ | 823.9 | ||||||
|
Transaction costs paid at closing
|
16.5 | |||||||
|
Transaction costs paid outside of closing
|
8.6 | |||||||
| 849.0 | ||||||||
|
Noncash consideration
|
159.5 | |||||||
|
Total consideration
|
1,008.5 | |||||||
|
Net assets acquired at historical cost
|
245.2 | |||||||
|
Adjustments to state acquired assets at fair value:
|
||||||||
|
1) Increase carrying value of property and equipment to fair
value
|
$ | 16.6 | ||||||
|
2) Increase carrying value of inventory to fair value
|
68.2 | |||||||
|
3) Write-off historical goodwill and tradename
|
(6.6 | ) | ||||||
|
4) Record intangible assets acquired
|
||||||||
|
Customer-related intangibles
|
356.0 | |||||||
|
Sales order backlog
|
1.6 | |||||||
|
Non-compete agreements
|
1.0 | |||||||
|
Tradename
|
155.8 | |||||||
|
5) Eliminate McApple minority interest
|
16.0 | |||||||
|
6) Record liability to shareholders related to non-core assets
|
(26.2 | ) | ||||||
|
7) Record fair value adjustments to various other assets and
liabilities
|
0.2 | |||||||
|
8) Tax impact of valuation adjustments
|
(213.8 | ) | 368.8 | |||||
|
Net assets acquired at fair value
|
614.0 | |||||||
|
Carryover basis adjustment
|
(11.6 | ) | ||||||
|
Excess purchase price recorded as goodwill
|
$ | 382.9 | ||||||
The tradename has an indefinite life and is not subject to
amortization. Tradename and goodwill will be reviewed at least
annually for impairment.
F-14
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The purchase price was allocated as follows:
|
Assets
|
||||
|
Cash
|
$ | 10.9 | ||
|
Accounts receivable
|
168.8 | |||
|
Inventory
|
293.8 | |||
|
Assets held for sale
|
39.9 | |||
|
Debt issuance costs
|
22.8 | |||
|
Fixed assets
|
39.8 | |||
|
Other assets
|
5.7 | |||
|
Intangible assets
|
514.4 | |||
|
Goodwill
|
382.9 | |||
| 1,479.0 | ||||
|
Liabilities and Stockholders Equity
|
||||
|
Accounts payable
|
135.2 | |||
|
Accrued expenses
|
50.8 | |||
|
Income taxes payable
|
7.0 | |||
|
Deferred income taxes
|
230.7 | |||
|
Payable to shareholders
|
28.0 | |||
|
Other liabilities
|
3.8 | |||
|
Debt
|
650.0 | |||
|
Stockholders Equity
|
373.5 | |||
| $ | 1,479.0 |
Transaction costs paid at closing included $10.6 million
paid to an affiliate of the Goldman Sachs Funds as reimbursement
of their costs associated with due diligence and advisory
services.
Acquisition
of Midway-Tristate Corporation
On April 30, 2007, MRM, through its wholly owned subsidiary
McJunkin Appalachian, acquired a 100% interest in
Midway-Tristate
Corporation (Midway). Midway is engaged primarily in the
distribution of pipe, equipment and supplies to the oil and gas
and utility industries in Michigan, West Virginia, Ohio,
Pennsylvania, Utah, Wyoming, and Colorado. The acquisition of
Midway significantly increased McJunkin Appalachian’s
presence particularly in the strategic Rocky Mountain region.
F-15
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The purchase price was approximately $83.3 million and has
preliminarily been allocated as follows (in millions):
|
Assets acquired
|
||||
|
Accounts receivable
|
$ | 19.5 | ||
|
Inventory
|
30.8 | |||
|
Fixed assets
|
3.4 | |||
|
Other assets
|
0.1 | |||
|
Customer-related intangibles
|
20.1 | |||
|
Goodwill
|
30.8 | |||
| 104.7 | ||||
|
Liabilities assumed
|
||||
|
Accounts payable
|
11.5 | |||
|
Accrued expenses
|
2.1 | |||
|
Income taxes payable
|
0.2 | |||
|
Deferred income taxes
|
7.6 | |||
| 21.4 | ||||
|
Total purchase price
|
$ | 83.3 | ||
Goodwill associated with this transaction is not deductible for
tax purposes, nor is any amortization associated with
customer-related intangibles which have a useful life of
20 years.
Acquisition
of Red Man Pipe & Supply Co.
On October 31, 2007, MRM, through its wholly owned
subsidiary West Oklahoma PVF Company, acquired a 100% interest
in Red Man Pipe & Supply Co. (Red Man). Red Man is a
distributor of tubular goods and an operator of service and
supply centers which distribute maintenance, repair and
operating products utilized primarily in the energy industry as
well as industrial products consisting primarily of line pipe,
valves, fittings and flanges. Red Man distributes products and
tubular goods through service and supply centers and sales
locations strategically located close to major hydrocarbon
producing and refining areas of the United States and Canada.
F-16
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The purchase price was approximately $970.4 million
(including common units issued for Red Man shares of
$104.1 million at closing) and has preliminarily been
allocated as follows (in millions):
|
Assets acquired
|
||||
|
Cash
|
$ | 13.9 | ||
|
Accounts receivable
|
342.3 | |||
|
Notes and other receivables
|
5.2 | |||
|
Inventory
|
378.5 | |||
|
Fixed assets
|
39.6 | |||
|
Other assets
|
0.2 | |||
|
Intangible Assets
|
451.1 | |||
|
Goodwill
|
230.8 | |||
| 1,461.6 | ||||
|
Liabilities assumed
|
||||
|
Accounts payable
|
209.5 | |||
|
Accrued expenses
|
42.9 | |||
|
Income taxes payable
|
3.1 | |||
|
Deferred income taxes
|
60.3 | |||
|
Debt
|
71.6 | |||
|
Minority interest and amounts due to former Red Man shareholders
|
100.6 | |||
|
Other liabilities
|
3.2 | |||
| 491.2 | ||||
|
Total purchase price
|
$ | 970.4 | ||
This allocation of the purchase price is preliminary pending
receipt of appraisals and valuations for certain of Red
Man’s assets, including intangible assets. Goodwill
associated with this transaction is not deductible for tax
purposes, nor is any amortization associated with amortizable
intangibles that are still being valued.
Transaction costs capitalized in connection with the acquisition
of Red Man Pipe & Supply Co. totaled
$17.3 million and included $12.0 million paid to an
affiliate of the Goldman Sachs Funds as reimbursement of their
costs associated with due diligence and advisory services.
Subsequent to the date of the balance sheet, certain provisions
of the purchase agreement, including a net working capital
adjustment, were finalized resulting in an increase of the
purchase price referenced above of $18.1 million, including
additional shares issued of $7.0 million.
As part of the Red Man transaction, MRM indirectly acquired a
call option to buy out the 49% minority interest of Midfield for
approximately $100.0 million. The call option may be
exercised between June 15, 2008 and December 15, 2008.
The Company has concluded that it is probable the option will be
exercised and has provided for the financing of such exercise in
the Asset-Based Revolving Credit Facility. Accordingly, the
Company has allocated $100.0 million of the purchase price
to minority interest and amounts due to former Red Man
shareholders. This balance represents the total exercise price
of the call option including those amounts that are expected to
be paid to the Midfield minority interest shareholders as well
as additional amounts that are expected to be paid to the former
shareholders of Red Man. In the event the call option is not
exercised during that time period, certain additional amounts
would be due to the former shareholders of Red Man on
January 15, 2009.
F-17
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
Pro Forma
Financial Information
The following unaudited pro forma results of operations assume
that each of the transactions described above occurred on
January 1, 2006. This unaudited pro forma information
should not be relied upon as necessarily being indicative of the
historical results that would have been obtained if the
transactions had actually occurred on that date nor the results
that may be obtained in the future.
| Years Ended December 31, | ||||||||
|
2007
|
2006
|
|||||||
| (In millions) | ||||||||
|
Revenues
|
$ | 4,000.0 | $ | 3,703.1 | ||||
|
Net income
|
147.6 | 84.4 | ||||||
Equity
Issuances
The following is a summary of our equity issuances in 2007:
|
Common |
Restricted Stock |
|||||||||||
| Consideration | Stock | & Options | ||||||||||
| (in thousands) | ||||||||||||
|
Equity issued to majority shareholders in exchange for cash
|
$ | 900,158 | 228,571.74 | |||||||||
|
Equity issued in exchange for shares in McJunkin
|
159,472 | 40,538.94 | ||||||||||
|
Equity issued in exchange for shares in Red Man
|
104,136 | 26,472.20 | ||||||||||
|
Equity issued in deferred compensation to members of management
|
— | 4,308.80 | 4,168.99 | |||||||||
| 1,163,766 | 299,892 | 4,168.99 | ||||||||||
F-18
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
| NOTE 3 — | GOODWILL AND INTANGIBLE ASSETS |
The significant components of goodwill and intangible assets are
as follows (in thousands):
|
Sales |
Tradename |
|||||||||||||||||||
|
Order |
Customer |
Non Compete |
(With |
|||||||||||||||||
|
Backlog |
Base |
Agreements |
Indefinite |
|||||||||||||||||
|
(1 Year)
|
(38 Years)
|
(5 Years)
|
Life)
|
Goodwill
|
||||||||||||||||
|
Recorded in connection with the McJunkin acquisition
|
$ | 1,601 | $ | 356,036 | $ | 970 | $ | 155,762 | $ | 382,908 | ||||||||||
|
Recorded in connection with the Midway acquisition
|
— | 20,118 | — | — | 30,802 | |||||||||||||||
|
Recorded in connection with the Red Man acquisition
(preliminary, see note below)
|
— | — | — | — | 681,906 | |||||||||||||||
|
Amortization
|
(1,467 | ) | (8,844 | ) | (178 | ) | — | — | ||||||||||||
|
Impact of foreign currency translation
|
— | — | — | — | (3,237 | ) | ||||||||||||||
|
Balance at December 31, 2007
|
$ | 134 | $ | 367,310 | $ | 792 | $ | 155,762 | $ | 1,092,379 | ||||||||||
Amortization
of Intangible Assets
Amortization in future periods could change significantly based
on the finalization of the purchase price allocation for the Red
Man transaction. The potential impact on amortization expense
for the two-month period from the date of the acquisition to
December 31, 2007 is not material. The weighted average
amortization period for each type of intangible is noted in the
table above. The weighted average amortization period for all
amortizable intangibles is 38 years. Total amortization of
all acquisition-related intangible assets for each of the years
ending December 31, 2008 to 2012, is currently estimated as
follows (in millions):
|
2008
|
$ | 10.3 | ||
|
2009
|
10.1 | |||
|
2010
|
10.1 | |||
|
2011
|
10.1 | |||
|
2012
|
10.1 |
Equity issued in 2007:
(dollars in thousands)
(dollars in thousands)
F-19
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
| NOTE 4 — | INVENTORIES |
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $10.3 million and
$74.4 million higher at December 31, 2007 and 2006,
respectively. In addition, after giving pro forma effect to
profit sharing and income taxes, net income would have been
higher by $6.7 million for the eleven months ended
December 31, 2007, $0 for the one-month ended
January 30, 2007, and $7.9 million and
$13.1 million for the years ended December 31, 2006
and 2005, respectively. For the eleven months ended
December 31, 2007, the Company experienced a liquidation of
certain LIFO inventories resulting in income of
$1.5 million.
The Company’s inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
| NOTE 5 — | LONG-TERM DEBT |
The significant components of our long-term debt are as follows
(in thousands):
| (Successor) | (Predecessor) | ||||||||
|
December 31, |
December 31, |
||||||||
|
2007
|
2006
|
||||||||
|
Asset-based revolving credit facility
|
$ | 234,146 | $ | — | |||||
|
Term loan facility
|
569,250 | — | |||||||
|
Revolving credit/term loan agreement
|
— | 8,300 | |||||||
|
Short-term debt expected to be refinanced on a long-term basis
|
— | 2,735 | |||||||
|
Three-year asset securitization
|
— | 2,000 | |||||||
|
Midfield revolving credit facility
|
50,970 | — | |||||||
|
Midfield term loan facility
|
10,228 | — | |||||||
|
Midfield notes payable
|
3,803 | — | |||||||
| 868,397 | 13,035 | ||||||||
|
Less current portion
|
19,781 | — | |||||||
| $ | 848,616 | $ | 13,035 | ||||||
Asset-Based Revolving Credit
Facility: On January 31, 2007, in
connection with the acquisition of McJunkin by GSCP, MRM entered
into a credit agreement and related security and other
agreements for a secured Asset-Based Revolving Credit Facility
with The CIT Group/Business Credit, Inc. as administrative agent
and collateral agent. The Asset-Based Revolving Credit Facility
provided financing of up to $300.0 million, subject to a
borrowing base equal to at any time the lesser of 85% of
eligible accounts receivable and 85% of net orderly liquidation
value of the eligible inventory, less certain reserves. The
Asset-Based Revolving Credit Facility included borrowing
capacity available for letters of credit and for borrowings on
same-day
notice. At the closing of the acquisition, MRM utilized
$75.0 million of the Asset-Based Revolving Credit Facility
for loans and approximately $3.1 million for letters of
credit.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, MRM refinanced the initial Asset-Based
Revolving Credit Facility with a new $650.0 million
facility with terms substantially the same as those described
above. At that date, MRM utilized $322.5 million of the new
Asset-Based Revolving Credit Facility to fund a portion of the
Red Man acquisition in addition to refinancing amounts
previously outstanding.
F-20
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
As of December 31, 2007, MRM had $326.5 million of
unused borrowing availability under the Asset-Based Revolving
Credit Facility based on a borrowing base of $563.8 million
and after giving effect to $3.1 million used for letters of
credit.
The Asset-Based Revolving Credit Facility provides that MRM has
the right at any time to request incremental facilities
commitments, but the lenders are under no obligation to provide
any such additional commitments. The Asset-Based Revolving
Credit Facility permits incremental facilities (together with
any new commitments under the Term Loan Facility discussed
below) up to (1) $200.0 million specifically available
to fund the CanHCo Call Right (which pertains to the Midfield
Supply minority interest) and refinance certain indebtedness of
Midfield Supply, (2) $150.0 million generally
available, (3) and additional amounts available so long as
the secured leverage ratio as specified in the Asset-Based
Revolving Credit Facility is satisfied. If MRM were to request
any such additional commitments and the existing lenders or new
lenders were to agree to provide such commitments, the
Asset-Based Revolving Credit Facility size could be increased as
described above, but MRM’s ability to borrow would still be
limited by the amount of the borrowing base.
Borrowings under the Asset-Based Revolving Credit Facility bear
interest at a rate per annum equal to, at MRM’s option,
either (a) a base rate determined by reference to the
greater of (1) the prime rate as quoted in The Wall
Street Journal and (2) the federal funds effective rate
plus
1/2
of 1% or (b) a LIBOR rate, subject to certain adjustments,
in each case plus an applicable margin. The applicable margin in
the initial asset revolving credit facility was 0.75% with
respect to base rate borrowings and 1.75% with respect to LIBOR
borrowings. As part of the refinancing, these were revised to
0.50% and 1.50%, respectively. The applicable margin is subject
to adjustment downward based on the MRM’s leverage ratio.
In addition, MRM is required to pay a commitment fee of 0.375%
per annum in respect of the unutilized commitments. This rate is
also subject to adjustment downward based upon the MRM’s
leverage. MRM must also pay customary letter of credit fees and
agency fees.
If at any time the aggregate amount of outstanding loans,
unreimbursed letter of credit drawings and undrawn letters of
credit under the Asset-Based Revolving Credit Facility exceeds
the lesser of (i) the total revolving credit commitments
and (ii) the borrowing base, MRM will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Asset-Based
Revolving Credit Facility is less than 7% of total revolving
credit commitments, or an event of default pursuant to certain
provisions of the credit agreement has occurred, MRM would then
be required to deposit daily in a collection account managed by
the agent under the Asset-Based Revolving Credit Facility. MRM
may voluntarily reduce the unutilized portion of the commitment
amount and repay outstanding loans at any time without premium
or penalty other than customary “breakage” costs with
respect to LIBOR loans. There is no scheduled amortization under
the Asset-Based Revolving Credit Facility; the principal amount
of the loans outstanding is due and payable in full on
October 31, 2013.
All obligations under the Asset-Based Revolving Credit Facility
are guaranteed by MRM’s existing and future wholly owned
domestic subsidiaries. All obligations under MRM’s
Asset-Based Revolving Credit Facility, and the guarantees of
those obligations, are secured, subject to certain significant
exceptions, by substantially all of the assets of MRM and the
subsidiaries that have guaranteed the Asset-Based Revolving
Credit Facility, including:
| • | A first-priority security interest in personal property consisting of inventory and accounts receivable; | |
| • | A second-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and |
F-21
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
| • | A second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of MRM and each subsidiary guarantor. |
The Asset-Based Revolving Credit Facility contains a number of
covenants that, among other things and subject to certain
significant exceptions, restrict its ability and the ability of
its subsidiaries to:
| • | Incur additional indebtedness; | |
| • | Pay dividends on MRM’s capital stock or the capital stock of MRM’s direct or indirect parent; | |
| • | Make investments, loans, advances or acquisitions; | |
| • | Sell assets, including capital stock of MRM’s subsidiaries; | |
| • | Consolidate or merge with another entity; | |
| • | Create liens; | |
| • | Pay, redeem, or amend the terms of subordinated indebtedness; | |
| • | Enter into certain sale-leaseback transactions; | |
| • | Fundamentally or substantively alter the character of the business conducted by MRM and its subsidiaries; and | |
| • | Enter into agreements that limit (1) the ability of non-guarantors to pay dividends to MRM or any guarantor or (2) the ability of MRM or any guarantor to pledge its assets to secure its obligations under the Asset-Based Revolving Credit Facility. |
In addition to other customary exceptions, the covenants
limiting dividends and other restricted payments and prepayments
or redemptions of subordinated indebtedness generally permit the
restricted actions in additional limited amounts, subject to the
satisfaction of certain conditions, principally that MRM must
have at least $50.0 million of pro forma excess
availability under the
Asset-Based
Revolving Credit Facility.
Although the credit agreement governing the Asset-Based
Revolving Credit Facility does not require MRM to comply with
any financial ratio maintenance covenants, if less than 7% of
the then outstanding credit commitments were available to be
borrowed under the Asset-Based Revolving Credit Facility at any
time, MRM would not be permitted to borrow any additional
amounts unless its pro forma ratio of consolidated EBITDA to
consolidated Fixed Charges (as such terms are defined in the
credit agreement) were at least 1.0 to 1.0. The credit agreement
also contains customary affirmative covenants and events of
default.
Term Loan Facility: On January 31,
2007, in connection with the acquisition of McJunkin by the
Goldman Sachs Funds, MRM entered into a credit agreement and
related security and other agreements for a $575.0 million
Term Loan Facility with Lehman Commercial Paper as
administrative agent and collateral agent. The full amount of
the Term Loan Facility was borrowed on January 31, 2007.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, the Term Loan Facility was amended to
permit for the refinancing of the Asset-Based Revolving Credit
Facility, as described above, in addition to revising certain
provisions of the agreement as discussed in more detail below.
F-22
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
At December 31, 2007, borrowings under the Term Loan
Facility bore interest at a rate per annum equal to, at
MRM’s option, either (a) a base rate determined by
reference to the greater of (1) the prime rate as quoted in
The Wall Street Journal and (2) the federal funds
effective rate plus
1/2
of 1% or (b) a LIBOR rate, subject to certain adjustments,
in each case plus an applicable margin. At December 31,
2007, the applicable margin with respect to base rate borrowings
was 2.25% and the applicable margin with respect to LIBOR
borrowings was 3.25%. The interest rate on the outstanding
borrowings pursuant to the Term Loan Facility was 8.08% at
December 31, 2007.
The Term Loan Facility requires MRM to prepay outstanding term
loans with 50% (which percentage will be reduced to 25% if
MRM’s total leverage ratio is less than a specified ratio
and will be reduced to 0% if MRM’s total leverage ratio is
less than a specified ratio) of its annual excess cash flow (as
defined in the credit agreement). For 2007, MRM was not required
to prepay any outstanding term loans pursuant to the annual
excess cash flow requirements.
MRM may voluntarily prepay outstanding loans under the Term Loan
Facility at any time without premium or penalty other than
customary “breakage” costs with respect to LIBOR
loans. The Term Loan Facility amortizes at a rate of 1.00% per
year with the balance due at January 31, 2014.
All obligations under the Term Loan Facility are unconditionally
guaranteed by the MRM and each wholly owned domestic subsidiary
of MRM. All obligations under the Term Loan Facility, and the
guarantees of those obligations, are secured, subject to certain
significant exceptions, by substantially all of the assets of
MRM and the subsidiaries that have guaranteed the Term Loan
Facility, including:
| • | A second-priority security interest in personal property consisting of inventory and accounts receivable; | |
| • | A first-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
| • | A first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the MRM and each subsidiary guarantor. |
The Term Loan Facility contains a number of negative covenants
that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
MRM was in compliance with the covenants contained in its credit
agreements during the eleven months ended December 31, 2007
and during the one month ended January 30, 2007.
Midfield Revolving Credit
Facility: Midfield, the Company’s
Canadian subsidiary, has a Canadian dollar revolving credit
facility administered by Bank of America. This facility has a
maximum limit of CAD $150 million (US$152.91 million
as of 12/31/07) bearing interest at Canadian prime rate plus a
margin of up to 0.25%. The revolver is secured by substantially
all of Midfield’s personal property assets including
accounts receivable, chattel paper, bank accounts, general
intangibles, inventory, investment property, cash and insurance
proceeds. The balance of the revolver is due at its maturity
date, November 2, 2010.
Midfield Term Loan Facility: Midfield
has a term loan facility that is due on demand. This facility
bears interest at Canadian prime rate plus a margin of up to
0.5%. The term loan facility is secured by substantially all of
Midfield’s real property and equipment.
During the period from October 31, 2007, the date of the
Red Man Transaction, to December 31, 2007, Midfield was in
compliance with the covenants contained in its revolving credit
facility and other debt agreements.
F-23
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
Midfield Notes Payable: Midfield has
two notes payable due April 1, 2008 pursuant to holdback
provisions from recent acquisitions. These amounts, totaling
$3.8 million at December 31, 2007, are owed to
individuals who became and continue to be shareholders of
Midfield supply as a result of these transactions.
Maturities of Long-Term Debt: At
December 31, 2007, annual maturities of long-term debt
during the next five fiscal years and thereafter are as follows
(in millions):
|
2008
|
$ | 19.8 | ||
|
2009
|
5.8 | |||
|
2010
|
56.8 | |||
|
2011
|
5.8 | |||
|
2012
|
5.8 | |||
|
Thereafter
|
774.6 |
The above table does not reflect future excess cash flow
prepayments, if any, that may be required under the Term Loan
Facility.
Interest Rate Swaps: The Company uses
derivative financial instruments to help manage its interest
rate risk. On December 3, 2007, MRM entered into a floating
to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit its exposure to interest rate
increases related to a portion of its floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At December 31, 2007, the fair value of
MRM’s interest rate swap agreement was a loss of
approximately $0.4 million, which amount is included in
accrued liabilities.
As of the effective date, MRM designated the interest rate swap
as a cash flow hedge. As a result, changes in the fair value of
MRM’s swap is recorded as a component of other
comprehensive income. At December 31, 2007,
$0.2 million of unrecognized losses, net of tax, on the
interest rate swap agreement is included in other comprehensive
income.
As a result of the swap agreement, MRM’s effective fixed
interest rates as to the $700.0 million in floating rate
indebtedness will be 5.368% for associated indebtedness on the
Asset-Based Revolving Credit Facility and 7.118% for associated
indebtedness on the Term Loan Facility, per quarter through 2010
and result in an average fixed rate of 6.771%.
Interest Paid: The Company paid
interest of $52.9 million for the eleven months ended
December 31, 2007, $0.1 million for the one month
ended January 30, 2007, and $2.8 million and
$2.6 million for the years ended December 31, 2006 and
2005, respectively.
F-24
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
| NOTE 6 — | PROPERTY, PLANT, AND EQUIPMENT |
Property, plant, and equipment consisted of the following (in
thousands):
|
(Successor) |
(Predecessor) |
||||||||
|
December 31, |
December 31, |
||||||||
|
2007
|
2006
|
||||||||
|
Land and improvements
|
$ | 10,911 | $ | 4,392 | |||||
|
Buildings and building improvements
|
31,624 | 21,416 | |||||||
|
Equipment
|
42,295 | 43,143 | |||||||
| 84,830 | 68,951 | ||||||||
|
Allowances for depreciation
|
(4,710 | ) | (41,743 | ) | |||||
| $ | 80,120 | $ | 27,208 | ||||||
| NOTE 7 — | LEASES |
The Company leases land and buildings at various locations from
Hansford Associates, Appalachian Leasing, and one stockholder.
The Company leases land, buildings and vehicles from Prideco.
Certain officers and directors of the Company participate in
ownership of Hansford Associates, Appalachian Leasing and
Prideco. Most of these leases are renewable for various periods
through 2026 and are renewable at the option of the Company. The
renewal options are subject to escalation clauses. These leases
contain clauses for payment of real estate taxes, maintenance,
insurance and certain other operating expenses of the
properties. Leases with unrelated parties contain similar
provisions.
Amortization of capital leases was as follows (in thousands):
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven |
One |
||||||||||||||||
|
Months |
Month |
||||||||||||||||
|
Ended |
Ended |
Years Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Amortization of capital leases
|
$ | 164 | $ | 15 | $ | 179 | $ | 179 | |||||||||
Property held under capital leases in the balance sheets
consists of (in thousands):
|
(Successor) |
(Predecessor) |
||||||||
|
December 31, |
December 31, |
||||||||
|
2007
|
2006
|
||||||||
|
Land and buildings
|
$ | 2,089 | $ | 4,881 | |||||
|
Allowances for amortization
|
(164 | ) | (2,777 | ) | |||||
| $ | 1,925 | $ | 2,104 | ||||||
Future minimum lease payments under capital leases aggregate
$10.1 million of which $3.2 million represents
interest and $3.4 million represents escalation and
executory costs. The present value of net minimum lease payments
is $3.6 million, all applicable to Hansford Associates.
Annual payments under capital leases are $0.9 million for
years 2008 through 2012.
F-25
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
Rent expense under operating leases is as follows (in thousands):
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven |
One |
||||||||||||||||
|
Months |
Month |
||||||||||||||||
|
Ended |
Ended |
Years Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Leases with Hansford Associates
|
$ | 1,498 | $ | 136 | $ | 1,534 | $ | 1,474 | |||||||||
|
Leases with Appalachian Leasing
|
134 | 12 | 153 | 154 | |||||||||||||
|
Leases with Prideco
|
538 | — | — | — | |||||||||||||
|
Leases with Midfield shareholders
|
151 | — | — | — | |||||||||||||
|
Other operating leases
|
8,748 | 608 | 7,149 | 6,442 | |||||||||||||
|
Total rent expense under operating leases
|
$ | 11,069 | $ | 756 | $ | 8,836 | $ | 8,070 | |||||||||
Future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in
excess of one year aggregate to $45.5 million and include
leases applicable to Hansford Associates ($4.2 million),
Appalachian Leasing ($0.5 million), Prideco
($0.3 million), and the stockholder ($0.1 million).
Annual operating lease payments are $18.3 million,
$12.7 million, $6.2 million, $4.7 million, and
$3.7 million for years 2008 through 2012, respectively.
| NOTE 8 — | INCOME TAXES |
Income taxes included in the consolidated statements of income
consist of (in thousands):
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven |
One |
||||||||||||||||
|
Months |
Month |
||||||||||||||||
|
Ended |
Ended |
Years Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Current:
|
|||||||||||||||||
|
Federal
|
$ | 31,190 | $ | 4,024 | $ | 36,514 | $ | 34,075 | |||||||||
|
State
|
5,895 | 814 | 8,024 | 7,413 | |||||||||||||
|
Foreign
|
224 | — | — | — | |||||||||||||
| 37,309 | 4,838 | 44,538 | 41,488 | ||||||||||||||
|
Deferred:
|
|||||||||||||||||
|
Federal
|
263 | (197 | ) | 3,129 | (4,037 | ) | |||||||||||
|
State
|
38 | (42 | ) | 673 | (868 | ) | |||||||||||
|
Foreign
|
(1,051 | ) | — | — | — | ||||||||||||
| (750 | ) | (239 | ) | 3,802 | (4,905 | ) | |||||||||||
|
Income tax provision
|
$ | 36,559 | $ | 4,599 | $ | 48,340 | $ | 36,583 | |||||||||
F-26
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
The Company’s effective tax rate varied from the statutory
federal income tax rate for the following reasons (in thousands):
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven |
One |
||||||||||||||||
|
Months |
Month |
||||||||||||||||
|
Ended |
Ended |
Years Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Federal tax expense at statutory rates
|
$ | 32,721 | $ | 3,918 | $ | 41,270 | $ | 31,193 | |||||||||
|
State taxes
|
3,971 | 502 | 5,653 | 4,254 | |||||||||||||
|
Non-deductible expenses
|
424 | 26 | 409 | 372 | |||||||||||||
|
Foreign
|
(827 | ) | — | — | — | ||||||||||||
|
Other
|
270 | 153 | 1,008 | 764 | |||||||||||||
|
Income tax provision
|
$ | 36,559 | $ | 4,599 | $ | 48,340 | $ | 36,583 | |||||||||
|
Effective rate
|
39.10 | % | 40.78 | % | 41.0 | % | 41.0 | % | |||||||||
The Company paid $38.2 million for the eleven months ended
December 31, 2007, $0 for the one month ended
January 30, 2007, and $50.6 million and
$34.7 million in 2006 and 2005 for federal and state taxes.
Significant components of the Company’s current deferred
tax assets and liabilities are as follows (in thousands):
|
(Successor) |
(Predecessor) |
||||||||
|
December 31, |
December 31, |
||||||||
|
2007
|
2006
|
||||||||
|
Deferred tax assets:
|
|||||||||
|
Accounts receivable valuation
|
$ | 964 | $ | 797 | |||||
|
Real estate and investments
|
26 | 86 | |||||||
|
Accruals and reserves
|
2,395 | 3,684 | |||||||
|
Other
|
819 | — | |||||||
|
Total deferred tax assets
|
4,204 | 4,567 | |||||||
|
Deferred tax liabilities:
|
|||||||||
|
Accounts receivable
|
(3,878 | ) | — | ||||||
|
Inventory valuation
|
(75,882 | ) | (6,464 | ) | |||||
|
Property, plant and equipment
|
(6,485 | ) | (2,969 | ) | |||||
|
Interest in Red Man Canada
|
(4,138 | ) | — | ||||||
|
Investments
|
(11,930 | ) | (14,759 | ) | |||||
|
Intangible assets
|
(197,742 | ) | — | ||||||
|
Total deferred tax liabilities
|
(300,055 | ) | (24,192 | ) | |||||
|
Net deferred tax liability
|
$ | (295,851 | ) | $ | (19,625 | ) | |||
Income tax returns are filed in the U.S. federal
jurisdiction, various states, Puerto Rico and Canada. The
Company is no longer subject to U.S. federal income tax
examination for years through 2004.
F-27
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
Effective January 1, 2007, the Predecessor adopted
FIN 48, Accounting for Uncertainty in Income Taxes.
This interpretation established new standards for the financial
statement recognition, measurement and disclosure of uncertain
tax positions taken or expected to be taken in income tax
returns.
The effect of adopting FIN 48 was immaterial. Upon
adoption, the liability for income taxes under FIN 48 was
$0.4 million and interest and penalties were
$0.2 million. Interest related to income tax liabilities is
classified as interest expense and penalties are recognized as a
component of income tax expense. As of December 31, 2007,
there were no material changes in the reserve or the amount of
unrecognized tax benefits, interest or penalties. It is not
anticipated that settlement of the uncertain tax positions will
have a material affect on the statutory rate. The decrease in
tax liability shown below was due to expiring statute of
limitations and settlement of taxes.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
(Successor) |
(Predecessor) |
|||||||
|
Eleven Months |
One Month |
|||||||
|
Ended |
Ended |
|||||||
|
December 31, |
January 30, |
|||||||
|
2007
|
2007
|
|||||||
|
Beginning balance
|
$ | 667 | $ | 667 | ||||
|
Additions based on tax positions related to current year
|
— | — | ||||||
|
Reductions due to lapse of statute of limitations
|
(69 | ) | — | |||||
|
Reductions for tax positions of prior years
|
(53 | ) | — | |||||
|
Settlements
|
(40 | ) | — | |||||
|
Ending balance
|
$ | 505 | $ | 667 | ||||
| NOTE 9 — | STOCK-BASED COMPENSATION |
Restricted Stock and Stock Option
Plans: Effective March 27, 2007, the
Company’s Board of Directors approved the formation of the
2007 Restricted Stock Plan and the 2007 Stock Option Plan. The
purpose of these plans is to aid MRM in recruiting and retaining
key employees, directors and consultants of outstanding ability
and to motivate such key employees, directors and consultants to
exert their best efforts on behalf of the Company by providing
incentives in the form of restricted stock and stock options.
The Company expects that it will benefit from the added interest
which such key employees, directors and consultants will have in
the welfare of the Company as a result of their proprietary
interest in the Company’s success.
Under the terms of the stock option plan, options may not be
granted at prices less than their fair market value on the date
of the grant, nor for a term exceeding 10 years. Vesting
occurs in
one-third
increments on the third, fourth, and fifth anniversaries of the
date specified in the employees’ respective option
agreements. The Company expenses the fair value of the stock
option grants on a straight-line basis over the vesting period.
A Black-Scholes option pricing model was used to estimate the
fair value of the stock options granted in 2007. For purposes of
measuring compensation, the Company relies on a calculated value
that requires certain assumptions including volatility based on
F-28
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
the appropriate industry sector. Following are the weighted
average assumptions used to estimate the fair values of options
granted during the eleven months ended December 31, 2007:
|
Risk-free interest rate
|
4.10% | |
|
Dividend yield
|
0.00% | |
|
Expected volatility
|
22.07% | |
|
Expected lives
|
6.2 years |
A summary of the status of stock option grants under the stock
option plan as of December 31, 2007, and changes during the
eleven months ended on that date is as follows:
|
Weighted Average |
||||||||
|
Options
|
Exercise Price
|
|||||||
|
Outstanding at January 31, 2007
|
— | $ | — | |||||
|
Granted
|
3,533.46 | 3,933.81 | ||||||
|
Exercised
|
— | — | ||||||
|
Forfeited
|
— | — | ||||||
|
Expired
|
— | — | ||||||
|
Outstanding at December 31, 2007
|
3,533.46 | $ | 3,933.81 | |||||
|
Options exercisable at December 31, 2007
|
— | $ | — | |||||
|
Options vested at December 31, 2007
|
— | — | ||||||
Under the terms of the restricted stock plan, restricted stock
may be granted at the direction of the Board of Directors and
vesting occurs in one-fourth increments on the second, third,
fourth, and fifth anniversaries of the date specified in the
employees’ respective restricted stock agreements. The
Company expenses the fair value of the restricted stock grants
on a straight-line basis over the vesting period.
The following table summarizes restricted stock activity under
the restricted stock plan as of December 31, 2007, and
changes during the eleven months ended on that date:
|
Shares
|
||||
|
Balance at January 31, 2007
|
— | |||
|
Granted
|
635.52 | |||
|
Forfeited
|
— | |||
|
Issued
|
— | |||
|
Balance at December 31, 2007
|
635.52 | |||
Compensation expense recognized under the stock option and
restricted stock plans totaled $0.3 million and
$0.1 million for the eleven months ended December 31,
2007. As of December 31, 2007, the Company had
$4.3 million and $1.4 million of unrecognized
compensation expense related to outstanding stock options and
restricted stock. These amounts will be recognized over a
weighted average vesting period of five years.
Restricted Common Units: In conjunction
with the acquisition of McJunkin by the Goldman Sachs Funds,
certain key MRM employees received restricted common units of
PVF Holdings LLC that vest over a five-year requisite service
period. Compensation expense associated with these restricted
common units totaled $1.0 million for the eleven months
ended December 31, 2007 based upon their fair market value
at the date they were issued which is being recognized on a
straight-line basis over the vesting period. As of
December 31, 2007, the Company had $4.6 million of
F-29
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
unrecognized compensation expense related to outstanding
restricted common units which will be amortized over a weighted
average vesting period of four years.
Profits Units: In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds and the Red
Man acquisition, certain key MRM employees received profits
units in PVF Holdings LLC that vest over a five-year requisite
service period. These units entitle their holders to a share of
any distributions made by PVF Holdings LLC once common unit
holders have received a return of all capital contributed to PVF
Holdings LLC in the period of resolution.
Compensation expense associated with these profits units totaled
$1.6 million for the eleven months ended December 31,
2007 based upon their fair market value at the date they were
issued which is being amortized on a straight-line basis over
the vesting period. As of December 31, 2007, the Company
had $15.4 million of unrecognized compensation expense
related to outstanding profits units which will be amortized
over a weighted average vesting period of five years.
| NOTE 10 — | EMPLOYEE BENEFIT PLANS |
In 2007, the Company offered a noncontributory profit sharing
plan to employees with at least six months of service. This plan
provides for annual employer contributions generally based upon
a formula related primarily to earnings, limited to 15% of the
eligible compensation paid to all eligible employees. Employees
may also participate in the McJunkin Red Man Savings Plan,
whereunder any employee who has completed as least six months of
service to the Company may elect to defer a percentage of their
base earnings, and that deferral is partially matched by the
Company, pursuant to section 401(k) of the Internal Revenue
Code.
Employees of Red Man located in the United States who have
attained the age of 21 are eligible to participate in the Red
Man Pipe & Supply Co. Retirement Savings Plan which
also exists pursuant to Section 401(k) of the Internal
Revenue Code.
The Company’s provisions for the profit sharing plan and
matching portion under the 401(k) plans approximated (in
thousands):
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven |
One |
||||||||||||||||
|
Months |
Month |
||||||||||||||||
|
Ended |
Ended |
Years Ended |
|||||||||||||||
|
December 31, |
January 30, |
December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Profit sharing expenses
|
$ | 12,294 | $ | 1,338 | $ | 15,064 | $ | 13,144 | |||||||||
|
401(k) savings plan expenses
|
1,141 | 73 | 837 | 830 | |||||||||||||
|
Other
|
157 | — | — | — | |||||||||||||
| NOTE 11 — | RELATED PARTY TRANSACTIONS |
In connection with Red Man’s 2005 acquisition of 51% of the
shares of Midfield, a Shareholders’ Agreement between Red
Man Pipe & Supply Canada, LTD., the 51% majority
shareholder of Midfield Supply ULC, and Midfield Holdings
(Alberta) LTD., the 49% minority interest shareholder of
Midfield Supply ULC was created. This agreement, among other
things, stipulates how profits of Midfield Supply ULC are
shared. Midfield Holdings (Alberta) LTD’s portion of the
profits are accrued and subsequently paid to shareholders of
Midfield Holdings (Alberta) LTD, who are also employees of
Midfield Supply ULC, via a formal Employee Profit Sharing Plan
(EPSP). In connection with the EPSP,
F-30
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
$8.9 million was accrued as of December 31, 2007.
Expense associated with this plan is included in selling,
general and administrative expenses. Red Man Pipe &
Supply Canada, LTD’s portion of the profits was accrued and
subsequently paid through an after-tax dividend, which has been
eliminated in consolidation.
In connection with the EPSP payments, from time to time the
minority shareholders make loans to the Company. These notes
payable are unsecured, bear interest at 8% and have no fixed
terms of repayment. Amounts payable to minority interest
shareholders were $25.0 million at December 31, 2007.
| NOTE 12 — | EARNINGS PER SHARE |
| (Successor) | (Predecessor) | ||||||||||||||||
|
Eleven Months |
One Month |
||||||||||||||||
|
Ended |
Ended |
||||||||||||||||
|
December 31, |
January 30, |
Year Ended December 31, | |||||||||||||||
|
2007
|
2007
|
2006
|
2005
|
||||||||||||||
|
Net income (in thousands)
|
$ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
|
Average basic shares outstanding
|
138,627 | 17,510 | 17,510 | 17,510 | |||||||||||||
|
Effect of dilutive securities
|
272 | — | — | — | |||||||||||||
|
Average dilutive shares outstanding
|
138,899 | 17,510 | 17,510 | 17,510 | |||||||||||||
|
Net income per share:
|
|||||||||||||||||
|
Basic
|
$ | 410.64 | $ | 376.70 | $ | 3,973.39 | $ | 3,000.63 | |||||||||
|
Diluted
|
$ | 409.84 | $ | 376.70 | $ | 3,973.39 | $ | 3,000.63 | |||||||||
Stock option grants are disregarded in this calculation if they
are determined to be anti-dilutive. At December 31, 2007,
the Company’s anti-dilutive stock options totaled 3,533.
There were no stock options outstanding at January 30,
2007, December 31, 2006 and 2005.
| NOTE 13 — | CONTINGENCIES |
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related claims to determine the adequacy of its accrual
for these claims. This analysis consisted of developing per
claim settlement estimates for each category of claim by alleged
disease type based on the Company’s historical settlement
experience. These estimates were applied to each of the
Company’s pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Company’s
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on this analysis,
and the existence of certain insurance coverage, the Company
believes that its current accruals for
F-31
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION AND SUBSIDIARIES
December 31, 2007
December 31, 2007
pending and probable asbestos-related litigation are adequate.
However, there is a possibility that resolution of the matters
could result in additional losses in excess of current accruals.
Also, there is a possibility that resolution of certain of the
Company’s legal contingencies for which there are no
liabilities recorded could result in a loss. Management is not
able to estimate the amount of such loss, if any. However, in
the opinion of the Company, after consultation with counsel, the
ultimate resolution of all pending matters is not expected to
have a material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on results of operations in the period of resolution.
In addition to the foregoing, from time to time the Company is
involved in various other legal and administrative proceedings
that are incidental to its business, including claims relating
to product liability, general negligence, environmental issues,
employment, and other matters. It is not expected that the
ultimate resolution of any of these matters will have a material
adverse impact on the Company’s consolidated financial
position or results of operations.
Midfield has issued a financial guarantee in the form of an
irrevocable standby letter of credit for an associated entity in
the amount of $5.1 million which is recorded in the
accompanying balance sheet at its fair value. This letter
expires January 31, 2009 subject to certain renewal
provisions.
F-32
Table of Contents
CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
|
June 26, |
December 31, |
|||||||
|
2008
|
2007
|
|||||||
| (Note1) | ||||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 8,761 | $ | 10,075 | ||||
|
Receivables, less allowances of $5,426 and $6,352
|
617,693 | 481,463 | ||||||
|
Inventories
|
724,208 | 666,188 | ||||||
|
Other current assets
|
4,437 | 1,937 | ||||||
|
TOTAL CURRENT ASSETS
|
1,355,099 | 1,159,663 | ||||||
|
INVESTMENTS AND OTHER ASSETS
|
||||||||
|
Investments
|
1,571 | 1,680 | ||||||
|
Assets held for sale
|
36,022 | 37,500 | ||||||
|
Debt issuance costs
|
30,341 | 23,390 | ||||||
|
Notes receivable and other assets
|
3,705 | 4,376 | ||||||
| 71,639 | 66,946 | |||||||
|
FIXED ASSETS
|
||||||||
|
Property, plant, and equipment, net
|
91,396 | 80,120 | ||||||
|
PROPERTY HELD UNDER CAPITAL LEASES
|
1,835 | 1,925 | ||||||
|
INTANGIBLE ASSETS
|
||||||||
|
Goodwill
|
814,704 | 1,092,379 | ||||||
|
Intangible assets
|
959,603 | 523,998 | ||||||
| 1,774,307 | 1,616,377 | |||||||
| $ | 3,294,276 | $ | 2,925,031 | |||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Trade accounts payable
|
$ | 453,184 | $ | 306,509 | ||||
|
Accrued expenses and other liabilities
|
103,724 | 70,778 | ||||||
|
Income taxes payable
|
10,182 | 11,996 | ||||||
|
Deferred revenue
|
8,589 | 6,552 | ||||||
|
Deferred income taxes
|
76,538 | 80,364 | ||||||
|
Term loans due on demand
|
9,845 | 10,228 | ||||||
|
Current portion of long-term obligations
|
||||||||
|
Long-term debt
|
6,717 | 9,553 | ||||||
|
Capital leases
|
259 | 189 | ||||||
|
TOTAL CURRENT LIABILITIES
|
669,038 | 496,169 | ||||||
|
LONG-TERM OBLIGATIONS
|
||||||||
|
Long-term debt
|
1,268,184 | 848,616 | ||||||
|
Payable to shareholders
|
52,294 | 49,164 | ||||||
|
Deferred income taxes
|
380,512 | 215,487 | ||||||
|
Capital leases
|
3,339 | 3,446 | ||||||
|
Other liabilities
|
1,386 | 1,415 | ||||||
| 1,705,715 | 1,118,128 | |||||||
|
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS
|
95,164 | 100,700 | ||||||
|
STOCKHOLDERS’ EQUITY
|
||||||||
|
Common stock, $0.01 par value per share;
1,000,000 shares authorized issued and outstanding June
2008 — 311,364.7277, issued and outstanding December
2007 — 299,891.4604
|
— | — | ||||||
|
Additional paid-in capital
|
1,169,589 | 1,154,148 | ||||||
|
Retained earnings
|
(341,763 | ) | 56,926 | |||||
|
Other comprehensive (loss), net of deferred income taxes of
$1,200 and $162
|
(3,467 | ) | (1,040 | ) | ||||
| 824,359 | 1,210,034 | |||||||
| $ | 3,294,276 | $ | 2,925,031 | |||||
See notes to consolidated financial statements.
F-33
Table of Contents
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands, except per share data)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands, except per share data)
| (Successor) | (Predecessor) | |||||||||||
|
Six Months |
Five Months |
One Month |
||||||||||
|
Ended |
Ended |
Ended |
||||||||||
| June 26, 2008 | June 28, 2007 | January 30, 2007 | ||||||||||
|
SALES
|
$ | 2,196,033 | $ | 784,964 | $ | 142,549 | ||||||
|
COSTS AND EXPENSES
|
||||||||||||
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
1,803,792 | 635,934 | 114,562 | |||||||||
|
Selling, general and administrative expenses
|
200,116 | 80,714 | 14,592 | |||||||||
|
Depreciation and amortization
|
5,192 | 1,665 | 344 | |||||||||
|
Amortization of intangibles
|
15,623 | 4,624 | 16 | |||||||||
|
Profit sharing
|
13,509 | 5,635 | 1,338 | |||||||||
|
Stock-based compensation
|
3,319 | 1,291 | — | |||||||||
|
TOTAL COSTS AND EXPENSES
|
2,041,551 | 729,863 | 130,852 | |||||||||
|
OPERATING INCOME
|
154,482 | 55,101 | 11,697 | |||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||
|
Interest expense
|
(34,973 | ) | (24,332 | ) | (131 | ) | ||||||
|
Minority interests
|
(123 | ) | — | (356 | ) | |||||||
|
Other, net
|
(249 | ) | (822 | ) | (15 | ) | ||||||
| (35,345 | ) | (25,154 | ) | (502 | ) | |||||||
|
INCOME BEFORE INCOME TAXES
|
119,137 | 29,947 | 11,195 | |||||||||
|
Income tax expense
|
43,203 | 12,333 | 4,599 | |||||||||
|
NET INCOME
|
$ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
|
Effective Tax Rate
|
36.26 | % | 41.18 | % | 41.08 | % | ||||||
|
Basic earnings per common share
|
$ | 245.41 | $ | 171.69 | $ | 376.70 | ||||||
|
Diluted earnings per common share
|
$ | 244.92 | $ | 171.36 | $ | 376.70 | ||||||
|
Dividends per common share
|
$ | 1,523 | $ | — | $ | — | ||||||
See notes to consolidated financial statements
F-34
Table of Contents
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
| (Successor) | (Predecessor) | |||||||||||
|
Six Months |
Five Months |
One Month |
||||||||||
|
Ended |
Ended |
Ended |
||||||||||
| June 26, 2008 | June 28, 2007 | January 30, 2007 | ||||||||||
|
CASH PROVIDED BY OPERATIONS
|
||||||||||||
|
Net income
|
$ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operations:
|
||||||||||||
|
Depreciation and amortization
|
5,192 | 1,665 | 344 | |||||||||
|
Amortization of debt issuance costs
|
2,285 | 1,571 | — | |||||||||
|
Stock-based compensation
|
3,319 | 1,291 | — | |||||||||
|
Deferred income taxes
|
(2,482 | ) | (2,065 | ) | — | |||||||
|
Minority interest
|
123 | — | 356 | |||||||||
|
Amortization of intangibles
|
15,623 | 4,624 | 16 | |||||||||
|
Change in fair market value of derivatives
|
413 | — | — | |||||||||
|
Provision for losses on receivables
|
1,052 | 175 | 35 | |||||||||
|
Inventory loss provision
|
313 | 65 | 13 | |||||||||
|
Non-operating gains (losses) and other items not providing cash
|
(273 | ) | 82 | (153 | ) | |||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
(138,949 | ) | (28,597 | ) | (1,363 | ) | ||||||
|
Inventories
|
(57,634 | ) | (2,843 | ) | 6,700 | |||||||
|
Income taxes
|
(1,763 | ) | (2,248 | ) | 4,595 | |||||||
|
Other current assets
|
(2,509 | ) | 526 | 139 | ||||||||
|
Accounts payable
|
146,589 | 6,104 | (7,665 | ) | ||||||||
|
Accrued expenses and other current liabilities
|
23,264 | 3,931 | (2,996 | ) | ||||||||
|
NET CASH PROVIDED BY OPERATIONS
|
70,497 | 1,895 | 6,617 | |||||||||
|
INVESTING ACTIVITIES
|
||||||||||||
|
Purchases of property, plant and equipment
|
(7,550 | ) | (2,235 | ) | (417 | ) | ||||||
|
Proceeds from the disposition of property, plant and equipment
|
1,330 | 39 | — | |||||||||
|
Acquisition of controlling interest in McJunkin by GSCP
|
— | (849,053 | ) | — | ||||||||
|
Acquisition of Midway Tristate Corporation
|
(3 | ) | (83,338 | ) | — | |||||||
|
Acquisition of Red Man Pipe & Supply
|
(11,391 | ) | — | — | ||||||||
|
Other investment and notes receivable transactions
|
1,177 | 1,331 | 259 | |||||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(16,437 | ) | (933,256 | ) | (158 | ) | ||||||
|
FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds from issuance of long-term obligations
|
454,474 | 747,433 | — | |||||||||
|
Payments on long-term obligations
|
(31,384 | ) | (4,896 | ) | (8,254 | ) | ||||||
|
Cash equity contribution in conjunction with acquisition of
controlling interest in McJunkin by GSCP
|
— | 225,653 | — | |||||||||
|
Cash equity contributions
|
5,030 | 507 | — | |||||||||
|
Debt issuance costs paid
|
(9,257 | ) | (22,837 | ) | — | |||||||
|
Dividends paid
|
(474,096 | ) | — | — | ||||||||
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
(55,233 | ) | 945,860 | (8,254 | ) | |||||||
|
(Decrease) increase in cash
|
(1,173 | ) | 14,499 | (1,795 | ) | |||||||
|
Effect of foreign exchange rate on cash
|
(141 | ) | — | — | ||||||||
|
Cash — beginning of period
|
10,075 | 1,953 | 3,748 | |||||||||
|
CASH — END OF PERIOD
|
$ | 8,761 | $ | 16,452 | $ | 1,953 | ||||||
See notes to consolidated financial statements.
F-35
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN RED MAN HOLDING CORPORATION
June 26, 2008
(Unaudited)
| NOTE 1 — | SIGNIFICANT ACCOUNTING POLICIES |
Business Operations: McJunkin Red Man
Holding Corporation (the Company) is a holding company
co-headquartered in Charleston, West Virginia and Tulsa,
Oklahoma. The Company is a substantially owned subsidiary of PVF
Holdings, LLC. Our wholly owned subsidiary, McJunkin Red Man
Corporation and its subsidiaries (MRM) are national distributors
of pipe, valves, and fittings, with locations in principal
industrial, hydrocarbon producing and refining areas throughout
the United States and Canada. Major customers represent the
natural gas producing, petroleum refining, chemical and other
segments of the raw materials processing and construction
industries. Products are obtained from a broad range of
suppliers.
The Company operates as a single reportable segment, which
represents the Company’s business of providing industrial
pipe valves and fittings to various customers through our
distribution operations located throughout North America. The
Company has operations in eight geographic regions, which have
similar economic characteristics, and similar products and
services, types or classes of customers, distribution methods
and similar regulatory environments in each location. The total
consolidated net sales outside of the United States was 11.7%
for the six months ended June 26, 2008, 0.5% for the five
months ended June 28, 2007 and 0.8% for the one month ended
January 30, 2007. The percentage of total consolidated
assets outside of the United States as of June 26, 2008 and
December 31, 2007 was 10.5% and 0.2%, respectively. The
Company has a broad customer base and did not have sales to any
customer in excess of 10% of gross sales for any of the periods
presented.
Basis of Presentation: PVF Holdings
LLC, (formerly known as McJ Holding LLC) was formed on
November 20, 2006 by affiliates of the Goldman Sachs Group,
Inc. (the Goldman Sachs Funds) and a control group of certain
shareholders of McJunkin Corporation (McJunkin) for the purpose
of acquiring McJunkin on January 31, 2007. In connection
with the acquisition by the Goldman Sachs Funds of a controlling
interest in McJunkin, a new basis of accounting and reporting
was established that reflected the Goldman Sachs Funds’
cost of the acquisition. This new accounting basis has been
pushed down to the Company’s accounts and is reflected in
the Company’s consolidated balance sheet (successor basis)
at January 30, 2007.
In connection with the acquisition, GSCP and existing MRM
shareholders made an aggregate cash equity contribution of
$225.6 million and a noncash equity contribution of
$159.5 million to PVF in exchange for 100% ownership
interests in both the Company and MRM.
Because PVF Holdings LLC and the Company had no operations,
assets or business prior to their acquisition of McJunkin and
through December 31, 2007, MRM is the predecessor of the
Company and PVF Holdings LLC as of this date. On May 22,
2008, MRM borrowed $25 million in revolving loans under its
revolving credit facility and distributed the proceeds of the
loans to the Company. On the same date, the Company borrowed
$450 million in term loans under its term loan facility and
distributed the proceeds of the term loans, together with the
proceeds of the revolving loans, to its stockholders, including
PVF Holdings LLC. PVF Holdings LLC used the proceeds from the
dividend to fund distributions to members of PVF Holdings LLC in
May 2008.
All references to the “Predecessor” relate to McJunkin
for periods prior to January 31, 2007. All references to
the “Successor” relate to the Company for periods
subsequent to January 31, 2007. As a result, the
consolidated income statements and statements of cash flows for
the five-month period ended June 28, 2007 consist of the
earnings and cash flows of the Company. The consolidated income
statements and statements of cash flows of the Company for the
month ended January 30, are presented as Predecessor
financial statements for comparison purposes.
F-36
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Variable Interest Entities (VIE) are those entities in which the
Company, through contractual arrangements, bears the risks of,
and enjoys the rewards normally associated with ownership of the
entities, and therefore, the Company is the primary beneficiary
of these entities. MRM owns 49% of the outstanding equity
interests of Red Man Distributors LLC (“RMD”), an
Oklahoma limited liability company, formed on November 1,
2007 for the purposes of distributing oil country tubular goods
in North America as a certified minority supplier. MRM is
retained by RMD as an independent contractor to provide general
corporate and administrative services to RMD. MRM is paid an
annual services fee by RMD to provide such services. In
addition, MRM is paid a license fee for the right and license to
use the name “Red Man”. MRM pays RMD a specified
percentage of RMD’s gross monthly revenue for the relevant
month from sales of products by RMD that are sourced from
McJunkin Red Man Corporation. For the six months ended
June 26, 2008, the amounts paid approximated
$0.4 million (service fee), $0.6 million (license fee)
and $3.7 million (sales payment). There were no such
amounts paid in the year ended December 31, 2007. RMD is a
VIE and MRM has determined that it is the primary beneficiary,
therefore the Company has consolidated this entity.
The accompanying unaudited consolidated condensed financial
statements of the Company have been prepared in accordance with
Rule 10-01
of
Regulation S-X
for interim financial statements and do not include all
information and footnotes required by generally accepted
accounting principles for complete annual financial statements.
However, the information furnished herein reflects all normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
periods. The results of operations for the six months ended
June 26, 2008 are not necessarily indicative of the results
that will be realized for the fiscal year ending
December 31, 2008. The consolidated balance sheet as of
December 31, 2007 has been derived from audited financial
statements for the year ended December 31, 2007. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2007.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. Actual results may differ from these estimates. The
consolidated financial statements include the accounts of
McJunkin Red Man Holding Corporation and its wholly owned and
majority owned subsidiaries. The residual ownership in the
equity and income of Midfield Supply ULC (Midfield), a 51%
owned, Canada-based subsidiary, is reflected as minority
interest. All significant intercompany transactions have been
eliminated.
There have been no significant changes in our significant
accounting polices during the six months ended June 26,
2008 as compared to the significant accounting policies
described in our audited financial statements for the fiscal
year ending December 31, 2007.
Recent
Accounting Pronouncements:
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities. SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. It requires
qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in
derivative agreements. This statement is effective for financial
statements issued for fiscal
F-37
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
years beginning after November 15, 2008. The Company is
still assessing the impact of this pronouncement.
In April 2008, the FASB issued FSP
FAS 142-3,
Determination of the Useful Life of Intangible Assets,
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets.
The intent of the position is to improve the consistency between
the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the intangible asset. FSP
FAS 142-3
is effective for the fiscal years beginning after
December 15, 2008. The Company is assessing the potential
impact that the adoption of FSP
FAS 142-3
may have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles,
(SFAS No. 162). SFAS No. 162 identifies
the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles. This
statement shall be effective 60 days following the
Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. The Company does
not believe that implementation of this standard will have a
material impact on its consolidated financial statements.
In June 2008, the FASB ratified Emerging Issues Task Force Issue
No. 08-3,
Accounting for Lessees for Maintenance Deposits Under Lease
Arrangements,
(EITF 08-3).
EITF 08-3
provides guidance for accounting for nonrefundable maintenance
deposits.
EITF 08-3
is effective for fiscal years beginning after December 15,
2008. The Company does not currently expect the adoption of
EITF 08-3
to have a material impact on its consolidated financial
statements.
| NOTE 2 — | TRANSACTIONS AND SUBSEQUENT EVENT |
Acquisition
of Controlling Interest in McJunkin by the Goldman Sachs
Funds
In connection with the acquisition of controlling interest in
McJunkin by the Goldman Sachs Funds, the purchase price paid to
effect the acquisition was allocated to the fair value of
acquired assets and liabilities at January 31, 2007.
Certain members of the Company’s executive management team
held equity interests in McJunkin, the Predecessor, prior to
this transaction and continue to hold equity interests in the
Successor. In accordance with the provisions of Emerging Issues
Task Force
No. 88-16,
Basis in Leveraged Buyout Transactions, the basis of
executive management’s interests in the Company, the
Successor, after the acquisition was carried over at the basis
of their interests in the Predecessor prior to the acquisition.
F-38
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $1,008.5 million. The
sources and uses of funds in connection with the acquisition are
summarized below (in millions):
|
Sources
|
||||
|
Asset-Based Revolving Credit Facility
|
$ | 75.0 | ||
|
Term Loan Facility
|
575.0 | |||
|
Equity contribution — cash
|
225.6 | |||
|
Equity contribution — non-cash
|
159.5 | |||
|
Total sources
|
$ | 1,035.1 | ||
|
Uses
|
||||
|
Consideration paid to stockholders (including non-cash rollover
by McJunkin and McApple stockholders of $159.5 million)
|
$ | 983.4 | ||
|
Transaction costs
|
16.5 | |||
|
Debt issuance costs
|
22.8 | |||
|
General corporate purposes
|
7.6 | |||
|
Repayment of existing debt
|
4.8 | |||
|
Total uses
|
$ | 1,035.1 | ||
In connection with the purchase price allocation, the fair
values of long-lived and intangible assets were determined based
upon assumptions related to future cash flows, discount rates
and asset lives utilizing currently available information. As of
January 31, 2007, the Company recorded adjustments to
reflect property and equipment, inventory, intangible assets for
its tradename, customer-related intangibles, and backlog at
their estimated fair values. The Company also acquired the
minority interest in McJunkin Appalachian Oilfield Supply
Company (McJunkin Appalachian), which became wholly owned
concurrent with the acquisition by the Goldman Sachs Funds.
F-39
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price has been allocated as follows (in millions):
|
Cash consideration:
|
||||||||
|
Paid to shareholders
|
$ | 823.9 | ||||||
|
Transaction costs paid at closing
|
16.5 | |||||||
|
Transaction costs paid outside of closing
|
8.6 | |||||||
| 849.0 | ||||||||
|
Noncash consideration
|
159.5 | |||||||
|
Total consideration
|
1,008.5 | |||||||
|
Net assets acquired at historical cost
|
245.2 | |||||||
|
Adjustments to state acquired assets at fair value:
|
||||||||
|
1) Increase carrying value of property and equipment to fair
value
|
$ | 16.6 | ||||||
|
2) Increase carrying value of inventory to fair value
|
68.2 | |||||||
|
3) Write-off historical goodwill and tradename
|
(6.6 | ) | ||||||
|
4) Record intangible assets acquired
|
||||||||
|
Customer-related intangibles
|
356.0 | |||||||
|
Sales order backlog
|
1.6 | |||||||
|
Non-compete agreements
|
1.0 | |||||||
|
Tradename
|
155.8 | |||||||
|
5) Eliminate McApple minority interest
|
16.0 | |||||||
|
6) Record liability to shareholders related to non-core assets
|
(26.2 | ) | ||||||
|
7) Record fair value adjustments to various other assets and
liabilities
|
0.2 | |||||||
|
8) Tax impact of valuation adjustments
|
(213.8 | ) | 368.8 | |||||
|
Net assets acquired at fair value
|
614.0 | |||||||
|
Carryover basis adjustment
|
(11.6 | ) | ||||||
|
Excess purchase price recorded as goodwill
|
$ | 382.9 | ||||||
The tradename has an indefinite life and is not subject to
amortization. Tradename and goodwill are reviewed at least
annually for impairment.
Transaction costs paid at closing included $10.6 million
paid to an affiliate of the Goldman Sachs Funds as reimbursement
of their costs associated with due diligence and advisory
services.
Acquisition
of Midway-Tristate Corporation
On April 30, 2007, MRM, through its wholly owned subsidiary
McJunkin Appalachian , acquired a 100% interest in
Midway-Tristate
Corporation (Midway). Midway is engaged primarily in the
distribution of pipe, equipment and supplies to the oil and gas
and utility industries in Michigan, West Virginia, Ohio,
Pennsylvania, Utah, Wyoming, and Colorado. The acquisition of
Midway significantly increased McApple’s presence
particularly in the strategic Rocky Mountain region.
F-40
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $83.3 million and has
been allocated as follows (in millions):
|
Assets acquired
|
||||
|
Accounts receivable
|
$ | 19.5 | ||
|
Inventory
|
30.8 | |||
|
Fixed assets
|
3.4 | |||
|
Other assets
|
0.1 | |||
|
Customer-related intangibles
|
20.1 | |||
|
Goodwill
|
30.6 | |||
| 104.5 | ||||
|
Liabilities assumed
|
||||
|
Accounts payable
|
11.5 | |||
|
Accrued expenses
|
2.1 | |||
|
Income taxes payable
|
0.2 | |||
|
Deferred income taxes
|
7.4 | |||
| 21.2 | ||||
|
Total purchase price
|
$ | 83.3 | ||
Goodwill associated with this transaction is not deductible for
tax purposes, nor is any amortization associated with
customer-related intangibles which have a useful life of
20 years.
Acquisition
of Red Man Pipe & Supply Co.
On October 31, 2007, MRM, through its wholly owned
subsidiary West Oklahoma PVF Company, acquired a 100% interest
in Red Man Pipe & Supply Co. (Red Man). Red Man is a
distributor of tubular goods and an operator of service and
supply centers which distribute maintenance, repair and
operating products utilized primarily in the energy industry as
well as industrial products consisting primarily of line pipe,
valves, fittings and flanges. Red Man distributes products and
tubular goods through service and supply centers and sales
locations strategically located close to major hydrocarbon
producing and refining areas in the United States and Canada.
F-41
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
The purchase price was approximately $991.0 million
(including common units issued for Red Man shares of
$111.1 million) and has preliminarily been allocated as
follows (in millions):
|
Assets acquired
|
||||
|
Cash
|
$ | 13.9 | ||
|
Accounts receivable
|
335.2 | |||
|
Notes and other receivables
|
5.2 | |||
|
Inventory
|
386.3 | |||
|
Fixed assets
|
50.6 | |||
|
Other assets
|
0.3 | |||
|
Customer-related intangibles
|
260.2 | |||
|
Tradename
|
188.9 | |||
|
Sales order backlog
|
2.0 | |||
|
Goodwill
|
407.9 | |||
| 1,650.5 | ||||
|
Liabilities assumed
|
||||
|
Accounts payable
|
209.5 | |||
|
Accrued expenses
|
45.6 | |||
|
Income taxes payable
|
3.1 | |||
|
Deferred income taxes
|
225.9 | |||
|
Debt
|
71.6 | |||
|
Minority interest
|
100.6 | |||
|
Other liabilities
|
3.2 | |||
| 659.5 | ||||
|
Total purchase price
|
$ | 991.0 | ||
Transaction costs capitalized in connection with the acquisition
of Red Man Pipe & Supply Co. totaled
$17.3 million and included $12.0 million paid to an
affiliate of GSCP as reimbursement of their costs associated
with due diligence and advisory services.
As part of the Red Man transaction, MRM indirectly acquired a
call option to buy out the 49% minority interest of Midfield for
approximately $100.0 million. The call option may be
exercised between June 15, 2008 and December 15, 2008.
On July 31, 2008 MRM exercised this call right.
Approximately $68 million of the purchase price was paid in
cash with proceeds from MRM’s Asset Based Revolving Credit
Facility while the remainder was paid through the issuance of
PVF stock. In addition to the $100.0 million purchase
price, the company repaid $29 million of loans to the
selling shareholders of Midfield Supply.
Pro Forma
Financial Information
The following unaudited pro forma results of operations assume
that each of the transactions described above occurred on
January 1, 2007. This unaudited pro forma information
should not be
F-42
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
relied upon as necessarily being indicative of the historical
results that would have been obtained if the transactions had
actually occurred on that date nor the results that may be
obtained in the future.
|
Six Months Ended, |
||||
|
June 28, |
||||
|
2007
|
||||
| (in millions) | ||||
|
Pro forma sales
|
$ | 1,909.2 | ||
|
Pro forma net income
|
$ | 62.6 | ||
| NOTE 3 — | GOODWILL AND INTANGIBLE ASSETS |
The following tables present the Company’s goodwill and
other intangible assets at June 26, 2008 and
December 31, 2007 (in thousands).
|
Sales |
Tradename |
|||||||||||||||||||
|
Order |
Customer |
Non Compete |
(With |
|||||||||||||||||
|
Backlog |
Base |
Agreements |
Indefinite |
|||||||||||||||||
|
(1 Year)
|
(30.5 Years)
|
(5 Years)
|
Life)
|
Goodwill
|
||||||||||||||||
|
Recorded in connection with the McJunkin acquisition
|
$ | 1,601 | $ | 356,036 | $ | 970 | $ | 155,762 | $ | 382,908 | ||||||||||
|
Recorded in connection with the Midway acquisition (preliminary)
|
— | 20,118 | — | — | 30,802 | |||||||||||||||
|
Recorded in connection with the Red Man acquisition (preliminary)
|
— | — | — | — | 681,906 | |||||||||||||||
|
Amortization
|
(1,467 | ) | (8,844 | ) | (178 | ) | — | — | ||||||||||||
|
Impact of foreign currency translation
|
— | — | — | — | (3,237 | ) | ||||||||||||||
|
Balance at December 31, 2007
|
$ | 134 | $ | 367,310 | $ | 792 | $ | 155,762 | $ | 1,092,379 | ||||||||||
|
Adjustments to purchase price allocation in connection with the
Red Man acquisition
|
2,048 | 260,316 | — | 188,864 | (273,978 | ) | ||||||||||||||
|
Adjustments to purchase price allocation in connection with the
Midway acquisition
|
— | — | — | — | (170 | ) | ||||||||||||||
|
Amortization
|
(1,321 | ) | (14,204 | ) | (98 | ) | — | — | ||||||||||||
|
Impact of foreign currency translation
|
(3,527 | ) | ||||||||||||||||||
|
Balance at June 26, 2008
|
$ | 861 | $ | 613,422 | $ | 694 | $ | 344,626 | $ | 814,704 | ||||||||||
F-43
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Amortization
of Intangible Assets
The weighted average amortization period for each type of
intangible is noted in the table above. The weighted average
amortization period for all amortizable intangibles is
30.3 years. The sales order backlog is amortized over one
year, the non-compete agreements are amortized over the life of
the agreements (five years) and the customer base is amortized
based upon estimated attrition rates. Total amortization of all
acquisition-related intangible assets for each of the years
ending December 31, 2008 to 2012, is currently estimated as
follows (in millions):
|
2008
|
$ | 27.9 | ||
|
2009
|
26.1 | |||
|
2010
|
26.1 | |||
|
2011
|
26.1 | |||
|
2012
|
26.1 |
| NOTE 4 — | INVENTORIES |
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $65.9 million and
$10.3 million higher at June 26, 2008 and
December 31, 2007, respectively. In addition, after giving
pro forma effect to profit sharing and income taxes, net income
would have been higher by $34.9 million for the six months
ended June 26, 2008 and $1.8 million for the five
months ended June 28, 2007, respectively. No such amounts
were recorded for the one month ended January 30, 2007. For
the six months ended June 26, 2008, the Company experienced
a liquidation of certain LIFO inventories resulting in income of
$15.1 million. For the five months ended June 28,
2007, the Company experienced a liquidation of certain LIFO
inventories resulting in income of $1.6 million. The
liquidation for the one month ended January 30, 2007 was
immaterial.
The Company’s inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
| NOTE 5 — | LONG-TERM DEBT |
The significant components of our long-term debt are as follows
(in thousands):
|
June 26, |
December 31, |
||||||||
|
2008
|
2007
|
||||||||
|
Asset-based revolving credit facility
|
$ | 204,394 | $ | 234,146 | |||||
|
Term loan facility
|
567,813 | 569,250 | |||||||
|
Junior Term loan facility
|
450,000 | — | |||||||
|
Midfield revolving credit facility
|
51,727 | 50,970 | |||||||
|
Midfield term loan facility
|
9,845 | 10,228 | |||||||
|
Midfield notes payable
|
967 | 3,803 | |||||||
| 1,284,746 | 868,397 | ||||||||
|
Less current portion
|
16,562 | 19,781 | |||||||
| $ | 1,268,184 | $ | 848,616 | ||||||
Asset-Based Revolving Credit
Facility: On January 31, 2007, in
connection with the acquisition of McJunkin by the Goldman Sachs
Funds, MRM entered into a credit agreement and related security
and other agreements for a secured Asset-Based Revolving Credit
Facility with The
F-44
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
CIT Group/Business Credit, Inc. as administrative agent and
collateral agent. The Asset-Based Revolving Credit Facility
provided financing of up to $300.0 million, subject to a
borrowing base equal to at any time the lesser of 85% of
eligible accounts receivable and 85% of net orderly liquidation
value of the eligible inventory, less certain reserves. The
Asset-Based Revolving Credit Facility included borrowing
capacity available for letters of credit and for borrowings on
same-day
notice. At the closing of the acquisition, MRM utilized
$75.0 million of the Asset-Based Revolving Credit Facility
for loans and approximately $3.1 million for letters of
credit.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, MRM refinanced the initial Asset-Based
Revolving Credit Facility with a new $650.0 million
facility with terms substantially the same as those described
above. At that date, MRM utilized $322.5 million of the new
Asset-Based Revolving Credit Facility to fund a portion of the
Red Man acquisition in addition to refinancing amounts
previously outstanding. In June 2008, the facility limit
increased to $700.0 million.
As of June 26, 2008 and December 31, 2007,
$204.4 million and $234.1 million, respectively, in
borrowings were outstanding under the Asset-Based Revolving
Credit Facility. As of June 26, 2008, MRM had
$490.8 million of unused borrowing availability based on a
borrowing base of $700 million and after giving effect to
$4.8 million used for letters of credit.
The Asset-Based Revolving Credit Facility provides that MRM has
the right at any time to request incremental facilities
commitments, but the lenders are under no obligation to provide
any such additional commitments. The Asset-Based Revolving
Credit Facility permits incremental facilities (together with
any new commitments under the Term Loan Facility discussed
below) up to (1) $150.0 million generally available,
(2) and additional amounts available so long as the secured
leverage ratio as specified in the Asset-Based Revolving Credit
Facility is satisfied. If MRM were to request any such
additional commitments and the existing lenders or new lenders
were to agree to provide such commitments, the Asset-Based
Revolving Credit Facility size could be increased as described
above, but MRM’s ability to borrow would still be limited
by the amount of the borrowing base.
Borrowings under the Asset-Based Revolving Credit Facility bear
interest at a rate per annum equal to, at MRM’s option,
either (a) a base rate determined by reference to the
greater of (1) the prime rate as quoted in The Wall
Street Journal and (2) the federal funds effective rate
plus 1/2 of 1% or (b) a LIBOR rate, subject to certain
adjustments, in each case plus an applicable margin. The
applicable margin in the initial asset revolving credit facility
was 0.75% with respect to base rate borrowings and 1.75% with
respect to LIBOR borrowings. As part of the refinancing, these
were revised to 0.50% and 1.50%, respectively. The applicable
margin is subject to adjustment downward based on the MRM’s
leverage ratio. In addition, MRM is required to pay a commitment
fee of 0.375% per annum in respect of the unutilized
commitments. This rate is also subject to adjustment downward
based upon the MRM’s leverage. MRM must also pay customary
letter of credit fees and agency fees. The weighted average
interest rate on the revolving loans was 4.21% and 6.53% at
June 26, 2008 and December 31, 2007, respectively.
If at any time the aggregate amount of outstanding loans,
unreimbursed letter of credit drawings and undrawn letters of
credit under the Asset-Based Revolving Credit Facility exceeds
the lesser of (i) the total revolving credit commitments
and (ii) the borrowing base, MRM will be required to repay
outstanding loans or cash collateralize letters of credit in an
aggregate amount equal to such excess, with no reduction of the
commitment amount. If the amount available under the Asset-Based
Revolving Credit Facility is less than 7% of total revolving
credit commitments, or an event of default pursuant to certain
provisions of the credit agreement has occurred, MRM would then
be required to deposit daily in a collection account managed by
the agent under the Asset-Based Revolving Credit
F-45
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
Facility. MRM may voluntarily reduce the unutilized portion of
the commitment amount and repay outstanding loans at any time
without premium or penalty other than customary
“breakage” costs with respect to LIBOR loans. There is
no scheduled amortization under the Asset-Based Revolving Credit
Facility; the principal amount of the loans outstanding is due
and payable in full on October 31, 2013.
All obligations under the Asset-Based Revolving Credit Facility
are guaranteed by MRM’s existing and future wholly owned
domestic subsidiaries. All obligations under MRM’s
Asset-Based Revolving Credit Facility, and the guarantees of
those obligations, are secured, subject to certain significant
exceptions, by substantially all of the assets of MRM and the
subsidiaries that have guaranteed the Asset-Based Revolving
Credit Facility, including:
| • | A first-priority security interest in personal property consisting of inventory and accounts receivable; | |
| • | A second-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
| • | A second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of MRM and each subsidiary guarantor. |
The Asset-Based Revolving Credit Facility contains a number of
covenants that, among other things and subject to certain
significant exceptions, restrict MRM’s ability and the
ability of its subsidiaries to:
| • | Incur additional indebtedness; | |
| • | Pay dividends on MRM’s capital stock or the capital stock of MRM’s direct or indirect parent; | |
| • | Make investments, loans, advances or acquisitions; | |
| • | Sell assets, including capital stock of MRM’s subsidiaries; | |
| • | Consolidate or merge with another entity; | |
| • | Create liens; | |
| • | Pay, redeem, or amend the terms of subordinated indebtedness; | |
| • | Enter into certain sale-leaseback transactions; | |
| • | Fundamentally or substantively alter the character of the business conducted by MRM and its subsidiaries; and | |
| • | Enter into agreements that limit (1) the ability of non-guarantors to pay dividends to MRM or any guarantor or (2) the ability of MRM or any guarantor to pledge its assets to secure its obligations under the Asset-Based Revolving Credit Facility. |
In addition to other customary exceptions, the covenants
limiting dividends and other restricted payments and prepayments
or redemptions of subordinated indebtedness generally permit the
restricted actions in additional limited amounts, subject to the
satisfaction of certain conditions, principally that MRM must
have at least $50.0 million of pro forma excess
availability under the
Asset-Based
Revolving Credit Facility.
Although the credit agreement governing the Asset-Based
Revolving Credit Facility does not require MRM to comply with
any financial ratio maintenance covenants, if less than 7% of
the then outstanding credit commitments were available to be
borrowed under the Asset-Based Revolving Credit Facility at any
time, MRM would not be permitted to borrow any additional
amounts unless its
F-46
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
pro forma ratio of consolidated EBITDA to consolidated Fixed
Charges (as such terms are defined in the credit agreement) were
at least 1.0 to 1.0. The credit agreement also contains
customary affirmative covenants and events of default.
Term Loan Facility: On January 31,
2007, in connection with the acquisition of McJunkin by GSCP,
MRM entered into a credit agreement and related security and
other agreements for a $575.0 million Term Loan Facility
with Lehman Commercial Paper as administrative agent and
collateral agent. The full amount of the Term Loan Facility was
borrowed on January 31, 2007.
On October 31, 2007, and concurrent with the close of the
Red Man acquisition, the Term Loan Facility was amended to
permit for the refinancing of the Asset-Based Revolving Credit
Facility, as described above, in addition to revising certain
provisions of the agreement as discussed in more detail below.
These borrowings bear interest at a rate per annum equal to, at
MRM’s option, either (a) the greater of the prime rate
and the federal funds rate effective rate plus 0.50%, plus in
either case 2.25%; or (b) LIBOR plus 3.25%. On
June 26, 2008 and December 31, 2007,
$567.8 million and $569.3 million, respectively, were
outstanding under the Term Loan. The weighted average interest
rate on the term loan was 6.13% and 8.08% at June 26, 2008
and December 31, 2007, respectively.
The Term Loan Facility requires MRM to prepay outstanding term
loans with 50% (which percentage will be reduced to 25% if
MRM’s total leverage ratio is less than a specified ratio
and will be reduced to 0% if MRM’s total leverage ratio is
less than a specified ratio) of its annual excess cash flow (as
defined in the credit agreement). For 2008 and 2007, MRM was not
required to prepay any outstanding term loans pursuant to the
annual excess cash flow requirements.
MRM may voluntarily prepay outstanding loans under the Term Loan
Facility at any time without premium or penalty other than
customary “breakage” costs with respect to LIBOR
loans. The Term Loan Facility amortizes at a rate of 1.00% per
year with the balance due at January 31, 2014.
All obligations under the Term Loan Facility are unconditionally
guaranteed by MRM and each wholly owned domestic subsidiary of
MRM. All obligations under the Term Loan Facility, and the
guarantees of those obligations, are secured, subject to certain
significant exceptions, by substantially all of the assets of
MRM and the subsidiaries that have guaranteed the Term Loan
Facility, including:
| • | A second-priority security interest in personal property consisting of inventory and accounts receivable; | |
| • | A first-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
| • | A first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the Company and each subsidiary guarantor. |
The Term Loan Facility contains a number of negative covenants
that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
Junior Term Loan Facility: On
May 22, 2008, McJunkin Red Man Holding Corporation, as the
borrower, entered into a $450 Million Term Loan Credit Agreement
(the “Junior Term Loan Facility”). The proceeds from
the Junior Term Loan Facility, along with $25 million in
proceeds from revolving loans drawn under the Revolving Credit
Facility, were used to fund a dividend to McJunkin Red Man
Holding Corporation’s stockholders, including PVF Holdings
LLC. PVF Holdings LLC distributed the proceeds it received from
the dividend to its members, including the Goldman Sachs Funds
and
F-47
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
certain of the Company’s directors and members of its
management. The term loans under the Junior Term Loan Facility
are not subject to amortization and the principal of such loans
must be repaid on January 31, 2014.
The term loans under the Junior Term Loan Facility bear interest
at a rate per annum equal to, at the borrower’s option,
either (i) the greater of the prime rate and the federal
funds effective rate plus 0.50%, plus in either case 2.25%, or
(ii) LIBOR multiplied by the statutory reserve rate plus
3.25%. On June 26, 2008, $450.0 million was
outstanding under the Junior Term Loan Facility and the interest
rate on these loans was 5.73%.
We may voluntarily prepay term loans under the Junior Term Loan
Facility in whole or in part at our option, without premium or
penalty. After the payment in full of the term loans under the
Term Loan Facility, we will be required to prepay outstanding
term loans under the Junior Term Loan Facility with 100% of the
net cash proceeds of:
| • | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
| • | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
| • | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
| • | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
Also, after the payment in full of the term loans under the Term
Loan Facility, we will be required to prepay the outstanding
term loans under the Junior Term Loan Facility. We must also
prepay the principal amount of the term loans under the Junior
Term Loan Facility with 50% of the cash proceeds received by us
from a “Qualified IPO”, net of underwriting discounts
and commissions and other related reasonable costs and expenses.
A “Qualified IPO” is defined as a bona fide
underwritten sale to the public of our common stock or the
common stock of any of our direct or indirect subsidiaries or
our direct or indirect parent companies pursuant to a
registration statement that is declared effective by the SEC or
the equivalent offering on a private exchange or platform.
The Junior Term Loan Facility contains a number of negative
covenants that are substantially similar to those governing the
Asset-Based Revolving Credit Facility. The credit agreement also
contains customary affirmative covenants and events of default.
Midfield Revolving Credit
Facility: Midfield, the Company’s
Canadian subsidiary, has a Canadian dollar revolving credit
facility administered by Bank of America. This facility has a
maximum limit of CAD $150 million (US $148.26 million
as of June 26, 2008) bearing interest at Canadian prime
rate plus a margin of up to 0.25%. The revolver is secured by
substantially all of Midfield’s personal property assets
including accounts receivable, chattel paper, bank accounts,
general intangibles, inventory, investment property, cash and
insurance proceeds. The balance of the revolver is due at its
maturity date, November 2, 2010.
Midfield Term Loan Facility: Midfield
has a term loan facility that is due on demand. This facility
bears interest at Canadian prime rate plus a margin of up to
0.5%. The term loan facility is secured by substantially all of
Midfield’s real property and equipment.
Midfield Notes Payable: Midfield has
two notes payable pursuant to holdback provisions from recent
acquisitions. These amounts, totaling $1.0 million and
$3.8 million at June 26, 2008 and
F-48
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
December 31, 2007, respectively, are owed to individuals
who became and continue to be shareholders of Midfield supply as
a result of these transactions. These notes were paid in August
2008.
Maturities of Long-Term Debt: At
June 26, 2008, annual maturities of long-term debt during
the next five fiscal years and thereafter are as follows (in
millions):
|
2008
|
$ | 16.6 | ||
|
2009
|
5.8 | |||
|
2010
|
56.8 | |||
|
2011
|
5.8 | |||
|
2012
|
5.8 | |||
|
Thereafter
|
1,194.0 |
The above table does not reflect future excess cash flow
prepayments, if any, that may be required under the Term Loan
Facility.
Interest Rate Swaps: The Company uses
derivative financial instruments to help manage its interest
rate risk exposure. On December 3, 2007, MRM entered into a
floating to fixed interest rate swap agreement, effective
December 31, 2007, for a notional amount of
$700.0 million to limit its exposure to interest rate
increases related to a portion of its floating rate
indebtedness. The interest rate swap agreement terminates after
three years. At June 26, 2008 and December 31, 2007,
the fair value of MRM’s interest rate swap agreement was a
loss of approximately $3.2 million and $0.4 million,
respectively, which amount is included in accrued liabilities.
As of the effective date, MRM designated the interest rate swap
as a cash flow hedge.
For cash flow hedges, the effective portion of the gain or loss
on the derivative hedging instrument is reported in other
comprehensive income, while the ineffective portion is recorded
in current earnings as other income or other expense. At
June 26, 2008 and December 31, 2007, $1.6 million
and $0.2 million, respectively, of unrecognized losses, net
of tax, on the interest rate swap agreement is included in other
comprehensive income. During the six months ended June 26,
2008, the Company recognized a hedge ineffectiveness loss of
$0.4 million on the consolidated statements of income.
There was no hedge ineffectiveness at December 31, 2007.
As a result of the swap agreement, MRM’s effective fixed
interest rates as to the $700.0 million in floating rate
indebtedness will be 4.868% for associated indebtedness on the
Asset-Based Revolving Credit Facility and 7.118% for associated
indebtedness on the Term Loan Facility, per quarter through 2010
and result in an average fixed rate of 6.672%.
| NOTE 6 — | INCOME TAXES |
Management evaluates the estimated annual effective income tax
rate for interim periods based on current and forecasted
business levels and activities, including enacted tax laws.
Items unrelated to current year ordinary income are recognized
entirely in the period identified as a discrete item of tax. The
interim period income tax provisions are comprised of tax on
ordinary income at the most recent estimated annual effective
tax rate, adjusted for the effect of discrete items.
The effective tax rates were 36.26% for the six months ended
June 26, 2008, 41.18% for the five months ended
June 28, 2007 and 41.08% for the one month ended
January 30, 2007. These rates differ from the federal
statutory rate of 35% principally as a result of state and
foreign income taxes. The rate for the six months ended
June 26, 2008 is lower than the rates for the five months
ended June 28, 2007 and the one month ended
January 30, 2007 primarily due to lower state taxes.
F-49
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
During the interim period, there were no material changes to the
amount of previously disclosed unrecognized tax benefits.
| NOTE 7 — | CONTINGENCIES |
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related
claims to determine the adequacy of its accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on the Company’s historical settlement
experience. These estimates were applied to each of the
Company’s pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Company’s
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of asbestos-related diseases in the general
U.S. population and per claim settlement estimates were
applied to those estimated claims. Based on this analysis and
the existence of certain insurance coverage, the Company
believes that its current accruals for pending and probable
asbestos-related litigation are adequate. However, there is a
possibility that resolution of the matters could result in
additional losses in excess of current accruals. Also, there is
a possibility that resolution of certain of the Company’s
legal contingencies for which there are no liabilities recorded
could result in a loss. Management is not able to estimate the
amount of such loss, if any. However, in the opinion of the
Company, after consultation with counsel, the ultimate
resolution of all pending matters is not expected to have a
material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on the Company’s results of operations.
In addition to the foregoing, from time to time the Company is
involved in various other legal and administrative proceedings
that are incidental to its business, including claims relating
to product liability, general negligence, environmental issues,
employment, and other matters. It is not expected that the
ultimate resolution of any of these matters will have a material
adverse impact on the Company’s consolidated financial
position or results of operations.
Midfield has issued a financial guarantee in the form of an
irrevocable standby letter of credit for an associated entity in
the amount of $4.9 million which is recorded in the
accompanying balance sheet at its fair value. This letter
expires January 31, 2009 subject to certain renewal
provisions.
| NOTE 8 — | FAIR VALUE MEASUREMENTS |
On January 1, 2008, the Company adopted Statement of
Financial Accounting Standard No. 157, Fair Value
Measurements (SFAS No. 157), which clarifies the
definition of fair value, establishes a framework for measuring
fair value under accounting principles generally accepted in the
United States, and enhances disclosures about fair value
measurements. In accordance with Financial Accounting Standards
Board Staff Position
No. 157-2,
“Effective Date of FASB Statement No. 157”, the
Company will delay application of SFAS No. 157 for
non-financial assets and non-financial liabilities until
January 1, 2009.
F-50
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
SFAS No. 157 clarified the definition of fair value as
the price that would be received to sell an asset or paid to
transfer a liability (exit price) in an orderly transaction
between market participants at the measurement date.
SFAS 157 establishes a fair value hierarchy for valuation
inputs that gives the highest priority to quoted prices in
active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy
established by SFAS No. 157 is as follows:
Level 1: Quoted prices
(unadjusted) in active markets for identical assets or
liabilities that the entity has the ability to access at the
measurement date.
Level 2: Significant observable
inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
or indirectly, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, and
other inputs that are observable or can be corroborated by
observable market data.
Level 3: Significant unobservable
inputs for the asset or liability. Unobservable inputs should
reflect a company’s own assumptions about the assumptions
that market participants would use in pricing an asset or
liability (including all assumptions about risk).
The Company used the following methods and significant
assumptions to estimate fair value for assets and liabilities
recorded at fair value.
Assets Held for Sale. Included in
assets held for sale are certain investments held for sale that
are reported at fair value utilizing Level 1 inputs. The
fair value of these investments held for sale is determined by
obtaining quoted prices on nationally recognized securities
exchanges.
Derivatives. Derivatives are reported
at fair value utilizing Level 2 inputs. The Company obtains
dealer quotations to value its interest rate swaps.
The following table presents assets and liabilities measured at
fair value on a recurring basis.
|
June 26, 2008
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
| (In thousands) | ||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Assets Held for Sale (Investments)
|
$ | 33,595 | $ | 33,595 | $ | — | $ | — | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives (Interest Rate Swaps)
|
$ | 3,248 | $ | — | $ | 3,248 | $ | — | ||||||||
Effective January 1, 2008, the Company adopted the
provisions of SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities —
Including an amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159 permits
entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates.
The Company has not elected to account for any of its assets or
liabilities at fair value and therefore adoption of
SFAS No. 159 on January 1, 2008 did not effect
its financial statements.
F-51
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
| NOTE 9 — | COMPREHENSIVE INCOME |
| (Successor) |
(Predecessor) |
|||||||||||
|
Six Months Ended |
Five Months Ended |
One Month Ended |
||||||||||
|
June 26, |
June 28, |
January 30, |
||||||||||
|
2008
|
2007
|
2007
|
||||||||||
|
Net income
|
$ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
|
Changes in accumulated other comprehensive income (loss):
|
||||||||||||
|
Change in unrealized gain on securities
|
||||||||||||
|
Available for sale, net of tax
|
— | — | (3,958 | ) | ||||||||
|
Derivative valuation adjustment, net of tax
|
(1,386 | ) | — | — | ||||||||
|
Foreign currency translation, net of tax
|
(1,041 | ) | — | — | ||||||||
|
Comprehensive Income
|
$ | 73,507 | $ | 17,614 | $ | 2,638 | ||||||
| NOTE 10 — | STOCK-BASED COMPENSATION |
Restricted Stock and Stock Option
Plans: Effective March 27, 2007, the
Company’s Board of Directors approved the formation of the
2007 Restricted Stock Plan and the 2007 Stock Option Plan. The
purpose of these plans is to aid MRM in recruiting and retaining
key employees, directors and consultants of outstanding ability
and to motivate such key employees, directors and consultants to
exert their best efforts on behalf of the Company by providing
incentives in the form of restricted stock and stock options.
The Company expects that it will benefit from the added interest
which such key employees, directors and consultants will have in
the welfare of the Company as a result of their proprietary
interest in the Company’s success.
Under the terms of the stock option plan, options may not be
granted at prices less than their fair market value on the date
of the grant, nor for a term exceeding 10 years. Vesting
occurs in
one-third
increments on the third, fourth, and fifth anniversaries of the
date specified in the employees’ respective option
agreements. The Company expenses the fair value of the stock
option grants on a straight-line basis over the vesting period.
A Black-Scholes option pricing model was used to estimate the
fair value of the stock options granted in 2007 and 2008. For
purposes of measuring compensation, the Company relies on a
calculated value that requires certain assumptions including
volatility based on the appropriate industry sector. Following
are the weighted average assumptions used to estimate the fair
values of options:
|
2008
|
2007
|
|||||||
|
Risk-free interest rate
|
3.19% | 4.10% | ||||||
|
Dividend yield
|
0.00% | 0.00% | ||||||
|
Expected volatility
|
22.07% | 22.07% | ||||||
|
Expected lives
|
6.2 years | 6.2 years | ||||||
F-52
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN RED MAN
HOLDING CORPORATION
June 26,
2008
A summary of the status of stock option grants under the stock
option plan as of June 26, 2008, and changes during the six
months ended on that date is as follows:
|
Weighted Average |
||||||||
|
Options
|
Exercise Price
|
|||||||
|
Outstanding at January 1, 2008
|
3,533.46 | $ | 2,411.17 | |||||
|
Granted
|
394.61 | 4,348.19 | ||||||
|
Exercised
|
— | — | ||||||
|
Forfeited
|
(128.37 | ) | (2,411.17 | ) | ||||
|
Expired
|
— | — | ||||||
|
Outstanding at June 26, 2008
|
3,799.70 | $ | 2,612.34 | |||||
|
Options exercisable at June 26, 2008
|
— | $ | — | |||||
|
Options vested at June 26, 2008
|
— | — | ||||||
Under the terms of the restricted stock plan, restricted stock
may be granted at the direction of the Board of Directors and
vesting occurs in one-fourth increments on the second, third,
fourth, and fifth anniversaries of the date specified in the
employees’ respective restricted stock agreements. The
Company expenses the fair value of the restricted stock grants
on a straight-line basis over the vesting period.
The following table summarizes restricted stock activity under
the restricted stock plan as of June 26, 2008, and changes
during the six months ended on that date:
|
Shares
|
||||
|
Balance at January 1, 2008
|
635.52 | |||
|
Granted
|
— | |||
|
Forfeited
|
(41.95 | ) | ||
|
Issued
|
— | |||
|
Balance at June 26, 2008
|
593.57 | |||
Recognized compensation expense under the stock option and
restricted stock plans is set forth in the table below. There
were no such expenses for the one month ended January 30,
2007.
|
Six Months |
Five Months |
|||||||
|
Ended |
Ended |
|||||||
|
June 26, |
June 28, |
|||||||
|
2008
|
2007
|
|||||||
|
Compensation expense Stock options
|
$ | 501,000 | $ | 80,000 | ||||
|
Restricted stock
|
139,000 | 39,000 | ||||||
|
Total compensation expense
|
$ | 640,000 | $ | 119,000 | ||||
At June 26, 2008, the Company had $7.3 million and
$1.1 million of unrecognized compensation expense related
to outstanding stock options and restricted stock, respectively.
Restricted Common Units: In conjunction
with the acquisition of McJunkin by the Goldman Sachs Funds,
certain key MRM employees received restricted common units of
PVF Holdings LLC that vest over a five-year requisite service
period. Compensation expense associated with these restricted
common units totaled $0.6 million for the six months ended
June 26, 2008 and $0.5 million for the five months
ended June 28, 2007 based upon their fair market value at
the date they were
F-53
Table of Contents
issued which is being recognized on a straight-line basis over
the vesting period. There was no such expense for the one month
ended January 30, 2007. As of June 26, 2008, the
Company had $4.1 million of unrecognized compensation
expense related to outstanding restricted common units which
will be amortized over a weighted average vesting period of four
years.
Profits Units: In conjunction with the
acquisition of McJunkin by the Goldman Sachs Funds and the Red
Man acquisition, certain key MRM employees received profits
units in PVF Holdings LLC that vest over a five-year requisite
service period. These units entitle their holders to a share of
any distributions made by PVF Holdings LLC once common unit
holders have received a return of all capital contributed to PVF
Holdings LLC. Compensation expense associated with these profits
units totaled $1.6 million for the six months ended
June 26, 2008 and $0.7 million for the five months
ended June 28, 2007 based upon their fair market value at
the date they were issued which is being amortized on a
straight-line basis over the vesting period. There was no such
expense for the one month ended January 30, 2007. As of
June 26, 2008, the Company had $13.8 million and of
unrecognized compensation expense related to outstanding profits
units which will be amortized over a weighted average vesting
period of five years.
| NOTE 11 — | EARNINGS PER SHARE |
Basic earnings per share are computed based on the
weighted-average number of common shares outstanding, excluding
any dilutive effects of stock options and restricted stock.
Diluted earnings per share are computed based on the
weighted-average number of common shares outstanding including
any dilutive effect of stock options and restricted stock. The
dilutive effect of stock options and restricted stock are
calculated under the treasury stock method. Earnings per share
are calculated as follows:
| (Successor) | (Predecessor) | |||||||||||
|
Six Months |
Five Months |
One Month |
||||||||||
|
Ended |
Ended |
Ended |
||||||||||
|
June 26, |
June 28, |
January 30, |
||||||||||
|
2008
|
2007
|
2007
|
||||||||||
|
Net income (in thousands)
|
$ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
|
Average basic shares outstanding
|
309,421 | 102,594 | 17,510 | |||||||||
|
Effect of dilutive securities
|
613 | 198 | — | |||||||||
|
Average dilutive shares outstanding
|
310,034 | 102,792 | 17,510 | |||||||||
|
Net income per share:
|
||||||||||||
|
Basic
|
$ | 245.41 | $ | 171.69 | $ | 376.70 | ||||||
|
Diluted
|
$ | 244.92 | $ | 171.36 | $ | 376.70 | ||||||
Stock option grants are disregarded in this calculation if they
are determined to be anti-dilutive. At June 26, 2008, the
Company’s anti-dilutive stock options totaled 3,800. At
June 28, 2007, the Company’s anti-dilutive stock
options totaled 1,169. There were no stock options outstanding
at January 30, 2007.
F-54
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
McJunkin Corporation
Charleston, West Virginia
We have audited the accompanying consolidated balance sheets of
McJunkin Corporation and subsidiaries as of December 31,
2006 and 2005, and the related consolidated statements of
income, shareholders’ equity, and cash flows for the years
then ended. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of McJunkin Corporation and subsidiaries as of
December 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for the years then ended
in conformity with accounting principles generally accepted in
the United States of America.
/s/ Schneider Downs
& Co., Inc
Columbus, Ohio
January 13, 2007
F-55
Table of Contents
CONSOLIDATED
BALANCE SHEETS
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands, except per share amounts)
| December 31, | ||||||||
|
2006
|
2005
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 3,748 | $ | 5,865 | ||||
|
Receivables, less allowances of $2,015 and $1,743
|
168,877 | 163,775 | ||||||
|
Inventories
|
225,304 | 189,209 | ||||||
|
Other current assets
|
3,122 | 2,542 | ||||||
|
TOTAL CURRENT ASSETS
|
401,051 | 361,391 | ||||||
|
INVESTMENTS AND OTHER ASSETS
|
||||||||
|
Investments:
|
||||||||
|
PrimeEnergy and other oil and gas
|
40,396 | 32,226 | ||||||
|
Real estate and other
|
589 | 449 | ||||||
|
Total investments
|
40,985 | 32,675 | ||||||
|
Notes receivable
|
1,835 | 2,187 | ||||||
|
Cash value of life insurance
|
1,160 | 2,270 | ||||||
| 43,980 | 37,132 | |||||||
|
FIXED ASSETS
|
||||||||
|
Land and improvements
|
4,392 | 4,411 | ||||||
|
Buildings and building improvements
|
21,416 | 21,325 | ||||||
|
Equipment
|
43,143 | 42,402 | ||||||
| 68,951 | 68,138 | |||||||
|
Allowances for depreciation
|
(41,743 | ) | (41,909 | ) | ||||
| 27,208 | 26,229 | |||||||
|
PROPERTY HELD UNDER CAPITAL LEASES
|
2,104 | 2,283 | ||||||
|
INTANGIBLE ASSETS
|
||||||||
|
Goodwill
|
6,274 | 6,274 | ||||||
|
Other intangible assets, net of accumulated amortization of
$2,702 and $2,425
|
382 | 659 | ||||||
| 6,656 | 6,933 | |||||||
| $ | 480,999 | $ | 433,968 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable — trade
|
$ | 130,864 | $ | 145,296 | ||||
|
Accrued expenses and other liabilities
|
46,471 | 45,220 | ||||||
|
Customer prepayments
|
4,715 | 6,536 | ||||||
|
Dividends payable
|
— | 26,216 | ||||||
|
Income taxes payable
|
2,500 | 8,516 | ||||||
|
Deferred income taxes
|
3,998 | 203 | ||||||
|
Current portion of long-term obligations:
|
||||||||
|
Long-term debt
|
— | 210 | ||||||
|
Capital leases
|
167 | 148 | ||||||
|
TOTAL CURRENT LIABILITIES
|
188,715 | 232,345 | ||||||
|
LONG-TERM OBLIGATIONS
|
||||||||
|
Long-term debt
|
13,035 | 2,885 | ||||||
|
Capital leases
|
3,635 | 3,802 | ||||||
|
Other liabilities
|
1,799 | 2,290 | ||||||
| 18,469 | 8,977 | |||||||
|
DEFERRED INCOME TAXES
|
15,627 | 12,389 | ||||||
|
MINORITY INTEREST IN McJUNKIN APPALACHIAN OILFIELD SUPPLY
COMPANY
|
15,601 | 11,459 | ||||||
|
SHAREHOLDERS’ EQUITY
|
||||||||
|
Capital stock, par value $700:
|
||||||||
|
Class A common voting — authorized 37,860; issued
and outstanding 16,940
|
11,858 | 11,858 | ||||||
|
Class B common nonvoting — authorized 5,000;
issued and outstanding 570
|
399 | 399 | ||||||
|
Retained earnings
|
206,044 | 137,192 | ||||||
|
Other comprehensive income, net of deferred income taxes of
$14,759 and $11,529
|
24,286 | 19,349 | ||||||
| 242,587 | 168,798 | |||||||
| $ | 480,999 | $ | 433,968 | |||||
See notes to consolidated financial statements.
F-56
Table of Contents
CONSOLIDATED
STATEMENTS OF INCOME
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands, except per share data)
| Years Ended December 31, | ||||||||
|
2006
|
2005
|
|||||||
|
REVENUES
|
||||||||
|
Net sales
|
$ | 1,713,679 | $ | 1,445,770 | ||||
|
Increase in fair market values of derivatives
|
— | 499 | ||||||
|
Other income
|
2,615 | 2,361 | ||||||
|
TOTAL REVENUES
|
1,716,294 | 1,448,630 | ||||||
|
COSTS AND EXPENSES
|
||||||||
|
Cost of goods sold (exclusive of depreciation and amortization
shown separately below)
|
1,394,294 | 1,177,091 | ||||||
|
Selling, general and administrative
|
173,948 | 155,717 | ||||||
|
Profit sharing
|
15,064 | 13,144 | ||||||
|
Depreciation and amortization
|
3,936 | 3,743 | ||||||
|
Interest
|
2,845 | 2,707 | ||||||
|
Minority interest in McJunkin Appalachian
|
4,142 | 2,774 | ||||||
|
Amortization of intangibles
|
277 | 337 | ||||||
|
Other expenses
|
3,874 | 3,993 | ||||||
|
TOTAL COSTS AND EXPENSES
|
1,598,380 | 1,359,506 | ||||||
|
INCOME BEFORE INCOME TAXES
|
117,914 | 89,124 | ||||||
|
Income tax provision
|
48,340 | 36,583 | ||||||
|
NET INCOME
|
$ | 69,574 | $ | 52,541 | ||||
|
Earnings per share — Class A, basic
|
$ | 3,972.08 | $ | 2,952.12 | ||||
|
Earnings per share — Class A, diluted
|
$ | 3,972.08 | $ | 2,952.12 | ||||
|
Weighted average shares — Class A, basic
|
16,940 | 16,940 | ||||||
|
Weighted average shares — Class A, diluted
|
16,940 | 16,940 | ||||||
|
Earnings per share — Class B, basic
|
$ | 4,012.08 | $ | 4,442.12 | ||||
|
Earnings per share — Class B, diluted
|
$ | 4,012.08 | $ | 4,442.12 | ||||
|
Weighted average shares — Class B, basic
|
570 | 570 | ||||||
|
Weighted average shares — Class B, diluted
|
570 | 570 | ||||||
|
Dividends per common share, Class A
|
$ | 40 | $ | 1,490 | ||||
|
Dividends per common share, Class B
|
$ | 80 | $ | 2,980 | ||||
See notes to consolidated financial statements.
F-57
Table of Contents
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
McJUNKIN CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2006 and 2005
(Dollars in thousands, except per share amounts)
McJUNKIN CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2006 and 2005
(Dollars in thousands, except per share amounts)
|
Class A |
Class B |
Accumulated Other |
||||||||||||||||||||||||||
| Common Stock | Common Stock |
Retained |
Comprehensive |
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Earnings
|
Income
|
Total
|
||||||||||||||||||||||
|
Balances at January 1, 2005
|
16,940 | $ | 11,858 | 570 | $ | 399 | $ | 111,592 | $ | 8,469 | $ | 132,318 | ||||||||||||||||
|
Net income for the year 2005
|
— | — | 52,541 | — | 52,541 | |||||||||||||||||||||||
|
Unrealized and realized gain in
PrimeEnergy-net
of deferred taxes
|
— | — | — | — | — | 10,880 | 10,880 | |||||||||||||||||||||
|
Net comprehensive income
|
— | — | 52,541 | 10,880 | 63,421 | |||||||||||||||||||||||
|
Cash dividends on common stock:
|
||||||||||||||||||||||||||||
|
On Class A, $1,490 per share
|
— | — | (25,242 | ) | — | (25,242 | ) | |||||||||||||||||||||
|
On Class B, $2,980 per share
|
— | — | — | — | (1,699 | ) | — | (1,699 | ) | |||||||||||||||||||
|
Balances at December 31, 2005
|
16,940 | 11,858 | 570 | 399 | 137,192 | 19,349 | 168,798 | |||||||||||||||||||||
|
Net income for the year 2006
|
— | — | 69,574 | — | 69,574 | |||||||||||||||||||||||
|
Unrealized and realized gain in
PrimeEnergy-net
of deferred taxes
|
— | — | — | — | — | 4,937 | 4,937 | |||||||||||||||||||||
|
Net comprehensive income
|
— | — | — | — | 69,574 | 4,937 | 74,511 | |||||||||||||||||||||
|
Cash dividends on common stock:
|
||||||||||||||||||||||||||||
|
On Class A, $40 per share
|
— | — | — | — | (677 | ) | — | (677 | ) | |||||||||||||||||||
|
On Class B, $80 per share
|
— | — | — | — | (45 | ) | — | (45 | ) | |||||||||||||||||||
|
Balances at December 31, 2006
|
16,940 | $ | 11,858 | 570 | $ | 399 | $ | 206,044 | $ | 24,286 | $ | 242,587 | ||||||||||||||||
See notes to consolidated financial statements.
F-58
Table of Contents
CONSOLIDATED
STATEMENTS OF CASH FLOWS
McJUNKIN
CORPORATION AND SUBSIDIARIES
(Dollars in
thousands)
| Years Ended December 31, | ||||||||
|
2006
|
2005
|
|||||||
|
CASH PROVIDED BY (USED IN) OPERATIONS
|
||||||||
|
Net income
|
$ | 69,574 | $ | 52,541 | ||||
|
Adjustments to reconcile net income to net cash provided by
operations:
|
||||||||
|
Depreciation and amortization
|
3,936 | 3,743 | ||||||
|
Deferred income taxes
|
3,802 | (4,905 | ) | |||||
|
Minority interest in McJunkin Appalachian
|
4,142 | 2,774 | ||||||
|
Amortization of intangibles
|
277 | 337 | ||||||
|
Increase in fair market values of derivatives
|
— | (499 | ) | |||||
|
Provision for losses on receivables
|
414 | 90 | ||||||
|
Reduction of inventory loss provision
|
(260 | ) | (233 | ) | ||||
|
Non-operating gains and other items not providing cash
|
(571 | ) | (1,001 | ) | ||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(5,516 | ) | (53,444 | ) | ||||
|
Inventories
|
(35,835 | ) | (36,386 | ) | ||||
|
Income taxes
|
(6,016 | ) | 6,823 | |||||
|
Other current assets
|
(580 | ) | (65 | ) | ||||
|
Accounts payable
|
(14,432 | ) | 47,694 | |||||
|
Accrued expenses and other current liabilities
|
(583 | ) | 12,916 | |||||
|
NET CASH PROVIDED BY OPERATIONS
|
18,352 | 30,385 | ||||||
|
INVESTING ACTIVITIES
|
||||||||
|
Fixed asset purchases — net of proceeds from disposals
|
(4,960 | ) | (7,725 | ) | ||||
|
Other investment and notes receivable transactions
|
1,698 | 1,024 | ||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(3,262 | ) | (6,701 | ) | ||||
|
FINANCING ACTIVITIES
|
||||||||
|
Proceeds from (Payments on) long-term obligations
|
9,731 | (11,319 | ) | |||||
|
Dividends paid
|
(26,938 | ) | (9,765 | ) | ||||
|
NET CASH USED IN FINANCING ACTIVITIES
|
(17,207 | ) | (21,084 | ) | ||||
|
(Decrease) Increase in cash
|
(2,117 | ) | 2,600 | |||||
|
Cash — beginning of year
|
5,865 | 3,265 | ||||||
|
CASH — END OF YEAR
|
$ | 3,748 | $ | 5,865 | ||||
See notes to consolidated financial statements.
F-59
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
| NOTE A — | SIGNIFICANT ACCOUNTING POLICIES |
Business Operations: McJunkin
Corporation and its subsidiaries (the Company) are national
distributors of pipe, valves, and fittings (PVF), with locations
in principal industrial centers. Major customers represent the
chemical, petroleum refining and other segments of the raw
materials processing industry and the construction industry. PVF
product lines and their share of total sales for 2006 and 2005
include carbon steel pipe (approximately 33% and 34%) and
stainless steel and carbon steel valves (approximately 20% and
21%). Products are obtained from a broad range of suppliers.
Basis of Presentation: The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. The
consolidated financial statements include the accounts of
McJunkin Corporation and its wholly-owned and majority-owned
subsidiaries. The residual ownership in the equity and income of
McJunkin Appalachian Oilfield Supply Company (approximately 14%)
is reflected as minority interest. All significant intercompany
transactions have been eliminated. Certain 2005 amounts have
been reclassified to conform to 2006 presentation. Such
reclassifications did not impact net income or
shareholders’ equity.
Financial Instruments: Financial
instruments that potentially could subject the Company to
concentrations of credit risk consist principally of trade
accounts and notes receivable. The Company minimizes such risk
by closely monitoring extensions of trade credit. Sales to
industries in 2006 and 2005 in which the Company has significant
receivables were gas utility (15% and 17%), petroleum refining
(14% in both years), chemical processing (12% in both years),
and contractors (12% in both years). The Company estimates
losses for uncollectible accounts based on the aging of the
accounts receivable and the evaluation of the likelihood of
collection. Credit losses relating to customers in these
industries historically have been insignificant.
The Company sells to a large,
U.S.-owned,
multi-national, energy company in Nigeria through its
wholly-owned subsidiary, McJunkin-Nigeria Limited. The
collection of the receivables generated by these sales could be
negatively impacted by such factors as changes in Nigerian or
worldwide economic or political conditions. Credit losses
relating to sales in Nigeria have been insignificant. Total net
assets invested in Nigeria at December 31, 2006 and 2005,
approximated $2,956,000 and $5,205,000.
The Company believes that the carrying values of all significant
assets and liabilities, which meet the definition of financial
instruments, approximate their fair values.
Income Taxes: Deferred income taxes are
provided under the liability method. The liability method
requires that deferred tax assets and liabilities be determined
based on differences between the financial reporting and tax
bases of assets and liabilities using the tax rate expected to
be in effect when the taxes will actually be paid or refunds
received.
Insurance: The Company is self-insured
for portions of employee healthcare and maintains a deductible
program as it relates to workers’ compensation, automobile
liability, and general liability claims including, but not
limited to, product liability claims, which are secured by
various letters of credit totaling $3,195,000. Commercially
comprehensive catastrophic coverage is maintained. The
company’s liability and related expenses for claims are
estimated based upon past experience. The company’s
historical claim data is used to project anticipated losses. The
reserves are deemed by the company to be sufficient to cover
outstanding claims including those incurred but not reported as
of the estimation date.
F-60
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Inventories: Inventories are valued at
the lower of cost (principally
last-in,
first-out method) or market.
Investments: The Company has equity
investments in certain oil and gas interests that are either
thinly traded in the over-the-counter market or are not publicly
traded. Such investments, considered available for sale, are
carried at estimated fair value. Unrealized gains and losses on
available-for-sale securities are recognized in comprehensive
income to the extent they are material. Total accumulated gains,
net of deferred taxes, in comprehensive income are $24,286,000
at December 31, 2006.
The thinly traded nature of PrimeEnergy stock results in
significant fluctuations in the stock price. Accordingly, the
proceeds from any sale of the stock could be significantly less
than the December 31, 2006 carrying value, $40,217,000. An
officer of the Company serves as a director of PrimeEnergy.
Real estate investments, primarily limited partnerships, are
generally carried at the lower of cost or estimated realizable
value.
Fixed Assets: Land, buildings and
equipment are stated on the basis of cost. For financial
statement purposes, depreciation is computed over the estimated
useful lives of the assets by the straight-line method;
accelerated depreciation and cost recovery methods are used for
income tax purposes.
Certain long-term lease transactions relating to the financing
of land and buildings are accounted for as installment
purchases. These properties are capitalized as leased facilities
and amortized on a straight-line basis over their lease terms.
The corresponding lease rental obligations represent the present
value of future lease payments.
Derivative Instruments: The Company had
an interest rate swap, which expired in December 2005, and
collar, which expired in September 2006, that were carried at
fair value as either assets or liabilities on the balance sheet.
Changes in the fair value of the derivative instruments were
recognized in current earnings in the year of change.
Retirement Plans: Employees with at
least six months of service participate in the Company’s
profit sharing plan. Contributions to the plan are based on the
earnings of the Company, as defined in the plan document.
Employees may also participate in the McJunkin Savings Plan,
whereby a portion of the individuals’ base earnings may be
deferred and partially matched by the Company, pursuant to
section 401(k) of the Internal Revenue Code. The
Company’s matching portion under the 401(k) plan
approximated $837,000 and $830,000 in 2006 and 2005.
Revenue Recognition: The Company
records sales revenue upon shipment of goods or performance of
services. Shipping costs are included in cost of goods sold in
the consolidated statements of income.
Intangibles: The Company tests its
goodwill and intangible assets for impairment annually. The
impairment tests are performed at the distribution operations
reporting level of the Company, which holds 100% of the
consolidated intangible assets. At December 31, 2006 and
2005, the Company had no impairment in the carrying value of its
intangible assets.
Goodwill carried by the Company is not amortized for financial
reporting purposes, but is eligible for deduction for income tax
purposes. The Company amortizes intangible assets with finite
lives, such as non-compete agreements, trade names, and customer
lists and relationships over the legal or estimated lives of the
individual assets, principally from one to six years.
F-61
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Stock Split: All prior period capital
stock and applicable share amounts have been retroactively
adjusted to reflect a
5-for-1
split of the Company’s capital stock effective
October 4, 2005.
| NOTE B — | INVENTORIES |
If inventories were reported at values approximating current
costs, as would have resulted from using the
first-in,
first-out method, they would have been $74,414,000 and
$62,188,000 higher at December 31, 2006 and 2005. In
addition, after giving pro forma effect to profit sharing and
income taxes, net income would have been higher by $7,947,000 in
2006 and $13,114,000 in 2005.
The Company’s inventory is composed of finished goods.
There are no general and administrative costs charged to
inventory.
| NOTE C — | LONG-TERM DEBT |
The Company maintains lines of credit that include an unsecured
multi-bank revolving lending agreement totaling
$60 million. In addition, McJunkin Appalachian, which is
financed on a stand-alone basis with no guarantees provided by
McJunkin Corporation, maintains its own long-term revolving
credit/term loan agreement totaling $7.5 million. These
long-term loan agreements contain covenants that require
maintenance of minimum tangible net worth and other financial
ratios. Such covenants could restrict investments outside the
Company’s primary line of business, capital expenditures,
and dividend payments.
The Company has a $50 million trade receivables
securitization facility with a group of financial institutions
and uses a special-purpose, wholly-owned, consolidated
subsidiary, McJunkin Receivables Corporation (MRC), for the sole
purpose of buying substantially all of the trade accounts
receivable of the Company, other than McJunkin Appalachian,
McJunkin-Nigeria and McJunkin-Puerto Rico. Under these
facilities, the Company transfers all eligible accounts
receivable to MRC, which in turn sells an undivided ownership
interest in the receivables into commercial paper conduits
administered by the banks. This agreement is accounted for as a
secured borrowing; thus, all receivables outstanding under the
program and corresponding debt are recognized in the
consolidated balance sheet. The assets of MRC are available to
satisfy the claims of the financial institutions to the extent
of the securitized debt. The Company services the receivables
and retains an interest in the receivables subordinate to the
amount borrowed under the agreement. MRC retains the risk of
credit loss on the receivables and, accordingly, the full amount
of the allowance for doubtful accounts has been reflected on the
consolidated balance sheets. The credit losses and delinquencies
relating to these receivables were not material in 2006 and 2005.
The conduits obtain the funds to purchase interests in
receivables by selling commercial paper to third-party
investors. The facility provides that as accounts receivable are
collected, MRC can elect to have the commercial paper conduits
reinvest the proceeds in new accounts receivable. Fundings under
the facility are limited to the lesser of a funding base of
eligible receivables, as defined in the agreement, or
$50 million. Amounts outstanding under the agreement as of
December 31, 2006, were $2 million. There were no
amounts outstanding at the end of 2005. Due to the current
nature of the Company’s retained interest in the
receivables, the book value of the receivables represents the
best estimate of the fair market value. This three-year
agreement bears interest at a margin over A1P1 commercial paper
rates.
The facility requires the Company to comply with various
affirmative or negative covenants including, among other things,
accounts receivable delinquency, dilution, and days sales
outstanding ratios and maintenance of a minimum $5 million
net worth in MRC. The securitization agreement
F-62
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
contains certain restrictive covenants, including further sale
or placement of liens on accounts receivable, adherence to
collection policies, restrictions concerning mergers, and
commingling of funds between MRC and the Company. The financial
institutions may terminate the facility upon the occurrence of,
and failure to cure, termination events including violations of
representations, warranties and covenants. The commercial paper
conduits, in addition to their rights to collect payments from
that portion of the interest in the accounts receivable owned by
them, also have rights to collect payments from that portion of
the ownership interest in the accounts receivable that is owned
by MRC.
The total trade receivables pledged as collateral under this
agreement at December 31, 2006 and 2005, were $121,641,000
and $119,692,000.
Maturities of long-term debt are $2,000,000 in 2009 and
$11,035,000 in 2010, including certain amounts that are due on
demand but excluded from current liabilities because the Company
intends to replace such borrowings with funds available under
existing, unused long-term lines of credit. At December 31,
2006, the Company, exclusive of McJunkin Appalachian, had unused
short-term and long-term lines of credit of $10,765,000 and
$99,700,000; McJunkin Appalachian had unused short-term and
long-term lines of credit of $5 million and
$7.5 million.
The Company entered into an interest rate swap agreement in 2000
and interest rate collar agreement in 2001 to reduce its
exposure to potential interest rate increases. The swap
agreement, which expired in 2005, enabled the Company to make
fixed rate (6.39%) payments and receive floating rate (one-month
LIBOR) payments on a notional amount of $10 million. The
collar agreement, which expired in 2006, enabled the Company to
make fixed rate (ceiling rate of 5.50% and a floor rate of
4.08%) payments and receive floating rate (one-month LIBOR)
payments on a notional amount of $10 million. Only interest
payments, not the notional amounts, were exchanged. The
differences between the amounts exchanged in 2006 and 2005 were
not significant. The Company’s interest cost exposure was
limited to the difference between the 5.24% (weighted average)
and a lower floating interest rate, if any, applied to the
notional amounts then outstanding. Management believes it
mitigated counter party credit risk by entering into these
agreements only with major financial institutions. There were no
accumulated derivative liabilities at December 31, 2006 and
2005.
The Company paid interest of $2,831,000 and $2,630,000 in 2006
and 2005.
The Company’s long-term debt consists of:
| December 31, | ||||||||
|
2006
|
2005
|
|||||||
| (In $000’s) | ||||||||
|
Revolving credit/term loan agreement at a variable rate between
LIBOR and prime, due in 2010
|
$ | 8,300 | $ | 2,500 | ||||
|
Short-term debt expected to be refinanced on a long-term basis
at a variable rate between LIBOR and prime, due in 2010
|
2,735 | 385 | ||||||
|
Other long-term obligations
|
— | 210 | ||||||
|
Three-year asset securitization at a variable rate based on
commercial paper due in 2009
|
2,000 | — | ||||||
| 13,035 | 3,095 | |||||||
|
Less current portion
|
— | 210 | ||||||
| $ | 13,035 | $ | 2,885 | |||||
F-63
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
| NOTE D — | LEASES |
The Company leases land and buildings at various locations from
Hansford Associates and Appalachian Leasing. Certain officers
and directors of the Company participate in the ownership of
Hansford Associates and Appalachian Leasing. Most of these
leases are renewable for various periods through 2026 and
contain clauses for escalation of lease payments, payment of
real estate taxes, maintenance, insurance, and certain other
operating expenses of the properties. Leases with unrelated
parties contain similar provisions. Lease amortization was
$179,000 in 2006 and 2005.
Property held under capital leases in the balance sheets
consists of:
| December 31, | ||||||||
|
2006
|
2005
|
|||||||
| (In $000’s) | ||||||||
|
Land and buildings
|
$ | 4,881 | $ | 4,881 | ||||
|
Allowances for amortization
|
(2,777 | ) | (2,598 | ) | ||||
| $ | 2,104 | $ | 2,283 | |||||
Future minimum lease payments under capital leases aggregate to
$11,088,000, of which $3,608,000 represents interest and
$3,678,000 represents escalation and executory costs. The
present value of net minimum lease payments is $3,802,000, all
applicable to Hansford Associates. Annual payments under capital
leases are $949,000 for years 2007 through 2011.
Rental expense under operating leases amounted to $8,836,000 in
2006 and $8,070,000 in 2005, including $1,534,000 in 2006 and
$1,474,000 in 2005 applicable to leases with Hansford Associates
and $153,000 in 2006 and $154,000 in 2005 applicable to leases
with Appalachian Leasing. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year aggregate to
$19,061,000 and include leases applicable to Hansford Associates
($3,902,000) and leases applicable to Appalachian Leasing
($180,000). Annual operating lease payments are $7,848,000,
$6,616,000, $2,237,000, $956,000, and $626,000 for years 2007
through 2011.
| NOTE E — | FINANCIAL INSTRUMENTS |
In the normal course of business, the Company invests in various
financial assets and incurs various financial liabilities. The
Company’s financial assets and liabilities are recorded in
the consolidated balance sheets at historical cost, which
approximates fair value.
Investments: Investments are carried at
fair market value based on quoted market prices.
Short-Term and Long-Term
Borrowings: Borrowings under the credit
facilities have variable rates that reflect currently available
terms and conditions for similar debt. The carrying amount of
this debt is a reasonable estimate of its fair value.
Leases: Management estimated the fair
value of the Company’s lease obligations using discounted
cash flow analysis based on the Company’s current lease
rates for similar leases, and determined that the fair value is
not materially different from their carrying values.
Derivatives: The Company utilized
interest rate swaps and collars to reduce its exposure to
potential interest rate increases. Changes in fair values of
derivative instruments were based upon independent market quotes.
F-64
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
| NOTE F — | INCOME TAXES |
Income taxes included in the consolidated statements of income
consist of:
| Years Ended December 31, | ||||||||
| 2006 | 2005 | |||||||
| (in $000’s) | ||||||||
|
Federal:
|
||||||||
|
Current
|
$ | 36,514 | $ | 34,075 | ||||
|
Deferred
|
3,129 | (4,037 | ) | |||||
| 39,643 | 30,038 | |||||||
|
State and local:
|
||||||||
|
Current
|
8,024 | 7,413 | ||||||
|
Deferred
|
673 | (868 | ) | |||||
| 8,697 | 6,545 | |||||||
|
INCOME TAX PROVISION
|
$ | 48,340 | $ | 36,583 | ||||
The Company’s effective tax rate varied from the statutory
federal income tax rate for the following reasons:
| Years Ended December 31, | ||||||||
| 2006 | 2005 | |||||||
| (in $000’s) | ||||||||
|
Federal tax expense at statutory rates
|
$ | 41,270 | $ | 31,193 | ||||
|
State taxes
|
5,653 | 4,254 | ||||||
|
Non-deductible sales expenses
|
409 | 372 | ||||||
|
Other
|
1,008 | 764 | ||||||
|
INCOME TAX PROVISION
|
$ | 48,340 | $ | 36,583 | ||||
|
Effective rate
|
41.0 | % | 41.0 | % | ||||
The Company paid $50,553,000 and $34,665,000 in 2006 and 2005
for federal and state taxes.
F-65
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
Significant components of the Company’s current deferred
tax assets and liabilities are as follows:
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (in $000’s) | ||||||||
|
Deferred tax assets:
|
||||||||
|
Accounts receivable valuation
|
$ | 797 | $ | 689 | ||||
|
Real estate and investment bases differences
|
86 | 312 | ||||||
|
Expenses deductible as paid
|
3,684 | 3,453 | ||||||
|
Total deferred tax assets
|
4,567 | 4,454 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Inventory valuation
|
(6,464 | ) | (2,612 | ) | ||||
|
Accelerated depreciation and amortization
|
(2,969 | ) | (2,905 | ) | ||||
|
Investment basis difference
|
(14,759 | ) | (11,529 | ) | ||||
|
Total deferred tax liabilities
|
(24,192 | ) | (17,046 | ) | ||||
|
Net deferred tax liabilities
|
$ | (19,625 | ) | $ | (12,592 | ) | ||
| NOTE G — | CONTINGENCIES |
The Company is involved in various legal proceedings and claims,
both as a plaintiff and a defendant, which arise in the ordinary
course of business. Included in these legal proceedings are
cases where the Company has been named as a defendant in
lawsuits brought against a large number of entities by
individuals seeking damages for injuries allegedly caused by
certain products containing asbestos. Among other things, with
the assistance of accounting and financial consultants, the
Company conducted an analysis of pending and probable
asbestos-related
claims to determine the adequacy of its accrual for these
claims. This analysis consisted of developing per claim
settlement estimates for each category of claim by alleged
disease type based on the Company’s historical settlement
experience. These estimates were applied to each of the
Company’s pending individual claims. Liability with respect
to mass filings was estimated by determining the number of
individual plaintiffs included in the mass filings likely to
have claims resulting in settlements based on the Company’s
historical experience with mass filings. Finally, likely claims
expected to be asserted against the Company over the next
fifteen years were predicted based on public health estimates of
future incidences of certain asbestos-related diseases in the
general U.S. population and per claim settlement estimates
were applied to those estimated claims. Based on this analysis
and the existence of certain insurance coverage, the Company
believes that its current accruals for pending and probable
asbestos-related litigation are adequate. However, there is a
possibility that resolution of these matters could result in
additional losses in excess of current accruals. Also, there is
a possibility that resolution of certain of the Company’s
legal contingencies for which there are no liabilities recorded
could result in a loss. Management is not able to estimate the
amount of such loss, if any. However, in the opinion of the
Company, after consultation with counsel, the ultimate
resolution of all pending matters is not expected to have a
material effect on its financial position, although it is
possible that such resolutions could have a material adverse
impact on net income and cash flows.
F-66
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
McJUNKIN CORPORATION AND SUBSIDIARIES
December 31, 2006
| NOTE H — | SUBSEQUENT EVENT |
On December 4, 2006, McJunkin entered into a definitive
agreement (the Merger Agreement) to be acquired by McJ Holding
Corporation (ParentCo), a wholly owned subsidiary of McJ Holding
LLC (HoldCo). Both ParentCo and HoldCo were formed by Goldman
Sachs Capital Partners (GSCP) for purposes of facilitating this
acquisition. On January 12, 2007, McJunkin’s
shareholders voted to approve the Merger Agreement. Under the
terms of the Merger Agreement, McJunkin’s shareholders will
exchange their shares in McJunkin for cash and ownership units
of HoldCo in a transaction valued at approximately
$1.065 billion, including associated fees and refinanced
debt. At the conclusion of the transaction, McJunkin
shareholders will own an approximate 40% interest in HoldCo with
GSCP and their affiliates holding the remaining interest. The
transaction is expected to close on or about January 30,
2007.
It is anticipated that the acquisition will be financed with a
term loan of $575 million, asset-based revolver borrowings
of $75 million, existing capital leases of
$3.6 million and an equity investment of approximately
$411 million, which includes equity rolled over from
existing McJunkin shareholders of approximately
$169 million.
Under the provisions of the Merger Agreement, certain of the
Company’s assets will be liquidated subsequent to closing
and distributed to McJunkin’s current shareholders. These
include the investment in PrimeEnergy as well as certain real
estate holdings. At December 31, 2006, these assets had a
net book value of approximately $27.1 million.
F-67
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
McJunkin Corporation
Charleston, West Virginia
We have audited the consolidated financial statements of
McJunkin Corporation and subsidiaries as of December 31,
2006 and 2005, and for the years then ended, and have issued our
report thereon dated January 13, 2007. Our audits also
included the consolidated financial statement schedule of the
Company listed in the accompanying schedule. This consolidated
financial statement schedule is the responsibility of the
Company’s management. Our responsibility is to express an
opinion based on our audits. In our opinion, the consolidated
financial statement schedule as of and for the years ended
December 31, 2006 and 2005, when considered in relation to
the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
/s/ Schneider
Downs & Co., Inc.
Columbus, Ohio
January 13, 2007
F-68
Table of Contents
Schedule II —
Valuation and Qualifying Accounts Worksheet
|
(B) Balance |
(C) Additions |
(E) Balance |
||||||||||||||||||
|
at Beginning |
Charged to |
at end |
||||||||||||||||||
|
(A) Description (1)
|
of Period | Costs and Expenses | (D) Deductions (1) | of Period | ||||||||||||||||
|
Allowance for
|
||||||||||||||||||||
|
Doubtful Accounts
|
||||||||||||||||||||
|
2005
|
$ | 1,722,000 | $ | 90,000 | $ | 68,654 | $ | 1,743,346 | ||||||||||||
|
2006
|
$ | 1,743,346 | $ | 414,000 | $ | 142,346 | $ | 2,015,000 | ||||||||||||
| (1) | Includes write off of uncollectible accounts receivable, net of recoveries. |
F-69
Table of Contents
Report of
Independent Auditors
To the Board of
Directors and Stockholders
Red Man Pipe & Supply Co.
Red Man Pipe & Supply Co.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, comprehensive
income, preferred stock and stockholders’ equity, and cash
flows present fairly, in all material respects, the financial
position of Red Man Pipe and Supply Co. and Subsidiaries (the
“Company”) at October 31, 2006 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended October 31, 2007 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 15, 2008
F-70
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
October 31,
2006 and 2007
|
2006
|
2007
|
|||||||
| (in thousands of dollars, except share amounts) | ||||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash
|
$ | 457 | $ | 13,866 | ||||
|
Accounts receivable, less allowance for doubtful accounts of
$2,204 and $1,755 in 2006 and 2007, respectively
|
303,629 | 329,073 | ||||||
|
Inventories
|
336,714 | 329,272 | ||||||
|
Income tax receivable
|
5,473 | — | ||||||
|
Other current assets
|
929 | 243 | ||||||
|
Total current assets
|
647,202 | 672,454 | ||||||
|
Property, plant and equipment, net
|
29,931 | 39,583 | ||||||
|
Goodwill
|
76,198 | 91,077 | ||||||
|
Intangible assets, net of accumulated amortization of $4,047 and
$8,913 in 2006 and 2007, respectively
|
28,422 | 30,034 | ||||||
|
Investments
|
6,689 | 5,057 | ||||||
|
Other assets
|
2,558 | 120 | ||||||
|
Total assets
|
$ | 791,000 | $ | 838,325 | ||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities
|
||||||||
|
Operating lines of credit
|
$ | 27,028 | $ | — | ||||
|
Trade accounts payable
|
187,162 | 209,513 | ||||||
|
Accrued liabilities
|
63,043 | 41,988 | ||||||
|
Income taxes payable
|
3,457 | 3,427 | ||||||
|
Notes payable
|
6,939 | 3,910 | ||||||
|
Deferred revenue
|
1,488 | — | ||||||
|
Term loans due on demand
|
3,975 | 10,519 | ||||||
|
Deferred income tax liabilities
|
22,721 | 28,974 | ||||||
|
Total current liabilities
|
315,813 | 298,331 | ||||||
|
Long-term debt, less current portion
|
207,418 | 31,434 | ||||||
|
Payable to minority interest shareholders
|
28,009 | 25,718 | ||||||
|
Deferred income tax liabilities
|
5,923 | 7,826 | ||||||
|
Other long-term liability (Note 2)
|
— | 125,113 | ||||||
|
Total liabilities
|
557,163 | 488,422 | ||||||
|
Commitments and contingencies (Notes 7 and 9)
|
||||||||
|
Minority interest
|
49,423 | 76,064 | ||||||
|
Stockholders’ equity
|
||||||||
|
Preferred stock, $2,500 par value, 2,000 shares
authorized, none issued and outstanding as of October 31,
2006 and 2007
|
— | — | ||||||
|
Class A common stock, $0.01 par value,
50,000,000 shares authorized, 144,831 and 143,976 issued
and outstanding as of October 31, 2006 and 2007,
respectively
|
2 | 2 | ||||||
|
Class B common stock, $0.01 par value,
50,000,000 shares authorized, 34,344 issued and outstanding
as of October 31, 2006 and 2007
|
— | — | ||||||
|
Additional paid-in capital
|
2,480 | 8,159 | ||||||
|
Retained earnings
|
176,091 | 258,274 | ||||||
|
Accumulated other comprehensive income
|
6,343 | 7,404 | ||||||
| 184,916 | 273,839 | |||||||
|
Treasury stock, at cost
|
(502 | ) | — | |||||
|
Total stockholders’ equity
|
184,414 | 273,839 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 791,000 | $ | 838,325 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-71
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
2005
|
2006
|
2007
|
||||||||||
| (in thousands of dollars) | ||||||||||||
|
Sales
|
$ | 1,224,174 | $ | 1,815,345 | $ | 1,981,990 | ||||||
|
Costs and expenses
|
||||||||||||
|
Cost of products sold
|
1,023,030 | 1,551,118 | 1,632,320 | |||||||||
|
Selling, general and administrative expenses
|
100,211 | 172,192 | 186,551 | |||||||||
|
Total costs and expenses
|
1,123,241 | 1,723,310 | 1,818,871 | |||||||||
|
Operating income
|
100,933 | 92,035 | 163,119 | |||||||||
|
Other income (expense)
|
||||||||||||
|
Interest expense
|
(8,431 | ) | (15,024 | ) | (20,641 | ) | ||||||
|
Other, net
|
973 | 3,317 | (2,658 | ) | ||||||||
| (7,458 | ) | (11,707 | ) | (23,299 | ) | |||||||
|
Income before income taxes
|
93,475 | 80,328 | 139,820 | |||||||||
|
Income tax expense
|
34,208 | 26,498 | 57,572 | |||||||||
| 59,267 | 53,830 | 82,248 | ||||||||||
|
Non-controlling interest
|
— | 176 | 65 | |||||||||
|
Earnings before discontinued operations
|
59,267 | 53,654 | 82,183 | |||||||||
|
Discontinued operations
|
||||||||||||
|
Earnings (loss) from discontinued operations, net of EPSP and
income tax (Note 4)
|
528 | (2,177 | ) | — | ||||||||
|
Gain on sale of discontinued operations, net of EPSP and income
tax
|
— | 8,170 | — | |||||||||
|
Net income
|
$ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-72
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
2005
|
2006
|
2007
|
||||||||||
| (in thousands of dollars) | ||||||||||||
|
Net income
|
$ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
|
Other comprehensive income, net of taxes
|
||||||||||||
|
Change in value of cash flow derivative instruments used as cash
flow hedges
|
(743 | ) | — | — | ||||||||
|
Reclassification — derivative settlements
|
1,226 | — | — | |||||||||
|
Currency translation adjustments
|
248 | 6,095 | 1,061 | |||||||||
|
Comprehensive income
|
$ | 60,526 | $ | 65,742 | $ | 83,244 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-73
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
| Common Stock |
Accumulated |
|||||||||||||||||||||||||||||||||||||||||||||||
|
Class C |
Voting |
Non-Voting |
Additional |
Comprehensive |
||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Class A | Class B |
Paid-in |
Retained |
Income |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||
| Shares |
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
(Loss)
|
Shares
|
Amount
|
Total
|
|||||||||||||||||||||||||||||||||||||
| (in thousands of dollars, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Balances at October 31, 2004
|
— | $ | — | 146 | $ | 2 | 34 | $ | — | $ | 2,628 | $ | 56,649 | $ | (483 | ) | (1 | ) | $ | (87 | ) | $ | 58,709 | |||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | — | — | 59,795 | — | — | — | 59,795 | ||||||||||||||||||||||||||||||||||||
|
Acquisition of treasury stock
|
— | — | — | — | — | — | — | — | — | (1 | ) | (61 | ) | (61 | ) | |||||||||||||||||||||||||||||||||
|
Retirement of treasury stock
|
— | — | (2 | ) | — | — | — | (148 | ) | — | — | 2 | 148 | — | ||||||||||||||||||||||||||||||||||
|
Gain on derivative instruments designated and qualifying as cash
flow hedging instruments
|
— | — | — | — | — | — | — | — | 483 | — | — | 483 | ||||||||||||||||||||||||||||||||||||
|
Currency translation adjustments
|
— | — | — | — | — | — | — | — | 248 | — | — | 248 | ||||||||||||||||||||||||||||||||||||
|
Balances at October 31, 2005
|
— | — | 144 | 2 | 34 | — | 2,480 | 116,444 | 248 | — | — | 119,174 | ||||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | — | — | 59,647 | — | — | — | 59,647 | ||||||||||||||||||||||||||||||||||||
|
Acquisition of treasury stock
|
— | — | — | — | — | — | — | — | — | (1 | ) | (502 | ) | (502 | ) | |||||||||||||||||||||||||||||||||
|
Currency translation adjustments
|
— | — | — | — | — | — | — | — | 6,095 | — | — | 6,095 | ||||||||||||||||||||||||||||||||||||
|
Balances at October 31, 2006
|
— | — | 144 | 2 | 34 | — | 2,480 | 176,091 | 6,343 | (1 | ) | (502 | ) | 184,414 | ||||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | — | — | 82,183 | — | — | — | 82,183 | ||||||||||||||||||||||||||||||||||||
|
Retirement of treasury stock
|
— | — | — | — | — | — | (502 | ) | — | — | 1 | 502 | — | |||||||||||||||||||||||||||||||||||
|
Shareholder contributions (Note 2)
|
— | — | — | — | — | — | 6,181 | — | — | — | — | 6,181 | ||||||||||||||||||||||||||||||||||||
|
Currency translation adjustments
|
— | — | — | — | — | — | — | — | 1,061 | — | — | 1,061 | ||||||||||||||||||||||||||||||||||||
|
Balances at October 31, 2007
|
— | $ | — | 144 | $ | 2 | 34 | $ | — | $ | 8,159 | $ | 258,274 | $ | 7,404 | — | $ | — | $ | 273,839 | ||||||||||||||||||||||||||||
The accompanying
notes are an integral part of these consolidated financial
statements.
F-74
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
Years Ended
October 31, 2005, 2006 and 2007
|
2005
|
2006
|
2007
|
||||||||||
| (in thousands of dollars) | ||||||||||||
|
Cash flows from operating activities
|
||||||||||||
|
Net income
|
$ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
||||||||||||
|
Depreciation and amortization
|
3,916 | 8,300 | 9,680 | |||||||||
|
Write-off of obsolete inventories
|
2,289 | 3,383 | 4,363 | |||||||||
|
Gain on disposal of assets
|
(60 | ) | (83 | ) | (2,336 | ) | ||||||
|
Impairment loss on goodwill and intangible assets
|
— | — | 5,149 | |||||||||
|
Stock compensation expense
|
— | — | 963 | |||||||||
|
Equity in earnings of unconsolidated subsidiary
|
(705 | ) | — | — | ||||||||
|
Gain on sale of discontinued operations
|
— | (16,585 | ) | — | ||||||||
|
Deferred income taxes
|
15,364 | (2,056 | ) | 7,214 | ||||||||
|
Minority interest
|
— | 176 | 66 | |||||||||
|
Other, net
|
(271 | ) | (277 | ) | — | |||||||
|
Decrease (increase) in assets
|
||||||||||||
|
Accounts receivable
|
(59,120 | ) | (63,380 | ) | (8,626 | ) | ||||||
|
Income tax receivable
|
135 | — | 5,008 | |||||||||
|
Inventories
|
(65,164 | ) | (98,085 | ) | 18,724 | |||||||
|
Other assets
|
(1,799 | ) | (1,563 | ) | 3,162 | |||||||
|
Increase (decrease) in liabilities
|
||||||||||||
|
Accounts payable and accrued liabilities
|
30,528 | 53,027 | (22,937 | ) | ||||||||
|
Income tax payable
|
1,223 | 1,936 | (329 | ) | ||||||||
|
Other current liabilities
|
— | (736 | ) | — | ||||||||
|
Other long-term liabilities
|
2,450 | (163 | ) | — | ||||||||
|
Net cash provided by (used in) operating activities
|
(11,419 | ) | (56,459 | ) | 102,284 | |||||||
|
Cash flows from investing activities
|
||||||||||||
|
Purchase of property, plant and equipment
|
(5,801 | ) | (14,468 | ) | (12,193 | ) | ||||||
|
Proceeds from disposal of property, plant and equipment
|
347 | 1,285 | 3,673 | |||||||||
|
Proceeds from disposal of subsidiary
|
— | 35,220 | — | |||||||||
|
Business acquisitions
|
(45,874 | ) | (12,784 | ) | (3,747 | ) | ||||||
|
Advance to related parties
|
— | (4,877 | ) | — | ||||||||
|
Repayment of advances to unconsolidated subsidiaries
|
957 | — | — | |||||||||
|
Purchases of investment
|
— | (879 | ) | — | ||||||||
|
Other, net
|
(40 | ) | — | (243 | ) | |||||||
|
Net cash provided by (used in) investing activities
|
(50,411 | ) | 3,497 | (12,510 | ) | |||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-75
Table of Contents
RED MAN
PIPE & SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years Ended October 31, 2005, 2006 and 2007
Years Ended October 31, 2005, 2006 and 2007
|
2005
|
2006
|
2007
|
||||||||||
| (in thousands of dollars) | ||||||||||||
|
Cash flows from financing activities
|
||||||||||||
|
Advances on long-term debt
|
1,143,106 | 1,403,024 | 1,353,302 | |||||||||
|
Payments on long-term debt
|
(1,093,917 | ) | (1,338,977 | ) | (1,398,620 | ) | ||||||
|
Extinguishment of debt
|
— | — | (120,027 | ) | ||||||||
|
Advances on operating lines of credit
|
371 | — | — | |||||||||
|
Payments on operating lines of credit
|
(396 | ) | (2,665 | ) | (27,606 | ) | ||||||
|
Advances on notes payable
|
20,450 | 1,757 | — | |||||||||
|
Advances from affiliates
|
— | — | 120,027 | |||||||||
|
Advances to affiliate
|
— | — | 2,504 | |||||||||
|
Repayments of term loans
|
(675 | ) | (1,619 | ) | — | |||||||
|
Repayment of notes payable
|
— | (20,369 | ) | (7,087 | ) | |||||||
|
Advances (payments) to minority interest shareholders
|
(7,974 | ) | 13,087 | (6,238 | ) | |||||||
|
Acquisition of treasury stock
|
(61 | ) | (502 | ) | — | |||||||
|
Repayments to shareholders
|
— | (918 | ) | — | ||||||||
|
Capital contributions
|
— | — | 6,181 | |||||||||
|
Financing costs
|
— | — | (898 | ) | ||||||||
|
Other
|
— | (155 | ) | 292 | ||||||||
|
Net cash provided by (used in) financing activities
|
60,904 | 52,663 | (78,170 | ) | ||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
18 | (161 | ) | 1,805 | ||||||||
|
Net increase (decrease) in cash
|
(908 | ) | (460 | ) | 13,409 | |||||||
|
Cash
|
||||||||||||
|
Beginning of year
|
1,825 | 917 | 457 | |||||||||
|
End of year
|
$ | 917 | $ | 457 | $ | 13,866 | ||||||
|
Supplemental cash flow data
|
||||||||||||
|
Interest paid
|
$ | 7,228 | $ | 18,133 | $ | 21,961 | ||||||
|
Income taxes paid
|
18,144 | 30,436 | 45,118 | |||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-76
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
October 31,
2005, 2006 and 2007
| 1. | Summary of Significant Accounting Policies and Nature of Operations |
Nature of
Operations
Red Man Pipe & Supply Co. (“the Company”) is
a distributor of tubular goods, including oil country tubular
goods and line pipe, and operates service and supply centers
which distribute maintenance, repair and operating products
utilized primarily in the energy industry as well as industrial
products consisting primarily of line pipe, valves, fittings and
flanges. The Company distributes products and tubular goods
through service and supply centers and sales locations
strategically located close to the major hydrocarbon producing
and refining areas of the United States and Canada.
Additionally, the Company distributes its products and tubular
goods to customers in various locations outside of North America.
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts of Red Man Pipe & Supply Co. and its
majority-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Investments that are not wholly owned, but where we exercise
control, are fully consolidated with the equity held by minority
owners reflected as minority interest in the accompanying
financial statements. Investments in unconsolidated affiliates,
over which we exercise significant influence, but not control,
are accounted for by the equity method. Investments in which we
exercise no control or significant influence are accounted for
under the cost method.
Cash
Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the date of purchase to be
cash equivalents.
Derivatives
and Hedging
The Company follows Financial Accounting Standard No. 133
(including subsequent amendments) Accounting for Derivative
Instruments and Hedging Activities. These statements require
all derivatives to be recognized on the balance sheet and
measured at fair value. If a derivative is designated as a cash
flow hedge, the Company is required to measure the effectiveness
of the hedge, or the degree that the gain (loss) for the hedging
instrument offsets the loss (gain) on the hedged item, at each
reporting period. The effective portion of the gain (loss) on
the derivative instrument is recognized in other comprehensive
income as a component of equity and, subsequently, reclassified
into earnings when the forecasted transaction affects earnings.
The ineffective portion of a derivative’s change in fair
value is required to be recognized in earnings immediately.
Derivatives that do not qualify for hedge treatment under FAS
133 must be recorded at fair value with gains (losses)
recognized in earnings in the period of change. There were no
derivatives outstanding at October 31, 2006 and 2007.
Insurance
The Company is self-insured for portions of employee healthcare,
maintained a large deductible program for Automobile Collision,
and maintains a guaranteed cost program as it relates to Workers
Compensation, Automobile Liability, and General Liability,
including but not limited to Product Liability.
Under our Property & Casualty Program, we have an Umbrella
Liability policy that covers liabilities in excess of
$1 million. We also have Excess Liability coverage for
liabilities in excess of $25 million.
F-77
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
Inventories
The Company accounts for inventories using the
Last-In,
First-Out (“LIFO”) method. The majority of the
Company’s inventories are valued at the lower of LIFO cost
or market. If the LIFO method of valuing inventories were not
used, total inventories would have been $70.0 and
$62.0 million higher at October 31, 2006 and 2007,
respectively. However, certain of the Company’s
Canadian-based inventories, totaling $73.6 million and
$79.1 million at October 31, 2006 and 2007,
respectively, are valued utilizing the lower of cost or market
method. The Company’s inventory is composed of finished
goods. There are no general and administrative costs charged to
inventory.
During 2007, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried
at lower costs prevailing in prior years as compared with the
current cost of purchases, the effect of which decreased costs
of products sold by approximately $28.3 million in 2007.
There were no LIFO liquidations in 2005 and 2006.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost and include
expenditures for facilities as well as significant improvements
to existing facilities. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is reflected in
income for the period. Maintenance and repairs are charged to
expense as incurred.
Depreciation and amortization are computed utilizing both
straight-line and accelerated methods over the estimated useful
lives of the property. The ranges of estimated useful lives for
financial reporting are as follows:
|
Years
|
||||
|
Buildings and improvements
|
5 -- 40 | |||
|
Machinery, shop equipment and vehicles
|
5 -- 12 | |||
|
Furniture, fixtures and office equipment
|
3 -- 7 | |||
|
Leasehold improvements
|
5 -- 15 | |||
Depreciation expense from continuing operations for the years
ended October 31, 2005, 2006 and 2007 was $2,828,000,
$4,770,000 and $5,971,000, respectively.
Revenue
Recognition
The Company recognizes revenue as products are shipped or
accepted by the customer.
The results of discontinued operations
(Note 4) include manufacturing revenue generated on
long-term fixed price contracts. Revenue on these contracts is
recognized on the percentage of completion basis. The Company
progress bills the customers based upon the contract terms. When
the amount that is billed is greater than the revenue that is
recognized based upon the percentage of completion, deferred
revenue is recognized. Anticipated losses are provided for in
the period incurred.
Rental, service and other revenues are recorded when such
services are performed and collectibility is reasonably assured.
Income
Taxes
The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes (“SFAS No. 109”). SFAS No.
109 requires the measurement of deferred tax assets and
liabilities based on the future tax consequences attributable to
the differences between
F-78
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
As the result of a recent FASB deferral, FIN 48,
Accounting for Uncertainty in Income Taxes
(“FIN 48”) is effective for the Company for
fiscal years beginning after December 15, 2007. FIN 48
prescribes a two-step model for how companies should recognize
and measure uncertain tax positions. FIN 48 also requires
several new disclosures. The Company is assessing the impact
FIN 48 will have on our financial statements.
Treasury
Stock
The Company utilizes the cost method to account for its treasury
stock acquisitions and dispositions.
Freight
The Company follows
EITF 00-10
“Accounting for Shipping and Handling Fees and Costs”.
Accordingly, all out-bound shipping and handling costs are
reflected in cost of goods sold and all freight reimbursements
billed to customers are reflected in revenues.
Comprehensive
Income
The Company follows Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income
(“SFAS No. 130”). SFAS 130
established rules for the reporting and display of comprehensive
income and its components. Comprehensive income includes gains
and losses on hedging activities.
Foreign
Currency Translation and Transactions
Gains and losses from balance sheet translation of operations
outside of the United States where the applicable foreign
currency is the functional currency is included as a component
of accumulated other comprehensive income within
stockholders’ equity. Gains and losses resulting from
foreign currency transactions are recognized currently in the
consolidated statements of operations.
Goodwill and
Other Intangible Assets
Goodwill represents the excess of cost over the fair value of
net assets acquired. Recorded goodwill balances are not
amortized but, instead, evaluated for impairment annually or
more frequently if circumstances indicate that an impairment may
exist. The goodwill valuation, which is prepared each fiscal
year, is largely influenced by projected future cash flows and,
therefore, is significantly impacted by estimates and judgments.
Intangible assets are initially recorded at cost. Amortization
is provided using the straight-line method over 3 to
10 years which is intended to amortize the cost of assets
over their estimated useful lives. The carrying value of
intangible assets are reviewed for possible impairment whenever
events or changes in circumstances indicate the carrying amount
may not be recoverable.
As a result of the Company’s annual impairment analysis,
impairment losses of $3,954,000 related to goodwill and
$1,195,000 related to intangibles were recognized in 2007 (2006:
$0). The impairment charge was recorded in Other, net in the
Consolidated Statement of Operations.
F-79
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value
Measurements
In September 2006, the FASB issued Statement 157, Fair Value
Measurements, which establishes a framework for measuring
fair value and requires additional disclosures about fair value
measurements. The Company does not believe this pronouncement
will have a material impact on our financial statement. The
provisions of this statement are effective for fiscal years
beginning after November 15, 2007.
| 2. | Merger Agreement |
On July 6, 2007 Red Man Pipe & Supply Co. and its
Shareholders, collectively entered into a definitive agreement
to be acquired by a subsidiary of McJunkin Corporation
(“McJunkin”). The Company’s Shareholders approved
the Merger Agreement and the transaction closed on
October 31, 2007. In exchange for all of the outstanding
stock of the Company, Shareholders received cash and other
considerations. In conjunction with this Merger Agreement
certain Shareholders exchanged some of their shares for common
units in McJ Holding LLC, the ultimate parent corporation of
McJunkin Corporation. McJ Holding LLC is majority-owned by
Goldman Sachs Capital Partners and their affiliates. In
connection with this merger, the combined company has been
renamed McJunkin Red Man Corporation. The cash consideration to
be ultimately paid to the shareholders of the company
approximates $1.1 billion, less debt and certain
transaction expenses, and is subject to a working capital
adjustment and any additional consideration related to
McJunkin’s right to purchase the remaining equity of the
Company’s majority-owned Canadian subsidiary, Midfield
Supply ULC (“Midfield”). As part of the agreement
McJunkin loaned the Company $120,027,000 in order to pay off the
Company’s existing Revolving credit facility. McJunkin also
agreed to accept the obligation arising from certain transaction
expenses and from the termination of the Phantom Stock plan.
This amounted to $6,181,000 of capital contributions.
| 3. | Business Acquisitions |
On June 2, 2006, the Company purchased certain assets from
Bear Tubular, Inc., for $4,613,000 in cash. The summary of the
purchase price allocation is as follows:
| (In thousands of dollars) | ||||
|
Inventory
|
$ | 2,553 | ||
|
Property, plant and equipment
|
260 | |||
|
Goodwill
|
1,800 | |||
| $ | 4,613 | |||
In 2006, through a series of transactions, Red Man
Pipe & Supply Canada Ltd. (“Red Man Canada”)
acquired 100% interest in four separate companies. The
consideration paid consisted of
F-80
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
$8,171,000 of cash and $246,000 of share capital in one of the
Company’s majority-owned subsidiaries. The summary of the
total purchase allocation is as follows:
| (In thousands of dollars) | ||||
|
Current assets
|
$ | 12,170 | ||
|
Property, plant and equipment
|
2,213 | |||
|
Goodwill
|
4,195 | |||
|
Intangibles
|
2,615 | |||
|
Current liabilities
|
(11,053 | ) | ||
|
Long-term debt
|
(1,723 | ) | ||
| $ | 8,417 | |||
On June 14, 2005, the Company formed Red Man Canada.
Through a series of transactions Red Man Canada acquired
21,975 shares (51%) of Midfield. The shares were acquired
for $45,874,000. The summary of the purchase price allocation is
as follows:
| (In thousands of dollars) | ||||
|
Assets acquired
|
||||
|
Accounts receivable
|
$ | 54,585 | ||
|
Inventory
|
37,285 | |||
|
Property and equipment
|
23,154 | |||
|
Intangible assets
|
27,106 | |||
|
Goodwill
|
67,469 | |||
|
Other assets
|
2,527 | |||
| 212,126 | ||||
|
Liabilities assumed
|
||||
|
Accounts payable and accrued liabilities
|
(56,989 | ) | ||
|
Debt and notes payable
|
(31,710 | ) | ||
|
Payable to shareholders
|
(22,125 | ) | ||
|
Minority interest
|
(45,609 | ) | ||
|
Deferred income tax liabilities
|
(7,757 | ) | ||
|
Other liabilities
|
(2,062 | ) | ||
| (166,252 | ) | |||
|
Purchase price
|
$ | 45,874 | ||
On May 1, 2007, the Company acquired 100% of the
outstanding shares of Northern Boreal in exchange for cash and
shares. Northern Boreal operates an oilfield supply store.
Consolidated earnings of Northern Boreal since acquisition date
have been included in these financial statements.
On April 3, 2007, the Company acquired 100% of the
outstanding shares of Hagan Oilfield Supply Ltd., and affiliated
companies (“1236564” and “1048025”) in
exchange for cash and shares. Consolidated earnings of Hagan
since acquisition date have been included in these financial
statements. The Company subsequently amalgamated the operations
of the three companies on November 1, 2007, into Hagan
Oilfield Supply Ltd (“Hagan”), which operates three
oilfield supply stores.
F-81
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The consideration paid and the fair values of the net assets
acquired are as follows:
|
Northern |
||||||||||||
|
Hagan
|
Boreal
|
Total
|
||||||||||
| (in thousands of dollars) | ||||||||||||
|
Consideration paid
|
||||||||||||
|
Cash
|
$ | 1,882 | $ | 2,773 | $ | 4,655 | ||||||
|
Shares issued in Midfield Supply ULC
|
217 | 820 | 1,037 | |||||||||
|
Notes payable
|
701 | 1,495 | 2,196 | |||||||||
| $ | 2,800 | $ | 5,088 | $ | 7,888 | |||||||
|
Net assets acquired
|
||||||||||||
|
Current assets
|
$ | 98 | $ | 3,812 | $ | 3,910 | ||||||
|
Property, plant and equipment
|
127 | 244 | 371 | |||||||||
|
Goodwill
|
2,045 | 2,638 | 4,683 | |||||||||
|
Intangible assets
|
610 | 1,167 | 1,777 | |||||||||
|
Current liabilities
|
(80 | ) | (2,773 | ) | (2,853 | ) | ||||||
| $ | 2,800 | $ | 5,088 | $ | 7,888 | |||||||
| 4. | Business Divestitures |
On June 30, 2006, a subsidiary of the Company, Nusco Pipe
and Supply ULC, disposed of its manufacturing business located
in Nisku, Alberta, Canada, as well as its 80% interest in Nusco
Northern Manufacturing Ltd. and its wholly owned subsidiary
Moe’s. The Company received proceeds of $41,106,000
consisting of cash of $35,220,000, warrants with an estimated
fair value of $308,000 and an assumption of long-term debt of
$5,578,000.
The carrying amounts of the disposed assets relating to this
sale are as follows:
|
(in thousands |
||||
| of dollars) | ||||
|
Current assets
|
$ | 5,790 | ||
|
Property, plant and equipment
|
14,760 | |||
|
Goodwill
|
7,943 | |||
|
Intangibles
|
297 | |||
|
Current liabilities
|
(130 | ) | ||
|
Minority interest
|
(2,416 | ) | ||
|
Long-term liabilities
|
(1,724 | ) | ||
| $ | 24,520 | |||
F-82
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The results of operations for the discontinued operations were
as follows:
|
June 15, 2005 |
November 1, 2005 |
|||||||
|
to |
to |
|||||||
|
October 31, 2005
|
June 30, 2006
|
|||||||
| (in thousands of dollars) | ||||||||
|
Revenue
|
$ | 15,170 | $ | 28,031 | ||||
|
Cost of sales
|
(10,819 | ) | (21,880 | ) | ||||
|
Expenses
|
(2,494 | ) | (4,608 | ) | ||||
|
Amortization
|
— | (540 | ) | |||||
|
Bonuses
|
(1,032 | ) | (3,326 | ) | ||||
|
Other income
|
— | 447 | ||||||
|
Earnings (loss) before income taxes
|
825 | (1,876 | ) | |||||
|
Provision for current income taxes
|
(297 | ) | (301 | ) | ||||
|
Earnings (loss) from discontinued operations
|
$ | 528 | $ | (2,177 | ) | |||
Comparative figures have been restated as a result of these
discontinued operations.
On November 1, 2006, the Company’s 100% owned
subsidiary, Midfield Supply USA Ltd. disposed of all of its
working capital assets with proceeds equal to book value ($888)
and plant and equipment with proceeds equal to net book value
($5) to the Company’s majority shareholder. Midfield Supply
USA Ltd. ceased operating at this time.
| 5. | Property, Plant and Equipment |
Property, plant and equipment consists of the following as of
October 31, 2006 and 2007:
|
2006
|
2007
|
|||||||
|
(in thousands |
||||||||
| of dollars) | ||||||||
|
Land
|
$ | 3,802 | $ | 4,300 | ||||
|
Buildings and improvements
|
11,140 | 16,172 | ||||||
|
Machinery, shop equipment and vehicles
|
11,840 | 24,178 | ||||||
|
Furniture, fixtures and office equipment
|
24,455 | 21,254 | ||||||
|
Leasehold improvements
|
1,763 | 2,996 | ||||||
| 53,000 | 68,900 | |||||||
|
Less: Accumulated depreciation and amortization
|
23,069 | 29,317 | ||||||
| $ | 29,931 | $ | 39,583 | |||||
| 6. | Operating Lines of Credit (in thousands of dollars) |
The Company has one Canadian dollar line of credit with Bank of
America, which is further described in Note 7.
In 2006 bank indebtedness consisted of three Canadian dollar and
one U.S. dollar revolving lines of credit. The Canadian
dollar lines of credit had a maximum limit of $30,000 bearing
interest to Canadian prime rate plus 0.625%, a maximum limit of
$25,000 bearing interest at prime plus 0.5% and a maximum limit
of $1,500 bearing interest at prime plus 0.5%. The
U.S. dollar line of credit had
F-83
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
a maximum of $250 US, bearing interest at 5.875%. All of these
lines of credit were fully repaid in the current year.
| 7. | Long-Term Debt, Notes Payable and Term Loans |
Long-term debt, notes payable and term loans as of
October 31, 2006 and 2007 consists of the following:
|
2006
|
2007
|
|||||||
| (in thousands of dollars) | ||||||||
|
Revolving credit facility(A)
|
$ | 207,418 | $ | — | ||||
|
Notes payable(B)
|
6,939 | 3,910 | ||||||
|
Term loans due on demand(C)
|
3,975 | 41,953 | ||||||
| 218,332 | 45,863 | |||||||
|
Less: Current portion
|
10,914 | 14,429 | ||||||
| $ | 207,418 | $ | 31,434 | |||||
| (A) | At October 31, 2006, the Credit Facility, as amended and restated, permitted the Company to borrow amounts up to the lesser of (i) $260 million or (ii) an amount equal to the borrowing base plus the outstanding balance on the term loan portion. On the revolving credit portion of the Credit Facility, the Company is permitted to borrow amounts up to the lesser of (i) $260 million or (ii) an amount equal to the borrowing base amount. The borrowing base amount is determined through a computation of eligible accounts receivable and inventories as defined in the Credit Facility. The amount of unused borrowings available under the Credit Facility at October 31, 2006 was $52.6 million. The borrowings under the revolving credit portion of the Credit Facility bear an interest rate equal to the lesser of the Eurodollar rate, as defined in the Credit Facility plus a margin based upon the average daily availability and a fixed charge coverage ratio, as defined in the Credit Facility or the maximum legal rate permitted by applicable state or federal law, as defined in the Credit Facility. The term loan portion of the Credit Facility bears interest at (i) the lesser of the bank’s Eurodollar margin plus the Eurodollar base rate, as defined in the Credit Facility, or the maximum legal rate permitted by applicable state or federal law, as defined in the Credit Facility or (ii) the lesser of the bank’s base rate margin, plus the base rate, as defined by the Credit Facility, or the maximum legal rate permitted by applicable state or federal law, as defined by the Credit Facility. The term loan was paid off in 2006. The Company pays a fee on the unused portion of the Credit Facility equal to 0.25% per year. Additionally, the Company will pay a fee equal to 2.5% per annum of the face amount of the letters of credit outstanding during the month, for which letter of credit guarantees have been issued. As discussed in Note 2, the Credit Facility was paid off on October 31, 2007, using funds loaned from McJunkin Corporation. |
The amended and restated credit agreement contained customary
restrictions and limitations on the Company’s ability to
incur liens, incur additional debt, make investments or engage
in transactions with affiliates, make capital expenditures, and
pay dividends or make other distributions. The Company was also
subject to financial covenants which included a total leverage
and a fixed charge ratio.
F-84
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
(B) Notes payable
|
2006
|
2007
|
|||||||
| (in thousands of dollars) | ||||||||
|
Due to related parties
|
$ | 5,154 | $ | 3,910 | ||||
|
Unsecured note payable
|
1,785 | — | ||||||
| $ | 6,939 | $ | 3,910 | |||||
The amounts due to related parties are unsecured, bear interest
at varying rates from 0% to 8% per annum, and are due on demand,
with no fixed terms of repayment. The parties are related due to
some common directors, or they are shareholders of the Company.
(C) Revolver and term loans
|
2006
|
2007
|
|||||||
| (in thousands of dollars) | ||||||||
|
Borrowings under line of credit with interest at prime plus
margin of 0.25%, due in October 2010(D)
|
$ | — | $ | 31,434 | ||||
|
Revolving term loan facility with interest at prime plus margin
of up to 0.5% (6.75% at October 31, 2007), due on
February 28, 2008
|
— | 10,420 | ||||||
|
Term loan payable in monthly installments of $57,107 including
interest at Canadian bank prime plus 1.25%
|
3,787 | — | ||||||
|
Other
|
188 | 99 | ||||||
| $ | 3,975 | $ | 41,953 | |||||
| (D) | On November 2, 2006, Midfield entered into a loan and security agreement for a CAD150 million revolving credit facility. As of October 31, 2007, $31.4 million of borrowings were outstanding under the facility and the unused borrowing capacity was approximately $125.8 million. Midfield must pay a monthly fee with respect to unutilized revolving loan commitments equal to amounts ranging from 0.25% to 0.375%, depending upon average borrowing levels for the previous quarter. The facility provides for borrowings up to CAD150 million, subject to adjustments based on the borrowing base and less the aggregate letters of credit outstanding under the facility. Letters of credit may be issued under the facility subject to certain conditions, including a CAD10 million sub-limit. The revolving loan has a maturity date of November 2, 2010. All letters of credit issued under the facility must expire at least 20 business days prior to November 2, 2010. |
The revolving credit facility bears interest with various
variable interest rate options. Midfield can elect a variable
rate based upon either the Canadian prime rate or Canadian
Dollar Bankers’ Acceptance rate (“Canadian BA”).
If the Canadian prime rate is elected, the rate ranges from
prime rate to prime rate plus 0.25%, depending upon average
borrowing levels for the previous quarter. If the Company elects
the Canadian BA rate, the rate ranges from Canadian BA rate plus
1.25% to 1.75%, depending upon borrowing levels for the previous
quarter.
The revolving credit facility is secured by substantially all of
the personal property of Midfield, with a carrying value of
$317.3 million at October 31, 2007. Provisions
contained in the revolving credit facility require Midfield to
maintain certain financial ratios and limit capital
expenditures. At
F-85
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
October 31, 2007, the Company was in compliance with all
such debt covenants. Prior to October 31, 2007, Midfield
obtained waivers for various events of default under its
revolving credit facility, including events of default for not
providing financial statements when due and making capital
expenditures in excess of certain limits.
The CAD150 million facility is subject to an inter-creditor
agreement which relates to, among other things, priority of
liens and proceeds of sale of collateral.
Aggregate future principal maturities of long-term debt as of
October 31, 2007, are as follows:
|
(in thousands |
||||
| of dollars) | ||||
|
Year ending October 31,
|
||||
|
2008
|
$ | 10,519 | ||
|
2009
|
— | |||
|
2010
|
31,434 | |||
|
2011
|
— | |||
| $ | 41,953 | |||
During February 2003, the Company entered into a swap agreement
and swapped $50 million at a variable rate
(“LIBOR”) for a fixed rate of 3.88%. This derivative
instrument was settled monthly on the first day of the
month and terminated in October 2005. This derivative
qualified as a cash flow hedge under FAS 133. The fair
value of this derivative instrument at October 31, 2005 was
approximately $0. This instrument expired effective
October 31, 2005.
| 8. | Stockholders’ Equity |
Common
Stock
The Company has two classes of common stock. One class consists
of 50,000,000 authorized shares of $.01 par value voting
Class A Common stock. As of October 31, 2006 and 2007,
there were 144,831 and 143,976 shares, issued and
outstanding, respectively. The other class consists of
50,000,000 authorized shares of $.01 par value nonvoting
Class B Common Stock. As of October 31, 2006 and 2007,
there were 34,344 shares issued and outstanding.
Preferred
Stock
The Company also has 2,000 authorized shares of $2,500 par
value redeemable Class C Preferred Stock. As of
October 31, 2002, there were 2,000 preferred shares issued
and outstanding, and there were no preferred shares issued or
outstanding as of October 31, 2006 and 2007. The
Class C Preferred Stock is nonvoting and subordinate to
indebtedness of the Company, but bears full preference to the
Common Stock as to dividends and to redemption in the event of
liquidation of the Company. On November 30, 1999, certain
rights and privileges relating to the Class C Preferred
Stock were amended. Effective April 1, 2000, the Preferred
Stock bears an annual dividend of 8%, payable quarterly,
beginning on June 30, 2000. Effective April 1, 2002,
the preferred stock annual dividend rate was increased to 9% per
annum, payable quarterly, beginning on July 1, 2002.
Dividends paid on Class C Preferred Stock were $0, $0 and
$0 during 2005, 2006 and 2007, respectively.
F-86
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
In September 2003, the Company redeemed the 2,000 shares of
Class C Preferred Stock for $5,000,000.
Incentive
Stock Plan
In December 1997, the Company established the Red Man
Pipe & Supply Co. Incentive Stock Plan (the
“Incentive Plan”) in which officers, employees and
directors are eligible to participate. The Incentive Plan
authorizes the grant of incentive stock options, non-qualified
stock options and awards of restricted stock. Incentive stock
options may only be awarded to employees and the exercise price
may not be less than the fair market value of the Class A
common stock on the date of grant (or 110% of such fair market
value if granted to employees who own more than 10% of the
combined voting power of all classes of the stock of the
Company). The exercise price of non-qualified stock options
shall be determined by the Board of Directors or its committee
and shall not be less than the fair market value of the
Class A Common Stock on the date of grant. The vesting
period for all options will be determined by the Board of
Directors or its committees at the time of the grant. The
incentive stock option may not be exercised after the expiration
of 10 years from the date of grant (or 5 years if
granted to employees who own more than 10% of the combined
voting power of all classes of stock of the Company). No options
have been granted under the Incentive Plan. In connection with
the Merger Agreement (Note 2), the Incentive Stock Plan was
terminated on October 31, 2007.
A restricted stock award will consist of shares of Class A
Common Stock that are nontransferable or subject to risk of
forfeiture until specific conditions are met. The restrictions
will lapse in accordance with the schedule or other conditions
as determined by the Board of Directors or its committee. During
the restriction period, the recipient of restricted stock will
have certain rights as a shareholder, including the right to
vote the stock and receive dividends. No awards have been
granted under the Incentive Plan. In connection with the Merger
Agreement (Note 2), the Incentive Stock Plan was terminated
on October 31, 2007.
Phantom Stock
Plan
In April 2003, the Company established the Red Man
Pipe & Supply Co. Phantom Stock Plan (the
“Phantom Plan”) in which officers and key employees
are eligible to participate. The Plan authorizes the grant of up
to 5,000 shares of phantom stock. The shares are credited
to the participants’ accounts and are eligible for
redemption payment after vesting at a price per share based upon
the annual stock valuation. As of October 31, 2005,
1,957 shares had been granted under the Phantom Plan and
have a redemption value of approximately $750,000, upon vesting
in years 2012 through 2027. Selling, general and administrative
expenses include compensation expense related to the Phantom
Plan of $84,000, $426,000 and $2,482,000 for the periods ended
October 31, 2005, 2006 and 2007, respectively. In
connection with the Merger Agreement (Note 2), the Phantom
Plan was terminated on October 31, 2007, in exchange for an
agreement to pay Phantom Plan participants a total of $3,075,000.
| 9. | Leases |
The Company occupies facilities and operates motor vehicles
under long-term operating leases that expire during the fiscal
years ending 2005 through 2014. Certain of these leases are
subject to renewal or purchase options and escalation clauses.
The following is a schedule by year of future minimum lease
payments required under the operating leases that have initial
or remaining noncancelable lease terms as of October 31,
2007;
F-87
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
|
Year ending
October 31
|
(In thousands of dollars) | |||||||
|
2008
|
$ | 10,676 | ||||||
|
2009
|
7,618 | |||||||
|
2010
|
4,774 | |||||||
|
2011
|
3,508 | |||||||
|
2012
|
3,871 | |||||||
|
Thereafter
|
1,005 | |||||||
|
Total minimum lease payments
|
$ | 31,452 | ||||||
Rent expense on all operating leases amounted to approximately
$5,700,000, $8,043,000 and $10,457,000 in 2005, 2006 and 2007,
respectively.
| 10. | Income Taxes |
The components of income (loss) from continuing operations and
before income taxes are as follows:
|
October 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
| (In thousands of dollars) | ||||||||||||
|
Income (loss) before income taxes
|
||||||||||||
|
Domestic
|
$ | 91,209 | $ | 74,918 | $ | 141,881 | ||||||
|
Non-United
States
|
2,266 | 5,410 | (2,061 | ) | ||||||||
|
Total income (loss) before income taxes
|
$ | 93,475 | $ | 80,328 | $ | 139,820 | ||||||
The components of income tax expense, from continuing
operations, are as follows:
|
October 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
| (In thousands of dollars) | ||||||||||||
|
Current
|
||||||||||||
|
Federal tax expense
|
$ | 16,312 | $ | 21,791 | $ | 42,632 | ||||||
|
State tax expense
|
2,324 | 3,542 | 6,198 | |||||||||
|
Non-United
States
|
208 | 59 | 2,456 | |||||||||
|
Deferred tax expense
|
15,364 | 1,106 | 6,286 | |||||||||
| $ | 34,208 | $ | 26,498 | $ | 57,572 | |||||||
F-88
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
The components of the net deferred tax asset (liability) were as
follows:
|
October 31,
|
||||||||
|
2006
|
2007
|
|||||||
| (In thousands of dollars) | ||||||||
|
Current deferred tax assets (liabilities)
|
||||||||
|
Inventory
|
$ | (18,367 | ) | $ | (22,627 | ) | ||
|
Accounts receivable
|
(3,461 | ) | (4,103 | ) | ||||
|
Vacation accrual
|
663 | 710 | ||||||
|
Accrued insurance
|
394 | 318 | ||||||
|
Red Man Canada interest
|
(2,181 | ) | (3,987 | ) | ||||
|
Phantom stock
|
231 | 715 | ||||||
|
Current deferred tax (liabilities)
|
$ | (22,721 | ) | $ | (28,974 | ) | ||
|
Noncurrent deferred tax assets (liabilities)
|
||||||||
|
Property, plant and equipment
|
$ | (1,847 | ) | $ | (3,136 | ) | ||
|
Intangible assets
|
(4,048 | ) | (4,690 | ) | ||||
|
Other
|
(29 | ) | — | |||||
|
Noncurrent deferred tax (liabilities)
|
$ | (5,924 | ) | $ | (7,826 | ) | ||
The difference between the effective tax rate and the
U.S. federal statutory rate was as follows:
|
October 31,
|
||||||||||||
|
2005
|
2006
|
2007
|
||||||||||
|
Federal statutory rate
|
34.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income tax
|
4.6 | 4.3 | 4.8 | |||||||||
|
Nondeductible expenses
|
1.0 | 0.7 | 0.3 | |||||||||
|
Foreign sales corporation
|
(1.3 | ) | (1.5 | ) | (0.1 | ) | ||||||
|
Non-United
States
|
— | (2.3 | ) | 0.9 | ||||||||
|
Other
|
(1.7 | ) | (3.3 | ) | 0.3 | |||||||
|
Effective tax rate
|
36.6 | % | 32.9 | % | 41.2 | % | ||||||
| 11. | Employee Benefit Plans |
The Red Man Pipe & Supply Co. Retirement Savings Plan
(the “Plan”) incorporates the provisions of
Section 401(k) of the Internal Revenue Code. The Plan
covers all employees in the United States who have attained the
age of twenty-one (21). Participants are allowed to contribute a
portion of their salary with employer matching contributions
based on the contributions of the participants. The employer
matching contributions were approximately $927,000, $1,081,000
and $1,215,000 for the years ended October 31, 2005, 2006
and 2007, respectively.
| 12. | Related Party Transactions |
The Company leases certain equipment from Prideco, a partnership
related by common ownership and control. The Company also leases
certain buildings from Prideco. Amounts paid to Prideco for
building and equipment rental were $2,205,000, $2,695,000 and
$3,086,000 for the years ended October 31, 2005, 2006 and
2007, respectively.
F-89
Table of Contents
RED MAN PIPE
& SUPPLY CO. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
October 31,
2005, 2006 and 2007
A stockholder leases a supply and service center to the Company
for use in its operations. The stated term of the lease will
expire in January 2008. The aggregate lease payments made to the
stockholder were $13,200 in each of fiscal years ended
October 31, 2005, 2006 and 2007.
In connection with the Company’s acquisition of 51% of the
shares of Midfield Supply ULC, a Shareholders’ Agreement
between Red Man Pipe & Supply Canada, LTD., the 51%
majority shareholder of Midfield Supply ULC, and Midfield
Holdings (Alberta) LTD., the 49% minority interest shareholder
of Midfield Supply ULC was created. This agreement, among other
things, stipulates how profits of Midfield Supply ULC are
shared. Midfield Holdings (Alberta) LTD’s portion of the
profits are accrued and subsequently paid to shareholders of
Midfield Holdings (Alberta) LTD, who are also employees of
Midfield Supply ULC, via a formal Employee Profit Sharing Plan
(“EPSP”). In connection with the EPSP, $22,186,000 and
$8,212,000 is accrued as of October 31, 2006 and 2007,
respectively, and is included in selling, general and
administrative expenses. Red Man Pipe & Supply Canada,
LTD’s portion of the profits were accrued and subsequently
paid via an after-tax dividend, which has been eliminated in
consolidation.
In connection with the EPSP payments, from time to time the
minority shareholder makes loans to the Company. These
subordinated notes payable are unsecured, bear interest at 8%
and have no fixed terms of repayment. Amounts payable to
minority interest shareholders were $28,009,000 and $25,718,000
as of October 31, 2006 and 2007, respectively, for amounts
loaned to the Company.
The Company has unsecured advances to a related entity, Europump
Systems Inc. (“Europump”), with no fixed terms of
repayment bearing interest at 8% per annum in 2006 and 0% in
2007. The outstanding balance on the advances was $4,940,000 and
$2,921,000 at October 31, 2006 and 2007, respectively. The
Company has also issued a financial guarantee in the form of an
irrevocable standby letter of credit for Europump for an amount
up to CAD5,000,000 (2006: CAD0), to support a line of credit
that Europump has established with its bank. The expiry date of
the letter of credit is January 31, 2008, subject to an
automatic renewal of one year unless such bank elects not to
renew this letter of credit.
| 13. | Concentration of Credit Risk and Sources of Supply |
Most of the Company’s business activity is with customers
in the oil and gas industry. In the normal course of business
the Company grants credit to these customers. Trade accounts
receivable are primarily from these customers. The Company
generally does not require collateral on its trade receivables.
During 2005, 2006 and 2007, the Company did not have sales to
any customers in excess of 10% of gross sales.
A substantial portion of the Company’s tubular goods is
purchased from two manufacturers. The Company has no long-term
supply contracts with these manufacturers which would assure the
Company of a continued supply of tubular products in the future.
Although the Company believes there are numerous manufacturers
having the capacity to supply its tubular products, the loss of
one of these major suppliers could have a material adverse
effect on the Company’s business, financial condition or
results of operations.
F-90
Table of Contents
Shares
McJUNKIN RED MAN HOLDING
CORPORATION
Common Stock
Goldman, Sachs &
Co.
Lehman Brothers
JPMorgan
Deutsche Bank
Securities
Robert W. Baird &
Co.
Credit Suisse
Stephens Inc.
Table of Contents
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
| Item 13. | Other Expenses of Issuance and Distribution. |
The following table sets forth the costs and expenses to be paid
by the Registrant in connection with the sale of the shares of
common stock being registered hereby. All amounts are estimates
except for the SEC registration fee, the Financial Industry
Regulatory Authority (“FINRA”) filing fee and the New
York Stock Exchange listing fee.
|
SEC registration fee
|
$ | 29,475 | ||
|
FINRA filing fee
|
75,500 | |||
|
The New York Stock Exchange listing fee
|
250,000 | |||
|
Accounting fees and expenses
|
850,000 | |||
|
Legal fees and expenses
|
3,500,000 | |||
|
Printing and engraving expenses
|
650,000 | |||
|
Blue Sky qualification fees and expenses
|
10,000 | |||
|
Transfer agent and registrar fees and expenses
|
10,000 | |||
|
Miscellaneous expenses
|
25,025 | |||
|
Total
|
$ | 5,400,000 | ||
| Item 14. | Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law
authorizes a court to award, or a corporation’s board of
directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as
amended (the “Securities Act”).
As permitted by the Delaware General Corporation Law, the
Registrant’s Certificate of Incorporation includes a
provision that eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a
director, except for liability:
| • | for any breach of the director’s duty of loyalty to the Registrant or its stockholders; | |
| • | for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; | |
| • | under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or | |
| • | for any transaction for which the director derived an improper personal benefit. |
As permitted by the Delaware General Corporation Law, the
Registrant’s Bylaws provide that:
| • | the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; | |
| • | the Registrant may indemnify its other employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; | |
| • | the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; |
II-1
Table of Contents
| • | the Registrant may advance expenses, as incurred, to its employees and agents in connection with a legal proceeding; and | |
| • | the rights conferred in the Bylaws are not exclusive. |
The Registrant may enter into Indemnity Agreements with each of
its current directors and officers to give these directors and
officers additional contractual assurances regarding the scope
of the indemnification set forth in the Registrant’s
Certificate of Incorporation and to provide additional
procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is
sought, nor is the Registrant aware of any threatened litigation
that may result in claims for indemnification.
The indemnification provisions in the Registrant’s
Certificate of Incorporation and Bylaws and any Indemnity
Agreements entered into between the Registrant and each of its
directors and officers may be sufficiently broad to permit
indemnification of the Registrant’s directors and officers
for liabilities arising under the Securities Act.
The Registrant and its subsidiaries are covered by liability
insurance policies which indemnify their directors and officers
against loss arising from claims by reason of their legal
liability for acts as such directors, officers or trustees,
subject to limitations and conditions as set forth in the
policies.
The underwriting agreement to be entered into among the Company,
the selling stockholder and the underwriters will contain
indemnification and contribution provisions.
Stephen W. Lake, senior corporate vice president, general
counsel and corporate secretary of our company, holds an
employed lawyer’s professional liability policy with Ace
American Insurance Company, insuring him against liability which
he may incur in his capacity as an officer of our company. The
policy provides for $2 million of coverage with a $10,000
deductible.
| Item 15. | Recent Sales of Unregistered Securities. |
Issuances of
Shares of Common Stock
We issued shares of common stock to PVF Holdings LLC over the
period from November 29, 2006 to July 7, 2008. Set
forth below is a summary of all issuances made to PVF Holdings
LLC during such period. All issuances of common stock to PVF
Holdings LLC were exempt from registration in accordance with
Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D. PVF Holdings LLC was and is
an “accredited” investor within the meaning of
Regulation D, owned principally and controlled by the
Goldman Sachs Funds, and all issuances of common stock to PVF
Holdings LLC were made on a private placement basis without
general solicitation.
The Company was incorporated on November 29, 2006, and on
such date the Company issued 100 shares of common stock to
PVF Holdings LLC at a nominal purchase price of $1.00 per share.
On January 31, 2007, in connection with the Company’s
acquisition of the entity now known as McJunkin Red Man
Corporation (and its affiliate McJunkin Appalachian Oilfield
Supply Company), the Company issued 102,111.5960 shares of
common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for $202,712,226.29 in cash,
2,763.0177 shares of common stock of McJunkin Corporation
and 1,441.33 shares of common stock of McJunkin Appalachian
Oilfield Supply Company.
On March 27, 2007, in connection with investments in PVF
Holdings LLC made by a new director and a new employee of the
Company, the Company issued 381.5277 shares of common stock
to PVF Holdings at a purchase price of $3,933.81 in exchange for
a cash contribution of $500,857.14 and $1,000,000 in the form of
a 10-year
promissory note.
On October 31, 2007, in connection with our business
combination with Red Man Pipe & Supply Co., the
Company issued 196,917.8360 shares of common stock to PVF
Holdings LLC at a purchase
II-2
Table of Contents
price of $3,933.81 per share in exchange for a cash
contribution of $671,028,298 in cash and 23,584 shares of
Red Man Pipe & Supply Co.
On November 29, 2007, in connection with investments in PVF
Holdings LLC made by select employees of Red Man
Pipe & Supply Co. (now a subsidiary of the Company),
the Company issued 227.9818 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $896,837.18.
On November 30, 2007, in connection with an investment in
PVF Holdings LLC made by a newly appointed director of the
Company, the Company issued 127.1033 shares of common stock
to PVF Holdings LLC at a purchase price of $3,933.81 per share
in exchange for a cash contribution of $500,000.
On December 14, 2007, in connection with an investment in
PVF Holdings LLC made by an executive officer of the Company,
the Company issued 25.4207 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $100,000.
On January 7, 2008, in connection with an investment in PVF
Holdings made by a new executive officer of the Company, the
Company issued 0.2179 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $857.14.
On January 9, 2008, in connection with an investment in PVF
Holdings made by an executive officer of the Company, the
Company issued 0.2179 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $857.14.
On January 15, 2008, in connection with investments in PVF
Holdings LLC made by select employees of the Company’s
Canadian subsidiary, the Company issued 9,389.4973 shares
of common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for a cash contribution of
$4,806,769.37 and a deferred capital contribution of
$32,129,724.47.
On February 8, 2008, in connection with an investment in
PVF Holdings LLC made by a new executive officer of the Company,
the Company issued 50.8413 shares of common stock to PVF
Holdings LLC at a purchase price of $3,933.81 per share in
exchange for a cash contribution of $200,000.
On March 24, 2008, in connection with an investment in PVF
Holdings LLC made in December 2007 by a recently appointed
director of the Company, the Company issued 254.2066 shares
of common stock to PVF Holdings LLC at a purchase price of
$3,933.81 per share in exchange for a cash contribution of
$1,000,000.
On April 10, 2008, in accordance with the stock purchase
agreement executed in connection with our business combination
with Red Man Pipe & Supply Co., it was determined that
the shareholders of Red Man Pipe & Supply Co. were
owed $6,680,251.39 as part of the purchase price adjustment. As
a result, on April 10, 2008, PVF Holdings LLC issued
1,698.1634 common units (at $3,933.81 per unit), equal to the
aggregate dollar amount of $6,680,251.39, to the shareholders of
Red Man Pipe & Supply Co. In connection with this
issuance, the Company issued 1,698.1634 shares of common
stock to PVF Holdings LLC at a price of $3,933.81 per share.
On May 14, 2008, in connection with an investment in PVF
Holdings LLC made by two directors of the Company, the Company
issued 0.4358 shares of common stock to PVF Holdings LLC at
a purchase price of $3,933.81 per share in exchange for a cash
contribution of $1,714.28.
On May 16, 2008, in accordance with the stock purchase
agreement executed in connection with our business combination
with Red Man Pipe & Supply Co., it was determined that
the shareholders of Red Man Pipe & Supply Co. were
owed $343,194.72 as part of an additional purchase price
adjustment. As a result, on May 16, 2008, PVF Holdings LLC
issued 87.2423 common
II-3
Table of Contents
units (at $3,933.81 per unit), equal to the aggregate dollar
amount of $343,194.72, to the shareholders of Red Man
Pipe & Supply Co. In connection with this issuance,
the Company issued 87.2423 shares of common stock to PVF
Holdings LLC at a price of $3,933.81 per share.
On July 7, 2008, in connection with an investment in PVF
Holdings LLC made by a new director of the Company, the Company
issued 68.9942 shares of common stock to PVF Holdings LLC
at a purchase price of $4,348.19 per share in exchange for a
cash contribution of $300,000.
On September 10, 2008, the Company issued
340.4379 shares of common stock to its newly hired chief
executive officer in exchange for a cash contribution of
$3,000,000 at a purchase price per share of $8,812.18. The
issuance of common stock to our newly-hired chief executive
officer was exempt from registration in accordance with
Rule 701 of the Securities Act of 1933.
Stock Option
and Restricted Stock Awards
As of September 10, 2008, we had outstanding stock options
to purchase 7,198.9429 shares of our common stock and
569.4220 shares of restricted stock outstanding in
connection with awards made to certain of our employees and
directors in connection with services provided as our employees
and directors. These numbers take into account forfeitures as a
result of the termination of certain grantees’ employment.
All of these awards of restricted stock and stock options were
exempt from registration in accordance with Rule 701 or
Section 4(2) of the Securities Act of 1933. The dates of
grant and recipients of such awards are more fully described
below.
On March 27, 2007, we granted options to acquire
1,169.3502 shares of our common stock under the McJ Holding
Corporation 2007 Stock Option Plan (the “Stock Option
Plan”) to certain employees of McJunkin Corporation at an
exercise price of $3,933.81 per share (which was subsequently
reduced to $2,411.17 in connection with our recapitalization in
May 2008). On March 27, 2007 we also granted
317.7575 shares of restricted stock under the McJ Holding
Corporation 2007 Restricted Stock Plan (the “Restricted
Stock Plan”) to certain employees of McJunkin Corporation.
On December 21, 2007 and January 23, 2008, we granted
options to acquire 800.7505 shares of our common stock to
certain employees of our subsidiary Midfield Supply ULC under
the McJunkin Red Man Holding Corporation 2007 Stock Option Plan
(Canada), a sub-plan of the Stock Option Plan, at an exercise
price of $3,933.81 per share (which was subsequently reduced to
$2,411.17 in connection with our recapitalization in May 2008).
On December 21, 2007, we granted options to acquire
1,410.8460 shares of our common stock to certain employees
of Red Man Pipe & Supply Co. under the Stock Option
Plan. In addition to grants made to employees, on
December 21, 2007 we granted options to acquire
76.2620 shares of our common stock to each of two recently
appointed directors in connection with their service on our
board of directors. All of the options to acquire shares of our
common stock described in this paragraph had an exercise price
of $3,933.81 per share, which was subsequently reduced to
$2,411.17 per share in connection with our recapitalization in
May 2008. On December 21, 2007 we also granted
317.7581 shares of restricted stock under the Restricted
Stock Plan to certain employees of Red Man Pipe &
Supply Co.
On February 8, 2008, we granted options to acquire
38.1310 shares of our common stock to one of our employees
under the Stock Option Plan at an exercise price of $3,933.81
per share (which was also reduced to $2,411.17 per share in
connection with our recapitalization in May 2008).
On June 16, 2008, we granted options to acquire
216.0650 shares of our common stock to certain of our
employees under the Stock Option Plan at an exercise price of
$4,348.19 per share.
On June 19, 2008, we granted options to acquire
114.9904 shares of our common stock to one of our employees
under the Stock Option Plan at an exercise price of $4,348.19
per share.
II-4
Table of Contents
On August 13, 2008 we granted options to purchase
27.1208 shares of our common stock to each of two of our
employees under the Stock Option Plan with an exercise price of
$5,530.81 per share.
On September 10, 2008 we granted options to purchase
3,517.8582 shares of our common stock with an exercise
price of $8,812.18 per share to our newly hired chief executive
officer.
The amounts of our common stock, restricted stock and stock
options described in this Item 15 do not take into account
the for split of our common stock which
will occur prior to the pricing of this offering.
| Item 16. | Exhibits and Financial Statement Schedules. |
(a) The following exhibits are filed herewith:
|
Number
|
Exhibit Title
|
|||
| 1 | .1* | Form of Underwriting Agreement. | ||
| 2 | .1 | Agreement and Plan of Merger, dated as of December 4, 2006, by and among McJunkin Corporation, McJ Holding Corporation and Hg Acquisition Corp. | ||
| 2 | .1.1 | McJunkin Contribution Agreement, dated as of December 4, 2006, by and among McJunkin Corporation, McJ Holding LLC and certain shareholders of McJunkin Corporation. | ||
| 2 | .1.2 | McApple Contribution Agreement, dated as of December 4, 2006, among McJunkin Corporation, McJ Holding LLC and certain shareholders of McJunkin Appalachian Oilfield Supply Company. | ||
| 2 | .2 | Stock Purchase Agreement, dated as of April 5, 2007, by and between McJunkin Development Corporation, Midway-Tristate Corporation and the other parties thereto. | ||
| 2 | .2.1 | Assignment Agreement, dated as of April 27, 2007, by and among McJunkin Development Corporation, McJunkin Appalachian Oilfield Supply Company, Midway-Tristate Corporation, and John A. Selzer, as Representative of the Shareholders. | ||
| 2 | .3 | Stock Purchase Agreement, dated as of July 6, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., the Shareholders listed on Schedule 1 thereto, PVF Holdings LLC, and Craig Ketchum, as Representative of the Shareholders. | ||
| 2 | .3.1 | Contribution Agreement, dated July 6, 2007, by and among McJ Holding LLC and certain shareholders of Red Man Pipe & Supply Co. | ||
| 2 | .3.2 | Amendment No. 1 to Stock Purchase Agreement, dated as of October 24, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., and Craig Ketchum, as Representative of the Shareholders. | ||
| 2 | .3.3 | Joinder Agreement and Amendment No. 2 to the Stock Purchase Agreement, dated as of October 31, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., PVF Holdings LLC, Craig Ketchum, as Representative of the Shareholders, and the other parties thereto. | ||
| 3 | .1* | Form of Amended and Restated Certificate of Incorporation of McJunkin Red Man Holding Corporation. | ||
| 3 | .2* | Form of Amended and Restated Bylaws of McJunkin Red Man Holding Corporation. | ||
| 4 | .1* | Specimen Common Stock Certificate. | ||
| 5 | .1 | Form of opinion of Fried, Frank, Harris, Shriver & Jacobson LLP. | ||
| 10 | .1 | Revolving Loan Credit Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
| 10 | .1.1 | Joinder Agreement, dated as of June 10, 2008, by and among The Huntington National Bank, McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
| 10 | .1.2 | Joinder Agreement, dated as of June 10, 2008, by and among JP Morgan Chase Bank, N.A., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
| 10 | .1.3 | Joinder Agreement, dated as of June 10, 2008, by and among TD Bank, N.A., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
II-5
Table of Contents
|
Number
|
Exhibit Title
|
|||
| 10 | .1.4 | Joinder Agreement, dated as of June 10, 2008, by and among United Bank Inc., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
| 10 | .2 | Revolving Loan Security Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
| 10 | .3 | Term Loan Credit Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
| 10 | .3.1 | First Amendment to Term Loan Credit Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
| 10 | .4 | Term Loan Pledge Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .4.1 | Supplement No. 1 to Term Loan Pledge Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .4.2 | Supplement No. 2 to Term Loan Pledge Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .4.3 | Supplement No. 3 to Term Loan Pledge Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .5 | Term Loan Security Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .5.1 | Supplement No. 1 to Term Loan Security Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .5.2 | Supplement No. 2 to Term Loan Security Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
| 10 | .6 | Term Loan Credit Agreement, dated as of May 22, 2008, by and among McJunkin Red Man Holding Corporation and the other parties thereto. | ||
| 10 | .7 | Term Loan Pledge Agreement, dated as of May 22, 2008, by and between McJunkin Red Man Holding Corporation and Lehman Commercial Paper Inc. | ||
| 10 | .8 | Term Loan Security Agreement, dated as of May 22, 2008, by and between McJunkin Red Man Holding Corporation and Lehman Commercial Paper Inc. | ||
| 10 | .9 | Loan and Security Agreement, dated as of November 2, 2006, by and among Midfield Supply ULC and the other parties thereto. | ||
| 10 | .9.1 | Consent and First Amendment to the Loan and Security Agreement, dated as of April 26, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
| 10 | .9.2 | Second Amendment to the Loan and Security Agreement, dated as of May 17, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
| 10 | .9.3 | Third Amendment, Consent and Waiver to the Loan and Security Agreement, dated as of October 31, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
| 10 | .9.4 | Fourth Amendment to the Loan and Security Agreement, dated as of April 28, 2008, by and among Midfield Supply ULC and the other parties thereto. | ||
| 10 | .10 | Letter Agreement, dated as of May 17, 2007, by and between Alberta Treasury Branches and Midfield Supply ULC. | ||
| 10 | .10.1 | Amendment to Letter Agreement, dated as of October 10, 2007, by and between Alberta Treasury Branches and Midfield Supply ULC. | ||
| 10 | .11 | Letter Agreement, dated as of September 24, 2008, by and among H.B. Wehrle, III, PVF Holdings LLC and McJunkin Red Man Corporation. | ||
| 10 | .12 | Employment Agreement of Craig Ketchum. | ||
| 10 | .13 | Employment Agreement of James F. Underhill. | ||
| 10 | .14 | Employment Agreement of David Fox, III. | ||
| 10 | .15 | Employment Agreement of Dee Paige. | ||
II-6
Table of Contents
|
Number
|
Exhibit Title
|
|||
| 10 | .16 | Employment Agreement of Stephen D. Wehrle. | ||
| 10 | .17 | McJ Holding Corporation 2007 Stock Option Plan. | ||
| 10 | .17.1 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement. | ||
| 10 | .18 | McJ Holding Corporation 2007 Restricted Stock Plan. | ||
| 10 | .18.1 | Form of McJunkin Red Man Holding Corporation Restricted Stock Award Agreement. | ||
| 10 | .19 | McJunkin Red Man Holding Corporation 2007 Stock Option Plan (Canada). | ||
| 10 | .19.1 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement (Canada) (for plan participants who are parties to non-competition agreements). | ||
| 10 | .19.2 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement (Canada) (for plan participants who are not parties to non-competition agreements). | ||
| 10 | .20 | McJunkin Red Man Corporation Deferred Compensation Plan. | ||
| 10 | .21 | Indemnity Agreement, dated as of December 4, 2006, by and among McJunkin Red Man Holding Corporation, Hg Acquisition Corp., McJunkin Red Man Corporation, and certain shareholders of McJunkin Red Man Corporation named therein. | ||
| 10 | .22 | Management Stockholders Agreement, dated as of March 27, 2007, by and among PVF Holdings LLC, McJunkin Red Man Holding Corporation, and the other parties thereto. | ||
| 10 | .22.1 | Amendment No. 1 to the Management Stockholders Agreement, dated as of December 21, 2007, executed by PVF Holdings LLC. | ||
| 10 | .22.2 | Amendment No. 2 to the Management Stockholders Agreement, dated as of December 26, 2007, executed by PVF Holdings LLC. | ||
| 10 | .23 | Phantom Shares Surrender Agreement, Release and Waiver, dated as of October 30, 2007, by and among Red Man Pipe & Supply Co., PVF Holdings LLC, and Jeffrey Lang. | ||
| 10 | .24 | Phantom Shares Surrender Agreement, Release and Waiver, dated as of October 30, 2007, by and among Red Man Pipe & Supply Co., PVF Holdings LLC, and Dee Paige. | ||
| 10 | .25* | Form of Second Amended and Restated Limited Liability Company Agreement of PVF Holdings LLC. | ||
| 10 | .26* | Form of Registration Rights Agreement by and among McJunkin Red Man Holding Corporation and PVF Holdings LLC. | ||
| 10 | .27 | Amended and Restated Limited Liability Company Operating Agreement of Red Man Distributors LLC, dated as of September 18, 2008. | ||
| 10 | .28 | Amended and Restated Services Agreement, dated as of September 18, 2008, by and between McJunkin Red Man Corporation and Red Man Distributors LLC. | ||
| 10 | .29 | Employment Agreement of Andrew Lane. | ||
| 10 | .30 | Subscription Agreement, dated as of September 10, 2008, by and among McJunkin Red Man Holding Corporation, Andrew Lane, and PVF Holdings LLC. | ||
| 10 | .31 | McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement, dated as of September 10, 2008, by and among McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Andrew Lane. | ||
| 16 | Letter from Schneider Downs & Co., Inc. | |||
| 21 | .1 | List of Subsidiaries of McJunkin Red Man Holding Corporation. | ||
| 23 | .1 | Consent of Ernst & Young LLP. | ||
| 23 | .2 | Consent of Schneider Downs & Co., Inc. | ||
| 23 | .3 | Consent of PricewaterhouseCoopers LLP. | ||
| 23 | .4 | Consent of Fried, Frank, Harris, Shriver & Jacobson LLP (included in Exhibit 5.1). | ||
| 24 | .1** | Power of Attorney. | ||
| * | To be filed by amendment. |
| ** | Previously filed. |
(b) None.
II-7
Table of Contents
| Item 17. | Undertakings. |
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 14 above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
II-8
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Tulsa, State of Oklahoma, on
September 26, 2008.
McJUNKIN RED MAN HOLDING CORPORATION
By:
Chief Executive Officer
/s/ Andrew
Lane
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Andrew
Lane Andrew Lane |
Chief Executive Officer and Director (Principal Executive Officer) |
September 26, 2008 | ||
|
* James F. Underhill |
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
September 26, 2008 | ||
|
/s/ Craig
Ketchum Craig Ketchum |
Chairman of the Board of Directors | September 26, 2008 | ||
|
* Rhys J. Best |
Director | September 26, 2008 | ||
|
* Henry Cornell |
Director | September 26, 2008 | ||
|
* Christopher A.S. Crampton |
Director | September 26, 2008 | ||
|
* John F. Daly |
Director | September 26, 2008 | ||
|
* Harry K. Hornish, Jr. |
Director | September 26, 2008 | ||
|
* Sam B. Rovit |
Director | September 26, 2008 | ||
|
* H.B. Wehrle, III |
Director | September 26, 2008 | ||
|
*By:
/s/ Craig
Ketchum Craig Ketchum, as attorney-in-fact |
II-9
Exhibit 2.1
Execution Version
AGREEMENT AND PLAN OF MERGER
Among
MCJUNKIN CORPORATION,
MCJ HOLDING CORPORATION
And
HG ACQUISITION CORP.
Dated as of December 4, 2006
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I | ||||||
| The Merger; Closing; Effective Time | ||||||
| 1.1. | The Merger |
2 | ||||
| 1.2. | Closing |
2 | ||||
| 1.3. | Effective Time |
3 | ||||
| ARTICLE II | ||||||
| Articles of Incorporation and By-Laws of the Surviving Corporation | ||||||
| 2.1. | The Articles of Incorporation |
3 | ||||
| 2.2. | The By-Laws |
3 | ||||
| ARTICLE III | ||||||
| Officers and Directors of the Surviving Corporation | ||||||
| 3.1. | Directors |
3 | ||||
| 3.2. | Officers |
3 | ||||
| ARTICLE IV | ||||||
| Effect of the Merger on Capital Stock; Exchange of Certificates | ||||||
| 4.1. | Effect on Capital Stock |
4 | ||||
(a) Merger Consideration |
4 | |||||
(b) Cancellation of Excluded Shares |
6 | |||||
(c) Merger Sub |
6 | |||||
| 4.2. | Exchange of Certificates |
6 | ||||
(a) Exchange Procedures |
6 | |||||
(b) Transfers |
7 | |||||
(c) Lost, Stolen or Destroyed Certificates |
7 | |||||
(d) Appraisal Rights |
7 | |||||
(e) Withholding Rights |
8 | |||||
| ARTICLE V | ||||||
| Representations and Warranties | ||||||
| 5.1. | Representations and Warranties of the Company |
8 | ||||
(a) Organization, Good Standing and Qualification |
8 | |||||
-i-
| Page | ||||||
(b) Capital Structure |
10 | |||||
(c) Corporate Authority; Approval and Fairness |
11 | |||||
(d) Governmental Filings; No Violations; Certain Contracts |
12 | |||||
(e) Financial Statements |
13 | |||||
(f) Absence of Certain Changes |
14 | |||||
(g) Litigation and Liabilities |
16 | |||||
(h) Employee Benefits |
17 | |||||
(i) Compliance with Laws; Licenses |
19 | |||||
(j) Material Contracts and Government Contracts |
19 | |||||
(k) Real Property |
21 | |||||
(l) Takeover Statutes |
22 | |||||
(m) Environmental Matters |
22 | |||||
(n) Taxes |
23 | |||||
(o) Labor Matters |
24 | |||||
(p) Insurance |
25 | |||||
(q) Affiliated Transactions |
25 | |||||
(r) Product Warranty and Product Liability |
25 | |||||
(s) Customers and Suppliers |
26 | |||||
(t) Purchase and Sale Agreements |
26 | |||||
(u) Brokers and Finders |
26 | |||||
| 5.2. | Representations and Warranties of Parent and Merger Sub |
27 | ||||
(a) Organization, Good Standing and Qualification |
27 | |||||
(b) Corporate Authority |
27 | |||||
(c) Governmental Filings; No Violations; Etc. |
27 | |||||
(d) Litigation |
28 | |||||
(e) Financing |
28 | |||||
(f) Capitalization of Merger Sub and Parent |
29 | |||||
(g) Business of Parent and Merger Sub |
30 | |||||
(h) Holdco |
30 | |||||
| 5.3. | Assets of Holdco, Parent and Merger Sub |
30 | ||||
| ARTICLE VI | ||||||
| Covenants | ||||||
| 6.1. | Interim Operations |
30 | ||||
| 6.2. | Acquisition Proposals |
34 | ||||
(a) No Solicitation or Negotiation |
34 | |||||
(b) Definitions |
35 | |||||
(c) No Change in Recommendation or Alternative Acquisition Agreement |
36 | |||||
(d) Existing Discussions |
37 | |||||
(e) Notice |
37 | |||||
| 6.3. | Information Supplied |
37 | ||||
| 6.4. | Shareholders Meeting |
37 | ||||
-ii-
| Page | ||||||
| 6.5. | Other Actions; Notification |
38 | ||||
(a) Cooperation |
38 | |||||
(b) Information |
38 | |||||
(c) Status |
39 | |||||
| 6.6. | Access and Reports |
39 | ||||
| 6.7. | Publicity |
39 | ||||
| 6.8. | Investigations and Actions |
39 | ||||
| 6.9. | Expenses |
40 | ||||
| 6.10. | Indemnification; Directors’ and Officers’ Insurance |
40 | ||||
| 6.11. | Takeover Statutes |
42 | ||||
| 6.12. | Financing |
42 | ||||
| 6.13. | Non-Core Assets |
44 | ||||
| ARTICLE VII | ||||||
| Conditions | ||||||
| 7.1. | Conditions to Each Party’s Obligation to Effect the Merger |
45 | ||||
(a) Shareholder Approval |
45 | |||||
(b) HSR Waiting Period |
45 | |||||
(c) Litigation |
45 | |||||
| 7.2. | Conditions to Obligations of Parent and Merger Sub |
45 | ||||
(a) Representations and Warranties |
45 | |||||
(b) Performance of Obligations of the Company |
46 | |||||
(c) No Restraints |
46 | |||||
(d) Consents Under Agreements |
46 | |||||
(e) Financing |
46 | |||||
(f) Material Adverse Effect |
46 | |||||
(g) Pay-Off Letters |
47 | |||||
(h) Other Agreements |
47 | |||||
(i) McApple Restructuring |
47 | |||||
(j) Continuing Shareholders |
47 | |||||
(k) Dissenting Shareholders |
47 | |||||
(l) Withholding Certificate |
47 | |||||
(m) PrimeEnergy Resignation |
47 | |||||
| 7.3. | Conditions to Obligation of the Company |
47 | ||||
(a) Representations and Warranties |
47 | |||||
(b) Performance of Obligations of Parent and Merger Sub |
48 | |||||
(c) Aggregate Closing Funded Debt |
48 | |||||
| ARTICLE VIII | ||||||
| Termination | ||||||
| 8.1. | Termination by Mutual Consent |
48 | ||||
-iii-
| Page | ||||||
| 8.2. | Termination by Either the Company or Parent |
48 | ||||
| 8.3. | Termination by the Company |
49 | ||||
| 8.4. | Termination by Parent |
49 | ||||
| 8.5. | Effect of Termination and Abandonment |
50 | ||||
| 8.6. | Tender Offer |
51 | ||||
| ARTICLE IX | ||||||
| Miscellaneous and General | ||||||
| 9.1. | Survival |
52 | ||||
| 9.2. | Modification or Amendment |
52 | ||||
| 9.3. | Waiver of Conditions |
52 | ||||
| 9.4. | Counterparts |
52 | ||||
| 9.5. | GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL; SPECIFIC PERFORMANCE |
52 | ||||
| 9.6. | Notices |
54 | ||||
| 9.7. | Entire Agreement |
55 | ||||
| 9.8. | No Third Party Beneficiaries |
55 | ||||
| 9.9. | Obligations of Parent and of the Company |
56 | ||||
| 9.10. | Transfer Taxes |
56 | ||||
| 9.11. | Definitions |
56 | ||||
| 9.12. | Severability |
56 | ||||
| 9.13. | Interpretation; Construction. |
56 | ||||
| 9.14. | Assignment |
57 | ||||
-iv-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of December 4, 2006, among
McJunkin Corporation, a West Virginia corporation (the “Company”), McJ Holding Corporation,
a Delaware corporation (“Parent”), and Hg Acquisition Corp., a West Virginia corporation
and a wholly owned subsidiary of Parent (“Merger Sub”).
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub and the Company have
approved the merger of Merger Sub with and into the Company (the “Merger”) upon the terms
and subject to the conditions set forth in this Agreement and have adopted this Agreement;
WHEREAS, Parent is a wholly owned subsidiary of McJ Holding LLC, a Delaware limited liability
company (“Holdco”);
WHEREAS, in accordance with the terms and subject to the conditions set forth in the
Contribution Agreement (as defined in Section 4.1(a)(ii)), prior to the Effective Time (as defined
in Section 1.3), those certain existing shareholders of the Company listed on Schedule II (the
“Major Shareholders”) and other shareholders as set forth herein will contribute to Holdco
the Contribution Shares (as defined in Section 4.1(a)(ii)) held by them in exchange for Holdco
Units (as defined in Section 4.1(a)(ii)) as part of a larger transaction that is intended to be
governed by Sections 707 and 721 of the Internal Revenue Code of 1986, as amended (the
“Code”);
WHEREAS, in accordance with the terms and subject to the conditions set forth in the Letters
of Transmittal (as defined in Section 4.1(a)(ii)), prior to the Effective Time, certain other
existing shareholders of the Company will become parties to the Contribution Agreement and will
contribute to Holdco the Contribution Shares held by them in exchange for Holdco Units as part of a
larger transaction that is intended to be governed by Sections 707 and 721 of the Code;
WHEREAS, in accordance with the terms and subject to the conditions set forth in the McApple
Agreement (as defined in Section 5.1(c)(iv)), prior to the Effective Time, all of the existing
shareholders of McJunkin Appalachian Oilfield Supply Company (“McApple”) other than the
Company (the “McApple Shareholders”) will contribute to Holdco all of the shares of McApple
held by them in exchange for Holdco Units and cash in a transaction that is intended to be governed
by Sections 707 and 721 of the Code;
WHEREAS, Holdco, the GSCP Members named therein (the “GSCP Members”), the Major
Shareholders and the McApple Shareholders have executed and delivered a limited liability company
operating agreement with respect to Holdco (the “Holdco LLC Agreement”) and a Registration
Rights Agreement relating to their interests in Holdco effective as of the Effective Time (the
“Registration Rights Agreement”);
WHEREAS, the Major Shareholders have entered into an agreement pursuant to which such
shareholders have agreed to take specified action in furtherance of the Merger and the other
transactions contemplated by this Agreement (the “Shareholder Support Agreement”);
WHEREAS, the Company has entered into an employment agreement with each of those persons
listed in Schedule III, effective as of the Effective Time (each an “Employment
Agreement”);
WHEREAS, as soon as practicable following execution of this Agreement the existing
shareholders of the Company shall vote, at a duly convened meeting of the Company’s shareholders,
whether or not to approve this Agreement in accordance with its articles of incorporation and
by-laws and the WVBCA (as defined in Section 1.1); and
WHEREAS, the Company, Parent and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub shall be merged with and into
the Company and the separate existence of Merger Sub shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as the “Surviving
Corporation”), and the Company shall continue unaffected by the Merger, except as set forth in
Articles II, III and IV. The Merger shall have the effects specified in the West Virginia Business
Corporation Act (the “WVBCA”).
1.2. Closing. Unless otherwise mutually agreed in writing between the Company and
Parent, the closing for the Merger (the “Closing”) shall take place at the offices of
Sullivan & Cromwell LLP, 125 Broad Street, New York, New York, commencing at 9:00 a.m. on the later
of (a) the first business day following the day on
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which the last to be satisfied or waived of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in accordance with this
Agreement and (b) January 30, 2007. The date of the Closing is referred to herein as the
“Closing Date”. For purposes of this Agreement, the term “business day” shall mean
any day ending at 11:59 p.m. (Eastern Time) other than a Saturday or Sunday or a day on which banks
are required or authorized to close in the City of New York.
1.3. Effective Time. Simultaneously with the Closing, the Company and Parent will
cause articles of merger (the “West Virginia Articles of Merger”) to be delivered by the
Company to the Secretary of State of the State of West Virginia for filing as provided in Section
31D-11-1106(b) of the WVBCA. The Merger shall become effective at the time when the Secretary of
State of the State of West Virginia has issued a certificate of merger to the Surviving Corporation
(the “Effective Time”).
ARTICLE II
Articles of Incorporation and By-Laws
of the Surviving Corporation
of the Surviving Corporation
2.1. The Articles of Incorporation. The articles of incorporation of the Company
shall be amended as a result of the Merger to read in their entirety as set forth in Annex B hereto
and as so amended shall be the articles of incorporation of the Surviving Corporation (the
“Articles”), until thereafter amended as provided therein or by applicable Law (as defined
in Section 5.1(i)).
2.2. The By-Laws. The by-laws of the Company shall be amended as a result of the
Merger to read in their entirety as set forth in Annex C hereto and as so amended shall be the
by-laws of the Surviving Corporation (the “By-Laws”), until thereafter amended as provided
therein or by applicable Law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
of the Surviving Corporation
3.1. Directors. The parties hereto shall take all actions necessary so that the
directors of Merger Sub immediately prior to the Effective Time shall, from and after the Effective
Time, be the directors of the Surviving Corporation until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal in accordance with
the Articles and the By-Laws.
3.2. Officers. The parties hereto shall take all actions necessary so that the
individuals identified by Parent immediately prior to the Effective Time shall, from
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and after the Effective Time, be the officers of the Surviving Corporation until their
successors shall have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Articles and the By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a result of the Merger and
without any action on the part of the holder of any capital stock of the Company:
(a) Merger Consideration.
(i) Each share of the Class A Common Stock, par value $700.00 per share, of the
Company (a “Class A Share” or collectively the “Class A Shares”) and each
share of the Class B Common Stock, par value $700.00 per share, of the Company (a
“Class B Share” or collectively the “Class B Shares” and together with the
Class A Shares, the “Shares”) including for purposes of this Agreement, fractional
Shares rounded to the nearest 1/10,000 of a Share, issued and outstanding immediately prior
to the Effective Time and listed opposite a shareholder’s name in Column C of Schedule I
other than (x) Shares owned by Holdco (other than Contribution Shares), Parent, Merger Sub
or any other direct or indirect wholly owned subsidiary of Holdco and Shares owned by the
Company or any direct or indirect wholly owned subsidiary of the Company, and in each case
not held on behalf of third parties, (y) Shares that are owned by shareholders
(“Dissenting Shareholders”) who have asserted their appraisal rights prior to the
Effective Time pursuant to Section 31D-13-1321 of the WVBCA and thereafter exercised or
remained entitled to exercise their appraisal rights under Article 13 of the WVBCA and (z)
Contribution Shares (as defined in Section 4.1(a)(ii)) (each share referred to in (x), (y)
and (z) above, an “Excluded Share” and collectively, “Excluded Shares”)
shall be converted into the right to receive an amount in cash equal to (1) $960,000,000
divided by (2) the total number of Shares issued and outstanding immediately prior to the
Effective Time (including in such calculation, all Excluded Shares referred to in
subsections (y) and (z) of the definition of Excluded Shares) (the “Per Share Merger
Consideration”), plus the right to receive after the Closing a portion of the proceeds
of the sale of certain assets as provided in Section 6.13. Two business days prior to the
Closing, the Company shall deliver to Parent a certificate setting forth the number of
Shares that will be issued and outstanding immediately prior to the Effective Time.
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(ii) In accordance with the terms and subject to the conditions set forth in the Letter of
Transmittal (as defined below) and the agreement attached hereto as Annex D (the “Contribution
Agreement”), between Holdco and the Major Shareholders (together with all shareholders of the
Company who execute and deliver to the Company a letter of transmittal substantially in the form of
Annex E attached hereto (a “Letter of Transmittal”) prior to the Effective Time and who are
“accredited investors” (as defined in Section 501(a) of the Securities Act of 1933, as amended),
the “Continuing Shareholders”), prior to the Effective Time the Continuing Shareholders
shall contribute or have contributed on their behalf by the Company to Holdco the Contribution
Shares held by them in exchange for newly issued common units of Holdco (“Holdco Units”)
having a value equal to the number of Contribution Shares so contributed multiplied by the Per
Share Merger Consideration. The value of each Holdco Unit received in exchange for the
Contribution Shares will be determined immediately prior to the Effective Time and shall be equal
to the total amount of cash contributed to Holdco prior to or at the Effective Time by the GSCP
Members divided by the total number of Holdco Units held by such GSCP Members as of the Effective
Time after giving effect to all such cash contributions. An illustrative example of the
determination of the valuation of the Holdco Units is set forth on Schedule IV attached hereto. As
used in this Agreement, the term “Contribution Shares” means Shares to be contributed to
Holdco in exchange for Holdco Units in accordance with the Contribution Agreement, including Shares
contributed to Holdco pursuant to the Contribution Agreement by shareholders of the Company who
have executed and delivered Letters of Transmittal to the Company prior to the Effective Time and
who are “accredited investors” (as defined in Section 501(a) of the Securities Act of 1933, as
amended).
(iii) At the Effective Time, each of the Shares, other than Excluded Shares, shall, by
virtue of the Merger and without any action of the holder thereof, cease to be outstanding,
be cancelled automatically and cease to exist, and each certificate (a
“Certificate”) formerly representing any of such Shares shall thereafter represent
only the right to receive the Per Share Merger Consideration in cash, without interest,
plus the right to receive after the Closing a portion of the proceeds of the sale of
certain assets as provided in Section 6.13, for each such Share such Certificate formerly
represented. At the Effective Time, each Certificate formerly representing Shares owned by
Dissenting Shareholders shall thereafter represent only the right to receive the payment to
which reference is made in Section 4.2(d). At the Effective Time, each Contribution Share
shall, by virtue of the Merger and without any action of the holder thereof, cease to be
outstanding, be cancelled automatically and shall cease to exist without payment of any
consideration therefor. For the avoidance of doubt, the parties understand and agree that
no portion of the Per Share Merger Consideration shall be paid in cash in respect of the
Contribution Shares, and that instead such Contribution Shares shall only entitle the
Continuing Shareholders to receive Holdco Units in
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exchange therefor as provided herein, in the Contribution Agreement and in the Letter
of Transmittal.
(iv) The Company shall arrange for each Company Advisor (as defined below) to deliver
to the Company a final invoice for all fees, costs and expenses paid or payable by the
Company or any of its Subsidiaries in connection with this Agreement, the agreements and
documents referenced herein, and the transactions contemplated hereby and thereby
forty—eight (48) hours prior to the proposed Closing Date. Each such invoice shall
provide that except for the amounts set forth in such invoice, such Company Advisor is not
and will not be owed by the Company or any of its Subsidiaries, any fees, costs or expenses
in connection with this Agreement, the agreements and documents referenced herein, and the
transaction contemplated hereby and thereby, and each such invoice shall be in a form
reasonably satisfactory to Parent. To the extent the aggregate amount of these fees, costs
and expenses set forth on such invoices exceeds $11,500,000, the $960,000,000 referred to
in Section 4.1(a)(i)(1) shall be reduced by an amount equal to such aggregate excess. For
purposes of this Agreement, “Company Advisors” means Lehman Brothers Inc., Raymond James &
Associates, Inc., Sullivan & Cromwell LLP, Bowles Rice McDavid Graff & Love LLP and Goodwin
& Goodwin LLP.
(b) Cancellation of Excluded Shares. Each Excluded Share referred to in clause
4.1(a)(i)(x) or 4.1(a)(i)(y) shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, be cancelled automatically and cease to exist without
payment of any consideration therefor (except, in the case of Excluded Shares referred to in
Section 4.1(a)(i)(y), as provided in Article 13 of the WVBCA).
(c) Merger Sub. At the Effective Time, each share of Common Stock, par value $1.00
per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock, par value $1.00 per share, of the Surviving Corporation
(a “Surviving Corporation Share” and collectively the “Surviving Corporation
Shares”).
4.2. Exchange of Certificates.
(a) Exchange Procedures. At or after the Effective Time, each holder of an
outstanding Certificate or Certificates formerly representing any of the Shares (other than
Excluded Shares) shall surrender to the Surviving Corporation each of such holder’s Certificate or
Certificates (or affidavit of lost certificate in lieu thereof as provided in Section 4.2(c)),
together with a duly executed Letter of Transmittal and, upon acceptance thereof by the Surviving
Corporation, be entitled to the amount of cash into which such holder’s Shares have been converted
pursuant to this Agreement plus the right to receive after the Closing a portion of the proceeds of
the sale of certain assets as provided in Section 6.13. Until surrendered as contemplated by this
Section 4.2(a), each
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Certificate formerly representing Shares (other than Excluded Shares) shall be deemed at any
time after the Effective Time to represent only the right to receive upon such surrender the Per
Share Merger Consideration in cash, plus the right to receive after the Closing a portion of the
proceeds of the sale of certain assets as provided in Section 6.13, with respect to each such Share
represented by such Certificate as contemplated by Section 4.1(a)(i). No interest will be paid or
accrued on any amount payable upon due surrender of the Certificates. In the event of a transfer
of ownership of Shares that is not registered in the transfer records of the Company, a check for
any cash to be exchanged upon due surrender of the Certificate may be issued to such transferee if
the Certificate formerly representing such Shares is presented to the Surviving Corporation,
accompanied by all documents required to evidence and effect such transfer and to evidence that any
stock transfer taxes have been paid or are not applicable. No dividends or other distributions
with respect to Shares with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the Shares represented thereby.
(b) Transfers. From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Shares that were outstanding immediately prior to the
Effective Time (including, for the avoidance of doubt, the Excluded Shares). If, after the
Effective Time, any Certificate (other than any Certificate evidencing Excluded Shares) is
presented to the Surviving Corporation for transfer, it shall be cancelled and exchanged for the
aggregate Per Share Merger Consideration in cash to which the holder thereof is entitled pursuant
to this Article IV plus the right to receive after the Closing a portion of the proceeds of the
sale of certain assets as provided in Section 6.13.
(c) Lost, Stolen or Destroyed Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond in customary amount and upon such terms as may be required by Parent as indemnity
against any claim that may be made against it or the Surviving Corporation with respect to such
Certificate, the Surviving Corporation will issue a check in the amount (after giving effect to any
required Tax (as defined in Section 5.1(n)) withholdings as provided in Section 4.2(e) equal to the
number of Shares (other than Contribution Shares) represented by such lost, stolen or destroyed
Certificate multiplied by the Per Share Merger Consideration and, with respect to Contribution
Shares represented by such lost, stolen or destroyed Certificate, Parent will cause Holdco to issue
a number of Holdco Units in respect of such Shares determined in accordance with Section 4.1(a)(ii)
above. As used in this Agreement, “Person” shall mean any individual, corporation
(including not-for-profit), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, Governmental
Entity (as defined in Section 5.1(d)(i))
or other entity of any kind or nature.
(d) Appraisal Rights. No Person who has asserted appraisal rights pursuant to Section
31D-13-1321 of the WVBCA shall be entitled to receive the Per
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Share Merger Consideration with respect to the Shares owned by such Person unless and until
such Person shall have effectively withdrawn or lost such Person’s right to appraisal under Article
13 of the WVBCA. Each Dissenting Shareholder shall be entitled to receive only the payment
provided under Article 13 of the WVBCA with respect to Shares owned by such Dissenting Shareholder.
The Company shall give Parent prompt notice of any written demands for appraisal, attempted
withdrawals of such demands, and any other instruments served pursuant to applicable Law that are
received by the Company relating to shareholders’ rights of appraisal. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal, offer to settle or settle any such demands or approve any withdrawal of any
such demands.
(e) Withholding Rights. Each of Parent and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of Shares such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code; or any other applicable state, local or foreign Tax law. To
the extent that amounts are so withheld by Parent or the Surviving Corporation, as the case may be,
such withheld amounts (i) shall be remitted by Parent or the Surviving Corporation, as applicable,
to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement
as having been paid to the holder of Shares in respect of which such deduction and withholding was
made by Parent or the Surviving Corporation, as the case may be.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set forth in the
corresponding sections of the disclosure letter delivered to Parent by the Company prior to
entering into this Agreement (the “Company Disclosure Letter”) (it being agreed that
disclosure of any item in any section of the Company Disclosure Letter shall be deemed disclosure
with respect to any other section to which the relevance of such item is reasonably apparent), the
Company hereby represents and warrants to Parent and Merger Sub that:
(a) Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is a legal entity duly organized, validly existing and in good standing under the Laws
of its respective jurisdiction of organization and has all requisite corporate or similar power and
authority to own, lease and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where the failure to be
so organized, qualified or in
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good standing, or to have such power or authority, are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect (as defined below). The Company has
made available to Parent complete and correct copies of the Company’s and its Subsidiaries’
articles of incorporation and by-laws or comparable governing documents, each as amended to the
date hereof, and each as so delivered is in full force and effect. Section 5.1(a) of the Company
Disclosure Letter contains a correct and complete list of each jurisdiction where the Company and
its Subsidiaries are organized and qualified to do business. McJunkin-Nigeria, Ltd. (Nigeria) is
not and has never engaged in business in Nigeria or in any other location and does not have any
assets or liabilities. As used in this Agreement, the term (i) “Subsidiary” means, with
respect to any Person, any other Person of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions is directly or indirectly owned or controlled by such
Person and/or by one or more of its Subsidiaries; for the avoidance of doubt, the parties agree
that Hansford Associates Limited Partnership, a West Virginia limited partnership, is not a
Subsidiary of the Company for purposes of this Agreement, and (ii) “Company Material Adverse
Effect” means a material adverse effect on the financial condition, properties, assets,
liabilities, business or results of operations of the Company and its Subsidiaries, taken as a
whole; provided, however, that none of the following, in and of itself or
themselves, shall constitute a Company Material Adverse Effect:
(A) changes in the economy or financial markets generally in the United States or
other countries in which the Company conducts material operations or that are the result of
acts of war or terrorism;
(B) changes that are the result of factors generally affecting the principal
industries in which the Company and its Subsidiaries operate;
(C) any loss of, or adverse change in, the relationship of the Company with its
customers, employees or suppliers caused by the announcement of the transactions
contemplated by this Agreement; and
(D) changes in United States generally accepted accounting principles or in any
statute, rule or regulation unrelated to the Merger and of general applicability after the
date hereof;
provided, further, that, with respect to clauses (A), (B) and (D), such change,
event, circumstance or development may be taken into consideration for purposes of determining if a
Material Adverse Effect has occurred if such change, event, circumstance or development (i)
primarily relates only to (or have the effect of primarily relating only to) the Company and its
Subsidiaries or (ii) disproportionately adversely affects the Company and its Subsidiaries compared
to other companies of similar size operating in the principal industries in which the Company and
its Subsidiaries operate.
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(b) Capital
Structure.
(i) The authorized capital stock of the Company consists of (x) 37,860 Class A Shares,
of which 16,940 Class A Shares were issued and outstanding as of the date of this Agreement
and (y) 5,000 Class B Shares, of which 570 Class B Shares were issued and outstanding as of
the date of this Agreement. All of the outstanding Shares have been duly authorized and
are validly issued, fully paid and nonassessable. The Company has no Shares reserved for
issuance. Each of the outstanding shares of capital stock or other securities of each of
the Company’s Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by the Company or by a direct or indirect wholly owned Subsidiary of the Company,
free and clear of any lien, charge, pledge, security interest, claim or other encumbrance
(each, a “Lien”). There are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements, calls, commitments or rights of any kind that obligate
the Company or any of its Subsidiaries to issue or sell any Shares or any shares of capital
stock or other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any Shares or any securities of the Company or any of
its Subsidiaries, and no securities or obligations evidencing such rights are authorized,
issued or outstanding. The Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the shareholders of the Company
on any matter.
(ii) Section 5.1(b) of the Company Disclosure Letter sets forth (x) each of the
Company’s Subsidiaries and the ownership interest of the Company in each such Subsidiary,
as well as the ownership interest of any other Person or Persons in each such Subsidiary
and (y) the Company’s or its Subsidiaries’ capital stock, voting or equity interest or
other direct or indirect ownership interest in any other Person. With respect to each
Person identified on Section 5.1(b)(iv)(y) of the Company Disclosure Letter as an entity
which is not a Subsidiary of the Company and is identified as an investment therein (each
such entity, a “Minority Investment”), the Company has delivered to Parent copies
of all Contracts and other documents to which the Company or any of its Subsidiaries is a
party that was entered into or relates in any way to any Minority Investment. Neither the
Company nor any of its Subsidiaries is obligated to make any capital contribution or to
assume or otherwise become liable for any debts or obligations or make any other payments
with respect to any of the Minority Investments.
(iii) Neither the Company nor any of its Subsidiaries conducts any business with, or
is a party to any Contract or arrangement with, PrimeEnergy Corporation. Other than
restrictions pursuant to applicable Law, there are no restrictions on the ability of the
Company or any of its Subsidiaries to sell any of
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the shares of common stock of PrimeEnergy Corporation that the Company or any of its
Subsidiaries holds.
(c) Corporate Authority; Approval and Fairness.
(i) The Company has all requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its obligations under
this Agreement and the Shareholder Support Agreement, subject, in the case of this
Agreement only to obtaining approval and adoption of this Agreement and the Merger by the
Company’s shareholders (the “Company Requisite Vote”) and to consummate the Merger.
This Agreement and the Shareholder Support Agreement have been duly executed and delivered
by the Company and constitute valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors’ rights and to general equity principles
(the “Bankruptcy and Equity Exception”).
(ii) The board of directors of the Company has (A) adopted this Agreement and approved
the Merger and the other transactions contemplated hereby and resolved to transmit a
recommendation to the holders of the Shares that such holders approve this Agreement (the
“Company Recommendation”) and (B) directed that this Agreement be submitted to the
holders of the Shares for their approval. A special committee of the Board of Directors
has received the opinion of its financial advisor, Raymond James & Associates, Inc., to the
effect that the Per Share Merger Consideration to be received in the Merger by the
non-management holders (i.e. all holders except Parent, Parent’s Subsidiaries, E. Gaines
Wehrle, Michael H. Wehrle, M. Chilton Wehrle Mueller, Stephen D. Wehrle, and H.B. Wehrle,
III) of the Shares is fair, as of the date of such opinion, to such holders. It is agreed
and understood that such opinion is for the benefit of special committee of the Company’s
Board of Directors and may not be relied on by Parent or Merger Sub.
(iii) The Major Shareholders and the Company have executed and delivered to Parent and
Merger Sub the Shareholder Support Agreement and the Major Shareholders and the Company
have executed and delivered to Holdco the Contribution Agreement.
(iv) Each McApple Shareholder has executed and delivered to Holdco the contribution
agreement (the “McApple Agreement”) substantially in the form set forth in Annex F.
As of the Effective Time, Holdco will directly or indirectly own 100% of the equity
interests of McApple.
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(v) Each of the Persons listed on Schedule III has executed and delivered to the
Company an Employment Agreement which will be effective on the Closing.
(vi) Birchwood LLC, Ridgeway LLC, Greenbrier Petroleum Company and Ruffner Realty
Company have executed an agreement by which Greenbrier Petroleum Company and Ruffner Realty
Company have resigned as partners of Hillcrest Associates and Birchwood LLC and Ridgeway
LLC have survived as partners of Hillcrest Associates.
(vii) E. Gaines Wehrle has executed and delivered to the Company a letter of
resignation from the board of directors of PrimeEnergy Corporation which will be effective
on the Closing, which letter has been accepted and agreed to by the Company, and is
attached hereto as Annex H.
(viii) The Company and E. Gaines Wehrle have executed and delivered to each other a
letter agreement whereby E. Gaines Wehrle agrees to purchase the Company’s 19/60 percentage
interest in Vision Exploration & Production Co., L.L.C. (“Vision Letter
Agreement”), subject to the consummation of the Merger, which agreement is attached
hereto as Annex I.
(d) Governmental Filings; No Violations; Certain Contracts.
(i) Other than the filing of the West Virginia Articles of Merger with the Secretary
of State of West Virginia pursuant to Section 1.3 and the filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR Act”), no notices, reports
or other filings are required to be made by the Company with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by the Company
from, any domestic or foreign governmental or regulatory authority, agency, commission,
body, court or other legislative, executive or judicial governmental entity (each, a
“Governmental Entity”), in connection with the execution, delivery and performance
of this Agreement and the Shareholder Support Agreement by the Company and the consummation
by the Company of the Merger and the other transactions contemplated hereby and thereby, or
in connection with the continuing operation of the business of the Company and its
Subsidiaries following the Effective Time, except those for which the failure to obtain
such consent, approval or waiver is not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement and the Shareholder
Support Agreement by the Company do not, and the consummation of the Merger and the other
transactions contemplated hereby and thereby will not, constitute or result in (A) a breach
or violation of, or a default under, the articles of incorporation or by-laws of the
Company or the comparable
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governing instruments of any of its Subsidiaries, (B) with or without notice, lapse of
time or both, a breach or violation of, a termination (or right of termination) or a
default under, the creation or acceleration of any obligations or the creation of a Lien on
any of the assets of the Company or any of its Subsidiaries pursuant to any agreement,
lease, license, contract, note, mortgage, indenture, arrangement or other obligation (each,
a “Contract”) binding upon the Company or any of its Subsidiaries or, assuming
(solely with respect to performance of this Agreement and consummation of the Merger and
the other transactions contemplated hereby) the filing of the West Virginia Articles of
Merger with the Secretary of State of West Virginia and the requisite filing under the HSR
Act, under any Law to which the Company or any of its Subsidiaries is subject, or (C) any
change in the rights or obligations of any party under any Contract binding on the Company
or any of its Subsidiaries, except, in the case of clause (B) or (C) above, for any such
breach, violation, termination, default, creation, acceleration or change that,
individually or in the aggregate, is not reasonably likely to have a Company Material
Adverse Effect.
(iii) Neither the Company nor any of its Subsidiaries is a party to or bound by any
non-competition Contracts or other Contract that purports to limit either the type of
business in which the Company or its Affiliates (or, after giving effect to the Merger,
Parent or its Affiliates) may engage or the manner or locations in which any of them may so
engage in any business (for the avoidance of doubt, distribution agreements and similar
Contracts entered into in the ordinary course of business consistent with past practice
shall not be deemed to be “non-competition contracts” provided that such distribution
agreements or similar Contracts do not in any way restrict Parent, Holdco or any of their
Affiliates after consummation of the Merger). As used in this Agreement the term
“Affiliate” means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person, where “control” means the
possession, directly or indirectly, of the power to direct the management and policies of a
Person whether through the ownership of voting securities, contract or otherwise. For the
avoidance of doubt, the parties agree that Hansford Associates Limited Partnership, a West
Virginia limited partnership, is, and at all times will be, considered an Affiliate of the
Company for purposes of this Agreement.
(e) Financial Statements. The Company has delivered to Parent copies of (a) the
audited consolidated financial statements and other financial information for the Company and its
consolidated Subsidiaries as of December 31, 2003, December 31, 2004 and December 31, 2005 and for
the fiscal years then ended (the “Audited Financial Statements”), and (b) the unaudited
consolidated financial statements and other financial information for the Company and its
consolidated Subsidiaries for the nine-month period ending September 30, 2006 (collectively, the
“Financial Statements”). Each of the consolidated balance sheets included in the Financial
Statements (including any related notes and schedules) fairly presents in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries as of its date and
each of the
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consolidated statements of income, shareholders’ equity and cash flows included in the
Financial Statements (including any related notes and schedules) fairly presents in all material
respects the consolidated results of operations and cash flows of the Company and its consolidated
Subsidiaries for the periods then ended, in each case in conformity with United States generally
accepted accounting principles (“GAAP”), subject in the case of the unaudited financial
statements to (i) the absence of footnote disclosures and other presentation items and (ii) changes
resulting from normal de minimis year-end adjustments. The audit reports with respect to the
Audited Financial Statements are not subject to any qualification.
(f) Absence of Certain Changes. Since December 31, 2005, the Company and its
Subsidiaries have conducted their respective businesses only in, and have not engaged in any
material transaction other than according to the ordinary and usual course of such businesses and
there has not been, with respect to the Company or any of its Subsidiaries:
(i) any change adopted or proposed to its articles of incorporation or by-laws or
other applicable governance instruments;
(ii) any change in the financial condition, properties, assets, liabilities, business
or results of their operations or any event, change, development or state of facts which,
individually or in the aggregate, has had or is reasonably likely to have a Company
Material Adverse Effect;
(iii) any material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance;
(iv) other than regular quarterly dividends on the Shares paid in the first three
quarters of 2006 consistent with past practice which did not exceed $200,000 in the
aggregate per quarter and a special dividend paid in the first quarter of 2006 in the
aggregate amount of $26,216,000, any declaration, setting aside or payment of any dividend
or other distribution, with respect to any shares of capital stock of the Company or any of
its Subsidiaries (except for dividends or other distributions by any direct or indirect
wholly owned Subsidiary of the Company to the Company or to any wholly owned Subsidiary of
the Company), any repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries, or any issuance, sale, pledge, disposal of, grant, transfer, lease, license,
guarantee or encumbrance of, any shares of capital stock or other securities of the Company
or any of its Subsidiaries;
(v) any material change in any method of accounting or accounting practice by the
Company or any of its Subsidiaries or change in the independent accountants of the Company
or any of its Subsidiaries;
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(vi) any merger or consolidation of the Company or any of its Subsidiaries with any
other Person, or restructuring, reorganization or complete or partial liquidation of the
Company or any of its Subsidiaries or entry into any other agreements or arrangements
imposing material restrictions on its assets, operations or businesses;
(vii) any acquisition of assets outside of the ordinary course of business consistent
with past practice from any other Person with a value or purchase price in the aggregate in
excess of $5 million in any transaction or series of related transactions, other than
acquisitions pursuant to Contracts in effect as of the date of this Agreement;
(viii) any Lien incurred or created which is material to the Company or any of its
Subsidiaries on any assets of the Company or any of its Subsidiaries having a value in
excess of $5 million;
(ix) any loans, advances or capital contributions to or investments in any Person in
excess of $5 million in the aggregate;
(x) entry into any agreement with respect to the voting of its capital stock, other
than as contemplated by this Agreement;
(xi) any incurrence of indebtedness for borrowed money (other than borrowings under
the Company’s existing working capital debt facilities in the ordinary course of business
consistent with past practice to fund working capital of the Company) or any guarantee of
any indebtedness of another Person or the issuance or sale of any debt securities or
warrants or other rights to acquire any debt security of the Company or any of its
Subsidiaries;
(xii) any capital expenditures in excess of $6 million in the aggregate;
(xiii) any material Tax election made, any material position taken on any material Tax
Return or any material tax accounting method adopted that is inconsistent with positions
taken or methods used in preparing or filing similar Tax Returns in prior periods, or any
material Tax controversy settled or resolved;
(xiv) any transfer, sale, lease, license, mortgage, pledge, surrender, encumbrance,
divestiture, cancellation, abandonment or lapse or expiration or other disposition of any
assets, product lines or businesses of the Company or its Subsidiaries, other than pursuant
to Contracts in effect prior to the date of this Agreement and except in connection with
services provided in the ordinary course of business consistent with past practice and
sales of obsolete assets and except for sales, leases, licenses or other dispositions of
assets with a fair market value not in excess of $5 million in the aggregate;
-15-
(xv) except as otherwise required by applicable Law, (i) any increase in the
compensation, bonus or pension or welfare benefits of (other than those increases in the
ordinary course consistent with past practice (A) to employees below the Senior Vice
President level or (B) resulting from the Company’s improved performance, based on existing
2005 incentive formulas), or any new equity awards made to, any director, officer or
employee of the Company or any of its Subsidiaries, (ii) any establishment, adoption,
amendment or termination of any Benefit Plan (as defined in Section 5.1(h)(i)) or amendment
to the terms of any outstanding equity-based awards, or (iii) any action taken to
accelerate the vesting or payment, or funding or in any other way securing the payment, of
compensation or benefits under any Benefit Plan, to the extent not already provided in any
such Benefit Plan;
(xvi) entry into any Contract or any amendment or modification of any Contract with
any officer, director or Affiliate of the Company or its Subsidiaries other than as
expressly contemplated by this Agreement; or
(xvii) any agreement to do any of the foregoing.
(g) Litigation and Liabilities. (i) There are no (a) civil, criminal or
administrative actions, information requests, suits, claims, hearings, arbitrations, investigations
or other proceedings (collectively, “Claims”) pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or (b) except as reflected or reserved
against in the Company’s audited consolidated balance sheet for the year ending December 31, 2005
(and the notes thereto) and for obligations or liabilities incurred in the ordinary course of
business consistent with past practice since December 31, 2005 (and reflected or reserved against
in the Company’s unaudited consolidated balance sheet for the nine months ended September 30, 2006,
to the extent incurred prior to such date), obligations or liabilities of the Company or any of its
Subsidiaries, whether or not accrued, contingent or otherwise and whether or not required to be
disclosed, or any other facts or circumstances of which the Company has knowledge that is
reasonably likely to result in any Claims against, or obligations or liabilities of, the Company or
any of its Subsidiaries, including those relating to matters involving any Environmental Law (as
defined in Section 5.1(m)), except for those that are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect. (ii) Neither the execution of this
Agreement or the Shareholder Support Agreement nor the consummation of any of the transactions
contemplated hereunder or thereunder waives, modifies, compromises or extinguishes any of the
Company’s rights with respect to (A) any insurance coverage relating to any actions, suits or
claims against the Company or any of its Subsidiaries alleging personal injury or property damage
arising from exposure to asbestos or asbestos-containing materials, or (B) any agreements,
understandings or arrangements relating to any such coverage, except in the case of (A) or (B) as
is not, individually or in the aggregate, reasonably likely to have a Company Material Adverse
Effect. (iii) The defense of all actions, suits or claims currently pending against the Company
or any of its Subsidiaries alleging personal injury
-16-
or property damage arising from exposure to asbestos or asbestos-containing materials have
been assumed by the Company’s insurers. As used in this Agreement, the term “knowledge” with
respect to the Company shall mean the actual knowledge of Michael Wehrle, H.B. Wehrle III, E.
Gaines Wehrle, Steven D. Wehrle, James F. Underhill, David Fox, III, Cody Mueller or Theresa
Dudding after reasonable inquiry. Neither the Company nor any of its Subsidiaries is a party to or
subject to the provisions of any judgment, order, writ, injunction, decree or award of any
Governmental Entity which is, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect.
(h) Employee Benefits.
(i) All material benefit, employment, retention, transaction, severance, change in
control and compensation plans, contracts, policies or arrangements covering current or
former employees of the Company and its subsidiaries (the “Employees”) and current
or former directors of the Company or any of its Subsidiaries, or with respect to which the
Company or any of its Subsidiaries could have any liability including, but not limited to,
“employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), and deferred compensation,
severance, stock option, stock purchase, stock appreciation rights, stock based, incentive
and bonus plans (the “Benefit Plans”) are listed on Schedule 5.1(h)(i) of the
Company Disclosure Letter, and each Benefit Plan which has received a favorable opinion
letter from the Internal Revenue Service National Office, has been separately identified.
True and complete copies of all Benefit Plans listed on Schedule 5.1(h)(i) of the Company
Disclosure Letter have been made available to Parent.
(ii) To the knowledge of the Company, all Benefit Plans, other than “multiemployer
plans” within the meaning of Section 3(37) of ERISA (each, a “Multiemployer Plan”)
(collectively, “Company Benefit Plans”) are in compliance in all material respects
with their terms and ERISA, the Code and other applicable Laws. Each Company Benefit Plan
which is subject to ERISA (an “ERISA Plan”) that is an “employee pension benefit
plan” within the meaning of Section 3(2) of ERISA intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the Internal Revenue
Service (the “IRS”) covering all tax law changes prior to the Economic Growth and
Tax Relief Reconciliation Act of 2001 or has applied to the IRS for such favorable
determination letter within the applicable remedial amendment period under Section 401(b)
of the Code, and to the knowledge of the Company no circumstances are likely to result in
the loss of the qualification of such Company Benefit Plan under Section 401(a) of the
Code. No Benefit Plan which is a Multiemployer Plan is insolvent or is in reorganization
within the meaning of Part 3 of Subtitle E of Title IV of ERISA and to the Company’s
knowledge no condition exists which presents a risk of any Multiemployer Plan becoming
-17-
insolvent or going into reorganization. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any ERISA Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject the Company
or any Subsidiary to a tax or penalty imposed by either Section 4975 of the Code or Section
502(i) of ERISA in an amount which would be material.
(iii) No material liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by the Company or any of its Subsidiaries with respect to any
on-going, frozen or terminated Company Benefit Plan or with respect to the single-employer
plan of any entity which is considered one employer with the Company under Section 4001 of
ERISA or Section 414 of the Code (an “ERISA Affiliate”). Other than the Company
and its Subsidiaries, neither the Company nor any of its Subsidiaries has any ERISA
Affiliates nor any liability with respect to any entity that previously was an ERISA
Affiliate. The Company and its Subsidiaries have not incurred and do not expect to incur
any material withdrawal liability with respect to a Multiemployer Plan under Subtitle E of
Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate).
(iv) As of the date hereof, there is no material pending or, to the knowledge of the
Company threatened, litigation or dispute relating to the Benefit Plans or by a current or
former employee against the Company or any of its Subsidiaries, other than routine claims
for benefits. No Benefit Plan is under audit, investigation or similar proceeding by the
IRS, the Department of Labor, the Pension Benefit Guarantee Corporation or any other
Governmental Entity and, to the knowledge of the Company, no such audit, investigation or
proceeding is pending. Neither the Company nor any of its Subsidiaries has any obligations
for retiree health or life benefits under any ERISA Plan or collective bargaining agreement
or has obligations to any Employee (either individually or Employees as a group) that such
Employee(s) would be provided with such retiree health or life benefits upon their
retirement or termination of employment, except to the extent required by Section 4980B of
the Code.
(v) Neither the execution of this Agreement, shareholder approval of this Agreement
nor the consummation of the transactions contemplated hereby will (x) entitle any employees
of the Company or any of its Subsidiaries to severance pay or any material increase in
severance pay upon any termination of employment after the date hereof, or (y) accelerate
the time of payment or vesting, or result in any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, or increase the amount payable, or
result in any other material obligation pursuant to, any of the Benefit Plans or (z) result
in the triggering or imposition of any restrictions or limitation on the right of the
Company to amend or terminate any Benefit Plan. Except as set forth in Section 5.1(h)(v)
of the Company Disclosure Letter, no payment or benefit which will or
-18-
may be made by Parent, the Company or any of its Subsidiaries with respect to any
Employee will be characterized as an “excess parachute payment,” within the meaning of
Section 280G(b)(1) of the Code.
(vi) None of the Benefit Plans, if administered in accordance with their terms, could
result in the imposition of interest or an additional tax on any participant thereunder
pursuant to Section 409A of the Code.
(i) Compliance with Laws; Licenses. The businesses of each of the Company and its
Subsidiaries have not been, and are not being, conducted in violation of any federal, state, local
or foreign law (including the Foreign Corrupt Practices Act of 1977, as amended), statute or
ordinance, common law, or any rule, regulation, standard, judgment, order, writ, injunction,
decree, arbitration award, agency requirement, license or permit of any Governmental Entity
(collectively, “Laws”), except for violations that, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect. Except with respect to regulatory
matters covered by Section 6.5, no investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the knowledge of the Company, threatened,
nor has any Governmental Entity indicated an intention to conduct the same, except for those the
outcome of which are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect. To the knowledge of the Company, no material change is required in the
Company’s or any of its Subsidiaries’ processes, properties or procedures in connection with any
such Laws, and the Company has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date hereof. The Company and
its Subsidiaries each has obtained and is in compliance with all permits, licenses, certifications,
approvals, registrations, consents, authorizations, franchises, variances, exemptions and orders
issued or granted by a Governmental Entity necessary to conduct its business as presently
conducted, except those the absence of which is not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect.
(j) Material Contracts and Government Contracts.
(i) As of the date of this Agreement and except as otherwise expressly contemplated by
this Agreement, neither the Company nor any of its Subsidiaries is a party to or bound by:
(A) any individual lease of real or personal property providing for annual rentals of
$5 million or more;
(B) any Contract with any Governmental Entity or any Contract (other than purchase
orders entered into the ordinary course of business consistent with past practice) that is
reasonably likely to require either (x) annual payments to or from the Company and its
Subsidiaries of more than $5 million or
-19-
(y) aggregate payments to or from the Company and its Subsidiaries of more than $5
million;
(C) other than with respect to any partnership that is wholly owned by the Company or
any wholly owned Subsidiary of the Company, any partnership, joint venture or other similar
agreement or arrangement relating to the formation, creation, operation, management or
control of any partnership or joint venture material to the Company or any of its
Subsidiaries or in which the Company owns more than a 15% voting or economic interest, or
any interest valued at more than $5 million without regard to percentage voting or economic
interest;
(D) any Contract (other than among direct or indirect wholly owned Subsidiaries of the
Company) relating to indebtedness for borrowed money or the deferred purchase price of
property (in either case, whether incurred, assumed, guaranteed or secured by any asset) in
excess of $5 million;
(E) any non-competition Contract or other Contract that purports to limit either the
type of business in which the Company or its Subsidiaries or, after consummation of the
Merger, Parent, Holdco or any of their respective Affiliates may engage or the manner or
locations in which any of them may so engage in any business (for the avoidance of doubt,
distribution agreements and similar Contracts entered into in the ordinary course of
business consistent with past practice shall not be deemed to be “non-competition
contracts” provided that such distribution agreements or similar Contracts do not in any
way restrict Parent, Holdco or any of their Affiliates after consummation of the Merger);
(F) any Contract containing a standstill or similar agreement pursuant to which one
party has agreed not to acquire assets or securities of the other party or any of its
Affiliates;
(G) any Contract with any Affiliate, director or officer of the Company, any
Affiliate, director or officer of any Subsidiary of the Company, or any Person beneficially
owning five percent or more of the outstanding Shares or of the outstanding shares of any
Subsidiary of the Company;
(H) any Contract providing for indemnification by the Company or any of its
Subsidiaries of any Person, except for any such Contract that is (x) not material to the
Company or any of its Subsidiaries or is a purchase order and (y) entered into in the
ordinary course of business consistent with past practice;
(I) any Contract that contains a put, call or similar right pursuant to which the
Company or any of its Subsidiaries could be required to
-20-
purchase or sell, as applicable, any equity interests of any Person or assets that
have a fair market value or purchase price of more than $5 million; and
(J) any other Contract or group of related Contracts that, if terminated or subject to
a default by any party thereto, is, individually or in the aggregate, reasonably likely to
result in a Company Material Adverse Effect (the Contracts described in clauses (A) — (J),
together with all exhibits and schedules to such Contracts, being the “Material
Contracts”).
(ii) A copy of each Material Contract has previously been delivered or made available
to Parent and each Material Contract is a valid and binding agreement of the Company or one
of its Subsidiaries, as the case may be, and is in full force and effect, and neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party
thereto is in default or breach in any respect under the terms of any such agreement,
contract, plan, lease, arrangement or commitment.
(k) Real Property.
(i) With respect to the real property owned by the Company or its Subsidiaries (the
“Owned Real Property”), (A) the Company or one of its Subsidiaries, as applicable,
has good and marketable title to the Owned Real Property, free and clear of any
Encumbrance, (B) there are no outstanding options or rights of first refusal to purchase
the Owned Real Property, or any portion thereof or interest therein, and (C) neither the
Company nor any of its Subsidiaries leases Owned Real Property to anyone else.
(ii) With respect to the real property leased or subleased to the Company or its
Subsidiaries (the “Leased Real Property”), the lease or sublease for such property
is valid, legally binding, enforceable and in full force and effect, and none of the
Company or any of its Subsidiaries is in material breach of or default under such lease or
sublease, and no event has occurred which, with notice, lapse of time or both, would
constitute a breach or default by any of the Company or its Subsidiaries or permit
termination, modification or acceleration by any third party thereunder.
(iii) Section 5.1(k)(iii) of the Company Disclosure Letter contains a true and
complete list of all Owned Real Property and Leased Real Property. Section 5.1(k)(iii) of
the Company Disclosure Letter sets forth a correct street address and such other
information as is reasonably necessary to identify each parcel of Owned Real Property.
(iv) For purposes of this Section 5.1(k) only, “Encumbrance” means any mortgage,
lien, pledge, charge, security interest, easement, covenant, or other
restriction or title matter or encumbrance of any kind in respect of such asset but
specifically excludes (a) specified encumbrances described in Section 5.1(k)(iv)
-21-
of the Company Disclosure Letter; (b) encumbrances for current Taxes or other
governmental charges not yet due and payable; (c) mechanics’, carriers’, workmen’s,
repairmen’s or other like encumbrances arising or incurred in the ordinary course of
business consistent with past practice relating to obligations as to which there is no
default on the part of the Company, or the validity or amount of which is being contested
in good faith by appropriate proceedings; (d) other encumbrances that do not, individually
or in the aggregate, materially impair the continued use, operation, value or marketability
of the specific parcel of Owned Real Property to which they relate or the conduct of the
business of the Company and its Subsidiaries as presently conducted; (e) restrictions or
exclusions which would be shown by a current title report or similar report; and (f) any
condition or other matter, if any, that may be shown or disclosed by a current and accurate
survey or physical inspection.
(l) Takeover Statutes. No “fair price,” “moratorium,” “control share acquisition” or
other similar anti-takeover statute or regulation (each, a “Takeover Statute”) or any
anti-takeover provision in the Company’s articles of incorporation or by-laws is applicable to the
Company, the Shares, the Merger or the other transactions contemplated by this Agreement.
(m) Environmental Matters.
(i) Except as is not reasonably likely to have a Company Material Adverse Effect: (A)
the Company and its Subsidiaries are, and have since January 1, 2001, been in compliance
with all applicable Environmental Law; (B) the Company and its Subsidiaries possess all
permits, licenses, registrations, identification numbers, authorizations and approvals
required under applicable Environmental Laws for the operation of the business as presently
conducted; (C) neither the Company nor any of its Subsidiaries has received any claim,
notice of violation, citation or other communication concerning any violation or alleged
violation of, or liability under, any applicable Environmental Law which has not been fully
resolved, imposing no outstanding liability or obligation on the Company or any of its
Subsidiaries; (D) there are no writs, injunctions, decrees, orders or judgments
outstanding, or any actions, suits, proceedings, inquiries, information requests, or
investigations pending or, to the knowledge of the Company, threatened, concerning
compliance by the Company or any of its Subsidiaries with, or liability of the Company or
any of its Subsidiaries under, any Environmental Law; and (E) there are no Hazardous
Substances at, on, under, or migrating to or from, the Owned Real Property, the Leased Real
Property, or, the knowledge of the Company, any real property formerly owned, leased or
operated by the Company, any of its Subsidiaries (the “Former Real Property”), in
each case, which is reasonably expected to result in liability to the Company or any
Subsidiary under Environmental Law.
-22-
(ii) The Company has made available to Purchaser true and complete copies of any
material reports, site assessments, tests, or monitoring possessed by the Company or any of
its Subsidiaries (A) pertaining to Hazardous Substances at, on, under, or migrating to or
from, any Owned Property, Leased Property or Former Real Property, or (B) concerning
compliance by the Company or any of its Subsidiaries with Environmental Law or their
liability thereunder.
(iii) Notwithstanding
any other representation and warranty in Article V, the representations
and warranties contained in this Section 5.1(m) and in Section 5.1(g) constitute the sole
representations and warranties of Sellers relating to any Environmental Law.
As used in this Agreement, (i) the term “Environmental Law” means any applicable law
(including common law), regulation, code, license, permit, order, judgment, decree or injunction
from any Governmental Entity relating to (A) the protection of the environment (including air,
water, soil and natural resources), (B) the use, storage, handling, release or disposal of or
exposure to hazardous substances, or (C) occupational health or safety as it relates to Hazardous
Substance handling or exposure, in each case as presently in effect, and (ii) “Hazardous
Substance” means any substance listed, defined, designated or classified as a pollutant or
contaminant or as hazardous, toxic or radioactive under any applicable Environmental Law,
including, without limitation, petroleum and any derivative or by-products thereof and asbestos and
asbestos-containing materials.
(n) Taxes. The Company and each of its Subsidiaries (i) have prepared in good faith
and duly and timely filed (taking into account any extension of time within which to file) all Tax
Returns (as defined below) required to be filed by any of them and all such filed Tax Returns are
complete and accurate in all material respects; (ii) have paid all Taxes (as defined below) that
are shown as due on such filed Tax Returns (or that are otherwise due and payable) or that the
Company or any of its Subsidiaries are obligated to withhold from amounts owing to any employee,
creditor or third party, except with respect to matters contested in good faith and for which
adequate reserves have been established in accordance with GAAP; and (iii) have not waived any
statute of limitations with respect to Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency. As of the date hereof, there are not pending or, to the knowledge of
the Company, threatened, any audits, examinations, investigations or other proceedings in respect
of Taxes or Tax matters. There are not, to the knowledge of the Company, any material unresolved
questions or claims concerning the Company’s or any of its Subsidiaries’ Tax liability. The
Company has made available to Parent true and correct copies of the United States federal income
Tax Returns filed by the Company and its Subsidiaries for each of the three most recent fiscal
years. The consolidated United States federal income Tax Returns of the Company have been
examined, or the statutes of limitations have closed, with respect to all taxable years through and
including 2004. To the knowledge of the Company, no claim has been made in the previous five years
by a taxing authority in a jurisdiction where the Company or any of its Subsidiaries does not
-23-
file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation
by that jurisdiction. Neither the Company nor any of its Subsidiaries has any liability for Taxes
of any Person (other than the Company and its Subsidiaries) under Treasury Regulation Section
1.1502-6, any comparable provision of U.S., state, local or foreign law, or otherwise. Neither the
Company nor any of its Subsidiaries has been a party to a “reportable transaction” (as that term is
defined in Treasury Regulation Section 1.6011-4(b)(1)). Neither the Company nor any of its
Subsidiaries is a party to any Tax sharing agreement (with any Person other than the Company and/or
any of its Subsidiaries). Neither the Company nor any of its Subsidiaries has been a party to any
distribution occurring during the last 30 months in which the parties to such distribution treated
the distribution as one to which Section 355 of the Code (or any similar provision of state, local
or foreign law) applied. Each material Tax election made by the Company or any of its Subsidiaries
has been timely and properly made.
As used in this Agreement, (i) the term “Tax” (including, with correlative meaning,
the term “Taxes”) includes all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock, severances, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding, excise, production, value
added, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any interest in respect
of such penalties and additions, and (ii) the term “Tax Return” includes all returns and
reports (including elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to a Tax authority relating to Taxes.
(o) Labor Matters.
(i) To the knowledge of the Company, there is no organizational effort currently being
made or threatened on behalf of any labor organization to organize the employees of the
Company or any of its Subsidiaries, nor a demand for recognition of any of the employees of
the Company or any of its Subsidiaries on behalf of any labor organization within the last
two (2) years; nor is the Company or any of its Subsidiaries the subject of any material
proceeding asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice within the meaning of the National Labor Relations Act or seeking to compel
it to bargain with any labor organization; nor is there pending or, to the knowledge of the
Company, threatened, nor has there been for the past two (2) years, any labor strike,
picketing, walk-out, work stoppage or lockout involving the Company or any of its
Subsidiaries. Neither the Company nor any Subsidiary is presently, nor has been in the
past a party to, or bound by, any collective bargaining agreement or union contract with
respect to Employees, and no such agreement or contract is currently being negotiated. The
consummation of the Merger and the other transactions contemplated by this Agreement will
not entitle any third party (including any labor organization) to any payments under any
collective bargaining agreement or union contract with respect to Employees to
-24-
which the Company or any of its Subsidiaries is a party or by which any of them are
otherwise bound.
(ii) The Company and its Subsidiaries (i) are in compliance in all material respects
with all applicable federal, state and local laws, rules and regulations (domestic and
foreign) respecting employment, overtime pay and wages and hours, in each case, with
respect to their employees; (ii) have withheld all material amounts required by law or by
agreement to be withheld from the wages, salaries and other payment to their employees; and
(iii) are not liable for or in arrears with respect to material wages or any material taxes
or any penalty for failure to comply with any of the foregoing except, in each case, to the
extent as is not reasonably likely to have a Company Material Adverse Effect.
(iii) Neither the Company nor any of its Subsidiaries has classified any individual as
an “independent contractor” or similar status who, according to a Benefit Plan or
applicable law, should have been classified as an employee or of similar status.
(p) Insurance. All fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained by the Company or
any of its Subsidiaries (“Insurance Policies”) are with reputable insurance carriers,
provide full and adequate coverage for all normal risks incident to the business of the Company and
its Subsidiaries and their respective properties and assets, and are in character and amount at
least equivalent to that carried by persons engaged in similar businesses and subject to the same
or similar perils or hazards, except for any such failures to maintain insurance policies that,
individually or in the aggregate, are not reasonably likely to have a Company Material Adverse
Effect. Each Insurance Policy is in full force and effect and all premiums due with respect to all
Insurance Policies have been paid, with such exceptions that, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect.
(q) Affiliated Transactions. No officer, director, stockholder or Affiliate of the
Company or any of its Subsidiaries is a party to any Contract, commitment or transaction with the
Company or any of its Subsidiaries or has any interest in any property used by the Company or any
of its Subsidiaries.
(r) Product Warranty and Product Liability. There is no notice, demand, claim,
action, suit, inquiry, hearing, proceeding, notice of violation or investigation from, by or before
any Governmental Entity relating to any product, including the packaging and advertising related
thereto, designed, formulated, manufactured, processed, sold, distributed or placed in the stream
of commerce by the Company or any of its Subsidiaries (a “Product”), or claim or lawsuit
involving a Product which is, to the knowledge of the Company, pending or threatened, by any Person
which is reasonably likely to result in any material liability to the Company or any of its
Subsidiaries. There has not been, nor is there under consideration by the Company or
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any of its Subsidiaries, any Product recall or post-sale warning conducted by or on behalf of
the Company or any of its Subsidiaries concerning any Product, except for such recalls or post-sale
warnings that are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect. To the knowledge of the Company, all Products, complied and comply in all
material respects with applicable specifications, government safety standards and laws, and are or
were substantially free from contamination, deficiencies or defects, except for such
non-compliance, contamination, deficiency or defect as is not, individually or in the aggregate,
reasonably likely have a Company Material Adverse Effect.
(s) Customers and Suppliers. Section 5.1(s) of the Company Disclosure Letter sets
forth a list of (i) the fifteen (15) largest suppliers (by dollar amount) to the Company and its
Subsidiaries, taken as a whole, during the period from January 1, 2005 to October 31, 2006
(“Major Suppliers”) and (ii) the fifteen (15) customers with the highest dollar amount of
purchases from or services of, the companies, taken as a whole, during the period from January 1,
2005 to October 31, 2006 (the “Major Customers”). No Major Supplier or Major Customer has
during the last two (2) years materially decreased or limited, or to the knowledge of the Company
threatened to materially decrease or limit, its provision or receipt of services or supplies to or
from the Company or any of its Subsidiaries. No termination, cancellation or material limitation
of, or any material modification or change in, the business relationship of the Company or any of
its Subsidiaries has occurred or, to the knowledge of the Company, has been threatened by any Major
Supplier or Major Customer.
(t) Purchase and Sale Agreements. No claims for indemnification under any prior
purchase and sale agreements to which the Company or any of its Subsidiaries is a party, have been
made by the Company or any of its Subsidiaries in the last five (5) years, or are pending or
threatened by the Company or any of its Subsidiaries and, to the knowledge of the Company, no
claims for indemnification have been made in the last five (5) years or are pending or threatened,
by any counterparties thereto.
(u) Brokers and Finders. Neither the Company nor any of its officers, directors or
employees has employed, retained or engaged any broker or finder or incurred any liability for any
brokerage, finder’s or similar fees or commissions in connection with the Merger or the other
transactions contemplated in this Agreement except that the Company has employed Lehman Brothers
Inc. as its financial advisor and a special committee of the Board of Directors of the Company has
employed Raymond James & Associates, Inc. as its financial advisor. The Company has made available
to Parent complete and accurate copies of all agreements pursuant to which Lehman Brothers Inc. and
Raymond James & Associates, Inc. are entitled to any fees and expenses in connection with any of
the transactions contemplated by this Agreement. Other than the Company Advisors, neither the
Company, nor any of its Subsidiaries has employed, engaged or retained any legal counsel,
accountants, investment broker or other advisors in connection with the Merger or the other
transactions contemplated in this Agreement.
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5.2. Representations and Warranties of Parent and Merger Sub. Except as set forth in
the corresponding sections of the disclosure letter delivered to the Company by Parent prior to
entering into this Agreement (the “Parent Disclosure Letter”) (it being agreed that
disclosure of any item in any section of the Parent Disclosure Letter shall be deemed disclosure
with respect to any other section to which the relevance of such item is reasonably apparent),
Parent and Merger Sub each hereby represent and warrant to the Company that:
(a) Organization, Good Standing and Qualification. Each of Parent and Merger Sub is a
legal entity duly organized, validly existing and in good standing under the Laws of its respective
jurisdiction of organization and has all requisite corporate or similar power and authority to own,
lease and operate its properties and assets and to carry on its business as presently conducted and
is qualified to do business and is in good standing as a foreign corporation in each jurisdiction
where the ownership, leasing or operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so organized, qualified or in such good
standing, or to have such power or authority, are not, individually or in the aggregate, reasonably
likely to prevent, materially delay or materially impair the consummation of the transactions
contemplated by this Agreement. Parent has made available to the Company complete and correct
copies of the articles of incorporation and by-laws of Parent and Merger Sub, each as amended to
the date hereof, and each as so delivered is in full force and effect.
(b) Corporate Authority. No vote of holders of capital stock of Parent is necessary
to approve this Agreement and the Merger and the other transactions contemplated hereby. Each of
Parent and Merger Sub has all requisite corporate power and authority and has taken all corporate
action necessary in order to execute, deliver and perform its obligations under this Agreement,
including the approval of this Agreement by Parent as the sole shareholder of Merger Sub, and to
consummate the Merger. This Agreement has been duly executed and delivered by each of Parent and
Merger Sub and is a valid and binding agreement of Parent and Merger Sub, enforceable against each
of Parent and Merger Sub in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(c) Governmental Filings; No Violations; Etc.
(i) Other than the filing of the West Virginia Articles of Merger with the Secretary
of State of West Virginia pursuant to Section 1.3 and the requisite filing under the HSR
Act, no notices, reports or other filings are required to be made by Parent or Merger Sub
with, nor are any consents, registrations, approvals, permits or authorizations required to
be obtained by Parent or Merger Sub from, any Governmental Entity in connection with the
execution, delivery and performance of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Merger and the other transactions contemplated
hereby, except those that the failure to make or obtain are not,
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individually or in the aggregate, reasonably likely to prevent, materially delay or
materially impair the consummation of the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by Parent and Merger
Sub do not, and the consummation by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby will not, constitute or result in (A) a breach or
violation of, or a default under, the articles of incorporation or by-laws of Parent or
Merger Sub or the comparable governing instruments of any of its Subsidiaries, (B) with or
without notice, lapse of time or both, a breach or violation of, a termination (or right of
termination) or a default under, the creation or acceleration of any obligations or the
creation of a Lien on any of the assets of Parent or any of its Subsidiaries pursuant to,
any Contracts binding upon Parent or any of its Subsidiaries, or (C) any change in the
rights or obligations of any party under any such Contract, except, in the case of clause
(B) or (C) above, for any such breach, violation, termination, default, creation,
acceleration or change that is not, individually or in the aggregate, reasonably likely to
prevent, materially delay or materially impair the consummation of the transactions
contemplated by this Agreement.
(d) Litigation. There are no civil, criminal or administrative actions, suits,
claims, hearings, investigations or proceedings pending or, to the knowledge of the officers of
Parent, threatened against Parent or Merger Sub, except for those that are not, individually or in
the aggregate, reasonably likely to have a material adverse effect on the financial condition,
properties, assets, liabilities, business or results of operations of Parent or Merger Sub or to
prevent, materially delay or materially impair the consummation of the transactions contemplated by
this Agreement.
(e) Financing. Attached as Annex 5.2(e)(i) to the Parent Disclosure Letter is a true
and complete copy of a debt commitment letter, other than the fee letter relating thereto
(collectively, the “Debt Financing Commitment”), pursuant to which the lenders party
thereto have agreed, subject to the terms and conditions set forth therein, to lend the amounts set
forth therein for the purposes of financing the transactions contemplated by this Agreement (the
“Debt Financing”). Attached as Annex 5.2(e)(ii) to the Parent Disclosure Letter is a true
and complete copy of the equity commitment letter, dated as of the date hereof, from GS Capital
Partners V Fund, L.P. (the “Equity Financing Commitment” and together with the Debt
Financing Commitment, the “Financing Commitments”), pursuant to which the parties thereto
have committed, subject to the terms and conditions set forth therein, to invest the amount set
forth therein (the “Equity Financing” and together with the Debt Financing Commitment, the
“Financing”). None of the Financing Commitments has been amended or modified prior to the
date of this Agreement, no such amendment or modification is contemplated, and the respective
commitments contained
in the Financing Commitments have not been withdrawn or rescinded in any respect. Parent has
fully paid any and all commitment fees or other fees in connection with the Financing Commitments
that are payable on or
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prior to the date hereof, and the Financing Commitments are in full force and effect and are
the valid, binding and enforceable obligations of Parent, Merger Sub and to the knowledge of
Parent, the other parties thereto. There are no conditions precedent or other contingencies
related to the funding of the full amount of the Financing, other than as set forth in or
contemplated by the Financing Commitments. No event has occurred which, with or without notice,
lapse of time or both, would constitute a default on the part of Parent or Merger Sub under any of
the Financing Commitments, and as of the date hereof Parent has no reason to believe that any of
the conditions to the Financing contemplated by the Financing Commitments will not be satisfied or
that the Financing will not be made available to Parent on the Closing Date. Subject to the terms
and conditions contained in this Agreement and the Financing Commitments, Parent and Merger Sub
will have at the Closing, together with the available cash of the Company and its Subsidiaries on
the Closing Date, funds sufficient to pay the cash portion of the aggregate Per Share Merger
Consideration (and any repayment or refinancing of debt contemplated by this Agreement or the
Financing Commitments) and any other amounts required to be paid in connection with the
consummation of the transactions contemplated hereby, and to pay all related fees and expenses.
(f) Capitalization of Merger Sub and Parent. (i) As of the date hereof the authorized
capital stock of Merger Sub consists solely of 5,000 shares of Common Stock, par value $1.00 per
share, 100 of which are validly issued and outstanding. All of the issued and outstanding capital
stock of Merger Sub is, and immediately prior to the Effective Time will be, owned by Parent, free
and clear of all Liens and there are (A) no other voting securities of Merger Sub authorized,
issued or outstanding, (B) no preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements,
calls, commitments or rights of any kind that obligate Merger Sub to issue or sell any shares of
capital stock or other securities of Merger Sub, (C) no securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any
securities of Merger Sub, and (D) no securities or obligations evidencing such rights described in
clause (C) of this Section 5.2(f)(i) are authorized, issued or outstanding.
(ii) As of the date hereof the authorized capital stock of Parent consists solely of
100,000 shares of Common Stock, par value $0.01 per share, 100 of which are validly issued
and outstanding. All of the issued and outstanding capital stock of Parent is, and
immediately prior to the Effective Time will be, owned by Holdco, free and clear of all
Liens, there are (A) no other voting securities of Parent authorized, issued or
outstanding, (B) no preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any kind that obligate Parent to issue or
sell any shares of capital stock or other securities of Parent, (C) no securities or
obligations convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of Parent, and (D) no securities or
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obligations evidencing such rights described in clause (C) of this Section 5.2(f)(ii)
are authorized, issued or outstanding.
(g) Business of Parent and Merger Sub. Neither Parent nor Merger Sub has conducted
any business prior to the date hereof or has, or prior to the Effective Time will have, any assets,
liabilities or obligations of any nature other than those incident to its formation and pursuant to
this Agreement and the Merger and the other transactions contemplated by this Agreement. Since the
dates of their respective incorporations, there has not been any change in the financial condition,
properties, assets, liabilities, business or results of their operations of Parent or Merger Sub or
any circumstance, occurrence or development to the knowledge of the officers of Parent, except for
those that are not, individually or in the aggregate, reasonably likely to have a material adverse
effect on the financial condition, properties, assets, liabilities, business or results of
operations of Parent or Merger Sub or to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement.
(h) Holdco. Holdco is a legal entity duly organized, validly existing and in good
standing under the Laws of Delaware and has all requisite corporate or similar power and authority
to own, lease and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of
its business requires such qualification, except where the failure to be so organized, qualified or
in such good standing, or to have such power or authority, are not, individually or in the
aggregate, reasonably likely to have a material adverse effect on Holdco.
5.3. Assets of Holdco, Parent and Merger Sub. The Company hereby acknowledges and
agrees that (x) as of the date hereof, (i) Holdco’s sole assets are equity interests in Parent,
cash in a de minimis amount and its rights under the Merger Agreement and the agreements
contemplated hereby, (ii) Parent’s sole assets are equity interests in Merger Sub, cash in a de
minimis amount and its rights under the Merger Agreement and the agreements contemplated hereby and
(iii) Merger Sub’s sole assets are cash in a de minimis amount and its rights under the Merger
Agreement and the agreements contemplated hereby and (y) no additional funds are expected to be
contributed to Holdco, Parent or Merger Sub unless and until the Closing occurs.
ARTICLE VI
Covenants
6.1. Interim Operations.
(a) The Company covenants and agrees as to itself and its Subsidiaries that, after the date
hereof and prior to the Effective Time (unless Parent shall otherwise approve in writing, such
approval not to be unreasonably withheld or delayed, and except
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as otherwise expressly contemplated by this Agreement, and except as required by applicable
Laws) the business of it and its Subsidiaries shall be conducted in the ordinary and usual course
and, to the extent consistent therewith, it and its Subsidiaries shall use their respective
reasonable best efforts to preserve their business organizations intact and maintain existing
relations and goodwill with Governmental Entities, customers, suppliers, distributors, creditors,
lessors, employees and business associates and keep available the services of its and its
Subsidiaries’ present employees and agents. Without limiting the generality of the foregoing and
in furtherance thereof, from the date of this Agreement until the Effective Time, except (A) as
otherwise expressly contemplated by this Agreement, (B) as Parent may approve in writing (such
approval not to be unreasonably withheld or delayed) or (C) for transactions set forth in Section
6.1 of the Company Disclosure Letter, the Company will not and will not permit any of its
Subsidiaries to:
(i) adopt or propose any change in its articles of incorporation or by-laws or other
applicable governing instruments;
(ii) merge or consolidate the Company or any of its Subsidiaries with any other
Person, or restructure, reorganize or completely or partially liquidate or otherwise enter
into any agreements or arrangements imposing material changes or restrictions on its
assets, operations or businesses;
(iii) acquire assets outside of the ordinary course of business consistent with past
practice from any other Person, other than acquisitions pursuant to Contracts in effect as
of the date of this Agreement;
(iv) issue, sell, pledge, dispose of, grant, transfer, encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or
encumbrance of, any Shares or any shares of capital stock of the Company or any of its
Subsidiaries (other than the issuance of shares by a wholly owned Subsidiary of the Company
to the Company or another wholly owned Subsidiary), or securities convertible or
exchangeable into or exercisable for any shares of such capital stock, or any options,
warrants or other rights of any kind to acquire any Shares or any shares of such capital
stock or such convertible or exchangeable securities;
(v) create or incur any Lien in excess of $5 million on any assets of the Company or
any of its Subsidiaries;
(vi) make any loans, advances or capital contributions to or investments in any
Person, other than non-material advances to vendors and employees in the ordinary course of
business consistent with past practice;
(vii) enter into any agreement with respect to the voting of its capital stock or
declare, set aside, make or pay any dividend or other distribution, or purchase, redeem or
otherwise acquire any of its capital stock payable in cash,
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stock, property or otherwise, with respect to any of its capital stock except for (x)
dividends paid by any direct or indirect wholly owned Subsidiary of the Company to the
Company or to any other direct or indirect wholly owned Subsidiary of the Company or (y) a
regular quarterly dividend paid in the fourth quarter of 2006 consistent with past
practice, which shall not exceed $200,000 in the aggregate as set forth in Section 5.1(f)
of the Company Disclosure Letter;
(viii) reclassify, split, combine, subdivide or redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock or securities convertible or exchangeable
into or exercisable for any shares of its capital stock;
(ix) incur any indebtedness for borrowed money (other than borrowings under the
Company’s existing working capital debt facilities in the ordinary course of business
consistent with past practice to fund working capital of the Company) or guarantee such
indebtedness of another Person, or issue or sell any debt securities or warrants or other
rights to acquire any debt security of the Company or any of its Subsidiaries;
(x) make or authorize any capital expenditures in excess of $5 million in the
aggregate;
(xi) enter into any Contract that would have been a Material Contract had it been
entered into prior to this Agreement;
(xii) make any changes with respect to accounting policies or procedures, except as
required by changes in GAAP;
(xiii) other than in the ordinary course of business consistent with past practice,
amend, modify or terminate any Material Contract, or cancel, modify or waive any debts or
claims held by it or waive any rights;
(xiv) make any material Tax election, take any material position on any material Tax
Return filed on or after the date of this Agreement or adopt any tax accounting method that
is inconsistent with positions taken or methods used in preparing or filing similar Tax
Returns in prior periods, or settle or resolve any material Tax controversy;
(xv) other than pursuant to Contracts in effect prior to the date of this Agreement,
transfer, sell, lease, license, mortgage, pledge, surrender, encumber, divest, cancel,
abandon or allow to lapse or expire or otherwise dispose of any assets, product lines or
businesses of the Company or its Subsidiaries, including capital stock of any of its
Subsidiaries, except (x) in the ordinary course of business consistent with past practice,
(y) for sales of obsolete assets or (z) for sales, leases, licenses or other dispositions
of assets with a fair market value not in excess of $5 million in the aggregate;
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(xvi) except as otherwise required by applicable Law, (i) increase the compensation,
bonus or pension or welfare benefits of (other than those increases in the ordinary course
consistent with past practice (A) to employees below the Senior Vice President level or (B)
resulting from the Company’s improved performance, based on existing 2005 incentive
formulas), or make any new equity awards to, any director, officer or employee of the
Company or any of its Subsidiaries, (ii) establish, adopt, amend or terminate any Benefit
Plan or amend the terms of any Benefit Plan or outstanding equity-based awards, or (iii)
take any action to accelerate the vesting or payment, or fund or in any other way secure
the payment, of compensation or benefits under any Benefit Plan, to the extent not already
required by any such Benefit Plan;
(xvii) settle, or consent to any settlement of, any actions, suits, claims or
proceedings against the Company or any of its Subsidiaries or any obligation or liability
of the Company (i) alleging personal injury or property damage arising from exposure to
asbestos or asbestos-containing materials (other than disputes paid under the Company’s
insurance not exceeding $50,000 per claimant), or (ii) alleging any other injury or damage
(other than disputes with customers or suppliers in the ordinary course of business
consistent with past practice and not exceeding $50,000 per claimant);
(xviii) take any action or omit to take any action that will waive, modify, compromise
or extinguish any of the Company’s rights with respect to (A) any insurance coverage
relating to any actions, suits or claims against the Company or any of its Subsidiaries
alleging personal injury or property damage arising from exposure to asbestos or
asbestos-containing materials, or (B) any agreements, understandings or arrangements
relating to any such coverage;
(xix) take any action or omit to take any action that is reasonably likely to result
in any of the conditions to the Merger set forth in Article VII not being satisfied, except
actions or omissions expressly permitted by Section 6.2; provided that the foregoing shall
not expand, diminish or modify in any way any of the Company’s express obligations
hereunder;
(xx) enter into, terminate, amend or modify any Contract or transaction with any
officer, director or Affiliate of the Company or any of its Subsidiaries or any Person
beneficially owning five percent or more of the outstanding Shares or of the outstanding
shares of any Subsidiary of the Company;
(xxi) enter into any purchase order (other than purchase orders entered into in the
ordinary course of business consistent with past practice and in an amount less than $10
million); or
(xxii) agree, authorize or commit to do any of the foregoing.
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(b) Parent will not and will not permit any of its Subsidiaries to take any action or
omit to take any action that is reasonably likely to result in any of the conditions to the
Merger set forth in Section 7.2 or Section 7.3 not being satisfied, except actions or
omissions expressly permitted by Section 6.12(c); provided that the foregoing shall not
expand, diminish or modify in any way any of Parent’s or Merger Sub’s express obligations
hereunder.
6.2. Acquisition Proposals.
(a) No Solicitation or Negotiation. The Company agrees that, except as expressly
permitted by this Section 6.2, neither it nor any of its Subsidiaries nor any of the officers and
directors of it or any of its Subsidiaries shall, and that it shall use its reasonable best efforts
to instruct and cause its and its Subsidiaries’ employees, investment bankers, attorneys,
accountants and other advisors or representatives (such directors, officers, employees, investment
bankers, attorneys, accountants and other advisors or representatives, collectively,
“Representatives”) not to, directly or indirectly:
(i) initiate, solicit or knowingly encourage any inquiries or the making of any
proposal or offer that constitutes, or would be reasonably likely to lead to, any
Acquisition Proposal (as defined below); or
(ii) engage in, continue or otherwise participate in any discussions or negotiations
regarding, or provide any non-public information or data to any Person relating to, any
Acquisition Proposal; or
(iii) otherwise knowingly facilitate any effort or attempt to make an Acquisition
Proposal.
Without limiting the generality of the foregoing, any violation of any of the restrictions set
forth in this Section 6.2 by any Representative of the Company or any of its Subsidiaries shall be
deemed to be a breach of this Section 6.2 by the Company.
Notwithstanding anything in the foregoing to the contrary, prior to the time, but not after,
the Company Requisite Vote is obtained, the Company may, if it and its Subsidiaries and their
respective Representatives have not breached this Section 6.2, and there has been no breach of
Section 1(g) of the Shareholder Support Agreement, (A) provide information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal providing
for the acquisition of all or substantially all of the assets of the Company and its Subsidiaries
on a consolidated basis (including, without limitation, equity securities of the Company’s
Subsidiaries) or all or substantially all of the Shares, if the Company receives from the Person so
requesting such information an executed confidentiality agreement on terms not less restrictive to
the other party than those contained in the Confidentiality Agreement (as defined in Section 9.7);
it being understood that such confidentiality agreement need not prohibit the
making, or amendment, of an Acquisition Proposal; and promptly discloses (and, if applicable,
provides copies of) any such information to Parent to the extent not
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previously provided to Parent; (B) engage or participate in any discussions or negotiations
with any Person who has made an unsolicited bona fide written Acquisition Proposal described in
clause (A); or (C) after having complied with this Section 6.2, approve, recommend, or otherwise
declare advisable or propose to approve, recommend or declare advisable (publicly or otherwise) an
Acquisition Proposal described in clause (A), if and only to the extent that, (x) prior to taking
any action described in clause (A), (B) or (C) above, the board of directors of the Company
determines in good faith after consultation with outside legal counsel taking such action, in light
of the Acquisition Proposal and the terms of this Agreement, is reasonably required for the
directors to comply with their fiduciary duties under applicable Law, (y) in each such case
referred to in clause (A) or (B) above, the board of directors of the Company has determined in
good faith based on the information then available and after consultation with its financial
advisor that such Acquisition Proposal either constitutes a Superior Proposal (as defined below) or
is reasonably likely to result in a Superior Proposal, and (z) in the case referred to in clause
(C) above, the board of directors of the Company determines in good faith (after consultation with
its financial advisor and outside legal counsel) that such Acquisition Proposal is a Superior
Proposal.
(b) Definitions. For purposes of this Agreement:
“Acquisition Proposal” means (i) any proposal or offer with respect to a merger, joint
venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization,
reorganization, share exchange, business combination or similar transaction involving the Company
or any of its Subsidiaries and (ii) any proposal or offer to acquire in any manner, directly or
indirectly, 15% or more of the Shares or of any class of equity securities of any of the Company’s
Subsidiaries, or 15% or more of the consolidated total assets (including, without limitation,
equity securities of the Company’s Subsidiaries) of the Company and its Subsidiaries, in each case
other than the transactions contemplated by this Agreement.
“Superior Proposal” means an unsolicited bona fide Acquisition Proposal to acquire all
or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis
(including, without limitation, equity securities of the Company’s Subsidiaries) or all or
substantially all of the Shares, in either such case, that the board of directors of the Company
has determined in its good faith judgment (after consultation with its financial advisor and
outside legal counsel) (x) is reasonably likely to be consummated in accordance with its terms (if
accepted), taking into account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal, (y) if consummated, would result in a transaction that would be more
favorable to the Company’s shareholders from a financial point of view than the transaction
contemplated by this Agreement (in each such case after taking into account any revisions to the
terms of the transaction contemplated by this Agreement pursuant to Section 6.2(c), and the time
likely to be required to consummate such Acquisition Proposal) and (z) if any debt or equity
financing is required to consummate
such Acquisition Proposal, such Person shall have provided to the Company executed financing
commitment letters for such
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financing from bona fide financing sources in an amount sufficient to consummate such
Acquisition Proposal and containing conditions to obtaining such financing which are not materially
less favorable to the Company than those contained in the Financing Commitments.
(c) No Change in Recommendation or Alternative Acquisition Agreement. The board of
directors of the Company and each committee thereof shall not, directly or indirectly:
(i) withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold,
withdraw, qualify or modify), in a manner adverse to Parent or Merger Sub, the Company
Recommendation;
(ii) approve, recommend or otherwise declare advisable or propose to approve,
recommend or otherwise declare advisable or resolve to approve, recommend or otherwise
declare advisable any Acquisition Proposal;
(iii) cause or permit the Company to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement, merger agreement or other
agreement (other than a confidentiality agreement referred to in Section 6.2(a) entered
into in compliance with Section 6.2(a)) relating to any Acquisition Proposal (an
“Alternative Acquisition Agreement”);
(iv) enter into any agreement requiring the Company to abandon, terminate or fail to
consummate the transactions contemplated hereby or breach its obligations hereunder; or
(v) propose or agree to do any of the foregoing.
Notwithstanding anything to the contrary set forth in this Agreement, prior to the time, but not
after, the Company Requisite Vote is obtained, in response to an Acquisition Proposal made after
the date hereof that was not solicited, initiated, encouraged or knowingly facilitated in breach of
this Agreement or the Shareholder Support Agreement, the board of directors of the Company may (A)
withhold, withdraw, qualify or modify the Company Recommendation, or approve, recommend or
otherwise declare advisable any Superior Proposal (a “Change of Recommendation”) or (B)
terminate this Agreement pursuant to Section 8.3(a) simultaneously with paying to Parent by wire
transfer in immediately available funds the Termination Fee to be paid pursuant to Section 8.5, if
(in the case of (A) and (B)) (I) the board of directors of the Company determines in good faith,
after consultation with outside legal counsel, that taking such action is reasonably required for
the directors of the Company to comply with their fiduciary duties under applicable Law, (II) the
board of directors of the Company after consultation with its outside legal counsel and financial
advisor has determined in good faith that such Acquisition Proposal is a Superior Proposal, (III)
the Company has provided Parent prior written notice of its determination that such
Acquisition Proposal is a Superior Proposal, (IV) Parent has had the opportunity to revise the
terms of this Agreement to match or
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exceed the terms of such Superior Proposal within five (5) business days following receipt by
Parent of such notice, which shall include the right to match any non-price terms of such Superior
Proposal and (V) following the expiration of the five (5) business day period referenced in clause
(IV) above, the board of directors of the Company has determined that the Acquisition Proposal
remains a Superior Proposal. Any material amendment to any Acquisition Proposal will be deemed to
be a new Acquisition Proposal for purposes of this Section 6.2(c).
(d) Existing Discussions. The Company agrees that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. The Company agrees that it will take the
necessary steps to promptly inform the Persons referred to in the first sentence hereof of the
obligations undertaken in this Section 6.2. The Company also agrees that it will promptly request
each Person that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return all confidential information
heretofore furnished to such Person by or on behalf of it or any of its Subsidiaries.
(e) Notice. The Company agrees that it will promptly (and, in any event, within 48
hours) notify Parent if any proposals or offers with respect to an Acquisition Proposal are
received by, any such information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, the Company, any of its Subsidiaries or Affiliates, or
any of their Representatives indicating, in connection with such notice, the name of such Person
and the material terms and conditions of any proposals or offers (including, if applicable, copies
of any written requests, proposals or offers, including proposed agreements) and thereafter shall
keep Parent reasonably informed, on a prompt basis, of the status and terms of any such proposals
or offers (including any amendments thereto) and the status of any such discussions or
negotiations.
6.3. Information Supplied. The Company shall prepare and mail to all holders of
Shares as promptly as practicable after the date of this Agreement (and in no event more than 20
days after the date of this Agreement) a proxy statement relating to the Shareholders Meeting (as
defined in Section 6.4) (such proxy statement, including any amendment or supplement thereto, the
“Proxy Statement”). The Company agrees, as to it and its Subsidiaries, that none of the
information supplied by it or any of its Subsidiaries for inclusion in the Proxy Statement will, at
the date of mailing to shareholders of the Company or at the time of the Shareholders Meeting,
contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they were made, not
misleading. The Proxy Statement shall include the Company Recommendation.
6.4. Shareholders Meeting. Subject to Section 31D-11-1104 of the WVBCA and fiduciary
obligations under applicable Law, the Company will take, in accordance with applicable Law and its
articles of incorporation and by-laws, all action
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necessary to convene a meeting of holders of Shares (the “Shareholders Meeting”) as
promptly as practicable after the date hereof but no later than twenty-one (21) days from the date
on which the Proxy Statement is mailed to shareholders of the Company to submit this Agreement to
the shareholders of the Company for their approval. The Shareholders Meeting shall not be
adjourned or postponed without the prior written consent of Parent. Subject to Section 6.2, (i)
the Company will use its reasonable best efforts to solicit from its shareholders proxies in favor
of approval of this Agreement and will take all other action necessary or advisable to secure the
Company Requisite Vote and (ii) the board of directors of the Company shall recommend such approval
and shall take all lawful action to solicit such approval of this Agreement. The Company shall
keep Parent updated with respect to proxy solicitation results as reasonably requested by Parent.
6.5. Other Actions; Notification.
(a) Cooperation. Subject to the terms and conditions set forth in this Agreement, the
Company and Parent shall cooperate with each other and use (and shall cause their respective
Subsidiaries to use) their respective commercially reasonable efforts to take or cause to be taken
all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on
its part under this Agreement and applicable Laws to consummate and make effective the Merger and
the other transactions contemplated by this Agreement as soon as practicable, including preparing
and filing as promptly as practicable all documentation to effect all necessary notices, reports
and other filings and to obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other transactions contemplated
by this Agreement. Notwithstanding anything contained in this agreement to the contrary, Parent
shall not be required to proffer or accept any Order providing for Parent or any of its Affiliates
to (x) sell or otherwise dispose of, or hold separate or agree to sell or otherwise dispose of, any
entities, assets, or facilities of the Company or any of its Subsidiaries, or any entity, facility
or asset of Parent or any of its Subsidiaries or any of its or their Affiliates, (y) terminate,
amend or assign any existing relationships or contractual rights or obligations, or (z) amend,
assign or terminate any existing licenses or other agreements or enter into any new licenses or
other agreements.
(b) Information. The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable in connection with
the Proxy Statement and any filing, notice or application made by or on behalf of Parent, the
Company or any of their respective Subsidiaries to any Governmental Entity in connection with the
Merger and the transactions contemplated by this Agreement.
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(c) Status. Subject to applicable Laws and the instructions of any Governmental
Entity, the Company and Parent each shall keep the other apprised of the status of matters relating
to completion of the transactions contemplated hereby, including promptly furnishing the other with
copies of notices or other communications received by Parent or the Company, as the case may be, or
any of its Subsidiaries, from any third party and/or any Governmental Entity, including under the
HSR Act, with respect to the Merger and the other transactions contemplated by this Agreement. The
Company shall give prompt notice to Parent of any change, fact or condition that is reasonably
likely to result in a Company Material Adverse Effect or of any failure of any condition to
Parent’s obligations to effect the Merger. Parent shall give prompt notice to the Company of any
failure of any condition to the Company’s obligations to effect the Merger.
6.6. Access and Reports. Subject to applicable Law, upon reasonable notice, the
Company shall (and shall cause its Subsidiaries to) afford Parent’s officers, its financing sources
and other authorized Representatives of Parent reasonable access, during normal business hours
throughout the period prior to the Effective Time, to its employees, properties, books, contracts
and records and, during such period, the Company shall (and shall cause its Subsidiaries to)
furnish promptly to Parent all information concerning its business, properties and personnel as may
reasonably be requested, provided that no investigation pursuant to this Section 6.6 shall
affect or be deemed to modify any representation or warranty made by the Company herein, and
provided, further, that the foregoing shall not require the Company (i) to permit
any inspection, or to disclose any information, that in the reasonable judgment of the Company
would result in the disclosure of any trade secrets of third parties or violate any of its
obligations with respect to confidentiality or (ii) to disclose any privileged information of the
Company or any of its Subsidiaries. All requests for information made pursuant to this Section 6.6
shall be directed to the executive officer or other Person designated by the Company. All such
information shall be governed by the terms of the Confidentiality Agreement.
6.7. Publicity. The initial press release regarding the Merger shall be a joint press
release and thereafter, no press releases or public announcements with respect to the Merger and
the other transactions contemplated by this Agreement and filings with any third party and/or any
Governmental Entity (including any national securities exchange or interdealer quotation service)
with respect thereto, shall be issued or made by the Company, on the one hand, or the Parent or
Merger Sub, on the other hand, without the prior written consent of the Parent or the Company, as
the case may be (which consent shall not be unreasonably withheld or delayed), except as may be
required by Law or by obligations pursuant to any listing agreement with or rules of any national
securities exchange or interdealer quotation service or by the request of any Government Entity.
6.8. Investigations and Actions. The Company shall keep Parent informed, on a current
basis, of any events, discussions, notices or changes with respect
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to any criminal or regulatory investigation or action involving the Company or any of its
Subsidiaries, so that Parent, and its Affiliates will have the opportunity to take appropriate
steps to avoid or mitigate any regulatory consequences to them that might arise from such
investigation or action.
6.9. Expenses. If the Merger is consummated, the Surviving Corporation shall pay all
charges and expenses of the Company, Holdco, Parent, Merger Sub, and the GSCP Members in connection
with the transactions contemplated by this Agreement. If the Merger is not consummated, except as
provided in Section 8.5(c), all costs and expenses incurred in connection with this Agreement and
the Merger and the other transactions contemplated by this Agreement shall be paid by the party
incurring such expense; provided, that, if the Company or Parent terminates this Agreement
pursuant to Section 8.2(b) or Parent terminates this Agreement pursuant to Section 8.4 (but with
respect to Section 8.4(h) only for a Willful or Deliberate Breach (as defined below) by the
Company) the Company shall pay all of Parent’s, Merger Sub’s and their respective Affiliates’ costs
and expenses incurred in connection with this Agreement, unless a Termination Fee is payable to
Parent by the Company pursuant to Section 8.5(b). For purposes of this Agreement, a “Willful
or Deliberate Breach” means a willful or deliberate material breach which does not require
malicious or tortuous intent. The provisions of this Section 6.9 are intended to be for the
benefit of, and shall be enforceable by Holdco and the GSCP Members in addition to the parties
hereto.
6.10. Indemnification; Directors’ and Officers’ Insurance.
(a) From and after the Effective Time, each of Parent and the Surviving Corporation agrees
that it will indemnify and hold harmless, to the fullest extent permitted under applicable Law (and
Parent and the Surviving Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable Law provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such Person is not entitled
to indemnification), each present and former director, officer and employee of the Company or any
of its Subsidiaries (collectively, the “Indemnified Parties”) against any costs or expenses
(including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, including the transactions contemplated by this
Agreement; provided, however, that the Surviving Corporation shall not indemnify
any director, officer or employee for any liability for (i) receipt of a financial benefit to which
such Indemnified Party is not entitled; (ii) an intentional infliction of harm on the Company or
its shareholders; (iii) in the case of a director, a distribution in violation of Section 31D-8-833
of the WVBCA; or (iv) an intentional violation of criminal Law.
(b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section
6.10, upon learning of any such claim, action, suit,
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proceeding or investigation, shall promptly notify Parent thereof, but the failure to so
notify shall not relieve Parent or the Surviving Corporation of any liability it may have to such
Indemnified Party except to the extent such failure materially prejudices the indemnifying party.
In the event of any such claim, action, suit, proceeding or investigation (whether arising before
or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to
assume the defense thereof and Parent and the Surviving Corporation shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent
or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified
Parties advises that there are issues which raise conflicts of interest between Parent or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements therefor are received;
provided, however, that Parent and the Surviving Corporation shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest; provided that the fewest number of counsels necessary
to avoid conflicts of interest shall be used; (ii) the Indemnified Parties will cooperate in the
defense of any such matter; and (iii) Parent and the Surviving Corporation shall not be liable for
any settlement effected without Parent’s or the Surviving Corporation’s, as applicable, prior
written consent; and provided, further, that Parent and the Surviving Corporation
shall not have any obligation hereunder to any Indemnified Party if and when a court of competent
jurisdiction shall ultimately determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable Law. If such indemnity is not available with respect to any Indemnified Party, then
Parent and the Surviving Corporation and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and benefits.
(c) Prior to the Effective Time, Parent shall obtain and fully pay for “tail” insurance
policies with a claims period of at least six years from and after the Effective Time from an
insurance carrier with the same or better credit rating as the Company’s current insurance carrier
with respect to directors’ and officers’ liability insurance and fiduciary liability insurance with
benefits and levels of coverage at least as favorable as the Company’s existing policies with
respect to matters existing or occurring at or prior to the Effective Time (including in connection
with this Agreement or the transactions or actions contemplated hereby); provided,
however, that in no event shall Parent or the Surviving Corporation be required to expend
for such policies an annual premium amount in excess of 200% of the annual premiums currently paid
by the Company for such insurance; and provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Parent or the Surviving Corporation shall
obtain a policy with the greatest coverage available for a cost not exceeding such amount.
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(d) If Parent or the Surviving Corporation or any of their respective successors or assigns
(i) shall consolidate with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provisions shall be made so that the successors
and assigns of Parent or the Surviving Corporation shall assume all of the obligations set forth in
this Section 6.10.
(e) The provisions of this Section 6.10 are intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties.
(f) The rights of the Indemnified Parties under this Section 6.10 shall be in addition to any
rights such Indemnified Parties may have under the articles of incorporation or by-laws of the
Company or any of its Subsidiaries, or under any applicable Contracts or Laws.
6.11. Takeover Statutes. If any Takeover Statute is or may become applicable to the
Merger or the other transactions contemplated by this Agreement, the Company and its board of
directors shall grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise act to eliminate or minimize the effects of such statute or regulation on
such transactions.
6.12. Financing.
(a) Parent shall use its reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to arrange the Debt
Financing on the terms and conditions described in the Debt Financing Commitment (provided that
Parent and Merger Sub may replace or amend the Debt Financing Commitment to add lenders, lead
arrangers, bookrunners, syndication agents or similar entities which had not executed the Debt
Financing Commitment as of the date hereof, or otherwise so long as the terms would not materially
adversely impact the ability of Parent or Merger Sub to consummate the transactions contemplated
hereby or the likelihood of consummation of the transactions contemplated hereby), including using
reasonable best efforts to (i) maintain in effect the Debt Financing Commitment, (ii) satisfy on a
timely basis all conditions applicable to Parent and Merger Sub to obtaining the Debt Financing set
forth in the Debt Financing Commitment (including by consummating the equity financing pursuant to
the terms of the Equity Financing Commitments), (iii) enter into definitive agreements with respect
thereto on the terms and conditions contemplated by the Financing Commitments or on other terms
that would not adversely impact the ability or likelihood of Parent or Merger Sub to consummate the
transactions contemplated hereby and (iv) consummate the Financing at or prior to the Closing. If
any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in
the Debt Financing Commitment, Parent shall use its reasonable best efforts to arrange to obtain
alternative financing from alternative sources
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in an amount sufficient to consummate the transactions contemplated by this Agreement as
promptly as practicable following the occurrence of such event; provided, that such
alternative financing shall be on terms and conditions materially no less favorable than those
provided in the Debt Financing Commitment, or otherwise on terms and conditions acceptable to
Parent. Parent shall give the Company prompt notice of any material breach by any party to the
Financing Commitments, of which Parent or Merger Sub becomes aware, or any termination of the
Financing Commitments. Parent shall keep the Company informed on a reasonably current basis in
reasonable detail of the status of its efforts to arrange the Debt Financing and provide copies of
all documents related to the Debt Financing (other than any fee letters and ancillary documents
subject to confidentiality agreements) to the Company. The Company hereby consents to the use of
its and its Subsidiaries’ names and logos in connection with the Debt Financing.
(b) Prior to the Closing, the Company shall provide to Parent and Merger Sub, and shall cause
its Subsidiaries to, and shall use its reasonable best efforts to cause the respective officers,
employees and advisors, including legal and accounting, of the Company and its Subsidiaries to,
provide to Parent and Merger Sub all cooperation reasonably requested by Parent that is necessary
in connection with the Financing, including using reasonable best efforts to (i) participate in
meetings, presentations, road shows, due diligence sessions and sessions with rating agencies, (ii)
provide assistance in preparation of confidential information memoranda (including execution and
delivery of a customary representation letter) and other materials to be used in connection with
obtaining financing contemplated by the Debt Financing Commitment and all information (including
financial information) customarily contained therein, (iii) provide assistance in the preparation
for, and participate in, meetings, due diligence sessions and similar presentations to and with,
among others, prospective lenders, investors and rating agencies, (iv) enter into a loan agreement
and related documents (including pledge and security documents), (v) execute and deliver customary
certificates, legal opinions or other documents reasonably requested by Parent (including a
certificate of the chief financial officer of the Company with respect to solvency matters) and
otherwise reasonably facilitate the pledging of collateral contemplated by the Debt Financing
Commitment (including taking all actions reasonably necessary to (A) permit the prospective lenders
involved in the Financing to evaluate the Company’s current assets, cash management and accounting
systems, policies and procedures relating thereto for the purpose of establishing collateral
arrangements and to conduct the appraisals and field examinations relating thereto as contemplated
by the Debt Financing Commitment and (B) establish bank and other accounts and blocked account
agreements and lock box arrangements in connection with the foregoing) and (vi) provide the
financial statements and other information necessary for the satisfaction of the obligations and
conditions set forth in the Debt Financing Commitment within the time periods required thereby in
order to permit a Closing Date on or prior to the Termination Date; provided,
however, that nothing herein shall require such cooperation to the extent it would
interfere unreasonably with the business or operations of the Company or its Subsidiaries. The
Company shall use its reasonable best efforts to obtain pay-off letters, in form and substance
reasonably satisfactory to Parent, from holders of all indebtedness of the
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Company or any of its Subsidiaries as set forth in Section 7.2(g) of the Company Disclosure
Letter and to ensure that each such pay-off letter will provide for the waiver of any notice
provisions relating thereto. The Company and its Subsidiaries shall not pay or agree to pay any
amounts in excess of all principal and accrued interest, if any, outstanding thereon as of the
Closing in respect of such indebtedness in connection with obtaining such pay-off letters and
waivers without the prior written consent of Parent (which shall not be unreasonably withheld or
delayed). If this Agreement is terminated pursuant to Section 8.1 or 8.3(b) (but with respect to
Section 8.3(b) only for a Willful or Deliberate Breach by Parent or Merger Sub) Parent shall,
promptly upon request by the Company, reimburse the Company for all reasonable and documented
out-of-pocket costs incurred by the Company or its Subsidiaries in connection with such
cooperation.
(c) Notwithstanding anything to the contrary set forth in this Agreement or in the Debt
Financing Commitment, the Company and Parent agree that Parent shall have the right, in its sole
discretion, to determine the aggregate principal amount of funded debt to be incurred at Closing to
finance the transactions contemplated hereby (the “Aggregate Closing Funded Debt”). If at any time
prior to February 23, 2007, Parent determines, in its sole discretion, that the Aggregate Closing
Funded Debt shall be an aggregate principal amount less than $600,000,000, Parent shall notify the
Company in writing of such determination, which notice shall specify the Aggregate Closing Funded
Debt Parent has determined will be incurred at Closing. The Company shall have seventy-two (72)
hours after receipt of such notice to advise Parent in writing whether or not the Company elects to
waive irrevocably the condition set forth in Section 7.3(c) hereof by reason of such determination
by Parent. If the Company fails to respond to such notice or does not elect in writing to waive
such condition prior to the end of such seventy-two (72) hour period, Parent shall have the right,
in its sole discretion, to terminate this Agreement pursuant to Section 8.4(i) at any time on or
prior to the Termination Date. Parent may exercise its right under this Section 6.12(c) to
determine Aggregate Closing Funded Debt on one or more occasions so long as it complies with its
notice requirements each time it exercises such right.
6.13. Non-Core Assets. The Surviving Corporation agrees that promptly following the
Effective Time it will use commercially reasonable efforts to sell for cash the assets listed on
Annex G (all such assets, the “Non-Core Assets”). The Surviving Corporation agrees,
subject to complying with applicable Laws and regulatory requirements (including those applicable
to Holdco and its Affiliates) to sell the Non-Core Assets (other than the shares of common stock of
PrimeEnergy Corporation) only after consultation with H.B. Wehrle III and E. Gaines Wehrle. With
respect to the sale of shares of common stock of PrimeEnergy Corporation, prior to December 31,
2008, the Surviving Corporation shall sell such shares only with the prior written consent of E.
Gaines Wehrle (such consent not to be unreasonably withheld or delayed). Following the sale of any
Non-Core Assets, the Surviving Corporation shall promptly remit to the record holders of Shares
immediately prior to the Effective Time (other than Excluded
Shares referred to in subsection (x) and (z) of the definition of Excluded Shares in Section
4.1(a)(i)) (the “Cashed-Out Shares”) an amount per Share equal to (x) 95% of the
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Net Proceeds (as defined below) of such sale less 40% of the taxable gain therefrom divided by
(y) the total number of Cashed-Out Shares outstanding immediately prior to the Effective Time;
provided, that the Surviving Corporation shall not be required to make payments pursuant to
this Section 6.13 more often than semi-annually. For purposes of this Agreement “Net
Proceeds” means the cash proceeds received in the sale of a Non-Core Asset less all costs,
charges, fees, expenses, losses, liabilities, obligations, claims, fines, Transfer Taxes and other
Taxes (other than Taxes measured by income), and penalties or interest paid or payable with respect
to the sale of such Non-Core Asset or to the holding of such Non-Core Asset by the Surviving
Corporation (including, without limitation, attorneys’, brokers’, accountants’, consultants’ and
appraisers’ fees and amounts paid or payable with respect to any investigation or remediation in
connection with any Hazardous Substances at, on, under or migrating to or from any property being
sold).
ARTICLE VII
Conditions
7.1. Conditions to Each Party’s Obligation to Effect the Merger. The respective
obligation of each party to effect the Merger and the other transactions contemplated by this
Agreement is subject to the satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been duly approved by holders of
Shares constituting the Company Requisite Vote in accordance with applicable law and the articles
of incorporation and by-laws of each such corporation.
(b) HSR Waiting Period. The waiting period applicable to the consummation of the
Merger and the other transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
(c) Litigation. No court or other Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or
permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the
Merger or the other transactions contemplated by this Agreement (collectively, an “Order”).
7.2. Conditions to Obligations of Parent and Merger Sub. The obligations of Parent
and Merger Sub to effect the Merger and the other transactions contemplated by this Agreement are
also subject to the satisfaction or waiver by Parent at or prior to the Effective Time of each of
the following conditions:
(a) Representations and Warranties. (i) The representations and warranties of the
Company set forth in this Agreement (other than those in Section
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5.1(b)) shall be true and correct as of the date of this Agreement and as of the Closing Date
(without giving effect to any “material”, “materiality”, “Company Material Adverse Effect” or
“knowledge” qualification to such representations and warranties), except (A) to the extent that
the failure of such representations and warranties of the Company to be true and correct,
individually or in the aggregate, has not had, and is not reasonably likely to have, a Company
Material Adverse Effect and (B) for those representations and warranties which expressly relate to
an earlier date (in which case such representations and warranties shall have been true and correct
as of such earlier date); (ii) the representations and warranties set forth in Section 5.1(b) shall
be true and correct in all respects as of the date of this Agreement and as of the Closing Date;
and (iii) Parent shall have received at the Closing a certificate signed on behalf of the Company
by an executive officer of the Company to the effect that such executive officer has read this
Section 7.2(a) and the conditions set forth in this Section 7.2(a) have been satisfied.
(b) Performance of Obligations of the Company. The Company shall have performed in
all material respects all obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to such effect.
(c) No Restraints. There shall not be instituted or pending any suit, action or
proceeding in which a Governmental Entity of competent jurisdiction is seeking (i) an Order or (ii)
(A) to prohibit, limit, restrain or impair Parent’s ability to own or operate or to retain or
change all or a material portion of the assets, licenses, operations, rights, product lines,
businesses or interest therein of the Company or its Subsidiaries or other Affiliates from and
after the Effective Time (including, without limitation, by requiring any sale, divestiture,
transfer, license, lease, disposition of or encumbrance or hold separate arrangement with respect
to any such assets, licenses, operations, rights, product lines, businesses or interest therein) or
(B) to prohibit or limit Parent’s ability to vote, transfer, receive dividends or otherwise
exercise full ownership rights with respect to the stock of the Surviving Corporation, and no
Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law deemed applicable to the Merger individually or in the aggregate resulting in, or
that is reasonably likely to result in, any of the foregoing.
(d) Consents Under Agreements. The Company shall have obtained and delivered to
Parent, in form and substance reasonably satisfactory to Parent, all consents and approvals
specified in Section 7.2(d) of the Company Disclosure Letter.
(e) Financing. Parent shall have received the proceeds of the Debt Financing on the
terms and conditions set forth in the Debt Financing Commitment, or the proceeds of any alternative
debt financing as contemplated by Section 6.12(a).
(f) Material Adverse Effect. No event, development, circumstance or occurrence shall
have occurred, since the date of this Agreement that, individually or in
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the aggregate, has had or is reasonably likely to have a Company Material Adverse Effect.
(g) Pay-Off Letters. The Company shall have received pay-off letters, in a form and
substance reasonably satisfactory to Parent, from holders of all indebtedness of the Company or any
of its Subsidiaries as set forth in Section 7.2(g) of the Company Disclosure Letter and each such
pay-off letter shall provide for the waiver of any notice provisions relating thereto. The Company
and its Subsidiaries shall not have paid or agreed to pay any amounts in excess of all principal
and accrued interest, if any, outstanding thereon as of the Closing in respect of such indebtedness
in connection with obtaining such pay-off letters and waivers without the prior written consent of
Parent (which shall not be unreasonably withheld or delayed).
(h) Other Agreements. The Employment Agreements, the Holdco LLC Agreement, the Vision
Letter Agreement and the Registration Rights Agreement shall be in full force and effect.
(i) McApple Restructuring. The transactions contemplated by the McApple Agreement
shall have been consummated, each McApple Shareholder shall have contributed to Holdco all McApple
Shares held by him in exchange for Holdco Units and cash pursuant to the McApple Agreement, and
Holdco shall own directly or indirectly 100% of the equity interests of McApple.
(j) Continuing Shareholders. Each Continuing Shareholder shall have contributed to
Holdco all Contribution Shares held by him, her or it in exchange for Holdco Units pursuant to the
Contribution Agreement and the Letters of Transmittal.
(k) Dissenting Shareholders. Dissenting Shareholders holding not more than 5% of the
Shares shall have demanded and perfected appraisal of such Shares in accordance with the WVBCA.
(l) Withholding Certificate. Parent shall have received a certificate from the
Company, in form and substance reasonably satisfactory to Parent, conforming to the requirements of
Treasury Regulation Sections 1.1445-2(c)(3) and 1.897-2(h).
(m) PrimeEnergy Resignation. E. Gaines Wehrle shall have resigned from the board of
directors of PrimeEnergy Corporation, with effect on or prior to the Closing Date.
7.3. Conditions to Obligation of the Company. The obligation of the Company to effect
the Merger and the other transactions contemplated by this Agreement is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. (i) The representations and warranties of Parent
set forth in this Agreement shall be true and correct as of the date of
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this Agreement and as of the Closing Date (without giving effect to any “material,”
“materiality” or “material adverse effect” qualifications to such representations and warranties),
except (A) to the extent that the failure of such representations and warranties of Parent to be
true and correct individually or in the aggregate would not have, or reasonably be likely to have,
a material adverse effect on Parent, and (B) for those representations and warranties which
expressly relate to any earlier date (in which case such representations and warranties shall have
been true and correct as of such earlier date) and (ii) the Company shall have received at the
Closing a certificate signed on behalf of Parent by an executive officer of Parent to the effect
that such executive officer has read this Section 7.3(a) and the conditions set forth in this
Section 7.3(a) have been satisfied.
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent and Merger
Sub shall have performed in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent and Merger Sub by an executive officer of Parent to such
effect.
(c) Aggregate Closing Funded Debt. The Aggregate Closing Funded Debt shall be not be
less than $600,000,000.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or after the Company
Requisite Vote is obtained, by mutual written consent of the Company and Parent by action of their
respective boards of directors.
8.2. Termination by Either the Company or Parent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time by action of the board of
directors of the Company or Parent if (a) the Merger shall not have been consummated by the
Termination Date (as defined below) whether such date is before or after the Company Requisite Vote
is obtained, (b) the Company Requisite Vote shall not have been obtained at the Shareholders
Meeting or at any adjournment or postponement thereof permitted hereunder; provided,
however that the Company shall not be permitted to terminate this Agreement pursuant to
this Section 8.2(b) until after the Tender Offer Commencement Period (as defined in Section 8.6)
and then only if Parent, Merger Sub and their respective Affiliates have not commenced a Tender
Offer (as defined in Section 8.6) during the Tender Offer Commencement Period, or (c) any Order
permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become
final and non-appealable (whether before or after the Company Requisite Vote is obtained);
provided, that, in each of the
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foregoing cases, the right to terminate this Agreement pursuant to this Section 8.2 shall not
be available to any party that is responsible for a Willful or Deliberate Breach of its obligations
under this Agreement in any manner that shall have proximately contributed to the occurrence of the
failure of a condition to the consummation of the Merger. For purposes of this Agreement, the
“Termination Date” shall mean February 28, 2007 as such date may be extended pursuant to
Section 8.6.
8.3. Termination by the Company. This Agreement may be terminated and the Merger may
be abandoned by action of the board of directors of the Company:
(a) at any time prior to the time, but not after, the Company Requisite Vote is obtained, in
connection with entering into a definitive agreement to effect a Superior Proposal in accordance
with Section 6.2(c); provided, however, that prior to terminating this Agreement
pursuant to this Section 8.3(a), the Company shall have complied with the provisions of Section
6.2(c); or
(b) at any time prior to the Effective Time, if there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in this Agreement, or any such
representation and warranty shall have become untrue after the date of this Agreement, such that
Section 7.3(a) or 7.3(b) would not be satisfied and such breach or condition is not curable or, if
curable, is not cured prior to the earlier of (A) 30 days after written notice thereof is given by
the Company to Parent or (B) two business days prior to the Termination Date.
8.4. Termination by Parent. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the board of directors of Parent if
(a) the board of directors of the Company shall have made a Change of Recommendation, (b) the
Company shall have failed to take a vote of shareholders on approval of this Agreement within
twenty-one (21) days following the date on which the Proxy Statement is mailed to shareholders of
the Company, (c) the Company or its board of directors (or any committee thereof) shall have (x)
publicly approved or recommended, or shall have proposed to approve or recommend any Acquisition
Proposal or (y) caused or permitted the Company or any of its Subsidiaries to enter into an
Alternative Acquisition Agreement, (d) the Company shall have failed to include in the Proxy
Statement the Company Recommendation, (e) the Company or any of its Subsidiaries or their
respective Representatives shall have breached in any material respect any of their obligations
under Section 6.2, (f) at any time after the end of ten (10) business days following receipt of an
Acquisition Proposal, the Company board of directors shall have failed to reaffirm its approval or
recommendation of this Agreement and the Merger as promptly as practicable (but in any event within
five (5) business days) after receipt of any written request to do so from Parent, (g) a tender
offer or exchange offer for outstanding Shares shall have been publicly disclosed (other than by
Parent or an Affiliate of Parent) and the board of directors of the Company recommends that the
shareholders of the Company tender their shares in such tender or exchange offer or, within
ten (10) business days after the commencement of such tender or exchange offer,
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the Company board of directors fails to recommend unequivocally against acceptance of such
offer, (h) there has been a breach of any representation, warranty, covenant or agreement made by
the Company in this Agreement, or any such representation and warranty shall have become untrue
after the date of this Agreement, such that Section 7.2(a) or 7.2(b) would not be satisfied and
such breach or condition is not curable or, if curable, is not cured prior to the earlier of (A)
30 days after written notice thereof is given by Parent to the Company or (B) two business days
prior to the Termination Date, or (i) Parent delivers to the Company a notice in accordance with
Section 6.12(c) advising the Company that the Aggregate Closing Funded Debt will be less than
$600,000,000 and the Company shall have failed to waive irrevocably the condition set forth in
Section 7.3(c) within the seventy-two (72) hour period referred to in Section 6.12(c).
8.5. Effect of Termination and Abandonment. (a) Subject to Sections 8.5(b), 8.5(c)
and 9.1, in the event of termination of this Agreement and the abandonment of the Merger pursuant
to this Article VIII, this Agreement shall become void and of no effect with no liability to any
Person on the part of any party hereto (or of any of its Representatives or Affiliates);
provided, however, and notwithstanding anything in the foregoing to the contrary,
that except as otherwise provided herein, no such termination shall relieve any party hereto of any
liability or damages to the other party hereto resulting from any Willful or Deliberate Breach of
this Agreement.
(b) In the event that (i) this Agreement is terminated by either Parent or the Company
pursuant to Section 8.2(a) or 8.2(b) and prior to such termination a bona fide Acquisition Proposal
shall have been made to the Company or any of its Subsidiaries or Affiliates or any of its
shareholders, or any Person shall have publicly announced an intention (whether or not conditional)
to make an Acquisition Proposal with respect to the Company or any of its Subsidiaries (and such
Acquisition Proposal or publicly announced intention shall not have been publicly withdrawn without
qualification), (ii) this Agreement is terminated by Parent pursuant to Sections 8.4(a), (b), (c),
(d), (e), (f) or (g), (iii) this Agreement is terminated by Parent pursuant to Section 8.4(h) (with
respect to a Willful or Deliberate Breach) and prior to the breach giving rise to Parent’s right to
terminate pursuant to Section 8.4(h) a bona fide Acquisition Proposal shall have been made to the
Company or any of its Subsidiaries or Affiliates, or any of its shareholders or any Person shall
have publicly announced an intention (whether or not conditional) to make an Acquisition Proposal
with respect to the Company or any of its Subsidiaries (and such Acquisition Proposal or publicly
announced intention shall not have been publicly withdrawn without qualification), or (iv) this
Agreement is terminated by the Company pursuant to Section 8.3(a), then the Company shall promptly,
but in no event later than two business days after the date of such termination, pay Parent a
termination fee of $50,000,000 (the “Termination Fee”) by wire transfer of immediately
available funds; provided, however, that no Termination Fee shall be payable to
Parent pursuant to clause (i) of this paragraph (b) unless and until within 12 months of such
termination the Company or any of its Subsidiaries shall have entered
into an Alternative Acquisition Agreement with respect to, or shall have consummated or shall
have
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approved or recommended to the Company’s shareholders or otherwise not opposed, an Acquisition
Proposal (substituting, for purposes of this proviso only, 50% for 15% in the definition thereof).
Notwithstanding anything to the contrary in this Agreement, subject to Section 8.5(c), the parties
hereby acknowledge that in the event that the Termination Fee becomes payable and is paid by the
Company and accepted by Parent pursuant to this Section 8.5(b), the Termination Fee shall be
Parent’s and Merger Sub’s sole and exclusive remedy for damages under this Agreement and, for the
avoidance of doubt, in such circumstance no costs or expenses shall be payable by the Company
pursuant to Section 6.9.
(c) The parties acknowledge that the agreements contained in this Section 8.5 and in Section
6.9 are an integral part of the transactions contemplated by this Agreement, and that, without
these agreements, the parties would not enter into this Agreement; accordingly, if the Company
fails to promptly pay the Termination Fee pursuant to Section 8.5(b) or any expenses pursuant to
Section 6.9, and, in order to obtain such payment, Parent or Merger Sub commences a suit that
results in a judgment against the Company for the Termination Fee set forth in Section 8.5(b) or
expenses pursuant to Section 6.9, the Company shall pay to Parent or Merger Sub its costs and
expenses (including attorneys’ fees) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in effect on the date such payment was
required to be made through the date of payment (it being understood and agreed that any costs and
expenses paid by the Company pursuant to this Section 8.5(c) shall be in addition to any costs and
expenses otherwise paid by the Company pursuant to Section 6.9).
8.6. Tender Offer. If the Company Requisite Vote shall not have been obtained at the
Shareholders Meeting or any adjournment or postponement thereof permitted hereunder, then Parent,
Merger Sub or any of their Affiliates may at any time, during the fifteen (15) business day period
beginning the business day after date of the Shareholder Meeting or any adjournment or postponement
thereof permitted hereunder (the “Tender Offer Commencement Period”), elect to commence a
tender offer for 83.958% of the Shares held by each shareholder of the Company (a “Tender
Offer”). Such Tender Offer and the consummation thereof shall be subject to all of the terms
and conditions of this Agreement and will be conducted pursuant to applicable Law. In the event
that Parent, Merger Sub or any of their Affiliates elect to commence a Tender Offer, the
“Termination Date” hereunder shall be automatically amended without any action of the parties
hereto to be the later of (x) March 31, 2007 and (y) the date that is sixty (60) days after the
date of commencement of the Tender Offer. If a Tender Offer is commenced, (i) the Company shall
cooperate with Parent, Merger Sub and their Affiliates in connection with the Tender Offer
(including by executing any agreements and other documents at the reasonable request of Parent,
Merger Sub or any of their Affiliates) and shall provide Parent, Merger Sub and their Affiliates
with all information reasonably requested by Parent, Merger Sub or any of their Affiliates in
connection with the Tender Offer and (ii) the board of directors of the Company shall recommend
that the shareholders of the
Company tender their Shares into the Tender Offer.
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ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company, Parent and Merger
Sub contained in Article IV and Sections 6.9 (Expenses), 6.10 (Indemnification; Directors’ and
Officers’ Insurance) and Section 6.13 (Non-Core Assets), and any related definitions, shall survive
the consummation of the Merger. This Article IX and the agreements of the Company, Parent and
Merger Sub contained in Section 6.9 (Expenses) and Section 8.5 (Effect of Termination and
Abandonment) and the Confidentiality Agreement (as defined in Section 9.7) shall survive the
termination of this Agreement. All other representations, warranties, covenants and agreements in
this Agreement shall not survive the consummation of the Merger or the termination of this
Agreement.
9.2. Modification or Amendment. Subject to the provisions of the applicable Laws, at
any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the respective parties;
provided that this Agreement may not be modified or amended subsequent to the Company
Requisite Vote, but prior to the filing of the West Virginia Articles of Merger with the Secretary
of State of West Virginia as provided in Section 1.3 to change (i) the Per Share Merger
Consideration, (ii) the Articles or (iii) any other term or condition if, in each such case, the
change in such other term or condition would adversely affect the holders of Shares in any material
respect.
9.3. Waiver of Conditions. The conditions to each of the parties’ obligations to
consummate the Merger are for the sole benefit of such party and may be waived by such party in
whole or in part to the extent permitted by applicable Laws.
9.4. Counterparts. This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL; SPECIFIC PERFORMANCE.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THE LAWS OF WEST VIRGINIA LAW ARE
MANDATORILY APPLICABLE TO THE MERGER. The parties hereby irrevocably submit to the personal jurisdiction of the courts of the State of Delaware located
in the County of New Castle and the Federal courts of the United States of America located in the
County of New Castle solely in respect of the interpretation and
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enforcement of the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Delaware State or Federal court located in the
County of New Castle. The parties hereby consent to and grant any such court jurisdiction over the
person of such parties and, to the extent permitted by law, over the subject matter of such dispute
and agree that mailing of process or other papers in connection with any such action or proceeding
in the manner provided in Section 9.6 or in such other manner as may be permitted by law shall be
valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii)
EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES
THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
(c) The parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that (i) Parent and Merger Sub shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement by the Company and to enforce
specifically the terms and provisions of this Agreement in Delaware State or Federal court in the
County of New Castle, this being in addition to any other remedy to which Parent and Merger Sub are
entitled at law or in equity and (ii) notwithstanding the first sentence of this Section 9.5(c),
the Company shall be entitled to an injunction or injunctions to prevent breaches of this Agreement
by Parent or Merger Sub and to enforce specifically the terms and provisions of this Agreement in
Delaware State or Federal court in the County of New Castle, this being in addition to any other
remedy to which the Company is entitled at law or in equity, but the Company shall be entitled to
such injunction or injunctions solely to prevent breaches of
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or to enforce compliance with (x) Sections 6.5, 6.7, 6.9, 6.10 and 6.13 and (y) those
covenants of Parent or Merger Sub contained in Sections 4.1 and 4.2, only if the proceeds of the
financing provided for in the Debt Financing Commitment (and, if alternative debt financing is
being used in accordance with Section 6.12, the proceeds of the financing contemplated by such
alternative debt financing) are available to be drawn down by Parent pursuant to the terms of the
applicable agreements but is not so drawn down solely as a result of Parent refusing to do so in
breach of this Agreement.
9.6. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile:
If to the Company:
McJunkin Corporation,
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael Wehrle
and H.B. Wehrle III
Fax: (304) 348-1557
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael Wehrle
and H.B. Wehrle III
Fax: (304) 348-1557
with a copy to:
Sullivan & Cromwell LLP,
125 Broad Street, New York, New York 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
125 Broad Street, New York, New York 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
If to Parent or Merger Sub:
c/o GS Capital Partners V Fund, L.P.
85 Broad Street, 10th Floor
New York, New York 10004
Attention: Henry Cornell
Fax: (212) 357-5505
85 Broad Street, 10th Floor
New York, New York 10004
Attention: Henry Cornell
Fax: (212) 357-5505
and:
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
or to such other persons or addresses as may be designated in writing by the party to receive such
notice as provided above. Any notice, request, instruction or other
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document given as provided above shall be deemed given to the receiving party upon actual receipt,
if delivered personally; three business days after deposit in the mail, if sent by registered or
certified mail; upon confirmation of successful transmission, if sent by facsimile
(provided that if given by facsimile such notice, request, instruction or other document
shall be followed up within one business day by dispatch pursuant to one of the other methods
described herein); or on the next business day after deposit with an overnight courier, if sent by
an overnight courier.
9.7. Entire Agreement. This Agreement (including any annexes hereto), the Shareholder
Support Agreement, the Company Disclosure Letter, the Confidentiality Agreement, dated May 9, 2006,
between Affiliates of Parent and the Company (the “Confidentiality Agreement”) and the
other agreements referred to or contemplated hereby constitute the entire agreement, and supersede
all other prior agreements, understandings, representations and warranties both written and oral,
among the parties, with respect to the subject matter hereof. EACH PARTY HERETO AGREES THAT,
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER THE COMPANY NOR
PARENT AND MERGER SUB MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY
OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING AS TO THE ACCURACY OR
COMPLETENESS OF ANY OTHER INFORMATION, MADE BY, OR MADE AVAILABLE BY, ITSELF OR ANY OF ITS
REPRESENTATIVES, WITH RESPECT TO, OR IN CONNECTION WITH, THE NEGOTIATION, EXECUTION OR DELIVERY OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO THE OTHER OR THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT
TO ANY ONE OR MORE OF THE FOREGOING.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.9 (Expenses) and
Section 6.10 (Indemnification; Directors’ and Officers’ Insurance) only, Parent and the Company
hereby agree that their respective representations, warranties and covenants set forth herein are
solely for the benefit of the other party hereto, in accordance with and subject to the terms of
this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other
than the parties hereto any rights or remedies hereunder, including, without limitation, the right
to rely upon the representations and warranties set forth herein. The parties hereto further agree
that the rights of third party beneficiaries under Section 6.10 shall not arise unless and until
the Effective Time occurs. The representations and warranties in this Agreement are the product of
negotiations among the parties hereto and are for the sole benefit of the parties hereto. Any
inaccuracies in such representations and warranties are subject to waiver by the parties hereto in
accordance with Section 9.3 without notice or liability to any other Person. In some instances,
the representations and warranties in this Agreement may represent an allocation among the parties
hereto of risks associated with particular matters regardless of the knowledge of any of the
parties hereto. Consequently, Persons
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other than the parties hereto may not rely upon the representations and warranties in this
Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or
as of any other date.
9.9. Obligations of Parent and of the Company. Whenever this Agreement requires a
Subsidiary of Parent to take any action, such requirement shall be deemed to include an undertaking
on the part of Parent to cause such Subsidiary to take such action. Whenever this Agreement
requires a Subsidiary of the Company to take any action, such requirement shall be deemed to
include an undertaking on the part of the Company to cause such Subsidiary to take such action and,
after the Effective Time, on the part of the Surviving Corporation to cause such Subsidiary to take
such action.
9.10. Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and
other similar Taxes (including penalties and interest) (“Transfer Taxes”) of the Company
incurred in connection with the Merger (excluding Transfer Taxes incurred in connection with the
sale of any Non-Core Assets pursuant to Section 6.13) shall be paid by the Surviving Corporation
when due.
9.11. Definitions. Each of the terms set forth in Annex A is defined in the Section
of this Agreement set forth opposite such term.
9.12. Severability. The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to
any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other
jurisdiction.
9.13. Interpretation; Construction.
(a) The table of contents and headings herein are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section or Annex, such
reference shall be to a Section of or Annex to this Agreement unless otherwise indicated. Whenever
the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to
be followed by the words “without limitation.”
(b) The parties have participated jointly in negotiating and drafting this Agreement. In the
event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties, and no
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presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
(c) Each party hereto has or may have set forth information in its respective disclosure
letter in a section thereof that corresponds to the section of this Agreement to which it relates.
The fact that any item of information is disclosed in a disclosure letter to this Agreement shall
not be construed to mean that such information is required to be disclosed by this Agreement.
9.14. Assignment. This Agreement shall not be assignable by operation of law or
otherwise. Any purported assignment in violation of this Agreement is void; provided,
however, that Parent and/or Merger Sub may, without prior written consent of the other
parties hereto, (i) assign any or all of its rights hereunder to one or more of its Affiliates,
(ii) designate one or more of its Affiliates to perform its obligations hereunder and (iii) assign
its rights, but not its obligations, under this Agreement to any of its or its Affiliates’
financing sources (in any or all of which cases Parent nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first written above.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. WEHRLE III | |||
| Title: | PRESIDENT AND CHIEF EXECUTIVE OFFICER | |||
| McJ HOLDING CORPORATION |
||||
| By: | /s/ CHRISTINE VOLLERSTEN | |||
| Name: | CHRISTINE VOLLERSTEN | |||
| Title: | VICE PRESIDENT | |||
| Hg ACQUISITION CORP. |
||||
| By: | /s/ CHRISTINE VOLLERSTEN | |||
| Name: | CHRISTINE VOLLERSTEN | |||
| Title: | VICE PRESIDENT | |||
[Merger Agreement Signature Page]
Exhibit 2.1.1
Execution Version
McJUNKIN CONTRIBUTION AGREEMENT
CONTRIBUTION
AGREEMENT, dated as of December 4, 2006 (the “Agreement”), among
McJunkin Corporation, a West Virginia corporation (the “Company”), McJ Holding LLC, a
Delaware limited liability company (“Holdco”), the shareholders of the
Company named in Exhibit A hereto and any other shareholders of the Company who
becomes a party to this Agreement by executing and delivering a Letter of Transmittal (defined
below) to the Company prior to the Effective Time (as defined in the Merger Agreement)
(collectively, the
“Contributing Shareholders”).
RECITALS
WHEREAS, simultaneously with the execution and delivery of this Agreement, each Contributing
Shareholder is executing and delivering a limited liability company operating agreement (the
“Holdco LLC Agreement”) and a registration rights agreement (the “Registration Rights
Agreement”) relating to membership interests in Holdco to be received pursuant to this
Agreement;
WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company is
executing and delivering an agreement and plan of merger (the “Merger Agreement”) with McJ
Holding Corporation, a Delaware corporation and wholly owned subsidiary of Holdco
(“Parent”) and Hg Acquisition Corp., a West Virginia corporation and wholly owned
subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into
the Company (the “Merger”) and the Company will become a wholly owned subsidiary of Parent;
WHEREAS, each of the Contributing Shareholders owns the number of shares (rounded for
purposes of the Merger Agreement to the nearest one ten-thousandth
(1/10,000) of a share) of
common stock, par value $700.00 per share of the Company (“Company Shares”) set forth
opposite his, her or its name in Column D of Schedule I to the Merger Agreement and desires to
contribute to Holdco the number of Company Shares set forth opposite his, her or its name in
Column D of Schedule I to the Merger Agreement (“Contribution Shares” and all Contribution
Shares owned by the Contributing Shareholders, collectively “the Contribution Shares”);
WHEREAS, the parties hereto desire that the Contribution Shares be contributed immediately
prior to the consummation of the Merger by or on behalf of the Contributing Shareholders on the
terms and conditions provided in this Agreement; and
WHEREAS, the contribution of the Contribution Shares by or on behalf of the Contributing
Shareholders to Holdco in exchange for the Per Share Consideration (as defined below) is part of a
larger transaction that is intended to be governed by Sections 707 and 721 of the Internal Revenue
Code of 1986, as amended (the “Code”);
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements contained herein and in the Merger Agreement, the parties hereto agree as
follows:
ARTICLE I
Contribution
1.1. Contribution. At the Closing provided for in Section 1.3, Holdco shall
receive from each of the Contributing Shareholders, and each of the Contributing
Shareholders shall contribute or cause to be contributed to Holdco, all Contribution Shares
owned by such Contributing Shareholder for the Per Share Consideration (as defined below).
1.2. Consideration. The consideration per Contribution Share (the “Per Share
Consideration”) shall be as set forth in Section 4.1(a)(ii) of the Merger Agreement.
1.3. Closing. Subject to the satisfaction or waiver of the conditions set forth in
Article IV, the closing of the transactions contemplated hereunder (the “Closing”)
shall take place at the offices of Sullivan & Cromwell LLP, 125 Broad Street, New York, New
York (or such other place as the parties may agree) immediately prior to the consummation of
the Merger. The actual time and date of the Closing is referred to herein as the “Closing
Date”.
1.4. Delivery by the Company. The parties hereto agree that contribution to
Holdco by the Company of Contribution Shares on behalf of any Contributing Shareholder
pursuant to, and accompanied by, a letter of transmittal duly executed and delivered by such
Contributing Shareholder prior to the Effective Time (as defined in the Merger Agreement),
substantially in the form set out in Annex A (the “Letter of Transmittal”) shall
satisfy such Contributing Shareholder’s obligation to deliver Contribution Shares under this
Agreement.
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of the Contributing Shareholders. Each
Contributing Shareholder hereby represents and warrants to Holdco that:
(a) Such Contributing Shareholder has all requisite power and authority and has
taken all action necessary in order to execute, deliver and perform his obligations
under this Agreement, the Holdco LLC Agreement and the Registration Rights Agreement.
Each of this Agreement, the Holdco LLC Agreement and the Registration Rights Agreement
has been duly executed and delivered by such Contributing Shareholder and constitutes a
valid and binding agreement of such Contributing Shareholder enforceable against him in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or
affecting creditors’ rights and to general equity principles. Such Contributing
Shareholder is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933 and, in connection with the
execution of this Agreement, agrees to deliver such certificates to that effect as
Holdco may request.
2
(b) Such Contributing Shareholder is the sole record owner of, and has good and
marketable title to, the number of Contribution shares (rounded for purposes of the
Merger Agreement to the nearest one ten-thousandth (1/10,000) of a share) set forth
opposite his name in Column D of Schedule I to the Merger Agreement, free and clear of
any lien, charge, pledge, security interest, claim or other encumbrance (collectively,
“Liens”). Except as set forth on said Schedule I to the Merger Agreement, such
Contributing Shareholder does not own any shares of capital stock or other securities
of the Company or any securities or obligations convertible, or exchangeable or
exercisable for, or giving him a right to subscribe for or acquire, any securities of
the Company. Upon consummation of the contribution of Contribution Shares by such
Contributing Shareholders as provided in this Agreement, Holdco will acquire good and
marketable title to such Contribution Shares free and clear of all Liens.
(c) The execution, delivery and performance of this Agreement by such Contributing
Shareholder does not and will not (i) require him, her or it to obtain any consents,
registrations, approvals, permits or authorizations from any domestic or foreign
governmental or regulatory authority, agency, commission body, court or other
legislative, executive or judiciary government entity (except as would not have a
material adverse effect on his, her or its ability to perform his, hers or its
obligations under this Agreement) or (ii) constitute or result in a breach or violation
of, or a default under, or result in the creation of a lien or encumbrance on any of
his, hers or its properties pursuant to any bond, debenture, note or other evidence of
indebtedness of him, her or it or any indenture or other material agreement to which
he, she or it is a party or by which he, she or it is bound or to which any of his, her
or its material property may be subject (except as would not have a material adverse
effect on his, her or its ability to perform his, her or its obligations under this
Agreement).
(d) Such Contributing Shareholder has not granted and is not a party to any
proxy, voting trust or other agreement which conflicts with any provision of this
Agreement, and such Contributing Shareholder shall not grant any proxy or become party
to any voting trust or other agreement which conflicts with any provision of this
Agreement.
2.2. Representations and Warranties of Holdco. Holdco hereby represents and
warrants to each of the Contributing Shareholders that as to itself:
(a) It has all requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its obligations
under this Agreement. This Agreement has been duly executed and
delivered by it and
constitutes its valid and binding agreement enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights and to general equity principles.
(b) Immediately following the Closing, all of such issued and outstanding
Holdco Units will be duly authorized and validly issued, fully paid and
nonassessable.
3
(c) Except
as set forth in Section 5.2(c) of the Merger Agreement, the execution,
delivery and performance of this Agreement by Holdco does not and will not (i) require
it to obtain any consents, registrations, approvals, permits or authorizations from or
to deliver any notice or make any report or other filing with any domestic or foreign
governmental or regulatory authority, agency, commission body, court or other
legislative, executive or judiciary government entity (except such as may have
previously been obtained or is permitted to be, and will be, filed or made promptly
following the date hereof) or (ii) constitute or result in a breach or violation of, or
a default under, or result in the creation of a lien or encumbrance on any of its
properties pursuant to any bond, debenture, note or other evidence of indebtedness of
it or any indenture or other material agreement to which it is a party or by which it
is bound or to which any of its material property may be subject (except as would not
adversely affect its ability to perform its obligations under this Agreement).
ARTICLE III
Deliveries at the Closing
3.1. Deliveries by Holdco at the Closing. At the Closing, Holdco shall:
(a) amend Schedule A to the Holdco LLC Agreement to reflect the Holdco Units
acquired by the Contributing Shareholders pursuant to this Agreement; and
(b) deliver to each Contributing Shareholder a copy of the Holdco LLC
Agreement duly executed by all GSCP Members (as defined therein).
3.2. Deliveries by the Contributing Shareholders at the Closing. At the
Closing, each Contributing Shareholder (or pursuant to Section 1.4 above, the Company) shall
deliver the following to Holdco:
(a) certificates representing the number of Contribution Shares set forth
opposite his, her or its name in Column D of Schedule I to the
Merger Agreement, to
Holdco, duly endorsed in blank or otherwise in proper form for transfer to Holdco.
ARTICLE IV
Conditions to Closing
4.1. Conditions to Obligations of Holdco. The obligations of Holdco to
consummate the transactions contemplated hereunder and to take the other actions at Closing
required by this Agreement are subject to the satisfaction or waiver by such party of the
following conditions as of the Closing Date:
The representations and warranties of each Contributing Shareholder set forth in
this Agreement shall have been true and correct in all material respects when
4
made and shall be true and correct in all material respects as of, and as if made on,
the Closing Date.
4.2. Conditions to Obligations of the Contributing Shareholders. The obligations
of each Contributing Shareholder to consummate the transactions contemplated hereunder and to
take the other actions at Closing required by this Agreement are subject to the satisfaction
or waiver by such Contributing Shareholder of the following conditions as of the Closing
Date:
The representations and warranties of Holdco set forth in this Agreement shall
have been true and correct in all material respects when made and shall be true and
correct in all material respects as of, and as if made on, the Closing Date.
4.3. Merger not Consummated. The parties hereto agree that if the Merger is not
consummated on or prior to the third business day after the Closing, then the transactions
effected at the Closing shall be unwound and the provisions of this Agreement shall be
restored as if the Closing had not taken place and shall thereafter remain in full force and
effect until terminated pursuant to the terms hereof.
ARTICLE V
Termination
5.1.
Termination. This Agreement shall automatically terminate upon termination of the
Merger Agreement pursuant to the terms thereof prior to consummation of the Merger.
ARTICLE VI
Miscellaneous
6.1. Entire Agreement; Binding Effect; Assignment; No Third Party Beneficiaries.
This Agreement, the Holdco LLC Agreement, the Registration Rights
Agreement and the Shareholder Support Agreement (as defined in the Merger Agreement) constitute
the entire agreement, and supersede all other prior agreements, understandings, representations
and warranties both written and oral, among the parties, with respect to the subject matter
hereof and thereof. This Agreement shall be binding upon, inure to the benefit of and be
enforceable only by the parties hereto and their respective successors and permitted assigns.
No party may assign its rights or obligations under this Agreement to any other person or
entity without the prior written consent of the other parties and any purported assignment
without such consent is void. Nothing in this Agreement, express or implied, is intended to, or
shall, give to any person other than the parties hereto, their successors and permitted assigns
any benefit or any legal or equitable right, remedy or claim under this Agreement.
5
6.2. Modification or Amendment; Waiver. This Agreement may only be amended,
modified, supplemented or waived with the written approval of each party hereto. No failure
or delay on the part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof or of any other or future exercise of any such right, power or
privilege.
6.3. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument, and all
such counterparts shall together constitute the same agreement.
6.4.
Governing Law and Venue; Waiver of Jury Trial; Specific Performance.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. The parties hereby
irrevocably submit to the personal jurisdiction of the courts of the State of
Delaware located in the County of New Castle and the Federal courts of the United
States of America located in the County of New Castle solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or of
any such document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement or any such document
may not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a Delaware State or Federal court located in the County of New
Castle. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and, to the extent permitted by law, over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
6.5 or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
6
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 6.4.
(c) The parties agree that irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in Delaware State or
Federal court in the County of New Castle, this being in addition to any other remedy
to which such party is entitled at law or in equity.
6.5. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile:
If to Holdco:
c/o GS Capital Partners V Fund, L.P.,
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Henry Cornell
Fax: (212) 357-5505
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Henry Cornell
Fax: (212) 357-5505
and:
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
If to the Contributing Shareholders:
McJunkin Corporation,
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael H. Wehrle
with a copy to H.B. Wehrle III
Fax: (304) 348-1557
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael H. Wehrle
with a copy to H.B. Wehrle III
Fax: (304) 348-1557
with a copy to
Sullivan & Cromwell LLP,
125 Broad Street, New York, NY 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
Sullivan & Cromwell LLP,
125 Broad Street, New York, NY 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
7
or to such other persons or
addresses as may be designated in writing
by the party to receive such notice as
provided above. Any notice, request,
instruction or other document given as
provided above shall be deemed given to
the receiving party upon actual receipt,
if delivered personally; three business
days after deposit in the mail, if sent
by registered or certified mail; upon
confirmation of successful transmission
if sent by facsimile (provided
that if given by facsimile such notice,
request, instruction or other document
shall be followed up within one business
day by dispatch pursuant to one of the
other methods described herein); or on
the next business day after deposit with
an overnight courier, if sent by an
overnight courier.
6.6.
Interpretation; Construction.
(a) The headings herein are for convenience of reference only, do not constitute
part of this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section, such
reference shall be to a Section of this Agreement unless otherwise indicated.
Whenever the words “include,” “includes” or “including” are used in this Agreement,
they shall be deemed to be followed by the words “without limitation.”
(b) The parties have participated jointly in negotiating and drafting this
Agreement. In the event that an ambiguity or a question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by virtue
of the authorship of any provision of this Agreement.
6.7. Tax Matters. The parties hereto shall not take any position on any tax
return inconsistent with the treatment of the contribution of the Contribution Shares to
Holdco in exchange for Holdco Units when considered together with the Merger as a transaction
governed by Sections 707 and 721 of the Code, unless otherwise required pursuant to a
“determination” within the meaning of Section 1313(a) of the Code. Notwithstanding any other
provision of this Agreement, the obligations imposed by this Section 6.7 will survive
indefinitely.
(the remainder of this page has been intentionally left blank)
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first mentioned above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
| By: | /s/ H.B. Wehrle III | /s/ E. Gaines Wehrle | ||||
| Name: | H.B. Wehrle III | E. Gaines Wehrle | ||||
| Title: | President and Chief | |||||
| Executive Officer | ||||||
| /s/ Michael H. Wehrle | ||||||
| McJ HOLDING LLC | Michael H. Wehrle | |||||
| By: | /s/ Christine Vollertsen | /s/ Katherine Schilling Wehrle | ||||
| Name: | Christine Vollertsen | Katherine Schilling Wehrle | ||||
| Title: | Vice President | |||||
| /s/ H. B. Wehrle III | ||||||
| H. B. Wehrle III | ||||||
| /s/ Helen Lynne Wehrle-Zande | ||||||
| Helen Lynne Wehrle-Zande | ||||||
| /s/ Stephen D. Wehrle | ||||||
| Stephen D. Wehrle | ||||||
| /s/ Elizabeth M. Wehrle | ||||||
| Elizabeth M. Wehrle | ||||||
| /s/ H. B. Wehrle, Jr. | ||||||
| H. B. Wehrle, Jr. | ||||||
| /s/ Elizabeth H. and H.B. Wehrle | ||||||
| Elizabeth H. and H.B. Wehrle | ||||||
| Foundation | ||||||
[McJunkin Contribution Agreement Signature Page]
| /s/ Michael H. Wehrle — TRUSTEE | ||
| Michael H. Wehrle, Trustee for | ||
| Philip Noyes Wehrle | ||
| /s/ Martha G. Wehrle | ||
| Martha G. Wehrle | ||
| /s/ Elizabeth M. Wehrle | ||
| Elizabeth M. Wehrle, Trustee for | ||
| Colin Andrew Miller | ||
| /s/ Henry B. Wehrle, Jr. TRUSTEE | ||
| Henry B. Wehrle, Jr., Trustee for | ||
| Zelda Donhowe | ||
| /s/ Elizabeth M. Wehrle | ||
| Elizabeth M. Wehrle, Trustee for | ||
| Elizabeth Lynne Miller | ||
| /s/ Stephen D. Wehrle | ||
| Stephen D. Wehrle, Trustee for | ||
| Lyndsay E. Wehrle | ||
| /s/ Stephen D. Wehrle | ||
| Stephen D. Wehrle, Trustee for | ||
| Michael T.S. Wehrle | ||
| /s/ Helen Lynne Wehrle-Zande | ||
| Helen Lynne Wehrle-Zande, Trustee | ||
| for Anthony Louis Zande, II | ||
| /s/ Helen Lynne Wehrle-Zande | ||
| Helen Lynne Wehrle-Zande, Trustee | ||
| for Stephen Alexander Zande |
[McJunkin Contribution Agreement Signature Page]
| /s/ Peter L. Kend | ||
| Peter L. Kend, as Trustee of the | ||
| Samuel Russell Kend Fund | ||
| /s/ Peter L. Kend | ||
| Peter L. Kend, as Trustee of the | ||
| Sydney Elizabeth Kend Fund |
[McJunkin Contribution Agreement Signature Page]
Exhibit 2.1.2
Execution
Version
McAPPLE CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT, dated as of December 4, 2006 (the
“Agreement”), among McJunkin Corporation, a West Virginia corporation (the
“Company”),
McJ Holding LLC, a Delaware limited liability company
(“Holdco”), and the
shareholders of McJunkin Appalachian Oilfield Supply Company, a West Virginia corporation
(“McApple”), named in
Exhibit A hereto (collectively, the “Contributing
Shareholders”).
RECITALS
WHEREAS, simultaneously with the execution and delivery of this Agreement, each
Contributing Shareholder is executing and delivering a limited liability company operating
agreement (the “Holdco LLC Agreement”) and a registration rights agreement (the
“Registration Rights Agreement”) relating to membership interests in Holdco to be
received pursuant to this Agreement;
WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company
is executing and delivering an agreement and plan of merger (the
“Merger Agreement”)
with McJ Holding Corporation, a Delaware corporation and wholly owned subsidiary of Holdco
(“Parent”), and Hg Acquisition Corp., a West Virginia corporation and wholly owned
subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and
into the Company (the “Merger”) and the Company will become a wholly owned subsidiary
of Parent;
WHEREAS, each of the Contributing Shareholders owns the number of shares of common stock,
par value $0.01 per share, of McApple set forth opposite his name in
Exhibit A hereto
(“Shares” and all Shares owned by the Contributing Shareholders, collectively “the
Shares”);
WHEREAS, the parties hereto desire that the Shares be contributed immediately prior to
the consummation of the Merger by the Contributing Shareholders on the terms and conditions
provided in this Agreement; and
WHEREAS,
the contribution of the Shares by the Contributing Shareholders to Holdco in exchange for Holdco Units (as defined below) and the Cash Consideration (as defined
below) is intended to qualify as a transaction governed by Sections 707 and 721 of the Internal
Revenue Code of 1986, as amended (the
“Code”).
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements contained herein and in the Merger Agreement, the parties hereto agree
as follows:
ARTICLE I
Contribution
1.1. Contribution. At the Closing provided for in Section 1.3, Holdco shall
receive from each of the Contributing Shareholders, and each of the Contributing Shareholders
shall contribute to Holdco, all Shares owned by such Contributing Shareholder for the Per Share
Consideration (as defined below).
1.2.
Consideration. The consideration per Share (the “Per Share
Consideration”) shall be (i) an amount in cash equal to the Book Value per Share (as defined
below) as of the close of business on the last day of the month preceding the one in which the
Closing occurs as reasonably estimated by James F. Underhill, Chief Financial Officer of the
Company (the “Cash Consideration”) and (ii) a number of Common Units (as defined in the
Holdco LLC Agreement) of Holdco (“Holdco
Units”) equal in value to $8,000,000 divided by
the number of shares of common stock of McApple issued and outstanding immediately prior to the
Closing (other than the shares held by the Company). It being understood and agreed that the value
of each Holdco Unit shall be as determined pursuant to Section 4.2(a)(ii) of the Merger Agreement.
“Book Value per Share” means (i) the total assets of McApple minus the total liabilities of
McApple, in each case, as determined under U.S. Generally Accepted Accounting Principles consistent
with the balance sheet of McApple for the nine month period ended September 30, 2006 previously
provided to Holdco adjusted for the deferred tax impact of LIFO valued inventories contributed by
the Company when McApple was formed divided by (ii) the number of shares of common stock of McApple
outstanding immediately prior to the Closing (including, for the avoidance of doubt, the shares
held by the Company).
1.3. Closing. Subject to the satisfaction or waiver of the conditions set
forth in Article IV, the closing of the transactions
contemplated hereunder (the “Closing”) shall
take place at the offices of Sullivan & Cromwell LLP, 125 Broad Street, New York, New York (or
such other place as the parties may agree) immediately prior to the consummation of the Merger.
The actual time and date of the Closing is referred to herein as the
“Closing Date”.
1.4. Adjustments to the Consideration. Holdco shall, as soon as practicable
following the Closing and in any event within thirty (30) days after the Closing Date,
procure that a balance sheet for McApple as of the Closing Date is prepared and delivered to
the Contributing Shareholders (the “Closing Balance
Sheet”). If the Book Value per
Share on the Closing Date as set forth on the Closing Balance Sheet exceeds the Cash
Consideration, Holdco shall deliver to each Contributing Shareholder an amount in cash equal
to such excess for each Share contributed to Holdco by such Contributing Shareholder pursuant
to this Agreement by wire transfer of immediately available funds within five (5) days after
the Closing Balance Sheet is delivered to the Contributing Shareholders. If the Book Value
per Share on the Closing Date as set forth on the Closing Balance Sheet is less than the Cash
Consideration, each Contributing Shareholder shall deliver to Holdco an amount equal to such
shortfall for each Share contributed to Holdco by such Contributing Shareholders pursuant to
this Agreement by wire transfer of immediately available funds within five (5) days after the
Closing Balance Sheet is delivered to the Contributing Shareholders. If the Contributing
Shareholders disagree with the Book Value per Share on the Closing Date as set forth on the
Closing Balance Sheet, then no later than three
2
(3) days after the Closing Balance Sheet is delivered to the Contributing Shareholders,
the Contributing Shareholders may, at their sole cost and expense, hire Ernst & Young LLP
(“EY”) to audit the Closing Balance Sheet. If the Contributing Shareholders hire EY to audit
the Closing Balance Sheet, then the determination by EY of the Book Value per Share on the
Closing Date shall be binding on the parties hereto and any amount owed pursuant to this
Section 1.4 shall be paid by wire transfer of immediately available funds within
five (5) days after EY has made such determination.
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of the Contributing Shareholders. Each
Contributing Shareholder hereby represents and warrants to Holdco that:
(a) Such Contributing Shareholder has all requisite power and authority and has
taken all action necessary in order to execute, deliver and perform his obligations
under this Agreement, the Holdco LLC Agreement and the Registration Rights Agreement.
Each of this Agreement, the Holdco LLC Agreement and the Registration Rights Agreement
has been duly executed and delivered by such Contributing Shareholder and constitutes
a valid and binding agreement of such Contributing Shareholder enforceable against him
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or
affecting creditors’ rights and to general equity principles. Such Contributing
Shareholder is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended and, in
connection with the execution of this Agreement, agrees to deliver such certificates
to that effect as Holdco may request.
(b) Such Contributing Shareholder is the sole record and beneficial
owner of, and has good and marketable title to, the number of Shares set forth
opposite his name in Exhibit A hereto free and clear of any
lien, charge, pledge,
security interest, claim or other encumbrance (collectively,
“Liens”). Except as
set forth on Exhibit A, such Contributing Shareholder does not own any shares of
capital stock or other securities of McApple or any securities or obligations
convertible, or exchangeable or exercisable for, or giving him a right to subscribe for
or acquire, any securities of McApple. Upon consummation of the contribution of Shares
by such Contributing Shareholders as provided in this Agreement, Holdco will acquire
good and marketable title to such Shares free and clear of all Liens. There are no
preemptive or other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements, arrangements,
calls, commitments or rights of any kind that will obligate McApple to issue or sell
any shares of capital stock or other securities of McApple or any securities or obligations
convertible, or exchangeable or exercisable for, or giving any person a right to
subscribe for or acquire,
3
any securities of McApple, and no securities or obligations evidencing such rights
are authorized, issued or outstanding.
(c) The execution, delivery and performance of this Agreement by such Contributing
Shareholder does not and will not (i) require him to obtain any consents, registrations,
approvals, permits or authorizations from any domestic or foreign governmental or
regulatory authority, agency, commission body, court or other legislative, executive or
judiciary government entity (except as would not have a material adverse effect on his
ability to perform his obligations under this Agreement) or (ii) constitute or result in
a breach or violation of, or a default under, or result in the creation of a lien or
encumbrance on any of his properties pursuant to any bond, debenture, note or other
evidence of indebtedness of him or any indenture or other material agreement to which he
is a party or by which he is bound or to which any of his material property may be
subject (except as would not have a material adverse effect on his ability to perform
his obligations under this Agreement).
(d) At the Effective Time (as defined in the Merger Agreement) of the
Merger (as defined in the Merger Agreement) each of (i) the Put/Call Agreement among
the Company, McApple and the individual shareholders named therein, dated as of
December 21, 1988, as amended by the Amendment between the Company, McApple and David
Fox, III, dated as of September 2002 and (ii) the Shareholders’ Agreement dated as of
December 21, 1988 among McApple and the Contributing Shareholders relating to the
Shares will have been terminated and will be of no further force and effect.
(e) Such Contributing Shareholder has not granted and is not a party to any proxy,
voting trust or other agreement which conflicts with any provision of this Agreement, and
such Contributing Shareholder shall not grant any proxy or become party to any voting trust
or other agreement which conflicts with any provision of this Agreement.
2.2. Representations and Warranties of Holdco. Holdco hereby represents and
warrants to each of the Contributing Shareholders that:
(a) It has all requisite corporate power and authority and has taken all corporate
action necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by it and constitutes its
valid and binding agreement enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights and to general equity
principles.
(b) Immediately following the Closing, all of such issued and outstanding Holdco Units
will be duly authorized and validly issued, fully paid and nonassessable.
4
(c) Except as set forth in Section 5.2(c) of the Merger Agreement, the execution,
delivery and performance of this Agreement by Holdco does not and will not
(i) require it to obtain any consents, registrations, approvals, permits or
authorizations from or to deliver any notice or make any report or other filing with any
domestic or foreign governmental or regulatory authority, agency, commission body, court
or other legislative, executive or judiciary government entity (except such as may have
previously been obtained or is permitted to be, and will be, filed or made promptly
following the date hereof) or (ii) constitute or result in a breach or violation of, or
a default under, or result in the creation of a lien or encumbrance on any of its
properties pursuant to any bond, debenture, note or other evidence of indebtedness of it
or any indenture or other material agreement to which it is a party or by which it is
bound or to which any of its material property may be subject (except as would not
adversely affect its ability to perform its obligations under this Agreement.
ARTICLE III
Deliveries at the Closing
3.1.
Deliveries by Holdco at the Closing. At the Closing, Holdco shall:
(a) deliver the Cash Consideration by wire transfer of immediately available
funds as instructed by each Contributing Shareholder prior to the Closing
Date; and
(b) amend Schedule A to the Holdco LLC Agreement to reflect the
Holdco Units acquired by the Contributing Shareholders pursuant to this Agreement;
and
(c) deliver to each Contributing Shareholder a copy of the Holdco LLC
Agreement duly executed by all GSCP Members (as defined therein).
3.2. Deliveries by the Contributing Shareholders at the Closing. At the
Closing, each Contributing Shareholder shall deliver the following to Holdco:
(a) certificates representing the number of Shares set forth opposite his name in
Exhibit A hereto, free and clear of any and all Liens, duly endorsed in blank or
otherwise in proper form for transfer to Holdco.
3.3.
Put Option. On and for fifteen (15) business days after (x) January 8, 2010 or, if
earlier, (y)(i) each date that the Contributing Shareholders receive a Drag-Along Notice pursuant
to Section 12.8 of the Holdco LLC Agreement, or (ii) the date of notice to Holdco by McJ Members of
the exercise of their rights under Section 12.10 of the Holdco LLC Agreement, each Contributing
Shareholder shall have the right and option, but not the obligation
(the “Put Option”), to
cause Holdco to purchase all of the Holdco Units acquired by such Contributing Shareholder
hereunder for a purchase price in cash equal to the value of each Holdco Unit as set forth in
Section 1.2(ii) (as adjusted for any split, subdivision, combination, consolidation,
recapitalization or similar event with respect to the Holdco Units)
(the “Put
5
Consideration”) by written notice to Holdco
of the exercise of such right and option (an “Exercise
Notice”). The closing of any exercise of the Put Option shall occur at 9:00
A.M. at the offices of Holdco on, as applicable, (a) February 25, 2010, (b) the date and time of
the closing of each Drag-Along Sale pursuant to the Holdco LLC Agreement (provided, that if the
Drag-Along Sale expires pursuant to Section 12.8(d) of the Holdco LLC Agreement, the Contributing
Shareholders may withdraw the Exercise Notice, or, if not withdrawn, the Contributing Shareholders
and Holdco shall agree to another time and place for the closing), or (c) the date of the
redemption under Section 12.10 of the Holdco LLC Agreement. The Put Option shall expire on the
earliest of (x) the sixteenth business day after January 8, 2010, (y) the date of closing of the
Drag-Along Sale pursuant to which all Holdco Units of all Contributing Shareholders are sold at
such closing, or (z), the date of the redemption pursuant to
Section 12.10 of the Holdco LLC
Agreement. Holdco (or its designee) shall pay the Put Consideration for each Holdco Unit acquired
by such Contributing Shareholder hereunder to the Contributing Shareholder exercising his Put
Option, by wire transfer of immediately available funds, and such Contributing Shareholder shall,
if applicable, deliver to Holdco certificates representing all of the Holdco Units acquired by such
Contributing Shareholder hereunder, duly endorsed in blank or otherwise in proper form for transfer
to Holdco. Notwithstanding any of the above, if any Contributing Shareholder(s) has exercised his
Put Option pursuant to this Section 3 and Holdco is not permitted to consummate the transactions
contemplated by the Put Option under applicable law, or due to a default under any debt financing
agreement of Holdco or any of its direct or indirect subsidiaries, or if a payment pursuant to this
Section 3 would trigger a default under any such debt financing agreement, Holdco shall issue to
such Contributing Shareholder(s) a promissory note with a principal amount equal to the applicable
Put Consideration and an interest rate equal to the prime rate then in effect, and such principal
and interest will be paid in full by wire transfer of immediately available funds at such time as
Holdco is permitted to pay such Put Consideration under applicable law and any debt financing of
Holdco and its direct and indirect subsidiaries.
ARTICLE IV
Conditions to Closing
4.1. Conditions to Obligations of Holdco. The obligations of Holdco to
consummate the transactions contemplated hereunder and to take the other actions at
Closing required by this Agreement are subject to the satisfaction or waiver by such party
of the following condition as of the Closing Date:
The representations and warranties of each Contributing Shareholder set forth in
this Agreement shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of, and as if made on, the
Closing Date.
4.2. Conditions to Obligations of the Contributing Shareholders. The obligations
of each Contributing Shareholder to consummate the transactions contemplated hereunder and to
take the other actions at Closing required by this Agreement are subject to the satisfaction
or waiver by such Contributing Shareholder of the following condition as of the Closing Date:
6
The representations and warranties of Holdco set forth in this Agreement shall have
been true and correct in all material respects when made and shall be true and correct in
all material respects as of, and as if made on, the Closing Date.
4.3. Merger not Consummated. The parties hereto agree that if the Merger is not
consummated on or prior to the third business day after the Closing, then the transactions
effected at the Closing shall be unwound and the provisions of this Agreement shall be restored
as if the Closing had not taken place and shall thereafter remain in full force and effect until
terminated pursuant to the terms hereof.
ARTICLE V
Release
5.1. Release. From and after the Closing, each Contributing Shareholder hereby
absolutely, generally, irrevocably, unconditionally and completely releases and forever
discharges Holdco, the Company, McApple and their respective directors, officers, employees,
representatives, affiliates, stockholders, direct and indirect subsidiaries, successors and
assigns (collectively, the “Holdco Parties”) from all past, present and future claims directly or
indirectly relating to such Contributing Shareholder’s interest
in McApple (“Claims”), and hereby
absolutely, generally, irrevocably, unconditionally and completely waives and relinquishes all
Claims against the Holdco Parties.
ARTICLE VI
Termination
6.1. Termination. This Agreement shall automatically terminate upon termination of the
Merger Agreement pursuant to the terms thereof prior to consummation of the Merger.
ARTICLE VII
Miscellaneous
7.1.
Entire Agreement; Binding Effect; Assignment; No Third Party Beneficiaries. This
Agreement, the Holdco LLC Agreement and the Registration Rights Agreement constitute the entire
agreement, and supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject matter hereof and
thereof. This Agreement shall be binding upon, inure to the benefit of and be enforceable only by
the parties hereto and their respective successors and permitted assigns. No party may assign its
rights or obligations under this Agreement to any other person
or entity without the prior written consent of the other parties and any purported assignment without such consent is
void. Nothing in this Agreement, express or implied, is intended to, or shall, give to any person
other than the parties hereto, their successors and
7
permitted assigns any benefit or any legal or equitable right, remedy or claim under this
Agreement.
7.2.
Modification or Amendment; Waiver. This Agreement may only be amended,
modified, supplemented or waived with the written approval of each party hereto. No failure or
delay on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof or of any other or future exercise of any such right, power or
privilege.
7.3.
Counterparts. This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
7.4.
Government Law and Venue; Waiver of Jury Trial; Specific Performance.
(a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably
submit to the personal jurisdiction of the courts of the State of
Delaware located in the County of New Castle and the Federal courts of the United States of America
located in the County of New Castle solely in respect of the
interpretation and
enforcement of the provisions of this Agreement and of the documents
referred to in this Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding for
the interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be appropriate or
that this Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Delaware State or Federal court
located in the County of New Castle. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and, to the extent
permitted by law, over the subject matter of such dispute and agree that mailing of process
or other papers in connection with any such action or proceeding in the manner provided in
Section 7.5 or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(b) EACH PARTY
ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY
8
OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES
THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION
7.4.
(c) The parties agree that irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in Delaware State or
Federal court in the County of New Castle, this being in addition to any other remedy to
which such party is entitled at law or in equity.
7.5. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile:
If to the Company:
McJunkin Corporation,
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael Wehrle
with a copy to H. B. Wehrle III
Fax: (304) 348-1557
835 Hillcrest Drive,
Charleston, WV 25311.
Attention: Michael Wehrle
with a copy to H. B. Wehrle III
Fax: (304) 348-1557
with
a copy to
Sullivan & Cromwell LLP,
125 Broad Street, New York, NY 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
Sullivan & Cromwell LLP,
125 Broad Street, New York, NY 10004.
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
If to Holdco:
c/o GS Capital Partners V Fund, L.P.,
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Henry Cornell
Fax: (212) 357-5505
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Henry Cornell
Fax: (212) 357-5505
9
and:
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
If to the Contributing Shareholders:
David Fox, III,
P.O. Box 3109,
Huntington, West Virginia 25702.
P.O. Box 3109,
Huntington, West Virginia 25702.
and:
Huddleston Bolen LLP,
P.O. Box 2185,
Huntington, WV 25722-2185
Attention: Tom Murray
Fax: (304) 522-4312
P.O. Box 2185,
Huntington, WV 25722-2185
Attention: Tom Murray
Fax: (304) 522-4312
or to such other persons or addresses as may be designated in writing by the party
to receive such notice as provided above. Any notice, request, instruction or other
document given as provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three business days after deposit in the mail,
if sent by registered or certified mail; upon confirmation of successful transmission if
sent by facsimile (provided that if given by facsimile such notice, request, instruction
or other document shall be followed up within one business day by dispatch pursuant to
one of the other methods described herein); or on the next business day after deposit
with an overnight courier, if sent by an overnight courier.
7.6.
Interpretation; Construction.
(a) The headings herein are for convenience of reference only, do not constitute
part of this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section, such
reference shall be to a Section of this Agreement unless otherwise indicated. Whenever
the words “include,” “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.”
(b) The parties have participated jointly in negotiating and drafting this Agreement. In
the event that an ambiguity or a question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provision of this Agreement.
10
7.7. Tax Matters. The parties hereto shall not take any position on any tax
return inconsistent with the treatment of the contribution of the Shares by the
Contributing Shareholders to Holdco in exchange for Holdco Units and the Cash Consideration
as a transaction governed by Sections 707 and 721 of the Code, unless otherwise required
pursuant to a “determination” within the meaning of Section
1313(a) of the Code. Notwithstanding any other provision of this Agreement, the obligations imposed by this
Section 7.7 will survive indefinitely.
(the remainder of this page has been intentionally left blank)
11
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto
as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | ||
By:
|
/s/ H.B. Wehrle III |
||
Name: |
David Fox, III | ||
Title: |
|||
McJ HOLDING LLC |
Stephen G. Fox | ||
By: |
|||
Name: |
Steven G. Park | ||
Title: |
|||
| John J. Limer | |||
| Stephen D. Cassell | |||
| /s/ H. B. Wehrle, III | |||
| H. B. Wehrle, III | |||
| Stephen D. Wehrle | |||
| Michael H. Wehrle | |||
| E. Gaines Wehrle | |||
[McApple
Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto
as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | ||
By:
|
|||
Name: |
David Fox, III | ||
Title: |
|||
McJ HOLDING LLC
|
Stephen G. Fox | ||
By:
|
/s/ Christine Vollertsen
|
||
Name: Christine Vollertsen |
Steven G. Park | ||
Title:
Vice President |
|||
| John J. Limer | |||
| Stephen D. Cassell | |||
| H. B. Wehrle, III | |||
| Stephen D. Wehrle | |||
| Michael H. Wehrle | |||
| E. Gaines Wehrle | |||
[McApple
Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By:
|
/s/ David Fox, III | |||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| /s/ Stephen G. Fox | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By: |
||||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| /s/ John J. Limer | ||||||
| John J. Limer | ||||||
| /s/ Stephen D. Cassell | ||||||
| Stephen D. Cassell | ||||||
| H. B. Wehrle, III | ||||||
| Stephen D. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By: |
||||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By:
|
/s/ Steven G. Park | |||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| John J. Limer | ||||||
| Stephen D. Cassell | ||||||
| H. B. Wehrle, III | ||||||
| Stephen D. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By: |
||||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By: |
||||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| John J. Limer | ||||||
| Stephen D. Cassell | ||||||
| /s/ H. B. Wehrle, III | ||||||
| H. B. Wehrle, III | ||||||
| Stephen D. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By: |
||||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By: |
||||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| John J. Limer | ||||||
| Stephen D. Cassell | ||||||
| H. B. Wehrle, III | ||||||
| /s/ Stephen D. Wehrle | ||||||
| Stephen D. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By: |
||||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By: |
||||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| John J. Limer | ||||||
| Stephen D. Cassell | ||||||
| H. B. Wehrle, III | ||||||
| Stephen D. Wehrle | ||||||
| /s/ Michael H. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement Signature Page]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties
hereto as of the date first written above.
| MCJUNKIN CORPORATION | CONTRIBUTING SHAREHOLDERS | |||||
By: |
||||||
| Name: | David Fox, III | |||||
| Title: | ||||||
| McJ HOLDING LLC | Stephen G. Fox | |||||
By: |
||||||
| Name: | Steven G. Park | |||||
| Title: | ||||||
| John J. Limer | ||||||
| Stephen D. Cassell | ||||||
| H. B. Wehrle, III | ||||||
| Stephen D. Wehrle | ||||||
| Michael H. Wehrle | ||||||
| /s/ E. Gaines Wehrle | ||||||
| E. Gaines Wehrle | ||||||
[McApple Contribution Agreement Signature Page]
Exhibit 2.2
Execution Copy
STOCK PURCHASE AGREEMENT
by and among
McJUNKIN DEVELOPMENT CORPORATION,
MIDWAY-TRISTATE CORPORATION
and
THOSE SHAREHOLDERS LISTED
ON SCHEDULE 1
ON SCHEDULE 1
Dated April 5, 2007
TABLE OF CONTENTS
| ARTICLE I | Certain Definitions | 2 | ||||||
| 1.1. | Certain Definitions | 2 | ||||||
| ARTICLE II | Acquisition of Company Stock | 8 | ||||||
| 2.1. | Acquisition of Company Stock | 8 | ||||||
| 2.2. | Purchase Price | 8 | ||||||
| 2.3. | Adjustment to Purchase Price | 8 | ||||||
| 2.4. | Closing | 10 | ||||||
| 2.5. | Withholding | 11 | ||||||
| ARTICLE III | Representations and Warranties of the Shareholders | 11 | ||||||
| 3.1. | Ownership; Authorization of Transaction | 11 | ||||||
| 3.2. | No Conflicts | 11 | ||||||
| ARTICLE IV | Representations and Warranties of the Company and the Shareholders | 12 | ||||||
| 4.1. | Authorization of Transaction | 12 | ||||||
| 4.2. | Corporate Organization; Authority | 12 | ||||||
| 4.3. | Capitalization; Debt | 12 | ||||||
| 4.4. | Brokers’ Fees | 13 | ||||||
| 4.5. | Subsidiaries and Investments | 13 | ||||||
| 4.6. | No Conflicts | 13 | ||||||
| 4.7. | Financial Statements | 13 | ||||||
| 4.8. | Absence of Certain Changes | 14 | ||||||
| 4.9. | Compliance with Laws | 14 | ||||||
| 4.10. | Litigation | 14 | ||||||
| 4.11. | Tax Matters | 15 | ||||||
| 4.12. | Assets | 16 | ||||||
| 4.13. | Real Property | 16 | ||||||
| 4.14. | Related Party Transactions | 17 | ||||||
| 4.15. | Contracts | 17 | ||||||
| 4.16. | Insurance | 19 | ||||||
| 4.17. | Employees; Benefits | 19 | ||||||
| 4.18. | Intellectual Property Rights | 21 | ||||||
| 4.19. | Books and Records | 22 | ||||||
| 4.20. | Suppliers and Customers | 22 | ||||||
| 4.21. | Environmental Matters | 22 | ||||||
| 4.22. | Power of Attorney | 23 | ||||||
| 4.23. | Product Warranty and Product Liability | 23 | ||||||
| 4.24. | Purchase and Sale Agreements | 23 | ||||||
| 4.25. | Escheat Property | 23 | ||||||
| ARTICLE V | Representations and Warranties of Buyer | 23 | ||||||
| 5.1. | Organization | 23 | ||||||
| 5.2. | Authorization of Transaction | 23 | ||||||
| 5.3. | No Conflicts | 24 | ||||||
| 5.4. | Financing | 24 | ||||||
| ARTICLE VI | Covenants | 24 | ||||||
| 6.1. | Reasonable Efforts; Notification | 24 | ||||||
| 6.2. | Conduct of the Business | 25 | ||||||
| 6.3. | Access | 27 | ||||||
| 6.4. | Notification of Certain Matters | 28 | ||||||
| 6.5. | Certain Shareholder Restrictions | 28 | ||||||
| 6.6. | Shareholder Non-Compete and other Agreements | 28 | ||||||
| 6.7. | Shareholders’ Post-Closing Confidentiality Obligation | 28 | ||||||
| 6.8. | Release of Claims by Shareholders | 29 | ||||||
| 6.9. | Taxes | 29 | ||||||
| 6.10. | Director Resignations | 32 | ||||||
| 6.11. | Distribution of Assets | 32 | ||||||
| 6.12. | Parachute Payments | 32 | ||||||
| 6.13. | Severance Payments | 32 | ||||||
| 6.14. | Termination of Midway-Tristate Corporation Employees’ Savings Plan | 33 | ||||||
| 6.15. | Norton Arrangement | 33 | ||||||
| 6.16. | Escrow Agreement; Debt Pay-Off Letters | 33 | ||||||
| 6.17. | Settlement Agreement Waiver and Release | 33 | ||||||
| ARTICLE VII | Conditions to Closing | 33 | ||||||
| 7.1. | Conditions to Each Party’s Obligations | 33 | ||||||
| 7.2. | Conditions to the Obligations of the Shareholders | 34 | ||||||
| 7.3. | Conditions to the Obligations of Buyer | 34 | ||||||
| ARTICLE VIII | Termination | 36 | ||||||
| 8.1. | Termination | 36 | ||||||
| 8.2. | Effect of Termination | 37 | ||||||
| ARTICLE IX | Survival and Indemnification | 37 | ||||||
| 9.1. | Survival | 37 | ||||||
| 9.2. | Indemnification by Buyer | 38 | ||||||
| 9.3. | Indemnification by Shareholders | 38 | ||||||
| 9.4. | Limitations on Rights of Indemnitees | 39 | ||||||
| 9.5. | Procedure | 40 | ||||||
| 9.6. | Indemnification Payments as Purchase Price Adjustment | 42 | ||||||
| 9.7. | No Materiality | 42 | ||||||
| 9.8. | No Investigation of the Company | 42 | ||||||
| 9.9. | Non-Exclusivity | 42 | ||||||
| ARTICLE X | Miscellaneous | 42 | ||||||
| 10.1. | Press Releases and Public Announcements | 42 | ||||||
| 10.2. | No Third Party Beneficiaries | 42 | ||||||
| 10.3. | Entire Agreement | 42 | ||||||
ii
| 10.4. | Succession and Assignment | 42 | ||||||
| 10.5. | Expenses | 43 | ||||||
| 10.6. | Headings | 43 | ||||||
| 10.7. | Notices | 43 | ||||||
| 10.8. | Governing Law | 44 | ||||||
| 10.9. | Amendments and Waivers | 44 | ||||||
| 10.10. | Severability | 44 | ||||||
| 10.11. | Construction | 44 | ||||||
| 10.12. | Specific Performance | 45 | ||||||
| 10.13. | Jurisdiction; Court Proceedings; Waiver of Jury Trial | 45 | ||||||
| 10.14. | Attorneys’ Fees | 45 | ||||||
| 10.15. | Representative | 45 | ||||||
| 10.16. | No Presumption Against Drafting Party | 46 | ||||||
| 10.17. | Signatures | 46 |
iii
Index of Defined Terms
Accounting Firm
|
2.3(b)(ii) | ||
Actual Adjustment
|
1.1 | ||
Affiliate
|
1.1 | ||
Agreement
|
Preamble | ||
Ancillary Documents
|
3.1(b) | ||
Associate
|
1.1 | ||
Benefit Plans
|
1.1 | ||
Business Day
|
1.1 | ||
Buyer
|
Preamble | ||
Buyer 401(k) Plan
|
6.14 | ||
Buyer Indemnitees
|
9.3(a) | ||
Cap
|
9.4(a) | ||
Cash and Cash Equivalents
|
1.1 | ||
Closing
|
2.4 | ||
Closing Date
|
2.4 | ||
Code
|
2.5 | ||
Company
|
Preamble | ||
Company Contract
|
4.15(a) | ||
Company Contracts
|
4.15(a) | ||
Company Expenses
|
1.1 | ||
Company Intellectual Property Rights
|
4.18 | ||
Company Stock
|
Recitals | ||
Compensation for Transfer Payment Date
|
4.3(c) | ||
Confidential Information
|
1.1 | ||
Consulting Agreement
|
Recitals | ||
Contract
|
4.15(a) | ||
Contracts
|
4.15(a) | ||
Debt
|
1.1 | ||
Debt Amount
|
1.1 | ||
Deductible
|
9.4(a) | ||
Employee
|
1.1 | ||
Employment Agreement
|
Recitals | ||
Encumbrances
|
3.2 | ||
Enterprise Value
|
1.1 | ||
Environmental Laws
|
1.1 | ||
ERISA
|
1.1 | ||
Escrow Account
|
2.3(a)(i) | ||
Escrow Agent
|
2.3(a)(i) | ||
Escrow Agreement
|
2.3(a)(i) | ||
Escrow Amount
|
2.3(a)(i) | ||
Escrow Funds
|
2.3(a)(i) | ||
Estimated Purchase Price
|
1.1 | ||
Excluded Assets
|
6.11 | ||
February 28 Balance Sheet
|
4.7 | ||
Final Statement of Purchase Price
|
2.3(b)(ii) | ||
iv
Financial Statements
|
4.7 | ||
GAAP
|
1.1 | ||
Governmental Entity
|
1.1 | ||
Hazardous Substances
|
1.1 | ||
HSR Act
|
3.2 | ||
including
|
1.1 | ||
Indemnitee
|
9.5(a) | ||
Indemnitor
|
9.5(a) | ||
Intellectual Property Rights
|
1.1 | ||
Knowledge of the Company
|
1.1 | ||
Laws
|
1.1 | ||
Leased Real Property Interests
|
4.13(b) | ||
Liabilities
|
4.7 | ||
Litigation
|
4.10 | ||
Loss
|
9.2 | ||
Losses
|
9.2 | ||
Material Adverse Effect
|
1.1 | ||
MSP Parties
|
6.15 | ||
Net Working Capital
|
1.1 | ||
Net Working Capital Adjustment
|
1.1 | ||
Non-Compete Agreement
|
6.6 | ||
Non-Significant Shareholder
|
1.1 | ||
Norton Agreement
|
6.15 | ||
Order
|
1.1 | ||
Outstanding Shares
|
2.1 | ||
Owned Real Property Interests
|
4.13(a) | ||
Parties
|
Preamble | ||
Party
|
Preamble | ||
Permit
|
4.9 | ||
Permits
|
4.9 | ||
Permitted Encumbrances
|
1.1 | ||
Person
|
1.1 | ||
Pre-Closing Period
|
6.9(a) | ||
Pre-Closing Proceeding
|
6.9(i) | ||
Product
|
4.23 | ||
Proposed Cash and Cash Equivalents
|
2.3(b)(i) | ||
Proposed Closing Date Statement of Net Working Capital
|
2.3(b)(i) | ||
Proposed Company Expenses Calculation
|
2.3(b)(i) | ||
Proposed Debt Amount Calculation
|
2.3(b)(i) | ||
Proposed Purchase Price Calculation
|
2.3(b)(i) | ||
Purchase Price
|
1.1 | ||
Purchase Price Dispute Notice
|
2.3(b)(ii) | ||
Related Party
|
1.1 | ||
Released Claims
|
6.8 | ||
Released Party
|
6.8 | ||
Representative
|
10.15(a) | ||
v
Settlement Agreement
|
4.3(c) | ||
Settlement Agreement Indemnification Escrow Account
|
2.3(a)(ii) | ||
Settlement Agreement Indemnification Escrow Amount
|
2.3(a)(ii) | ||
Settlement Agreement Indemnification Escrow Funds
|
2.3(a)(ii) | ||
Settlement Agreement Waiver and Release
|
6.17 | ||
Severance Payments
|
6.13 | ||
Shareholder
|
Preamble | ||
Shareholder Indemnitees
|
9.2 | ||
Shareholders
|
Preamble | ||
Significant Shareholder
|
1.1 | ||
Special Representations
|
9.4(a) | ||
Straddle Period
|
6.9(b) | ||
Tax
|
1.1 | ||
Tax Liability Issue
|
6.9(h) | ||
Tax Return
|
1.1 | ||
Taxes
|
1.1 | ||
Termination Date
|
8.1(c) | ||
Third Party Claim
|
9.5(a) | ||
Transfer Tax
|
1.1 | ||
Unaudited Interim Financial Statements
|
4.7 | ||
EXHIBITS
Exhibit A
|
Net Working Capital | |
Exhibit B
|
Form of Escrow Agreement | |
Exhibit C
|
Form of Non-Compete Agreement | |
Exhibit D
|
Norton Agreement | |
Exhibit E
|
Form of Settlement Agreement Waiver and Release |
vi
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated April 5, 2007 (the “Agreement”), by and among McJunkin
Development Corporation, a Delaware corporation (“Buyer”), Midway-Tristate Corporation, a
New York Corporation (the “Company”), and the holders of all outstanding shares of stock of
the Company listed on Schedule 1 (each, a “Shareholder” and, collectively, the
“Shareholders”). Buyer, the Company and each of the Shareholders are separately referred
to herein as a “Party” and, together, as the “Parties”.
WHEREAS, Buyer desires to acquire all of the issued and outstanding capital stock of the
Company;
WHEREAS, the Shareholders own, in the aggregate, 83,185 shares of common stock, par value
$0.01, of the Company (the “Company Stock”), which represents the entire issued and
outstanding capital stock of the Company;
WHEREAS, Buyer desires to acquire, and the Shareholders desire to sell, the Company Stock upon
the terms and subject to the conditions of this Agreement; and
WHEREAS, the Company has entered into an employment agreement (“Employment Agreement”)
or consulting agreement (“Consulting Agreement”) with each of those persons listed on
Schedule 2.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, covenants and agreements herein contained, the
Parties agree as follows:
ARTICLE I
Certain Definitions
1.1. Certain Definitions. As used in this Agreement, the following terms have the
respective meanings set forth below.
“Actual Adjustment” means (x) the Purchase Price as set forth on the
Final Statement of Purchase Price minus (y) the Estimated Purchase Price.
“Affiliate”, “Affiliated” (or any correlative term) means, with
respect to a Person, any Person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with, such
Person (and, for purposes of this Agreement, the Company shall be considered an
Affiliate of each of the Shareholders before the Closing and an Affiliate of Buyer
after the Closing).
“Agreement” shall have the meaning assigned such term in the Preamble.
“Associate” means, with respect to a Person, (A) any corporation or
2
organization of which such Person is an officer or partner or is directly or
indirectly the beneficial owner of 10% or more of any class of equity securities,
(B) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, and (C) any relative or spouse of a Person described in clauses (A) or (B)
of this definition or any relative of such spouse, who has the same home as such
Person.
“Benefit Plans” means any “employee benefit plans” (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)), bonus, pension, profit sharing, deferred compensation, incentive
compensation, excess benefit, stock, stock option, employment, severance,
termination pay, change in control or other compensation or employee benefit plans,
programs, arrangements or agreements currently maintained or contributed to, or
required to be maintained or contributed to, by the Company for the benefit of any
current or former employees, officers, directors or independent contractors of the
Company, each an “Employee” .
“Business Day” means a day, other than a Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of business.
“Buyer” shall have the meaning assigned such term in the Preamble.
“Cash and Cash Equivalents” means the sum of the fair market value
(expressed in United States dollars) of all cash and cash equivalents (including
marketable securities and short term investments) of the Company as of immediately
prior to the Closing, but shall not include any amounts paid or held in escrow to
fund payments to be made, under the Settlement Agreement or Settlement Agreement
Waiver and Release.
“Company” means Midway-Tristate Corporation and includes any of its
predecessors.
“Company Expenses” means the sum of (i) the collective amount of the
Company’s and the Shareholders’ expenses payable by the Company to Thelen, Reid,
Brown, Raysman & Steiner LLP as of the Closing and all other out-of-pocket costs and
expenses incurred by the Company or any of the Shareholders and payable by the
Company, in each case in connection with the transactions contemplated by this
Agreement, plus (ii) any fees payable by the Company to the Shareholders or any
Affiliate of the Company, plus (iii) Transfer Taxes, plus (iv) any broker’s,
finder’s, investment banker’s, financial adviser’s or similar fee payable by the
Company or any of the Shareholders in connection with this Agreement or any of the
transactions contemplated hereby, plus (v) any amounts payable by the Company to any
officer, director or employee of the Company in the nature of a “change in control”,
closing or signing bonus, severance or retention payment or similar payment,
including, without limitation, the Severance Payments, as a result of the execution
and delivery of this Agreement
3
or the consummation of the transactions contemplated
hereby, including the Closing, except that any severance or termination
payments required to be made to any employees of the Company (other than those
persons listed on Schedule 6.10 hereto) by reason of such employees being terminated
prior to the Closing at the written request of Buyer shall not be deemed a Company
Expense, plus (vi) any amounts arising out of or relating to the Settlement
Agreement, including any waiver, amendment or release thereunder (including without
limitation, the Settlement Agreement Waiver and Release), plus (vii) all Taxes and
expenses arising from, attributable to, or related to the Excluded Assets and the
Company’s distribution thereof. Company Expenses shall not include any amounts
taken into account in Net Working Capital.
“Company Stock” shall have the meaning assigned such term in the
Recitals.
“Confidential Information” means all information (whether or not
reduced to written, electronic, magnetic or other tangible form) acquired in any way
by any Shareholder or the Company during the course of such Person’s affiliation
with the Company, concerning the products, services, projects, activities, business
or affairs of the Company or its clients or customers, including (i) all information
concerning Intellectual Property Rights of the Company, computer programs, system
documentation, special hardware, product hardware, related software development,
manuals, formulae, processes, methods, machines, compositions, ideas, improvements
or inventions, (ii) all sales and financial information, (iii) all independent
contractor, client, customer and supplier lists, (iv) all information concerning
services, clients, customers, cases, projects or marketing plans for any of those
services, clients, customers, cases or projects, and (v) all information relating to
the transactions contemplated by this Agreement and the Ancillary Documents.
Notwithstanding the foregoing, the term Confidential Information shall not include
information that is generally available to the public or becomes generally available
to the public other than as a result of a breach by any of the Shareholders of
Section 6.7.
“Debt” means the outstanding principal amount of, all accrued and
unpaid interest on and other payment obligations (including any premiums,
termination fees, expenses or breakage costs due upon prepayment of or payable in
connection with the consummation of the transactions contemplated by this Agreement)
in respect of, (i) any indebtedness for borrowed money of the Company, whether or
not recourse to the Company, (ii) any obligation of the Company evidenced by bonds,
debentures, notes or other similar instruments, (iii) any reimbursement obligation
of the Company with respect to letters of credit (including standby letters of
credit to the extent drawn upon), bankers’ acceptances or similar facilities issued for the account of the Company, (iv)
any obligation of the Company issued or assumed as the deferred purchase price of
property or services, (v) any capitalized lease obligation of the Company, and (vi)
any obligation of the type referred to in clauses (i) through (v) of this definition
of another Person the payment of which the Company has guaranteed or for which
4
the Company is responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise. For the avoidance of doubt, Debt shall not include
the lease agreements to be entered into by the Company as contemplated by Section
7.3(m).
“Debt Amount” means the aggregate amount of Debt outstanding
immediately prior to the Closing.
“Enterprise Value” means $82,500,000.
“Environmental Laws” means any and all federal, state, local and
foreign Laws (including case or common law) relating to human health and safety, the
environment or emissions, discharges or releases of pollutants, contaminants,
Hazardous Substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, facilities, structures, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the investigation, clean-up or other remediation thereof.
Without limiting the generality of the foregoing, “Environmental Laws” include: (i)
the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et
seq., as amended; (ii) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 26 U.S.C. § 4611 and 42 U.S.C. § 9601
et seq., as amended; (iii) the Superfund Amendment and
Reauthorization Act of 1984, as amended; and (iv) the Occupational Safety and Health
Act of 1976, 29 U.S.C. § 651, as amended, and all rules and regulations promulgated
thereunder.
“Estimated Purchase Price” means a good faith estimate of the Purchase
Price, as determined by the Representative three (3) Business Days prior to the
Closing based upon the Company’s most recent financial statements as of the date of
such estimate while taking into account changes in the Company’s consolidated
financial position since the date of such financial statements. In connection with
determining the Estimated Purchase Price, the Representative shall (i) use the
Enterprise Value, and (ii) estimate (A) the Debt Amount, (B) the amount of Company
Expenses, (C) the Net Working Capital Adjustment, and (D) the amount of Cash and
Cash Equivalents.
“GAAP” means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
“Governmental Entity” means the government of the United States of
America, any other nation or any political subdivision of any of the foregoing,
whether state or local, and any agency, authority, instrumentality, regulatory body,
court, or other entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of government.
“Hazardous Substances” means any substance that is toxic, ignitable,
5
reactive, corrosive, radioactive, caustic, or regulated or defined as a hazardous
substance, contaminant, toxic substance, toxic pollutant, hazardous waste, special
waste, or pollutant, including, without limitation, petroleum, its derivatives,
by-products and other hydrocarbons, poly-chlorinated bi-phenyls and asbestos
regulated under, or which is the subject of, applicable Environmental Laws.
“including” means including without limitation.
“Intellectual Property Rights” means and includes all inventions,
know-how, logos, marks (including brand names, product names, logos, and slogans),
methods, processes, proprietary information, URLs, works of authorship and other
forms of technology (whether or not embodied in any tangible form and including all
tangible embodiments of the foregoing), and all domestic and foreign patents,
trademarks and trade name rights, service marks, copyrights, trade secrets, moral
rights and other types of similar proprietary rights and all applications,
registrations, renewals and other filings with respect to any of the foregoing.
“Knowledge of the Company” means the actual knowledge of Michael J.
Cetro, Thomas W. Norton or Rick Eischeid, after due inquiry.
“Laws” means any federal, state, local or foreign law (including the
Foreign Corrupt Practices Act of 1977, as amended, and the laws implemented by the
Office of Foreign Assets Control, United States Department of Treasury), statute or
ordinance, common law, or any rule, regulation, standard, judgment, order, writ,
injunction, decree, arbitration award, agency requirement, license or permit of any
Governmental Entity.
“Material Adverse Effect” means an event, change or effect that has
had, or would reasonably be expected to have (a) a material adverse effect on the
assets, liabilities, business, results of operations or condition (financial or
otherwise) of the Company, other than any, event, change or effect resulting from
(i) changes in general economic conditions except to the extent such changes have a
disproportionate impact on the Company, relative to the other participants in the
industries in which the Company operates, (ii) the announcement of this Agreement
and the transactions contemplated hereby, or (iii) changes in GAAP applicable to the
Company, or (b) a material adverse effect on the ability of the Shareholders or the Company to
consummate the transactions contemplated hereby.
“Net Working Capital” means the net book value of the current assets of
the Company, as of immediately prior to the Closing, less the net book value of the
current liabilities of the Company, as of immediately prior to the Closing, in each
case, without duplication and as determined in a manner consistent with the
preparation of the column entitled “adjusted black book” set forth on the March 31
balance sheet of the Company attached on Exhibit A. Notwithstanding the
foregoing, in connection with calculating Net Working Capital the rules set forth
6
on Exhibit A shall be taken into account.
“Net Working Capital Adjustment” means (i) the amount by which Net
Working Capital as of immediately prior to the Closing exceeds $36,835,000, or (ii)
the amount by which Net Working Capital as of immediately prior to the Closing is
less than $36,835,000; provided that any amount which is calculated pursuant to
clause (ii) above shall be deemed to be a negative number.
“Non-Significant Shareholder” shall mean individually each Shareholder
and their Related Parties who in the aggregate hold less than 5% of the Company
Stock.
“Order” means any order, injunction, judgment, decree or ruling of any
Governmental Entity.
“Permitted Encumbrances” means (i) liens for Taxes that are not yet due
and payable or which are being contested in good faith for which an adequate reserve
has been established on the books and records of the Company and (ii) mechanics’,
workmen’s, repairmen’s, warehousemen’s, carriers’ or other statutory liens arising
or incurred in the ordinary course of business in respect of liabilities that will
be paid prior to Closing or included in the Debt Amount or in Net Working Capital.
“Person” means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization, or other entity.
“Purchase Price” means (i) the Enterprise Value, plus (ii) the
Net Working Capital Adjustment (which may be a negative number if the calculation
results in a negative number under clause (ii) of the definition of “Net Working
Capital Adjustment”), plus (iii) the amount of Cash and Cash Equivalents,
minus (iv) the Debt Amount, minus (v) the amount of Company
Expenses.
“Related Party” means (i) any Shareholder or any officer or director of
the Company, (ii) any spouse, former spouse, child, parent, parent of a spouse, sibling or grandchild of any of the Persons listed
in clause (i) above, and (iii) any Affiliate or Associate of any of the Persons
listed in clause (i) or (ii) above, other than the Company.
“Representative” shall have the meaning assigned such term in Section
10.15 hereof.
“Severance Payments” shall have the meaning assigned to such term in
Section 6.13 hereof.
“Significant Shareholder” shall mean individually each Shareholder and
their Related Parties who in the aggregate hold 5% or more of the Company Stock,
which for the avoidance of doubt shall include Michael J. Cetro, John A. Selzer,
Maythorpe Holdings Limited and Daniel J. Field.
7
“Tax” (and, with correlative meaning “Taxes”) means any
federal, state, local or foreign income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, premium, withholding, alternative
or added minimum, ad valorem, escheat, inventory, transfer or excise tax, or any
other tax, custom, duty, governmental fee or other like assessment or charge or any
kind whatsoever, together with any interest, penalty or addition to tax, imposed by
any Governmental Entity whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other Person;
and “Tax Return” means any report, return, statement, estimate, declaration,
notice, form or other information required to be supplied to a Governmental Entity
in connection with Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
“Transfer Tax” means any transfer, real property transfer, documentary,
gains, stock transfer and similar Tax.
ARTICLE II
Acquisition of Company Stock
2.1. Acquisition of Company Stock. Upon the terms and subject to the conditions of
this Agreement, at the Closing the Shareholders shall assign, transfer, convey and deliver to
Buyer, and Buyer shall acquire from the Shareholders, all of the shares of Company Stock issued and
outstanding immediately prior to the Closing (the “Outstanding Shares”) free and clear of
all Encumbrances.
2.2. Purchase Price. The Purchase Price for all of the Outstanding Shares shall be
payable by the Buyer as set forth in Section 2.3, subject to the adjustments set forth therein.
2.3. Adjustment to Purchase Price.
(a) Estimated Purchase Price. No later than three (3) Business Days prior to the Closing Date, the Representative shall deliver to Buyer a calculation of the Estimated
Purchase Price (which Estimated Purchase Price shall be reasonably acceptable to Buyer; provided,
that if the Estimated Purchase Price is between $33,385,850 and $36,900,150, then the Estimated
Purchase Price shall be deemed to be reasonably acceptable to Buyer). On the Closing Date, Buyer
shall pay, or shall cause to be paid, the Estimated Purchase Price as follows:
(i) An amount in cash equal to $4,125,000 (such amount, the “Escrow
Amount” and such cash, the “Escrow Funds”) shall be deposited into an
escrow account (the “Escrow Account”), which shall be established pursuant
to an escrow agreement (the “Escrow Agreement”), which Escrow Agreement (x)
shall be entered into on the Closing Date among the Representative, Buyer and an
escrow agent (the “Escrow Agent”) to be mutually agreed upon between the
Representative and Buyer and (y) shall be substantially in the form of Exhibit
B attached hereto;
(ii) An amount in cash equal to $9,000,000 (such amount, the
8
“Settlement Agreement Indemnification Escrow Amount” and such cash, the “Settlement
Agreement Indemnification Escrow Funds”) shall be deposited into an escrow
account (the “Settlement Agreement Indemnification Escrow Account”), which
shall be established pursuant to the Escrow Agreement; and
(iii) An amount in cash equal to the Estimated Purchase Price minus the
Escrow Amount and minus the Settlement Agreement Indemnification Escrow
Amount shall be paid by wire transfer of immediately available funds to the
Representative, on behalf of the Shareholders, for distribution to the Shareholders
in accordance with Schedule 1, in an account to be designated by the Representative
in a written notice to Buyer at least three (3) Business Days prior to the Closing,
net of applicable withholding taxes, if any.
(b) Preparation of the Final Statement of Purchase Price.
(i) As soon as practicable, but no later than sixty (60) days after the Closing
Date, Buyer shall prepare and deliver to the Representative the proposed calculation
of the Purchase Price (the “Proposed Purchase Price Calculation”) and the
components thereof, including (A) a proposed calculation of the Net Working Capital
and Net Working Capital Adjustment (the “Proposed Closing Date Statement of Net
Working Capital”), (B) a proposed calculation of the amount of Cash and Cash
Equivalents (the “Proposed Cash and Cash Equivalents”), (C) a proposed
calculation of the Debt Amount (the “Proposed Debt Amount Calculation”), and
(D) a proposed calculation of the amount of Company Expenses (the “Proposed
Company Expenses Calculation”), and, in each case, the components thereof,
together with reasonable supporting detail.
(ii) If the Representative does not give a written notice of dispute (a
“Purchase Price Dispute Notice”) to Buyer within thirty (30) days of
receiving the Proposed Purchase Price Calculation, Buyer and the Representative
agree that (A) the Proposed Closing Date Statement of Net Working Capital shall be
deemed to set forth the Net Working Capital, (B) the Proposed Cash and Cash
Equivalents shall be deemed to set forth the Cash and Cash Equivalents, (C) the
Proposed Debt Amount Calculation shall be deemed to set forth the Debt Amount, (D)
the Proposed Company Expenses Calculation shall be deemed to set forth the Company
Expenses and (E) the Proposed Purchase Price Calculation shall be deemed to be final
and binding in determining the Purchase Price. If the Representative gives a
Purchase Price Dispute Notice to Buyer (which Purchase Price Dispute Notice must set
forth, in reasonable detail, the items and amounts in dispute) within such 30-day
period, Buyer and the Representative will use commercially reasonable efforts to
resolve the dispute during the 30-day period commencing on the date Buyer receives
the applicable Purchase Price Dispute Notice from the Representative. Items and
amounts not objected to by the Representative shall be deemed resolved. If the
Representative and Buyer do not obtain a final resolution within such 30-day period,
then the items in dispute shall be submitted immediately to Deloitte & Touche LLP or
another nationally-recognized, independent accounting firm reasonably acceptable to
the
9
Representative and Buyer (the “Accounting Firm”). The Accounting Firm
shall be required to render a determination resolving the applicable dispute within
45 days after referral of the matter to the Accounting Firm, which determination
must be in writing and must set forth, in reasonable detail, the basis therefor.
The determination of the Accounting Firm shall be conclusive and binding upon the
Representative, the Shareholders and Buyer. Buyer will revise the Proposed Purchase
Price Calculation as appropriate to reflect the resolution of any objections thereto
pursuant to this Section 2.3(b)(ii). The “Final Statement of Purchase
Price” shall mean the Proposed Purchase Price Calculation together with any
revisions thereto pursuant to this Section 2.3(b)(ii).
(iii) In the event the Representative and Buyer submit any unresolved
objections to the Accounting Firm for resolution as provided in Section 2.3(b)(ii),
the responsibility for the fees and expenses of such Accounting Firm shall be paid
by Buyer, on the one hand, and the Representative on behalf of the Shareholders, on
the other hand, in inverse proportion (based on value) as Buyer and the
Representative prevail on any disputed matters, as determined by the Accounting
Firm.
(iv) Buyer will make the Company’s financial records available to the Accounting Firm and the Representative and its accountants, if any, and other
representatives at reasonable times at any time during the review by the
Representative and/or the Accounting Firm, as the case may be, of, and the
resolution of any objections with respect to, the Proposed Purchase Price
Calculation.
(c) Adjustment to Estimated Purchase Price.
(i) If the Actual Adjustment is a positive amount, Buyer will pay, or cause to
be paid, to the Representative on behalf of the Shareholders for distribution to the
Shareholders in accordance with Schedule 1, such positive amount, net of applicable
withholding taxes, if any, by wire transfer or delivery of other immediately
available funds, in each case, within three (3) Business Days after the date on
which the Purchase Price is finally determined pursuant to Section 2.3(b).
(ii) If the Actual Adjustment is a negative amount, Buyer and the
Representative will instruct the Escrow Agent to pay to Buyer such negative amount,
net of applicable withholding taxes, if any, from the Escrow Funds by wire transfer
or delivery of other immediately available funds, in each case, within three (3)
Business Days after the date on which the Purchase Price is finally determined
pursuant to Section 2.3(b). If the Escrow Funds are insufficient to pay such
negative amount, the Shareholders shall pay Buyer the amount of any shortfall
pro-rata based on their equity interests in the Company as reflected on Schedule 1.
2.4. Closing. Subject to the provisions of Article VII, the closing of the
transactions
10
contemplated by this Agreement (the “Closing”) and all actions specified in
this Agreement to occur at the Closing shall take place at the offices of Fried, Frank, Harris,
Shriver & Jacobson LLP, One New York Plaza, New York, New York at 9:00 a.m., New York time, on the
fifth Business Day immediately following the day on which the last of the conditions set forth in
Article VII (other than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions) are satisfied or waived in
accordance with this Agreement, or on such other date as Buyer and the Representative shall agree
(the date on which the Closing takes place, the “Closing Date”).
2.5. Withholding. Notwithstanding anything in this Agreement to the contrary, Buyer
shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement (including, without limitation, the distribution of the Excluded Assets as provided in
Section 6.11) such amounts as Buyer or the Company is required to deduct and withhold with respect
to the making of such payment or distribution under the Internal Revenue Code of 1986, as amended
(the “Code”), or any provision of state, local or foreign Tax law. To the extent that
amounts are so withheld and paid over to the appropriate taxing authority, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the Person in respect of
which such deduction and withholding was made.
ARTICLE III
Representations and Warranties of the Shareholders
Each Shareholder, severally and not jointly, represents to Buyer, as follows:
3.1. Ownership; Authorization of Transaction. (a) Schedule 1 accurately sets forth
the number of shares of Company Stock owned of record and beneficially by such Shareholder. Such
Company Stock is owned by such Shareholder free and clear of any Encumbrances.
(b) Such Shareholder has full power and authority to execute and deliver this Agreement and
each agreement, certificate or other instrument executed or to be executed in connection with this
Agreement, including the Escrow Agreement (which shall be executed by the Representative in his
capacity as the true and lawful agent and attorney-in-fact of each of the Shareholders) (the
“Ancillary Documents”) to which such Shareholder is a party and to perform such
Shareholder’s obligations hereunder and thereunder. This Agreement and each Ancillary Document to
which such Shareholder is a party constitute, or upon execution will constitute, a valid and
legally binding obligation of such Shareholder, enforceable against such Shareholder in accordance
with their respective terms, except as limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar Laws affecting the enforcement of creditors’ rights.
3.2. No Conflicts. With the exception of any filing required, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and except as
set forth on Schedule 3.2, the execution and the delivery of this Agreement and the Ancillary
Documents to which such Shareholder is a party and the consummation of the transactions
contemplated hereby and thereby will not (a) violate any Law or Order to which such Shareholder is
subject, (b) result in the creation or imposition of any mortgage, pledge, lien, encumbrance,
11
claim, charge, security interest, or other restriction (“Encumbrances”) upon the Company
Stock owned of record and beneficially by such Shareholder, or (c) require such Shareholder to give
any notice to, make any filing with, or obtain any authorization, consent or approval of, any
Person.
ARTICLE IV
Representations and Warranties of the Company and the Shareholders
The Company and each of the Significant Shareholders, jointly and severally, represent and
warrant to Buyer, as follows:
4.1. Authorization of Transaction. The Company has full power and authority to
execute and deliver this Agreement and each Ancillary Document to which it is a party and to
perform its obligations hereunder and thereunder, and the execution, delivery and performance by
the Company of this Agreement and the Ancillary Documents to which it is a party have been duly
authorized by all necessary corporate action on the part of the Company. This Agreement and each
Ancillary Document to which the Company is a party constitute, or upon execution will constitute, a
valid and legally binding obligation of the Company, enforceable against the Company in accordance with their respective terms, except as limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting the
enforcement of creditors’ rights.
4.2. Corporate Organization; Authority. The Company is a corporation duly organized,
validly existing and in good standing under the Laws of the State of New York, and has all
requisite corporate power and authority to own, lease and operate the assets owned, leased and
operated by it and to carry on its business as currently being conducted. The Company is duly
qualified or licensed to do business and is in good standing in each jurisdiction in which the
assets owned, leased or operated by it or the nature of the business conducted by it makes such
licensing or qualification necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed or in good standing, individually or in the aggregate, has not had or would
not reasonably be expected to have a Material Adverse Effect. The Company has delivered to Buyer
complete and correct copies of its certificate of incorporation and bylaws as in effect on the date
of this Agreement. Listed on Schedule 4.2 is each jurisdiction in which the Company is qualified
to do business and in good standing.
4.3. Capitalization; Debt. (a) The authorized capital stock of the Company consists
of (i) 800,000 shares of common stock, par value $0.01, of which there are 83,185 shares issued and
outstanding and owned by the Persons listed on Schedule 1, and (ii) 200,000 shares of preferred
stock, par value $0.01, of which no shares are issued and outstanding. All of the outstanding
shares of Company Stock have been duly authorized and validly issued, are fully paid and
nonassessable and are not subject to any preemptive rights. Except as set forth on Schedule 1,
there are no outstanding (A) shares of capital stock or other securities of the Company, (B)
options, warrants, stock appreciation rights or other rights to acquire from the Company, or to
cause the Company to issue, any capital stock or other securities, (C) phantom stock rights, stock
appreciation rights or other equity related rights of the Company, or (D) Contracts, whether or not
the Company is a party thereto, obligating or permitting the Company to issue, or to redeem or
purchase, or otherwise pertaining to, any shares of capital stock or other securities of the
12
Company. Upon the Closing, Buyer will own all of the Outstanding Shares, and such ownership will
be free and clear of any Encumbrances.
(b) Schedule 4.3(b) sets forth a complete and current list of all outstanding Debt of the
Company as of February 28, 2007. Except as set forth on Schedule 4.3(b), the Company has not
incurred, assumed or guaranteed any Debt, nor is a party to a Company Contract which obligates it
to incur, assume or guarantee any Debt or which provides for the imposition of any Encumbrance on
any of its assets, tangible or intangible.
(c) The Company has provided Buyer with all documentation relating to the Settlement Agreement
dated as of September 11, 2006 between the Company, John A. Selzer, United States Small Business
Administration as Receiver of Sterling/Carl Marks Capital Inc. and CMNY Capital II, LP
(“Settlement Agreement”). The Company paid in full the Compensation for Transfer (as
defined in the Settlement Agreement) to United States Small Business Administration as Receiver of
Sterling/Carl Marks Capital Inc. and CMNY Capital II, LP on October 3, 2006 (“Compensation for
Transfer Payment Date”).
4.4. Brokers’ Fees. Except as set forth on Schedule 4.4, neither the Company nor any
of the Shareholders has any liability or obligation to pay any finder’s, investment banking or
other fees or commissions to any broker, finder, or agent with respect to any of the transactions
contemplated by this Agreement or the Ancillary Documents.
4.5. Subsidiaries and Investments. The Company does not have any equity interest or
other equity or debt investment in, or possesses any right or obligation to purchase any equity
interests or other equity or debt investment in, any Person.
4.6. No Conflicts. With the exception of any filing required under the HSR Act, if
any, and except as set forth on Schedule 4.6, the execution and the delivery of this Agreement and
the Ancillary Documents to which the Company or any of the Significant Shareholders is a party and
the consummation of the transactions contemplated hereby and thereby will not (a) violate any Law
or Order to which the Company is subject, (b) result in the creation or imposition of any
Encumbrance upon the assets of the Company, or (c) conflict with, result in a breach of, constitute
a default under, result in any loss of or any acceleration of any rights or obligations under,
create in any party the right to accelerate, terminate, modify or cancel, or give rise to any
payments or compensation under, any Company Contract, Permit, Order, or the certificate of
incorporation or bylaws of the Company. The Company is not the beneficiary of, or exempt from, any
Law, Order or Permit because of a “grandfather clause” that will not be available to it following
the Closing.
4.7. Financial Statements. Attached hereto as Schedule 4.7 are the following
financial statements of the Company (collectively, the “Financial Statements”): (x) the
audited balance sheet of the Company and the audited statements of income, cash flows and
shareholders’ equity of the Company as of and for the years ended July 31, 2004, July 31, 2005 and
July 31, 2006 and the reports thereon delivered by Rehmann Robson Certified Public Accountants; and
(y) the unaudited balance sheet of the Company (the “February 28 Balance Sheet”) and the
unaudited statements of income, cash flows and shareholders’ equity of the Company as of and for
the seven-month period ended February 28, 2007 (together with the February 28 Balance Sheet, the
13
“Unaudited Interim Financial Statements”). The Financial Statements (i) have been prepared
in accordance with GAAP applied on a consistent basis, (ii) fairly present in all material respects
the financial condition of the Company as of such dates and the results of operations,
shareholders’ equity and cash flows of the Company for such periods (subject, in the case of the
Unaudited Interim Financial Statements, to normal year end adjustments consistent with past
practice which are not, individually or in the aggregate, material, and the absence of footnotes),
(iii) are correct and complete in all material respects, and (iv) are consistent with the books and
records of the Company. The Company has received unqualified audit opinions from Rehmann Robson
Certified Public Accountants with respect to each of the audited Financial Statements described in
clause (x) of this Section 4.7. Except as set forth on Schedule 4.7, the Company has no
liabilities or obligations of any kind, whether accrued, absolute, fixed or contingent (together
the “Liabilities”), except for (A) Liabilities set forth or reserved against on the
February 28 Balance Sheet (in the amount or of the magnitude so set forth or reserved against), and
(B) Liabilities arising in the ordinary course of business since February 28, 2007 (none of which
is a result of a breach of Contract or violation of Law) which, individually or in the aggregate,
have not had or would not reasonably be expected to have a Material Adverse Effect.
4.8. Absence of Certain Changes. Since July 31, 2006, the Company has operated only
in the ordinary course of business consistent with past practices, and there has not been any
event, change, action, failure to act or transaction which, individually or in the aggregate, has
had or would reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 4.8, since July 31, 2006, the Company has not taken any actions which, had such actions
occurred after the date of this Agreement, would have breached any of the covenants contained in
Section 6.2.
4.9. Compliance with Laws. To the Knowledge of the Company, the Company has been and
is in compliance with all applicable Laws (which compliance includes the possession by the Company
of all material authorizations, licenses, permits, exemptions, certificates and approvals of any
Governmental Entity (each a “Permit” and, collectively, “Permits”) required under
applicable Law, all of which are in full force and effect, and the Company has been and is in
compliance with the terms and conditions thereof), and to the Knowledge of the Company no event has
occurred and no circumstance exists that (with or without notice or lapse of time) would result in
the Company failing to be in compliance in any material respect with any Law or would result in the
suspension or revocation of any Permit. Schedule 4.9 sets forth a complete and accurate list of
all material Permits held by the Company. During the last five (5) years, the Company has not
received any written communication that alleges that the Company, or any agent thereof, is, or may
be, in violation of, or has, or may have any material liability under, any Laws which has not been
resolved.
4.10. Litigation. Neither the Company nor any of the Shareholders (a) is subject to
any Order, or (b) is a party to or the subject of, or, to the Knowledge of the Company, threatened
to be made a party to or the subject of, any claim, action, suit, proceeding, hearing, audit or
investigation in, by or before any Governmental Entity or any arbitrator (“Litigation”).
Except as set forth on Schedule 4.10, since July 31, 2003 the Company has not been a party to any
Litigation that has been settled, dismissed or resolved. There is no Litigation pending, or to the
Knowledge of the Company, threatened, against or involving any director, officer or employee in
connection with such Person’s relationship with, or actions taken by such Person on behalf of, the
14
Company.
4.11. Tax Matters. (a) The Company has duly and timely filed all Tax Returns
required to be filed by them, and all such Tax Returns are true, complete and correct in all
material respects. The Company has paid all Taxes due and owing by the Company (whether or not
shown on any Tax Return). The February 28 Balance Sheet reflects adequate accruals for all Taxes
payable by the Company for all taxable periods and portions thereof through February 28, 2007.
Except as set forth on Schedule 4.11(a), since February 28, 2007, the Company has not incurred any
liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP,
outside the ordinary course of business consistent with past custom or practice.
(b) The Company has complied in all material respects with all applicable Laws relating to the
payment and withholding of Taxes and has, within the time and in the manner prescribed by
applicable Laws, withheld and paid over to the proper Governmental Entity all amounts required to
have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
(c) Except as set forth on Schedule 4.11(c), (i) no deficiencies for any Taxes have been
proposed, asserted or assessed against the Company, and no Significant Shareholder or officer or
director (or employee responsible for Tax matters) of the Company has knowledge relating to any
such deficiency or otherwise expects any Governmental Entity to assess any additional Taxes for any
period for which Tax Returns have been filed, (ii) no Governmental Entity is conducting or
proposing to conduct an audit or administrative or judicial proceeding with respect to Taxes or any
Tax Returns of the Company, (iii) no extension or waiver of the statute of limitations with respect
to Taxes or any Tax Return has been granted by the Company, which remains in effect, (iv) the
Company is not a party to or bound by any Contract to allocate, share or indemnify another party
for Taxes, (v) all Tax deficiencies which have been proposed, asserted or assessed against the
Company have been fully paid or finally settled, and no issue has been raised in any examination by
a taxing authority which, by application of similar principles, could be expected to result in the
proposal or assertion of a Tax deficiency against the Company for another year not so examined,
(vi) no power of attorney has been granted by or with respect to the Company with respect to any
matter relating to Taxes which remains in effect, (vii) the Company has not received notice of a
claim by any Governmental Entity in any jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction and (viii) the Company has
not been a member of an affiliated group filing a consolidated federal income Tax Return, and the
Company is not liable for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign Law), as a transferee or successor, by contract,
or otherwise.
(d) Schedule 4.11(d) sets forth the taxable years of the Company as to which the respective
statutes of limitations with respect to Taxes have not expired and, with respect to such taxable
years, those years for which examinations have been completed, those years for which examinations
are presently being conducted, those years for which examinations have not been initiated and those
years for which required Tax Returns have not yet been filed.
(e) The Company will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending
15
after the Closing Date as a result of any: change in method of accounting for a taxable period ending on or prior to
the Closing Date; “closing agreement” as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law) executed on or prior
to the Closing Date; intercompany transaction or excess loss account described in Treasury
Regulations under Section 1502 of the Code (or any corresponding or similar provision of state,
local or foreign income Tax law); installment sale or open transaction disposition made on or prior
to the Closing Date; or prepaid amount received on or prior to the Closing Date.
(f) The Company is not and has never been a “United States real property holding corporation”
within the meaning of Section 897(c)(2) of the Code.
(g) The Company (i) has not taken any deduction or received any Tax benefit arising from
participation in a tax shelter as defined for purposes of Section 6111(c) of the Code, and (ii) has
not participated in a reportable transaction as defined in Treasury Regulation Section 1.6011-4(b) and (c)(3) or any analogous or similar state, local, or foreign Law.
(h) There are no liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of the Company.
(i) Schedule 4.11(i) sets forth, as of July 31, 2006, the approximate net operating loss
carryforward of the Company for U.S. federal income Tax purposes. Except as set forth on Schedule
4.11(i), the Company is not subject to any restriction or limitation (including, without
limitation, a restriction or limitation imposed under Section 382, 383 or 384 of the Code) on its
ability to utilize such net operating loss carryforward.
(j) Except as set forth on Schedule 4.11(j), the Company has not constituted a “distributing
corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code)
in a distribution of stock, occurring within the past two years, that was intended to qualify for
tax-free treatment under Section 355 of the Code.
(k) The Company has made available to Buyer true, correct and complete copies of all federal
income Tax Returns and all other Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company that have been filed or received since December 31,
2004.
(l) Each material Tax election made by the Company has been timely and properly made.
4.12. Assets. Except as set forth on Schedule 4.12, the Company owns and has good and
valid title, free and clear of Encumbrances (other than Permitted Encumbrances), to all of its
assets, and such assets are adequate and sufficient for the continuing conduct of the business of
the Company as currently conducted. All physical assets included in any of the assets of the
Company are in good operating condition and repair, subject to normal wear and tear occurring in
the ordinary course of business.
4.13. Real Property. (a) Schedule 4.13(a) sets forth a true and complete list of all
real
16
property owned by the Company (the “Owned Real Property Interests”). With respect to
each of the Owned Real Property Interests listed and described on Schedule 4.13(a), (i) the Company
has good and marketable fee simple title, free and clear of Encumbrances (other than Permitted
Encumbrances), (ii) except as set forth on Schedule 4.13(a), the Company has not leased or
otherwise granted to any Person the right to use or occupy such Owned Real Property Interest or any
portion thereof, and (iii) other than the rights of Buyer pursuant to this Agreement, there are no
unrecorded options, rights of first offer or rights of first refusal to purchase such Owned Real
Property Interest or any portion thereof or interest therein.
(b) Schedule 4.13(b) includes a true and complete list of all leases, subleases, or other
occupancies used by the Company or to which the Company is a party (the “Leased Real Property
Interests”). Each of the Leased Real Property Interests is in full force and effect, free and
clear of any Encumbrances (other than Permitted Encumbrances), and there is no default by the
Company in respect of any such Leased Real Property Interests.
4.14. Related Party Transactions. (a) Except as set forth on Schedule 4.14(a), no
Shareholder or other Related Party (i) has any interest in any property (real, personal, or mixed
and whether tangible or intangible), used in or pertaining to the business of the Company as
currently conducted, (ii) owns, of record or as a beneficial owner, an equity interest or any other
financial or a profit interest in a Person that has had business dealings or a material financial
interest in any transaction with the Company, or (iii) is a party to any Contract with, or has any
claim or right against, the Company (except for employment and similar Contracts and claims
thereunder or under any Benefit Plan).
(b) Except as set forth on Schedule 4.14(b), the Company is not indebted, directly or
indirectly, to any Person who is a Related Party in any amount whatsoever, other than for salaries
for services rendered or reimbursable business expenses, nor is any such Related Party indebted to
the Company, except for advances made to employees of the Company in the ordinary course of
business to meet reimbursable business expenses anticipated to be incurred by such obligor.
4.15. Contracts. (a) Schedule 4.15 sets forth each contract, agreement, commitment,
arrangement or understanding, written or oral (each, a “Contract” and, collectively,
“Contracts”), to which the Company is a party or by which the Company or any of its
properties or assets is or may be bound (each, a “Company Contract” and, collectively,
“Company Contracts”):
(i) for the lease from or to any Person of any real property;
(ii) for the lease of personal property under which the Company is the lessee
and is obligated to make payments of more than $25,000 per annum;
(iii) which concerns a partnership or joint venture with any Person;
(iv) which is a marketing, sales, advertising or distribution agreement
relating to the Products or the Company’s service offerings;
(v) which restricts the conduct of any business by the Company or any of its
Affiliates, or any geographic area in which the Company or any of its Affiliates may
conduct business or the ability of the Company or any of its
17
Affiliates to solicit for hire or to hire any Person;
(vi) which obligates any Person to maintain confidentiality of information
relating to the Company or any of its Affiliates or obligates the Company or any of
its Affiliates to maintain confidentiality of information relating to any Person;
(vii) which constitutes a license, sublicense or permission in respect of, or
grants any right to use or practice any rights under, any intellectual property,
whether the Company is the licensee or licensor thereunder, or for the development
or acquisition of intellectual property;
(viii) which is a stock purchase agreement, asset purchase agreement or other
acquisition or divestiture Contract entered into by the Company during the past five
(5) years or contains any indemnification provision that is currently in effect;
(ix) with respect to the lending or investing of funds by the Company to or in
any Person other than the Company;
(x) which relates to any Litigation that was pending against the Company at any
time during the last five years;
(xi) which is a Company Contract not otherwise required to be disclosed by this
Section 4.15, requiring payments after the date hereof to or by the Company of
$25,000 or more over the life of the Company Contract, other than customer purchase
orders entered into in the ordinary course of business;
(xii) which was not entered into in the ordinary course of business; or
(xiii) which, individually or with all other Company Contracts of the same type
or with the same or Affiliated parties (whether or not required to be disclosed
under any of the other clauses of this Section 4.15), is material to the Company
irrespective of amount.
(b) The Company has made available to Buyer complete and correct copies of each written
Company Contract (including all amendments thereto) and a summary of the material terms of each
oral Company Contract (or a copy of written terms proposed for Company Contracts not executed but
in which performance has begun) required to be listed in Schedule 4.15. All of the Company
Contracts are valid and legally binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, except as limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar Laws affecting the enforcement of creditors’
rights and, neither the Company, nor, to the Knowledge of the Company, any other party to any
Company Contract is in breach or default thereunder, and to the Knowledge of the Company, no event
has occurred which, with notice or lapse of time or both would constitute a breach or default
thereof, require indemnification by the Company thereunder, or permit termination or modification
thereof or acceleration thereunder.
18
4.16. Insurance. Schedule 4.16 contains a true and complete list of all policies of
excess loss, fire, liability, production, completion bond, workmen’s compensation and other forms
of insurance currently in effect or in effect at any time since July 31, 2003 covering any of the
assets, business, officers, directors or employees of the Company. All current insurance policies
are in full force and effect and all premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or will be paid prior to the Closing. Such policies (i)
are sufficient for compliance with all requirements of Law and of all Company Contracts, (ii)
provide insurance coverage for the assets and business of the Company consistent with the coverage
customarily maintained by similarly situated companies, (iii) cover the respective policy periods
set forth in Schedule 4.16, and (iv) will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement and the Ancillary Documents. During the last three years, the Company has not been refused any
insurance, nor has its coverage been limited by any insurance carrier. The Company has timely
filed all claims for which they are seeking payment or other coverage under any of their insurance
policies. The Company has not received any notice of increase in premiums with respect to, or any
notice of cancellation or non-renewal of, any of its current insurance policies, and the Company
has not made any claim against an insurance policy as to which the insurer is denying coverage or
defending the claim under a reservation of rights.
4.17. Employees; Benefits. (a) Schedule 4.17(a)(i) sets forth a list of all Benefit
Plans. The Company does not have any Contract, whether legally binding or not, to maintain or
modify any Benefit Plan, or to establish any other compensation or employee benefit plan, program,
agreement or arrangement. The Company has delivered to Buyer complete and correct copies of each
material Benefit Plan. Except as set forth on Schedule 4.17(a)(ii), each Benefit Plan may be
amended, terminated or otherwise discontinued at the will of the Company without any liability for
such amendment, termination or discontinuance other than for the payment of benefits accrued
through the date thereof. The Company has no present intention to materially amend, suspend,
terminate or otherwise modify any Benefit Plan in a manner that would adversely change benefits (or
the level thereof) thereunder. Since January 1, 2006, there has not been any amendment or change
in interpretation relating to any Benefit Plan which would, individually or in the aggregate,
materially increase the aggregate cost to the Company of such Benefit Plan.
(b) Except as set forth on Schedule 4.17(b), the Company is not and has not ever been (i) a
member of a “controlled group of corporations,” under “common control” or an “affiliated service
group” within the meaning of Section 414(b), (c) or (m) of the Code, (ii) required to be aggregated
under Section 414(o) of the Code or (iii) under “common control,” within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing
Sections, in each case with any other entity.
(c) Each Benefit Plan has been administered in material compliance with the terms thereof and
all applicable Laws (including, without limitation, (i) provisions relating to the timely making of
contributions, premiums and payments, and (ii) the prohibited transaction provisions of Section 406
of ERISA and Section 4975 of the Code). Each Benefit Plan which is an “employee pension benefit
plan” (within the meaning of Section 3(2) of ERISA) and which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter for such determination
from the Internal Revenue Service, and no circumstances exist which could reasonably be expected to
adversely affect such qualification. Each Benefit Plan
19
that is required to be registered or approved by a Governmental Entity has been registered with, or approved by, such Governmental
Entity and has been maintained in accordance with such registration or approval requirements.
(d) No Benefit Plan is subject to Title IV of ERISA or Section 412 of the Code, and no Benefit
Plan is a “multiemployer plan” (as defined in Section 3(37) of ERISA). The Company has never
participated in a voluntary employees beneficiary association, as defined in Section 501(c)(9) of
the Code nor has it participated in a “multiemployer plan”.
(e) Except as set forth on Schedule 4.17(e), with respect to any Benefit Plan that provides
medical, health, life insurance or other, similar benefits, (i) no such Benefit Plan provides benefits beyond termination of employment or retirement other than coverage mandated
by statute, and (ii) claims under each such Benefit Plan (x) are subject to contracts of insurance
or (y) are subject to contracts with one or more health maintenance organizations, in the case of
each of (x) and (y) pursuant to which one or more entities other than the Company bear the
liability for such claims. Each insurance contract relating to any Benefit Plan is valid and
enforceable, and, to the Knowledge of the Company, there is no ground on which the insurer might
avoid liability thereunder.
(f) Except as set forth on Schedule 4.17(f), the execution and delivery of, and performance of
the transactions contemplated by this Agreement or any Ancillary Document will not (either alone or
upon the occurrence of any additional or subsequent events) (i) constitute an event under any
Benefit Plan that will or is reasonably likely to result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee of the Company, or (ii) result
in the triggering or imposition of any restrictions or limitations on the right of the Company or
Buyer to cause any such Benefit Plan to be amended or terminated (or which would result in any
adverse consequence for so doing). Except as set forth on Schedule 4.17(f), no payment or benefit
that will or may be made by the Company with respect to any employee of the Company under any
Benefit Plan in connection with the transactions contemplated by this Agreement will be
characterized as an “excess parachute payment” within the meaning of Section 280G(b)(1) of the
Code.
(g) The Company (i) is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services performed by such
employee or for reimbursement of expenses, and (ii) is in compliance in all material respects with
all applicable Laws respecting employment, employment practices, labor, employment discrimination,
civil rights, safety and health workers’ compensation, pay equity, classification of employees, the
collection and payment of withholding and/or social security taxes, terms and conditions of
employment and wages and hours. Except as set forth in Schedule 4.17(g), (w) the Company is not a
party to any collective bargaining agreement covering any current or former employees of any of
them; (x) there is no unfair labor practice complaint or charge against the Company pending or, to
the Knowledge of the Company, threatened before the National Labor Relations Board or similar body
of any other Governmental Entity; (y) there is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of the Company, threatened against or affecting the Company and there
has been no such job action during the past three years; and (z) no representation question exists
respecting the employees of the
20
Company, and, to the Knowledge of the Company, there are no current organizing activities among the employees of the Company. Without limiting the generality of this
Section 4.17(g), to the Knowledge of the Company, any individual who performs services for the
Company and who is not classified as an employee by the Company is not an employee for purposes of
(i) payments of wages and related withholding of Taxes, or (ii) participation in any Benefit Plan.
(h) The Company does not have any liability for payments or benefits due as a result of any
“mass layoff” or “employment loss” (as each is defined in the Worker Adjustment and Restraining
Notification Act of 1988) which has not been satisfied in full; nor has the Company been affected
by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local Law.
(i) There are no written personnel policies or employee handbooks applicable to employees of
the Company other than those set forth on Schedule 4.17(i). Complete and correct copies of such
written personnel policies and employee handbooks have heretofore been delivered to Buyer.
(j) Except as set forth on Schedule 4.14(b) or Schedule 4.17(j), there are no outstanding
notes payable from, accounts receivable from, or advances by the Company to, and the Company is not
otherwise a creditor of, any employee of the Company, other than compensation advances in the
ordinary course of business.
4.18. Intellectual Property Rights. The Company owns or has the right to use all
Intellectual Property Rights used in the conduct of the business of the Company as currently
conducted, including, without limitation, the ownership or right to use the name “Midway,” as its,
or as a part of its, trade name, corporate name, brand name, d/b/a name, trademark, service mark or
any other identifier of source or goodwill, in connection with the operation of its business, as
currently conducted, without conflict with rights of other Persons (“Company Intellectual
Property Rights”), and all such Company Intellectual Property Rights owned by the Company are
free and clear of all Encumbrances (other than Permitted Encumbrances). Neither the execution or
delivery of this Agreement, nor the consummation of the transactions contemplated hereby will alter
or impair the Company Intellectual Property Rights or, with or without notice or lapse of time,
result in, or give any other Person the right or option to cause or declare, a breach or
termination of, or cancellation or reduction in rights of the Company under, any Contract providing
for the license of any Intellectual Property Right to the Company. The Company has taken all
commercially reasonable steps to protect and maintain the Company Intellectual Property Rights,
including by obtaining enforceable assignment and confidentiality agreements from any employee or
consultant that could reasonably be expected to create Company Intellectual Property Rights. To
the Knowledge of the Company, no Person is infringing or otherwise violating the Company
Intellectual Property Rights. Schedule 4.18 lists all Company Intellectual Property Rights owned
by the Company that are patents, and applications therefor, registered trademarks, trade names,
service names and service marks, logos and trade dress and applications therefor, and copyright
registrations and applications therefor. To the Knowledge of the Company, the Company is not
infringing or otherwise violating the Intellectual Property Rights of any other Person. Except as
set forth on Schedule 4.18, since March 1, 2001, the Company has not received any written notice
alleging that the Company is infringing upon or otherwise violating the Intellectual Property
Rights of any Person, and to the Knowledge of the
21
Company, there are no facts that would support any such allegation. Except as set forth on Schedule 4.18, the Company is not a party to any
action, suit or other proceeding relating to Intellectual Property Rights.
4.19. Books and Records. The books and records of the Company have been maintained in
accordance with sound business practices, including the maintenance of an adequate system of
internal controls, and fairly and accurately reflect, in all material respects, on a basis
consistent with past periods and throughout the periods involved, (i) the financial position of the
Company, and (ii) all transactions of the Company. The minute books of the Company, complete and
correct copies of which have been delivered to Buyer, contain complete and correct records of all
meetings held of, and corporate actions taken by, the shareholders, the board of directors, and
committees, if any, of the board of directors of the Company, as applicable, and no meeting of any such shareholders, board of directors or committees has been held for which
minutes have not been prepared and are not contained in such minute books.
4.20. Suppliers and Customers. Schedule 4.20 contains a list of the top twenty (20)
suppliers of the Company and the top twenty (20) customers of the Company in each case for the
seven (7) month period ending February 28, 2007. Since July 31, 2003, there has been no
termination, cancellation or threatened termination or cancellation of, or any modification in, or
any dissatisfaction with, or adverse change in, the business relationship of the Company with any
supplier, vendor, customer or client of the Company listed on Schedule 4.20, except for such
occurrences in the ordinary course of business which, individually or in the aggregate, have not
had or would not reasonably be expected to have a Material Adverse Effect. To the Knowledge of the
Company there exists no threatened termination or cancellation of, or any modification in, or any
dissatisfaction with, or adverse change in, the business relationship of the Company with any
material supplier, vendor, customer or client of the Company.
4.21. Environmental Matters. Except as set forth on Schedule 4.21, (i) The Company
is in compliance in all material respects with all applicable Environmental Laws and possesses and
is in compliance in all material respects with all permits, licenses, authorizations,
certifications and registrations required under Environmental Law; (ii) all real property currently
or formerly owned, leased or operated by the Company, or any its predecessors, are free of any
Hazardous Substances constituting a material violation of, or likely to give rise to material
liability under Environmental Laws; (iii) there have been no releases of Hazardous Substances at,
under, about or migrating to or from, any real property currently or formerly owned, leased or
operated by the Company, or any its predecessors, requiring investigation, remediation or other
response action pursuant to Environmental Law; (iv) the Company is not the subject of any pending,
or to the Knowledge of the Company, threatened, claims, notices, actions, suits, hearings,
investigations, inquiries, or proceedings alleging a violation of, or liability under,
Environmental Law; (v) to the Knowledge of the Company, there are no past or present conditions,
events, facts or circumstances that may interfere with or prevent continued compliance by the
Company with Environmental Laws or that may cause the Company to incur liability or other
obligations under any Environmental Laws; and (vi) the Shareholders have delivered to Buyer true
and complete copies and results of any written reports, studies, analyses, tests, or monitoring
possessed by the Shareholders or the Company pertaining to any releases of Hazardous Substances at,
under, about or migrating to or from, any real property currently or formerly owned, leased or
operated by the Company, or any of its predecessors, or concerning
22
compliance by the Company with Environmental Laws.
4.22. Power of Attorney. None of the Shareholders or the Company has given any
irrevocable power of attorney (other than such powers of attorney given in the ordinary course of
business with respect to routine matters or as may be necessary or desirable in connection with the
transactions contemplated hereby) to any Person for any purpose whatsoever with respect to the
Company.
4.23. Product Warranty and Product Liability. There is no notice, demand, claim,
action, suit, inquiry, hearing, proceeding, notice of violation or investigation from, by or before
any Governmental Entity relating to any product, including the packaging and advertising related
thereto, designed, formulated, manufactured, processed, sold, distributed or placed in the stream of commerce by the Company (a “Product”), or claim or lawsuit involving a Product
which is, to the Knowledge of the Company, pending or threatened in writing, by any Person which is
reasonably likely to result in any material liability to the Company. There has not been, nor is
there under consideration by the Company, any Product recall or post-sale warning conducted by or
on behalf of the Company concerning any Product. To the Knowledge of the Company, all Products,
comply in all material respects with applicable specifications, government safety standards and
Laws, and are substantially free from contamination, deficiencies or defects.
4.24. Purchase and Sale Agreements. No claims for indemnification under any prior
purchase and sale agreements to which the Company is a party, have been made by or against the
Company in the last five (5) years, or are pending or threatened by the Company and, no claims for
indemnification have been made in the last five (5) years, or to the Knowledge of the Company are
pending or threatened, by any counterparties thereto.
4.25. Escheat Property. The Company has no Liabilities under any applicable Laws
pertaining to abandoned property, escheat or other similar Laws with respect to return of fees,
outstanding payables, unclaimed checks or other similar matters.
ARTICLE V
Representations and Warranties of Buyer
Buyer represents and warrants to the Shareholders, as follows:
5.1. Organization. Buyer is a corporation duly organized, validly existing, and in
good standing under the Laws of the State of Delaware.
5.2. Authorization of Transaction. (a) Buyer has full power and authority to execute
and deliver this Agreement and each Ancillary Document to which it is a party and to perform its
obligations hereunder and thereunder, and the execution, delivery and performance by Buyer of this
Agreement and the Ancillary Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Buyer.
(b) This Agreement and each Ancillary Document to which Buyer is a party constitute, or upon
execution will constitute, a valid and legally binding obligation of Buyer enforceable against it
in accordance with their respective terms, except as limited by bankruptcy,
23
insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting the enforcement of creditors’
rights.
5.3. No Conflicts. With the exception of any filing required under the HSR Act, if
any, the execution and delivery of this Agreement and the Ancillary Documents to which Buyer is a
party and the consummation of the transactions contemplated hereby and thereby do not require Buyer
to give any notice to, make any filing with, or obtain any authorization, consent, or approval of,
any Person other than such notices, filings, authorization, consents and approvals the failure of
which to be given, made or obtained would not, individually or in the aggregate, have a material
adverse effect on the ability of Buyer to consummate the transactions contemplated hereby (it being
understood that in making the foregoing representation and warranty, Buyer is relying on the accuracy of the representations and warranties of the Shareholders contained in
Sections 3.2 and 4.6).
5.4. Financing. At the Closing Buyer will have cash in an amount sufficient to
consummate the transactions contemplated by this Agreement.
ARTICLE VI
Covenants
6.1. Reasonable Efforts; Notification. (a) If the Estimated Purchase Price delivered
to Buyer in accordance with Section 2.3(a) is greater than $57,000,000 (which Estimated Purchase
Price shall be reasonably agreed to by Buyer), then as soon as practicable, and in any event no
later than five (5) Business Days after receipt of such calculation by Buyer, each of the Parties
hereto shall file any Notification and Report Forms and related material required to be filed by it
with the Federal Trade Commission and the Antitrust Division of the United States Department of
Justice under the HSR Act with respect to transactions contemplated hereby and shall promptly make
any further filings pursuant thereto that may be necessary, proper or advisable. If a filing is
required pursuant to this Section 6.1(a), the Closing will not occur hereunder until the expiration
or termination of all applicable waiting periods (and any extensions thereof) under the HSR Act and
the Termination Date shall be extended for up to sixty (60) days to enable the Parties to comply
with the requirements of the HSR Act.
(b) Each Party shall furnish to the other Parties all information required or reasonably
necessary for any application or other filing to be made pursuant to any applicable Law in
connection with the transactions contemplated by this Agreement. Each Party shall promptly inform
the other Party of any communication with any Governmental Entity regarding any such filings. Each
of the Parties shall use reasonable efforts to resolve such objections, if any, as may be asserted
by any Governmental Entity with respect to the transactions contemplated by this Agreement under
any applicable Laws. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to
require Buyer or any of its Affiliates to enter into any agreement with any Governmental Entity or
to consent to any Order requiring Buyer or any of its Affiliates to hold separate or divest, or to
restrict the dominion or control of, any of its assets or businesses or any of the stock, assets or
business of Buyer, the Company or any of Buyer’s Affiliates.
(c) Each of the Parties shall use reasonable efforts to take, or cause to be taken, all
24
actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in
doing, all things necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement and the Ancillary
Documents, including (i) the giving of all other notices to, the making of all other filings with,
and the obtaining of all other authorizations, consents and approvals from, Governmental Entities
and other Persons, (ii) the obtaining of any third party consents, Debt pay-off letters, lease
amendments and other agreements and documents required to satisfy the conditions set forth in
Article VII of this Agreement, and (iii) the execution and delivery of any additional documents
that may be necessary or desirable to consummate the transactions contemplated by, and to fully
carry out the purposes of, this Agreement and the Ancillary Documents.
(d) The Company and the Shareholders shall keep Buyer informed, on a current basis, of any
events, discussions, notices or changes with respect to any criminal or regulatory investigation or
action involving the Company or any of the Shareholders (to the extent relating to the Company), so
that Buyer and its Affiliates will have the opportunity to take appropriate steps to avoid or
mitigate any regulatory consequences to them that might arise from such investigation or action.
6.2. Conduct of the Business. During the period from the date of this Agreement to
the Closing, the Company shall and the Shareholders shall cause the Company to (a) conduct its
operations in the ordinary course and in a manner consistent with prior practice; (b) use
reasonable efforts to maintain and preserve its business organization and to retain the services of
their officers and key employees and maintain relationships with customers, clients and other third
parties to the end that their goodwill and ongoing business shall not be impaired; (c) maintain its
assets in good working order; and (d) comply in all material respects with all applicable Laws.
Without limiting the generality of the foregoing, during the period from the date of this Agreement
to the Closing, the Company shall not and the Shareholders shall cause the Company to not, except
as otherwise expressly contemplated by this Agreement or as set forth in Schedule 6.2, without the
prior written consent of Buyer:
(i) do or effect any of the following actions with respect to securities of the
Company: (A) adjust, split, combine or reclassify its capital stock, (B) grant
(whether or not for consideration) any Person any option or other right to acquire
any shares of capital stock or other securities of the Company, (C) issue (whether
or not for consideration) any shares of capital stock or other securities, or (D)
enter into any Company Contract with respect to the sale, voting, registration or
repurchase of the capital stock of the Company;
(ii) other than with respect to the distribution of the Excluded Assets as
provided in Section 6.11, declare or pay any non-cash dividend or make any non-cash
distribution in respect of, or repurchase or redeem, any shares of capital stock,
except that the Company shall be permitted to make cash distributions to
Shareholders and key employees of the Company, at any time prior to the close of
business on the day preceding the Closing Date so long as any such distributions are
reflected in the Purchase Price;
25
(iii) directly or indirectly sell, transfer, pledge, otherwise create any
Encumbrance on or otherwise dispose of any of the assets of the Company, except for
sale of products and services in the ordinary course of business, and the
distribution of the Excluded Assets as provided in Section 6.11;
(iv) amend its certificate of incorporation or bylaws;
(v) merge or consolidate with any other Person;
(vi) acquire assets (other than purchases of supplies in the ordinary course of
business in a manner consistent with past practice) or capital stock or other
securities of any other Person;
(vii) incur, create, assume or otherwise become liable for any Debt or assume,
guarantee, endorse or otherwise, as an accommodation, become responsible or liable
for the obligations of any other Person other than in the ordinary course of
business, except that the Company may incur Debt required for payments to be made to
certain key employees of the Company set forth on Schedule 6.2(vii), so long as all
such Debt and payments are reflected in the Purchase Price;
(viii) enter into or modify any employment, severance, stay-pay, termination or
similar Company Contracts with, or grant any bonuses, salary increases, severance or
termination pay to, any Employee, or otherwise increase the compensation or benefits
provided to any Employee, except as may be required by applicable Law;
(ix) enter into or adopt any new employee benefit plan, program or other
similar Company Contract or amend any Benefit Plan except as may be required by
applicable Law;
(x) make or change any election, change an annual accounting period, adopt or
change any accounting method, file any Tax Return including any amended Tax Return,
enter into any closing agreement, settle any Tax claim or assessment relating to the
Company, surrender any right to claim a refund of Taxes, consent to any extension or
waiver of the limitation period applicable to any Tax claim or assessment relating
to the Company, or take any other similar action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action would have the effect of
increasing the Tax liability of the Company for any period ending after the Closing
Date or decreasing any Tax attribute of the Company existing on the Closing Date;
(xi) amend or terminate, or waive, release or assign any rights or claims with
respect to, any Company Contract or Permit other than in the ordinary course of
business consistent with past practices which, individually or in the aggregate, has
not had or would not reasonably be expected to have a Material Adverse Effect;
26
(xii) enter into any confidentiality, standstill or non-compete Company
Contracts under which the Company is the obligor, or modify or waive any of their
rights under any existing confidentiality, standstill or non-compete Company
Contract under which the Company is the beneficiary;
(xiii) incur or commit to any capital expenditures, except for the purchase of
assets as set forth on Schedule 6.2(xiii);
(xiv) accelerate collection of accounts receivable, delay payment of accounts
payable, or change cash balances of the Company from the collection, payment, and
cash management policies of the Company in the ordinary course of business consistent with past practices;
(xv) enter into, amend, terminate or waive any provision of any Contract with
any Related Party or enter into any new transaction with any Related Party;
(xvi) take any action that would result in any of the representations and
warranties set forth in Article IV becoming false or inaccurate in any material
respect, except as may be required by applicable Laws;
(xvii) enter into or amend in any respect any labor or collective bargaining
agreement or, through negotiation or otherwise, make any commitment to incur any
liability to any labor organization;
(xviii) enter into, terminate, renew, modify or amend any Contract, other than
in the ordinary course of business, and in each case involving amounts in excess of
$25,000; or
(xix) agree to take any of the foregoing actions.
6.3. Access. During the period from the date hereof to the Closing, the Shareholders
shall cause the Company to (i) permit Buyer and its representatives and financing sources of Buyer
to have full access at all reasonable times to the Company’s premises, books, records, Company
Contracts, documents, division, store and branch managers and cause the Company’s independent
accountants to give Buyer reasonable access to its accountants’ work papers, including without
limitation reasonable access to enable Buyer to perform environmental site assessments at such
places of business of the Company as Buyer requests, (ii) furnish to Buyer and its representatives
and financing sources such financial and operating data and other information as such Persons may
reasonably request, (iii) instruct its employees, directors, counsel and financial advisors to
cooperate with Buyer in its investigation of the business of the Company and (iv) cooperate to
provide reasonable access to customers and suppliers, provided, that with respect to access to
customers only, such access must be (x) approved by Michael J. Cetro or a division manager of the
Company and (y) in instances of direct communication or contact, Michael J. Cetro or a division
manager of the Company must be present electronically or in person. No investigation pursuant to
this Section 6.3 shall affect any representation or warranty in this Agreement of any Party or any
condition to the obligations of the Parties. All information provided pursuant to this Section 6.3
shall be subject to the Confidentiality
27
Agreement, dated January 19, 2007, between the Company and McJunkin Corporation.
6.4. Notification of Certain Matters. During the period from the date hereof to the
Closing, the Shareholders shall give prompt notice to Buyer, and Buyer shall give prompt notice to
the Representative, of (i) the occurrence or nonoccurrence of any event which would cause any
representation or warranty by the Company or the Shareholders, or by Buyer, as applicable,
contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the
Closing Date, and (ii) any material failure by the Company or any of the Shareholders, or by Buyer,
as applicable, to comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by them hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.4 shall not limit or otherwise affect the remedies available
hereunder to the Party to which such notice is given.
6.5. Certain Shareholder Restrictions. From the date of this Agreement to the Closing
Date, each of the Shareholders agrees it shall not (a) sell, transfer, encumber, assign or
otherwise dispose of, or enter into any Contract with respect to the sale, transfer, encumbrance,
assignment or other disposition of, any of the Company Stock, or (b) take any action, or omit to
take any action, which would have the effect of preventing or disabling such Shareholder from
delivering such Shareholder’s Company Stock to Buyer at the Closing free and clear of any
Encumbrances or otherwise performing such Shareholder’s obligations under this Agreement.
6.6. Shareholder Non-Compete and other Agreements. At or prior to the Closing, the
Company and each Person listed on Schedule 6.6 shall enter into a Non-Compete and Non-Solicitation
Agreement in the form attached hereto as Exhibit C (each, a “Non-Compete
Agreement”).
6.7. Shareholders’ Post-Closing Confidentiality Obligation. Each Shareholder
acknowledges that (i) during the course of its affiliation with the Company, it has produced and
had access to Confidential Information, and (ii) the unauthorized use or disclosure of any
Confidential Information at any time would constitute unfair competition with Buyer and would
deprive Buyer of the benefits of this Agreement and the transactions contemplated by this
Agreement. Each Shareholder agrees that it will hold in confidence the Confidential Information
and will not, directly or indirectly, disclose, publish, or otherwise make available any of the
Confidential Information to the public or to any Person or use any of the Confidential Information
for its own benefit or for the benefit of any other Person, other than Buyer and its Affiliates;
provided, however, that such Shareholder may disclose Confidential Information if, but only to the
extent, required to do so by Law; provided, however, that in such case, such Shareholder shall
provide Buyer with prior written notice thereof so that Buyer may seek an appropriate protective
order or other appropriate remedy, and such Shareholder shall cooperate with the Company in
connection therewith; and provided, further, that, in the event that a protective order or other
remedy is not obtained, such Shareholder shall furnish only that portion of such information which,
in the opinion of its counsel, such Shareholder is legally compelled to disclose and shall exercise
commercially reasonable efforts to obtain reliable assurance that confidential treatment will be
accorded any such information so disclosed. Each Shareholder acknowledges that, Buyer shall,
without prejudice to any rights to judicial relief it may otherwise have, shall be entitled to seek
equitable relief, including injunctive relief, in the event of any breach of this Section 6.7 and
that such Shareholder will not resist such application for relief on the basis that Buyer has an
28
adequate remedy at law.
6.8. Release of Claims by Shareholders. Effective upon the Closing, each of the
Shareholders, on such Shareholder’s own behalf and on behalf of such Shareholder’s heirs,
executors, administrators, legal representatives, successors and assigns, hereby irrevocably
releases, acquits, and forever discharges the Company and each of its present or former officers,
directors, agents, employees, employee benefit plans (and the fiduciaries thereof) and other
Affiliates, in each case, in their capacity as such, and the successors and assigns of any of the
foregoing (each, a “Released Party”), from any and all claims, actions, causes of action,
suits, rights, debts, agreements, damages, injuries, losses, costs, expenses, (including legal
fees) and demands whatsoever and all consequences thereof, of every nature or description, whether
known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, whether
existing as of the Closing or arising thereafter, that any of the Shareholders ever had, now has or
may in the future have against any of the Released Parties, in law or in equity, as a result of any
act, transaction, agreement, event or omission, occurring or committed from the beginning of time
to the Closing (the “Released Claims”). Notwithstanding the foregoing, the following shall
not constitute a Released Claim: (y) any obligation by Buyer or the Company to be performed after
the Closing pursuant to this Agreement or any of the Ancillary Documents; and (z) any amounts owing
under any Benefit Plan disclosed on Schedule 4.17(a)(i).
6.9. Taxes. (a) Buyer shall prepare or cause to be prepared and timely file or cause
to be timely filed all Tax Returns for the Company for any Tax period that ends on or before the
Closing Date (a “Pre-Closing Period”) that are due (taking into account extensions) after
the Closing Date. All such Pre-Closing Period Tax Returns shall be prepared on a basis consistent
with the past practices of the Company, unless otherwise required by Law (as reasonably determined
by Buyer). The Shareholders shall be jointly and severally responsible for the timely payment of
all Taxes due on such Pre-Closing Period Tax Returns, except to the extent that the liability for
such Taxes is reflected in the Final Statement of Purchase Price. Buyer shall provide the
Representative copies of all Pre-Closing Period Tax Returns at least 15 days before filing for the
Representative’s review and comment. The Representative shall have ten days to comment on each
such Tax Return described in this Section 6.9(a). If the Representative delivers written comments
to Buyer within the applicable ten-day period, Buyer shall consider such written comments in good
faith, and Buyer and the Representative shall negotiate in good faith in order to resolve any
material disputes with respect to such Tax Return.
(b) Buyer shall prepare or cause to be prepared and timely file or cause to be timely filed
any Tax Returns of the Company for taxable periods beginning on or before and ending after the
Closing (a “Straddle Period”). All such Straddle Period Tax Returns shall be prepared on
a basis consistent with the past practices of the Company, unless otherwise required by Law (as
reasonably determined by Buyer). The Shareholders shall be jointly and severally responsible for
the timely payment of the Taxes attributable to the portion of the Straddle Period ending on the
Closing Date, determined under the principles of Section 6.9(c), except to the extent that the
liability for such Taxes is reflected in the Final Statement of Purchase Price. Buyer shall
provide the Representative with copies of the portions of such Tax Returns that relate to the
portion of the Straddle Period ending on the Closing Date at least 15 days before filing for the
Representative’s review and comment. The
Representative shall have ten days to comment on each such portion of such Tax Return
described in this Section 6.9(b). If the
29
Representative delivers written comments to Buyer within
the applicable ten-day period, Buyer shall consider such written comments in good faith, and Buyer
and the Representative shall negotiate in good faith in order to resolve any material disputes with
respect to such Tax Return.
(c) For purposes of determining the liability of the Shareholders for Taxes with respect to a
Straddle Period under Section 6.9(b) and Section 6.9(g), the following rules of apportionment shall
apply: (i) real and personal property Taxes for the taxable period that includes the Closing Date
shall be prorated between the Shareholders and Buyer, with such Taxes being borne by the
Shareholders based on the ratio of the number of days in the relevant period prior to and including
the Closing Date to the total number of days in the actual taxable period with respect to which
such Taxes are assessed, and being borne by Buyer based on the ratio of the number of days in the
relevant period after the Closing Date to the total number of days in the actual taxable period
with respect to which such Taxes are assessed, irrespective of when such Taxes are due, become a
lien or are assessed; (ii) sales and use Tax shall be deemed to accrue as property is purchased,
sold, used, or transferred; and (iii) all other Taxes shall accrue in accordance with GAAP, except
for income Tax or Tax measured by receipts, which shall accrue by way of a closing of books, as
though the relevant taxable period had ended on the Closing Date.
(d) Buyer and the Representative agree, upon request, to use their reasonable efforts to
obtain any certificate or other document from any Governmental Entity or any other person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to with respect to the transactions contemplated by this Agreement).
(e) The Parties shall reasonably cooperate with each other in a timely manner in the
preparation and filing of any Tax Returns, the payment of any Taxes in accordance with this
Agreement, and the conduct of any Tax audit or other Tax proceeding. Each Party shall execute and
deliver such powers of attorney and make available such other documents as are reasonably necessary
to carry out the intent of this Section 6.9.
(f) The Company shall retain copies of all reports, returns or records relating to Pre-Closing
Periods and Straddle Periods (including, without limitation, supporting schedules and data). At
the request and the expense of the Representative, the Company shall deliver to the Representative
a copy of any and all such reports, returns or records. No such reports, returns or records shall
be destroyed without first advising the Representative, identifying such reports, returns or
records and giving the Representative, at least 30 days’ notice to obtain possession thereof.
(g) Each Significant Shareholder shall jointly and severally indemnify and each
Non-Significant Shareholder shall severally but not jointly indemnify, defend and hold harmless the
Buyer Indemnitees from and against any Losses attributable to (i) all liabilities for Taxes
(including for the non-payment thereof) of the Company for all Tax periods ending on or before the
Closing Date and the portion of the Straddle Period attributable to the Shareholders under the
principles of Section 6.9(c) above, except to the extent that the liability for such Taxes is
reflected in the Final Statement of Purchase Price, (ii) all Taxes arising from, attributable to,
or
related to the Excluded Assets and the Company’s distribution thereof, except to the extent
that the liability for such Taxes is reflected in the Final Statement of Purchase Price, (iii) all
Taxes of
30
any member of an affiliated, consolidated, combined or unitary group of which the Company
(or any predecessor of the Company) is or was a member on or prior to the Closing Date, including
pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local, or
foreign law or regulation, and (iv) any and all liabilities for Taxes of any Person imposed on the
Company as a transferee or successor, by Contract or pursuant to any Law, which relates to an event
or transaction occurring before the Closing. The Shareholders shall pay Buyer for any amounts which
are the responsibility of the Shareholders pursuant to this Section 6.9(g) by the later of (i) five
days prior to payment of such amount by Buyer or the Company, and (ii) within five days after Buyer
makes written demand upon the Representative.
(h) Buyer, on the one hand, and the Representative, on the other hand, shall (i) use
reasonable efforts to keep the other advised as to the status of Tax audits or other Litigation
involving any Tax relating to a Pre-Closing Period that could give rise to a liability of the
Shareholders to Buyer under this Agreement (a “Tax Liability Issue”), (ii) promptly furnish
to the other copies of any inquiries or requests for information from any Tax authority concerning
any Tax Liability Issue, (iii) timely notify the other regarding any proposed written communication
to any such Tax authority with respect to such Tax Liability Issue, (iv) promptly furnish to the
other upon receipt copies of any information or document requests, notices of proposed adjustment,
revenue agent’s reports or similar reports or notices of deficiencies together with all relevant
documents and Tax Returns related to the foregoing documents, notices or reports, relating to any
Tax Liability Issue, (v) give the other and its or their accountants and counsel the reasonable
opportunity to review and comment in advance on all written submissions, filings and any other
information relevant to any Tax Liability Issue, and (vi) consider in good faith any suggestions
made by the other and its or their accountants and counsel to submit documentation or attend those
portions of any meetings and proceedings that relate to such proposed adjustment; provided,
however, that the failure of one party to so notify the other party of any such audit or Tax
controversy shall not affect the other party’s obligations under this Agreement. Notwithstanding
the foregoing, the parties may make appropriate redactions in the submissions, filings and any
other information provided to the other to preserve the confidentiality of such information as to
issues that are not Tax Liability Issues.
(i) Subject to Section 6.9(h), Buyer shall have full responsibility for and discretion in
handling, in good faith, any Tax controversy relating to a Pre-Closing Period or Straddle Period,
including, without limitation, an audit, a protest to the appeals division of the Internal Revenue
Service, and any Litigation in United States Tax Court or any other court of competent jurisdiction
involving the Company (a “Pre-Closing Proceeding”), provided, in the case of a Pre-Closing
Proceeding relating solely to a Pre-Closing Period, the Representative may elect to assume the
defense of such Pre-Closing Proceeding by giving Buyer written notice of such election within five
Business Days of the Representatives’ receipt of notice of such claim. If the Representative
assumes the defense of such Pre-Closing Proceeding relating solely to a Pre-Closing Period, the
Representative shall do so at the Shareholders’ sole cost and expense, through legal counsel
reasonably acceptable to Buyer, and Buyer shall nonetheless have the right to participate in the
defense or settlement of such Pre-Closing Proceeding, at its sole cost and expense, through its own
legal counsel. In the event that the Representative assumes the defense or prosecution of a
Pre-Closing Proceeding,
Representative shall not settle or compromise a claim or consent to the entry of any judgment
without the prior written consent of Buyer, which consent shall not be unreasonably withheld or
delayed.
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(j) Any Tax refunds that are received by Buyer or the Company, and any amounts credited
against Taxes to which Buyer or the Company become entitled, that relate to a Pre-Closing Period
and were not reflected in the calculation of the Final Statement of Purchase Price (excluding, for
these purposes, any Tax refund to the extent such refund results from a carry back of a net
operating loss, credit or similar item arising in a taxable period (or portion thereof) beginning
after the Closing Date) shall be for the account of the Shareholders, and Buyer shall pay over to
the Shareholders any such refund or the amount of any such credit, in each case, net of any Tax or
other cost to the Company resulting from the receipt of such refund or application of such credit,
within ten days after (x) the receipt of any such refund or (y) the application of such credit
against a Tax, as applicable. Notwithstanding the foregoing, in the event any redetermination by
any Governmental Entity reduces any refund or credit described in the first sentence of this
Section 6.9(j) for which Buyer made a payment to the Shareholders under the first sentence of this
Section 6.9(j), the Shareholders shall promptly pay to Buyer the amount of such reduction together
with any interest due thereon.
(k) All Tax sharing agreements or similar agreements with respect to or involving the Company
shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
6.10. Director Resignations. The Shareholders shall cause the Company to deliver to
Buyer, written letters of resignation, effective on or prior to the Closing, of each of the
directors and officers of the Company listed on Schedule 6.10.
6.11. Distribution of Assets. On or prior to the Closing Date, (a) the Shareholders
shall cause the Company to distribute the certain assets of the Company identified in Schedule 6.11
(the “Excluded Assets”) in the manner described in Schedule 6.11, and (b) the acquiror of
the Excluded Assets shall assume all liabilities with respect to any Debt or other obligations
relating to the Excluded Assets and the Company shall have received releases of all Encumbrances,
securing any such Debt, in form and substance satisfactory to Buyer.
6.12. Parachute Payments. As promptly as practicable after the execution of this
Agreement and before the Closing Date, the Shareholders shall cause the Company to submit to the
shareholders of the Company for approval in a manner which satisfies all applicable requirements of
Section 280G(b)(5)(B) of the Code and the regulations thereunder including Q-7 of Section 1.280G-1
of such regulations, a written consent which, if approved, would cause no payment or benefit that
has been, will or may be made by any Person to any individual to be characterized as an “excess
parachute payment” within the meaning of Section 280G(b)(1) of the Code by reason of a “change in
ownership,” “change in effective control” or “change in the ownership of a substantial portion of
the assets” of the Company occurring by reason of the transactions contemplated by this Agreement.
6.13. Severance Payments. At or prior to the Closing, the Company shall, and the
Shareholders shall cause the Company to pay to John A. Selzer and Michael J. Cetro the amounts
set forth in Section 6.1 of their respective employment agreements with the Company, each dated as
of January 1, 2005 (the aggregate of such amounts, the “Severance Payments”), treating Mr.
Selzer and Mr. Cetro for this purpose as though they terminated their employment immediately
following the Closing pursuant to Section 5.4(e) of such employment agreements.
32
6.14. Termination of Midway-Tristate Corporation Employees’ Savings Plan. The
Company shall, and the Shareholders shall cause the Company to take all necessary and appropriate
steps to terminate its Employees’ Savings Plan (401(k) Plan) immediately prior to the Closing Date
and contingent upon the Closing, including adoption of a duly authorized board resolution
terminating such plan as of a date immediately prior to the Closing Date and contingent upon the
Closing. Buyer shall cause a tax-qualified defined contribution plan established or maintained by
Buyer (the “Buyer 401(k) Plan”) to accept eligible rollover distributions (as defined in
Section 402(c)(4) of the Code, including direct rollovers and loan rollovers) by employees
continuing with Buyer and who become participants in the Buyer 401(k) Plan in respect of account
balances distributed to them on, as of or after the Closing Date by the Company’s 401(k) Plan. The
401(k) Plan termination and any resulting distributions and rollovers, as described herein, shall
comply with applicable Laws, the terms of the Company’s 401(k) Plan and Buyer 401(k) Plan and the
Company and Buyer shall make all filings and take any actions required of such party by applicable
Laws in connection therewith.
6.15. Norton Arrangement. At such time as Midway Structural Pipe and Supply, Inc., a
Michigan corporation, TPJ Properties, L.L.C., a Michigan limited liability company, Jack Adams and
Thomas W. Norton, or any of their Related Parties or Affiliates (the “MSP Parties”)
acquire any Excluded Assets, whether prior to or following the Closing, the Company will enter into
a revocable license agreement and non-compete agreement (the “Norton Agreement”) with the
MSP Parties, in the form attached hereto as Exhibit D. The Company shall not, and the
Shareholders shall cause the Company not to directly or indirectly, transfer the Excluded Assets to
any of the MSP Parties unless such MSP Parties have entered into the Norton Agreement.
6.16. Escrow Agreement; Debt Pay-Off Letters. On or prior to the Closing, the
Shareholders shall cause the Representative to execute and deliver the Escrow Agreement. Prior to
the Closing, the Company shall, and the Significant Shareholders shall cause the Company to, use
commercially reasonable efforts to obtain the letters contemplated by Section 7.3(i) and to deliver
all notices required to obtain such letters.
6.17. Settlement Agreement Waiver and Release. (a) On or prior to the Closing, the
Shareholders shall cause the Company to use its commercially reasonable efforts to obtain an
executed waiver and release substantially in the form set forth on Exhibit E hereto (a
“Settlement Agreement Waiver and Release”) from each of the counterparties to the
Settlement Agreement (which for the avoidance of doubt shall include, United States Small Business
Administration as Receiver of Sterling/Carl Marks Capital Inc. and CMNY Capital II, LP).
(b) If, as a result of the consummation of the transactions contemplated hereby, any amounts
become payable by the Company pursuant to the Settlement Agreement, such amounts shall be paid by
the Shareholders.
ARTICLE VII
Conditions to Closing
7.1. Conditions to Each Party’s Obligations. The respective obligations of the
Shareholders and Buyer to consummate the transactions contemplated by this Agreement are
33
subject to
the satisfaction or, to the extent permitted by applicable Law, the waiver at or prior to the
Closing of each of the following conditions:
(a) No Injunction; etc. No temporary restraining order, preliminary or permanent
injunction or other Order by any Governmental Entity preventing the consummation of the
transactions contemplated by this Agreement shall have been issued and be continuing in effect, and
no provision of any applicable Law shall prohibit the consummation of the transactions contemplated
by this Agreement.
(b) Escrow Agreement. The Escrow Agreement shall have been executed and delivered by
the Representative (on behalf of the Shareholders), Buyer and the Escrow Agent.
(c) HSR Waiting Period. If the Parties are required to make a filing under the HSR
Act pursuant to Section 6.1(a) hereof, all applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated.
7.2. Conditions to the Obligations of the Shareholders. The obligations of each
Shareholder to consummate the transactions contemplated by this Agreement are further subject to
the satisfaction or, to the extent permitted by applicable Law, the waiver by the Representative at
or prior to the Closing of each of the following conditions:
(a) Performance of Obligations by Buyer. Buyer shall have performed in all material
respects each of its agreements and covenants contained in or contemplated by this Agreement that
are required to be performed by it at or prior to the Closing pursuant to the terms hereof.
(b) Representations and Warranties. The representations and warranties of Buyer
contained in Article V shall be true and correct (determined for purposes of this Section 7.2(b)
without giving effect to any materiality or material adverse effect qualifiers contained therein)
as of the Closing, with the same effect as though made as of the Closing (provided that any
representations and warranties made as of a specified date shall be required only to continue at
the Closing to be true and correct as of such specified date), except to the extent that any
failures of the representations and warranties to be true and correct would not, individually or in
the aggregate, have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated by this Agreement.
(c) Closing Certificate. The Representative shall have received a certificate of
Buyer, dated the Closing Date, to the effect that the conditions set forth in Sections 7.2(a) and
(b) have been satisfied.
7.3. Conditions to the Obligations of Buyer. The obligations of Buyer to consummate
the transactions contemplated by this Agreement are further subject to the satisfaction or, to the
extent permitted by applicable Law, the waiver by Buyer at or prior to the Closing of each of the
following conditions:
(a) Performance of Obligations of the Shareholders and the Company. Except for the
covenants contained (i) in Section 6.13 (Severance Payments), 6.14 (Termination of Midway-Tristate
Corporation Employees’ Savings Plan), 6.16 (Escrow Agreement; Debt Pay-Off Letters), and 6.17(b)
(Settlement Agreement Payments) which shall have been performed in all
34
respects by the Shareholders
and the Company at or prior to the Closing and (ii) in Section 6.2(i), (ii) and (vii) (Conduct of
the Business) which shall not have been breached in any respect by any Shareholder or the Company,
each Shareholder and the Company shall have performed in all material respects each of their
respective agreements and covenants contained in or contemplated by this Agreement that are
required to be performed by them at or prior to the Closing pursuant to the terms hereof.
(b) Representations and Warranties. (i) The representations and warranties of the
Shareholders contained in Article III and of the Significant Shareholders and the Company contained
in Article IV (other than those in Sections 3.1 (Ownership; Authorization of Transaction), 4.1
(Authorization of Transaction), 4.3 (Capitalization; Debt), 4.4 (Brokers’ Fees), 4.5 (Subsidiaries
and Investments) and 4.14 (Related Party Transactions)) shall be true and correct (determined for
purposes of this Section 7.3(b) without giving effect to any materiality or Material Adverse Effect
qualifiers contained therein) as of the Closing, with the same effect as though made as of the
Closing (provided that any representations and warranties made as of a specified date shall be
required only to continue at the Closing to be true and correct as of such specified date), except
to the extent that any failures of such representations and warranties to be true and correct,
individually or in the aggregate, has not had or would not reasonably be expected to have a
Material Adverse Effect, and (ii) the representations and warranties of the Shareholders contained
in Article III and the representations and warranties of the Shareholders and/or the Significant
Shareholders, as the case may be, and the Company contained in Sections 3.1 (Ownership;
Authorization of Transaction), 4.1 (Authorization of Transaction), 4.3 (Capitalization; Debt), 4.4
(Brokers’ Fees), 4.5 (Subsidiaries and Investments) and 4.14 (Related Party Transactions) shall be
true and correct in all respects as of the Closing.
(c) Closing Certificate. Buyer shall have received a certificate from the
Representative on behalf of the Shareholders, dated the Closing Date, to the effect that the
conditions set forth in Sections 7.3(a), (b), (e), (f), and (h) have been satisfied.
(d) Stock Certificates. The Shareholders shall have tendered for delivery to Buyer
share certificates representing all of the Outstanding Shares free and clear of any Encumbrance,
duly endorsed in blank by each Shareholder, or accompanied by appropriate stock powers, in proper
form for transfer.
(e) No Litigation. There shall not be pending or threatened any Litigation seeking to
restrain or prohibit the consummation of, or otherwise challenging, any of the transactions
contemplated by this Agreement.
(f) Filings; Consents; Good Standing. (i) All filings required to be made with, and
all authorizations, consents or approvals required to be obtained from, any Governmental Entity or
other Person in connection with the transactions contemplated by this Agreement shall have been
made or obtained, as applicable, other than those filings, authorizations, consents or approvals
the failure of which to have been made or obtained, as applicable, shall not have a Material
Adverse Effect, (ii) the Company shall have obtained and delivered to Buyer, in form and substance
reasonably satisfactory to Buyer, all consents and approvals specified on Schedule 7.3(f), and
(iii) the Company shall have delivered to Buyer a certificate of good standing of the Company
issued no earlier than five (5) days prior to the Closing by the Secretary of the State of
35
New
York.
(g) Non-Compete Agreements. (i) The Company and each Person listed on Schedule 6.6
shall have executed and delivered a Non-Compete Agreement, and each Non-Compete Agreement shall be
in full force and effect and (ii) if any of the MSP Parties has acquired any Excluded Assets on or
prior to the Closing Date, the Company, and such MSP Parties who acquired the Excluded Assets,
shall have executed and delivered the Norton Agreement, and the Norton Agreement shall be in full
force and effect.
(h) Material Adverse Effect. No event, development, circumstance or occurrence shall
have occurred, that, individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect.
(i) Pay-Off Letters. The Company shall have received pay-off letters, in a form and
substance reasonably satisfactory to Buyer, from holders of all Debt of the Company together with
all necessary documentation required to release any Encumbrances securing repayment of any such
Debt.
(j) Withholding Certificate. Buyer shall have received a certificate, in form and
substance reasonably satisfactory to Buyer, conforming to the requirements of Treasury Regulation
Sections 1.1445-2(c)(3) and 1.897-2(h).
(k) Transactions with Affiliates. The Company and the Shareholders shall have taken
all actions necessary in order to terminate (i) any Contracts or other arrangements between the
Company and any Related Parties and (ii) each agreement specified on Schedule 7.3(k), and shall
have provided Buyer with written evidence, reasonably satisfactory to Buyer of such termination,
and the Company shall have been released of all obligations thereunder without any additional cost,
obligation, liability or loss to the Company.
(l) Concurrent Transaction. The Excluded Assets shall have been distributed in
accordance with Section 6.11.
(m) Leased Real Property. The Contract set forth on Schedule 7.3(m) shall have been
amended to extend the terms thereof substantially in accordance with the terms set forth on
Schedule 7.3(m) and the rent payable with respect to such Contract shall be a market amount.
(n) Employment and Consulting Agreements. The Employment Agreement and the Consulting
Agreements shall be in full force and effect.
ARTICLE VIII
Termination
8.1. Termination. Notwithstanding anything herein to the contrary, this Agreement may
be terminated and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
(a) by the mutual written consent of the Representative and Buyer;
36
(b) (i) by Buyer, if (x) there shall have been a breach by the Company or the Shareholders of
any of their representations, warranties, covenants or agreements contained in this Agreement,
which breach would result in the failure to satisfy one or more of the conditions set forth in
Section 7.1 or 7.3, and (y) such breach shall be incapable of being cured or, if capable of being
cured, shall not have been cured within 30 days after written notice thereof shall have been given
to the Representative, or (ii) by the Representative, if (x) there shall have been a breach by
Buyer of any of its representations, warranties, covenants or agreements contained in this
Agreement, which breach would result in the failure to satisfy one or more of the conditions set
forth in Section 7.1 or 7.2, and (y) such breach shall be incapable of being cured or, if capable
of being cured, shall not have been cured within 30 days after written notice thereof shall have
been given to Buyer;
(c) Subject to Section 6.1(a), by Buyer or the Representative, if the transactions
contemplated by this Agreement have not been consummated by June 30, 2007 (the “Termination
Date”); provided, however, that the failure of the transactions contemplated by this Agreement
to occur on or before such date is not the result of the breach of any covenants, agreements,
representations or warranties hereunder of the Party (or the Shareholders or the Company in the
case of the Representative) desiring to terminate this Agreement pursuant to this clause (c);
(d) The Party desiring to terminate this Agreement pursuant to clause (b) or (c) of this
Section 8.1 shall, in the case of Buyer, give written notice of such termination to the
Representative, and, in the case of the Representative, give written notice of such termination to
Buyer.
8.2. Effect of Termination. If this Agreement is terminated pursuant to Section 8.1,
this Agreement shall have no further force or effect; provided, that the agreements contained in
the last sentence of Section 6.3 and Article X shall survive the termination hereof; and provided,
further, that no such termination shall relieve any Party of liability for any breach or default
under
this Agreement occurring prior to such termination.
ARTICLE IX
Survival and Indemnification
9.1. Survival. (a) Except as set forth in Section 9.1(b), the representations and
warranties contained in this Agreement or in any Ancillary Document, together with the associated
rights of indemnification, shall survive the Closing hereunder and continue in full force and
effect until the second anniversary of the Closing and shall thereupon expire, together with the
associated rights of indemnification, except to the extent that a claim for breach thereof has been
asserted in writing prior to such expiration (in which event the representation or warranty and the
associated rights of indemnification shall survive with respect to such claim until such claim has
been resolved). Each of the covenants and agreements contained herein or in any Ancillary Document
shall survive the Closing and continue in full force and effect until performed in accordance with
their terms. The indemnification obligation contained in Section 9.3(a)(G) shall survive the
Closing hereunder and continue in full force and effect until the earlier of (x) April 3, 2008, or
(y) delivery to Buyer of a duly executed Settlement Agreement Waiver
37
and Release from the United
States Small Business Administration as Receiver of Sterling/Carl Marks Capital Inc. and from CMNY
Capital II, LP, except to the extent that a claim pursuant to Section 9.3(a)(G) has been asserted
in writing prior to such expiration (in which event such indemnification obligation shall survive
with respect to such claim until such claim has been resolved).
(b) The representations and warranties contained in Sections 3.1 (Ownership; Authorization of
Transaction), 4.1 (Authorization of Transaction), 4.3 (Capitalization; Debt), 4.4 (Brokers’ Fees),
4.5 (Subsidiaries and Investments), 4.11 (Tax Matters), 4.14 (Related Party Transactions), 4.17(b)
(ERISA Affiliates), 4.21 (Environmental Matters), 4.25 (Escheat Property) and 5.2 (Authorization of
Transaction) shall survive the Closing hereunder and continue in full force and effect, together
with the associated rights of indemnification, until 30 days after the expiration of any applicable
statute of limitations and shall thereupon expire, together with the associated rights of
indemnification, except to the extent that a claim for breach thereof has been asserted in writing
prior to such expiration (in which event the representation or warranty and the associated rights
of indemnification shall survive with respect to such claim until such claim has been resolved).
9.2. Indemnification by Buyer. From and after the Closing, Buyer shall indemnify,
defend and hold harmless the Shareholders, their Affiliates, and the officers, directors,
employees, agents, representatives, successors and any assigns of any of the foregoing
(collectively, the “Shareholder Indemnitees” ) against all claims, losses, liabilities,
damages (including consequential damages and lost profits), deficiencies, interest and penalties,
costs and expenses, including, without limitation, losses resulting from the defense, settlement
and/or compromise of a claim and/or demand and/or assessment, reasonable attorneys’, accountants’
and expert witnesses’ fees, costs and expenses of investigation, and the costs and expenses of
enforcing the indemnification provided hereunder (individually, a “Loss” and, collectively,
“Losses”) incurred by any of the Shareholder Indemnitees arising out of or relating to: (A)
any breach of any representation or
warranty made by Buyer in this Agreement or in any Ancillary Document, or (B) any breach of
any covenant, agreement or obligation of Buyer contained in this Agreement or in any Ancillary
Document.
9.3. Indemnification by Shareholders. (a) From and after the Closing, the
Significant Shareholders shall, jointly and severally, indemnify, defend and hold harmless Buyer
and its Affiliates, and the shareholders, members, officers, directors, partners, employees,
agents, representatives, successors and assigns of any of the foregoing (collectively, the
“Buyer Indemnitees”) against all Losses incurred by any of the Buyer Indemnitees and
arising out of or relating to: (A) any breach of any representation or warranty made by the Company
and/or the Significant Shareholders in Article IV of this Agreement or in any Ancillary Document,
(B) any breach of any covenant, agreement or obligation of any of the Shareholders contained in
this Agreement or in any Ancillary Document, (C) any breach by the Company of any covenant,
agreement or obligation contained in this Agreement or in any Ancillary Document and required to be
performed or complied with by the Company on or prior to the Closing, (D) the Excluded Assets
(including without limitation the holding and distribution thereof and obligations pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, with respect to former
employees of the Company whose employment was terminated in connection with the distribution of the
Excluded Assets), (E) activities, operations, conditions, facts or circumstances
38
existing or
conducted prior to the Closing that cause, contribute to or give rise to (x) violations of
Environmental Laws, or (y) the presence of Hazardous Materials on, at, under, about or migrating to
or from, real property currently or formerly owned, leased or operated by the Company, (F) any
actual or alleged personal injury or property damage arising from the exposure to any asbestos
containing materials manufactured, used, distributed, supplied, or sold by the Company, any of its
affiliates, or any of its predecessors in interest on or prior to the Closing, (G) the Settlement
Agreement, or (H) the Asset Purchase Agreement, dated on or about November 21, 1997, between
Continental Emsco Company and Oil Field Supply Co., Inc. in respect of the purchase by Oil Field
Supply Company, Inc., at the time a wholly owned subsidiary of the Company, of three (3) store
locations from Continental Emsco Company. With respect to any Losses arising out of or relating
to (x) clauses (A) through (H), such Buyer Indemnitees shall be entitled to be reimbursed the
amount of such Losses from the Escrow Account, and (y) clause (G), such Buyer Indemnitees shall be
entitled to be reimbursed the amount of such Losses from the Settlement Agreement Indemnification
Escrow Account. For the purposes of clauses (A) with respect to breaches of the representation and
warranties set for in Section 4.21 and (E) of this Section 9.3(a), the term “Losses” shall further
include any administrative or civil penalties, natural resources damages, environmental
investigation, remediation or other response costs, medical or environmental monitoring, and
sampling costs.
(b) From and after the Closing, each Shareholder shall, severally but not jointly, indemnify,
defend and hold harmless the Buyer Indemnitees against all Losses incurred by any of the Buyer
Indemnitees and arising out of or relating to: (A) any breach of any representation or warranty
made by such Shareholder in Article III of this Agreement or in any Ancillary Document, or (B) any
breach of any covenant, agreement or obligation of such Shareholder contained in this Agreement or
in any Ancillary Document, and, in the case of each of (A) and (B), such Buyer Indemnitees shall be
entitled to be reimbursed the amount of such Losses from the Escrow Account.
9.4. Limitations on Rights of Indemnitees. (a) Except as set forth below, the
Shareholders shall not be required to indemnify the Buyer Indemnitees with respect to any claim for
indemnification resulting from or arising out of matters described in Section 9.3(a)(A) and
9.3(b)(A) unless and until the aggregate amount of all such claims by the Buyer Indemnitees for
such matters exceeds $250,000 (the “Deductible”), in which event the Buyer Indemnitees
shall be entitled to recover such Losses resulting from or arising out of such matters, but only to
the extent that the aggregate amount of such Losses exceed the Deductible; provided, however, that
the foregoing limitation shall not apply to a claim for indemnification to the extent such claim is
based upon a breach of any of the representations and warranties contained in Sections 3.1
(Ownership; Authorization of Transaction), 4.1 (Authorization of Transaction), 4.3 (Capitalization;
Debt), 4.4 (Brokers’ Fees), 4.5 (Subsidiaries and Investments), 4.11 (Tax Matters), 4.14 (Related
Party Transactions), 4.17(b) (ERISA Affiliates), 4.21 (Environmental Matters), and 4.25 (Escheat
Property) (collectively, the “Special Representations”), or fraud; and provided further,
that the Shareholders’ maximum liability to the Buyer Indemnitees under Section 9.3(a)(A),
9.3(a)(E), 9.3(a)(F) and 9.3(b)(A) shall not exceed $4,125,000 in the aggregate (the
“Cap”), provided, however that the Cap shall not apply to claims in respect of breaches of
any of the Special Representations or fraud. Except with respect to Losses arising out of fraud,
the Shareholders’ maximum liability to the Buyer Indemnitees under Section 9.3(a)(G) shall not
exceed $13,125,000; provided that, except with respect to Losses arising out of fraud, the
39
Shareholders’ maximum liability to the Buyer Indemnitees under Section 9.3(a)(G) shall be reduced
by $4,500,000 upon delivery of a duly executed Settlement Agreement Waiver and Release from either
the United States Small Business Administration as Receiver of Sterling/Carl Marks Capital Inc. or
from CMNY Capital II, LP, and the indemnification obligation contained in Section 9.3(a)(G) shall
terminate upon delivery of a second duly executed Settlement Agreement Waiver and Release from the
other counterparty to the Settlement Agreement (either the United States Small Business
Administration as Receiver of Sterling/Carl Marks Capital Inc. or CMNY Capital II, LP).
(b) Except with respect to Losses arising out of a breach of any of the Special
Representations or fraud, with respect to Losses relating to any claims for indemnification
resulting from or arising out of matters described in Section 9.3(a)(A), 9.3(a)(E), 9.3(a)(F) and
9.3(b)(A), the Buyer Indemnitees (x) will be entitled to recover no more than the amount of cash
then available in the Escrow Account, and (y) will not be entitled to recover any such Losses from
any source other than the Escrow Account.
(c) Except as set forth below, Buyer shall not be required to indemnify the Shareholder
Indemnitees with respect to any claim for indemnification resulting from or arising out of matters
described in Section 9.2(A) unless and until the aggregate amount of all such claims by the
Shareholder Indemnitees for such matters exceeds the Deductible, in which event the Shareholder
Indemnitees shall be entitled to recover such Losses resulting from or arising out of such matters,
but only to the extent that the aggregate amount of such Losses exceed the Deductible; provided,
however, that the foregoing limitation shall not apply to a claim for indemnification to the extent
such claim is based upon a breach of Section 5.2 (Authorization of Transaction) or fraud; and
provided further, that Buyer’s maximum liability to the Shareholder Indemnitees under Section
9.2(A) shall not exceed the Cap, provided, however that the Cap shall not apply to claims in
respect of breaches based upon Section 5.2 or fraud.
(d) Buyer and the Representative agree to prepare and sign joint written instructions that
direct the Escrow Agent to distribute (i) $4,500,000 from the Settlement Agreement Indemnification
Escrow Account upon the delivery to Buyer of a duly executed Settlement Agreement Waiver and
Release from the United States Small Business Administration as Receiver of Sterling/Carl Marks
Capital Inc. and (ii) $4,500,000 from the Settlement Agreement Indemnification Escrow Account upon
the delivery to Buyer of a duly executed Settlement Agreement Waiver and Release from CMNY Capital
II, LP.
9.5. Procedure. (a) If any third party shall notify any Party (the
“Indemnitee”) with respect to any matter (a “Third Party Claim”) which may give
rise to a claim for indemnification against any other Party (the “Indemnitor”) under this
Article IX, then the Indemnitee shall promptly notify the Indemnitor thereof in writing; provided,
however, that no delay on the part of the Indemnitee in notifying the Indemnitor shall relieve the
Indemnitor from any obligation hereunder except to the extent the Indemnitor is materially
prejudiced thereby.
(b) The Indemnitor shall have the right, at its option, to assume the defense of any Third
Party Claim with its own counsel, but only if the Indemnitor simultaneously confirms in writing
that it will indemnify the Indemnitee for such Third Party Claim. If the Indemnitor elects to
assume the defense of such Third Party Claim as aforesaid, then:
40
(i) notwithstanding anything to the contrary contained in this Agreement, the
Indemnitor shall not be required to pay or otherwise indemnify the Indemnitee
against any attorneys’ fees incurred by the Indemnitee in connection with such Third
Party Claim following the Indemnitor’s election to assume the defense of such Third
Party Claim, unless (A) the Indemnitor fails to defend diligently the action or
proceeding within 10 days after receiving notice of such failure from the
Indemnitee; or (B) the Indemnitee reasonably shall have concluded (upon advice of
its counsel) that there may be one or more legal defenses available to such
Indemnitee or other Indemnitees that are not available to the Indemnitor; or (C) the
Indemnitee reasonably shall have concluded (upon advice of its counsel) that, with
respect to such Third Party Claim, the Indemnitee and the Indemnitor may have
different, conflicting, or adverse legal positions or interests;
(ii) the Indemnitee shall make available to the Indemnitor all books, records
and other documents and materials that are under the direct or indirect control of
the Indemnitee or any of the Indemnitee’s agents and that the Indemnitor considers
necessary or desirable for the defense of such Third Party Claim;
(iii) the Indemnitee shall otherwise cooperate as reasonably requested by the
Indemnitor in the defense of such Third Party Claim;
(iv) the Indemnitee shall not admit any liability with respect to such Third
Party Claim;
(v) the Indemnitor shall not, without the written consent of the Indemnitee,
which shall not be unreasonably withheld or delayed, settle or compromise any
pending or threatened Litigation in respect of which indemnification may be sought
hereunder (whether or not the Indemnitee is an actual or potential party to such
Litigation) or consent to the entry of any judgment (A) which does not, to the
extent that the Indemnitee or any of its Affiliates may have any liability with
respect to such Litigation, include as an unconditional term thereof the delivery by
the claimant or plaintiff to the Indemnitee of a written release of the Indemnitee
and its Affiliates from all liability in respect of such Litigation, (B) which
includes any statement as to or an admission of fact, culpability or a failure to
act, by or on behalf of the Indemnitee or any of its Affiliates, or (C) in any
manner that involves any injunctive relief against the Indemnitee or any of its
Affiliates or may materially and adversely affect the Indemnitee or any of its
Affiliates; and
(vi) if the Indemnitor elects not to assume the defense of or fails to confirm
its obligation to indemnify for any such Third Party Claim, then the Indemnitee
shall proceed diligently to defend such Third Party Claim with the assistance of
counsel reasonably satisfactory to the Indemnitor, provided, however, that the
Indemnitee shall not settle, adjust or compromise such Third Party Claim, or admit
any liability with respect to such Third Party Claim,
41
without the prior written
consent of the Indemnitor, such consent not to be unreasonably withheld or delayed.
9.6. Indemnification Payments as Purchase Price Adjustment. Any payments made by
Buyer or the Shareholders under this Article IX shall be considered an adjustment to the Purchase
Price.
9.7. No Materiality. For purposes of indemnification under this Article IX, each of
the representations and warranties that contain any qualifications as to materiality or Material
Adverse Effect (or any correlative terms) shall be deemed to have been given as though there were
no such qualifications in determining whether there has been any breach of any representations or
warranties hereunder.
9.8. No Investigation of the Company. (a) Notwithstanding anything to the contrary in
this Agreement, (i) no investigation of the Company by Buyer or its representatives or advisors (or
any knowledge of Buyer or its representatives or advisors) prior to or after the date hereof shall,
and (ii) the delivery by Buyer of any document, waiver or other instrument or written communication
hereunder shall not, diminish, obviate or cure any breach of any of the representations,
warranties, covenants or agreements of the Company or the Shareholders contained in this Agreement
or any Ancillary Documents.
9.9. Non-Exclusivity. The foregoing indemnification provisions are in addition to,
and not in derogation of, any statutory, equitable, or common law remedy any Indemnitee may have
for breach of any representation, warranty, covenant or agreement.
ARTICLE X
Miscellaneous
10.1. Press Releases and Public Announcements. No Party shall issue any press release
or make any disclosure or public announcement relating to the subject matter of this Agreement or
any of the Ancillary Documents without the prior consent of the other Parties unless required by
Law.
10.2. No Third Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the Parties, the Buyer Indemnitees, the Shareholder
Indemnitees, and their respective successors and permitted assigns.
10.3. Entire Agreement. This Agreement (including the Schedules and Exhibits hereto)
and the Ancillary Documents constitute the entire agreement among the Parties and supersede any
prior understandings or agreements by or among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
10.4. Succession and Assignment. Except as otherwise provided herein, this Agreement
may not, without the prior written consent of Buyer and the Representative, be assigned by Buyer or
any of the Shareholders by operation of law or otherwise, and any attempted assignment shall be
null and void; provided, that Buyer may, without prior written consent of the Representative, (i)
assign any or all of its rights hereunder to one or more of its Affiliates, (ii)
42
designate one or
more of its Affiliates to perform its obligations hereunder and (iii) assign its rights, but not
its obligations, under this Agreement to any of its, or any of its Affiliate’s, financing sources
(in any or all of which cases described in subclauses (i), (ii) or (iii), Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder). Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their
respective heirs, successors, permitted assigns and legal representatives.
10.5. Expenses. If the transactions contemplated by this Agreement are consummated,
the Shareholders, on the one hand, and Buyer, on the other hand, shall bear all costs and expenses
incurred by or on behalf of such Party (and by the Company in the case of the Shareholders);
provided, that any expenses borne by the Company shall be deemed to be Company Expenses. If the
transactions contemplated by this Agreement are not consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, shall be paid by the
Party incurring such expense.
10.6. Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
10.7. Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing, and shall be given (and shall be deemed to have been duly given upon
receipt) by personal delivery, electronic facsimile transmission, overnight courier or registered
or certified mail, postage prepaid, and addressed to the intended recipient as set forth below (or
at such other address as shall be specified in a notice given in accordance with this Section
10.7):
If to the Shareholders:
John A. Selzer
c/o Noari Capital
One Bridge Street, Ste. 126
Irvington-on-Hudson, NY 10533
c/o Noari Capital
One Bridge Street, Ste. 126
Irvington-on-Hudson, NY 10533
with a copy to:
Thelen, Reid, Brown, Raysman & Steiner LLP
875 Third Avenue
New York, NY 10022
Attention: Joel Handel, Esq.
Fax: (212) 603-2001
875 Third Avenue
New York, NY 10022
Attention: Joel Handel, Esq.
Fax: (212) 603-2001
If to Buyer:
McJunkin Development Corporation
835 Hillcrest Drive
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
835 Hillcrest Drive
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
43
with copies to:
c/o GS Capital Partners
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Nathaniel M. Zilkha
Fax: (212) 357-5505
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Nathaniel M. Zilkha
Fax: (212) 357-5505
and:
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, NY 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza
New York, NY 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
and:
Bowles Rice McDavid Graff & Love LLP
Post Office Box 1386
Charleston, West Virginia 25325-1386
Attention: Tom Heywood, Esq.
Facsimile: (304) 343-3058
Post Office Box 1386
Charleston, West Virginia 25325-1386
Attention: Tom Heywood, Esq.
Facsimile: (304) 343-3058
10.8. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York without giving effect to the principles of
conflicts of law.
10.9. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the Representative and
Buyer. No waiver by any Party of any default or any breach of any representation, warranty,
covenant or agreement hereunder or under any Ancillary Document shall be deemed to extend to any
prior or subsequent default or breach or affect in any way any rights arising by virtue of any such
prior or subsequent occurrence.
10.10. Severability. If any provision of this Agreement for any reason shall be held
to be illegal, invalid or unenforceable, such illegality shall not affect any other provision of
this Agreement, this Agreement shall be amended so as to enforce the illegal, invalid or
unenforceable provision to the maximum extent permitted by applicable Law, and the parties shall
cooperate in good faith to further modify this Agreement so as to preserve to the maximum extent
possible the intended benefits to be received by the parties.
10.11. Construction. The Parties intend that each representation, warranty, covenant
and agreement contained herein shall have independent significance. If any Party has breached any
representation, warranty, covenant or agreement contained herein in any respect, the fact that
there exists another representation, warranty, covenant or agreement relating to the same subject
44
matter (regardless of the relative levels of specificity) which the Party has not breached shall
not detract from or mitigate the fact that the Party is in breach of the first representation,
warranty, covenant or agreement.
10.12. Specific Performance. The Company and each of the Shareholders acknowledge and
agree that Buyer would be damaged irreparably in the event any of the provisions of this Agreement
or any of the Ancillary Documents is not performed in accordance with its specific terms or
otherwise is breached by the Company or any of the Shareholders. Accordingly, the Company and each
of the Shareholders agree that Buyer shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement or of any of the Ancillary Documents and to enforce
specifically this Agreement or any of the Ancillary Documents, and the terms and provisions hereof
and thereof, in addition to any other rights to which Buyer may be entitled at law or in equity.
Any such remedy shall be in addition to any other remedy that Buyer may have hereunder.
10.13. Jurisdiction; Court Proceedings; Waiver of Jury Trial. Any Litigation against
any Party to this Agreement arising out of or relating to this Agreement shall be brought in any
federal or state court located in the State of New York in New York County and each of the parties
hereby submits to the exclusive jurisdiction of such courts for the purpose of any such Litigation.
A final judgment in any such Litigation shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by Law. To the extent that
service of process by mail is permitted by applicable Law, each Party irrevocably consents to the
service of process in any such Litigation in such courts by the mailing of such process by
registered or certified mail, postage prepaid, at its address for notices provided for herein.
Each Party irrevocably agrees not to assert (a) any objection which it may ever have to the laying
of venue of any such Litigation in any federal or state court located in the State of New York in
New York County and (b) any claim that any such Litigation brought in
any such court has been brought in an inconvenient forum. Each Party waives any right to a
trial by jury, to the extent lawful, and agrees that any of them may file a copy of this paragraph
with any court as written evidence of the knowing, voluntary and bargained-for agreement among the
Parties irrevocably to waive its right to trial by jury in any Litigation whatsoever between them
relating to this Agreement or the transactions contemplated hereby.
10.14. Attorneys’ Fees. In the event that any action or proceeding is brought for the
purpose of determining or enforcing the right of any Party or Parties hereunder, the Party or
Parties prevailing in such action or proceeding shall be entitled to recover from the other Party
or Parties all reasonable costs and expenses incurred by the prevailing Party or Parties, including
reasonable attorneys’ fees.
10.15. Representative. (a) By the execution and delivery of this Agreement, including
counterparts hereof, each Shareholder hereby irrevocably constitutes and appoints John A. Selzer as
the true and lawful agent and attorney-in-fact of such Shareholder with full powers of substitution
(the “Representative”, and, if substituted, the Representative shall promptly notify Buyer
of such substitution) to act in the name, place and stead of such Shareholder with respect to this
Agreement, as the same may be from time to time amended, and with respect to the transfer of such
Shareholder’s Company Stock to Buyer pursuant hereto and the other transactions
45
contemplated
hereby, and to do or refrain from doing all such acts and things, and to execute all such
documents, as the Representative shall deem necessary or appropriate in connection with this
Agreement, the Ancillary Documents or any of the transactions contemplated hereby or thereby. In
the event of the death or other incapacity of the then current Representative, or resignation of
the Representative, Shareholders which immediately prior to the Closing held a majority of the
Company Stock, shall, by any writing executed by the appropriate number of Shareholders and the new
Representative (counterparts and facsimiles of signatures acceptable) approve and appoint a new
Representative by delivering a written notice to that effect, whereupon the person designated in
such notice shall be the new Representative with respect to all actions taken and/or documents
signed from and after actual receipt by Buyer of such notice.
(b) Without limiting the generality of the foregoing, the Representative is hereby authorized
(i) to receive any payment owing to the Shareholders pursuant to Section 2.3, (ii) to execute the
Escrow Agreement on behalf of the Shareholders, and (iii) to take all actions on behalf of the
Shareholders in connection with any actions taken or to be taken under Section 2.3 and Article IX
of this Agreement (including accepting service of process upon the Shareholders and accepting or
compromising any claim for indemnification and any claim relating to the Proposed Purchase Price
Calculation). The Representative and the Shareholders hereby agree that any amounts disbursed out
of the Escrow Account or the Settlement Agreement Indemnification Escrow Account to the
Representative pursuant to the terms of this Agreement and/or the Escrow Agreement shall be
distributed by the Representative to the Shareholders in accordance with Schedule 1. All decisions
and actions of the Representative permitted hereunder shall be final, binding and conclusive on the
Shareholders and may be relied upon by Buyer and its Affiliates as the decisions and actions of all
of the Shareholders. The Representative shall not be liable to any of the Shareholders for any act
done or omitted by him in good faith pursuant to this Agreement or any mistake of fact or Law
unless caused by his own
gross negligence or willful misconduct, and the Significant Shareholders shall jointly and
severally and the Non-Significant Shareholders shall severally but not jointly indemnify the
Representative from any Losses arising out of his serving as Representative hereunder. In taking
any action or refraining from taking any action whatsoever the Representative shall be protected in
relying upon any notice, paper or other document reasonably believed by him to be genuine, or upon
any evidence reasonably deemed by him to be sufficient. The Representative may consult with
counsel in connection with his duties and shall be fully protected in any act taken, suffered or
permitted by him in good faith in accordance with the advice of counsel.
10.16. No Presumption Against Drafting Party. Buyer, the Company and each Shareholder
acknowledges that each party to this Agreement has been represented by counsel in connection with
this Agreement, each of the Ancillary Documents and the transactions contemplated herein and
therein. Accordingly, any rule of Law or any legal decision that would require interpretation of
any claimed ambiguities in this Agreement or any of the Ancillary Documents against the drafting
party has no application and is expressly waived.
10.17. Signatures. This Agreement shall be effective upon delivery of original
signature pages or .pdf or facsimile copies thereof executed by each of the Parties.
[signature pages to follow]
46
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above
written.
| McJUNKIN DEVELOPMENT CORPORATION |
||||
| By: | /s/ J.F. Underhill | |||
| Name: | J.F. Underhill | |||
| Title: | Vice President and Chief Financial Officer | |||
| MIDWAY-TRISTATE CORPORATION |
||||
| By: | /s/ Michael J. Cetro | |||
| Name: | Michael J. Cetro | |||
| Title: | ||||
| SHAREHOLDERS: |
||||
| /s/ Michael J. Cetro | ||||
| Michael J. Cetro | ||||
| /s/ John Borer, III | ||||
| John Borer, III | ||||
| /s/ Jane Brady | ||||
| Jane Brady | ||||
| /s/ John Gleason | ||||
| John Gleason | ||||
| /s/ George Kowski | ||||
| George Kowski | ||||
| /s/ Jeffrey Manning | ||||
| Jeffery Manning | ||||
| /s/ Kevin P. McArdle | ||||
| Kevin P. McArdle | ||||
[Signature Page to Stock Purchase Agreement]
| /s/ Thomas Pinou | ||||
| Thomas Pinou | ||||
| /s/ John A. Selzer | ||||
| John A. Selzer | ||||
| MAYTHORPE HOLDINGS LIMITED |
||||
| By: | /s/ Joel M. Handel | |||
| Name: | Joel M. Handel | |||
| Title: | Director | |||
| /s/ Daniel J. Feld | ||||
| Daniel J. Feld | ||||
| /s/ Elizabeth Doyle | ||||
| Elizabeth Doyle | ||||
| /s/ Will Gleason | ||||
| Will Gleason | ||||
| /s/ Mary Marchisio | ||||
| Mary Marchisio | ||||
| REPRESENTATIVE: |
||||
| /s/ John A. Selzer | ||||
| John A. Selzer | ||||
[Signature Page to Stock Purchase Agreement]
Exhibit 2.2.1
Execution Copy
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this “Agreement”), dated April 27, 2007, by and between
McJunkin Development Corporation, a Delaware corporation (“Buyer”) and McJunkin Appalachian
Oilfield Supply Company, a West Virginia corporation and an Affiliate of Buyer (“McApple”).
Each capitalized term which is used but not otherwise defined in this Agreement has the meaning
assigned to such term in the Purchase Agreement (as defined below).
WHEREAS, Buyer is a party to that certain Stock Purchase Agreement, dated as of April 5, 2007
(the “Purchase Agreement”), pursuant to which Buyer has agreed to purchase 83,185 shares of
common stock, par value $0.01 (the “Company Stock”) of Midway-Tristate Corporation, a New
York corporation (the “Company”), which represents the entire issued and outstanding
capital stock of the Company, on the terms and subject to the conditions described therein and in
reliance upon the representations and warranties of, and the covenants made therein by, the Company
and the holders of Capital Stock listed on Schedule 1 thereto, as amended (the
“Shareholders”);
WHEREAS, Section 10.4 of the Purchase Agreement provides that Buyer may, without prior written
consent of the Representative, (i) assign any or all of its rights thereunder to one or more of its
Affiliates, (ii) designate one or more of its Affiliates to perform its obligations thereunder and
(iii) assign its rights, but not its obligations, under the Purchase Agreement to any of its, or
any of its Affiliate’s, financing sources (in any or all of which cases described in subclauses
(i), (ii) or (iii), Buyer nonetheless shall remain responsible for the performance of all of its
obligations thereunder); and
WHEREAS, the Shareholders executed stock powers that state that they are transferring their
Outstanding Shares to Buyer, and execution and delivery of prior to Closing of stock powers stating
that the Shareholders are transferring their Outstanding Shares to McApple is not possible.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and
in the Purchase Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Buyer and McApple agree as follows:
1. Assignment. In accordance with Section 10.4 of the Purchase Agreement, (i) Buyer
does hereby assign to McApple (A) all of Buyer’s rights under the Purchase Agreement and (B)
Buyer’s obligation to acquire from the Shareholders all of the Outstanding Shares in exchange for
payment of the Purchase Price pursuant to Article II of the Purchase Agreement, and (ii) McApple
does hereby (X) accept the assignment by Buyer of all of Buyer’s rights under the Purchase
Agreement and (Y) assume Buyer’s obligation to acquire from the Shareholders all of the Outstanding
Shares in exchange for payment of the Purchase Price pursuant to Article II of
the Purchase Agreement (it being understood that Buyer is not assigning to McApple any other
obligations under the Purchase Agreement and that Buyer nonetheless shall remain responsible for
the performance of all of its other obligations under the Purchase Agreement).
2. Nominee/Agent. McApple is hereby naming Buyer as its nominee and agent for the
sole purpose of receiving the Outstanding Shares from the Shareholders. Immediately after receipt
of the certificates evidencing the Outstanding Shares, Buyer will retransfer such shares to
McApple, as McApple’s nominee and agent. At all times from and after the Closing, McApple, and not
Buyer, will be the beneficial owner of the Outstanding Shares and Buyer will be acting solely in
its capacity as McApple’s nominee and agent. McApple may remove Buyer as its nominee and agent at
any time.
3. General. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the principles of conflicts of laws. This
Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same instrument.
[
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.
|
McJUNKIN APPALACHIAN OILFIELD SUPPLY COMPANY |
||||
| By: | /s/ DAVID A. FOX III | |||
| Name: | David A. Fox III | |||
| Title: | Vice President | |||
| McJUNKIN DEVELOPMENT CORPORATION |
||||
| By: | /s/ J.F. UNDERHILL | |||
| Name: | J.F. Underhill | |||
| Title: | Chief Financial Officer and Vice President | |||
| Acknowledged and Agreed as of April 27, 2007: MIDWAY-TRISTATE CORPORATION |
||||
| By: | /s/ MICHAEL J. CETRO | |||
| Name: | Michael J. Cetro | |||
| Title: | President | |||
[Assignment Agreement]
| Acknowledged and Agreed as of April 27, 2007: REPRESENTATIVE: |
||||
| /s/ JOHN A. SELZER | ||||
| John A. Selzer | ||||
[Assignment Agreement]
Exhibit 2.3
Execution Version
STOCK PURCHASE AGREEMENT
by and among
WEST OKLAHOMA PVF COMPANY,
RED MAN PIPE & SUPPLY CO.,
THE SHAREHOLDERS LISTED
ON SCHEDULE 1,
ON SCHEDULE 1,
McJ HOLDING LLC (for purposes of Sections 2.3(c) and 10.4 only)
and
Craig Ketchum, as Representative
Dated July 6, 2007
TABLE OF CONTENTS
| ARTICLE I Definitions | 1 | |||||
| ARTICLE II Acquisition of Company Stock | 13 | |||||
2.1. |
Acquisition of Company Stock | 13 | ||||
2.2. |
Purchase Price | 13 | ||||
2.3. |
Calculation of Purchase Price | 14 | ||||
2.4. |
Closing | 17 | ||||
2.5 |
Withholding | 18 | ||||
| ARTICLE III Representations and Warranties of the Shareholders | 18 | |||||
3.1. |
Ownership; Authorization of Transaction | 18 | ||||
3.2. |
No Conflicts | 18 | ||||
| ARTICLE IV Representations and Warranties of the Company | 19 | |||||
4.1. |
Authorization of Transaction | 19 | ||||
4.2. |
Corporate Organization; Authority | 19 | ||||
4.3. |
Capitalization | 19 | ||||
4.4. |
No Conflicts | 20 | ||||
4.5. |
Financial Statements | 21 | ||||
4.6. |
Absence of Certain Changes | 22 | ||||
4.7. |
Litigation and Liabilities | 22 | ||||
4.8. |
Employees; Benefits | 22 | ||||
4.9. |
Compliance with Laws | 24 | ||||
4.10. |
Material Contracts | 24 | ||||
4.11. |
Real Property | 26 | ||||
4.12. |
Environmental Matters | 26 | ||||
4.13. |
Tax Matters | 27 | ||||
4.14. |
Labor Matters | 28 | ||||
4.15. |
Insurance | 28 | ||||
4.16. |
Related Party Transactions | 29 | ||||
4.17. |
Product Warranty and Product Liability | 29 | ||||
4.18. |
Suppliers and Customers | 30 | ||||
4.19. |
Purchase and Sale Agreements | 30 | ||||
4.20. |
Brokers and Finders | 30 | ||||
4.21. |
Power of Attorney | 30 | ||||
4.22. |
Investment Canada Act | 30 | ||||
4.23. |
Opinion | 31 | ||||
| ARTICLE V Representations and Warranties of Buyer | 31 | |||||
5.1. |
Organization, Good Standing and Qualification | 31 | ||||
5.2. |
Corporate Authority | 31 | ||||
5.3. |
Governmental Filings; No Violations; Etc. | 31 | ||||
5.4. |
Litigation | 32 | ||||
i
5.5. |
Financing | 32 | ||||
5.6. |
Brokers and Finders | 33 | ||||
| ARTICLE VI Covenants | 33 | |||||
6.1. |
Interim Operations | 33 | ||||
6.2. |
Other Actions; Notification | 35 | ||||
6.3. |
Access and Reports | 36 | ||||
6.4. |
Shareholder Restrictions | 37 | ||||
6.5. |
Shareholder Non-Compete Agreements | 37 | ||||
6.6. |
Shareholders’ Post-Closing Confidentiality Obligation | 37 | ||||
6.7. |
Release of Claims by Shareholders | 37 | ||||
6.8. |
Investigations and Actions | 38 | ||||
6.9. |
Indemnification; Directors’ and Officers’ Insurance | 38 | ||||
6.10. |
Director Resignations | 40 | ||||
6.11. |
Excluded Assets | 40 | ||||
6.12. |
Ancillary Documents | 40 | ||||
6.13. |
Financing | 40 | ||||
6.14. |
CanHCo Call Right | 41 | ||||
6.15. |
Assets of Buyer | 42 | ||||
6.16. |
Phantom Stock | 42 | ||||
6.17. |
Contribution Percentages | 42 | ||||
6.18. |
CK Contributed Share Percentage | 43 | ||||
| ARTICLE VII Conditions to Closing | 43 | |||||
7.1. |
Conditions to Obligations of the Shareholders and Buyer | 43 | ||||
7.2. |
Conditions to the Obligations of the Shareholders | 43 | ||||
7.3. |
Conditions to the Obligations of Buyer | 44 | ||||
| ARTICLE VIII Termination | 46 | |||||
8.1. |
Termination | 46 | ||||
8.2. |
Effect of Termination and Abandonment | 47 | ||||
| ARTICLE IX Survival | 47 | |||||
9.1. |
Survival | 47 | ||||
| ARTICLE X Miscellaneous | 47 | |||||
10.1. |
Publicity | 47 | ||||
10.2. |
Entire Agreement | 47 | ||||
10.3. |
Succession and Assignment | 47 | ||||
10.4. |
Expenses | 48 | ||||
10.5. |
Headings | 48 | ||||
10.6. |
Notices | 48 | ||||
10.7. |
Governing Law | 49 | ||||
10.8. |
Amendments and Waivers | 49 | ||||
10.9. |
Severability | 50 | ||||
10.10. |
Construction | 50 | ||||
10.11. |
Specific Performance | 50 | ||||
ii
10.12. |
Jurisdiction; Court Proceedings; Waiver of Jury Trial | 50 | ||||
10.13. |
Attorneys’ Fees | 51 | ||||
10.14. |
Representative | 51 | ||||
10.15. |
No Third Party Beneficiaries | 52 | ||||
10.16. |
Obligations of Parties | 52 | ||||
10.17. |
No Presumption Against Drafting Party | 52 | ||||
10.18. |
Signatures | 52 | ||||
10.19. |
Computation of Time | 52 | ||||
10.20. |
Dollars | 52 |
EXHIBITS
Exhibit A
|
Contribution Agreement | |
Exhibit B
|
Contribution Percentages | |
Exhibit C
|
Net Working Capital | |
Exhibit D
|
Form of Escrow Agreement | |
Exhibit E
|
Debt Financing Commitment | |
Exhibit F
|
Equity Financing Commitment | |
Exhibit G
|
Non-Compete Agreement |
iii
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated July 6, 2007 (the “Agreement”), by and among West
Oklahoma PVF Company, a Delaware corporation (“Buyer”), Red Man Pipe & Supply Co., an
Oklahoma corporation (the “Company”), the holders of all outstanding shares of stock of the
Company listed on Schedule 1 (each, a “Shareholder” and, collectively, the
“Shareholders”), McJ Holding LLC, a Delaware limited liability company (“McJ
Holding”) (for purposes of Sections 2.3(c) and 10.4 only) and Craig Ketchum, as Representative
(as defined below). Buyer, the Company and each of the Shareholders (and any Person who becomes a
Shareholder after the date hereof as contemplated by Section 6.17) are separately referred to
herein as a “Party” and, together, as the “Parties.”
WHEREAS, Buyer desires to acquire all of the issued and outstanding capital stock of the
Company;
WHEREAS, the Shareholders own, in the aggregate, 143,976 shares of Class A Voting Common
Stock, par value $0.01 per share, of the Company (the “Class A Stock”), and 34,344 shares
of Class B Non-Voting Common Stock, par value $0.01 per share, of the Company (the “Class B
Stock” and, together with the Class A Stock, the “Company Stock”);
WHEREAS, the Company Stock represents the entire issued and outstanding capital stock of the
Company;
WHEREAS, upon the terms and subject to the conditions of this Agreement and the Contribution
Agreement (as defined below), Buyer desires to acquire, and the Shareholders desire to sell, the
Company Stock;
WHEREAS, BJHK Limited Partnership and K.F. Enterprises L.L.C. (each a “Ketchum Entity”
and collectively, the “Ketchum Entities”) have entered into a Contribution Agreement with
McJ Holding, dated as of the date hereof and attached hereto as Exhibit A (the
“Contribution Agreement”), pursuant to which the Ketchum Entity has agreed to contribute
the Contributed Shares (as defined below) to McJ Holding immediately prior to the Closing in
exchange for limited liability company units of McJ Holding (“McJ Units”); and
WHEREAS, McJ Holding and McJunkin Corporation have entered into an employment agreement with
each of those persons listed on Schedule 2 (each, an “Employment Agreement”), which
Employment Agreements will be effective as of the Closing.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms have the respective meanings set forth below:
“Accounting Firm” shall have the meaning assigned to such term in Section
2.3(b)(ii).
“Actual Adjustment” means (x) the Purchase Price as set forth on the Final
Statement of Purchase Price minus (y) the Estimated Purchase Price.
“Advance Ruling Certificate” means an advance ruling certificate issued by the
Commissioner of Competition pursuant to section 102 of the Competition Act with respect to
the transactions contemplated by this Agreement.
“Affiliate,” (or any correlative term) means, with respect to a Person, any
Person that, directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person (and, for purposes of this
Agreement, the Company and its Subsidiaries shall be considered Affiliates of each of the
Shareholders before the Closing and Affiliates of Buyer after the Closing).
“Aggregate Contribution Percentage” means the percentage that (x) the aggregate
number of shares of Company Stock to be contributed to McJ Holding pursuant to the
Contribution Agreement bears to (y) the total number of Outstanding Shares. The Aggregate
Contribution Percentage is set forth on Exhibit B and is subject to adjustment as
provided in Section 6.17.
“Agreement” shall have the meaning assigned such term in the Preamble.
“Ancillary Documents” means each agreement, certificate or other instrument
executed or to be executed by Buyer, the Company and/or any Shareholder in connection with
this Agreement, including the Escrow Agreement, the Employment Agreements, the Contribution
Agreement, the Non-Compete Agreement and the letter agreement dated on or about the date
hereof between the Ketchum Entities and GS Capital Partners V Fund, L.P. and affiliated
funds.
“Associate” means, with respect to a Person, (a) any corporation or
organization of which such Person is an officer or partner or is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities, (b) any trust or other
estate in which such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity, and (c) any relative or spouse of a
Person described in clause (a) or (b) of this definition or any relative of such spouse, who
has the same home as such Person.
“Audited Financial Statements” shall have the meaning assigned to such term in
Section 4.5.
“Bankruptcy and Equity Exception” shall have the meaning assigned to such term
in Section 3.1(b).
“Benefit Plans” shall have the meaning assigned to such term in Section 4.8(a).
2
“Business Day” means a day, other than a Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of business.
“Buyer” shall have the meaning assigned such term in the Preamble.
“Call Period” shall have the meaning assigned to such term in Section 6.14.
“CanHCo” shall have the meaning assigned to such term in Section 6.14.
“CanHCo Call Price” shall have the meaning assigned to such term in the
Midfield Shareholders Agreement.
“CanHCo Call Right” shall have the meaning assigned to such term in the
Midfield Shareholders Agreement.
“Cash and Cash Equivalents” means the sum of the fair market value (expressed
in United States dollars) of all cash and cash equivalents (including marketable securities
and short term investments) of the Company or any of its Subsidiaries as of immediately
prior to the Closing.
“Cash Escrow Amount” shall have the meaning assigned to such term in Section
2.3(a)(i).
“CK” means Craig Ketchum or any Person controlled by Craig Ketchum in which
Craig Ketchum and his wife and children have at least a 90% economic beneficial interest.
“CK Contributed Share Number” means the number of shares of Company Stock
contributed by CK to McJ Holding pursuant to the Contribution Agreement plus, for
each Ketchum Entity (other than CK) and for each Other Ketchum Entity that contributes
shares of Company Stock to McJ Holding pursuant to the Contribution Agreement, the product
of (x) the number of shares of Company Stock so contributed and (y) Craig Ketchum’s economic
beneficial interest in such Other Ketchum Entity expressed as a percentage.
“CK Contributed Share Percentage” means the percentage that the CK Contributed
Share Number bears to the CK Total Share Number.
“CK Total Share Number” means the number of shares of Company Stock
beneficially owned by CK immediately prior to the Closing (before giving effect to the
contribution of CK’s Contributed Shares, but without counting any shares beneficially owned
by any Ketchum Entity other than CK, or any Other Ketchum Entity) plus, for each
Ketchum Entity (other than CK), and for each Other Ketchum Entity that beneficially owns
shares of Company Stock at such time, the product of (x) the number of shares of Company
Stock so beneficially owned and (y) Craig Ketchum’s economic beneficial interest in such
Other Ketchum Entity..
“Claims” shall have the meaning assigned to such term in Section 4.7.
3
“Class A Stock” shall have the meaning assigned such term in the Recitals.
“Class B Stock” shall have the meaning assigned such term in the Recitals.
“Closing” shall have the meaning assigned to such term in Section 2.4.
“Closing Date” shall have the meaning assigned to such term in Section 2.4.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commissioner of Competition” means the Commissioner of Competition appointed
pursuant to the Competition Act and includes her staff at the Competition Bureau.
“Company” shall have the meaning assigned to such term in the Preamble, and
includes any of its predecessors.
“Company Benefit Plans” shall have the meaning assigned to such term in Section
4.8(b).
“Company Expenses” means the sum of (i) the collective amount of the Company’s,
the Company’s Subsidiaries’ and any of the Shareholder’s expenses payable by the Company or
any of the Company’s Subsidiaries to Baker Botts L.L.P., Blakes, Cassel & Graydon LLP,
Fleming LLP, Boylan Partners LLC, Fiduciary Counselors, Inc. and Murray, Devine & Co., Inc.
and all other out-of-pocket costs and expenses incurred by the Company, the Company’s
Subsidiaries or any of the Shareholders and to the extent payable by the Company or any of
its Subsidiaries on or after the Closing, in each case in connection with this Agreement or
any of the transactions contemplated by this Agreement, plus (ii) any fees payable
by the Company or any of its Subsidiaries to any of the Shareholders, any other Related
Party or any Affiliate of the Company or any of its Subsidiaries, plus (iii) any
broker’s, finder’s, investment banker’s, financial adviser’s or similar fee to the extent
payable by the Company or any of the Company’s Subsidiaries on or after the Closing in
connection with this Agreement or any of the transactions contemplated by this Agreement,
plus (iv) any amounts payable by the Company or any of its Subsidiaries on or after
the Closing to any officer, director or employee of the Company or any of its Subsidiaries
in the nature of a “change in control,” closing or signing bonus, severance or retention
payment or similar payment, as a result of the execution and delivery of this Agreement or
the consummation of the transactions contemplated by this Agreement, including the Closing,
and plus (v) all Taxes and expenses of the Company and/or any of its Subsidiaries
arising from, attributable to, or related to the assets listed on Schedule 6.11 and the
Company’s distribution or transfer thereof.
“Company Indemnified Parties” shall have the meaning assigned to such term in
Section 6.9(a).
“Company Retirement Plan” means the Red Man Pipe & Supply Company Retirement
Savings Plan.
4
“Company Stock” shall have the meaning assigned such term in the Recitals.
“Competition Act” means the Competition Act (Canada).
“Competition Act Compliance” means: (i) (A) the issuance of an Advance Ruling
Certificate, (B) Buyer and the Company have given the notice required under section 114 of
the Competition Act with respect to the transactions contemplated by this Agreement and the
applicable waiting period under section 123 of the Competition Act has expired or been
terminated in accordance with the Competition Act or (C) the obligation to give the
requisite notice has been waived pursuant to subsection 113(c) of the Competition Act, and
(ii) in the case of (B) or (C), Buyer has been advised in writing by the Commissioner of
Competition or a person authorized by the Commissioner of Competition that such person is of
the view, at that time, that, in effect, there are not sufficient grounds to initiate
proceedings before the Competition Tribunal under the merger provisions of the Competition
Act with respect to the transactions contemplated by this Agreement, and the form of and any
terms and conditions attached to any such advice are acceptable to Buyer and such advice has
not been rescinded or amended.
“Confidential Information” shall have the meaning assigned such term in Section
6.6.
“Confidentiality Agreement” means the confidentiality letter agreement dated
March 7, 2007 by and between the Company and McJunkin Corporation.
“Continuing Shareholder” means each Person that is or becomes a party to the
Contribution Agreement pursuant to the terms of this Agreement and holds Contributed Shares
immediately prior to the closing of the transactions contemplated by the Contribution
Agreement.
“Contract” means any agreement, lease, license, contract, note, mortgage,
indenture, arrangement or other obligation, whether written or oral.
“Contributed Shares” means all shares of Company Stock contributed to McJ
Holding pursuant to the Contribution Agreement.
“Contribution Agreement” shall have the meaning assigned to such term in the
Recitals.
“Contribution Percentage Notice” shall have the meaning assigned to such term
in Section 6.17.
“Debt” means the outstanding principal amount of, all accrued and unpaid
interest on and other payment obligations (including any premiums, termination fees,
expenses or breakage costs due upon prepayment of or payable in connection with this
Agreement or the consummation of the transactions contemplated by this Agreement) in respect
of, (i) any indebtedness for borrowed money of the Company or any of its Subsidiaries,
whether or not recourse to the Company or any of its Subsidiaries, (ii) any obligation of
the Company or any of its Subsidiaries evidenced by bonds, debentures, notes or other
5
similar instruments, (iii) any reimbursement obligation of the Company or any of its
Subsidiaries with respect to letters of credit (including standby letters of credit to the
extent drawn upon), bankers’ acceptances or similar facilities issued for the account of the
Company or any of its Subsidiaries, (iv) any obligation of the Company or any of its
Subsidiaries issued or assumed as the deferred purchase price of property or services, (v)
any lease obligation of the Company or any if its Subsidiaries required to be classified as
a capitalized lease obligation under GAAP, (vi) any obligation of the Company or any of its
Subsidiaries under any interest rate, currency or other hedging agreements, (vii) any
obligation of the Company or any of its Subsidiaries under any factoring, securitization or
other similar facility or arrangement and (viii) any obligation of the type referred to in
clauses (i) through (vii) of this definition of another Person the payment of which the
Company or any of its Subsidiaries has guaranteed or for which the Company or any of its
Subsidiaries is responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise.
“Debt Amount” means an amount equal to the sum of (a) the aggregate amount of
Debt outstanding immediately prior to the Closing, before giving effect to any repayment or
refinancing thereof occurring at or immediately prior to the Closing, plus (b) an
amount equal to all Pre-Closing Taxes, plus (c) the Tax Amount, plus (d) the
aggregate amount of the accrued liability of the Company under the EPSP Plan as of
immediately prior to the Closing to the extent not included in clause (a) above, and
plus (e) the amount of the DISC commission liability of the Company or any of its
Subsidiaries as of immediately prior to the Closing to the extent not included in clause (a)
above.
“Debt Financing” shall have the meaning assigned to such term in Section 5.5.
“Debt Financing Commitment” shall have the meaning assigned to such term in
Section 5.5.
“Employees” shall have the meaning assigned to such term in Section 4.8(a).
“Employment Agreement” shall have the meaning assigned such term in the
Recitals.
“Encumbrance” means any mortgage, pledge, lien, encumbrance, claim, charge,
security interest, or other similar restriction.
“Enterprise Value” means $1,111,045,718.37.
“Environmental Laws” means any applicable law (including common law),
regulation, code, license, permit, order, judgment, decree or injunction from any
Governmental Entity relating to (a) the protection of the environment (including air, water,
soil and natural resources), (b) the use, storage, handling, release or disposal of or
exposure to hazardous substances, or (c) occupational health or safety as it relates to
Hazardous Substance handling or exposure, in each case as presently in effect.
“EPSP Plan” means the Midfield Group Employees Profit Sharing Plan, effective
June 15, 2005.
6
“ERISA” shall have the meaning assigned to such term in Section 4.8(a).
“ERISA Affiliate” shall have the meaning assigned to such term in Section
4.8(c).
“ERISA Plan” shall have the meaning assigned to such term in Section 4.8(b).
“Escrow Account” shall have the meaning assigned to such term in Section
2.3(a)(i).
“Escrow Agent” shall have the meaning assigned to such term in Section
2.3(a)(i).
“Escrow Agreement” shall have the meaning assigned to such term in Section
2.3(a)(i).
“Escrow Amount” means $40,000,000.
“Escrow Funds” shall have the meaning assigned to such term in Section
2.3(a)(i).
“Estimated Purchase Price” means a good faith estimate of the Purchase Price,
as determined by the Representative. In connection with determining the Estimated Purchase
Price, the Representative shall (i) use the Enterprise Value and (ii) estimate (A) the Debt
Amount (using the actual Tax Amount), (B) the amount of Company Expenses, (C) the Net
Working Capital Adjustment, and (D) the amount of Cash and Cash Equivalents.
“Equity Financing Commitment” shall have the meaning assigned to such term in
Section 5.5.
“Excluded Representations” shall have the meaning assigned to such term in
Section 7.3(b).
“Final Statement of Purchase Price” shall have the meaning assigned to such
term in Section 2.3(b)(ii).
“Financial Statements” shall have the meaning assigned to such term in Section
4.5.
“Financing” shall have the meaning assigned to such term in Section 5.5.
“Financing Commitments” shall have the meaning assigned to such term in Section
5.5.
“Former Real Property” shall have the meaning assigned to such term in Section
4.12(a).
“GAAP” means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the periods
involved.
7
“Governmental Entity” means the government of the United States of America, any
other nation or any political subdivision of any of the foregoing, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, or other entity
exercising executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of government.
“Hazardous Substances” means any substance listed, defined, designated or
classified as a pollutant or contaminant or as hazardous, toxic or radioactive under any
applicable Environmental Law, including, without limitation, petroleum and any derivative or
by-products thereof and asbestos and asbestos-containing materials.
“HSR Act” shall have the meaning assigned to such term in Section 3.2.
“including” means including without limitation.
“Independent Fiduciary” shall have the meaning assigned to such term in Section
4.23.
“Insurance Policies” shall have the meaning assigned to such term in Section
4.15.
“Investment Canada Act” means the Investment Canada Act (Canada).
“IRS” shall have the meaning assigned to such term in Section 4.8(b).
“Ketchum Entity” shall have the meaning assigned to such term in the Recitals.
“Knowledge of the Company” means the actual knowledge of Craig Ketchum, Dee
Paige, Bob Bastemeyer, Dan Endersby or Fred Moore, after reasonable inquiry.
“Laws” means any federal, state, local or foreign law (including the Foreign
Corrupt Practices Act of 1977, as amended and the laws implemented by the Office of Foreign
Assets Control, United States Department of Treasury), statute or ordinance, common law, or
any rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity.
“Leased Real Property” shall have the meaning assigned to such term in Section
4.11(b).
“LLC Agreement” means that Limited Liability Company Operating Agreement of McJ
Holding LLC, dated as of December 4, 2006, as amended, to which the Continuing Shareholders
will become party as of the Closing.
“Major Customers” shall have the meaning assigned to such term in Section 4.18.
“Major Suppliers” shall have the meaning assigned to such term in Section 4.18.
8
“Material Adverse Effect” means (x) any event, change or effect that,
individually or in the aggregate, has a material adverse effect on the financial condition,
properties, assets, liabilities, business or results of operations of the Company and its
Subsidiaries, taken as a whole, other than any, event, change or effect resulting from (a)
changes in the economy or financial markets generally in the United States or other
countries in which the Company conducts material operations or that are the result of acts
of war or terrorism, (b) changes that are the result of factors generally affecting the
principal industries in which the Company and its Subsidiaries operate, (c) any loss of, or
adverse change in, the relationship of the Company with its customers, employees or
suppliers caused by the announcement of the transactions contemplated by this Agreement, (d)
changes required by this Agreement or any Ancillary Document, and (e) changes in GAAP or in
any Law unrelated to the transactions contemplated by this Agreement and of general
applicability after the date hereof; provided that, with respect to clauses (a), (b) and
(e), such event, change or effect may be taken into consideration for purposes of
determining if a Material Adverse Effect has occurred if such event, change or effect (i)
primarily relates only to (or has the effect of primarily relating only to) the Company and
its Subsidiaries or (ii) disproportionately adversely affects the Company and its
Subsidiaries compared to other companies of similar size operating in the principal
industries in which the Company and its Subsidiaries operate, or (y) a material adverse
effect on the ability of the Shareholders or the Company to consummate the transactions
contemplated by this Agreement.
“Material Contracts” shall have the meaning assigned to such term in Section
4.10.
“McJ Holding” shall have the meaning assigned to such term in the Preamble.
“McJ Units” shall have the meaning assigned to such term in the Recitals.
“Midfield Amount” shall have the meaning assigned to such term in Section 6.14.
“Midfield Shareholders Agreement” means the Shareholders Agreement, dated June
15, 2005, by and among Midfield Supply, Red Man Pipe & Supply Canada Ltd. and Midfield
Holdings (Alberta) Ltd., as amended.
“Midfield Supply” means Midfield Supply ULC, an Alberta unlimited liability
company.
“MinorityHCo” shall have the meaning assigned to such term in Section 6.14.
“Multiemployer Plan” shall have the meaning assigned to such term in Section
4.8(b).
“Negative Adjustment Amount” shall have the meaning assigned to such term in
Section 2.3(c)(ii).
“Net Working Capital” means the consolidated net book value of the current
assets of the Company and its Subsidiaries, as of immediately prior to the Closing, less
9
the consolidated net book value of the current liabilities (other than accrued Tax
liabilities that are included in Pre-Closing Taxes) of the Company and its Subsidiaries, as
of immediately prior to the Closing, in each case, without duplication and as determined in
accordance with GAAP consistently applied with the application thereof in the Company’s
audited consolidated financial statements for the fiscal year ended October 31, 2006,
subject to the accounting principles, methodologies, procedures and classifications set
forth in Exhibit C.
“Net Working Capital Adjustment” means (i) the amount by which the Net Working
Capital as of immediately prior to the Closing exceeds the sum of (x) US$453,000,000 and (y)
CDN$137,000,000 (converted to U.S. Dollars using the spot rate at the close of business on
the Business Day immediately prior to the Closing Date), or (ii) the amount by which Net
Working Capital as of immediately prior to the Closing is less than the sum of (x)
US$419,000,000 and (y) CDN$137,000,000 (converted to U.S. Dollars using the spot rate at the
close of business on the Business Day immediately prior to the Closing Date);
provided that any amount which is calculated pursuant to clause (ii) above shall be
deemed to be a negative number.
“Non-Compete Agreement” shall have the meaning assigned to such term in Section
6.5.
“Non-Plan Shareholders” means each of the Shareholders other than the Company
Retirement Plan.
“Non-Wholly Owned Investment” shall have the meaning assigned to such term in
Section 4.3(b).
“Order” means any order, injunction, judgment, decree or ruling of any
Governmental Entity.
“Other Ketchum Entity” means any Person, other than CK, a Ketchum Entity or
BJHK Living Trust, that is controlled by Betty Ketchum and/or any direct descendant of Betty
Ketchum, and/or a spouse of any of the foregoing.
“Outstanding Shares” means the shares of Company Stock issued and outstanding
immediately prior to the Closing before giving effect to the contribution of the Contributed
Shares to McJ Holding pursuant to the Contribution Agreement.
“Owned Real Property” shall have the meaning assigned to such term in Section
4.11(a).
“Party” and “Parties” shall have the meaning assigned such terms in the
Preamble.
“Permit” shall have the meaning assigned to such term in Section 4.9.
“Permitted Encumbrances” means (i) liens for Taxes that are not yet due and
payable or which are being contested in good faith for which an adequate reserve has
10
been established on the books and records of the Company, (ii) mechanics’, workmen’s,
repairmen’s, warehousemen’s, carriers’ or other statutory liens arising or incurred in the
ordinary course of business in respect of liabilities that will be paid prior to Closing or
included in the Debt Amount or in the computation of Net Working Capital and (iii) in the
case of any Owned Real Property, (A) other encumbrances that do not, individually or in the
aggregate, materially impair the continued use, operation, value or marketability of the
specific parcel of Owned Real Property to which they relate or the conduct of the business
of the Company and its Subsidiaries as presently conducted, (B) restrictions or exclusions
which would be shown on a current title report or similar report, and (C) any condition or
other matters, if any, that may be shown or disclosed by a current and accurate survey or
physical inspection.
“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or other entity.
“Positive Adjustment Amount” shall have the meaning assigned to such term in
Section 2.3(c)(i).
“Pre-Closing Tax Period” shall have the meaning assigned to such term in the
definition of Pre-Closing Taxes.
“Pre-Closing Taxes” means all liabilities for Taxes (including the non-payment
thereof) of the Company and each of its Subsidiaries for all taxable periods ending on or
before the Closing Date and the portion through the end of the Closing Date for any taxable
period that includes but does not end on the Closing Date (each, a “Pre-Closing Tax
Period”), other than Taxes resulting from actions taken outside the ordinary course of
business by Buyer after the Closing on the Closing Date; it being understood that in the
case of any taxable period that includes but does not end on the Closing Date (a
“Straddle Period”), the amount of any Taxes based on or measured by income or
receipts of the Company and its Subsidiaries for the Pre-Closing Tax Period shall be
determined based on an interim closing of the books as of the close of business on the
Closing Date (and, for such purpose, the taxable period of any partnership or other
pass-through entity in which the Company or any of its Subsidiaries holds a beneficial
interest shall be deemed to terminate at such time) and the amount of other Taxes of the
Company and its Subsidiaries for a Straddle Period that relates to the Pre-Closing Tax
Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period ending on
the Closing Date and the denominator of which is the number of days in such Straddle Period.
“Prior Purchase Agreements” shall have the meaning assigned to such term in
Section 4.19.
“Product” shall have the meaning assigned to such term in Section 4.17.
11
“Proposed Cash and Cash Equivalents” shall have the meaning assigned to such
term in Section 2.3(b)(i).
“Proposed Company Expenses” shall have the meaning assigned to such term in
Section 2.3(b)(i).
“Proposed Debt Amount” shall have the meaning assigned to such term in Section
2.3(b)(i).
“Proposed Net Working Capital” shall have the meaning assigned to such term in
Section 2.3(b)(i).
“Proposed Purchase Price Calculation” shall have the meaning assigned to such
term in Section 2.3(b)(i).
“Purchase Price” means an amount equal to (i) the Enterprise Value, plus (ii)
the Net Working Capital Adjustment (which may be a negative number if the calculation
results in a negative number under clause (ii) of the definition of “Net Working Capital
Adjustment”), plus (iii) the amount of Cash and Cash Equivalents, minus (iv)
the Debt Amount and minus (v) the amount of Company Expenses.
“Purchase Price Dispute Notice” shall have the meaning assigned to such term in
Section 2.3(b)(ii).
“Registration Rights Agreement” means that Registration Rights Agreement, dated
as of December 4, 2006, among McJ Holding and the other signatories thereto, to which the
Continuing Shareholders will become party as of the Closing.
“Related Party” means (a) any Shareholder or any officer or director of the
Company or any of its Subsidiaries, (b) any spouse, former spouse, child, parent, parent of
a spouse, sibling or grandchild of any of the Persons listed in clause (a) above, and (c)
any Affiliate or Associate of any of the Persons listed in clause (a) or (b) above, other
than the Company and the Company’s Subsidiaries.
“Released Claims” shall have the meaning assigned to such term in Section 6.7.
“Released Parties” shall have the meaning assigned to such term in Section 6.7.
“Representative” shall have the meaning assigned such term in Section 10.14(a).
“Schedules” shall have the meaning assigned to such term in Article IV.
“Shareholder” and “Shareholders” shall have the meaning assigned such
terms in the Preamble.
“Straddle Period” shall have the meaning assigned to such term in the
definition of Pre-Closing Taxes.
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“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, joint venture, or other legal entity of which such Person
(either alone or through or together with any other Subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity (for the avoidance of doubt, the Parties
agree that for purposes of this Agreement Midfield Supply and its Subsidiaries shall be
deemed to be Subsidiaries of the Company).
“Tax” or “Taxes” means all federal, state, local and foreign income,
profits, franchise, gross receipts, environmental, customs duty, capital stock, severances,
stamp, documentary, registration, payroll, sales, employment, unemployment, disability, use,
transfer, real property transfer, stock transfer, property, withholding, excise, production,
value added, occupancy, and other taxes, duties or assessments imposed by a Governmental
Entity of any nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and additions.
“Tax Amount” means $2,520,000.00.
“Tax Return” means all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns) required to be supplied to a
Governmental Entity relating to Taxes.
“Termination Date” shall have the meaning assigned to such term in Section
8.1(c).
“Transfer Taxes” means all transfer, real property transfer, stock transfer,
documentary, sales, use, value added, stamp, registration and other similar Taxes.
“Transferred Shares” shall have the meaning assigned to such term in Section
2.1.
“Willful or Deliberate Breach” means a willful or deliberate material breach
which does not require malicious or tortuous intent.
ARTICLE II
Acquisition of Company Stock
2.1. Acquisition of Company Stock. Upon the terms and subject to the conditions of this
Agreement, at the Closing, the Shareholders shall assign, transfer, convey and deliver to Buyer,
and Buyer shall acquire from the Shareholders, all of the Outstanding Shares, other than the
Contributed Shares (the “Transferred Shares”), free and clear of all Encumbrances.
2.2. Purchase Price. The Purchase Price shall be allocated among the Shareholders in
proportion to their respective shareholdings set forth in Schedule 1, and payment in
respect of Transferred Shares shall be made in cash in accordance with Section 2.3 and payment in
respect of Contributed Shares shall be made by exchanging McJ Units therefor in accordance with the
13
Contribution Agreement. Subject to the adjustments set forth in Section 2.3, the Purchase
Price to be paid for all of the Outstanding Shares shall consist of cash and McJ Units and shall be
payable by Buyer as set forth in Section 2.3.
2.3. Calculation of Purchase Price.
(a) Estimated Purchase Price. No later than five (5) Business Days prior to the Closing Date,
the Representative shall deliver to Buyer a calculation of the Estimated Purchase Price and the
components thereof, together with reasonable supporting detail, and based on the Company’s books
and records and other information then available. The Estimated Purchase Price shall be reasonably
acceptable to Buyer. On the Closing Date, Buyer shall pay, or shall cause to be paid, the
Estimated Purchase Price as follows:
(i) an amount in cash equal to the product of (A) the Escrow Amount and (B)
100% minus the Aggregate Contribution Percentage (such amount, the “Cash Escrow
Amount” and such cash, the “Escrow Funds”) shall be deposited into an
escrow account (the “Escrow Account”), which shall be established pursuant
to an escrow agreement (the “Escrow Agreement”), which Escrow Agreement (x)
shall be entered into on the Closing Date among the Representative, Buyer and an
escrow agent (the “Escrow Agent”) to be mutually agreed upon between the
Representative and Buyer and (y) shall be substantially in the form of Exhibit
D; and
(ii) an amount in cash equal to the Estimated Purchase Price minus (A)
the Cash Escrow Amount and minus (B) an amount equal to the product of (x) the
Estimated Purchase Price and (y) the Aggregate Contribution Percentage, shall be
paid by wire transfer of immediately available funds to the Representative, on
behalf of the Shareholders, for distribution to the Shareholders in accordance with
their respective Cash Proceeds Percentages set forth on Exhibit B, in an
account to be designated by the Representative in a written notice to Buyer at least
five (5) Business Days prior to the Closing, net of applicable withholding taxes, if
any. The portion of the Estimated Purchase Price not otherwise allocated pursuant
to clauses (i) and (ii) of this Section 2.3(a) (i.e., that will consist of McJ
Units) shall be paid in accordance with the Contribution Agreement.
(b) Preparation of the Final Statement of Purchase Price.
(i) As soon as practicable, but no later than one hundred and twenty (120) days
after the Closing Date, Buyer shall prepare and deliver to the Representative the
proposed calculation of the Purchase Price (the “Proposed Purchase Price
Calculation”) and the components thereof, including (A) a proposed calculation
of Net Working Capital and the Net Working Capital Adjustment (the “Proposed Net
Working Capital”), (B) a proposed calculation of the amount of Cash and Cash
Equivalents (the “Proposed Cash and Cash Equivalents”), (C) a proposed
calculation of the Debt Amount (the “Proposed Debt Amount”), and (D) a
proposed calculation of the amount of Company
14
Expenses (the “Proposed Company Expenses”), and, in each case, the
components thereof, together with reasonable supporting detail.
(ii) If the Representative does not give a written notice of dispute (a
“Purchase Price Dispute Notice”) to Buyer within thirty (30) days after
receiving the Proposed Purchase Price Calculation, Buyer and the Representative
agree that (A) the Proposed Net Working Capital shall be deemed to set forth the Net
Working Capital, (B) the Proposed Cash and Cash Equivalents shall be deemed to set
forth the Cash and Cash Equivalents, (C) the Proposed Debt Amount shall be deemed to
set forth the Debt Amount, (D) the Proposed Company Expenses shall be deemed to set
forth the Company Expenses and (E) the Proposed Purchase Price Calculation shall be
deemed to be final and binding in determining the Purchase Price. If the
Representative gives a Purchase Price Dispute Notice to Buyer (which Purchase Price
Dispute Notice must set forth, in reasonable detail, the items and amounts in
dispute) within such 30-day period, Buyer and the Representative will use
commercially reasonable efforts to resolve the dispute during the 30-day period
commencing on the date Buyer receives the applicable Purchase Price Dispute Notice
from the Representative. Items and amounts not objected to by the Representative in
the Purchase Price Dispute Notice shall be deemed resolved. If the Representative
and Buyer do not obtain a final resolution within such 30-day period, then the items
in dispute shall be submitted immediately to Deloitte & Touche LLP or another
nationally-recognized, independent accounting firm reasonably acceptable to the
Representative and Buyer (the “Accounting Firm”). The Accounting Firm shall
be required to render a determination resolving the applicable dispute within 45
days after referral of the matter to the Accounting Firm, which determination must
be in writing and must set forth, in reasonable detail, the basis therefor. The
determination of the Accounting Firm shall be conclusive and binding upon the
Representative, the Shareholders and Buyer. Buyer will revise the Proposed Purchase
Price Calculation as appropriate to reflect the resolution of any objections thereto
pursuant to this Section 2.3(b)(ii). The “Final Statement of Purchase
Price” shall mean the Proposed Purchase Price Calculation together with any
revisions thereto pursuant to this Section 2.3(b)(ii).
(iii) In the event the Representative and Buyer submit any unresolved
objections to the Accounting Firm for resolution as provided in Section 2.3(b)(ii),
the responsibility for the fees and expenses of such Accounting Firm shall be paid
by Buyer, on the one hand, and the Representative on behalf of the Shareholders, on
the other hand, in inverse proportion (based on value) as Buyer and the
Representative prevail on any disputed matters, as determined by the Accounting
Firm.
(iv) Buyer will make the Company’s financial records available to the
Accounting Firm and the Representative and his accountants and other representatives
at reasonable times at any time during the review by the Representative and/or the
Accounting Firm, as the case may be, of, and the
15
resolution of any objections with respect to, the Proposed Purchase Price
Calculation.
(c) Adjustment to Estimated Purchase Price.
(i) If the Actual Adjustment is a positive amount (the “Positive Adjustment
Amount”):
(A) Buyer will pay, or cause to be paid, to the Representative on
behalf of the Shareholders for distribution to the Shareholders in
accordance with their respective Cash Proceeds Percentages set forth on
Exhibit B, an amount in cash equal to the product of (x) the
Positive Adjustment Amount and (y) 100% minus the Aggregate
Contribution Percentage, net of applicable withholding taxes, if any, by
wire transfer or delivery of other immediately available funds within three
(3) Business Days after the date on which the Purchase Price is finally
determined pursuant to Section 2.3(b);
(B) Buyer and the Representative will instruct the Escrow Agent to pay
to the Representative on behalf of the Shareholders for distribution to the
Shareholders in accordance with their respective Cash Proceeds Percentages
set forth on Exhibit B, an amount equal to the Cash Escrow Amount,
net of applicable withholding taxes, if any, out of the Escrow Account by
wire transfer or delivery of other immediately available funds within three
(3) Business Days after the date on which the Purchase Price is finally
determined pursuant to Section 2.3(b); and
(C) McJ Holding will issue additional McJ Units to the Continuing
Shareholders in accordance with Exhibit B with an aggregate value
(determined based on the price per McJ Unit to be paid under the
Contribution Agreement) equal to the product of (x) the Positive Adjustment
Amount plus the Escrow Amount and (y) the Aggregate Contribution Percentage.
(ii) If the Actual Adjustment is a negative amount (the absolute value of such
negative amount, the “Negative Adjustment Amount”) and the Negative
Adjustment Amount is less than the Escrow Amount:
(A) Buyer and the Representative will instruct the Escrow Agent to pay
(1) to the Representative on behalf of the Shareholders for distribution to
the Shareholders in accordance with their respective Cash Proceeds
Percentages set forth on Exhibit B, an amount, if any, equal to the
product of (x) the Escrow Amount minus the Negative Adjustment
Amount and (y) 100% minus the Aggregate Contribution Percentage, net
of applicable withholding taxes, if any, out of the Escrow Account by wire
transfer or delivery of other immediately available funds within three (3)
Business Days after the date on which the Purchase Price is finally
16
determined pursuant to Section 2.3(b), and (2) to Buyer the remaining
amount of the Escrow Funds out of the Escrow Account by wire transfer or
delivery of other immediately available funds within three (3) Business Days
after the date on which the Purchase Price is finally determined pursuant to
Section 2.3(b); and
(B) McJ Holding will issue additional McJ Units to the Continuing
Shareholders in accordance with their respective Contributed Share
Percentages set forth on Exhibit B with an aggregate value (based on
the price per McJ Unit set forth in the Contribution Agreement) equal to the
product of (x) the Escrow Amount minus the Negative Adjustment
Amount and (y) the Aggregate Contribution Percentage.
(iii) If the Actual Adjustment is a Negative Adjustment Amount and is greater
than or equal to the Escrow Amount:
(A) Buyer and the Representative will instruct the Escrow Agent to pay
to Buyer the Cash Escrow Amount out of the Escrow Account by wire transfer
or delivery of other immediately available funds within three (3) Business
Days after the date on which the Purchase Price is finally determined
pursuant to Section 2.3(b);
(B) if the Negative Adjustment Amount is greater than the Escrow
Amount, the Non-Plan Shareholders will pay to Buyer, in accordance with the
column entitled “Non-Plan Shareholders Percentages” on Schedule 1,
an amount equal to the product of (x) the Negative Adjustment Amount
minus the Escrow Amount and (y) 100% minus the Aggregate
Contribution Percentage by wire transfer or delivery of other immediately
available funds within three (3) Business Days after the date on which the
Purchase Price is finally determined pursuant to Section 2.3(b);
provided that Buyer may instead, in its sole discretion, elect to
set off any amount owed by the Shareholders to Buyer pursuant to this clause
(B) against the Midfield Amount payable to the Shareholders pursuant to
Section 6.14; and
(C) if the Negative Adjustment Amount is greater than the Escrow
Amount, McJ Holding will cancel McJ Units issued to the Continuing
Shareholders pursuant to the Contribution Agreement with an aggregate value
equal to the product of (x) the Negative Adjustment Amount minus the
Escrow Amount and (y) the Aggregate Contribution Percentage, in accordance
with Exhibit B.
2.4. Closing. Subject to the provisions of Article VII, the closing of the transactions
contemplated by this Agreement (the “Closing”) and all actions specified in this Agreement
to occur at the Closing shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson
LLP, One New York Plaza, New York, New York at 9:00 a.m., New York time, on the fifth Business Day
immediately following the day on which the last of the conditions set forth in
17
Article VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions) are satisfied or waived in
accordance with this Agreement, or on such other date as Buyer and the Representative shall agree
(the date on which the Closing takes place, the “Closing Date”).
2.5 Withholding. Each of Buyer and the Company shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to any Shareholder
such amounts as it is required to deduct and withhold with respect to the making of such payment
under the Code; or any other applicable state, local or foreign Tax law. To the extent that
amounts are so withheld by Buyer or the Company, as the case may be, such withheld amounts (a)
shall be remitted by Buyer or the Company, as applicable, to the applicable Governmental Entity,
and (b) shall be treated for all purposes of this Agreement as having been paid to the Shareholder
in respect of which such deduction and withholding was made by Buyer or the Company, as the case
may be.
ARTICLE III
Representations and Warranties of the Shareholders
Each Shareholder represents and warrants to Buyer, as follows (it being understood that no
Shareholder shall be liable for the representation or warranty of any other Shareholder under this
Article III):
3.1. Ownership; Authorization of Transaction.
(a) Schedule 1 accurately sets forth the number of shares of Company Stock owned of
record and beneficially by such Shareholder. Such Company Stock is owned by such Shareholder free
and clear of any Encumbrances.
(b) Such Shareholder has full power and authority to execute and deliver this Agreement and
each Ancillary Document to which such Shareholder is a party, including the Escrow Agreement (which
shall be executed by the Representative in his capacity as the true and lawful agent and
attorney-in-fact of each of the Shareholders), and to perform such Shareholder’s obligations
hereunder and thereunder, and, if such Shareholder is an entity, the execution, delivery and
performance by such Shareholder of this Agreement and the Ancillary Documents to which it is a
party have been duly authorized by all necessary corporate or other similar action on the part of
such Shareholder. This Agreement and each Ancillary Document to which such Shareholder is a party
constitute, or upon execution will constitute, a valid and legally binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with their respective terms, except
as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar
Laws affecting the enforcement of creditors’ rights or by general principles of equity, whether
such enforceability is considered in a court of law, a court of equity or otherwise (the
“Bankruptcy and Equity Exception).
3.2. No Conflicts. With the exception of any filing required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (“HSR Act”) and the Competition Act, the
execution and the delivery of this Agreement and the Ancillary Documents to which such
18
Shareholder is a party and the consummation of the transactions contemplated hereby and
thereby will not (a) violate any Law or Order to which such Shareholder is subject, (b) result in
the creation or imposition of any Encumbrance upon the Company Stock owned of record and
beneficially by such Shareholder, or (c) require such Shareholder to give any notice to, make any
filing with, or obtain any authorization, consent or approval of, any Person.
ARTICLE IV
Representations and Warranties of the Company
Except as set forth in the corresponding sections of the disclosure letter delivered to Buyer
by the Company simultaneously with the execution and delivery of this Agreement (the
“Schedules”) (it being agreed that disclosure of any item in any section of the Schedules
shall be deemed disclosure with respect to any other section to which the relevance of such item is
reasonably apparent), the Company represents and warrants to Buyer, as follows:
4.1. Authorization of Transaction. The Company has full power and authority to execute and
deliver this Agreement and each Ancillary Document to which it is a party and to perform its
obligations hereunder and thereunder, and the execution, delivery and performance by the Company of
this Agreement and the Ancillary Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement and each Ancillary Document
to which the Company is a party constitute, or upon execution will constitute, a valid and legally
binding obligation of the Company, enforceable against the Company in accordance with their
respective terms, except as limited by the Bankruptcy and Equity Exception.
4.2. Corporate Organization; Authority. Each of the Company and each of its Subsidiaries
is a legal entity duly organized, validly existing and in good standing under the Laws of its
respective jurisdiction of organization and has all requisite corporate or similar power and
authority to own, lease and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where the failure to be
so organized, qualified or in good standing, or to have such power or authority, are not,
individually or in the aggregate, reasonably likely to have a Material Adverse Effect. The Company
has made available to Buyer complete and correct copies of the Company’s and each of its
Subsidiaries’ certificate of incorporation and by laws or comparable governing documents, each as
amended to the date hereof, and each as so delivered is in full force and effect. Schedule 4.2
contains a true and complete list of each jurisdiction where the Company and each of its
Subsidiaries are organized and qualified to do business.
4.3. Capitalization.
(a) The authorized capital stock of the Company consists of (x) 50,000,000 shares of Class A
Stock, of which 143,976 shares are issued and outstanding as of the date of this Agreement, (y)
50,000,000 shares of Class B Stock, of which 34,344 shares are issued and outstanding as of the
date of this Agreement and (z) 2,000 shares of Preferred Stock, par value
19
$2,500 per share, of which no shares are issued and outstanding as of the date of this
Agreement. All of the Outstanding Shares have been duly authorized and are validly issued, fully
paid and nonassessable. The Company has no shares of capital stock reserved for issuance. At the
Closing, Buyer will acquire all of the Transferred Shares free and clear of any Encumbrances other
than those imposed by or as a result of any act by Buyer. Each of the outstanding shares of
capital stock or other securities of each of the Company’s Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and, except as set forth on Schedule 4.3(a), owned by the
Company or by a direct or indirect wholly-owned Subsidiary of the Company, free and clear of any
Encumbrance. Except as set forth on Schedule 4.3(a), there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements, calls, commitments or rights of any kind that obligate
the Company or any of its Subsidiaries to issue or sell any Company Stock or any shares of capital
stock or other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any Company Stock or any shares of capital stock or other securities of
the Company or any of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. None of the Company or any of its Subsidiaries has outstanding
any bonds, debentures, notes or other obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote) with the shareholders of
the Company or any of its Subsidiaries on any matter.
(b) Schedule 4.3(b) sets forth (i) each of the Company’s Subsidiaries and the ownership
interest of the Company in each such Subsidiary, as well as the ownership interest of any other
Person or Persons in each such Subsidiary and (ii) the Company’s or any of its Subsidiaries’
capital stock, voting or equity interest or other direct or indirect ownership interest in any
other Person. With respect to each Person identified on Schedule 4.3(b) that is (x) a Subsidiary
of the Company that is not wholly-owned by the Company or (y) not a Subsidiary of the Company (each
such entity described in (x) and (y), a “Non-Wholly Owned Investment”), the Company has
delivered to Buyer copies of all Contracts and other documents to which the Company or any of its
Subsidiaries is a party that relates in any way to any Non-Wholly Owned Investment and each such
Contract is a valid and binding agreement of the Company or one of its Subsidiaries, as the case
may be, and is in full force and effect, and neither the Company nor any of its Subsidiaries nor,
to the Knowledge of the Company, any other party thereto is in default or breach in any respect
under the terms of any such Contract. Neither the Company nor any of its Subsidiaries is obligated
to make any capital contribution or to assume or otherwise become liable for any debts or
obligations or make any other payments with respect to any Non-Wholly Owned Investment. The CanHCo
Call Right set forth in the Midfield Shareholders Agreement is in full force and effect and
entitles CanHCo to acquire all shares of Midfield Supply owned by MinorityHCo for the CanHCo Call
Price during the Call Period.
4.4. No Conflicts.
(a) Other than the filings required under the HSR Act and the Competition Act, no notices,
reports or other filings are required to be made by the Company or any of its Subsidiaries with,
nor are any consents, registrations, approvals, permits or authorizations required to be obtained
by the Company or any of its Subsidiaries from, any Governmental Entity, in connection with the
execution, delivery and performance of this Agreement and the
20
Ancillary Documents by the Company and the Shareholders and the consummation by the Company
and the Shareholders of the transactions contemplated hereby and thereby, or in connection with the
continuing operation of the business of the Company and its Subsidiaries following the Closing,
except those for which the failure to obtain such consent, approval or waiver is not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.4(b), the execution, delivery and performance of this
Agreement and the Ancillary Documents by the Company or any of the Shareholders do not, and the
consummation of the transactions contemplated hereby and thereby will not, constitute or result in
(i) a breach or violation of, or a default under, the certificate of incorporation or by laws of
the Company or the comparable governing instruments of any of its Subsidiaries, (ii) with or
without notice, lapse of time or both, a breach or violation of, a termination (or right of
termination) or a default under, the creation or acceleration of any obligations or the creation of
an Encumbrance on any of the assets of the Company or any of its Subsidiaries pursuant to any
Contract binding upon the Company or any of its Subsidiaries or, assuming (solely with respect to
performance of this Agreement and consummation of the transactions contemplated hereby) the
requisite filing under the HSR Act and the Competition Act, under any Law to which the Company or
any of its Subsidiaries is subject, or (iii) any change in the rights or obligations of any party
under any Contract binding on the Company or any of its Subsidiaries, except, in the case of clause
(ii) or (iii) above, for any such breach, violation, termination, default, creation, acceleration
or change that, individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect. None of the Company or any of its Subsidiaries is the beneficiary of, or exempt
from, any Law, Order or Permit because of a “grandfather clause” that will not be available to it
following the Closing.
(c) Neither the Company nor any of its Subsidiaries is a party to or bound by any
non-competition Contracts or other Contract that purports to limit either the type of business in
which the Company or its Affiliates (or, after giving effect to the transactions contemplated by
this Agreement, Buyer or its Affiliates) may engage or the manner or locations in which any of them
may engage in any business (for the avoidance of doubt, distribution agreements and similar
Contracts entered into in the ordinary course of business consistent with past practice shall not
be deemed to be covered by this Section 4.4(c) provided that such distribution agreements or
similar Contracts do not in any way restrict Buyer or any of its Affiliates (other than the Company
and its Subsidiaries) after consummation of the transactions contemplated hereby).
4.5. Financial Statements. The Company has delivered to Buyer copies of (a) the audited
consolidated financial statements and other financial information for the Company and its
consolidated Subsidiaries as of October 31, 2004, October 31, 2005 and October 31, 2006 and for the
fiscal years then ended (the “Audited Financial Statements”), and (b) the unaudited
consolidated financial statements and other financial information for the Company and its
consolidated Subsidiaries for the seven-month period ending May 31, 2007 (together with the Audited
Financial Statements, the “Financial Statements”). Each of the consolidated balance sheets
included in the Financial Statements (including any related notes and schedules) fairly presents in
all material respects the consolidated financial position of the Company and its consolidated
Subsidiaries as of its date and each of the consolidated statements of income,
21
shareholders’ equity and cash flows included in the Financial Statements (including any related
notes and schedules) fairly presents in all material respects the consolidated results of
operations and cash flows of the Company and its consolidated Subsidiaries for the periods then
ended, in each case in conformity with GAAP, subject in the case of the unaudited financial
statements to (i) the absence of footnote disclosures and other presentation items and (ii) changes
resulting from normal de minimis year-end adjustments. The audit reports with respect to the
Audited Financial Statements are not subject to any qualification.
4.6. Absence of Certain Changes. Since October 31, 2006, the Company and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any material transaction outside the ordinary and usual
course of such businesses, and there has not been any event, change, action, failure to act or
transaction which, individually or in the aggregate, has had or would be reasonably likely to have
a Material Adverse Effect. Except as set forth on Schedule 4.6, since October 31, 2006, the
Company has not taken any actions or omitted to take any actions which, had such actions or
omissions occurred after the date of this Agreement, would have breached any of the covenants
contained in Section 6.1(a), (b), (c), (d), (e), (f), (g), (h), (i), (k), (m), (n) (provided that
the $100,000 referenced in such subsection shall be $100,000 individually, not in the aggregate),
(o), (p), (q), (s), or (t).
4.7. Litigation and Liabilities.
(a) There are no civil, criminal or administrative actions, information requests, suits,
claims, hearings, arbitrations, investigations or other proceedings (collectively,
“Claims”) pending or, to the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries, except as listed on Schedule 4.7 and for those that are not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect. Except as reflected or
reserved against in the Company’s audited consolidated balance sheet for the year ending October
31, 2006 (and the notes thereto) and for obligations or liabilities incurred in the ordinary course
of business consistent with past practice since October 31, 2006 (and reflected or reserved against
in the Company’s unaudited consolidated balance sheet for the seven months ended May 31, 2007, to
the extent incurred prior to such date), there are no obligations or liabilities of the Company or
any of its Subsidiaries, whether or not accrued, contingent or otherwise and whether or not
required to be disclosed, or any other facts or circumstances of which to the Knowledge of the
Company is reasonably likely to result in any Claims against, or obligations or liabilities of, the
Company or any of its Subsidiaries, including those relating to matters involving any Environmental
Law), except for those that are not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries is a party to or subject to the provisions
of any Order of any Governmental Entity which is, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
4.8. Employees; Benefits.
(a) All material benefit, employment, retention, transaction, severance, change in control and
compensation plans, contracts, policies or arrangements covering current or former employees of the
Company and its Subsidiaries (the “Employees”) and current or former
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directors of the Company or any of its Subsidiaries, or with respect to which the Company or any of its Subsidiaries
could have any liability, including, but not limited to, “employee benefit plans” within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), and deferred compensation, severance, stock option, stock purchase, stock
appreciation rights, stock based, incentive and bonus plans (the “Benefit Plans”), are
listed on Schedule 4.8(a), and each Benefit Plan which has received a favorable opinion letter from
the Internal Revenue Service National Office has been separately identified. True and complete
copies of all Benefit Plans listed on Schedule 4.8(a) have been made available to Buyer.
(b) To the Knowledge of the Company, all Benefit Plans, other than “multiemployer plans”
within the meaning of Section 3(37) of ERISA (each, a “Multiemployer Plan”) (collectively,
“Company Benefit Plans”) are in compliance in all material respects with their terms and
ERISA, the Code and other applicable Laws. Each Company Benefit Plan which is subject to ERISA (an
“ERISA Plan”) that is an “employee pension benefit plan” within the meaning of Section 3(2)
of ERISA intended to be qualified under Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service (the “IRS”) covering all tax law
changes prior to the Economic Growth and Tax Relief Reconciliation Act of 2001 or has applied to
the IRS for such favorable determination letter within the applicable remedial amendment period
under Section 401(b) of the Code, and to the Knowledge of the Company, no circumstances exist which
are likely to result in the loss of the qualification of such Company Benefit Plan under Section
401(a) of the Code. No Benefit Plan which is a Multiemployer Plan is insolvent or is in
reorganization within the meaning of Part 3 of Subtitle E of Title IV of ERISA and to the Company’s
Knowledge no condition exists which presents a risk of any Multiemployer Plan becoming insolvent or
going into reorganization. Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any ERISA Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Company or any Subsidiary to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(c) No material liability under Subtitle C or D of Title IV of ERISA has been or is expected
to be incurred by the Company or any of its Subsidiaries with respect to any ongoing, frozen or
terminated Company Benefit Plan or with respect to the single-employer plan of any entity which is
considered one employer with the Company or any of its Subsidiaries under Section 4001 of ERISA or
Section 414 of the Code (an “ERISA Affiliate”). Other than the Company and its
Subsidiaries, neither the Company nor any of its Subsidiaries has any ERISA Affiliates nor any
liability with respect to any entity that previously was an ERISA Affiliate. The Company and its
Subsidiaries have not incurred and do not expect to incur any material withdrawal liability with
respect to a Multiemployer Plan under Subtitle E of Title IV of ERISA (regardless of whether based
on contributions of an ERISA Affiliate).
(d) As of the date hereof, there is no material pending or, to the Knowledge of the Company
threatened, litigation or dispute relating to the Benefit Plans or by an Employee against the
Company or any of its Subsidiaries, other than routine claims for benefits. No Benefit Plan is
under audit, investigation or similar proceeding by the IRS, the Department of Labor, the Pension
Benefit Guarantee Corporation or any other Governmental Entity and, to the Knowledge of the
Company, no such audit, investigation or proceeding is pending. Neither the Company
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nor any of its Subsidiaries has any obligations for retiree health or life benefits under any ERISA Plan or
collective bargaining agreement or has obligations to any Employee (either individually or
Employees as a group) that such Employee(s) would be provided with such retiree health or life
benefits upon their retirement or termination of employment, except to the extent required by
Section 4980B of the Code.
(e) Neither the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (x) entitle any Employees to severance pay or any material
increase in severance pay upon any termination of employment after the date hereof, or (y)
accelerate the time of payment or vesting, or result in any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, or increase the amount payable, or result in
any other material obligation pursuant to, any of the Benefit Plans or (z) result in the triggering
or imposition of any restrictions or limitation on the right of the Company or any of its
Subsidiaries to amend or terminate any Benefit Plan. Except as set forth on Schedule 4.8(e), no
payment or benefit which will or may be made by Buyer, the Company or any of its Subsidiaries with
respect to any Employee will be characterized as an “excess parachute payment,” within the meaning
of Section 280G(b)(1) of the Code.
(f) Except for such Benefit Plans set forth on Schedule 4.8(f), none of the Benefit Plans, if
administered in accordance with their terms, could result in the imposition of interest or an
additional tax on any participant thereunder pursuant to Section 409A of the Code.
4.9. Compliance with Laws. The businesses of the Company and each of its Subsidiaries have not been, and are not being,
conducted in violation of any applicable Law, except for violations that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect. Except with respect to
regulatory matters covered by Section 6.2, no investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is pending or, to the Knowledge of the
Company, threatened, nor has any Governmental Entity indicated an intention to conduct the same,
except for those the outcome of which are not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect. To the Knowledge of the Company, no material change is required
in the Company’s or any of its Subsidiaries’ processes, properties or procedures in connection with
any such Laws, and none of the Company or any of its Subsidiaries has received any notice or
communication of any material noncompliance with any such Laws that has not been cured as of the
date hereof. The Company and its Subsidiaries each has obtained and is in compliance with all
permits, licenses, certifications, approvals, registrations, consents, authorizations, franchises,
variances, exemptions and orders issued or granted by a Governmental Entity (each a
“Permit”) necessary to conduct its business as presently conducted, except those the
absence of which is not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect.
4.10. Material Contracts. As of the date of this Agreement and except as otherwise expressly contemplated by this
Agreement or as set forth on Schedule 4.10, neither the Company nor any of its Subsidiaries is a
party to or bound by:
(a) any individual lease of real or personal property providing for annual rentals of $5
million or more;
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(b) any Contract with any Governmental Entity or any Contract (other than purchase orders
entered into the ordinary course of business consistent with past practice) that is reasonably
likely to require either (x) annual payments to or from the Company or any of its Subsidiaries of
more than $5 million or (y) aggregate payments to or from the Company or any of its Subsidiaries of
more than $5 million;
(c) other than with respect to any wholly owned Subsidiary of the Company, any partnership,
joint venture or other similar agreement or arrangement relating to the formation, creation,
operation, management or control of any partnership or joint venture material to the Company or any
of its Subsidiaries or in which the Company or any of its Subsidiaries directly or indirectly owns
more than a 15% voting or economic interest, or any interest valued at more than $5 million without
regard to percentage voting or economic interest;
(d) any Contract (other than among direct or indirect wholly owned Subsidiaries of the
Company) relating to Debt in excess of $5 million;
(e) any non-competition Contract or other Contract that purports to limit either the type of
business in which the Company or its Subsidiaries or, after consummation of the transactions
contemplated hereby, Buyer or any of its Affiliates may engage or the manner or locations in which
any of them may so engage in any business (for the avoidance of doubt, distribution agreements and
similar Contracts entered into in the ordinary course of business consistent with past practice
shall not be deemed to be covered by this Section 4.10(e) provided that such distribution
agreements or similar Contracts do not in any way restrict Buyer or any of its Affiliates (other
than the Company and its Subsidiaries) after consummation of the transactions contemplated hereby);
(f) any Contract containing a standstill or similar agreement pursuant to which one party has
agreed not to acquire assets or securities of the other party or any of its Affiliates;
(g) any Contract with any Shareholder, Related Party, Affiliate, director or officer of the
Company, or any Affiliate, shareholder, director or officer of any Subsidiary of the Company;
(h) any Contract providing for indemnification by the Company or any of its Subsidiaries of
any Person, except for any such Contract that is (x) not material to the Company or any of its
Subsidiaries or is a purchase order and (y) entered into in the ordinary course of business
consistent with past practice;
(i) any Contract that contains a put, call or similar right pursuant to which the Company or
any of its Subsidiaries could be required to purchase or sell, as applicable, any equity interests
of any Person or assets that have a fair market value or purchase price of more than $5 million,
other than the Midfield Shareholders Agreement; and
(j) any other Contract or group of related Contracts that, if terminated or subject to a
default by any party thereto, is, individually or in the aggregate, reasonably likely to result in
a Material Adverse Effect.
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The Contracts described in Sections 4.10(a) through (j), together with all exhibits and schedules
to such Contracts, are referred to herein as the “Material Contracts.” A copy of each
written Material Contract and a summary of the material terms of each oral Material Contract (or a
copy of written terms proposed for Material Contracts not executed but in which performance has
begun) have previously been delivered or made available to Buyer, and each Material Contract is a
valid and binding agreement of the Company or one of its Subsidiaries, as the case may be, and is
in full force and effect, and neither the Company nor any of its Subsidiaries nor, to the Knowledge
of the Company, any other party thereto is in default or breach in any respect under the terms of
any such Contract.
4.11. Real Property.
(a) With respect to the real property owned by the Company or any of its Subsidiaries (the
“Owned Real Property”), (i) the Company or one of its Subsidiaries, as applicable, has good
and marketable title to the Owned Real Property, free and clear of any Encumbrance other than
Permitted Encumbrances, (ii) there are no outstanding options or rights of first refusal to
purchase the Owned Real Property, or any portion thereof or interest therein, and (iii) neither the
Company nor any of its Subsidiaries leases Owned Real Property to any other Person.
(b) With respect to the real property leased or subleased to the Company or any of its
Subsidiaries (the “Leased Real Property”), the lease or sublease for such property is
valid, legally binding, enforceable and in full force and effect, and none of the Company or any of
its Subsidiaries is in material breach of or default under such lease or sublease, and no event has
occurred which, with notice, lapse of time or both, would constitute a breach or default by any of
the Company or its Subsidiaries or permit termination, modification or acceleration by any third
party thereunder.
(c) Schedule 4.11(c) contains a true and complete list of all Owned Real Property and Leased
Real Property and sets forth a correct street address or such other information as is reasonably
necessary to identify each parcel of Owned Real Property and Leased Real Property.
4.12. Environmental Matters.
(a) Except as is not reasonably likely to have a Material Adverse Effect: (A) the Company and
its Subsidiaries are, and have since January 1, 2002 been, in compliance with all
applicable Environmental Laws; (B) the Company and its Subsidiaries possess all permits,
licenses, registrations, identification numbers, authorizations and approvals required under
applicable Environmental Laws for the operation of the business as presently conducted; (C) neither
the Company nor any of its Subsidiaries has received any claim, notice of violation, citation or
other communication concerning any violation or alleged violation of, or liability under, any
applicable Environmental Law which has not been fully resolved, imposing no outstanding liability
or obligation on the Company or any of its Subsidiaries; (D) there are no writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, proceedings, inquiries,
information requests, or investigations pending or, to the Knowledge of the Company, threatened,
concerning compliance by the Company or any of its Subsidiaries with, or liability of the Company
or any of its Subsidiaries under, any Environmental Law; and (E) there are no Hazardous Substances
at, on, under, or migrating to or from, the Owned Real Property, the
26
Leased Real Property, or, to the Knowledge of the Company, any real property formerly owned, leased or operated by the Company,
or any of its Subsidiaries (the “Former Real Property”), in each case, which is reasonably
expected to result in liability to the Company or any Subsidiary under Environmental Law.
(b) The Company has made available to Buyer or its counsel true and complete copies of any
material reports, site assessments, tests, or monitoring possessed by the Company or any of its
Subsidiaries (A) pertaining to Hazardous Substances at, on, under, or migrating to or from, any
Owned Real Property, Leased Real Property or Former Real Property, or (B) concerning compliance by
the Company or any of its Subsidiaries with Environmental Law or their liability thereunder.
(c) Notwithstanding any other representation and warranty in this Article IV, the
representations and warranties contained in this Section 4.12 and in Sections 4.7 and 4.9
constitute the sole representations and warranties of the Company and the Shareholders relating to
any Environmental Law.
4.13. Tax Matters. The Company and each of its Subsidiaries (a) have prepared in good faith and duly and timely
filed (taking into account any extension of time within which to file) all Tax Returns required to
be filed by any of them and all such filed Tax Returns are complete and accurate in all material
respects; (b) have paid all Taxes that are shown as due on such filed Tax Returns (or Taxes that
are otherwise due and payable) or that the Company or any of its Subsidiaries are obligated to
withhold from amounts owing to any employee, creditor or other third party, except with respect to
matters contested in good faith and for which adequate reserves have been established in accordance
with GAAP; and (c) have not waived any statute of limitations with respect to Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency. As of the date hereof, there
are not pending or, to the Knowledge of the Company, threatened, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters. Except as set forth on
Schedule 4.13, there are not, to the Knowledge of the Company, any material unresolved questions or
claims concerning the Company’s or any of its Subsidiaries’ Tax liability. The Company has made
available to Buyer true and correct copies of the United States federal income Tax Returns filed by
the Company and each of its Subsidiaries for each of the three most recent fiscal years. The
consolidated United States federal income Tax Returns of the
Company have been examined, or the statutes of limitations have closed, with respect to all taxable
years through and including the taxable year ended October 31, 2002. To the Knowledge of the
Company, no claim has been made in the previous five years by a Governmental Entity in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the
Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction. Neither
the Company nor any of its Subsidiaries has any liability for Taxes of any Person (other than the
Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 or any comparable
provision of U.S., state, local or foreign Law, or otherwise. Neither the Company nor any of its
Subsidiaries has been a party to a “reportable transaction” (as that term is defined in Treasury
Regulation Section 1.6011-4(b)(1)). Neither the Company nor any of its Subsidiaries is a party to
any Tax sharing agreement with any Person (other than the Company and/or any of its Subsidiaries).
Neither the Company nor any of its Subsidiaries has been a party to any distribution occurring
during the last 30 months in which the parties to such distribution treated the distribution as one
to which Section 355 of the Code (or
27
any similar provision of state, local or foreign law) applied.
Each material Tax election made by the Company or any of its Subsidiaries has been timely and
properly made. Each of the Class A Stock and the Class B Stock is not “taxable Canadian property”
for purposes of the Income Tax Act (Canada).
4.14. Labor Matters.
(a) To the Knowledge of the Company, there is no organizational effort currently being made or
threatened on behalf of any labor organization to organize the employees of the Company or any of
its Subsidiaries, nor a demand for recognition of any of the employees of the Company or any of its
Subsidiaries on behalf of any labor organization within the last two (2) years; nor is the Company
or any of its Subsidiaries the subject of any material proceeding asserting that the Company or any
of its Subsidiaries has committed an unfair labor practice within the meaning of the National Labor
Relations Act or comparable restrictions under other applicable Laws or seeking to compel it to
bargain with any labor organization; nor is there pending or, to the Knowledge of the Company,
threatened, nor has there been for the past two (2) years, any labor strike, picketing, walkout,
work stoppage or lockout involving the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries is presently, nor has been in the past a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees, and no such agreement
or contract is currently being negotiated. The consummation of the transactions contemplated by
this Agreement will not entitle any third party (including any labor organization) to any payments
under any collective bargaining agreement or union contract with respect to Employees to which the
Company or any of its Subsidiaries is a party or by which any of them are otherwise bound.
(b) The Company and its Subsidiaries (i) are in compliance in all material respects with all
applicable Laws respecting employment, overtime pay and wages and hours, in each case, with respect
to their employees; (ii) have withheld all material amounts required by applicable Law or by
agreement to be withheld from the wages, salaries and other payment to their employees; and (iii)
are not liable for or in arrears with respect to material wages or any material taxes or any
penalty for failure to comply with any of the foregoing except, in each case, to the extent as is
not reasonably likely to have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has classified any individual as an
“independent contractor” or similar status who, according to a Benefit Plan or applicable Law,
should have been classified as an employee or of similar status.
4.15. Insurance. The Company and its Subsidiaries maintain fire and casualty, general liability, business
interruption, product liability and sprinkler and water damage insurance policies (the
“Insurance Policies”) with reputable insurance carriers. The Insurance Policies provide
full and adequate coverage for all normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets, and are in character and amount at least
equivalent to that carried by Persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any such failure to maintain insurance polices that,
individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect.
Each Insurance Policy is in full force and effect and all premiums due with respect to all
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Insurance Policies have been paid, with such exceptions that, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect.
4.16. Related Party Transactions.
(a) Except as set forth on Schedule 4.16(a), no Shareholder or other Related Party (i) has any
interest in any property (real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the business of the Company or any of its Subsidiaries as currently conducted, (ii)
owns, of record or as a beneficial owner, an equity interest or any other financial or a profit
interest (other than ownership of publicly-traded securities representing less than 5% of the total
equity and less than 5% of the total voting power of the issuer) in a Person that has had material
business dealings or a material financial interest in any transaction with the Company or any of
its Subsidiaries, or (iii) is a party to any Contract with, or has any claim or right against, the
Company or any of its Subsidiaries (except for employment and similar Contracts and claims
thereunder).
(b) Except as set forth on Schedule 4.16(b), none of the Company or any of its Subsidiaries is
indebted, directly or indirectly, to any Person who is a Shareholder or other Related Party in any
amount whatsoever, other than for ordinary compensation (including salaries, wages and benefits)
for services rendered or reimbursable business expenses, nor is any such Shareholder or other
Related Party indebted to the Company or any of its Subsidiaries, except for advances made to
employees of the Company or any of its Subsidiaries in the ordinary course of business to meet
reimbursable business expenses anticipated to be incurred by such obligor. There is no Debt owed
by the Company or any of its Subsidiaries to any employee of Midfield. All Debt that is owed by
the Company or any of its Subsidiaries to MinorityHCo is unsecured and subordinated to any bank
Debt of the Company or any of its Subsidiaries, and does not exceed CDN$27 million.
4.17. Product Warranty and Product Liability. There is no notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice of
violation or investigation from, by or before any Governmental Entity relating to any product,
including the packaging and advertising related thereto, designed, formulated, manufactured,
processed, sold, distributed or placed in the stream of commerce by the Company or any of its
Subsidiaries (a “Product”), or claim or lawsuit involving a Product which is, to the
Knowledge of the Company, pending or threatened, by any Person which is reasonably likely to result
in any material liability to the Company or any of its Subsidiaries. There has not been, nor is
there under consideration by the Company or any of its Subsidiaries, any Product recall or
post-sale warning conducted by or on behalf of the Company or any of its Subsidiaries concerning
any Product, except for such recalls or post-sale warnings that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect. To the Knowledge of the Company,
at the time sold, distributed or placed in the stream of commerce by the Company or any of its
Subsidiaries, all Products, complied in all material respects with applicable specifications,
government safety standards and other applicable Laws, and were substantially free from
contamination, deficiencies or defects, except for such non-compliance, contamination, deficiency
or defect as is not, individually or in the aggregate, reasonably likely have a Material Adverse
Effect.
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4.18. Suppliers and Customers. Schedule 4.18 sets forth a list of (a) the fifteen (15) largest suppliers (by dollar amount and
not by name) to the Company and its Subsidiaries, taken as a whole, during the seven month period
ending May 31, 2007 (“Major Suppliers”) and (ii) the fifteen (15) customers (by dollar
amount of purchases and not by name) with the highest dollar amount of purchases from or services
of, the companies, taken as a whole, during the seven month period ending May 31, 2007 (the
“Major Customers”). No Major Supplier or Major Customer has during the last two (2) years
materially decreased or limited, or to the Knowledge of the Company threatened to materially
decrease or limit, its provision or receipt of services or supplies to or from the Company or any
of its Subsidiaries. No termination, cancellation or material limitation of, or any material
modification or change in, the business relationship of the Company or any of its Subsidiaries has
occurred or, to the Knowledge of the Company, has been threatened by any Major Supplier or Major
Customer.
4.19. Purchase and Sale Agreements. No claims for indemnification under any prior purchase and sale agreements to which the Company
or any of its Subsidiaries is a party (the “Prior Purchase Agreements”), have been made by
the Company or any of its Subsidiaries in the last five (5) years, or are pending or threatened by
the Company or any of its Subsidiaries. No claims for indemnification under any Prior Purchase
Agreements have been made in the last five (5) years or to the Knowledge of the Company are pending
or threatened, by any counterparties thereto.
4.20. Brokers and Finders. None of the Shareholders, the Company, any of the Company’s Subsidiaries or any of the Company’s
or any of its Subsidiaries’ officers, directors or employees has employed, retained or engaged any
broker or finder or incurred any liability for any brokerage, finder’s or similar fees
or commissions in connection with the transactions contemplated by this Agreement, except that the
Company has employed Boylan Partners, LLC as its financial advisor with respect to the transactions
contemplated by this Agreement, the fees and expenses of which shall be either paid by the
Shareholders or included as Company Expenses.
4.21. Power of Attorney. None of the Shareholders, the Company or any of the Company’s Subsidiaries has given any
irrevocable power of attorney (other than such powers of attorney given in the ordinary course of
business with respect to routine matters or as may be necessary or desirable in connection with the
transactions contemplated hereby) to any Person for any purpose whatsoever with respect to the
Company or any of the Company’s Subsidiaries.
4.22. Investment Canada Act. The Company is a WTO investor (within the meaning of the Investment Canada Act). None of the
Company or any of its Subsidiaries (i) is engaged in the production of uranium or owns an interest
in a producing uranium property in Canada, (ii) provides a financial service (as such term is
defined in the Investment Canada Act) in Canada, (iii) provides any transportation service (as such
term is defined in the Investment Canada Act) in Canada, and (iv) is involved in any sensitive
sector activities in Canada as described in subsections 14.1(5) and 15(a) of the Investment Canada
Act. The value, calculated in the manner prescribed in the Investment Canada Act, of the assets of
the Company and its Subsidiaries carrying on a business in Canada and of any Subsidiary
incorporated in Canada, amounts to less than fifty per cent of the value, calculated in the manner
prescribed in the Investment Canada Act, of all of the assets of the Company and its Subsidiaries.
30
4.23. Opinion. The Company, as the plan administrator of the Company Retirement Plan,
has received a written report from Fiduciary Counselors Inc., an independent fiduciary appointed
for the purpose of determining the participation by the Company Retirement Plan in the transactions
contemplated by this Agreement (the “Independent Fiduciary”), which written report (i) includes an
opinion from Murray, Devine & Co. to the effect that the transactions contemplated by this
Agreement are fair to the Company Retirement Plan from a financial point of view, (ii) concludes
that the transactions contemplated by this Agreement are fair to the Company Retirement Plan from a
financial point of view and (iii) directs the trustees of the Company Retirement Plan to execute
this Agreement on behalf of the Company Retirement Plan. The Company has provided Buyer a correct
and complete copy of such report.
ARTICLE V
Representations and Warranties of Buyer
Buyer represents and warrants to the Shareholders as follows:
5.1. Organization, Good Standing and Qualification. Buyer is a legal entity duly organized, validly existing and in good standing under the Laws of
its jurisdiction of organization and has all requisite corporate or similar power and authority to
own, lease and operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of
its business requires such qualification, except where the failure to be so organized, qualified or
in such good standing, or to have such power or authority, are not, individually or in the
aggregate, reasonably likely to prevent, materially delay or materially impair the consummation of
the transactions contemplated by this Agreement.
5.2. Corporate Authority. Buyer has all requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this Agreement and each
Ancillary Document and to consummate the transactions contemplated hereby and thereby. This
Agreement and each Ancillary Document has been duly executed and delivered by Buyer and is a valid
and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
5.3. Governmental Filings; No Violations; Etc.
(a) Other than the filings required under the HSR Act and the Competition Act, no notices,
reports or other filings are required to be made by Buyer with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by Buyer from, any
Governmental Entity in connection with the execution, delivery and performance of this Agreement
and the Ancillary Documents by Buyer and the consummation by Buyer of the transactions contemplated
hereby and thereby, except those that the failure to make or obtain are not, individually or in the
aggregate, reasonably likely to prevent, materially delay or materially impair the consummation of
the transactions contemplated by this Agreement (assuming that with respect to Investment Canada
Act, the representations and warranties made by the Company in Section 4.22 are true and correct).
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(b) The execution, delivery and performance of this Agreement and the Ancillary Documents by
Buyer do not, and the consummation by Buyer of the transactions contemplated hereby and thereby
will not, constitute or result in (i) a breach or violation of, or a default under, the certificate
of incorporation or by laws of Buyer, (ii) with or without notice, lapse of time or both, a breach
or violation of, a termination (or right of termination) or a default under, the creation or
acceleration of any obligations or the creation of an Encumbrance on any of the assets of Buyer
pursuant to, any Contracts binding upon Buyer, or (iii) any change in the rights or obligations of
any party under any such Contract, except, in the case of clause (ii) or (iii) above, for any such
breach, violation, termination, default, creation, acceleration or change that is not, individually
or in the aggregate, reasonably likely to prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement and the Ancillary Documents.
5.4. Litigation. There are no civil, criminal or administrative actions, suits, claims, hearings, investigations
or proceedings pending or, to the knowledge of the officers of Buyer, threatened against Buyer,
except for those that are not, individually or in the aggregate, reasonably likely to (i) have a
material adverse effect on the financial condition, properties, assets, liabilities, business or
results of operations of Buyer or (ii) prevent, materially delay or materially impair the
consummation of the transactions contemplated by this Agreement.
5.5. Financing. Attached as Exhibit E is a true and complete copy of a debt commitment letter, other
than the fee letter relating thereto (the “Debt Financing Commitment”), pursuant to which
the lenders party thereto have agreed, subject to the terms and conditions set forth therein, to
lend the amounts set forth therein for the purposes of financing a portion of the proceeds to be
used for the transactions contemplated by this Agreement (the “Debt Financing”). Attached
as Exhibit F is a true and complete copy of an equity commitment letter (the “Equity
Financing Commitment,” and together with the Debt Financing Commitment, the “Financing
Commitments”), pursuant to which the parties thereto have agreed, subject to the terms and
conditions set forth therein, to invest the amount set forth therein (together with the Debt
Financing, the “Financing”). As of the date of this Agreement, (a) the Financing
Commitments have not been amended or modified, (b) no such amendment or modification is
contemplated and (c) the respective commitments contained in the Financing Commitments have not
been withdrawn or rescinded in any respect. Buyer has fully paid any and all commitment fees or
other fees in connection with the Financing Commitments that are payable on or prior to the date
hereof, and the Financing Commitments are in full force and effect and are the valid, binding and
enforceable obligations of Buyer, and to the knowledge of Buyer, the other parties thereto. There
are no conditions precedent or other contingencies related to the funding of the full amount of the
Financing, other than as set forth in or contemplated by the Financing Commitments. As of the date
hereof, no event has occurred which, with or without notice, lapse of time or both, would
constitute a default on the part of Buyer under the Financing Commitments and as of the date hereof
Buyer has no reason to believe that any of the conditions to the Financing contemplated by the
Financing Commitments will not be satisfied or that the Financing will not be made available to
Buyer. Subject to the terms and conditions contained in this Agreement and the Financing
Commitments, Buyer will have at the Closing funds sufficient to pay the cash portion of the
Estimated Purchase Price (and any repayment or refinancing of debt contemplated by this Agreement
or the Financing Commitments) and any other amounts
32
required to be paid in connection with the
consummation of the transactions contemplated hereby, and to pay all related fees and expenses.
5.6. Brokers and Finders. Other than Goldman, Sachs & Co., none of the Buyer, McJ Holding, any of the their respective
Subsidiaries or any of their respective members, officers, directors or employees has employed,
retained or engaged any broker or finder or incurred any liability for any brokerage, finder’s or
similar fees or commissions in connection with the transactions contemplated by this Agreement.
ARTICLE VI
Covenants
6.1. Interim Operations. After the date hereof and prior to the Closing (unless Buyer shall otherwise approve in writing,
such approval not to be unreasonably withheld or delayed, and except as otherwise expressly
contemplated by this Agreement, and except as required by applicable Laws), the Company shall, and
the Shareholders covenant and agree to cause the Company and its Subsidiaries to, conduct the
business of the Company and its Subsidiaries in the ordinary and usual course and, to the extent
consistent therewith, the Company shall and the Shareholders shall cause the Company and the
Company’s Subsidiaries to (x) use their respective reasonable best efforts to preserve the
Company’s and its Subsidiaries’ business organizations intact and maintain existing relations and
goodwill with all Governmental Entities, customers, suppliers, distributors, creditors, lessors,
employees and business associates, (y) keep available the services of the Company’s and its
Subsidiaries’ present employees and agents and (z) make capital expenditures substantially in
compliance with the Company’s 2007 budget provided to Buyer prior to the date of this Agreement and
set forth on Schedule 6.1. Without limiting the generality of the foregoing and in furtherance
thereof, from the date of this Agreement until the Closing, except (A) as otherwise expressly
contemplated by this Agreement, (B) as Buyer may approve in writing (such approval not to be
unreasonably withheld or delayed) or (C) for transactions set forth on Schedule 6.1, the Company
will not and the Shareholders shall cause the Company and each of its Subsidiaries not to:
(a) adopt or propose any change in its certificate of incorporation or by laws or other
applicable governing instruments;
(b) merge or consolidate with any other Person, or restructure, reorganize or completely or
partially liquidate or otherwise enter into any agreements or arrangements imposing material
changes or restrictions on its assets, operations or businesses;
(c) acquire any entity or business (including by way of merger, stock purchase, asset purchase
or otherwise) from any other Person, other than acquisitions pursuant to Contracts in effect as of
the date of this Agreement and disclosed on the Schedules;
(d) issue, sell, pledge, dispose of, grant, transfer, encumber, or authorize the issuance,
sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance of, any
Company Stock or any shares of capital stock of the Company or any of its Subsidiaries (other than
the issuance of shares by a wholly-owned Subsidiary of the Company to the Company or
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another
wholly-owned Subsidiary), or securities convertible or exchangeable into or exercisable for any
shares of such capital stock, or any options, warrants or other rights of any kind to acquire any
Company Stock or any shares of such capital stock or such convertible or exchangeable securities;
(e) create or incur any Encumbrance in excess of $5 million on any assets of the Company or
any of its Subsidiaries;
(f) make any loans, advances or capital contributions to or investments in any Person, other
than non-material advances to vendors and employees in the ordinary course of business consistent
with past practice;
(g) enter into any agreement with respect to the voting of its capital stock or declare, set
aside, make or pay any non-cash dividend or other distribution, or purchase, redeem or otherwise
acquire any of its capital stock payable other than in cash, with respect to any of its capital
stock;
(h) reclassify, split or combine, directly or indirectly, any of its capital stock or
securities convertible or exchangeable into or exercisable for any shares of its capital stock;
(i) incur any Debt (other than borrowings under the Company’s existing debt facilities in the
ordinary course of business consistent with past practice) or guarantee Debt of another Person, or
issue or sell any debt securities or warrants or other rights to acquire any debt security of the
Company or any of its Subsidiaries;
(j) enter into any Contract that would have been a Material Contract had it been entered into
prior to the entering into of this Agreement;
(k) make any changes with respect to accounting policies or procedures, except as required by
changes in GAAP;
(l) other than in the ordinary course of business consistent with past practice, amend, modify
or terminate any Material Contract, or cancel, modify or waive any Debts or claims held by it or
waive any rights;
(m) except as set forth on Schedule 6.1(m), make any material Tax election, take any material
position on any Tax Return filed on or after the date of this Agreement or adopt any tax accounting
method that is inconsistent with positions taken or methods used in preparing or filing similar Tax
Returns in prior periods, or settle or resolve any material Tax controversy;
(n) other than pursuant to Contracts in effect prior to the date of this Agreement and
disclosed on the Schedules, transfer, sell, lease, license, mortgage, pledge, surrender, encumber,
divest, cancel, abandon or allow to lapse or expire or otherwise dispose of any assets, product
lines or businesses of the Company or its Subsidiaries, including capital stock of any of its
Subsidiaries, except for sales, leases, licenses or other dispositions of assets with a fair market
value not in excess of $100,000 in the aggregate;
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(o) except as set forth on Schedule 6.1(o) or otherwise required by applicable Law, (i)
increase the compensation, bonus or pension or welfare benefits of,
or make any new equity — based
awards to, any director, officer or employee of the Company or any of its Subsidiaries (other than
those increases in the ordinary course of business consistent with past practice to employees below
the Vice President level), (ii) establish, adopt, amend or terminate any Benefit Plan or amend the
terms of any Benefit Plan or outstanding equity-based awards or (iii) take any action to accelerate
the vesting or payment, or fund or in any other way secure the payment, of compensation or benefits
under any Benefit Plan, to the extent not already required by any such Benefit Plan;
(p) settle, or consent to any settlement of, any actions, suits, claims or proceedings against
the Company or any of its Subsidiaries or any obligation or liability of the Company or any of its
Subsidiaries alleging any injury or damage (other than disputes with customers or suppliers in the
ordinary course of business consistent with past practice and not exceeding $50,000 per claimant);
(q) take any action or omit to take any action that will waive, modify, compromise or
extinguish any of the Company’s or any of its Subsidiaries’ rights with respect to any agreements,
understandings or arrangements relating to any insurance coverage;
(r) take any action or omit to take any action that is reasonably likely to result in any of
the conditions to Closing set forth in Article VII not being satisfied (other than the taking of
any action required to be taken under applicable Law or the omission of any action prohibited under
applicable Law);
(s) enter into, terminate, amend or modify any Contract or transaction with any Affiliate,
Shareholder or other Related Party;
(t) enter into any purchase order (other than purchase orders entered into in the ordinary
course of business consistent with past practice and in an amount less than $10 million); or
(u) agree, authorize or commit to do any of the foregoing.
6.2. Other Actions; Notification.
(a) Cooperation. Subject to the terms and conditions set forth in this Agreement,
each Party shall cooperate with each other and use (and the Company shall cause its Subsidiaries to
use) their respective commercially reasonable efforts to take or cause to be taken all actions, and
do or cause to be done all things reasonably necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate and make effective the transactions contemplated by
this Agreement as soon as practicable, including preparing and filing as promptly as practicable
all documentation to effect all necessary notices, reports and other filings and to obtain as
promptly as practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any Governmental Entity in order
to consummate the transactions contemplated by this Agreement. Without limiting the foregoing,
Buyer will, as soon as practicable after the date of this Agreement, (i) prepare and file any
Notification and Report Forms and related material required
35
to be filed by it with the Federal
Trade Commission and the Antitrust Division of the United States Department of Justice under the
HSR Act and (ii) prepare and provide submissions to the Commissioner of Competition including a
request for an Advance Ruling Certificate and, if requested by Buyer, the Company and Buyer will
promptly file a short-form or long-form pre-merger notification pursuant to the Competition Act.
Notwithstanding anything contained in this Agreement to the contrary, Buyer shall not be required
to proffer or accept any Order providing for Buyer or any of its Affiliates to (x) sell or
otherwise dispose of, or hold separate or agree to sell or otherwise dispose of, any entities,
assets, or facilities of the Company or any of its
Subsidiaries, or any entity, facility or asset of Buyer or any of its Subsidiaries or any of
its or their Affiliates, (y) terminate, amend or assign any existing relationships or contractual
rights or obligations, or (z) amend, assign or terminate any existing licenses or other agreements
or enter into any new licenses or other agreements.
(b) Information. Each Party shall, upon request by any other, furnish such other
Parties with all information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable in connection with
any filing, notice or application made by or on behalf of any Party or any of their respective
Subsidiaries to any Governmental Entity in connection with the transactions contemplated by this
Agreement.
(c) Status. Subject to applicable Laws and the instructions of any Governmental
Entity, the Company and the Shareholders shall keep Buyer, and Buyer shall keep the Company and the
Representative, apprised of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing such Parties with copies of notices or other
communications received by such Party, as the case may be, or any of its Subsidiaries, from any
third party and/or any Governmental Entity, including under the HSR Act and the Competition Act,
with respect to the transactions contemplated by this Agreement. The Company and the Shareholders
shall give prompt notice to Buyer of any change, fact or condition that is reasonably likely to
result in a Material Adverse Effect or of any failure of any condition to Buyer’s obligations to
effect the Closing and Buyer shall give prompt notice to the Company and the Representative of any
change, fact or condition that is reasonably likely to have a material adverse effect on Buyer’s
ability to consummate the Financings or of any failure of any condition to the Company’s
obligations to effect the Closing; provided, however, that the delivery of any notice pursuant to
this sentence shall not limit or otherwise affect the remedies available hereunder to the Party to
which such notice is given.
6.3. Access and Reports. Subject to applicable Law, upon reasonable notice, the Company shall (and shall cause each of
its Subsidiaries to) afford Buyer’s officers, its financing sources and other authorized
representatives of Buyer reasonable access, during normal business hours throughout the period
prior to the Closing, to its employees, properties, books, Contracts and records and, during such
period, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to Buyer
all information concerning its business, properties and personnel as may reasonably be requested,
provided that no investigation pursuant to this Section 6.3 shall affect or be deemed to modify any
representation or warranty made by the Company or the Shareholders herein, and provided, further,
that the foregoing shall not require the Company (i) to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company would result in the disclosure of any
trade secrets of third parties or violate any of its
36
obligations with respect to confidentiality or
(ii) to disclose any privileged information of the Company or any of its Subsidiaries. All
requests for information made pursuant to this Section 6.3 shall be directed to the Representative
or other Person designated by the Representative. All such information shall be governed by the
terms of the Confidentiality Agreement.
6.4. Shareholder Restrictions. From the date of this Agreement to the Closing, except as necessary to comply with Sections 6.17
and 6.18, each of the Shareholders agrees it shall not (a) sell, transfer, encumber, assign or
otherwise dispose of, or enter into any Contract with respect to the sale, transfer, encumbrance,
assignment or other disposition of, any of the Company Stock held by such Shareholder or (b) take
any action (other than any action required by Law), or omit to take any action (other than any
action prohibited by Law), which would reasonably be expected to have the effect of preventing or
disabling such Shareholder from delivering such Shareholder’s Company Stock to Buyer or McJ Holding
at the Closing, or immediately prior to Closing, free and clear of any Encumbrances or otherwise
performing such Shareholder’s obligations under this Agreement or the Contribution Agreement.
6.5. Shareholder Non-Compete Agreements. At or prior to the Closing, the Company and each Person listed on Schedule 6.5 shall enter into
a Non-Compete and Non-Solicitation Agreement in the form attached hereto as Exhibit G
(each, a “Non-Compete Agreement”).
6.6. Shareholders’ Post-Closing Confidentiality Obligation. Each Shareholder acknowledges that (i) during the course of its affiliation with the Company, it
has produced and/or had access to confidential information relating to the Company and its
Subsidiaries (“Confidential Information”), and (ii) the unauthorized use or disclosure of
any Confidential Information at any time would constitute unfair competition with Buyer and would
deprive Buyer of the benefits of this Agreement and the transactions contemplated by this
Agreement. Each Shareholder agrees that it will hold in confidence the Confidential Information
and will not, directly or indirectly, disclose, publish, or otherwise make available any of the
Confidential Information to the public or to any Person or use any of the Confidential Information
for its own benefit or for the benefit of any other Person, other than Buyer and its Affiliates;
provided, however, that such Shareholder may disclose Confidential Information if,
but only to the extent, required to do so by Law, provided, however, that in such
case, such Shareholder shall provide Buyer with prior written notice thereof so that Buyer may seek
an appropriate protective order or other appropriate remedy, and such Shareholder shall (at Buyer’s
expense) reasonably cooperate with the Company in connection therewith and provided,
further, that, in the event that a protective order or other remedy is not obtained, such
Shareholder shall furnish only that portion of such information which, in the opinion of its
counsel, such Shareholder is legally compelled to disclose and shall exercise commercially
reasonable efforts to obtain reasonable assurance that confidential treatment will be accorded any
such information so disclosed.
6.7. Release of Claims by Shareholders. Effective upon the Closing, each of the Shareholders, on such Shareholder’s own behalf and on
behalf of such Shareholder’s heirs, executors, administrators, legal representatives, successors
and assigns, hereby irrevocably releases, acquits, and forever discharges the Company and the
Company’s Subsidiaries and each of their respective present or former officers, directors, agents,
employees, employee benefit plans (and the fiduciaries thereof) and Affiliates, in each case, in
their capacity as such, and the successors and assigns of any of the foregoing (collectively, the
“Released Parties”), from any
37
and all claims, actions, causes of action, suits, rights,
debts, agreements, damages, injuries, losses, costs, expenses, (including legal fees) and demands
whatsoever and all consequences thereof, of every nature or description, whether known or unknown,
suspected or unsuspected, foreseen or unforeseen, actual or potential, existing as of or prior to
the Closing, that any of the Shareholders ever had, now has or may in the future (as of or prior to
the Closing) have against any of the Released Parties, in law or in equity, as a result of any act,
transaction, agreement, event or omission, occurring or committed from the beginning of time
through the Closing (the “Released Claims”), other than (i) any claims for current wages,
benefits and expense reimbursements arising in the ordinary course of business or (ii) any other
claims that constitute current liabilities of the Company and its Subsidiaries and the amount of
which are taken in the computation of Net Working Capital. Notwithstanding the foregoing, any
obligation by Buyer or the Company to any Shareholder to be performed after the Closing pursuant to
this Agreement or any of the Ancillary Documents shall not constitute a Released Claim.
6.8. Investigations and Actions. The Shareholders and the Company shall keep Buyer informed, on a current basis, of any events,
discussions, notices or changes with respect to any criminal or regulatory investigation or action
involving the Company or any of its Subsidiaries, so that Buyer and its Affiliates will have the
opportunity to take appropriate steps to avoid or mitigate any regulatory consequences to them that
might arise from such investigation or action.
6.9. Indemnification; Directors’ and Officers’ Insurance.
(a) From and after the Closing the Company will indemnify and hold harmless, to the fullest
extent permitted under applicable Law (and the Company shall also advance expenses as incurred to
the fullest extent permitted under applicable Law provided the Person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined that such Person is
not entitled to indemnification), each present and former director, officer and employee of the
Company or any of its Subsidiaries (collectively, the “Company Indemnified Parties”)
against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the Closing; provided,
however, that the Company shall not indemnify any director, officer or employee for any
liability for (i) receipt of a financial benefit to which such Company Indemnified Party is not
entitled, (ii) an intentional infliction of harm on the Company or its Affiliates, (iii) in the
case of a director, a distribution in violation of Section 1052 of the Oklahoma General Corporation
Act or Section 2030 of the Oklahoma Limited Liability Company Act or (iv) an intentional violation
of criminal Law.
(b) Any Company Indemnified Party wishing to claim indemnification under Section 6.9(a) upon
learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the
Company thereof, but the failure to so notify shall not relieve the Company of any
liability it may have to such Company Indemnified Party except to the extent such failure
materially prejudices the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Closing), (i) the Company shall
have the right to assume the defense thereof and the Company shall not be liable to such Company
Indemnified Parties for any legal expenses of other counsel or any other expenses
38
subsequently incurred by such Company Indemnified Parties in connection with the defense thereof, except that if
the Company elects not to assume such defense or counsel for the Company Indemnified Parties
advises that there are issues which raise conflicts of interest between the Company and the Company
Indemnified Parties, the Company Indemnified Parties may retain counsel satisfactory to them, and
the Company shall pay all reasonable fees and expenses of such counsel for the Company Indemnified
Parties promptly as statements therefor are received; provided, however, that
Company shall be obligated pursuant to this Section 6.9(b) to pay for only one firm of counsel for
all Company Indemnified Parties in any jurisdiction unless the use of one counsel for such Company
Indemnified Parties would present such counsel with a conflict of interest; provided that
the fewest number of counsels necessary to avoid conflicts of interest shall be used; (ii) the
Company Indemnified Parties will cooperate in the defense of any such matter; and (iii) the Company
shall not be liable for any settlement effected without the Company’s prior written consent; and
provided, further, that the Company shall not have any obligation hereunder to any
Company Indemnified Party if and when a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final, that the indemnification of such Company
Indemnified Party in the manner contemplated hereby is prohibited by applicable Law. If such
indemnity is not available with respect to any Company Indemnified Party, then the Company and the
Company Indemnified Party shall contribute to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits to the extent permitted by applicable Law.
(c) Prior to the Closing, Buyer shall obtain and fully pay for “tail” insurance policies with
a claims period of at least six years from and after the Closing from an insurance carrier with the
same or better credit rating as the Company’s current insurance carrier with respect to directors’
and officers’ liability insurance and fiduciary liability insurance with benefits and levels of
coverage at least as favorable as the Company’s existing policies with respect to matters existing
or occurring at or prior to the Closing (including in connection with this Agreement or the
transactions or actions contemplated hereby); provided, however, that in no event
shall Buyer or the Company be required to expend for such policies an annual premium amount in
excess of 200% of the annual premiums currently paid by the Company for such insurance; and
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, Buyer or the Company shall obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
(d) If the Company or any of their respective successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially
all of its properties and assets to any individual, corporation or other entity, then, and in each
such case, proper provisions shall be made so that the successors and assigns of the Company shall
assume all of the obligations set forth in this Section 6.9.
(e) The provisions of this Section 6.9 are intended to be for the benefit of, and shall be
enforceable by, each of the Company Indemnified Parties.
(f) The rights of the Company Indemnified Parties under this Section 6.9 shall be in addition
to any rights such Company Indemnified Parties may have under the certificate of
39
incorporation or bylaws of the Company or any of its Subsidiaries, or under any applicable Contracts or Laws.
6.10. Director Resignations. The Shareholders shall cause the Company to deliver to Buyer, written letters of resignation,
effective on or prior to the Closing, of each of the directors and officers of the Company and its
Subsidiaries requested by Buyer prior to the Closing.
6.11. Excluded Assets. Prior to the Closing, the Company shall cause the assets set forth on Schedule 6.11 to be
transferred in accordance with such Schedule.
6.12. Ancillary Documents. On or prior to the Closing, the Shareholders shall cause the Representative to execute and
deliver, and Buyer shall execute and deliver, the Escrow Agreement.
6.13. Financing.
(a) Buyer shall use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to arrange the Debt Financing
on the terms and conditions described in the Debt Financing Commitment (provided that Buyer may
replace or amend the Debt Financing Commitment to add lenders, lead arrangers, bookrunners,
syndication agents or similar entities which had not executed the Debt Financing Commitment as of
the date hereof, or otherwise so long as the terms would not materially adversely impact the
ability of Buyer to consummate the transactions contemplated hereby or the likelihood of
consummation of the transactions contemplated hereby), including using reasonable best efforts to
(i) maintain in effect the Debt Financing Commitment, (ii) satisfy on a timely basis all conditions
applicable to Buyer to obtaining the Debt Financing set forth in the Debt Financing Commitment
(including by consummating the equity financing pursuant to the terms of the Equity Financing
Commitment), (iii) enter into definitive agreements with respect thereto on the terms and
conditions contemplated by the Financing Commitments or on other terms that would not adversely
impact the ability or likelihood of Buyer to consummate the transactions contemplated hereby, and
(iv) consummate the Financing at or prior to the Closing. If any portion of the Debt Financing
becomes unavailable on the terms and conditions contemplated in the Debt Financing Commitment,
Buyer shall use its reasonable best efforts to arrange to obtain alternative financing from
alternative sources in an amount sufficient to consummate the transactions contemplated by this
Agreement as promptly as practicable following the occurrence of such event; provided, that such
alternative financing shall be on
terms and conditions materially no less favorable to Buyer than those provided in the Debt
Financing Commitment, or otherwise on terms and conditions acceptable to Buyer. Buyer shall give
the Company prompt notice of any material breach by any party to the Financing Commitments of which
Buyer becomes aware, or any termination of the Financing Commitments. Buyer shall keep the Company
informed on a reasonably current basis in reasonable detail of the status of its efforts to arrange
the Debt Financing and provide copies of all documents related to the Debt Financing (other than
any fee letters and ancillary documents subject to confidentiality agreements) to the Company. The
Company hereby consents to the use of its and its Subsidiaries’ names and logos in connection with
the Financing.
40
(b) Prior to the Closing, the Company shall, and the Shareholders shall cause the Company to,
provide to Buyer, and shall cause its Subsidiaries to, and shall use its reasonable best efforts to
cause the respective officers, employees and advisors, including legal and accounting, of the
Company and its Subsidiaries to, provide to Buyer all cooperation reasonably requested by Buyer
that is necessary in connection with the Debt Financing, including using reasonable best efforts to
(i) participate in meetings, presentations, road shows, due diligence sessions and sessions with
rating agencies, (ii) provide assistance in preparation of confidential information memoranda
(including execution and delivery of a customary representation letter) and other materials to be
used in connection with obtaining financing contemplated by the Debt Financing Commitment and all
information (including financial information) customarily contained therein, (iii) provide
assistance in the preparation for, and participate in, meetings, due diligence sessions and similar
presentations to and with, among others, prospective lenders, investors and rating agencies, (iv)
enter into a loan agreement and related documents (including pledge and security documents), (v)
execute and deliver customary certificates, legal opinions or other documents reasonably requested
by Buyer (including a certificate of the chief financial officer of the Company with respect to
solvency matters) and otherwise reasonably facilitate the pledging of collateral contemplated by
the Debt Financing Commitment (including taking all actions reasonably necessary to (A) permit the
prospective lenders involved in the Debt Financing to evaluate the Company’s current assets, cash
management and accounting systems, policies and procedures relating thereto for the purpose of
establishing collateral arrangements and to conduct the appraisals and field examinations relating
thereto as contemplated by the Debt Financing Commitment and (B) establish bank and other accounts
and blocked account agreements and lock box arrangements in connection with the foregoing) and (vi)
provide the financial statements and other information necessary for the satisfaction of the
obligations and conditions set forth in the Debt Financing Commitment within the time periods
required thereby in order to permit a Closing Date on or prior to the Termination Date;
provided, however, that nothing herein shall require such cooperation to the extent
it would interfere unreasonably with the business or operations of the Company or any of its
Subsidiaries. The Company shall use its reasonable best efforts to obtain pay-off letters, in form
and substance reasonably satisfactory to Buyer, from holders of all Debt and to ensure that each
such pay-off letter will provide for the waiver of any notice provisions relating thereto. If this
Agreement is terminated pursuant to Section 8.1(a) or 8.1(b)(ii) (but with respect to Section
8.1(b)(ii) only for a Willful or Deliberate Breach by Buyer), Buyer shall, promptly upon request by
the Company, reimburse the Company for all reasonable and documented out-of-pocket costs incurred
by the Company or its Subsidiaries in connection with such cooperation.
6.14. CanHCo Call Right. The Parties agree that during the period from June 15, 2008 to December 15, 2008 (the “Call
Period”), Buyer may, in its sole discretion, cause Red Man Pipe & Supply Canada Ltd, a wholly
owned Subsidiary of the Company (“CanHCo”), to exercise the CanHCo Call Right set forth in
Section 10 of the Midfield Shareholders Agreement. If Buyer so elects to exercise the CanHCo Call
Right, then no later than five (5) Business Days following payment of the CanHCo Call Price to
Midfield Holdings (Alberta) Ltd. (“MinorityHCo”) or any of its Permitted Transferees (as
defined in the Midfield Shareholders Agreement), Buyer shall pay by wire transfer of immediately
available funds to the Representative, on behalf of the Shareholders, for distribution to the
Shareholders in accordance with Schedule 1, to an account designated by the Representative
in a written notice to Buyer, an amount in cash equal to (i) $99,954,281.63 minus (ii) the
sum of (x) the CanHCo Call Price (in U.S. Dollars using the
41
spot rate at the close of business on
the Business Day immediately prior to the day the CanHCo Call right is exercised) paid by CanHCo to
MinorityHCo or any of its Permitted Transferees (as defined in the Midfield Shareholders Agreement)
and (y) all costs, charges, fees, expenses, losses, liabilities, obligations, claims, fines,
Transfer Taxes and other Taxes imposed on CanHCo, the Company or any of their Affiliates as a
result of the exercise of the CanHCo Call Right or the consummation of such transaction (in U.S.
Dollars using the spot rate at the close of business on the Business Day immediately prior to the
day the CanHCo Call right is exercised), including the amount equal to the aggregate principal
amount, plus accrued interest thereon, of all shareholder loans which are repaid by CanHCo as
contemplated by Section 10(e) of the Midfield Shareholders Agreement except to the extent such
amounts were included in the Debt Amount (the difference of (i) and (ii), as may be set off
pursuant to Section 2.3(c), “Midfield Amount”). If Buyer elects not to cause CanHCo to
exercise the CanHCo Call Right, then on or prior to the one month anniversary of the expiration of
the Call Period, Buyer shall pay by wire transfer of immediately available funds to the
Representative, on behalf of the Shareholders, for distribution to the Shareholders in accordance
with the column entitled “Cash Proceeds Percentages” on Exhibit B, to an account designated
by the Representative in a written notice to Buyer, an amount in cash equal to the Midfield Amount
determined as if Buyer exercised the CanHCo Call Right on the final day of the Call Period. If the
CanHCo Call Right is exercised and the Midfield Amount is a negative amount, the Non-Plan
Shareholders shall, severally and not jointly, pro rata in proportion to each such Shareholder’s
ownership of shares of Company Stock in accordance with the column entitled “Non-Plan Shareholders
Percentages” on Schedule 1, be liable to Buyer for the absolute value of such negative
amount. Any payments made under this Section 6.14 shall be considered an adjustment to the
Purchase Price.
6.15. Assets of Buyer. The Shareholders and the Company hereby acknowledge and agree that (a) as of the date hereof,
(i) Buyer’s sole assets are cash in a de minimis amount and its rights under this Agreement and the
agreements contemplated hereby, and (b) no additional funds are expected to be contributed to Buyer
unless and until the Closing occurs.
6.16. Phantom Stock. Prior to Closing, the Shareholders shall cause the Company to
cancel all of the phantom stock awards held by Brian J. Collins, Dee Paige and Jeff Lang solely in
consideration for the Shareholders’ obligation to pay such individuals cash or other property at
such time or times and in such amounts as may be agreed before the Closing Date, and which
payments shall not constitute “parachute payments” within the meaning of Section 280G of the
Code, in each case, as reasonably acceptable to Buyer.
6.17. Contribution Percentages. Each Shareholder agrees that Exhibit B under the
heading “Contributed Shares” sets forth for such Shareholder the minimum number of shares of
Company Stock that such Shareholder shall contribute to McJ Holding as Contributed Shares pursuant
to the Contribution Agreement. The Parties agree that the Representative may, no later than 15
Business Days prior to the Closing Date, deliver a written notice to Buyer (the “Contribution
Percentage Notice”) changing the number of shares of Company Stock to be contributed pursuant
to the Contribution Agreement by any Ketchum Entity, or adding BJHK Living Trust, CK and/or any
Other Ketchum Entity that holds shares of Company Stock as a Continuing Shareholder; provided that
(i) the CK Contributed Share Percentage shall in no event be less than 25% or greater than 50% and
(ii) the aggregate number of Contributed Shares shall not exceed 30,996.30 (that is, an Aggregate
Contribution Percentage of 17.38%). The Parties
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agree that Exhibit B shall be amended prior to the
Closing to reflect any change in the number of Contributed Shares or any additional Person
contributing shares of Company Stock pursuant to the Contribution Percentage Notice. In addition,
(x) BJHK Living Trust shall execute and deliver the Contribution Agreement prior to Closing if its
number of Contributed Shares as adjusted pursuant to this Section 6.17 is greater than zero and (y)
each of CK and each Other Ketchum Entity shall execute and deliver the Contribution Agreement and
this Agreement as a Shareholder prior to Closing if it is added as an additional Person
contributing shares of Company Stock pursuant to the Contribution Percentage Notice; provided that
if BJHK Living Trust or such CK or Other Ketchum Entity fails to execute and deliver the
Contribution Agreement and/or this Agreement, as applicable, its number of Contributed Shares shall
be zero. The Parties acknowledge and agree that Consolidated Investment Services, Inc., the
Company Retirement Plan and Louie Leflore shall not be entitled to become Continuing Shareholders
and shall not be entitled to contribute any shares of Company Stock to McJ Holding pursuant to the
Contribution Agreement.
6.18. CK Contributed Share Percentage. Each of K.F. Enterprises, L.L.C. and BJHK
Limited Partnership agree to take all such actions as may be necessary and appropriate such that
the CK Contributed Share Percentage shall not be less than 25% and not greater than 50% upon the
closing of the transactions contemplated by the Contribution Agreement.
ARTICLE VII
Conditions to Closing
7.1. Conditions to Obligations of the Shareholders and Buyer. The respective obligations of the Shareholders and Buyer to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or, to the extent permitted by
applicable Law, the waiver at or prior to the Closing of each of the following conditions:
(a) Litigation. No court or other Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits
consummation of the transactions contemplated by this Agreement.
(b) Escrow Agreement. The Escrow Agreement shall have been executed and delivered by
the Representative (on behalf of the Shareholders), Buyer and the Escrow Agent.
(c) HSR Waiting Period. All applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated.
(d) Competition Act. Competition Act Compliance shall have been obtained.
7.2. Conditions to the Obligations of the Shareholders. The obligations of each Shareholder to consummate the transactions contemplated by this
Agreement are further subject to the satisfaction or, to the extent permitted by applicable Law,
the waiver by the Representative at or prior to the Closing of each of the following conditions:
43
(a) Performance of Obligations by Buyer. Buyer shall have performed in all material
respects all obligations required to be performed by it under this Agreement at or prior to the
Closing.
(b) Representations and Warranties. (i) The representations and warranties of Buyer
set forth in this Agreement (other than those in Section 5.2 (Corporate Authority)) shall be true
and correct as of the date of this Agreement and as of the Closing (without giving effect to any
“material,” “materiality” or “material adverse effect” qualifications to such representations and
warranties), except (A) to the extent that the failure of such representations and warranties of
Buyer to be true and correct individually or in the aggregate would not have, or reasonably be
likely to have, a material adverse effect on Buyer or would not prevent, materially delay or
materially impair the consummation of the transactions contemplated by this Agreement and (B) for
those representations and warranties which expressly relate to any earlier date (in which case such
representations and warranties shall have been true and correct as of such earlier date); and (ii)
the representations and warranties set forth in Section 5.2 shall be true and correct in all
respects as of the date of this Agreement and as of the Closing.
(c) Closing Certificate. The Representative shall have received a certificate of
Buyer, dated the Closing Date, to the effect that the conditions set forth in Sections 7.2(a) and
(b) have been satisfied.
(d) Contribution Agreement. McJ Holding shall have performed in all material respects
all obligations required to be performed by it under the Contribution Agreement at or prior to the
Closing.
7.3. Conditions to the Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement are
further subject to the satisfaction or, to the extent permitted by applicable Law, the waiver by
Buyer at or prior to the Closing of each of the following conditions:
(a) Performance of Obligations of the Shareholders and the Company. Each Shareholder
and the Company shall have performed in all material respects all obligations required to be
performed by he, she or it under this Agreement at or prior to the Closing.
(b) Representations and Warranties. (i) The representations and warranties of the
Shareholders and the Company set forth in this Agreement (other than those in Sections 3.1
(Ownership; Authorization of Transaction), 4.1 (Authorization of Transaction), 4.3
(Capitalization), 4.16 (Related Party Transactions) and 4.20 (Brokers and Finders) (collectively,
the “Excluded Representations”) shall be true and correct as of the date of this Agreement
and as of the Closing (without giving effect to any “material”, “materiality”, “Material Adverse
Effect” or “Knowledge” qualification to such representations and warranties), except (A) to the
extent that the failure of such representations and warranties of the Shareholders and/or the
Company to be true and correct, individually or in the aggregate, has not had, and is not
reasonably likely to have, a Material Adverse Effect and (B) for those representations and
warranties which expressly relate to an earlier date (in which case such representations and
warranties shall have been true and correct as of such earlier date); and (ii) the Excluded
Representations shall be true and correct in all respects as of the date of this Agreement and as
of the Closing.
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(c) Closing Certificate. Buyer shall have received a certificate from the
Representative on behalf of the Shareholders, dated the Closing Date, to the effect that the
conditions set forth in Sections 7.3(a) and (b) have been satisfied.
(d) Stock Certificates. The Shareholders shall have tendered for delivery to Buyer
share certificates representing all of the Transferred Shares free and clear of any Encumbrance,
duly endorsed in blank by each Shareholder, or accompanied by appropriate stock powers, in proper
form for transfer.
(e) No Restraints. There shall not be instituted or pending any suit, action or
proceeding in which a Governmental Entity of competent jurisdiction is seeking an Order (i) to
prohibit, limit, restrain or impair Buyer’s ability to own or operate or to retain or change all or
a material portion of the assets, licenses, operations, rights, product lines, businesses or
interest therein of the Company or its Subsidiaries or other Affiliates from and after the Closing
(including, without limitation, by requiring any sale, divestiture, transfer, license, lease,
disposition of or encumbrance or hold separate arrangement with respect to any such assets,
licenses, operations, rights, product lines, businesses or interest therein) or (ii) to prohibit or
limit Buyer’s ability to vote, transfer, receive dividends or otherwise exercise full ownership
rights with respect to the stock of the Company, and no Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law deemed applicable
to the transactions contemplated by this Agreement individually or in the aggregate resulting in,
or that is reasonably likely to result in, any of the foregoing.
(f) Phantom Stock. The Shareholders shall have caused the Company to cancel all of
the phantom stock awards held by Brian J. Collins, Dee Paige and Jeff Lang solely in consideration
for the Shareholders’ obligation to pay such individuals cash or other property at such time or
times and in such amounts as may be agreed before the Closing Date, and which payments shall not
constitute “parachute payments” within the meaning of Section 280G of the Code, in each case, as
reasonably acceptable to Buyer.
(g) Debt Financing. Buyer shall have received the proceeds of the Debt Financing on
the terms and conditions set forth in the Debt Financing Commitment, or the proceeds of any
alternative debt financing as contemplated by Section 6.13(a).
(h) Material Adverse Effect. No event, development, circumstance or occurrence shall
have occurred, since the date of this Agreement that, individually or in the aggregate, has had or
is reasonably likely to have a Material Adverse Effect.
(i) Pay-Off Letters. The Company shall have received pay-off letters, in a form and
substance reasonably satisfactory to Buyer, from holders of all Debt that Buyer has requested be
paid off, together with all necessary documentation required to release any Encumbrances securing
repayment of any such Debt, and each such pay-off letter shall provide for the waiver of any notice
provisions relating thereto.
(j) Employment Agreements. Each of the Employment Agreements shall be in full force
and effect.
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(k) Continuing Shareholders. (i) Immediately prior to the Closing, each Continuing
Shareholder shall have consummated the transactions contemplated by the Contribution Agreement,
(ii) the Contribution Agreement shall be in full force and effect and (iii) the CK Contributed
Share Percentage shall be not less than 25% and not greater than 50%.
(l) Withholding Certificate. Buyer shall have received from the Company a certificate
issued by the Company, in form and substance reasonably satisfactory to Buyer, conforming to the
requirements of Treasury Regulation Sections 1.1445-2(c)(3) and 1.897-2(h).
(m) Non-Compete Agreements. The Company and each Person listed on Schedule 6.5 shall
have executed and delivered a Non-Compete Agreement, and each Non-Compete Agreement shall be in
full force and effect.
ARTICLE VIII
Termination
8.1. Termination. Notwithstanding anything herein to the contrary, this Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of the Representative and Buyer;
(b) (i) by Buyer, if there has been a breach of any representation, warranty, covenant or
agreement made by any of the Shareholders or the Company in this Agreement or in any Ancillary
Document, or any such representation and warranty shall have become untrue after the date of this
Agreement, such that the conditions set forth in Section 7.3(a) or 7.3(b) would not be satisfied
and such breach or condition is not curable or, if curable, is not cured prior to the earlier of
(x) 30 days after written notice thereof is given by Buyer to the Representative or (y) two
business days prior to the Termination Date; or (ii) by the Representative, if there has been a
breach of any representation, warranty, covenant or agreement made by Buyer in this Agreement
or in any Ancillary Document, or any such representation and warranty shall have become untrue
after the date of this Agreement, such that the conditions set forth in Section 7.2(a) or 7.2(b)
would not be satisfied and such breach or condition is not curable or, if curable, is not cured
prior to the earlier of (x) 30 days after written notice thereof is given by the Representative to
Buyer or (y) two (2) Business Days prior to the Termination Date; or
(c) by Buyer or the Representative, if (i) the transactions contemplated by this Agreement
have not been consummated on or prior to December 31, 2007 (the “Termination Date”) or (ii)
any Order permanently restraining, enjoining or otherwise prohibiting consummation of the
transactions contemplated by this Agreement shall become final and non-appealable;
provided, that, in each of the foregoing cases, the right to terminate this Agreement
pursuant to this Section 8.1(c) shall not be available to any Party (or the Shareholders or the
Company in the case of the Representative) that is responsible for a Willful or Deliberate Breach
of its obligations under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure of a condition to the consummation of the transactions contemplated
by this Agreement on or prior to the Termination Date.
46
The Party desiring to terminate this Agreement pursuant to clause (b) or (c) of this Section 8.1
shall, in the case of Buyer, give written notice of such termination to the Representative, and, in
the case of the Representative, give written notice of such termination to Buyer.
8.2. Effect of Termination and Abandonment. In the event of termination of this Agreement and the abandonment of the transactions
contemplated hereby pursuant to Section 8.1, this Agreement shall become void and of no effect with
no liability to any Person on the part of any Party (or of any of its representatives or
Affiliates); provided, that Article X shall survive the termination of this Agreement; and
provided, further, that except as otherwise provided herein, no such termination shall relieve any
Party of any liability or damages to any other Party resulting from any Willful or Deliberate
Breach of this Agreement prior to any such termination.
ARTICLE IX
Survival
9.1. Survival. The representations and warranties contained in this Agreement or in any Ancillary Document shall
not survive the Closing. Each of the covenants and agreements contained in this Agreement or in
any Ancillary Document shall survive the Closing and continue in full force and effect until
performed in accordance with their terms.
ARTICLE X
Miscellaneous
10.1. Publicity. The initial press release regarding the transactions contemplated by this Agreement shall be a
joint press release and thereafter no press releases or public announcements with respect to the
transactions contemplated by this Agreement and filings with any third party and/or any
Governmental Entity (including any national securities exchange or interdealer quotation service)
with respect thereto, shall be issued or made by the Company or any Shareholder, on the one hand,
or Buyer, on the other hand, without the prior written consent of Buyer or the Company, as the case
may be (which consent shall not be unreasonably withheld or delayed), except as may be required by
Law or by obligations pursuant to any listing agreement with or rules of any national securities
exchange or interdealer quotation service or by the request of any Government Entity.
10.2. Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) and those Ancillary Documents
entered into contemporaneously with or subsequent to this Agreement constitute the entire agreement
among the Parties and supersede any prior understandings or agreements by or among the Parties,
written or oral, to the extent they related in any way to the subject matter hereof.
10.3. Succession and Assignment. Except as otherwise provided herein, this Agreement may not, without the prior written consent
of Buyer and the Representative, be assigned by Buyer, the Company or any of the Shareholders by
operation of law or otherwise, and any attempted assignment shall be null and void;
provided that Buyer may, without prior written consent of the Representative, (i) assign
any or all of its rights hereunder to one or more
47
of its Affiliates, (ii) designate one or more of
its Affiliates to perform its obligations hereunder and (iii) assign its rights, but not its
obligations, under this Agreement to any of its, or any of its Affiliate’s, financing sources (in
any or all of which cases described in clause (i), (ii) or (iii), Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder). Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the Parties and their respective
heirs, successors, permitted assigns and legal representatives.
10.4. Expenses. If the transactions contemplated by this Agreement are consummated, the Shareholders, on the one
hand, and Buyer, on the other hand, shall bear all costs and expenses incurred by or on behalf of
such Party (and by the Company or any of its Subsidiaries in the case of the Shareholders);
provided, that (i) any Company Expenses borne by the Company or any of its Subsidiaries
shall be taken into account in making the adjustment provided for in Section 2.3, and (ii) that all
Transfer Taxes resulting from the transactions contemplated by this Agreement shall be paid by
Buyer. If the transactions contemplated by this Agreement are not consummated, all costs and
expenses incurred in connection with this Agreement and the transactions contemplated hereby, shall
be borne by the Party incurring such expense; provided, that if Buyer terminates this
Agreement pursuant to Section 8.1(b)(i) (but only for a Willful or Deliberate Breach by the Company
or any Shareholder), the Company shall pay all of Buyer’s and its Affiliates’ costs and expenses
incurred in connection with this Agreement. The provisions of this Section 10.4 are intended to be
for the benefit of, and shall be enforceable by
McJ Holding and its Affiliates (including its members and Subsidiaries) in addition to the Parties.
10.5. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.6. Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing,
and shall be given (and shall be deemed to have been duly given upon receipt) by personal delivery,
electronic facsimile transmission, overnight courier or registered or certified mail, postage
prepaid, and addressed to the intended recipient as set forth below (or at such other address as
shall be specified in a notice given in accordance with this Section 10.6):
48
If to the Shareholders, the Representative or, prior to the Closing, the Company:
c/o Craig Ketchum
8023 East 63rd Place
Suite 800
Tulsa, Oklahoma 74133
Fax: (918) 461-5375
8023 East 63rd Place
Suite 800
Tulsa, Oklahoma 74133
Fax: (918) 461-5375
with a copy to:
Baker Botts L.L.P.
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Lee D. Charles, Esq. and Marc A. Leaf, Esq.
Fax: (212) 259-2505 and (212) 259-2597
Baker Botts L.L.P.
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Lee D. Charles, Esq. and Marc A. Leaf, Esq.
Fax: (212) 259-2505 and (212) 259-2597
If to Buyer or, following the Closing, the Company:
835 Hillcrest Drive
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
with copies to:
GS Capital Partners
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Henry Cornell and Jack Daly
Fax: (212) 357-5505
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Henry Cornell and Jack Daly
Fax: (212) 357-5505
and:
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, NY 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza
New York, NY 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of
Delaware without giving effect to the principles of conflicts of law.
10.8. Amendments and Waivers. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall
be in writing and signed by the Company, the Representative and Buyer. No waiver by any Party of
any default or any breach of any representation, warranty, covenant or agreement
hereunder or under any Ancillary Document shall be deemed to extend to any prior or subsequent
default or breach or affect in any way any
49
rights arising by virtue of any such prior or subsequent
occurrence. Notwithstanding the foregoing, (a) this Agreement may be amended to add additional
Persons as “Shareholders” to reflect changes in the ownership of Company Stock prior to the Closing
as contemplated by Section 6.17 and (b) Exhibit B may be amended as contemplated by Section
6.17.
10.9. Severability. If any provision of this Agreement for any reason shall be held to be illegal, invalid or
unenforceable, such illegality shall not affect any other provision of this Agreement, this
Agreement shall be amended so as to enforce the illegal, invalid or unenforceable provision to the
maximum extent permitted by applicable Law, and the parties shall cooperate in good faith to
further modify this Agreement so as to preserve to the maximum extent possible the intended
benefits to be received by the Parties.
10.10. Construction. The Parties intend that each representation, warranty, covenant and agreement contained in this
Agreement or in any Ancillary Document shall have independent significance. If any Party has
breached any representation, warranty, covenant or agreement contained herein in any respect, the
fact that there exists another representation, warranty, covenant or agreement relating to the same
subject matter (regardless of the relative levels of specificity) which the Party has not breached
shall not detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, covenant or agreement.
10.11. Specific Performance. The Company and each of the Shareholders acknowledge and agree that Buyer would be damaged
irreparably in the event any of the provisions of this Agreement or any of the Ancillary Documents
is not performed in accordance with its specific terms or otherwise is breached by the Company or
any of the Shareholders. Accordingly, the Company and each of the Shareholders agree that Buyer
shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or any
Ancillary Document by the Company or any of the Shareholders and to enforce specifically the terms
and provisions of this Agreement and each Ancillary Document, this being in addition to any other
remedy to which Buyer is entitled at law or in equity. In addition, Buyer agrees that the Company
and the Shareholders shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement by Buyer and to enforce specifically the terms and provisions of this Agreement, this
being in addition to any other remedy to which the Company and the Shareholders are entitled at law
or in equity, but the Company and the Shareholders shall be entitled to such injunction or
injunctions solely to prevent breaches of or to enforce compliance with (x) Sections 6.2, 6.9, 10.1
and 10.4 and (y) those covenants of Buyer contained in Section 2.3(a), only if the proceeds of the
financing provided for in the Debt Financing Commitment (and, if alternative debt financing is
being used in accordance with Section 6.13(a), the proceeds of the financing contemplated by such
alternative debt financing) are available to be drawn down by Buyer pursuant to the terms of the
applicable agreements but is not so drawn down solely as a result of Buyer refusing to do so in
breach of this Agreement.
10.12. Jurisdiction; Court Proceedings; Waiver of Jury Trial. Any Claim against any Party to this Agreement arising out of or relating to this Agreement shall
be brought in any federal or state court located in the State of Delaware located in the County of
New Castle and each of the parties hereby submits to the exclusive jurisdiction of such courts for
the purpose of any such Claim. A final judgment in any such Claim shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. To
the
50
extent that service of process by mail is permitted by applicable Law, each Party irrevocably
consents to the service of process in any such Claim in such courts by the mailing of such process
by registered or certified mail, postage prepaid, at its address for notices provided for herein.
Each Party irrevocably agrees not to assert (a) any objection which it may ever have to the laying
of venue of any such Claim in any federal or state court located in the State of Delaware in the
County of New Castle and (b) any claim that any such Claim brought in any such court has been
brought in an inconvenient forum. Each Party waives any right to a trial by jury, to the extent
lawful, and agrees that any of them may file a copy of this paragraph with any court as written
evidence of the knowing, voluntary and bargained-for agreement among the Parties irrevocably to
waive its right to trial by jury in any Claim whatsoever between them relating to this Agreement or
the transactions contemplated hereby.
10.13. Attorneys’ Fees. In the event that any action or proceeding is brought for the purpose of determining or
enforcing the right of any Party or Parties hereunder, the Party or Parties prevailing in such
action or proceeding shall be entitled to recover from the other Party or Parties all reasonable
costs and expenses incurred by the prevailing Party or Parties, including reasonable attorneys’
fees.
10.14. Representative.
(a) By the execution and delivery of this Agreement, including counterparts hereof, each
Shareholder hereby irrevocably constitutes and appoints Craig Ketchum as the true and lawful agent
and attorney-in-fact of such Shareholder with full powers of substitution (the
“Representative”), and, if substituted, the Representative shall promptly notify Buyer of
such substitution, to act in the name, place and stead of such Shareholder with respect to this
Agreement, as the same may be from time to time amended, and with respect to the transfer of such
Shareholder’s Company Stock to Buyer pursuant hereto and the transactions contemplated hereby, and
to do or refrain from doing all such acts and things, and to execute all such documents, as the
Representative shall deem necessary or appropriate in connection with this Agreement, the Ancillary
Documents or any of the transactions contemplated hereby or thereby. In the event of the death or
other incapacity of the then current Representative, or resignation of the Representative,
Shareholders which on the date hereof hold a majority of the Company Stock, shall, by any writing
executed by the appropriate number of Shareholders and the new Representative (counterparts and
facsimiles of signatures acceptable) approve and appoint a new Representative by delivering a
written notice to that effect, whereupon the person designated in
such notice shall be the new Representative with respect to all actions taken and/or documents
signed from and after actual receipt by Buyer of such notice.
(b) Without limiting the generality of the foregoing, the Representative is hereby authorized
(i) to receive any payment owing to the Shareholders pursuant to Section 2.3, (ii) to execute the
Escrow Agreement on behalf of the Shareholders, and (iii) to take all actions on behalf of the
Shareholders in connection with any actions taken or to be taken under Section 2.3 of this
Agreement (including accepting service of process upon the Shareholders and accepting or
compromising any claim relating to the Proposed Purchase Price Calculation). The Representative
and the Shareholders hereby agree that any amounts disbursed out of the Escrow Account to the
Representative pursuant to the terms of this Agreement and/or the Escrow
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Agreement shall be
distributed by the Representative to the Shareholders in accordance with Schedule 1 and
Exhibit B, as applicable. All decisions and actions of the Representative permitted
hereunder shall be final, binding and conclusive on the Shareholders and may be relied upon by
Buyer and its Affiliates as the decisions and actions of all of the Shareholders. The
Representative shall not be liable to any of the Shareholders for any act done or omitted by him in
good faith pursuant to this Agreement or any mistake of fact or Law unless caused by his own gross
negligence or willful misconduct, and the Shareholders shall jointly and severally indemnify the
Representative from any Losses arising out of his serving as Representative hereunder. In taking
any action or refraining from taking any action whatsoever the Representative shall be protected in
relying upon any notice, paper or other document reasonably believed by him to be genuine, or upon
any evidence reasonably deemed by him to be sufficient. The Representative may consult with
counsel in connection with his duties and shall be fully protected in any act taken, suffered or
permitted by him in good faith in accordance with the advice of counsel.
10.15. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties,
the Company Indemnified Parties, the Buyer Indemnitees and McJ Holding and its Affiliates
(including its members and Subsidiaries) under Section 10.4, and their respective successors and
permitted assigns. The Parties further agree that the rights of the Company Indemnified Parties
under Section 6.9 shall not arise unless and until the Closing occurs.
10.16. Obligations of Parties. Whenever this Agreement requires a Subsidiary of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of the Company and the
Shareholders to use reasonable best efforts to cause such Subsidiary to take such action.
10.17. No Presumption Against Drafting Party. Each Party acknowledges that each Party has been represented by counsel in connection with this
Agreement, each of the Ancillary Documents and the transactions contemplated herein and therein.
Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement or any of the Ancillary Documents against the drafting party has no
application and is expressly waived.
10.18. Signatures. This Agreement shall be effective upon delivery of original signature pages or .pdf or facsimile
copies thereof executed by each of the Parties. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
10.19. Computation of Time. Whenever the last day for the exercise of any privilege or the discharge or any duty hereunder
shall fall upon a day that is not a Business Day, the Party having such privilege or duty may
exercise such privilege or discharge such duty on the next succeeding day which is a Business Day.
10.20. Dollars. Except as otherwise expressly provided, all references to dollars or “$” in this Agreement and
the Ancillary Documents shall refer to United States dollars.
52
[signature pages follow]
53
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.
| RED MAN PIPE & SUPPLY CO. |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | President and Chief Executive Officer | |||
| WEST OKLAHOMA PVF COMPANY |
||||
| By: | /s/ F.T. GRAFF JR. | |||
| Name: | F.T. Graff Jr. | |||
| Title: | ||||
| McJ HOLDING LLC (for purposes of Sections 2.3(c) and 10.4 only) |
||||
| By: | /s/ F.T. GRAFF JR. | |||
| Name: | F.T. Graff Jr. | |||
| Title: | ||||
[Signature Page to Stock Purchase Agreement]
| SHAREHOLDERS: BJHK LIMITED PARTNERSHIP |
||||
| By: | /s/ LEWIS CRAIG KETCHUM | |||
| Name: | Lewis Craig Ketchum | |||
| Title: | Trustee/General Partner | |||
| BJHK LIVING TRUST |
||||
| By: | /s/ BETTY KETCHUM | |||
| Name: | Betty Ketchum | |||
| Title: | General Partner | |||
| K.F. ENTERPRISES, L.L.C. |
||||
| By: | /s/ BETTY KETCHUM | |||
| Name: | Betty Ketchum | |||
| Title: | General Partner | |||
| CONSOLIDATED INVESTMENT SERVICES, INC. |
||||
| By: | /s/ HEATHER KREAGER | |||
| Name: | Heather Kreager | |||
| Title: | Senior Vice President | |||
| RED MAN PIPE & SUPPLY COMPANY RETIREMENT SAVINGS PLAN |
||||
| By: | /s/ BETTY KETCHUM | |||
| Name: | Betty Ketchum | |||
| Title: | Trustee | |||
| By: | /s/ DEE PAIGE | |||
| Name: | Dee Paige | |||
| Title: | Trustee | |||
| LOUIE LEFLORE /s/
LOUIE LEFLORE REPRESENTATIVE: CRAIG KETCHUM /s/
CRAIG KETCHUM |
||||
[Signature Page to Stock Purchase Agreement]
Exhibit 2.3.1
Execution Copy
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT, dated as of July 6, 2007 (the “Agreement”), among McJ Holding
LLC, a Delaware limited liability company (the “Company”) (whose name will be changed to
PVF Holdings LLC on or prior to Closing (as defined below), and certain shareholders of Sooner (as
defined below) listed under the heading “Contributing Shareholders” on the signature page hereto
(collectively, the “Contributing Shareholders”). Each capitalized term which is used but
not otherwise defined in this Agreement has the meaning assigned to such term in the Purchase
Agreement (as defined below); provided that any references to “the Company” in any such definitions
in the Purchase Agreement shall be deemed to refer to McJ Holding LLC for purposes of this
Agreement.
RECITALS
WHEREAS, simultaneously with the execution and delivery of this Agreement, Red Man Pipe &
Supply Co., an Oklahoma corporation (“Sooner”), the holders of all outstanding shares of
stock of Sooner listed on Schedule 1 thereto, West Oklahoma PVF Company, a Delaware corporation
(“Buyer”) and the Company (for purposes of certain provisions only), are executing and
delivering a stock purchase agreement (the “Purchase Agreement”), pursuant to which Buyer
will acquire all of the issued and outstanding capital stock of Sooner (the “Acquisition”);
WHEREAS, each of the Contributing Shareholders owns the number of shares of Class A Voting
Common Stock, par value $0.01 per share, of Sooner, and/or the number of shares of Class B
Non-Voting Common Stock, par value $0.01, of Sooner (collectively, “Sooner Shares”) set
forth opposite his, her or its name under the heading “Number of Shares Owned” on Exhibit A
hereto and desires to contribute to the Company the number of Company Shares set forth opposite
his, her or its name under the heading “Number of Shares Contributed” on Exhibit A hereto
(“the Contribution Shares”);
WHEREAS, upon the terms and subject to the conditions contained in this Agreement, the parties
hereto desire that the Contribution Shares be contributed immediately prior to the consummation of
the Acquisition by or on behalf of the Contributing Shareholders; and
WHEREAS, the contribution of the Contribution Shares by or on behalf of the Contributing
Shareholders to the Company in exchange for LLC Units (as defined below) is part of a larger
transaction that is intended to be governed by Sections 707 and 721 of the Internal Revenue Code of
1986, as amended (the “Code”).
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements contained herein and in the Purchase Agreement, the parties hereto agree
as follows:
ARTICLE I
Definitions and Contribution
1.1. Definitions. As used in this Agreement, the following terms have the respective
meanings set forth below:
“Affiliate,” “Affiliated” (or any correlative term) means, with respect
to a Person, any Person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person (and, for
purposes of this Agreement, the Company and its Subsidiaries shall be considered Affiliates
of each of the members of the Company before the Closing and Affiliates of Buyer after the
Closing).
“Governmental Entity” means the government of the United States of America, any
other nation or any political subdivision of any of the foregoing, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, or other entity
exercising executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of government.
“Knowledge of the Company” means the actual knowledge of H.B. Wehrle III, James
F. Underhill, David Fox, III, Theresa Dudding, or Cody Mueller, after reasonable inquiry.
“Material Adverse Effect” means (x) any event, change or effect that,
individually or in the aggregate, has a material adverse effect on the financial condition,
properties, assets, liabilities, business or results of operations of the Company and its
Subsidiaries, taken as a whole, other than any, event, change or effect resulting from (a)
changes in the economy or financial markets generally in the United States or other
countries in which the Company conducts material operations or that are the result of acts
of war or terrorism, (b) changes that are the result of factors generally affecting the
principal industries in which the Company and its Subsidiaries operate, (c) any loss of, or
adverse change in, the relationship of the Company with its customers, employees or
suppliers caused by the announcement of the transactions contemplated by this Agreement, (d)
changes required by this Agreement, and (e) changes in GAAP or in any Law unrelated to the
transactions contemplated by this Agreement and of general applicability after the date
hereof; provided that, with respect to clauses (a), (b) and (e), such event, change or
effect may be taken into consideration for purposes of determining if a Material Adverse
Effect has occurred if such event, change or effect (i) primarily relates only to (or has
the effect of primarily relating only to) the Company and its Subsidiaries or (ii)
disproportionately adversely affects the Company and its Subsidiaries compared to other
companies of similar size operating in the principal industries in which the Company and its
Subsidiaries operate, or (y) a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
“Unit Number” means, for each Contributing Shareholder the quotient obtained by
dividing (a) the product of (i) the Estimated Purchase Price minus the Escrow Amount,
times (ii) the Aggregate Contribution Percentage and times (iii) such
Contributing
2
Shareholder’s Contributed Shares Percentage as set forth on Exhibit A, by (b)
the Purchase Price Per Unit.
“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or other entity.
“Purchase Price Per Unit” means the per Unit price paid by GSCP upon GSCP’s
investment in the Company in connection with the Company’s acquisition of McJunkin
Corporation (i.e., $3,933.81).
“Related Party” means (a) any member or any officer or director of the Company
or any of its Subsidiaries, (b) any spouse, former spouse, child, parent, parent of a
spouse, sibling or grandchild of any of the Persons listed in clause (a) above, and (c) any
Affiliate or Associate of any of the Persons listed in clause (a) or (b) above, other than
the Company and the Company’s Subsidiaries.
“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, joint venture, or other legal entity of which such Person
(either alone or through or together with any other Subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
1.2. Contribution. Upon the terms and subject to the conditions contained in this
Agreement, at the Closing provided for in Section 1.3, each of the Contributing Shareholders shall
contribute or cause to be contributed to the Company all Contribution Shares owned by such
Contributing Shareholder, and in exchange therefore, the Company shall issue to each Contributing
Shareholder the number of Common Units in the Company equal to such Contributing Shareholder’s Unit
Number (“the LLC Units”); provided, that each Contributing Shareholder acknowledges and
agrees that pursuant to the purchase price adjustment provisions contained in Section 2.3(c) of the
Purchase Agreement, the number of LLC Units issued to each Contributing Shareholder in such
exchange may be subsequently increased or reduced by an additional issuance or cancellation
thereof, as applicable, after the determination of the final Purchase Price in accordance with such
Section 2.3(c) of the Purchase Agreement. The parties agree that (a) each Shareholder who becomes
a Continuing Shareholder in accordance with Section 6.17 of the Purchase Agreement shall become a
party to this Agreement as a Contributing Shareholder and (b) if Exhibit B to the Purchase
Agreement is amended pursuant to Section 6.17 of the Purchase Agreement, then Exhibit A hereto
shall be amended in the same manner.
1.3. Closing. Subject to the satisfaction or waiver of the conditions set forth in
Article IV (other than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions), the consummation of the
transactions contemplated hereunder (the “Closing”) shall take place at the offices of
Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, New York (or such other
place as the parties may agree) immediately prior to the closing of the Acquisition on the Closing
Date
3
(as defined in the Purchase Agreement). The actual time and date of the Closing is referred
to herein as the “Closing Date”.
ARTICLE II
Representations and Warranties
2.1. Representations and Warranties of the Contributing Shareholders. Each
Contributing Shareholder hereby represents and warrants to the Company that:
(a) Such Contributing Shareholder has all requisite partnership or limited liability
company or equivalent power and authority and, in the case of any Contributing Shareholder
that is an entity, has taken all action necessary in order to execute, deliver and perform
his, her or its obligations under this Agreement and such Contributing Shareholder is a
legal entity duly organized, validly existing and in good standing under the Laws of its
respective jurisdiction or organization. This Agreement has been duly executed and
delivered by such Contributing Shareholder and constitutes a valid and binding agreement of
such Contributing Shareholder enforceable against him, her or it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors’ rights and to
general equity principles. Such Contributing Shareholder is an “accredited investor” as
such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933 and, in connection with the execution of this Agreement, agrees to deliver such
certificates to that effect as the Company may request.
(b) Such Contributing Shareholder is the sole record owner of, and has good and
marketable title to, the number of Contribution Shares set forth opposite his, her or its
name under the heading “Number of Shares Contributed” on Exhibit A hereto, free and
clear of any Encumbrances. Upon consummation of the contribution of Contribution Shares by
such Contributing Shareholders as provided in this Agreement, the Company will acquire good
and marketable title to such Contribution Shares free and clear of all Encumbrances, other
than those imposed by or as a result of any act by the Company.
(c) The execution, delivery and performance of this Agreement by such Contributing
Shareholder does not and will not (i) require him, her or it to obtain any consents,
registrations, approvals, permits or authorizations from any domestic or foreign
governmental or regulatory authority, agency, commission body, court or other legislative,
executive or judicial governmental entity (except as would not have a material adverse
effect on his, her or its ability to perform his, hers or its obligations under this
Agreement) or (ii) constitute or result in a breach or violation of, or a default under, or
result in the creation of a lien or encumbrance on any of his, hers or its properties
pursuant to any bond, debenture, note or other evidence of indebtedness of him, her or it or
any indenture or other material agreement to which he, she or it is a party or by which he,
she or it is bound or to which any of his, her or its material property may be subject
4
(except as would not have a material adverse effect on his, her or its ability to
perform his, her or its obligations under this Agreement).
(d) Such Contributing Shareholder has not granted and is not a party to any proxy,
voting trust or other agreement which conflicts with any provision of this Agreement, and
such Contributing Shareholder shall not grant any proxy or become party to any voting trust
or other agreement which conflicts with any provision of this Agreement.
2.2. Representations and Warranties of the Company. Except as set forth in the
corresponding sections of the disclosure letter delivered to the Representative by the Company
simultaneously with the execution and delivery of this Agreement (the “Schedules”) (it
being agreed that disclosure of any item in any section of the Schedules shall be deemed disclosure
with respect to any other section to which the relevance of such item is reasonably apparent), the
Company represents and warrants to the Contributing Shareholders, as follows (it being
acknowledged and agreed that none of the representations and warranties made by the Company
contained in this Agreement relate or pertain to any of the assets, liabilities or business of
Midway-Tristate Corporation acquired pursuant to the Midway Agreement as defined herein,
substantially all of which have been assigned to McJunkin Appalachian Oilfield Supply Company):
(a) Authorization of Transaction. The Company has all requisite power and
authority and has taken all limited liability company action necessary in order to execute,
deliver and perform its obligations under this Agreement. This Agreement has been duly
executed and delivered by it and constitutes its valid and binding agreement enforceable
against the Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights and to general equity principles.
(b) Corporate Organization; Authority. The Company and each of its
Subsidiaries is a legal entity duly organized, validly existing and in good standing under
the Laws of its respective jurisdiction of organization and has all requisite limited
liability company power or similar power and authority to own, lease and operate its
properties and assets and to carry on its business as presently conducted and is qualified
to do business and is in good standing as a foreign corporation in each jurisdiction where
the ownership, leasing or operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so organized, qualified or in
good standing, or to have such power or authority, are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect. The Company’s and each of
its Subsidiaries’ certificate of formation and limited liability company agreement or
comparable governing documents, each as amended to the date hereof, is in full force and
effect. Schedule 2.2(b) contains a correct and complete list of each jurisdiction where
the Company and each of its Subsidiaries are organized and qualified to do business.
(c) Capitalization.
5
(i) Schedule 2.2(c) sets forth a complete and accurate list of the issued and
outstanding limited liability company interests of the Company (collectively, the “LLC
Interests”). All of the LLC Interests have been duly authorized and are validly issued,
fully paid and nonassessable. At the Closing, the Contributing Shareholders will acquire
all of the LLC Units free and clear of any Encumbrances other than those imposed by or as a
result of any act by the Contributing Shareholders. Each of the outstanding shares of
capital stock or other securities of each of the Company’s Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and, except as set forth on Schedule 2.2(c)
owned by the Company or by a direct or indirect wholly-owned Subsidiary of the Company, free
and clear of any Encumbrance. Except as set forth on Schedule 2.2(c), there are no
preemptive or other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls,
commitments or rights of any kind that obligate the Company or any of its Subsidiaries to
issue or sell any LLC Interests or any shares of capital stock or other securities of the
Company or any of its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe for or
acquire, any LLC Interests or any shares of capital stock or other securities of the Company
or any of its Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. None of the Company or any of its Subsidiaries has
outstanding any bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the right to vote)
with the members or shareholders of the Company or any of its Subsidiaries on any matter.
(ii) Schedule 2.2(c) sets forth (A) each of the Company’s Subsidiaries and the
ownership interest of the Company in each such Subsidiary, as well as the ownership interest
of any other Person or Persons in each such Subsidiary and (B) the Company’s or any of its
Subsidiaries’ capital stock, voting or equity interest or other direct or indirect ownership
interest in any other Person. With respect to each Person identified on Schedule 2.2(c)
that is (x) a Subsidiary of the Company that is not wholly-owned by the Company or (y) not a
Subsidiary of the Company (each such entity described in (x) and (y), a “Non-Wholly
Owned Investment”), the Company has made available to the Representative copies of all
Contracts and other documents to which the Company or any of its Subsidiaries is a party
that relates in any way to any Non-Wholly Owned Investment and each such Contract is a valid
and binding agreement of the Company or one of its Subsidiaries, as the case may be, and is
in full force and effect, and neither the Company nor any of its Subsidiaries nor, to the
Knowledge of the Company, any other party thereto is in default or breach in any respect
under the terms of any such Contract. Neither the Company nor any of its Subsidiaries is
obligated to make any capital contribution or to assume or otherwise become liable for any
debts or obligations or make any other payments with respect to any Non-Wholly Owned
Investment.
(d) No Conflicts.
(i) No notices, reports or other filings are required to be made by the Company or any
of its Subsidiaries with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company or any of its
6
Subsidiaries from, any Governmental Entity, in connection with the execution, delivery
and performance of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, or in connection with the continuing operation of the
business of the Company and its Subsidiaries following the Closing, except those for which
the failure to obtain such consent, approval or waiver is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by the Company or any of
its members do not, and the consummation of the transactions contemplated hereby will not,
constitute or result in (i) a breach or violation of, or a default under, the certificate of
formation or limited liability company agreement of the Company or the comparable governing
instruments of any of its Subsidiaries, (ii) with or without notice, lapse of time or both,
a breach or violation of, a termination (or right of termination) or a default under, the
creation or acceleration of any obligations or the creation of an Encumbrance on any of the
assets of the Company or any of its Subsidiaries pursuant to any Contract binding upon the
Company or any of its Subsidiaries or under any Law to which the Company or any of its
Subsidiaries is subject, or (iii) any change in the rights or obligations of any party under
any Contract binding on the Company or any of its Subsidiaries, except, in the case of
clause (ii) or (iii) above, for any such breach, violation, termination, default, creation,
acceleration or change that, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect. None of the Company or any of its Subsidiaries is the
beneficiary of, or exempt from, any Law, Order or Permit because of a “grandfather clause”
that will not be available to it following the Closing.
(iii) Neither the Company nor any of its Subsidiaries is a party to or bound by any
non-competition Contracts or other Contract that purports to limit either the type of
business in which the Company or its Affiliates (including, after the Acquisition, Sooner
and its Affiliates) may engage or the manner or locations in which any of them may engage in
any business (for the avoidance of doubt, distribution agreements and similar Contracts
entered into in the ordinary course of business consistent with past practice shall not be
deemed to be covered by this Section 2.2(d).
(e) Financial Statements. Attached hereto as Schedule 2.2(e) are copies of
(i) the audited consolidated financial statements and other financial information for
McJunkin Corporation and its consolidated Subsidiaries as of December 31, 2004, 2005 and
2006 and for the fiscal years then ended (the “Audited Financial Statements”), and
(ii) the unaudited consolidated financial statements and other financial information for
McJunkin Corporation and its consolidated Subsidiaries for the five month period ending May
31, 007 (together with the Audited Financial Statements, the “Financial
Statements”). Each of the consolidated balance sheets included in the Financial
Statements (including any related notes and schedules) fairly presents in all material
respects the consolidated financial position of McJunkin Corporation and its consolidated
Subsidiaries as of its date and each of the consolidated statements of income, members’
equity and cash flows included in the Financial Statements (including any related notes and
schedules) fairly presents in all material respects the consolidated results of operations
and cash flows of McJunkin Corporation and its
7
consolidated Subsidiaries for the periods then ended, in each case in conformity with
GAAP, subject in the case of the unaudited financial statements to (A) the absence of
footnote disclosures and other presentation items and (B) changes resulting from normal de
minimis year-end adjustments. The audit reports with respect to the Audited Financial
Statements are not subject to any qualification.
(f) Absence of Certain Changes. Since January 31, 2007, the Company and its
Subsidiaries have conducted their respective businesses only in, and have not engaged in
any material transaction outside the ordinary and usual course of such businesses, and
there has not been any event, change, action, failure to act or transaction which,
individually or in the aggregate, has had or would be reasonably likely to have a Material
Adverse Effect. Except as set forth on Schedule 2.2(f), since January 31, 2007, the
Company has not taken any actions or omitted to take any actions which, had such actions or
omissions occurred after the date of this Agreement, would have breached any of the
covenants contained in Section 3.1(a), (b), (c), (d), (e), (f), (g), (h), (i), (k), (m),
(n), (o), (p), (q), (s), or (t).
(g) Litigation and Liabilities.
(i) There are no civil, criminal or administrative actions, information requests,
suits, claims, hearings, arbitrations, investigations or other proceedings (collectively,
“Claims”) pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries, except for those that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect. Except as reflected or
reserved against in McJunkin Corporation’s audited consolidated balance sheet for the year
ending December 31, 2006 (and the notes thereto) and for obligations or liabilities incurred
in the ordinary course of business consistent with past practice since December 31, 2006
(and reflected or reserved against in the Company’s unaudited consolidated balance sheet for
the period then ended, to the extent incurred prior to such date), there are no obligations
or liabilities of the Company or any of its Subsidiaries, whether or not accrued, contingent
or otherwise and whether or not required to be disclosed, or any other facts or
circumstances of which to the Knowledge of the Company is reasonably likely to result in any
Claims against, or obligations or liabilities of, the Company or any of its Subsidiaries,
including those relating to matters involving any Environmental Law), except for those that
are not, individually or in the aggregate, reasonably likely to have a Material Adverse
Effect.
(ii) Neither the Company nor any of its Subsidiaries is a party to or subject to the
provisions of any Order of any Governmental Entity which is, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
(h) Employees; Benefits.
(i) All material benefit, employment, retention, transaction, severance, change in
control and compensation plans, contracts, policies or arrangements covering current or
former employees of the Company and its Subsidiaries (the “Employees”) and current
or former directors of the Company or any of its Subsidiaries, or with respect to
8
which the Company or any of its Subsidiaries could have any liability, including, but
not limited to, “employee benefit plans” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), and deferred
compensation, severance, stock option, stock purchase, stock appreciation rights, stock
based, incentive and bonus plans (the “Benefit Plans”), are listed on Schedule
2.2(h), and each Benefit Plan which has received a favorable opinion letter from the
Internal Revenue Service National Office has been separately identified. True and complete
copies of all Benefit Plans listed on Schedule 2.2(h) have been made available to the
Representative.
(ii) To the Knowledge of the Company, all Benefit Plans, other than “multiemployer
plans” within the meaning of Section 3(37) of ERISA (each, a “Multiemployer Plan”)
(collectively, “Company Benefit Plans”) are in compliance in all material respects
with their terms and ERISA, the Code and other applicable Laws. Each Company Benefit Plan
which is subject to ERISA (an “ERISA Plan”) that is an “employee pension benefit
plan” within the meaning of Section 3(2) of ERISA intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the Internal Revenue
Service (the “IRS”) covering all tax law changes prior to the Economic Growth and
Tax Relief Reconciliation Act of 2001 or has applied to the IRS for such favorable
determination letter within the applicable remedial amendment period under Section 401(b) of
the Code, and to the Knowledge of the Company, no circumstances exist which are likely to
result in the loss of the qualification of such Company Benefit Plan under Section 401(a) of
the Code. No Benefit Plan which is a Multiemployer Plan is insolvent or is in
reorganization within the meaning of Part 3 of Subtitle E of Title IV of ERISA and to the
Company’s Knowledge no condition exists which presents a risk of any Multiemployer Plan
becoming insolvent or going into reorganization. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any ERISA Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject the Company
or any Subsidiary to a tax or penalty imposed by either Section 4975 of the Code or Section
502(i) of ERISA in an amount which would be material.
(iii) No material liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by the Company or any of its Subsidiaries with respect to any
ongoing, frozen or terminated Company Benefit Plan or with respect to the single-employer
plan of any entity which is considered one employer with the Company or any of its
Subsidiaries under Section 4001 of ERISA or Section 414 of the Code (an “ERISA
Affiliate”). Other than the Company and its Subsidiaries, neither the Company nor any
of its Subsidiaries has any ERISA Affiliates nor any liability with respect to any entity
that previously was an ERISA Affiliate. The Company and its Subsidiaries have not incurred
and do not expect to incur any material withdrawal liability with respect to a Multiemployer
Plan under Subtitle E of Title IV of ERISA (regardless of whether based on contributions of
an ERISA Affiliate).
(iv) As of the date hereof, there is no material pending or, to the Knowledge of the
Company threatened, litigation or dispute relating to the Benefit Plans or by an Employee
against the Company or any of its Subsidiaries, other than routine claims for
9
benefits. No Benefit Plan is under audit, investigation or similar proceeding by the
IRS, the Department of Labor, the Pension Benefit Guarantee Corporation or any other
Governmental Entity and, to the Knowledge of the Company, no such audit, investigation or
proceeding is pending. Neither the Company nor any of its Subsidiaries has any obligations
for retiree health or life benefits under any ERISA Plan or collective bargaining agreement
or has obligations to any Employee (either individually or Employees as a group) that such
Employee(s) would be provided with such retiree health or life benefits upon their
retirement or termination of employment, except to the extent required by Section 4980B of
the Code.
(v) Neither the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (x) entitle any Employees to severance pay or any
material increase in severance pay upon any termination of employment after the date hereof,
or (y) accelerate the time of payment or vesting, or result in any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under, or increase the
amount payable, or result in any other material obligation pursuant to, any of the Benefit
Plans or (z) result in the triggering or imposition of any restrictions or limitation on the
right of the Company or any of its Subsidiaries to amend or terminate any Benefit Plan.
Except as set forth on Schedule 2.2(g), no payment or benefit which will or may be made by
Buyer, the Company or any of its Subsidiaries with respect to any Employee will be
characterized as an “excess parachute payment,” within the meaning of Section 280G(b)(1) of
the Code.
(vi) None of the Benefit Plans, if administered in accordance with their terms, could
result in the imposition of interest or an additional tax on any participant thereunder
pursuant to Section 409A of the Code.
(i) Compliance with Laws. The businesses of the Company and each of its
Subsidiaries have not been, and are not being, conducted in violation of any applicable
Law, except for violations that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect. Except with respect to regulatory matters
covered by Section 6.2 of the Purchase Agreement, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is pending or,
to the Knowledge of the Company, threatened, nor has any Governmental Entity indicated an
intention to conduct the same, except for those the outcome of which are not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect. To the Knowledge
of the Company, no material change is required in the Company’s or any of its Subsidiaries’
processes, properties or procedures in connection with any such Laws, and none of the
Company or any of its Subsidiaries has received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date hereof. The
Company and its Subsidiaries each has obtained and is in compliance with all permits,
licenses, certifications, approvals, registrations, consents, authorizations, franchises,
variances, exemptions and orders issued or granted by a Governmental Entity (each a
“Permit”) necessary to conduct its business as presently conducted, except those
the absence of which is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect.
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(j) Material Contracts. As of the date of this Agreement and except as
otherwise expressly contemplated by this Agreement, neither the Company nor any of its
Subsidiaries is a party to or bound by:
(i) any individual lease of real or personal property providing for annual rentals of
$5 million or more;
(ii) any Contract with any Governmental Entity or any Contract (other than purchase
orders entered into the ordinary course of business consistent with past practice) that is
reasonably likely to require either (x) annual payments to or from the Company or any of its
Subsidiaries of more than $5 million or (y) aggregate payments to or from the Company or any
of its Subsidiaries of more than $5 million;
(iii) other than with respect to any wholly owned Subsidiary of the Company, any
partnership, joint venture or other similar agreement or arrangement relating to the
formation, creation, operation, management or control of any partnership or joint venture
material to the Company or any of its Subsidiaries or in which the Company or any of its
Subsidiaries directly or indirectly owns more than a 15% voting or economic interest, or any
interest valued at more than $5 million without regard to percentage voting or economic
interest;
(iv) any Contract (other than among direct or indirect wholly owned Subsidiaries of the
Company) relating to Debt in excess of $5 million;
(v) any non-competition Contract or other Contract that purports to limit either the
type of business in which the Company or its Subsidiaries (including, after the Acquisition,
Sooner and its Affiliates) may engage or the manner or locations in which any of them may so
engage in any business (for the avoidance of doubt, distribution agreements and similar
Contracts entered into in the ordinary course of business consistent with past practice
shall not be deemed to be covered by this Section 2.2(j)(v);
(vi) any Contract containing a standstill or similar agreement pursuant to which one
party has agreed not to acquire assets or securities of the other party or any of its
Affiliates;
(vii) any Contract with any member, Related Party, Affiliate, director or officer of
the Company, or any Affiliate, shareholder, director or officer of any Subsidiary of the
Company;
(viii) any Contract providing for indemnification by the Company or any of its
Subsidiaries of any Person, except for any such Contract that is (x) not material to the
Company or any of its Subsidiaries or is a purchase order and (y) entered into in the
ordinary course of business consistent with past practice;
(ix) any Contract that contains a put, call or similar right pursuant to which the
Company or any of its Subsidiaries could be required to purchase or sell, as applicable, any
equity interests of any Person or assets that have a fair market value or purchase price of
more than $5 million; and
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(x) any other Contract or group of related Contracts that, if terminated or subject to
a default by any party thereto, is, individually or in the aggregate, reasonably likely to
result in a Material Adverse Effect.
The Contracts described in Sections 2.2(j)(i) through (x), together with all exhibits and
schedules to such Contracts, are referred to herein as the “Material Contracts”. A copy of
each written Material Contract (or a copy of written terms proposed for Material Contracts not
executed but in which performance has begun) has been made available to Representative, and each
Material Contract is a valid and binding agreement of the Company or one of its Subsidiaries, as
the case may be, and is in full force and effect, and neither the Company nor any of its
Subsidiaries nor, to the Knowledge of the Company, any other party thereto is in default or breach
in any respect under the terms of any such Contract.
(k) Real Property.
(i) With respect to the real property owned by the Company or any of its Subsidiaries
(the “Owned Real Property”), (i) the Company or one of its Subsidiaries, as
applicable, has good and marketable title to the Owned Real Property, free and clear of any
Encumbrance other than Permitted Encumbrances, (ii) there are no outstanding options or
rights of first refusal to purchase the Owned Real Property, or any portion thereof or
interest therein, and (iii) neither the Company nor any of its Subsidiaries leases Owned
Real Property to any other Person.
(ii) With respect to the real property leased or subleased to the Company or any of its
Subsidiaries (the “Leased Real Property”), the lease or sublease for such property
is valid, legally binding, enforceable and in full force and effect, and none of the Company
or any of its Subsidiaries is in material breach of or default under such lease or sublease,
and no event has occurred which, with notice, lapse of time or both, would constitute a
breach or default by any of the Company or its Subsidiaries or permit termination,
modification or acceleration by any third party thereunder.
(iii) Schedule 2.2(k) contains a true and complete list of all Owned Real Property and
Leased Real Property and sets forth a correct street address and such other information as
is reasonably necessary to identify each parcel of Owned Real Property and Leased Real
Property.
(l) Environmental Matters.
(i) Except as is not reasonably likely to have a Material Adverse Effect: (A) the
Company and its Subsidiaries are, and have since January 1, 2002 been, in compliance with
all applicable Environmental Laws; (B) the Company and its Subsidiaries possess all permits,
licenses, registrations, identification numbers, authorizations and approvals required under
applicable Environmental Laws for the operation of the business as presently conducted; (C)
neither the Company nor any of its Subsidiaries has received any claim, notice of violation,
citation or other communication concerning any violation or alleged violation of, or
liability under, any applicable Environmental Law which has not been fully resolved,
imposing no outstanding liability
12
or obligation on the Company or any of its Subsidiaries; (D) there are no writs,
injunctions, decrees, orders or judgments outstanding, or any actions, suits, proceedings,
inquiries, information requests, or investigations pending or, to the Knowledge of the
Company, threatened, concerning compliance by the Company or any of its Subsidiaries with,
or liability of the Company or any of its Subsidiaries under, any Environmental Law; and (E)
there are no Hazardous Substances at, on, under, or migrating to or from, the Owned Real
Property, the Leased Real Property, or, to the Knowledge of the Company, any real property
formerly owned, leased or operated by the Company, or any of its Subsidiaries (the
“Former Real Property”), in each case, which is reasonably expected to result in
liability to the Company or any Subsidiary under any Environmental Law. As used in this
Agreement, “Hazardous Substance” means any substance listed, defined, designated or
classified as a pollutant or contaminant or as hazardous, toxic or radioactive under any
applicable Environmental Law, including, without limitation, petroleum and any derivative or
by-products thereof and asbestos and asbestos-containing materials, and “Environmental
Law” means any applicable law (including common law), regulation, code, license, permit,
order, judgment, decree or injunction from any Governmental Entity relating to (a) the
protection of the environment (including air, water, soil and natural resources), (b) the
use, storage, handling, release or disposal of or exposure to hazardous substances, or (c)
occupational health or safety as it relates to Hazardous Substance handling or exposure, in
each case as presently in effect.
(ii) The Company has made available to Representative or its counsel true and complete
copies of any material reports, site assessments, tests, or monitoring possessed by the
Company or any of its Subsidiaries (A) pertaining to Hazardous Substances at, on, under, or
migrating to or from, any Owned Real Property, Leased Real Property or Former Real Property,
or (B) concerning compliance by the Company or any of its Subsidiaries with Environmental
Law or their liability thereunder.
(iii) Notwithstanding any other representation and warranty in this Section 2.2, the
representations and warranties contained in this Section 2.2(l) and in Sections 2.2(g) and
2.2(i) constitute the sole representations and warranties of the Company relating to any
Environmental Law.
(m) Tax Matters. The Company and each of its Subsidiaries (i) have prepared
in good faith and duly and timely filed (taking into account any extension of time within
which to file) all Tax Returns required to be filed by any of them and all such filed Tax
Returns are complete and accurate in all material respects; (ii) have paid all Taxes that
are shown as due on such filed Tax Returns (or Taxes that are otherwise due and payable) or
that the Company or any of its Subsidiaries are obligated to withhold from amounts owing to
any employee, creditor or other third party, except with respect to matters contested in
good faith and for which adequate reserves have been established in accordance with GAAP;
and (iii) have not waived any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency. As of the date hereof,
there are not pending or, to the Knowledge of the Company, threatened, any audits,
examinations, investigations or other proceedings in respect of Taxes or Tax matters.
There are not, to the Knowledge of the Company, any material unresolved questions or claims
concerning the
13
Company’s or any of its Subsidiaries’ Tax liability. The Company has made available
to Representative true and correct copies of the United States federal income Tax Returns
filed by the Company and each of its Subsidiaries for each of the three most recent fiscal
years. The consolidated United States federal income Tax Returns of McJunkin Corporation
have been examined, or the statutes of limitations have closed, with respect to all taxable
years through and including 2004. To the Knowledge of the Company, no claim has been made
in the previous five years by a Governmental Entity in a jurisdiction where the Company or
any of its Subsidiaries does not file Tax Returns that the Company or any of its
Subsidiaries is or may be subject to taxation by that jurisdiction. Neither the Company
nor any of its Subsidiaries has any liability for Taxes of any Person (other than the
Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 or any comparable
provision of U.S., state, local or foreign Law or otherwise. Neither the Company nor any
of its Subsidiaries has been a party to a “reportable transaction” (as that term is defined
in Treasury Regulation Section 1.6011-4(b)(1)). Neither the Company nor any of its
Subsidiaries is a party to any Tax sharing agreement with any Person (other than the
Company and/or any of its Subsidiaries). Neither the Company nor any of its Subsidiaries
has been a party to any distribution occurring during the last 30 months in which the
parties to such distribution treated the distribution as one to which Section 355 of the
Code (or any similar provision of state, local or foreign law) applied. Each material Tax
election made by the Company or any of its Subsidiaries has been timely and properly made.
As used in this Agreement, “Tax” or “Taxes” means all federal, state, local
and foreign income, profits, franchise, gross receipts, environmental, customs duty,
capital stock, severances, stamp, documentary, registration, payroll, sales, employment,
unemployment, disability, use, transfer, real property transfer, stock transfer, property,
withholding, excise, production, value added, occupancy, and other taxes, duties or
assessments imposed by a Governmental Entity of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any interest in
respect of such penalties and additions, and “Tax Return” means all returns and
reports (including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Governmental Entity relating to Taxes.
(n) Labor Matters.
(i) To the Knowledge of the Company, there is no organizational effort currently being
made or threatened on behalf of any labor organization to organize the employees of the
Company or any of its Subsidiaries, nor a demand for recognition of any of the employees of
the Company or any of its Subsidiaries on behalf of any labor organization within the last
two (2) years; nor is the Company or any of its Subsidiaries the subject of any material
proceeding asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice within the meaning of the National Labor Relations Act or comparable
restrictions under other applicable Laws or seeking to compel it to bargain with any labor
organization; nor is there pending or, to the Knowledge of the Company, threatened, nor has
there been for the past two (2) years, any labor strike, picketing, walkout, work stoppage
or lockout involving the Company or any of its Subsidiaries. Neither the Company nor any of
its Subsidiaries is presently, nor has been in the past a party to, or bound by, any
collective bargaining agreement or union
14
contract with respect to Employees, and no such agreement or contract is currently
being negotiated. The consummation of the transactions contemplated by this Agreement will
not entitle any third party (including any labor organization) to any payments under any
collective bargaining agreement or union contract with respect to Employees to which the
Company or any of its Subsidiaries is a party or by which any of them are otherwise bound.
(ii) The Company and its Subsidiaries (A) are in compliance in all material respects
with all applicable Laws respecting employment, overtime pay and wages and hours, in each
case, with respect to their employees; (B) have withheld all material amounts required by
applicable Law or by agreement to be withheld from the wages, salaries and other payment to
their employees; and (C) are not liable for or in arrears with respect to material wages or
any material taxes or any penalty for failure to comply with any of the foregoing except, in
each case, to the extent as is not reasonably likely to have a Material Adverse Effect.
(iii) Neither the Company nor any of its Subsidiaries has classified any individual as
an “independent contractor” or similar status who, according to a Benefit Plan or applicable
Law, should have been classified as an employee or of similar status.
(o) Insurance. The Company and its Subsidiaries maintain fire and casualty,
general liability, business interruption, product liability and sprinkler and water damage
insurance policies (the “Insurance Policies”) with reputable insurance carriers.
The Insurance Policies provide full and adequate coverage for all normal risks incident to
the business of the Company and its Subsidiaries and their respective properties and
assets, and are in character and amount at least equivalent to that carried by Persons
engaged in similar businesses and subject to the same or similar perils or hazards, except
for any such failure to maintain insurance polices that, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect. Each Insurance Policy is in
full force and effect and all premiums due with respect to all Insurance Policies have been
paid, with such exceptions that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect.
(p) Related Party Transactions.
(i) Except as set forth on Schedule 2.2(p), no member or shareholder of the Company or
its Subsidiaries or other Related Party (A) has any interest in any property (real,
personal, or mixed and whether tangible or intangible), used in or pertaining to the
business of the Company or any of its Subsidiaries as currently conducted, (B) owns, of
record or as a beneficial owner, an equity interest or any other financial or a profit
interest (other than ownership of publicly-traded securities representing less than 5% of
the total equity and less than 5% of the total voting power of the issuer) in a Person that
has had material business dealings or a material financial interest in any transaction with
the Company or any of its Subsidiaries, or (C) is a party to any Contract with, or has any
claim or right against, the Company or any of its Subsidiaries (except for employment and
similar Contracts and claims thereunder).
15
(ii) Except as set forth on Schedule 2.2(p), none of the Company or any of its
Subsidiaries is indebted, directly or indirectly, to any Person who is a member, shareholder
or other Related Party in any amount whatsoever, other than for ordinary compensation
(including salaries, wages and benefits) for services rendered or reimbursable business
expenses, nor is any such member, shareholder or other Related Party indebted to the Company
or any of its Subsidiaries, except for advances made to employees of the Company or any of
its Subsidiaries in the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor.
(q) Product Warranty and Product Liability. There is no notice, demand,
claim, action, suit, inquiry, hearing, proceeding, notice of violation or investigation
from, by or before any Governmental Entity relating to any product, including the packaging
and advertising related thereto, designed, formulated, manufactured, processed, sold,
distributed or placed in the stream of commerce by the Company or any of its Subsidiaries
(a “Product”), or claim or lawsuit involving a Product which is, to the Knowledge
of the Company, pending or threatened, by any Person which is reasonably likely to result
in any material liability to the Company or any of its Subsidiaries. There has not been,
nor is there under consideration by the Company or any of its Subsidiaries, any Product
recall or post-sale warning conducted by or on behalf of the Company or any of its
Subsidiaries concerning any Product, except for such recalls or post-sale warnings that are
not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect.
To the Knowledge of the Company, at the time sold, distributed or placed in the stream of
commerce by the Company or any of its Subsidiaries, all Products, complied in all material
respects with applicable specifications, government safety standards and other applicable
Laws, and were substantially free from contamination, deficiencies or defects, except for
such non-compliance, contamination, deficiency or defect as is not, individually or in the
aggregate, reasonably likely have a Material Adverse Effect.
(r) Suppliers and Customers. Schedule 2.2(r) sets forth a list of (i) the
fifteen (15) largest suppliers (by dollar amount and not by name) to the Company and its
Subsidiaries, taken as a whole, as of December 31, 2006 immediately preceding the date of
this Agreement (“Major Suppliers”) and (ii) the fifteen (15) customers (by dollar
amount of purchases and not by name) with the highest dollar amount of purchases from or
services of, the companies, taken as a whole, as of December 31, 2006 immediately preceding
the date of this Agreement (the “Major Customers”). No Major Supplier or Major
Customer has during the last two (2) years materially decreased or limited, or to the
Knowledge of the Company threatened to materially decrease or limit, its provision or
receipt of services or supplies to or from the Company or any of its Subsidiaries. No
termination, cancellation or material limitation of, or any material modification or change
in, the business relationship of the Company or any of its Subsidiaries has occurred or, to
the Knowledge of the Company, has been threatened by any Major Supplier or Major Customer.
(s) Purchase and Sale Agreements.
16
(i) No claims for indemnification under any prior purchase and sale agreements to which
the Company or any of its Subsidiaries is a party (the “Prior Purchase Agreements”),
have been made by the Company or any of its Subsidiaries in the last five (5) years, or are
pending or threatened by the Company or any of its Subsidiaries. No claims for
indemnification under any Prior Purchase Agreements have been made in the last five (5)
years or to the Knowledge of the Company are pending or threatened, by any counterparties
thereto.
(ii) Buyer has provided the Representative with a true and complete copy of the Stock
Purchase Agreement (the “Midway Agreement”), dated April 5, 2007 by and among
McJunkin Development Corporation (a Subsidiary of the Company), Midway-Tristate Corporation,
a New York Corporation, and the shareholders of Midway-Tristate Corporation as of such date
and the Disclosure Schedules referenced therein.
(t) Power of Attorney. Neither the Company nor any of its Subsidiaries has
given any irrevocable power of attorney (other than such powers of attorney given in the
ordinary course of business with respect to routine matters or as may be necessary or
desirable in connection with the transactions contemplated hereby) to any Person other than
a manager of the Company with respect to the Company or any such Subsidiary.
ARTICLE III
Covenants
3.1. Interim Operations. After the date hereof and prior to the Closing (unless the
Representative shall otherwise approve in writing, such approval not to be unreasonably withheld or
delayed, and except as otherwise expressly contemplated by this Agreement, and except as required
by applicable Laws), the Company shall, and shall cause its Subsidiaries to, conduct the business
of the Company and its Subsidiaries in the ordinary and usual course and, to the extent consistent
therewith, the Company shall and shall cause the Company’s Subsidiaries to (x) use their respective
reasonable best efforts to preserve the Company’s and its Subsidiaries’ business organizations
intact and maintain existing relations and goodwill with all Governmental Entities, customers,
suppliers, distributors, creditors, lessors, employees and business associates, and (y) keep
available the services of the Company’s and its Subsidiaries’ present employees and agents.
Without limiting the generality of the foregoing and in furtherance thereof, from the date of this
Agreement until the Closing, except (A) as otherwise expressly contemplated by this Agreement, the
Purchase Agreement or the Letter Agreement, (B) as the Representative may approve in writing (such
approval not to be unreasonably withheld or delayed) or (C) for transactions set forth on Schedule
3.1, the Company will not and shall cause each of its Subsidiaries not to:
(a) adopt or propose any change in its certificate of formation or limited liability
company agreement or other applicable governing instruments;
(b) merge or consolidate with any other Person, or restructure, reorganize or
completely or partially liquidate or otherwise enter into any agreements or
17
arrangements imposing material changes or restrictions on its assets, operations or
businesses;
(c) acquire any entity or business (including by way of merger, stock purchase, asset
purchase or otherwise) from any other Person, other than acquisitions pursuant to Contracts
in effect as of the date of this Agreement and disclosed on the Schedules;
(d) issue, sell, pledge, dispose of, grant, transfer, encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or
encumbrance of, any LLC Interests or any shares of capital stock of the Company or any of
its Subsidiaries (other than the issuance of shares by a wholly-owned Subsidiary of the
Company to the Company or another wholly-owned Subsidiary), or securities convertible or
exchangeable into or exercisable for any shares of such capital stock, or any options,
warrants or other rights of any kind to acquire any LLC Interests or any shares of such
capital stock or such convertible or exchangeable securities;
(e) create or incur any Encumbrance in excess of $5 million on any assets of the
Company or any of its Subsidiaries;
(f) make any loans, advances or capital contributions to or investments in any Person,
other than non-material advances to vendors and employees in the ordinary course of
business consistent with past practice;
(g) enter into any agreement with respect to the voting of its LLC Interests or
declare, set aside, make or pay any distribution, or purchase, redeem or otherwise acquire
any of its LLC Interests payable other than in cash, with respect to any of its LLC
Interests;
(h) reclassify, split or combine, directly or indirectly, any of its LLC Interests;
(i) incur any Debt (other than borrowings under the Company’s existing debt facilities
in the ordinary course of business consistent with past practice) or guarantee Debt of
another Person, or issue or sell any debt securities or warrants or other rights to acquire
any debt security of the Company or any of its Subsidiaries;
(j) enter into any Contract that would have been a Material Contract had it been
entered into prior to the entering into of this Agreement;
(k) make any changes with respect to accounting policies or procedures, except as
required by changes in GAAP;
(l) other than in the ordinary course of business consistent with past practice,
amend, modify or terminate any Material Contract, or cancel, modify or waive any Debts or
claims held by it or waive any rights;
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(m) except as set forth on Schedule 3.1(m), make any material Tax election, take any
material position on any Tax Return filed on or after the date of this Agreement or adopt
any tax accounting method that is inconsistent with positions taken or methods used in
preparing or filing similar Tax Returns in prior periods, or settle or resolve any material
Tax controversy;
(n) other than pursuant to Contracts in effect prior to the date of this Agreement and
disclosed on the Schedules, transfer, sell, lease, license, mortgage, pledge, surrender,
encumber, divest, cancel, abandon or allow to lapse or expire or otherwise dispose of any
assets, product lines or businesses of the Company or its Subsidiaries, including capital
stock of any of its Subsidiaries, except for sales, leases, licenses or other dispositions
of assets with a fair market value not in excess of $100,000 in the aggregate;
(o) except as set forth on Schedule 3.1(o) or otherwise required by applicable Law,
(i) increase the compensation, bonus or pension or welfare benefits of, or make any new
equity-based awards to, any director, officer or employee of the Company or any of its
Subsidiaries (other than those increases in the ordinary course of business consistent with
past practice to employees below the Vice President level), (ii) establish, adopt, amend or
terminate any Benefit Plan or amend the terms of any Benefit Plan or outstanding
equity-based awards or (iii) take any action to accelerate the vesting or payment, or fund
or in any other way secure the payment, of compensation or benefits under any Benefit Plan,
to the extent not already required by any such Benefit Plan;
(p) settle, or consent to any settlement of, any actions, suits, claims or proceedings
against the Company or any of its Subsidiaries or any obligation or liability of the
Company or any of its Subsidiaries alleging any injury or damage (other than disputes with
customers or suppliers in the ordinary course of business consistent with past practice and
not exceeding $50,000 per claimant);
(q) take any action or omit to take any action that will waive, modify, compromise or
extinguish any of the Company’s or any of its Subsidiaries’ rights with respect to any
agreements, understandings or arrangements relating to any insurance coverage;
(r) take any action or omit to take any action that is reasonably likely to result in
any of the conditions to Closing set forth in Article VI not being satisfied (other than
the taking of any action required to be taken under applicable Law or the omission of any
action prohibited under applicable Law);
(s) enter into, terminate, amend or modify any Contract or transaction with any
Affiliate, member or other Related Party;
(t) enter into any purchase order (other than purchase orders entered into in the
ordinary course of business consistent with past practice and in an amount less than $10
million); or
19
(u) agree, authorize or commit to do any of the foregoing.
3.2. Access and Reports. Subject to applicable Law, upon reasonable notice, the
Company shall (and shall cause each of its Subsidiaries to) afford the Representative and other
authorized representatives reasonable access, during normal business hours throughout the period
prior to the Closing, to its employees, properties, books, Contracts and records and, during such
period, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to
Representative all information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section 3.2 shall affect or be deemed
to modify any representation or warranty made by the Company herein, and provided, further, that
the foregoing shall not require the Company (i) to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company would result in the disclosure of any
trade secrets of third parties or violate any of its obligations with respect to confidentiality or
(ii) to disclose any privileged information of the Company or any of its Subsidiaries. All such
information shall be governed by the terms of the Confidentiality Agreement.
ARTICLE IV
Additional Agreements
4.1. Joinder to the Company LLC Agreement. The parties hereto agree that, upon the
Closing, each Contributing Shareholder shall be made a party to the limited liability company
operating agreement of the Company (the “Company LLC Agreement”), as amended pursuant to
the letter agreement dated on or about the date hereof between GS Capital Partners V Fund, L.P. and
its related funds (collectively, “GSCP”), and the Contributing Shareholders and attached
hereto (the “Letter Agreement”), as a Member with the rights and obligations of holders of
Common Units and as set forth in the Letter Agreement and each Contributing Shareholder hereby
agrees to become a party to the Company LLC Agreement and to be bound by, and subject to, all of
the representations, covenants, terms and conditions of the Company LLC Agreement that are
applicable to a Member with such rights and obligations. Execution and delivery of this Agreement
by each Contributing Shareholder shall also constitute execution and delivery by him, her or it of
the Company LLC Agreement, without further action of any party.
4.2. Joinder to the Registration Rights Agreement. The parties hereto agree that,
upon the Closing, each Contributing Shareholder shall be made a party to the Company registration
rights agreement (the “Registration Rights Agreement”), as amended pursuant to the Letter
Agreement, as a Holder (as defined in the Registration Rights Agreement) and each Contributing
Shareholder hereby agrees to become a party to the Registration Rights Agreement and to be bound
by, and subject to, all of the representations, covenants, terms and conditions of the Registration
Rights that are applicable to a Holder. Execution and delivery of this Agreement by each
Contributing Shareholder shall also constitute execution and delivery by him, her or it of the
Registration Rights Agreement, without further action of any party.
20
ARTICLE V
Deliveries at the Closing
5.1. Deliveries by the Company at the Closing. At the Closing, the Company shall:
(a) amend Schedule A to the Company LLC Agreement to reflect the LLC Units acquired by
the Contributing Shareholders pursuant to this Agreement; and
(b) deliver to each Contributing Shareholder a copy of the fully executed Company LLC
Agreement, as amended pursuant to the Letter Agreement, together with copies of all board
resolutions and/or other writings evidencing the effectiveness of such amendments.
5.2. Deliveries by the Contributing Shareholders at the Closing. At the Closing, each
Contributing Shareholder shall deliver certificates representing the number of Contribution Shares
set forth opposite his, her or its name under the heading “Number of Shares Contributed” on
Exhibit A hereto, to the Company, duly endorsed in blank or otherwise in proper form for
transfer to the Company.
ARTICLE VI
Conditions to Closing
6.1. Conditions to Obligations of the Company. The obligations of the Company to
consummate the transactions contemplated hereunder and to take the other actions at Closing
required by this Agreement are subject to the satisfaction or waiver by such party of the following
conditions as of the Closing Date:
(a) (i) The representations and warranties of the Contributing Shareholders set forth
in this Agreement (other than those in 2.1(a)) shall be true and correct as of the date of
this Agreement and as of the Closing (without giving effect to any “material,”
“materiality” or “material adverse effect” qualifications to such representations and
warranties), except (A) to the extent that the failure of such representations and
warranties of the Contributing Shareholders to be true and correct individually or in the
aggregate would not and would not reasonably be likely to prevent, materially delay or
materially impair the ability of the Contributing Shareholders to consummate the
transactions contemplated by this Agreement and (B) for those representations and
warranties which expressly relate to any earlier date (in which case such representations
and warranties shall have been true and correct as of such earlier date); and (ii) the
representations and warranties set forth in 2.1(a) shall be true and correct in all
respects as of the date of this Agreement and as of the Closing.
(b) Each Contributing Shareholder shall have performed in all material respects each
of their respective agreements and covenants contained in or contemplated
21
by this Agreement that are required to be performed by them at or prior to the Closing
pursuant to the terms hereof.
(c) The Company shall have received a certificate from the Representative on behalf of
the Contributing Shareholders, dated the Closing Date, to the effect that the conditions
set forth in Sections 6.1(a) and (b) have been satisfied.
6.2. Conditions to Obligations of the Contributing Shareholders. The obligations of
each Contributing Shareholder to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, or to the extent permitted by applicable Law, the waiver by the
Representative at or prior to the Closing of each of the following conditions:
(a) (i) The representations and warranties of the Company set forth in this Agreement
(other than those in Sections 2.2(a) (Authorization of Transaction), 2.2(c)
(Capitalization), 2.2(p) (Related Party Transactions) (collectively, the “Excluded
Representations”) shall be true and correct as of the date of this Agreement and as of
the Closing (without giving effect to any “material”, “materiality”, “Material Adverse
Effect” or “Knowledge” qualification to such representations and warranties), except (A) to
the extent that the failure of such representations and warranties of the Company to be
true and correct, individually or in the aggregate, has not had, and is not reasonably
likely to have, a Material Adverse Effect and (B) for those representations and warranties
which expressly relate to an earlier date (in which case such representations and
warranties shall have been true and correct as of such earlier date); and (ii) the Excluded
Representations shall be true and correct in all respects as of the date of this Agreement
and as of the Closing.
(b) The Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing.
(c) The Representative shall have received a certificate of Buyer dated the Closing
Date, to the effect that the conditions set forth in Sections 6.2(a) and (b) have been
satisfied.
6.3. Acquisition not Consummated. The parties hereto agree that if for any reason the
Acquisition is not consummated on or prior to the third business day after the Closing, then the
transactions effected at the Closing shall be unwound and the provisions of this Agreement shall be
restored as if the Closing had not taken place and shall thereafter remain in full force and effect
until terminated pursuant to the terms hereof.
ARTICLE VII
Termination
7.1. Termination. (a) This Agreement shall automatically terminate upon termination
of the Purchase Agreement pursuant to the terms thereof prior to the closing of the Acquisition.
22
(b) The parties hereto acknowledge and agree that if the transactions contemplated
hereby are not consummated as a result of the failure of any of the conditions contained in
Section 6.1 or 6.2, the transactions contemplated by the Purchase Agreement will not be
consummated since the condition contained in Section 7.1(e) thereof will not have been
satisfied.
(c) In the event of termination of this Agreement and the abandonment of the
transactions contemplated hereby pursuant to this Section 7.1, this Agreement shall become
void and of no effect with no liability to any Person on the part of any Party (or of any of
its representatives or Affiliates); provided, that Article VIII shall survive the
termination of this Agreement; and provided, further, that except as otherwise provided
herein, no such termination shall relieve any Party of any liability or damages to any other
Party resulting from any Willful or Deliberate Breach of this Agreement prior to any such
termination.
ARTICLE VIII
Miscellaneous
8.1. Entire Agreement; Binding Effect; Assignment; No Third Party Beneficiaries. This
Agreement (including the Exhibit hereto), the Company LLC Agreement, the Registration Rights
Agreement, the Purchase Agreement and Letter Agreement constitutes the entire agreement, and
supersedes any prior understandings or agreements by or among the parties, written or oral, to the
extent related in any way to the subject matter hereof. This Agreement shall be binding upon,
inure to the benefit of and be enforceable only by the parties hereto and their respective
successors and permitted assigns. No party may assign its rights or obligations under this
Agreement to any other person or entity without the prior written consent of the other parties and
any purported assignment without such consent is void. Nothing in this Agreement, express or
implied, is intended to, or shall, give to any person other than the parties hereto, their
successors and permitted assigns any benefit or any legal or equitable right, remedy or claim under
this Agreement.
8.2. Modification or Amendment; Waiver. This Agreement may only be amended, modified,
supplemented or waived with the written approval of each party hereto. No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall operate as a waiver
thereof or of any other or future exercise of any such right, power or privilege.
8.3. Counterparts. This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
8.4. Governing Law and Venue; Waiver of Jury Trial; Specific Performance.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF
23
DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the personal jurisdiction of the courts of the State of
Delaware located in New Castle County and the Federal courts of the United States of
America located in New Castle County solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined in such a
Delaware State or Federal court located in New Castle County. The parties hereby consent
to and grant any such court jurisdiction over the person of such parties and, to the extent
permitted by law, over the subject matter of such dispute and agree that mailing of process
or other papers in connection with any such action or proceeding in the manner provided in
Section 8.5 or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY,
AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.4.
(c) The parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in Delaware State or Federal court in New Castle
County, this being in addition to any other remedy to which such party is entitled at law
or in equity.
24
8.5. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile:
If to the Company:
c/o GS Capital Partners V Fund, L.P.,
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Jack Daly
Fax: (212) 357-5505
85 Broad Street, 10th Floor,
New York, New York 10004.
Attention: Jack Daly
Fax: (212) 357-5505
and:
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza,
New York, New York 10004.
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
If to the Contributing Shareholders:
c/o Craig Ketchum
8023 East 63rd Place
Suite 800
Tulsa, Oklahoma 74133
Fax: [•]
8023 East 63rd Place
Suite 800
Tulsa, Oklahoma 74133
Fax: [•]
with a copy to:
Baker Botts LLP
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Lee D. Charles, Esq.
and Marc A. Leaf, Esq.
Fax: (212) 259-2505 and (212) 259-2597
30 Rockefeller Plaza, 44th Floor
New York, NY 10112
Attention: Lee D. Charles, Esq.
and Marc A. Leaf, Esq.
Fax: (212) 259-2505 and (212) 259-2597
or to such other persons or addresses as may be designated in writing by the party to receive such
notice as provided above. Any notice, request, instruction or other document given as provided
above shall be deemed given to the receiving party upon actual receipt, if delivered personally;
three business days after deposit in the mail, if sent by registered or certified mail; upon
confirmation of successful transmission if sent by facsimile (provided that if given by
facsimile such notice, request, instruction or other document shall be followed up within one
business day by dispatch pursuant to one of the other methods described herein); or on the next
business day after deposit with an overnight courier, if sent by an overnight courier.
8.6. Interpretation; Construction.
25
(a) The headings herein are for convenience of reference only, do not constitute part
of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Where a reference in this Agreement is made to a Section, such reference shall be
to a Section of this Agreement unless otherwise indicated. Whenever the words “include,”
“includes” or “including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”
(b) The parties have participated jointly in negotiating and drafting this Agreement.
In the event that an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of
any provision of this Agreement.
8.7. Tax Matters. The parties hereto shall not take any position on any tax return
inconsistent with the treatment of the contribution of the Contribution Shares to the Company in
exchange for LLC Units when considered together with the Acquisition as a transaction governed by
Sections 707 and 721 of the Code, unless otherwise required pursuant to a “determination” within
the meaning of Section 1313(a) of the Code. Notwithstanding any other provision of this Agreement,
the obligations imposed by this Section 8.7 will survive indefinitely.
(the remainder of this page has been intentionally left blank)
26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
mentioned above.
| McJ HOLDING LLC | ||||
By: |
/s/ T Graff | |||
| Name: | ||||
| Title: | ||||
[Contribution Agreement]
| BJHK LIMITED PARTNERSHIP | ||||
By: |
/s/ Lewis Craig Ketchum | |||
| Name: Lewis Craig Ketchum | ||||
| Title: Trustee/general Partner | ||||
| K.F. ENTERPRISES, L.L.C. | ||||
By: |
/s/ Betty Ketchum | |||
| Name: Betty Ketchum | ||||
| Title: | ||||
[Contribution Agreement]
Exhibit 2.3.2
Execution Version
AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT (this “Amendment”), is made and
entered into as of October 24, 2007, by and among West Oklahoma PVF Company, a Delaware corporation
(“Buyer”), Red Man Pipe & Supply Co., an Oklahoma corporation (the “Company) and
Craig Ketchum (the “Representative”), as Representative of the Shareholders. All
capitalized terms used in this Amendment which are not otherwise defined herein are used with the
same meaning attributed to such capitalized terms in the Stock Purchase Agreement (as defined
below).
WITNESSETH:
WHEREAS, Buyer, the Company and the holders of all outstanding shares of stock of the Company
listed on Schedule 1 thereto (each a “Shareholder” and, collectively, the
“Shareholders”), McJ Holding LLC, a Delaware limited liability company (for purposes of
Sections 2.3(c) and 10.4 only) and the Representative are parties to that certain Stock Purchase
Agreement dated July 6, 2007 (the “Stock Purchase Agreement”);
WHEREAS, pursuant to the letter attached hereto as Annex 1, the Company is giving
certain participants in the Company Retirement Plan the ability to elect to receive, prior to
Closing, a distribution (the “Distribution”) of shares of Company Stock from the Company
Retirement Plan (the participants who elect to receive a Distribution, the “Electing
Participants”);
WHEREAS, as a condition precedent to receiving the Distribution, each Electing Participant
will be required to sign a joinder agreement (a “Joinder Agreement”), in the form attached
hereto as Annex 2, whereby each Electing Participant will agree to become a party to the
Stock Purchase Agreement as a “Shareholder” and a “Plan Shareholder”; and
WHEREAS, Buyer and the Representative desire to amend and waive certain provisions of the
Stock Purchase Agreement, solely to the extent necessary to permit the Distribution and the
execution of the Joinder Agreement in connection therewith, as hereinafter more particularly set
forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual covenants contained
herein and other good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged, the parties hereby covenant and agree as follows:
1. Amendments to Stock Purchase Agreement.
1.1. Article I of the Stock Purchase Agreement is hereby amended as follows:
(a) The definition of “Ancillary Documents” is hereby amended and restated in its
entirety as follows:
“Ancillary Documents” means each agreement, certificate or
other instrument executed or to be executed by Buyer, the Company
and/or any Shareholder in connection with this Agreement, including
the Escrow Agreement, the Holdback Escrow Agreement, the Employment
Agreements, the Contribution Agreement, the Non-Compete Agreement
and the letter agreement dated on or about the date hereof between
the Ketchum Entities and GS Capital Partners V Fund, L.P. and
affiliated funds.
(b) The following definition is hereby added immediately after the definition of “Debt
Financing Commitment”:
“Distribution” means the distribution of shares of Company
Stock to the Plan Shareholders from the Company Retirement Plan
pursuant to the election made by the Plan Shareholders in accordance
with the letter attached hereto as Annex 1.
(c) The following definitions are hereby added immediately after the definition of
“Hazardous Substances”:
“Holdback Escrow Account” means the escrow account
established pursuant to the Holdback Escrow Agreement.
“Holdback Escrow Agreement” means the escrow agreement to be
entered into on the Closing Date among the Representative, Buyer and
the Escrow Agent, to be mutually agreed upon between the
Representative and Buyer and which shall be substantially similar to
Escrow Agreement.
“Holdback Percentage” means, with respect to each Plan
Shareholder, 20%, plus the applicable state withholding tax rate.
(d) The definition of “Non-Plan Shareholders” is amended and restated in its entirety
as follows:
“Non-Plan Shareholders” means each of the Shareholders other
than the Company Retirement Plan, the Plan Shareholders and T. Wayne
Windham.
(e) The following definitions are hereby added immediately after the definition of
“Person”:
“Plan Shareholder Holdback Release Date” means, with respect
to each Plan Shareholder, the later of (i) the expiration of all
applicable statutes of limitations for the Company Retirement Plan’s
taxable year ending December 31, 2007 and (ii) the expiration of all
applicable statutes of limitations for such Plan Shareholder’s 2007
taxable year; provided, however, that, if the
2
Company agrees to extend the statute of limitations with respect to
the Company Retirement Plan’s taxable year ending December 31, 2007
without the consent of the Representative, such consent not to be
unreasonably withheld, or if the Company fails to timely file IRS
Form 945 (or other applicable form, if any such form is required to
be filed) for the 2007 taxable year, then the Plan Shareholder
Holdback Release Date with respect to each Plan Shareholder shall be
the later of (x) the expiration of all applicable statutes of
limitations for such Plan Shareholder’s 2007 taxable year and (y)
April 15, 2011. Notwithstanding the foregoing, if a Plan
Shareholder, the Company Retirement Plan, the Company, or McJ
Holding or any of its Subsidiaries has been notified by the IRS or
any other Governmental Entity that the tax treatment of the
Distribution to such Plan Shareholder may be subject to challenge by
the IRS or any other Governmental Entity, then the Plan Shareholder
Holdback Release Date shall not be prior to the date on which such
challenge has been finally resolved and any tax, interest or
penalties due and owing as a result of such challenge have been
fully paid to the appropriate Governmental Entity.
“Plan Shareholders” means each person who signs a Joinder
Agreement substantially in the form attached hereto as Annex
2. (For avoidance of doubt, T. Wayne Windham is not a “Plan
Shareholder” as so defined.)
1.2. Section 6.12 of the Stock Purchase Agreement is hereby amended to add the following at
the end thereof:
On or prior to the Closing, the Plan Shareholders shall cause the
Representative to execute and deliver, and Buyer shall execute and deliver,
the Holdback Escrow Agreement.
1.3. The last sentence of Section 6.17 of the Stock Purchase Agreement is hereby amended and
restated in its entirety as follows:
“The Parties acknowledge and agree that Consolidated Investment Services,
Inc., the Company Retirement Plan, Louie Leflore, T. Wayne Windham and the
Plan Shareholders shall not be entitled to become Continuing Shareholders
and shall not be entitled to contribute any shares of Company Stock to McJ
Holding pursuant to the Contribution Agreement.”
1.4. The following is hereby added immediately after Section 6.18 of the Stock Purchase
Agreement:
“6.19. Plan Shareholder Holdback. Notwithstanding anything in this
Agreement to the contrary, including, without limitation, Article II and
3
Section 6.17 for each Plan Shareholder: (a) at the Closing, an amount equal
to such Plan Shareholder’s respective Holdback Percentage multiplied by all
amounts to be paid to the Representative on behalf of such Plan Shareholder
pursuant to Section 2.3(a)(ii) and Section 2.3(c)(i)(A) shall instead be
deposited into the Holdback Escrow Account and not distributed to the Plan
Shareholders, (b) an amount equal to such Plan Shareholder’s respective
Holdback Percentage multiplied by all amounts to be paid to the
Representative on behalf of such Plan Shareholder out of the Escrow Account
pursuant to Section 2.3(c)(i)(B) or Section 2.3(c)(ii)(A) shall instead be
deposited into the Holdback Escrow Account and not distributed to the Plan
Shareholders and (c) an amount equal to such Plan Shareholder’s respective
Holdback Percentage multiplied by all amounts to be paid to the
Representative on behalf of such Plan Shareholder pursuant to Section 6.14
shall instead be deposited into the Holdback Escrow Account and not
distributed to the Plan Shareholders. Buyer and the Representative will
instruct the Escrow Agent to pay to Buyer or the Company (or any of their
Affiliates) the amounts held in the Holdback Escrow Account pursuant to this
Section 6.19 to the extent that Buyer or the Company (or any of their
Affiliates) becomes obligated to pay any applicable tax, interest and/or
penalties to the IRS or any other Governmental Entity in respect of the
distribution of shares of Common Stock to any Plan Shareholder in the
Distribution. On the applicable Plan Shareholder Holdback Release Date for
a Plan Shareholder, Buyer and the Representative shall instruct the Escrow
Agent to distribute to the Representative, on behalf of such Plan
Shareholder, an amount (if any) equal to the amount held in the Holdback
Escrow Account pursuant to this Section 6.19 with respect to such Plan
Shareholder, less any amounts distributed or required to be distributed from
the Holdback Escrow Account to Buyer, the Company (or any of their
Affiliates) pursuant to the immediately preceding sentence with respect to
the distribution of shares of Common Stock to such Plan Shareholder in the
Distribution.
1.5. Section 7.3 of the Stock Purchase Agreement is hereby amended by adding the following
immediately after clause (m) thereof:
(n) Holdback Escrow Agreement. The Holdback Escrow Agreement shall
have been executed and delivered by the Representative (on behalf of the
Shareholders) and the Escrow Agent.
1.6. Section 10.14(b) of the Stock Purchase Agreement is hereby amended by adding the
following at the end thereof:
Without limiting the generality of the foregoing, the Representative is
hereby authorized (i) to receive any payment owing to the Plan Shareholders
pursuant to Section 6.19, (ii) to execute the Holdback Escrow Agreement on
behalf of the Plan Shareholders, and (iii) to take all
4
actions on behalf of the Plan Shareholders in connection with any actions
taken or to be taken under Section 6.19. The Representative and the Plan
Shareholders hereby agree that any amounts disbursed out of the Holdback
Escrow Account to the Representative pursuant to the terms of Section 6.19
and/or the Holdback Escrow Agreement shall be distributed by the
Representative to the Plan Shareholders in accordance with Schedule
1 and Exhibit B, as applicable.
1.7. Annex 1 and Annex 2 to this Amendment are hereby added as Annex 1 and Annex
2 to the Stock Purchase Agreement, respectively.
2. Schedule 1 and Exhibit B. Schedule 1 and Exhibit B to the Stock Purchase Agreement will
be amended to add, as Shareholders and Plan Shareholders, those persons who become Electing
Participants.
3. Acceptance of Joinder. Buyer, the Company and the Representative (on behalf of the
Shareholders) accept the Joinder Agreements to be entered into by each Electing Participant, and
agree that upon execution of a Joinder Agreement each Electing Participant shall become a
“Shareholder” and a “Plan Shareholder” under the Stock Purchase Agreement, in each case entitled to
all the rights and benefits of such a party under the Stock Purchase Agreement (and bound by and
subject to the terms and conditions thereof), as if a signatory directly thereto.
4. Limited Waiver; Full Force and Effect of the Stock Purchase Agreement. Buyer, the
Company and the Representative (on behalf of the Shareholders) hereby waive any and all breaches of
representation, warranty and covenant of the Shareholders or the Company set forth in the Stock
Purchase Agreement, in each case solely to the extent necessary to permit without breach the
Distribution and the execution and delivery of the Joinder Agreement and the Holdback Escrow
Agreement. The waiver set forth in the immediately preceding sentence shall not be deemed to
extend to any prior or subsequent default or breach or affect in any way any rights arising by
virtue of any such prior or subsequent occurrence and the parties hereto do not waive any right
that they may have under the Stock Purchase Agreement. Except as expressly set forth herein, the
parties make no amendment, alteration or modification of the Stock Purchase Agreement. Except as
expressly set forth herein, the Stock Purchase Agreement shall remain in full force and effect.
5. Applicability of Article X of the Stock Purchase Agreement. The provisions of Article X
of the Stock Purchase Agreement shall apply to this Amendment as if such provisions were part of
this Amendment.
[The next page is the signature page]
5
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above
written.
| RED MAN PIPE & SUPPLY CO. |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | President and CEO | |||
| WEST OKLAHOMA PVF COMPANY |
||||
| By: | /s/ F.T. GRAFF JR. | |||
| Name: | F.T. Graff Jr. | |||
| Title: | Secretary | |||
CRAIG KETCHUM, as Representative |
||||
| /s/ CRAIG KETCHUM | ||||
Exhibit 2.3.3
Execution Copy
JOINDER AGREEMENT AND
AMENDMENT NO. 2 TO THE STOCK PURCHASE AGREEMENT
AMENDMENT NO. 2 TO THE STOCK PURCHASE AGREEMENT
This JOINDER AGREEMENT AND AMENDMENT NO. 2 TO THE STOCK PURCHASE AGREEMENT (this “Joinder
Agreement”), is made and entered into as of October 31, 2007, by and among Betts, LLC, an
Oklahoma limited liability company (“Betts”), BGJC, LLC, an Oklahoma limited liability
company (“BGJC”), CSK, LLC, an Oklahoma limited liability company (“CSK”), KBK,
LLC, an Oklahoma limited liability company (“KBK”), KSKN, LLC, an Oklahoma limited
liability company (“KSKN”, and, together with Betts, BGJC, CSK and KBK, the
“LLCs”), West Oklahoma PVF Company, a Delaware corporation (“Buyer”), Red Man Pipe
& Supply Co., an Oklahoma corporation (the “Company), McJ Holding LLC, a Delaware limited
liability company (“McJ Holding”) and Craig Ketchum (the “Representative”), as
Representative of the Shareholders. All capitalized terms used in this Joinder Agreement which are
not otherwise defined herein are used with the same meaning attributed to such capitalized terms in
the Stock Purchase Agreement (as defined below).
WITNESSETH:
WHEREAS Buyer, the Company and the holders of all outstanding shares of stock of the Company
listed on Schedule 1 thereto (each a “Shareholder” and, collectively, the
“Shareholders”), McJ Holding (for purposes of Sections 2.3(c) and 10.4 only) and the
Representative are parties to that certain Stock Purchase Agreement dated, July 6, 2007, as amended
by Amendment No. 1 thereto, dated October 24, 2007 (the “Stock Purchase Agreement”);
WHEREAS BJHK Limited Partnership, an Oklahoma limited partnership (“BJHK LP”), K.F.
Enterprises, L.L.C., an Oklahoma limited liability company (“KFE”), and BJHK Living Trust,
an Oklahoma trust (“BJHK LT” and, together with BJHK LP and KFE, the “Former
Shareholders”), are parties to the Stock Purchase Agreement named as Shareholders therein;
WHEREAS, pursuant to certain restructurings and business combinations consummated prior to the
Closing (collectively, the “Restructurings”), among other things: (i) BJHK LP has merged
with and into KFE, and (ii) effective on the Closing Date, as of immediately prior to the Closing,
KFE is transferring all its shares of Company Stock in equal proportions to BGJC, CSK, KBK, and
KSKN, and BJHK LT is transferring all its shares of Company Stock to Betts;
WHEREAS, as a result of the Restructurings, at the Closing, the Former Shareholders will not
own any shares of Company Stock and each of the LLCs will own the number of shares of Company Stock
set forth opposite the name of such LLC on Schedule 1 hereto (representing, in the aggregate,
96,549 shares of Company Stock); and
WHEREAS (i) this Joinder Agreement is intended to constitute the Contribution Percentage
Notice pursuant to Section 6.17 of the Stock Purchase Agreement, (ii) Section 6.17
contemplates that, prior to the Closing, each of CK and each Other Ketchum Entity named in the
Contribution Percentage Notice shall become a party to the Stock Purchase Agreement as a
Shareholder, and (iii) each of the undersigned desires and intends that, by executing and
delivering this Joinder Agreement, each of the LLCs shall become a party to the Stock Purchase
Agreement as a Shareholder thereunder.
NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound hereby, the parties
hereby covenant and agree as follows:
Section 1. Party to the Agreement. Each of the LLCs hereby agrees to become a party to
the Stock Purchase Agreement as a “Shareholder” thereunder, effective as of the date hereof, and to
be bound by, and subject to, all of the representations, covenants, agreements, terms and
conditions of the Stock Purchase Agreement that are applicable to a Shareholder, and to be entitled
to all the rights and benefits of such a party under the Stock Purchase Agreement, in each case as
if a signatory directly thereto. Without limiting the generality of the foregoing, each of the
LLCs, by executing this Joinder Agreement, is (a) making the representations and warranties set
forth in Article III of the Stock Purchase Agreement as a Shareholder (provided that such
representations and warranties are being made by each such LLC as of the date hereof, and provided
further that in the case of the representation and warranty of each LLC pursuant to Section 3.1(a)
of the Stock Purchase Agreement, such representation and warranty is being made by such LLC as of
immediately prior to the Closing) and (b) agreeing to be bound by, and subject to, all of the
covenants and agreements set forth in the Stock Purchase Agreement applicable to a Shareholder.
Execution and delivery of this Joinder Agreement by each of the LLCs shall constitute execution and
delivery by it of the Stock Purchase Agreement, without further action of any party. Each of the
LLCs hereby acknowledges that the Stock Purchase Agreement provides for the escrow, in accordance
with an escrow agreement as set forth in the Stock Purchase Agreement, of a portion of the proceeds
otherwise payable by Buyer to each Shareholder in exchange for such Shareholder’s shares of Company
Stock. Each of the LLCs hereby (i) appoints Craig Ketchum to serve as each such LLC’s agent in
selling such LLC’s Company Stock to Buyer and (ii) grants Craig Ketchum an irrevocable power of
attorney to sell such LLC’s Company Stock to Buyer pursuant to the terms of the Stock Purchase
Agreement. Pursuant to Section 10.4 of the Stock Purchase Agreement, each of the LLCs further
agrees that by becoming a Shareholder it will be deemed to irrevocably constitute and appoint Craig
Ketchum as its true and lawful agent and attorney-in-fact with full powers of substitution, to act
in the name, place and stead of such LLC with respect to the Stock Purchase Agreement and with
respect to the transfer of such LLC’s Company Stock to Buyer pursuant to the Stock Purchase
Agreement and the transactions contemplated thereby, and to do or refrain from doing all such acts
and things, and to execute all such documents, as the Representative shall deem necessary or
appropriate in connection with the Stock Purchase Agreement, the Ancillary Documents or any of the
transactions contemplated thereby.
Section 2. Schedule 1 and Exhibit B. Schedule 1 and Exhibit B to the Stock Purchase
Agreement are hereby amended and restated in the forms attached as Schedule 1 and
Exhibit B hereto, respectively. Schedule 1 and Exhibit B
to the Stock Purchase Agreement will be further amended to add, as Shareholders and Plan
Shareholders, those persons who become Electing Participants (as defined in Amendment No. 1 to the
Stock Purchase Agreement).
2
Section 3. Sale of Securities. Each of the LLCs hereby directs the Representative to sell
the shares of Company Stock set forth opposite its name under the column “Number of Shares Sold for
Cash (“Transferred Shares”)” on Exhibit B, as hereby amended, to the Stock Purchase
Agreement, at the Closing, in accordance with the terms and conditions of the Stock Purchase
Agreement.
Section 4. Representations and Warranties. In addition to the representations and
warranties in Article III of the Stock Purchase Agreement that each of the LLCs makes to Buyer as a
Shareholder, each such LLC represents and warrants to Buyer and the Company that (a) such LLC has
carefully reviewed copies of the Stock Purchase Agreement and all other documents such LLC deems
necessary or desirable in order for it to execute this Joinder Agreement, (b) such LLC has been
granted the opportunity to ask questions of, and receive answers from, representatives of the
Company concerning the Stock Purchase Agreement and the terms and conditions thereof that such LLC
deems necessary and (c) this Joinder Agreement has been duly executed and delivered by such LLC and
constitutes a valid and binding agreement of such LLC enforceable against it in accordance with its
terms. CSK represents and warrants to Buyer that it is a Person controlled by Craig Ketchum in
which Craig Ketchum and his [wife and] children have at least a 90% economic beneficial interest.
Each LLC other than CSK represents and warrants to Buyer that it is an “Other Ketchum Entity” as
defined in the Stock Purchase Agreement.
Section 5. Contribution Percentage Notice; Limited Waivers. This Joinder Agreement
constitutes a Contribution Percentage Notice pursuant to Section 6.17 of the Stock Purchase
Agreement. Buyer hereby waives any requirement that the Contribution Percentage Notice be
delivered to Buyer a specified number of days prior to closing and any right to object to the
Contribution Percentage Notice on the ground that it was not timely delivered. Buyer hereby waives
any closing condition under the Stock Purchase Agreement to the effect or other requirement that
the representations and warranties of the Former Shareholders under Section 3.1(a) be true or
correct at the Closing. Buyer hereby waives any closing condition under the Stock Purchase
Agreement to the effect or other requirement that the representations and warranties of the LLCs
under Section 3.1(a) be true or correct as of the date of the Stock Purchase Agreement, provided
that such representations and warranties of the LLCs are true and correct as of the Closing after
giving effect to the amendment and restatement of Schedule 1 to the Stock Purchase Agreement as
provided herein.
Section 6. No Required Consents. Each of the Former Shareholders hereby represents and
warrants that the Restructurings, including without limitation the direct and indirect transfers of
Company Stock from the Former Shareholders to the LLCs acquiring such Company Stock, as described
in third “Whereas” clause
above, do not (a) violate any Law or Order to which such Former Shareholder is subject, result in
the creation or imposition of any Encumbrance upon the Company Stock formerly held of record or
beneficially owned by such Former Shareholder, or require such Former Shareholder to give any
notice to, make any filing with, or obtain any authorization, consent or approval of, any Person.
Section 7. Further Assurances. At any time or from time to time after the date hereof,
each LLC agrees to execute and deliver any further instruments or documents and take
3
such
additional actions as the Company, the Representative or Buyer may reasonably request in order to
evidence or effectuate its sale of Company Stock pursuant to the Stock Purchase Agreement and to
otherwise carry out the intent of the parties under this Joinder Agreement.
Section 8. Governing Law. This Joinder Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without effect to the principles of conflicts of
law.
Section 9. Acceptance of Joinder. The Company, Buyer, McJ Holding and the Representative
(on behalf of the Shareholders) hereby accept this Joinder Agreement, and agree that upon execution
hereof, each LLC shall become a party to the Stock Purchase Agreement as a “Shareholder,” entitled
to all the rights and benefits of such a party thereunder (and bound by and subject to the terms
and conditions thereof), as if a signatory directly thereto.
Section 10. Effect of the Stock Purchase Agreement. Except as expressly set forth herein,
the parties make no amendment, alteration or modification of the Stock Purchase Agreement. Except
as expressly set forth herein, the Stock Purchase Agreement shall remain in full force and effect.
Section 11. Applicability of Article X of the Stock Purchase Agreement. The provisions of
Article X of the Stock Purchase Agreement shall apply to this Joinder Agreement as if such
provisions were part of this Joinder Agreement.
[The next page is the signature page]
4
Execution Copy
IN WITNESS WHEREOF, the undersigned have executed this Joinder Agreement as of the date first
above written.
| Betts, LLC |
||||
| By: | /s/ BETTY KETCHUM | |||
| Name: | Betty Ketchum | |||
| Title: | Member | |||
| BGJC, LLC |
||||
| By: | /s/ BRIAN KETCHUM | |||
| Name: | Brian Ketchum | |||
| Title: | Member | |||
| CSK, LLC |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Member | |||
| KBK, LLC |
||||
| By: | /s/ KEVIN KETCHUM | |||
| Name: | Kevin Ketchum | |||
| Title: | Member | |||
| KSKN, LLC |
||||
| By: | /s/ KENT KETCHUM | |||
| Name: | Kent Ketchum | |||
| Title: | Member | |||
[Signature Page to Joinder Agreement and Amendment No. 2 to Stock Purchase Agreement]
| RED MAN PIPE & SUPPLY CO. |
||||
| By: | /s/ DEE PAIGE | |||
| Name: | Dee Paige | |||
| Title: | CFO | |||
| WEST OKLAHOMA PVF COMPANY |
||||
| By: | /s/ F.T. GRAFF JR. | |||
| Name: | ||||
| Title: | ||||
| MCJ HOLDING LLC |
||||
| By: | /s/ F.T. GRAFF JR. | |||
| Name: | ||||
| Title: | ||||
| CRAIG KETCHUM, as Representative |
||||
| /s/ CRAIG KETCHUM | ||||
[Signature Page to Joinder Agreement and Amendment No. 2 to Stock Purchase Agreement]
Exhibit 5.1
September 26, 2008
McJunkin Red Man Holding Corporation
8023 East 63rd Place
Tulsa, Oklahoma 74133
8023 East 63rd Place
Tulsa, Oklahoma 74133
RE:
|
Registration Statement on Form S-1, File No. 333-153091 (the “Registration Statement”) |
Ladies and Gentlemen:
We have acted as counsel for McJunkin Red Man Holding Corporation, a Delaware corporation
(the “Company”), in connection with the underwritten initial public offering (the
“Offering”) of shares of common stock, par value $0.01 per share, of the Company (the
“Shares”) by PVF Holdings LLC, a Delaware limited liability company and stockholder of
the Company (the “Selling Stockholder”), including Shares which may be offered and
sold upon the exercise of the option granted to the underwriters by the Selling Stockholder
(the “Optional Shares” and, together with the Shares, the “Offered Shares”).
The Offered Shares are to be offered to the public pursuant to an underwriting agreement to be
entered into among the Company, the Selling Stockholder and Goldman, Sachs & Co. and Lehman
Brothers Inc., as representatives of the underwriters (the “Underwriting Agreement”).
With your permission, all assumptions and statements of reliance set forth herein have been
made without any independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the subject matter or
accuracy of such assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such questions of law, (ii)
examined the originals or certified, conformed or reproduction copies of such agreements,
instruments, documents and records of the Company, such certificates of public officials and
such other documents and (iii) received such information from officers and representatives of
the Company and others, in each case, as we have deemed necessary or appropriate for the
purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of original and certified documents and the
conformity to original or certified documents of all copies submitted to us as conformed or
reproduction copies. As to various questions of fact
Letter to McJunkin Red Man Holding Corporation
September 26, 2008
Page 2
September 26, 2008
Page 2
relevant to the opinions expressed herein, we have relied upon, and assume the accuracy
of, representations and warranties contained in the documents and certificates and oral or
written statements and other information of or from representatives of the Company and others
and assume compliance on the part of all parties to the documents with their covenants and
agreements contained therein.
Based upon the foregoing and subject to the limitations, qualifications and assumptions
set forth herein, we are of the opinion that the Shares and the Optional Shares registered
pursuant to the Registration Statement to be sold by the Selling Stockholder (when issued,
delivered and paid for in accordance with the Underwriting Agreement and Registration
Statement) will be duly authorized, validly issued, fully paid and nonassessable.
The opinions expressed herein are limited to the laws of the General Corporation Law of
the State of Delaware, as currently in effect, together with applicable provisions of the
Constitution of Delaware and relevant decisional law, and no opinion is expressed with respect
to any other laws or any effect that such other laws may have on the opinions expressed
herein. The opinions expressed herein are limited to the matters stated herein, and no
opinion is implied or may be inferred beyond the matters expressly stated herein. The
opinions expressed herein are given as of the date of effectiveness of the Registration
Statement, and we undertake no obligation to supplement this letter if any applicable laws
change after that date or if we become aware of any facts that might change the opinions
expressed herein or for any other reason.
We hereby consent to the filing of this letter as an exhibit to the Registration
Statement and to the reference to this firm under the caption “Legal Matters” in the
prospectus that is included in the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Fried,
Frank, Harris, Shriver & Jacobson LLP
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
Exhibit 10.1
EXECUTION VERSION
$650,000,000
REVOLVING LOAN CREDIT AGREEMENT
Dated as of October 31, 2007
among
Dated as of October 31, 2007
among
MCJUNKIN CORPORATION,
as the Borrower
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Administrative Agent and Co-Collateral Agent
as Administrative Agent and Co-Collateral Agent
BANK OF AMERICA, N.A.,
as Co-Collateral Agent and Syndication Agent,
as Co-Collateral Agent and Syndication Agent,
and
JPMORGAN CHASE BANK, N.A., WACHOVIA BANK, N. A. and PNC BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents
as Co-Documentation Agents
TABLE OF CONTENTS
| Page | ||||
SECTION 1. DEFINITIONS |
2 | |||
1.1 Defined Terms |
2 | |||
1.2 Other Interpretive Provisions |
48 | |||
1.3 Accounting Terms; Exchange Rates |
48 | |||
1.4 Rounding |
49 | |||
1.5 References to Agreements, Laws, Etc |
49 | |||
SECTION 2. AMOUNT AND TERMS OF CREDIT |
49 | |||
2.1 Commitments |
49 | |||
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings |
51 | |||
2.3 Notice of Borrowing |
51 | |||
2.4 Disbursement of Funds |
52 | |||
2.5 Repayment of Loans; Evidence of Debt |
53 | |||
2.6 Conversions and Continuations |
53 | |||
2.7 Pro Rata Borrowings |
54 | |||
2.8 Interest |
54 | |||
2.9 Interest Periods |
55 | |||
2.10 Increased Costs, Illegality, etc |
56 | |||
2.11 Compensation |
58 | |||
2.12 Change of Lending Office |
58 | |||
2.13 Notice of Certain Costs |
58 | |||
2.14 Incremental Facilities |
59 | |||
2.15 Protective Advances |
60 | |||
SECTION 3. LETTERS OF CREDIT |
61 | |||
3.1 Letters of Credit |
61 | |||
3.2 Letter of Credit Requests |
62 | |||
3.3 Letter of Credit Participations |
62 | |||
3.4 Agreement to Repay Letter of Credit Drawings |
65 | |||
3.5 Increased Costs |
66 | |||
3.6 New or Successor Letter of Credit Issuer |
66 | |||
3.7 Role of the Letter of Credit Issuer |
67 | |||
SECTION 4. FEES; COMMITMENTS |
68 | |||
4.1 Fees |
68 | |||
4.2 Voluntary Reduction of Revolving Credit Commitments |
69 | |||
4.3 Mandatory Termination of Commitments |
69 | |||
-i-
TABLE OF CONTENTS
| Page | ||||
SECTION 5. PAYMENTS |
69 | |||
5.1 Voluntary Prepayments |
69 | |||
5.2 Mandatory Prepayments |
70 | |||
5.3 Method and Place of Payment |
71 | |||
5.4 Net Payments |
71 | |||
5.5 Computations of Interest and Fees |
74 | |||
5.6 Limit on Rate of Interest |
74 | |||
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING |
75 | |||
6.1 Credit Documents |
75 | |||
6.2 [Reserved] |
75 | |||
6.3 Legal Opinions |
75 | |||
6.4 First Amendment to Term Loan Credit Agreement and Intercreditor Agreement |
75 | |||
6.5 Equity Investments; Existing Indebtedness |
76 | |||
6.6 Closing Certificates |
76 | |||
6.7 Organizational Documents; Incumbency |
76 | |||
6.8 Fees |
76 | |||
6.9 Representations and Warranties |
76 | |||
6.10 Related Agreements |
76 | |||
6.11 Solvency Certificate |
76 | |||
6.12 Historical Financial Statements |
76 | |||
6.13 Red Man Transaction |
76 | |||
6.14 Insurance |
77 | |||
6.15 Pro Forma Financial Statements |
77 | |||
6.16 Borrowing Base Certificate |
77 | |||
6.17 Initial Borrowings |
77 | |||
SECTION 7. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS |
77 | |||
7.1 No Default; Representations and Warranties; Excess Availability |
77 | |||
7.2 Notice of Borrowing; Letter of Credit Request |
78 | |||
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS |
78 | |||
8.1 Corporate Status |
78 | |||
8.2 Corporate Power and Authority |
78 | |||
8.3 No Violation |
78 | |||
8.4 Litigation |
79 | |||
8.5 Margin Regulations |
79 | |||
8.6 Governmental Approvals |
79 | |||
8.7 Investment Company Act |
79 | |||
-ii-
TABLE OF CONTENTS
| Page | ||||
8.8 True and Complete Disclosure |
79 | |||
8.9 Financial Condition; Financial Statements |
80 | |||
8.10 Tax Returns and Payments |
80 | |||
8.11 Compliance with ERISA |
80 | |||
8.12 Subsidiaries |
81 | |||
8.13 Intellectual Property |
81 | |||
8.14 Environmental Laws |
81 | |||
8.15 Properties |
82 | |||
8.16 Solvency |
82 | |||
SECTION 9. AFFIRMATIVE COVENANTS |
82 | |||
9.1 Information Covenants |
82 | |||
9.2 Books, Records and Inspections |
86 | |||
9.3 Maintenance of Insurance |
87 | |||
9.4 Payment of Taxes |
87 | |||
9.5 Consolidated Corporate Franchises |
87 | |||
9.6 Compliance with Statutes, Regulations, etc |
88 | |||
9.7 ERISA |
88 | |||
9.8 Maintenance of Properties |
88 | |||
9.9 Transactions with Affiliates |
88 | |||
9.10 End of Fiscal Years; Fiscal Quarters |
89 | |||
9.11 Additional Guarantors and Grantors |
89 | |||
9.12 [Intentionally Omitted.] |
90 | |||
9.13 Use of Proceeds |
90 | |||
9.14 Appraisals; Field Examinations |
90 | |||
9.15 Interest Rate Protection |
90 | |||
9.16 Collateral Access Agreements |
90 | |||
9.17 Further Assurances |
90 | |||
SECTION 10. NEGATIVE COVENANTS |
91 | |||
10.1 Limitation on Indebtedness |
91 | |||
10.2 Limitation on Liens |
96 | |||
10.3 Limitation on Fundamental Changes |
98 | |||
10.4 Limitation on Sale of Assets |
99 | |||
10.5 Limitation on Investments |
102 | |||
10.6 Limitation on Dividends |
104 | |||
10.7 Limitations on Debt Payments and Amendments |
106 | |||
10.8 Limitations on Sale Leasebacks |
107 | |||
10.9 [Reserved] |
107 | |||
10.10 Changes in Business |
107 | |||
10.11 Burdensome Agreements |
107 | |||
-iii-
TABLE OF CONTENTS
| Page | ||||
SECTION 11. EVENTS OF DEFAULT |
108 | |||
11.1 Payments |
108 | |||
11.2 Representations, etc |
108 | |||
11.3 Covenants |
108 | |||
11.4 Default Under Other Agreements |
109 | |||
11.5 Bankruptcy, etc |
109 | |||
11.6 ERISA |
109 | |||
11.7 Guarantee |
110 | |||
11.8 [Reserved] |
110 | |||
11.9 Security Agreement |
110 | |||
11.10 [Intentionally Omitted] |
110 | |||
11.11 Judgments |
110 | |||
11.12 Change of Control |
110 | |||
11.13 Subordination |
110 | |||
SECTION 12. [RESERVED] |
111 | |||
SECTION 13. THE ADMINISTRATIVE AGENT |
111 | |||
13.1 Appointment |
111 | |||
13.2 Delegation of Duties |
112 | |||
13.3 General Immunity |
113 | |||
13.4 Reliance by Agents |
114 | |||
13.5 Notice of Default |
114 | |||
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders |
114 | |||
13.7 Indemnification |
115 | |||
13.8 Agents in their Individual Capacity |
115 | |||
13.9 Successor Agents |
116 | |||
13.10 Withholding Tax |
116 | |||
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS |
116 | |||
SECTION 14. MISCELLANEOUS |
117 | |||
14.1 Amendments and Waivers |
117 | |||
14.2 Notices |
119 | |||
14.3 No Waiver; Cumulative Remedies |
119 | |||
14.4 Survival of Representations and Warranties |
120 | |||
14.5 Payment of Expenses and Taxes |
120 | |||
14.6 Successors and Assigns; Participations and Assignments |
121 | |||
14.7 Replacements of Lenders under Certain Circumstances |
124 | |||
-iv-
TABLE OF CONTENTS
| Page | ||||
14.8 Adjustments; Set-off |
125 | |||
14.9 Counterparts |
126 | |||
14.10 Severability |
126 | |||
14.11 Integration |
126 | |||
14.12 GOVERNING LAW |
126 | |||
14.13 Submission to Jurisdiction; Waivers |
126 | |||
14.14 Acknowledgments |
127 | |||
14.15 WAIVERS OF JURY TRIAL |
127 | |||
14.16 Confidentiality |
127 | |||
14.17 Direct Website Communications |
128 | |||
14.18 USA PATRIOT Act |
130 | |||
SECTION 15. LIMITATION ON PERMITTED DISCRETION; SPECIAL
PROVISIONS REGARDING ACCOUNTS, INVENTORY, AND APPLICATION OF COLLATERAL PROCEEDS |
130 | |||
15.1 Accounts and Account Collections |
130 | |||
15.2 Limitation on Permitted Discretion |
132 | |||
-v-
SCHEDULES |
||
Schedule 1.1(A)
|
Existing Letters of Credit | |
Schedule 1.1 (B)
|
Initial Borrowing Base Guarantors | |
Schedule 1.1 (C)
|
Commitments and Addresses of Lenders | |
Schedule 1.1 (D)
|
Excluded Subsidiaries | |
Schedule 1.1(E)
|
Initial Cost Savings | |
Schedule 1.1(F)
|
Non-Core Assets | |
Schedule 8.12
|
Subsidiaries | |
Schedule 9.9
|
Closing Date Affiliate Transactions | |
Schedule 9.17(C)
|
Post-Closing Actions | |
Schedule 10.1
|
Closing Date Indebtedness | |
Schedule 10.2
|
Closing Date Liens | |
Schedule 10.5
|
Closing Date Investments | |
Schedule 10.11
|
Closing Date Restrictions | |
Schedule 14.2
|
Notice Addresses | |
EXHIBITS |
||
Exhibit C
|
Form of Guarantee | |
Exhibit D
|
[Intentionally Omitted] | |
Exhibit E
|
Form of Perfection Certificate | |
Exhibit F
|
[Intentionally Omitted] | |
Exhibit G
|
Form of Security Agreement | |
Exhibit H
|
Form of Letter of Credit Request | |
Exhibit I-1
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP | |
Exhibit I-2
|
Form of Legal Opinions of Local Counsel | |
Exhibit J
|
Form of Closing Certificate | |
Exhibit K
|
Form of Assignment and Acceptance | |
Exhibit L
|
Form of Promissory Note (Revolving Credit Loans and Swingline Loans) | |
Exhibit M
|
Form of Joinder Agreement | |
Exhibit N
|
Form of Borrowing Base Certificate | |
Exhibit O
|
Form of Intercreditor Agreement |
-vi-
REVOLVING LOAN CREDIT AGREEMENT dated as of October 31, 2007, among MCJUNKIN CORPORATION, a
West Virginia corporation (the “Borrower”), the lending institutions from time to time
parties hereto (each a “Lender” and, collectively, the “Lenders”), Goldman Sachs
Credit Partners L.P. (“GSCP”) and Lehman Brothers Inc., as Co-Lead Arrangers and Joint
Bookrunners, The CIT Group/Business Credit, Inc. (“CIT”), as Administrative Agent and
Co-Collateral Agent, Bank of America, N.A (“Bank of America”), as Co-Collateral Agent, Bank
of America, as Syndication Agent and JPMorgan Chase Bank, N.A., Wachovia Bank, N.A. and PNC Bank,
National Association, as Co-Documentation Agents (such term and each other capitalized term used
but not defined in this introductory statement having the meaning provided in Section 1).
WHEREAS, pursuant to the Stock Purchase Agreement (as amended from time to time in accordance
therewith, the “Red Man Transaction Agreement”), dated as of July 6, 2007, among McJ
Holding LLC, a Delaware limited liability company (“McJ Holding”) (for purposes of Sections
2.3(c) and 10.4 only), Red-Man Pipe and Supply Company, an Oklahoma corporation (“Red
Man”), West Oklahoma PVF Company, a Delaware corporation (“Buyer”) and the shareholders
of Red Man, Buyer will acquire all of the outstanding capital stock of Red Man (the “Red Man
Transaction”);
WHEREAS, to fund, in part, the Red Man Transaction, (a) the Sponsors and certain other
investors (including the Management Investors) will contribute an amount in cash to McJ Holding
(the “Equity Contribution”) in exchange for Stock and Stock Equivalents (which cash will be
contributed to McJ Holding Corporation and in turn to the Borrower in exchange for common and/or
preferred Stock), and (b) certain equity investments in Red Man held by existing shareholders of
Red Man will be rolled over as equity of McJ Holding (the “Rollover Equity” and together
with the Equity Contribution, the “Equity Investments”), which together with the amount of
the Equity Contribution, shall be no less than an amount (the “Minimum Equity Investment
Amount”) equal to 30% of the pro forma capitalization of the Borrower and McJ Holding on the
Closing Date (after giving effect to the Transactions);
WHEREAS, in connection herewith, the requisite lenders under the Term Loan Credit Agreement
(as defined below) will enter into an amendment to the Term Loan Credit Agreement and the
Intercreditor Agreement (as defined below) and the senior secured term loans (the “Term
Loans”) under the Term Loan Credit Agreement shall remain outstanding;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of Revolving Credit Loans made available to the Borrower at any time and from
time to time prior to the Revolving Credit Maturity Date, in an aggregate principal amount at any
time outstanding not in excess of the aggregate of $650,000,000 plus the amount of New Revolving
Credit Commitments (as defined below) less the sum of (i) the aggregate Letters of Credit
Outstanding at such time and (ii) the aggregate principal amount of all Swingline Loans outstanding
at such time. The Borrower has requested (a) the Letter of Credit Issuer to issue Letters of
Credit at any time and from time to time prior to the L/C Maturity Date, in an aggregate face
amount at any time outstanding not in excess of $60,000,000 and (b) to deem the letters of credit
identified on Schedule 1.1(a) hereto (the “Existing Letters of Credit”) to be
Letters of Credit for all purposes under this Agreement. The Borrower has requested the Swingline
Lender to extend credit in the form of Swingline Loans at any time and
from time to time prior to the Swingline Maturity Date, in an aggregate principal amount at
any time outstanding not in excess of $60,000,000;
WHEREAS, the repayment of the Revolving Credit Loans will be secured by perfected security
interests in and liens upon substantially all of the Accounts and Inventory and certain personal
property relating to such Accounts and Inventory of the Borrower and each Guarantor, and the
repayment of the Term Loans will be secured by perfected security interests in and liens upon
substantially all of the personal property and certain real property of the Borrower and each
Guarantor. The respective rights and priorities of the Lenders and the lenders under the Term Loan
Agreement to such collateral will be as set forth in the Intercreditor Agreement;
WHEREAS, the proceeds of up to $450,000,000 of Revolving Credit Loans will be used by the
Borrower, together with the net proceeds of the Equity Investments, on the Closing Date (x) to
finance the repayment of (i) substantially all of the existing indebtedness of Red Man and its
subsidiaries (the “Red Man Group”) (other than existing indebtedness of Midfield Supply
Co., a Nova Scotia unlimited liability company and its subsidiaries) and (ii) the Borrower under
its existing Revolving Loan Agreement dated as of January 31, 2007 (the “Existing Revolving
Credit Agreement”) (collectively, the “Debt Repayment”), (y) to effect the Red Man
Transaction and (z) to pay Transaction Expenses. Proceeds of Revolving Credit Loans and Swingline
Loans will be used by the Borrower on or after the Closing Date for working capital and other
general corporate purposes (including Permitted Acquisitions). Letters of Credit will be used by
the Borrower for general corporate purposes; and
WHEREAS, the Lenders and Letter of Credit Issuer are willing to make available to the Borrower
such revolving credit and letter of credit facilities upon the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1. Definitions
1.1 Defined Terms. (a) As used herein, the following terms shall have the meanings
specified in this Section 1.1 unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
“ABR” shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
“ABR Loan” shall mean each Loan bearing interest at the rate provided in Section
2.8(a) and, in any event, shall include all Swingline Loans.
“Account” has the meaning assigned to such term in the Security Agreement.
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“Account Debtor” means any Person obligated on an Account.
“Acquired EBITDA” shall mean, with respect to any Acquired Entity or Business, any
Converted Restricted Subsidiary (any of the foregoing, a “Pro Forma Entity”) for any
period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined
using such definitions as if references to the Borrower and its Subsidiaries therein were to such
Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro
Forma Entity in accordance with GAAP.
“Acquired Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Activation Notice” shall have the meaning provided in Section 15.1(d)(i).
“Adjusted Total Revolving Credit Commitment” shall mean at any time the Total
Revolving Credit Commitment less the aggregate Revolving Credit Commitments of all Defaulting
Lenders.
“Administrative Agent” shall mean CIT, as the administrative agent for the Lenders
under this Agreement and the other Credit Documents, or any successor administrative agent pursuant
to Section 13.
“Administrative Agent’s Office” shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 505 Fifth Avenue, New
York City, New York, or such other office as the Administrative Agent may hereafter designate in
writing as such to the other parties hereto.
“Administrative Questionnaire” shall have the meaning provided in Section
14.6(b).
“Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
“Agent Parties” shall have the meaning provided in Section 14.17(c).
“Agents” shall mean each Co-Lead Arranger, each Co-Collateral Agent, each
Co-Documentation Agent, the Administrative Agent and the Syndication Agent.
“Aggregate Revolving Credit Outstandings” shall have the meaning provided in
Section 5.2(b).
“Agreement” shall mean this Revolving Loan Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
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“Applicable ABR Margin” shall mean at any date, with respect to each ABR Loan that is
a Revolving Credit Loan or a Swingline Loan, the applicable percentage per annum set forth below
based upon the Status in effect on such date:
| Applicable ABR Margin for | ||
| Status | Revolving Credit Loans and Swingline Loans | |
Level I Status |
0.50% | |
Level II Status |
0.25% | |
Level III Status |
0.00% |
Notwithstanding the foregoing, the term “Applicable ABR Margin” shall mean, with respect to
all ABR Loans, 0.50% per annum, during the period from and including the Closing Date to but
excluding the Trigger Date.
“Applicable Amount” shall mean, at any time (the “Reference Time”), an amount equal to
(a) the sum, without duplication, of:
(i) an amount (which shall not be less than zero) equal to 50% of Consolidated Net Income
commencing on the Original Closing Date and ending on the last day of the most recent fiscal
quarter for which Section 9.1 Financials have been delivered (taken as one accounting period); and
(ii) the amount of any capital contributions (other than the Equity Investments) made in cash
to, or any proceeds of an equity issuance received by, the Borrower from and including the Business
Day immediately following the Original Closing Date through and including the Reference Time,
including proceeds from the issuance of Stock or Stock Equivalents of any direct or indirect parent
of the Borrower but excluding the cash portion of the Minimum Equity Investment Amount,
minus (b) the sum, without duplication, of:
minus (b) the sum, without duplication, of:
(iii) the aggregate amount of Investments made pursuant to Section 10.5(g)(ii)(y) or
10.5(i)(ii)(y) since the Original Closing Date and prior to the Reference Time;
(iv) the aggregate amount of dividends pursuant to Section 10.6(c)(ii) since the
Original Closing Date and prior to the Reference Time; and
(v) the aggregate amount of prepayments, repurchases and redemptions of Subordinated
Indebtedness pursuant to Section 10.7(a)(i)(y) since the Original Closing Date and prior to
the Reference Time.
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“Applicable LIBOR Margin” shall mean at any date, with respect to each LIBOR Loan that
is a Revolving Credit Loan, the applicable percentage per annum set forth below based upon the
Status in effect on such date:
| Applicable LIBOR Margin for | ||
| Status | Revolving Credit Loans | |
Level I Status |
1.50% | |
Level II Status |
1.25% | |
Level III Status |
1.00% |
Notwithstanding the foregoing, the term “Applicable LIBOR Margin” shall mean, with respect to
all LIBOR Loans, 1.50% per annum, during the period from and including the Closing Date to but
excluding the Trigger Date.
“Approved Fund” shall have the meaning provided in Section 14.6.
“Asset Sale Prepayment Event” shall mean any Disposition of Collateral pursuant to
Section 10.4(b).
“Assignment and Acceptance” shall mean an assignment and acceptance substantially in
the form of Exhibit K.
“Authorized Officer” shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
“Available Commitment” shall mean an amount equal to the excess, if any, of (a) the
amount of the Total Revolving Credit Commitment over (b) the sum of (i) the aggregate principal
amount of all Revolving Credit Loans (but not Swingline Loans) then outstanding and (ii) the
aggregate Letters of Credit Outstanding at such time.
“Bankruptcy Code” shall have the meaning provided in Section 11.5.
“Blocked Accounts” shall have the meaning provided in Section 15.1(c).
“Board” shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
“Borrower” shall have the meaning provided in the preamble to this Agreement.
“Borrowing” shall mean and include (a) the incurrence of Swingline Loans from the
Swingline Lender on a given date and (b) the incurrence of one Type of Revolving Credit Loan on a
given date (or resulting from conversions on a given date) having, in the case of LIBOR Revolving
Credit Loans, the same Interest Period (provided that ABR Loans incurred pursuant
to Section 2.10(b) shall be considered part of any related Borrowing of LIBOR Revolving
Credit Loans).
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“Borrowing Base” shall mean at any time, an amount equal to the sum of, without
duplication:
(a) the aggregate of all Incorporated Borrowing Bases, minus
(b) subject to Section 15.2, effective (i) immediately upon or (ii) five (5) Business
Days after, in the case of Reserves which would cause the aggregate amount of the Lender’s
Revolving Credit Exposures at such time to exceed the lesser of the Total Revolving Credit
Commitment and the Borrowing Base then in effect, in each case, notification thereof to Borrower by
the Collateral Agent, any and all Reserves established or modified from time to time by the
Collateral Agent in the exercise of its Permitted Discretion.
The Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base
Certificate theretofore delivered to the Collateral Agent and the Administrative Agent with such
adjustments as Administrative Agent and Collateral Agent deem appropriate in their Permitted
Discretion to assure that the Borrowing Base is calculated in accordance with the terms of this
Agreement.
“Borrowing Base Certificate” shall mean a certificate, executed by a Financial Officer
of Borrower, substantially in the form of (or in such other form as may be mutually agreed upon by
Borrower, Administrative Agent and Collateral Agent), and containing the information prescribed by,
Exhibit N, delivered to the Administrative Agent and the Collateral Agent setting forth Borrower’s
calculation of the Borrowing Base.
“Borrowing Base Guarantor” shall mean each Subsidiary of Borrower (a) listed on
Schedule 1.1(b) and (b) each other Subsidiary of Borrower (i) which (A) is organized in a State
within the United States, (B) is currently able to prepare all collateral reports in a comparable
manner to the Borrower’s reporting procedures and (C) has executed and delivered to Collateral
Agent such joinder agreements to Security Documents as Collateral Agent has reasonably requested
and (ii) if the aggregate value (or Cost in the case of Inventory) of Accounts and Inventory of
such Subsidiary is in excess of $20,000,000 and only to the extent reasonably requested by the
Collateral Agent, for which the Collateral Agent has received and approved, in its reasonable
discretion, a collateral audit and Inventory Appraisal conducted by an independent appraisal firm
reasonably acceptable to Collateral Agent; provided, that if no collateral audit and
Inventory Appraisal is delivered to and approved by the Collateral Agent with respect to the
Accounts and Inventory of such Subsidiary, then the lowest recovery rates from the current
Inventory Appraisal shall apply to the Accounts and Inventory of such Subsidiary.
“Business Day” shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in The City of New York a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
“Buyer” shall have the meaning provided in the recitals to this Agreement.
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“Capital Lease” shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
“Capitalized Lease Obligations” shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
“Cash Collateral Account” shall mean a collateral account in the form of a deposit
account established and maintained by the Collateral Agent for the benefit of the Secured Parties
from the funds collected in the Collection Account that have not either been released to the
Borrower or applicable Guarantor or applied immediately to outstanding Obligations.
“Cash Dominion Event” shall mean the occurrence of any one of the following events:
(i) Excess Availability shall be less than 7% of the then existing Total Revolving Credit
Commitment for any period of five (5) consecutive Business Days or (ii) an Event of Default
pursuant to Sections 11.1, 11.3(a) (but only to the extent such Event of Default was caused by a
breach of Sections 10.5, 10.6, 10.7 and 10.10 and the Administrative Agent or the Required Lenders
have reasonably determined (by written notice to the Borrower) to effect a Cash Dominion Event as a
result of such breach) or 11.5 shall occur and be continuing; provided, that, to the extent that
the Cash Dominion Event has occurred due to clause (i) of this definition, if Excess Availability
shall be equal to or greater than 7% of the then existing Total Revolving Credit Commitment for at
least thirty (30) consecutive days, the Cash Dominion Event shall be deemed to be over. At any
time that a Cash Dominion Event shall be deemed to be over or otherwise cease to exist, the
Collateral Agent shall take such actions, including delivering such notices and directions to
depositary institutions at which Blocked Accounts are established, to terminate the cash sweeps and
other transfers existing pursuant to Section 15.1(d) as a result of any Activation Notice or other
notices or directions given by Collateral Agent during the existence of such Cash Dominion Event.
“Cash Management System” shall have the meaning provided in Section 15.1(d).
“Casualty Event” shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
“Change in Law” shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
“Change of Control” shall mean and be deemed to have occurred if (a) the Sponsors
shall at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at
least 35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result
of
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one or more widely distributed offerings of the common Stock of the Borrower or any direct or
indirect parent thereof, in each case whether by the Borrower, such parent, or the Sponsors); or
(b) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended) shall at any time have acquired direct or indirect
beneficial ownership of a percentage of the voting power of the outstanding Voting Stock of
Borrower that exceeds the percentage of the voting power of such Voting Stock then beneficially
owned, in the aggregate, by the Sponsors, unless, in the case of either clause (a) or (b) above,
the Sponsors have, at such time, the right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board of directors of Borrower; or (c)
Continuing Directors shall not constitute at least a majority of the board of directors of the
Borrower.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Revolving Credit Loans, New Revolving Loans or
Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is
a Revolving Credit Commitment or a New Revolving Credit Commitment.
“Closing Date” shall mean the date of the initial Borrowing hereunder.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
“Co-Collateral Agent” shall mean (a) CIT, a New York corporation, as collateral agent
for the Lenders and the other Secured Parties and (b) Bank of America, as collateral agent for the
Lenders and the other Secured Parties.
“Co-Collateral Agent Fee Letters” shall mean (a) that certain confidential fee letter
by and between CIT and the Borrower and (b) that certain confidential fee letter by and between
Bank of America and the Borrower.
“Co-Documentation Agent” shall mean JPMorgan Chase Bank, N.A., Wachovia Bank, N.A. and
PNC Bank, National Association, in each case as co-documentation agent for the Lenders under this
Agreement and the other Credit Documents.
“Co-Lead Arrangers” shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
“Collateral” shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
“Collateral Access Agreement” means a landlord waiver, bailee letter or other access
agreement reasonably acceptable to the Administrative Agent.
“Collateral Agent” shall mean, collectively or individually as the context requires,
CIT, as a Co-Collateral Agent, and Bank of America, as a Co-Collateral Agent.
“Collection Account” shall have the meaning provided in Section 15.1(d)(i).
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“Commitment Fee Rate” shall mean, with respect to the Available Commitment on any day,
the rate per annum set forth below opposite the Status in effect on such day:
| Status | Commitment Fee Rate | |
Level I Status |
0.375% | |
Level II Status |
0.25% | |
Level III Status |
0.25% |
Notwithstanding the foregoing, the term “Commitment Fee Rate” shall mean 0.375% during the
period from and including the Closing Date to but excluding the Trigger Date.
“Commitments” shall mean, with respect to each Lender (to the extent applicable), such
Lender’s Revolving Credit Commitment and New Revolving Credit Commitment.
“Communications” shall have the meaning provided in Section 14.17(a).
“Concentration Account” shall have the meaning provided in Section 15.1(d)(i).
“Concentration Account Bank” shall have the meaning provided in Section
15.1(d)(i).
“Confidential Information” shall have the meaning provided in Section 14.16.
“Confidential Information Memorandum” shall mean the Confidential Information
Memorandum of the Borrower dated as of October 2, 2007, delivered to the Lenders in connection with
this Agreement.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such
period, plus:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of the Borrower and the
Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges,
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(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests (including the minority
interest portion of Midfield Supply ULC’s employee profit sharing plan),
(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsors,
(ix) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant
to any management equity plan or stock option plan or any other management or employee
benefit plan or agreement or any stock subscription or shareholder agreement, to the extent
that such costs or expenses are funded with cash proceeds contributed to the capital of the
Borrower or net cash proceeds of an issuance of Stock or Stock Equivalents of the Borrower;
and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Original Closing Date, the cost savings described on Schedule
1.1(e)(A), and (B) for any period that includes a fiscal quarter occurring after the Closing
Date, the amount of net cost savings projected by the Borrower in good faith to be realized
as a result of specified actions taken by the Borrower and its Restricted Subsidiaries in
connection with the Transactions (calculated on a Pro Forma Basis as though such cost
savings had been realized on the first day of such period), net of the amount of actual
benefits realized during such period from such actions, provided that (1)
such cost savings are reasonably identifiable, factually supportable and not duplicative of
the cost savings added pursuant to clause (x)(A), (2) such actions are taken on or prior to
the third anniversary of the Closing Date, (3) no cost savings shall be added pursuant to
this clause (x) to the extent duplicative of any expenses or charges relating to such cost
savings that are included in clause (vi) above with respect to such period and (4) the
aggregate amount of cost savings added pursuant to this clause (x)(B) shall not exceed 5% of
the amount of Consolidated EBITDA computed pursuant to the most recently delivered Section
9.1 Financials for any period consisting of four consecutive quarters, less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
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(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for the Borrower and the Restricted
Subsidiaries in accordance with GAAP; provided that, to the extent included in Consolidated
Net Income,
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of Indebtedness or intercompany balances
(including the net loss or gain resulting from Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
the Borrower or any Restricted Subsidiary during such period (including Red Man but not the
Acquired EBITDA of any related Person, property, business or assets to the extent not so
acquired) to the extent not subsequently sold, transferred, abandoned or otherwise disposed
by the Borrower or such Restricted Subsidiary (each such Person, property, business or asset
acquired and not subsequently so disposed of, an “Acquired Entity or Business”) and
the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted
Subsidiary during such period (each, a “Converted Restricted Subsidiary”), based on
the actual Acquired EBITDA of such Acquired Entity or Business or Converted Restricted
Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion) and (B) an adjustment in respect of each Acquired Entity or
Business equal to the amount of the Pro Forma Adjustment with respect to such Acquired
Entity or Business for such period (including the portion thereof occurring prior to such
acquisition) as specified in a Pro Forma Adjustment Certificate and delivered to the Lenders
and the Administrative Agents and (C) there shall be excluded in determining Consolidated
EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other
than an Unrestricted Subsidiary) sold, transferred, abandoned or otherwise disposed of,
closed or classified as discontinued operations by the Borrower or any Restricted Subsidiary
during such period (each such Person, property, business or asset so sold or disposed of, a
“Sold Entity or Business”), and the Acquired EBITDA of any Restricted Subsidiary
that is converted into an Unrestricted Subsidiary during such period (each, a “Converted
Unrestricted Subsidiary”) based on the actual Disposed EBITDA of such Sold Entity or
Business or Converted Restricted Subsidiary for such period (including the portion thereof
occurring prior to such sale, transfer or disposition or conversion).
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“Consolidated Fixed Charge Coverage Ratio” shall mean, for any Test Period, the ratio
of (a) Consolidated EBITDA for such Test Period to (b) Consolidated Fixed Charges for such Test
Period.
“Consolidated Fixed Charges” means, for any period, the sum, without duplication, of
(a) Consolidated Interest Expense, (b) scheduled payments of principal on Consolidated Total Debt,
(c) the aggregate of all unfinanced capital expenditures of Borrower and its Restricted
Subsidiaries during such period determined on a consolidated basis and (d) the portion of taxes
attributable to Borrower and its Restricted Subsidiaries based on income actually paid in cash and
provisions for cash income taxes.
“Consolidated Interest Expense” shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of the Borrower and the Restricted Subsidiaries on a consolidated basis in
accordance with GAAP with respect to all outstanding Indebtedness of the Borrower and the
Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers’ acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and other similar
agreements) and (ii) any cash payments made during such period in respect of obligations referred
to in clause (b) below relating to Funded Debt that were amortized or accrued in a previous period
(other than any such obligations resulting from the discounting of Indebtedness in connection with
the application of purchase accounting in connection with the Transaction or any Permitted
Acquisition), but excluding, however, (a) amortization of deferred financing costs and any other
amounts of non-cash interest, (b) the accretion or accrual of discounted liabilities during such
period, and (c) all non-recurring cash interest expense consisting of liquidated damages for
failure to timely comply with registration rights obligations and financing fees, all as calculated
on a consolidated basis in accordance with GAAP and excluding, for the avoidance of doubt, any
interest in respect of items excluded from Indebtedness in the proviso to the definition thereof,
provided that (a) except as provided in clause (b) below, there shall be excluded from
Consolidated Interest Expense for any period the cash interest expense (or cash interest income) of
all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated
Interest Expense, (b) there shall be included in determining Consolidated Interest Expense for any
period the cash interest expense (or income) of any Acquired Entity or Business acquired during
such period and of any Converted Restricted Subsidiary converted during such period, in each case
based on the cash interest expense (or income) of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion) assuming any Indebtedness incurred or repaid in connection with any such
acquisition or conversion had been incurred or prepaid on the first day of such period, and (c)
there shall be excluded from determining Consolidated Interest Expense for any period the cash
interest expense (or income) of any Sold Entity or Business disposed of during such period, based
on the cash interest expense (or income) relating to any Indebtedness relieved, retired or repaid
in connection with any such disposition of such Sold Entity or Business for such period (including
the portion thereof occurring prior to such disposal) assuming such debt relieved, retired or
repaid in connection with such disposition had been relieved, retired or repaid on the first day of
such period. Notwithstanding anything to the contrary contained herein, for purposes of determining
Consolidated Interest Expense for any period ending prior to the first anniversary of the Closing
Date, Consolidated Interest Expense
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shall be an amount equal to actual Consolidated Interest Expense from the Closing Date through
the date of determination multiplied by a fraction the numerator of which is 365 and the
denominator of which is the number of days from the Closing Date through the date of determination.
“Consolidated Net Income” shall mean, for any period, the net income (loss) of the
Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, excluding, without duplication, (a) extraordinary items for such period, (b)
the cumulative effect of a change in accounting principles during such period to the extent
included in Consolidated Net Income, (c) in the case of any period that includes a period ending
prior to June 30, 2008, Transaction Expenses and Original Transaction Expenses, (d) any fees and
expenses incurred during such period, or any amortization thereof for such period, in connection
with any acquisition, investment, recapitalization, asset disposition, issuance or repayment of
debt, issuance of equity securities, refinancing transaction or amendment or other modification of
any debt instrument (in each case, including any such transaction consummated prior to the Closing
Date and any such transaction undertaken but not completed) and any charges or non-recurring merger
costs incurred during such period as a result of any such transaction, (e) any income (loss) for
such period attributable to the early extinguishment of Indebtedness and (f) accruals and reserves
that are established that are so required to be established or adjusted as a result of the
Transactions, or Original Transactions in accordance with GAAP or changes as a result of adoption
of or modification of accounting policies, in each case, within twelve months after the Closing
Date (or with respect to the Original Transactions, twelve months after the Original Closing Date).
There shall be excluded from Consolidated Net Income for any period the purchase accounting
effects of adjustments to inventory, property and equipment, software and other intangible assets
and deferred revenue in component amounts required or permitted by GAAP and related authoritative
pronouncements (including the effects of such adjustments pushed down to the Borrower and the
Restricted Subsidiaries), as a result of the Transactions, the Original Transactions, any
acquisition whether consummated before or after the Closing Date, any Permitted Acquisition or
other Investment, or the amortization or write-off of any amounts thereof.
“Consolidated Secured Debt” shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, in each case secured by Liens, minus (b) the
aggregate amount of cash and cash equivalents held in accounts on the consolidated balance sheet of
the Borrower and the Restricted Subsidiaries as at such date to the extent the use thereof for
application to payment of Indebtedness is not prohibited by law or any contract to which the
Borrower or any of the Restricted Subsidiaries is a party.
“Consolidated Total Assets” shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like
caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such
date.
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“Consolidated Total Debt” shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, minus (b) the aggregate amount of cash and cash
equivalents held in accounts on the consolidated balance sheet of the Borrower and the Restricted
Subsidiaries as at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Borrower or any of the
Restricted Subsidiaries is a party.
“Consolidated Total Debt to Consolidated EBITDA Ratio” shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
“Continuing Director” shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
“Contract Consideration” shall have the meaning provided in the definition of Excess
Cash Flow.
“Control Agreements” shall have the meaning assigned to such term in the Security
Agreement.
“Converted Restricted Subsidiary” shall have the meaning provided in the definition of
the term “Consolidated EBITDA”.
“Converted Unrestricted Subsidiary” shall have the meaning provided in the definition
of the term “Consolidated EBITDA”.
“Cost” shall mean, with respect to Inventory, the weighted average cost thereof, as
determined in the same manner and consistent with the most recent Inventory Appraisal which has
been received and approved by Collateral Agent in its reasonable discretion.
“Credit Documents” shall mean this Agreement, the Security Documents, each Letter of
Credit and any promissory notes issued by the Borrower hereunder.
“Credit Event” shall mean and include the making (but not the conversion or
continuation) of a Loan and the issuance of a Letter of Credit.
“Credit Party” shall mean each of the Borrower, the Guarantors and each other
Subsidiary of the Borrower that is a party to a Credit Document.
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“Currency Agreement” means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of
which is for the purpose of hedging the foreign currency risk associated with Borrower’s and its
Subsidiaries’ operations and not for speculative purposes.
“Debt Repayment” shall have the meaning provided in the recitals to this Agreement.
“Default” shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in
effect.
“Deferred Net Cash Proceeds” shall have the meaning provided such term in the
definition of “Net Cash Proceeds.”
“Designated Non-Cash Consideration” shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to Section 10.4(b) and Section 10.4(c) that is designated as Designated
Non-Cash Consideration pursuant to a certificate of an Authorized Officer of the Borrower, setting
forth the basis of such valuation (which amount will be reduced by the fair market value of the
portion of the non-cash consideration converted to cash within 180 days following the consummation
of the applicable Disposition).
“Disposed EBITDA” shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
“Disposition” shall have the meaning provided in Section 10.4(b).
“Dividends” or “dividends” shall have the meaning provided in Section
10.6.
“Dollar Equivalent” shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
“Dollars” and “$” shall mean dollars in lawful currency of the United States
of America.
“Domestic Subsidiary” shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
“Drawing” shall have the meaning provided in Section 3.4(b).
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“Eligible Accounts” means, at any time, the Accounts of the Borrower and each
Borrowing Base Guarantor, as applicable at such date, except any Account (determined without
duplication):
| (a) | which is not subject to a perfected security interest in favor of the Collateral Agent; | ||
| (b) | which is subject to any Lien (including Liens permitted by Section 10.2) other than (i) a Lien in favor of the Collateral Agent and (ii) a Permitted Lien which does not have priority over the Lien in favor of the Collateral Agent; provided that, with respect to any tax Lien having such priority, eligibility of Accounts shall, without duplication, be reduced by the amount of such tax Lien; | ||
| (c) | (i) owing by General Electric with respect to which more than 150 days have lapsed since the date of the original invoice therefor or (ii) owing by any other Account Debtor which more than 120 days have lapsed since the date of the original invoice therefor or which is more than 60 days past the due date for payment (provided, that the aggregate amount of all Accounts eligible under the foregoing clause (i) does not exceed $3,000,000 at any time); | ||
| (d) | which is owing by an Account Debtor for which more than 50% of the Accounts owing from such Account Debtor and its Affiliates are ineligible pursuant to clause (c) above; | ||
| (e) | which is owing by an Account Debtor to the extent the aggregate amount of Accounts owing from such Account Debtor and its Affiliates to such Borrower or Borrowing Base Guarantor exceeds 20% of the aggregate Eligible Accounts (but only to the extent of such excess); | ||
| (f) | with respect to which any covenant, representation, or warranty relating to such Account contained in this Agreement or in the Security Agreement has been breached or is not true in any material respect; | ||
| (g) | which (i) does not arise from the sale of goods or performance of services in the ordinary course of business, (ii) is not evidenced by an invoice, or other documentation satisfactory to the Administrative Agent, which has been sent to the Account Debtor, (iii) represents a progress billing, (iv) is contingent upon such Borrower’s or Borrowing Base Guarantor’s completion of any further performance, or (v) represents a sale on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment which is billed prior to actual sale to the end user, cash-on-delivery or any other repurchase or return basis, except with respect to up to $10,000,000 of such Accounts described in this clause (v); | ||
| (h) | for which the goods giving rise to such Account (other than Accounts described in the foregoing paragraph (g)(v)) have not been shipped to the Account Debtor or for which the services giving rise to such Account have not been performed by such Borrower or Borrowing Base Guarantor; |
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| (i) | with respect to which any check or other instrument of payment has been returned uncollected for any reason; | ||
| (j) | which is owed by an Account Debtor which is a debtor or a debtor in possession under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors unless the payment of Accounts from such Account Debtor is secured by assets of, or guaranteed by, in either case in a manner reasonably satisfactory to the Administrative Agent, a Person that is reasonably acceptable to the Administrative Agent or, if the Account from such Account Debtor arises subsequent to a decree or order for relief with respect to such Account Debtor under the federal bankruptcy laws, as now or hereafter in effect, the Administrative Agent shall have reasonably determined that the timely payment and collection of such Account will not be impaired; | ||
| (k) | which is owed by an Account Debtor which is not organized under applicable law of the U.S. or any state of the U.S. unless such Account is backed by a letter of credit or other credit support reasonably acceptable to the Administrative Agent and which is in the possession of the Administrative Agent; | ||
| (m) | which is owed in any currency other than Dollars; | ||
| (n) | which is owed by (i) the government (or any department, agency, public corporation, or instrumentality thereof) of any country other than the U.S. unless such Account is backed by a Letter of Credit reasonably acceptable to the Administrative Agent and which is in the possession of the Administrative Agent, or (ii) the government of the U.S., or any department, agency, public corporation, or instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.), and any other steps necessary to perfect the Lien of the applicable Collateral Agent in such Account have been complied with to the Administrative Agent’s reasonable satisfaction; | ||
| (o) | which is owed by any Affiliate, employee, director, or officer of any Credit Party other than Accounts of Borrower or any Borrowing Base Guarantor which are owed by Red Man Distributors; provided that (i) the amount of any such Eligible Accounts shall not include the amount owed by Red Man Distributors to Borrower for administrative services with respect thereto, (ii) such Account shall be subject to ineligibility or such reductions in amount as determined by Collateral Agent’s application of the same eligibility criteria as set forth in the remaining clauses of this definition (other than the criteria in clause (a) hereof) to the corresponding Accounts owed to Red Man Distributors by its Account Debtors, (iii) the aggregate amount of all Accounts eligible under this clause (o) (together with the aggregate amount of all Accounts eligible under clause (a) of the definition of Eligible Red Man Business Account) shall not exceed $30,000,000 at any time and (iv) the Organizational Documents of Red Man Distributors provide for a negative pledge of its Accounts (other than with respect |
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| to tax Liens) and for a right of subrogation in favor of the Collateral Agent with respect to such Accounts on terms reasonably satisfactory to the Collateral Agent; | |||
| (p) | which is owed by an Account Debtor or any Affiliate of such Account Debtor which is the holder of Indebtedness issued or incurred by any Credit Party; provided, that any such Account shall only be ineligible as to that portion of such Account which is less than or equal to the amount owed by the Credit Party to such Person; | ||
| (q) | which is subject to any counterclaim, deduction, defense, setoff or dispute, but only to the extent of the amount of such counterclaim, deduction, defense, setoff or dispute, unless (i) the Administrative Agent, in its Permitted Discretion, has established an appropriate Reserve and determines to include such Account as an Eligible Account or (ii) such Account Debtor has entered into an agreement reasonably acceptable to the Administrative Agent to waive such rights; | ||
| (r) | which is evidenced by any promissory note, chattel paper, or instrument (in each case, other than any such items that are held by a Credit Party or delivered to the Administrative Agent or the Collateral Agent); | ||
| (s) | which is owed by an Account Debtor located in any jurisdiction that requires, as a condition to access to the courts of such jurisdiction, that a creditor qualify to transact business, file a business activities report or other report or form, or take one or more other actions, unless such Borrower or Borrowing Base Guarantor has so qualified, filed such reports or forms, or taken such actions (and, in each case, paid any required fees or other charges), except to the extent such Borrower or Borrowing Base Guarantor may qualify subsequently as a foreign entity authorized to transact business in such state or jurisdiction and gain access to such courts, without incurring any cost or penalty reasonably viewed by the Administrative Agent to be material in amount, and such later qualification cures any access to such courts to enforce payment of such Account; | ||
| (t) | with respect to which such Borrower or Borrowing Base Guarantor has made any agreement with the Account Debtor for any reduction thereof, but only to the extent of such reduction, other than discounts and adjustments given in the ordinary course of business; or | ||
| (u) | which the Administrative Agent determines in its Permitted Discretion may not be paid by reason of the Account Debtor’s inability to pay. |
Subject to Sections 14.1 and 15.2 and the definition of Borrowing Base, the Administrative
Agent may modify the foregoing criteria in its Permitted Discretion.
“Eligible Inventory” shall mean, at any date of determination thereof, the aggregate
amount of all Inventory owned by the Borrower and each Borrowing Base Guarantor at such date except
any Inventory (determined without duplication):
| (a) | which is not subject to a perfected Lien in favor of the Collateral Agent; |
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| (b) | which is subject to any Lien other than (i) a Lien in favor of the Collateral Agent and (ii) a Permitted Lien which does not have priority over the Lien in favor of the Collateral Agent (other than any bailee, warehouseman, landlord or similar non-consensual Liens having priority of operation of law to the extent either subclause (i) or (ii) of such clauses (h) or (i) is satisfied with respect to the relevant Inventory); provided that, with respect to any tax Lien having such priority, eligibility of Inventory shall, without duplication, be reduced by the amount of such tax Lien; | ||
| (c) | which is, in the Administrative Agent’s Permitted Discretion, slow moving, obsolete, unmerchantable, defective, unfit for sale, not salable at prices approximating at least the cost of such Inventory in the ordinary course of business or unacceptable due to age, type, category and/or quantity; | ||
| (d) | with respect to which any covenant, representation, or warranty contained in this Agreement or any Security Agreement has been breached or is not true; | ||
| (e) | which does not conform in all material respects to all standards imposed by any Governmental Authority (except that any standard that is qualified as to “materiality” shall have been conformed to in all respects); | ||
| (f) | which constitutes packaging and shipping material, manufacturing supplies, display items, bill-and-hold goods in excess of $10,000,000, returned or repossessed goods (other than goods that are undamaged and able to be resold in the ordinary course of business), defective goods, goods held on consignment, goods to be returned to the Borrower’s or applicable Borrowing Base Guarantor’s suppliers or goods which are not of a type held for sale in the ordinary course of business; | ||
| (g) | which is not located in the U.S. or which is in transit with a common carrier from vendors and suppliers; | ||
| (h) | which is located in any location leased by the Borrower or applicable Borrowing Base Guarantor unless (i) the lessor has delivered to the Agents a Collateral Access Agreement or (ii) a Reserve for rent, charges, and other amounts due or to become due with respect to such facility has been established by the Administrative Agent in its Permitted Discretion; provided, that any such Reserve shall not exceed an amount equal to the rent due with respect to such facility for the time period used to determine the orderly liquidation value as set forth in the most recent Inventory Appraisal; | ||
| (i) | which is located (a) in any third party warehouse or is in the possession of a bailee and is not evidenced by a Document, unless (i) such warehouseman or bailee has delivered to the Agents a Collateral Access Agreement and such other documentation as the Administrative Agent may reasonably require or (ii) an appropriate Reserve has been established by the Administrative Agent in its Permitted Discretion; provided, that any such Reserve shall not exceed an amount |
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| equal to the reasonable fees and expenses due with respect to such warehouse or bailee for the time period used to determine the orderly liquidation value as set forth in the most recent Inventory Appraisal or (b) at a vendor location unless an appropriate Reserve has been established by the Administrative Agent in its Permitted Discretion; provided, that any such Reserve shall not exceed an amount equal to the accounts payable with respect to such vendor; | |||
| (j) | which is the subject of a consignment by the Borrower or any Borrowing Base Guarantor as consignor unless (i) a protective UCC-1 financing statement has been properly filed against the consignee, and (ii) there is a written agreement acknowledging that such Inventory is held on consignment, that the Borrower or such Borrowing Base Guarantor retains title to such Inventory, that no Lien arising by, through or under such consignee has attached or will attach to such Inventory and requiring consignee to segregate the consigned Inventory from the consignee’s other personal or movable property and having other terms consistent with the Borrower’s or such Borrowing Base Guarantor’s past practices for consigned Inventory; provided that the aggregate amount of all Inventory eligible under this clause (j) shall not exceed $25,000,000 at any time; | ||
| (k) | which is perishable as determined in accordance with GAAP; or | ||
| (l) | which contains or bears any intellectual property rights licensed to the Borrower or any Borrowing Base Guarantor unless the Administrative Agent is satisfied that it may sell or otherwise dispose of such Inventory without (i) infringing the rights of such licensor in any material respect, (ii) violating any material contract with such licensor or (iii) incurring any material liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the current licensing agreement. |
Subject to Sections 14.1 and 15.2 and the definition of Borrowing Base, the Administrative
Agent may modify the foregoing criteria in its Permitted Discretion.
“Eligible Red Man Business Account” shall mean an Account arising in the ordinary
course of the Red Man Business from the sale of goods or rendition of services which Collateral
Agent, in the exercise of its Permitted Discretion, deems to be an Eligible Red Man Business
Account. No Account shall be an Eligible Red Man Business Account if:
| (a) | it is owed by any Affiliate, employee, director, or officer of any Credit Party other than Accounts of Borrower or any Borrowing Base Guarantor which are owed by Red Man Distributors; provided that (i) the amount of any such Eligible Red Man Business Account shall not include the amount owed by Red Man Distributors to Borrower for administrative services with respect thereto, (ii) such Account shall be subject to ineligibility or such reductions in amount as determined by Collateral Agent’s application of the same eligibility criteria as set forth in the remaining clauses of this definition (other than the criteria in clause (m) hereof) to the corresponding Accounts owed to Red Man Distributors by its Account Debtors, (iii) the aggregate amount of all Accounts eligible under this clause (a) |
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| (together with the aggregate amount of all Accounts eligible under clause (o) of the definition of Eligible Accounts) shall not exceed $30,000,000 at any time and (iv) the Organizational Documents of Red Man Distributors provide for a negative pledge of its Accounts (other than with respect to tax Liens) and for a right of subrogation in favor of the Collateral Agent with respect to such Accounts on terms reasonably satisfactory to the Collateral Agent; | |||
| (b) | it remains unpaid more than ninety (90) days after the original invoice date thereof; | ||
| (c) | more than thirty percent (30%) of the total Accounts owing by an Account Debtor remain unpaid more than ninety (90) days after the invoice date thereof, to the extent of all Accounts owing by such Account Debtor; | ||
| (d) | any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; | ||
| (e) | the Account Debtor is also Borrower’s or the Borrowing Base Guarantor’s creditor or supplier, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor; provided, that in such case the Account shall be deemed to be an Eligible Red Man Business Account if, and to the extent, the balance of the Account exceeds all amounts owed by Borrower or such Borrowing Base Guarantor to the Account Debtor or the amount of such setoff; | ||
| (f) | the Account Debtor has disputed liability with respect to such Account (provided, that if the amount disputed is less than twenty-five percent (25%) of the entire balance of the Account, the Account shall be deemed to be an Eligible Red Man Business Account to the extent the balance of the Account exceeds the amount disputed); | ||
| (g) | the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or if the Account Debtor has ceased to be “solvent” (as such term is interpreted under applicable laws relating to fraudulent transfers and conveyances) or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; | ||
| (h) | it arises from a sale to an Account Debtor outside the United States; | ||
| (i) | it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; | ||
| (j) | Collateral Agent believes, in its sole judgment, that, collection of such Account is insecure or that payment thereof is doubtful or will be delayed by reason of the Account Debtor’s financial condition; |
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| (k) | the Account Debtor is the United States of America or any State or any department, agency or instrumentality thereof; | ||
| (l) | the Account Debtor is located in the State of New Jersey, unless Borrower or the applicable Borrowing Base Guarantor has filed a Notice of Business Activities Report with the New Jersey Division of Taxation for the then current year; | ||
| (m) | the Account is not subject to Collateral Agent’s duly perfected first priority security interest or is subject to a Lien, other than a Permitted Lien or a Lien permitted by Section 10.2 which is junior to Collateral Agent’s security interest; | ||
| (n) | the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by Borrower or the applicable Borrowing Base Guarantor and accepted by the Account Debtor or the Account otherwise does not represent a final sale; | ||
| (o) | the total unpaid Accounts of the Account Debtor exceed a credit limit determined by Collateral Agent, in its reasonable discretion, to the extent such Account exceeds such limit; | ||
| (p) | it is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; | ||
| (q) | Borrower or the applicable Borrowing Base Guarantor has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; | ||
| (r) | Borrower or the applicable Borrowing Base Guarantor has made an agreement with the Account Debtor to extend the time of payment thereof, or | ||
| (s) | it arises from a sale to the Account Debtor on a C.O.D. or cash basis. |
“Eligible Red Man Business International Accounts” shall mean an Account arising in
the ordinary course of the Red Man Business from the sale of goods or rendition of services to an
Account Debtor outside the United States which Collateral Agent, in the exercise of its Permitted
Discretion, deems to be an Eligible Red Man International Account. Without limiting the generality
of the foregoing, (a) no Account which arises from a sale to an Account Debtor outside of the
United States shall be an Eligible Red Man Business International Account unless each of the
following is true and correct of such Account: (i) other than for clause (h) of such definition,
such Account otherwise constitutes an Eligible Red Man Business Account, and (ii) such Account
arises from a sale to an Account Debtor acceptable to Collateral Agent, in its sole discretion, and
(b) to the extent the aggregate amount of Accounts which arise from a sale or sales to Account
Debtor(s) in Nigeria are in excess of $5,000,000, such Accounts shall in no event constitute
“Eligible Red Man Business International Accounts” to the extent of such excess; provided
that the aggregate amount of all Eligible Red Man Business International Accounts shall not exceed
$10,000,000 at any time.
“Eligible Red Man Business Inventory” shall mean Inventory of the Borrower and each
Borrowing Base Guarantor which Collateral Agent, in the exercise of its Permitted Discretion,
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deems to be Eligible Red Man Business Inventory. No Inventory shall be Eligible Red Man
Business Inventory unless, in Collateral Agent’s opinion, it:
(a) is in good, new and saleable condition;
(b) is not obsolete or unmerchantable;
(c) meets all standards imposed by any Governmental Authority;
(d) conforms in all respects to the warranties and representations set forth in this Agreement
or any Security Agreement;
(e) is at all times subject to Collateral Agent’s duly perfected, first priority security
interest and no other Lien, except Liens permitted by Section 10.2 of this Agreement;
(f) other than Inventory in transit, is situated at one of the locations disclosed to
Collateral Agent; and
(g) consists of finished tubular goods or consumable supplies of the Borrower or such
Borrowing Base Guarantor held for sale in the ordinary course of the Red Man Business.
In no event shall any work-in process Inventory constitute “Eligible Red Man Business Inventory”.
With respect to Inventory located in any leased location or third party warehouse, such Inventory
shall not be deemed Eligible Red Man Business Inventory unless such lessor or warehouseman delivers
to Collateral Agent a Collateral Access Agreement or Collateral Agent has established a Reserve in
an amount equal to the total payments due for the remaining term of the contract for such premises.
“Environmental Claims” shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Person’s business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter, “Claims”), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
“Environmental Law” shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
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“Equity Contribution” shall have the meaning provided in the preamble to this
Agreement.
“Equity Investments” shall mean the Equity Contribution and the Rollover Equity.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a “single employer” within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“Event of Default” shall have the meaning provided in Section 11.
“Excess Availability” means, at any time, an amount equal to the lesser of (a) the
Total Revolving Credit Commitment and (b) the Borrowing Base, in each case, minus the
aggregate of all Lenders’ Revolving Credit Exposure.
“Excess Cash Flow” shall have the meaning provided in the Term Loan Credit Agreement,
as in effect on the Closing Date.
“Exchange Rate” shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately 11:00
a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency; in the
event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be
determined by reference to such other publicly available service for displaying exchange rates as
may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of such
agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange
of the Administrative Agent in the market where its foreign currency exchange operations in respect
of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City time) on
such date for the purchase of Dollars for delivery two Business Days later.
“Excluded Subsidiary” means (a) each Subsidiary listed on Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) any Subsidiary that is
prohibited by any applicable Requirement of Law from guaranteeing the Obligations, (d) any Domestic
Subsidiary that is a Subsidiary of a Foreign Subsidiary, (e) any Subsidiary acquired pursuant to a
Permitted Acquisition financed with secured Indebtedness incurred pursuant to Section
10.1(B)(j) or Section 10.1(B)(k) and each Restricted Subsidiary thereof that guarantees
such Indebtedness to the extent and so long as the financing documentation relating to such
Permitted Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted
Subsidiary from guaranteeing, or granting a Lien on any of its assets to secure, the Obligations;
provided that after such time that such prohibitions on guarantees or granting of Liens
lapses or terminates, such Restricted Subsidiary shall no longer be an Excluded Subsidiary, (f) any
other
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Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent
(confirmed in writing by notice to the Borrower), the cost or other consequences (including any
adverse tax consequences) of providing a Guarantee shall be excessive in view of the benefits to be
obtained by the Lenders therefrom, and (g) each Unrestricted Subsidiary.
“Excluded Taxes” shall mean, with respect to the Administrative Agent, the Collateral
Agent, any Letter of Credit Issuer or any Lender, (a) (i) net income taxes and franchise taxes
(imposed in lieu of net income taxes) and capital taxes imposed on the Administrative Agent, any
Letter of Credit Issuer or any Lender and (ii) any taxes imposed on the Administrative Agent, any
Letter of Credit Issuer or any Lender as a result of any current or former connection between the
Administrative Agent, any Letter of Credit Issuer or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing authority thereof
or therein (other than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a payment under, or
having been a party to or having enforced this Agreement or any other Credit Document) and (b) (i)
any withholding tax that is imposed by a jurisdiction in which the Borrower is located or organized
on amounts payable to such Lender under the law in effect at the time such Lender becomes a party
to this Agreement (or, in the case of a Participant, on the date such Participant became a
Participant hereunder); provided that this clause (b)(i) shall not apply to the
extent that (x) the indemnity payments or additional amounts any Lender (or Participant) would be
entitled to receive (without regard to this clause (b)(i)) do not exceed the indemnity payment or
additional amounts that the person making the assignment, participation or transfer to such Lender
(or Participant) would have been entitled to receive in the absence of such assignment,
participation or transfer or (y) any Tax is imposed on a Lender in connection with an interest or
participation in any Loan or other obligation that such Lender was required to acquire pursuant to
Section 14.8(a) or that such Lender acquired pursuant to Section 14.7 (it being
understood and agreed, for the avoidance of doubt, that any withholding tax imposed on a Lender as
a result of a Change in Law occurring after the time such Lender became a party to this Agreement
(or designates a new lending office) shall not be an Excluded Tax) or (ii) any Tax to the extent
attributable to such Lender’s failure to comply with Section 5.4(d) or
Section 5.4(e).
“Existing Letters of Credit” shall have the meaning provided in the preamble to this
Agreement.
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the
per annum rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
“Fee Letter” shall mean that certain confidential fee letter dated as of September 20,
2007 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman Commercial Paper
Inc., Lehman Brothers Commercial Bank and the Borrower.
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“Fees” shall mean all amounts payable pursuant to, or referred to in, Section
4.1.
“Financial Officer” shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
“First Amendment to Term Loan Credit Agreement” shall mean that certain First
Amendment to Term Loan Credit Agreement dated as of the Closing Date among Borrower, the credit
support parties named therein, Lehman Commercial Paper Inc., as administrative agent and collateral
agent, and each of the lenders party thereto.
“Foreign Currencies” shall mean any currency other than Dollars.
“Foreign Plan” shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
“Foreign Subsidiary” shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
“Fronting Fee” shall have the meaning provided in Section 4.1(c).
“Funded Debt” shall mean all indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of the
Borrower or any Restricted Subsidiary, to a date more than one year from such date or arises under
a revolving credit or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including all amounts of Funded Debt required
to be paid or prepaid within one year from the date of its creation and, in the case of the
Borrower, Indebtedness in respect of the Loans.
“GAAP” shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time; provided, however, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
“Governmental Authority” shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
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“Guarantee” shall mean (a) the Guarantee, made by each Guarantor in favor of the
Administrative Agent for the benefit of the Secured Parties, substantially in the form of
Exhibit C, and (b) any other guarantee of the Obligations made by a Restricted Subsidiary
in form and substance reasonably acceptable to the Administrative Agent, in each case as the same
may be amended, supplemented or otherwise modified from time to time.
“Guarantee Obligations” shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof; provided, however, that the term “Guarantee Obligations” shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of
which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
“Guarantors” shall mean the Subsidiary Guarantors.
“Hazardous Materials” shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
“hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous waste”,
“restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, or
“pollutants”, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
“Hedge Agreement” means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrower’s or any of its Subsidiaries’ businesses.
“Historical Financial Statements” shall mean as of the Closing Date, (a) the audited
financial statements of each of (i) the Borrower and its Subsidiaries (other than Red Man Group)
and (ii) the Red Man Group, in each case, for the 2005 and 2006 fiscal years and consisting of
balance sheets and the related consolidated statements of income, stockholders’ equity and cash
flows for such fiscal years and (b) the unaudited financial statements of each of (i) the Borrower
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and its Subsidiaries (other than Red Man Group) and (ii) the Red Man Group, in each case, for
the fiscal quarters ending March 31, 2007 and June 30, 2007 and consisting of balance sheets and
the related consolidated statements of income, stockholders’ equity and cash flows for such fiscal
quarters.
“Incorporated Borrowing Base” shall mean at any time:
(a) (i) with respect to the McJunkin Business and (ii) with respect to the Red Man Business
after the completion of an updated Inventory Appraisal and collateral audit and field examination
of Red Man and its Subsidiaries (collectively, the “Red Man Group”), in each case an amount
equal to the sum of, without duplication:
(x) the book value of Eligible Accounts multiplied by the advance rate of 85%, plus
(y) the Net Orderly Liquidation Value of Eligible Inventory (which shall be (i) net of the
current monthly shrinkage reserve calculated in accordance with GAAP and (ii) valued at Cost)
multiplied by the advance rate of 85% and
(b) with respect to the Red Man Business prior to the completion of an updated Inventory
Appraisal and collateral audit and field examination of the Red Man Group, an amount equal to the
sum of, without duplication:
(x) 85% of the net amount (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion, including a reserve for sales tax
payables) of Eligible Red Man Business Accounts outstanding at such date; plus
(y) 85% of the net amount (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion, including a reserve for sales tax
payables) of Eligible Red Man Business International Accounts outstanding at such date; plus
(z) the aggregate of (i) 60% of the value (after deduction of such reserves as established or
modified by the Collateral Agent in the exercise of its Permitted Discretion) of Eligible Red Man
Business Inventory at such date consisting of oil country tubular goods held for sale in the
ordinary course of the Red Man Group’s business, calculated on the basis of the lower of cost or
market; (ii) 50% of the value (after deduction of such reserves as established or modified by the
Collateral Agent in the exercise of its Permitted Discretion) of Eligible Red Man Business
Inventory at such date consisting of consumable supplies held for sale in the ordinary course of
the Red Man Group’s business, calculated on the basis of the lower of cost or market, and (iii) 60%
of the value (after deduction of such reserves as established or modified by the Collateral Agent
in the exercise of its Permitted Discretion) of Eligible Red Man Business Inventory at such date
consisting of line pipe held for sale in the ordinary course of the Red Man Group’s business,
calculated on the basis of the lower of cost or market.
For purposes hereof, the net amount of Eligible Red Man Business Accounts or Eligible Red Man
Business International Accounts, as the case may be, at any time shall be the face amount of such
Eligible Red Man Business Accounts or such Eligible Red Man Business International
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Accounts, less any and all returns, discounts (which may, at Agent’s option, be calculated on
shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at
such time.
“Increased Amount Date” shall have the meaning provided in Section 2.14.
“Indebtedness” of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person, provided that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
“Indemnified Taxes” shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
“Intercreditor Agreement” means an intercreditor agreement substantially in the form
of Exhibit O, as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
“Interest Period” shall mean, with respect to any Revolving Credit Loan, the interest
period applicable thereto, as determined pursuant to Section 2.9.
“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrower’s and its Subsidiaries’ operations and not for speculative purposes.
“Inventory” has the meaning assigned to such term in the Security Agreement.
“Inventory Appraisal” shall mean (a) on the Closing Date, with respect to the Credit
Parties other than the Red Man Group, the appraisal prepared by HILCO Appraisal Services, LLC dated
December 28, 2006 and (b) thereafter, the most recent inventory appraisal conducted by an
independent appraisal firm and delivered pursuant to Section 9.14 hereof.
“Investment” shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures,
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partnership or other ownership interests or other securities of any other Person (including
any “short sale” or any sale of any securities at a time when such securities are not owned by the
Person entering into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell such property to such
Person), but excluding any such advance, loan or extension of credit having a term not exceeding
364 days arising in the ordinary course of business; or (c) the entering into of any guarantee of,
or other contingent obligation with respect to, Indebtedness.
“Investors” shall mean the Sponsors, the Management Investors and each other investor
providing a portion of the Equity Investments on the Closing Date.
“Joinder Agreement” shall mean an agreement substantially in the form of
Exhibit M.
“L/C Maturity Date” shall mean the date that is five Business Days prior to the
Revolving Credit Maturity Date.
“L/C Participant” shall have the meaning provided in Section 3.3(a).
“L/C Participation” shall have the meaning provided in Section 3.3(a).
“Lender” shall have the meaning provided in the preamble to this Agreement.
“Lender Default” shall mean (a) the failure (which has not been cured) of a Lender to
make available its portion of any Borrowing or to fund its portion of any unreimbursed payment
under Section 3.3, (b) a Lender having notified the Administrative Agent and/or the
Borrower that it does not intend to comply with the obligations under Section 2.1(a),
2.1(b), 2.1(d) or 3.3, or (c) a Lender being deemed insolvent or becoming
the subject of a bankruptcy or insolvency proceeding.
“Letter of Credit” shall mean each letter of credit issued pursuant to Section
3.1.
“Letter of Credit Commitment” shall mean $60,000,000, as the same may be reduced from
time to time pursuant to Section 3.1.
“Letter of Credit Exposure” shall mean, with respect to any Lender, at any time, the
sum of (a) the amount of any Unpaid Drawings in respect of which such Lender has made (or is
required to have made) payments to the Letter of Credit Issuer pursuant to Section 3.4(a)
at such time and (b) such Lender’s Revolving Credit Commitment Percentage of the Letters of Credit
Outstanding at such time (excluding the portion thereof consisting of Unpaid Drawings in respect of
which the Lenders have made (or are required to have made) payments to the Letter of Credit Issuer
pursuant to Section 3.4(a)).
“Letter of Credit Fee” shall have the meaning provided in Section 4.1(b).
“Letter of Credit Issuer” shall mean JPMorgan Chase Bank, N.A. and any of its
Affiliates or any replacement or successor pursuant to Section 3.6. The Letter of Credit
Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Letter of
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Credit Issuer, and in each such case the term “Letter of Credit Issuer” shall include any such
Affiliate with respect to Letters of Credit issued by such Affiliate. In the event that there is
more than one Letter of Credit Issuer at any time, references herein and in the other Credit
Documents to the Letter of Credit Issuer shall be deemed to refer to the Letter of Credit Issuer in
respect of the applicable Letter of Credit or to all Letter of Credit Issuers, as the context
requires.
“Letters of Credit Outstanding” shall mean, at any time, the sum of, without
duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the
aggregate amount of all Unpaid Drawings in respect of all Letters of Credit.
“Letter of Credit Request” shall have the meaning provided in Section 3.2.
“Level I Status” shall mean, on any date, the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 2.75 to 1.00 as of such date.
“Level II Status” shall mean, on any date, the circumstance that Level I Status does
not exist and the Consolidated Total Debt to Consolidated EBITDA Ratio is greater than or equal to
2.00 to 1.00 as of such date.
“Level III Status” shall mean, on any date, the circumstance that the Consolidated
Total Debt to Consolidated EBITDA Ratio is less than 2.00 to 1.00 as of such date.
“LIBOR Loan” shall mean any LIBOR Revolving Credit Loan.
“LIBOR Rate” shall mean, in the case of any LIBOR Revolving Credit Loan, with respect
to each day during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest
determined on the basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate
screen as of 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest
Period multiplied by (b) the Statutory Reserve Rate. In the event that any such rate does not
appear on the applicable Page of the Telerate Service (or otherwise on such service), the
“LIBOR Rate” for the purposes of this paragraph shall be determined by reference to such
other publicly available service for displaying LIBOR rates as may be agreed upon by the
Administrative Agent and the Borrower or, in the absence of such agreement, the “LIBOR
Rate” for the purposes of this paragraph shall instead be the rate per annum notified to the
Administrative Agent by the Reference Lender as the rate at which the Reference Lender is offered
Dollar deposits at or about 11:00 a.m. (London time) two Business Days prior to the beginning of
such Interest Period in the interbank LIBOR market where the LIBOR and foreign currency and
exchange operations in respect of its LIBOR Loans are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its LIBOR Revolving Credit Loan, as the case may be, to be outstanding
during such Interest Period.
“LIBOR Revolving Credit Loan” shall mean any Revolving Credit Loan bearing interest at
a rate determined by reference to the LIBOR Rate.
“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
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foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
“Loan” shall mean any Revolving Credit Loan, Swingline Loan or New Revolving Loan made
by any Lender and Protective Advances made by Administrative Agent hereunder.
“Management Investors” shall mean the directors, management officers and employees of
the Borrower and its Subsidiaries who are investors in the Borrower (or any direct or indirect
parent thereof) on the Closing Date.
“Mandatory Borrowing” shall have the meaning provided in Section 2.1(d).
“Material Adverse Change” shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower and the other Credit Parties, taken
as a whole, to perform their respective payment obligations under this Agreement or any of the
other Credit Documents.
“Material Adverse Effect” shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower and the other Credit Parties, taken as a whole, to perform
their respective payment obligations under this Agreement or any of the other Credit Documents or
(c) the rights and remedies of the Administrative Agent , Collateral Agent and the Lenders under
this Agreement or any of the other Credit Documents.
“Material Subsidiary” shall mean, at any date of determination, each Restricted
Subsidiary of the Borrower (a) whose total assets at the last day of the Test Period ending on the
last day of the most recent fiscal period for which Section 9.1 Financials have been delivered were
equal to or greater than 5% of the consolidated total assets of the Borrower and the Restricted
Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to or greater
than 5% of the consolidated gross revenues of the Borrower and the Restricted Subsidiaries for such
period, in each case determined in accordance with GAAP.
“McJ Holding” shall have the meaning provided in the preamble to this Agreement.
“McJunkin Business” shall mean the business conducted by the Borrower and its
Subsidiaries other than the Red Man Business.
“Minimum Borrowing Amount” shall mean (a) with respect to a Borrowing of Revolving
Credit Loans, $1,000,000 and (b) with respect to a Borrowing of Swingline Loans, $250,000.
“Minimum Equity Investment Amount” shall have the meaning provided in the recitals
hereto.
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“Moody’s” shall mean Moody’s Investors Service, Inc. or any successor by merger or
consolidation to its business.
“Net Cash Proceeds” shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries, provided that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or evidencing
such Indebtedness requires that such Indebtedness be repaid upon consummation of such
Prepayment Event,
(iv) the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the Reinvestment Period to
reinvest) in the business of the Borrower or any of the Restricted Subsidiaries,
provided that any portion of such proceeds that has not been so reinvested
within such Reinvestment Period (with respect to such Prepayment Event, the “Deferred
Net Cash Proceeds”) shall, unless the Borrower or a Subsidiary has entered into a
binding commitment prior to the last day of such Reinvestment Period to reinvest such
proceeds, (x) be deemed to be Net Cash Proceeds of a Prepayment Event occurring on the last
day of such Reinvestment Period or 180 days after the date the Borrower or such Subsidiary
has entered into such binding commitment, as applicable, and (y) be applied to the repayment
of Revolving Loans in accordance with Section 5.2(b); and
(v) reasonable and customary fees.
“Net Orderly Liquidation Value” shall mean, the orderly liquidation value (net of
costs and expenses estimated to be incurred in connection with such liquidation) of the Eligible
Inventory that is estimated to be recoverable in an orderly liquidation of such Eligible Inventory,
as determined from time to time by reference to the most recent Inventory Appraisal.
“New Revolving Credit Commitments” shall have the meaning provided in Section
2.14.
“New Revolving Loan Lender” shall have the meaning provided in Section 2.14.
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“New Revolving Loans” shall have the meaning provided in Section 2.14.
“New Term Loan Commitments” shall have the meaning provided in the Term Loan Credit
Agreement.
“Non-Cash Charges” shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(provided that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
“Non-Consenting Lender” shall have the meaning provided in Section 14.7(b).
“Non-Core Assets” shall mean the assets described on Schedule 1.1(e).
“Non-Defaulting Lender” shall mean and include each Lender other than a Defaulting
Lender.
“Non-U.S. Lender” shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
“Non-U.S. Participant” shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
“Notice of Borrowing” shall mean each notice of a Borrowing of Revolving Credit Loans
pursuant to Section 2.3(b) and each notice of a Borrowing of Swingline Loans pursuant to
Section 2.3(c).
“Notice of Conversion or Continuation” shall have the meaning provided in Section
2.6.
“Obligations” shall have the meaning assigned to such term in the Security Documents.
“Organizational Documents” means (a) with respect to any corporation, its certificate
or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with
respect to any limited partnership, its certificate of limited partnership (if any), as amended,
and its partnership agreement, as amended, (c) with respect to any general partnership, its
partnership
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agreement, as amended, and (d) with respect to any limited liability company, its articles of
organization (if any), as amended, and its operating agreement, as amended.
“Original Closing Date” shall mean January 31, 2007.
“Original Transaction Expenses” shall have the meaning assigned to the term
“Transaction Expense” in the Existing Revolving Credit Agreement.
“Original Transactions” shall have the meaning assigned to the term “Transactions” in
the Existing Revolving Credit Agreement.
“Other Taxes” shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
“Participant” shall have the meaning provided in Section 14.6(c).
“Patriot Act” shall have the meaning provided in Section 14.18.
“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
“Perfection Certificate” shall mean a certificate of the Borrower in the form of
Exhibit E or any other form approved by the Administrative Agent.
“Permitted Acquisition” shall mean the acquisition, by merger or otherwise, by the
Borrower or any of the Restricted Subsidiaries of assets or Stock or Stock Equivalents, so long as
(a) such acquisition and all transactions related thereto shall be consummated in accordance with
applicable law; (b) such acquisition shall result in the issuer of such Stock or Stock Equivalents
becoming a Restricted Subsidiary and a Subsidiary Guarantor, to the extent required by Section
9.11; (c) such acquisition shall result in the Administrative Agent, for the benefit of the
Secured Parties, being granted a security interest in any Stock, Stock Equivalent or any assets so
acquired, to the extent required by Sections 9.11 and/or 9.17; (d) after giving
effect to such acquisition, no Default or Event of Default shall have occurred and be continuing;
(e) after giving effect to such acquisition, Excess Availability shall be equal to or greater than
$30,000,000 and (f) the Borrower shall be in compliance, on a Pro Forma Basis after giving effect
to such acquisition (including any Indebtedness assumed or permitted to exist or incurred pursuant
to Sections 10.1(B)(j) and 10.1(B)(k), respectively, and any related Pro Forma
Adjustment), with the covenants set forth in Section 10.9 of the Term Loan Credit
Agreement, as such covenant is recomputed as at the last day of the most recently ended Test Period
under such Section as if such acquisition had occurred on the first day of such Test Period.
Notwithstanding the definition of Borrowing Base, in connection with and subsequent to any
Permitted Acquisition, the Accounts and Inventory acquired by the Borrower or any Credit Party, or,
subject to compliance with Section 9.11 of the Credit Agreement, of the Person so
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acquired, may be included in the calculation of the Borrowing Base and thereafter if all
criteria set forth in the definitions of Eligible Accounts and Eligible Inventory and Borrowing
Base Guarantor have been satisfied and, if the aggregate value (or Cost in the case of Inventory)
of such Accounts and Inventory is in excess of $20,000,000 and only to the extent reasonably
requested by the Administrative Agent, the Administrative Agent shall have received a collateral
audit and appraisal of such Accounts and Inventory acquired by the applicable Credit Parties or
owned by such Person acquired by the applicable Credit Parties which shall be reasonably
satisfactory in scope, form and substance to the Administrative Agent; provided, that if no
collateral audit and appraisal is delivered to and approved by the Administrative Agent with
respect to such Accounts and Inventory, then the lowest recovery rates from the current Inventory
Appraisal shall apply to such Accounts and Inventory.
“Permitted Additional Debt” shall mean senior unsecured or subordinated Indebtedness,
issued by the Borrower or a Subsidiary Guarantor, (a) the terms of which (i) do not provide for any
scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 90
days following the final maturity of the Term Loans (as in effect on the Closing Date) (other than
customary offers to purchase upon a change of control, asset sale or event of loss and customary
acceleration rights after an event of default) and (ii) to the extent subordinated provide for
customary subordination to the Obligations under the Credit Documents, (b) the covenants, events of
default, guarantees and other terms of which (other than interest rate and redemption premiums),
taken as a whole, are not more restrictive to the Borrower and the Subsidiaries than those in this
Agreement; provided that a certificate of an Authorized Officer of the Borrower is
delivered to the Administrative Agents at least five Business Days (or such shorter period as the
Administrative Agents may reasonably agree) prior to the incurrence of such Indebtedness, together
with a reasonably detailed description of the material terms and conditions of such Indebtedness or
drafts of the documentation relating thereto, stating that the Borrower has determined in good
faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence
that such terms and conditions satisfy the foregoing requirement unless the Administrative Agents
notify the Borrower within such period that it disagrees with such determination (including a
reasonable description of the basis upon which it disagrees), and (c) of which no Subsidiary of the
Borrower (other than a Guarantor) is an obligor.
“Permitted Discretion” shall mean a determination made by Administrative Agent and/or
CIT, in its capacity as a Co-Collateral Agent, in the exercise of its reasonable credit judgment
(from the perspective of a secured asset-based lender), exercised in good faith and subject to
Section 15.2.
“Permitted Investments” shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any political
subdivision of any such state or any public instrumentality thereof having maturities of not
more than 12 months from the date of acquisition thereof and, at the
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time of acquisition, having an investment grade rating generally obtainable from either
S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations,
then from another nationally recognized rating service);
(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers’ acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moody’s, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets otherwise satisfying the requirements of this definition
(including this proviso) and (iv) other short-term investments utilized by Foreign
Restricted Subsidiaries in accordance with normal investment practices for cash management
in investments analogous to the foregoing investments in clauses (a) through (i).
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“Permitted Liens” shall mean:
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under Section 11.1;
(d) Liens incurred or deposits made in connection with workers’ compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by Section 10.5;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessor’s interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries, provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under Section 10.1(B);
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
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(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be, to
facilitate the operation of cash pooling and/or interest set-off arrangements in respect of
such bank accounts in the ordinary course of business.
“Permitted Sale Leaseback” shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Closing Date, provided that any
such Sale Leaseback not between the Borrower and any Guarantor or any Guarantor and another
Guarantor is consummated for fair value as determined at the time of consummation in good faith by
the Borrower or such Restricted Subsidiary and, in the case of any Sale Leaseback (or series of
related Sales Leasebacks) the aggregate proceeds of which exceed $25,000,000, the board of
directors of the Borrower or such Restricted Subsidiary (which such determination may take into
account any retained interest or other Investment of the Borrower or such Restricted Subsidiary in
connection with, and any other material economic terms of, such Sale Leaseback).
“Person” shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
“Plan” shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
“Platform” shall have the meaning provided in Section 14.17(b).
“Post-Acquisition Period” means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
“Prepayment Event” shall mean any Asset Sale Prepayment Event or Casualty Event.
“Prime Rate” means the rate of interest quoted in The Wall Street Journal, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nation’s thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
customer. The Administrative Agent or any other Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
“Pro Forma Adjustment” shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be,
projected by the Borrower in good faith as a result of (a) actions taken during such
Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired
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Entity or Business with the operations of the Borrower and the Restricted Subsidiaries;
provided that, so long as such actions are taken during such Post-Acquisition Period or
such costs are incurred during such Post-Acquisition Period, as applicable, it may be assumed, for
purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, that such cost savings will be realizable during the
entirety of such Test Period, or such additional costs, as applicable, will be incurred during the
entirety of such Test Period; provided further that any such pro forma increase or
decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without
duplication for cost savings or additional costs already included in such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, for such Test Period.
“Pro Forma Adjustment Certificate” shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to Section 9.1(h) or Section 9.1(d).
“Pro Forma Basis”, “Pro Forma Compliance” and “Pro Forma Effect” shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Capital Stock in any Subsidiary of the Borrower or any division, product line, or facility used for
operations of the Borrower or any of its Subsidiaries, shall be excluded, and (ii) in the case of a
Permitted Acquisition or Investment described in the definition of “Specified Transaction”, shall
be included, (b) any retirement of Indebtedness, and (c) any Indebtedness incurred or assumed by
the Borrower or any of the Restricted Subsidiaries in connection therewith and if such Indebtedness
has a floating or formula rate, shall have an implied rate of interest for the applicable period
for purposes of this definition determined by utilizing the rate which is or would be in effect
with respect to such Indebtedness as at the relevant date of determination; provided that,
without limiting the application of the Pro Forma Adjustment pursuant to (A) above, the foregoing
pro forma adjustments may be applied to any such test or covenant solely to the extent that such
adjustments are consistent with the definition of Consolidated EBITDA and give effect to events
(including operating expense reductions) that are (i) (x) directly attributable to such
transaction, (y) expected to have a continuing impact on the Borrower and the Restricted
Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of Pro
Forma Adjustment.
“Protective Advances” shall have the meaning provided in Section 2.15(a).
“Real Estate” shall have the meaning provided in Section 9.1(i).
“Red Man” shall have the meaning provided in the recitals to this Agreement.
“Red Man Business” shall mean the business conducted by the Red Man Group on the
Closing Date.
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“Red Man Distributors” shall mean a company to be formed after the Closing Date and
owned by the Borrower or a Borrowing Base Guarantor and certain existing shareholders of Red Man.
“Red Man Group” shall have the meaning provided in the definition of Incorporated
Borrowing Base.
“Red Man Transaction Agreement” shall have the meaning provided in the recitals to
this Agreement.
“Red Man Transaction” shall have the meaning provided in the recitals to this
Agreement.
“Reference Lender” shall mean JPMorgan Chase Bank, N.A. (or its successor).
“Register” shall have the meaning provided in Section 14.6(b)(iv).
“Regulation D” shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Reinvestment Period” shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
“Related Parties” shall mean, with respect to any specified Person, such Person’s
Affiliates and the directors, officers, employees, agents, trustees and advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
“Report” shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
“Reportable Event” shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
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“Required Lenders” shall mean, at any date, (a) Non-Defaulting Lenders having or
holding a majority of the Adjusted Total Revolving Credit Commitment at such date or (b) if the
Total Revolving Credit Commitment has been terminated or for the purposes of acceleration pursuant
to Section 11, the holders (excluding Defaulting Lenders) of a majority of the outstanding
principal amount of the Loans and Letter of Credit Exposures (excluding the Loans and Letter of
Credit Exposure of Defaulting Lenders) in the aggregate at such date.
“Requirement of Law” shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
“Reserves” shall mean any and all reserves which the Administrative Agent deems
necessary, in its Permitted Discretion, to from time to time establish against the gross amounts of
Eligible Accounts and Eligible Inventory.
“Restricted Foreign Subsidiary” shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
“Restricted Subsidiary” shall mean any Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
“Revolving Credit Commitment” shall mean, (a) with respect to each Lender that is a
Lender on the date hereof, the amount set forth opposite such Lender’s name on
Schedule 1.1(c) as such Lender’s “Revolving Credit Commitment” and (b) in the case of any
Lender that becomes a Lender after the date hereof, the amount specified as such Lender’s
“Revolving Credit Commitment” (which amount shall include the New Revolving Credit Commitment, if
any) in the Assignment and Acceptance pursuant to which such Lender assumed a portion of the Total
Revolving Credit Commitment, in each case as the same may be changed from time to time pursuant to
terms hereof. The aggregate amount of the Revolving Credit Commitment as of the Closing Date is
$650,000,000.
“Revolving Credit Commitment Percentage” shall mean at any time, for each Lender, the
percentage obtained by dividing (a) such Lender’s Revolving Credit Commitment by (b) the aggregate
amount of the Revolving Credit Commitments, provided that at any time when the Total
Revolving Credit Commitment shall have been terminated, each Lender’s Revolving Credit Commitment
Percentage shall be its Revolving Credit Commitment Percentage as in effect immediately prior to
such termination.
“Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the
sum of (a) the aggregate principal amount of the Revolving Credit Loans of such Lender then
outstanding, (b) such Lender’s Letter of Credit Exposure at such time, (c) such Lender’s Revolving
Credit Commitment Percentage of the aggregate principal amount of all outstanding Swingline Loans
and (d) such Lender’s Revolving Credit Commitment Percentage of the aggregate principal amount of
all outstanding Protective Advances; provided that, clause (d) of this definition shall be
disregarded with respect to any Protective Advance solely for purposes of
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calculating Excess Availability and solely to the extent that the making of such Protective
Advance would result in the occurrence of a Cash Dominion Event.
“Revolving Credit Loans” shall have the meaning provided in Section 2.1(b).
“Revolving Credit Maturity Date” shall mean the date that is six (6) years after the
Closing Date, or, if such date is not a Business Day, the next preceding Business Day.
“Revolving Credit Termination Date” shall mean the date on which the Revolving Credit
Commitments shall have terminated, no Revolving Credit Loans shall be outstanding and the Letters
of Credit Outstanding shall have been reduced to zero.
“Rollover Equity” shall have the meaning provided in the recitals hereto.
“Sale Leaseback” shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
“S&P” shall mean Standard & Poor’s Ratings Services or any successor by merger or
consolidation to its business.
“SEC” shall mean the Securities and Exchange Commission or any successor thereto.
“Section 9.1 Financials” shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officer’s
certificate delivered, or required to be delivered, pursuant to Section 9.1(d).
“Secured Leverage Ratio” shall mean, as of any date of determination, the ratio of (a)
Consolidated Secured Debt as of the last day of the relevant Test Period to (b) Consolidated EBITDA
for such Test Period.
“Secured Parties” shall have the meaning assigned to such term in the applicable
Security Documents.
“Security Agreement” shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of Exhibit G, as the same may be amended, supplemented or
otherwise modified from time to time.
“Security Documents” shall mean, collectively, (a) the Guarantee, (b) the Security
Agreement, (c) the Intercreditor Agreement and (d) each other security agreement or other
instrument or document executed and delivered pursuant to Section 9.11 or 9.17 or
pursuant to any of the Security Documents to secure any of the Obligations.
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“Sold Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Solvent” shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrower’s debt (including contingent liabilities) does not exceed the
present fair saleable value of the Borrower’s present assets; (ii) the Borrower’s capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is “solvent” within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, the amount of any contingent liability at any time shall be computed as the
amount that, in light of all of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability (irrespective of
whether such contingent liabilities meet the criteria for accrual under Statement of Financial
Accounting Standard No. 5).
“Specified Subsidiary” shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which Section 9.1 Financials
have been delivered were equal to or greater than 15% of the consolidated total assets of the
Borrower and the Subsidiaries at such date, (ii) whose gross revenues for such Test Period were
equal to or greater than 15% of the consolidated gross revenues of the Borrower and the
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiary’s total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in Section 11.5 would constitute a Specified Subsidiary under
clause (a) or (b) above.
“Specified Transaction” shall mean, with respect to any period, any Investment, sale,
transfer or other disposition of assets, incurrence or repayment of Indebtedness, Dividend,
Subsidiary designation, New Revolving Credit Commitment or other event that by the terms of this
Agreement requires “Pro Forma Compliance” with a test or covenant hereunder or requires
such test or covenant to be calculated on a “Pro Forma Basis.”
“Sponsor” shall mean GS Capital Partners V Fund, L.P. and its respective Affiliates.
“Stated Amount” of any Letter of Credit shall mean the maximum amount from time to
time available to be drawn thereunder, determined without regard to whether any conditions to
drawing could then be met.
“Status” shall mean, as to the Borrower as of any date, the existence of Level I
Status, Level II Status or Level III Status, as the case may be on such date. Changes in Status
resulting from changes in the Consolidated Total Debt to Consolidated EBITDA Ratio shall become
effective (the date of such effectiveness, the “Effective Date”) as of the first day
following the last day of the most recent fiscal year or period for which (a) Section 9.1
Financials are delivered to the Lenders under Section 9.1 and (b) an officer’s certificate
is delivered by the Borrower to
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the Lenders setting forth, with respect to such Section 9.1 Financials, the
then-applicable Status, and shall remain in effect until the next change to be effected pursuant to
this definition, provided that (i) if the Borrower shall have made any payments in respect
of interest or commitment fees during the period (the “Interim Period”) from and including
the Effective Date to but excluding the day any change in Status is determined as provided above,
then the amount of the next such payment due on or after such day shall be increased or decreased
by an amount equal to any underpayment or overpayment so made by the Borrower during such Interim
Period and (ii) each determination of the Consolidated Total Debt to Consolidated EBITDA Ratio
pursuant to this definition shall be made with respect to the Test Period ending at the end of the
fiscal period covered by the relevant financial statements.
“Statutory Reserve Rate” shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in effect
on that day (including any marginal, special, emergency or supplemental reserves), expressed as a
decimal, as prescribed by the Board and to which the Administrative Agent is subject, for
eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D
of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D.
LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
“Stock” shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
“Stock Equivalents” shall mean all securities convertible into or exchangeable for
Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or
not presently convertible, exchangeable or exercisable.
“Subordinated Indebtedness” shall mean Indebtedness of the Borrower or any Guarantor
that is by its terms subordinated in right of payment to the obligations of the Borrower and such
Guarantor, as applicable, under this Agreement.
“Subsidiary” of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries, (b) any partnership, association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries has more than a 50% equity interest at the time and (c)
with respect to the Borrower, Red Man Distributors. Unless otherwise expressly provided, all
references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower.
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“Subsidiary Guarantors” shall mean (a) each Domestic Subsidiary (other than an
Excluded Subsidiary) existing on the Closing Date and (b) each Domestic Subsidiary that becomes a
party to the Guarantee after the Closing Date pursuant to Section 9.11 or otherwise.
“Successor Borrower” shall have the meaning provided in Section 10.3(a).
“Super-Majority Lenders” shall mean, at any date, (a) Non-Defaulting Lenders having or
holding at least 75% of the Adjusted Total Revolving Credit Commitment at such date or (b) if the
Total Revolving Credit Commitment has been terminated, Non-Defaulting Lenders having or holding at
least 75% of the outstanding principal amount of the Loans and Letter of Credit Exposures
(excluding the Loans and Letter of Credit Exposure of Defaulting Lenders) in the aggregate at such
date.
“Swingline Commitment” shall mean $60,000,000.
“Swingline Lender” shall mean CIT in its capacity as lender of Swingline Loans
hereunder.
“Swingline Loans” shall have the meaning provided in Section 2.1(c).
“Swingline Maturity Date” shall mean, with respect to any Swingline Loan, the date
that is five Business Days prior to the Revolving Credit Maturity Date.
“Syndication Agent” shall mean Bank of America, N.A., together with its affiliates, as
the syndication agent for the Lenders under this Agreement and the other Credit Documents.
“Taxes” shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
“Term Loans” shall have the meaning provided in the recitals hereto.
“Term Loan Credit Agreement” shall mean that certain term loan credit agreement, as
amended, restated, increased or otherwise supplemented in accordance with the Intercreditor
Agreement, dated as of the Original Closing Date, by and among the Borrower, Lehman Commercial
Paper Inc., as administrative agent and collateral agent, Goldman Sachs Credit Partners L.P. and
Lehman Brothers Inc., as the co-lead arrangers and joint bookrunners, and Goldman Sachs Credit
Partners L.P., as the syndication agent.
“Test Period” shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
“Total Commitment” shall mean the Total Revolving Credit Commitment.
“Total Credit Exposure” shall mean, at any date, the Total Revolving Credit Commitment
at such date.
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“Total Revolving Credit Commitment” shall mean the sum of the Revolving Credit
Commitments of all the Lenders.
“Transaction Expenses” shall mean any fees or expenses incurred or paid by the
Borrower or any of its Subsidiaries in connection with the Transactions, this Agreement and the
other Credit Documents and the transactions contemplated hereby and thereby.
“Transactions” shall mean, collectively, the transactions contemplated by this
Agreement, the Term Loan Credit Agreement, the Red Man Transaction and the Equity Investments.
“Transfer” shall have the meaning provided in Section 2.15(b).
“Transfer Date” shall have the meaning provided in Section 2.15(b).
“Transferee” shall have the meaning provided in Section 14.6(e).
“Trigger Date” shall mean the date on which Section 9.1 Financials are delivered to
the Lenders under Section 9.1 for the fiscal quarter ending on March 31, 2008.
“Type” shall mean as to any Revolving Credit Loan, its nature as an ABR Loan or a
LIBOR Revolving Credit Loan.
“Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plan’s actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
“Unpaid Drawing” shall have the meaning provided in Section 3.4(a).
“Unrestricted Subsidiary” shall mean (a) any Subsidiary of the Borrower that is formed
or acquired after the Closing Date, provided that at such time (or promptly thereafter) the
Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice to the
Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted
Subsidiary by the Borrower in a written notice to the Administrative Agent, provided that
in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an
Investment on the date of such re-designation in an Unrestricted Subsidiary in an amount equal to
the sum of (i) the Borrower’s direct or indirect equity ownership percentage of the net worth of
such designation or re-designated Restricted Subsidiary immediately prior to such designation or
re-designation (such net worth to be calculated without regard to any guarantee provided by such
designated or re-designated Restricted Subsidiary) and (ii) the aggregate principal amount of any
Indebtedness owed by such designated or re-designated Restricted Subsidiary to the Borrower or any
other Restricted Subsidiary immediately prior to such designated or re-designation, all calculated,
except as set forth in the parenthetical to clause (i), on a consolidated basis in accordance with
GAAP and (y) no Default or Event of Default would result from such designation or re-designation
and (c) each Subsidiary of an Unrestricted Subsidiary; provided, however, that at
the time of any written designation or re-designation by the Borrower to the Administrative Agent
that any Unrestricted Subsidiary shall no longer
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constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall cease to be an
Unrestricted Subsidiary to the extent no Default or Event of Default would result from such
designation or re-designation. On or promptly after the date of its formation, acquisition,
designation or re-designation, as applicable, each Unrestricted Subsidiary (other than an
Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered into a tax sharing
agreement containing terms that, in the reasonable judgment of the Administrative Agent, provide
for an appropriate allocation of tax liabilities and benefits. An Unrestricted Subsidiary which
has been re-designated as a Restricted Subsidiary may not be subsequently re-designated as an
Unrestricted Subsidiary.
“Voting Stock” shall mean, with respect to any Person, such Person’s Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2 Other Interpretive Provisions. With reference to this Agreement and each other
Credit Document, unless otherwise specified herein or in such other Credit Document:
(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term “including” is by way of example and not limitation.
(e) The term “documents” includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including”; the words “to” and “until” each mean “to
but excluding”; and the word “through” means “to and including”.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3 Accounting Terms; Exchange Rates. (a) All accounting terms not specifically
or completely defined herein shall be construed in conformity with, and all financial data
(including financial ratios and other financial
calculations) required to be submitted pursuant to this Agreement shall be prepared in
conformity with, GAAP.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period
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during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to such
period and such Specified Transaction on a Pro Forma Basis.
(c) For purposes of determining compliance under Sections 7.1(d), 10.4, 10.5 (other than with
respect to determining the amount of any Indebtedness), and 10.6 with respect to any amount in a
Foreign Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on the
average Exchange Rate for a Foreign Currency for the most recent twelve-month period immediately
prior to the date of determination determined in a manner consistent with that used in calculating
Consolidated EBITDA for the related period. For purposes of determining compliance with Sections
10.1, 10.2 and 10.5, with respect to any amount of Indebtedness in a Foreign Currency, compliance
will be determined at the time of incurrence or advancing thereof using the Dollar Equivalent
thereof at the Exchange Rate in effect at the time of such incurrence or advancement.
1.4 Rounding. Any financial ratios required to be maintained by the Borrower pursuant
to this Agreement (or required to be satisfied in order for a specific action to be permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5 References to Agreements, Laws, Etc. Unless otherwise expressly provided herein,
(a) references to Organization Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such Applicable Law.
SECTION 2.Amount and Terms of Credit
2.1
Commitments. (a) [Intentionally Omitted]
(b) (i) Subject to and upon the terms and conditions herein set forth, each Lender having
a Revolving Credit Commitment severally agrees to make a loan or loans denominated in Dollars (each
a “Revolving Credit Loan” and, collectively, the “Revolving Credit Loans”) to the
Borrower which Revolving Credit Loans (A) shall be made at any time and from time to time on and
after the Closing Date and prior to the Revolving Credit Maturity Date, (B) may, at the option of
the Borrower be incurred and maintained as, and/or converted into, ABR Loans or LIBOR Revolving
Credit Loans, provided that all Revolving Credit Loans made by each of the Lenders pursuant
to the same Borrowing shall, unless otherwise specifically provided herein, consist entirely of
Revolving Credit Loans of the same Type, (C) may be repaid and reborrowed in accordance with the
provisions hereof, (D) shall not, for any such Lender at any time, after giving effect thereto and
to the application of the proceeds thereof, result in such Lender’s Revolving Credit Exposure at
such time exceeding such Lender’s Revolving Credit Commitment
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at such time and (E) shall not, after
giving effect thereto and to the application of the proceeds thereof, result at any time in the
aggregate amount of the Lenders’ Revolving Credit Exposures at such time exceeding the lesser of
the Total Revolving Credit Commitment and the Borrowing Base then in effect.
(ii) Each Lender may at its option make any LIBOR Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan, provided that (A) any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan and (B) in
exercising such option, such Lender shall use its reasonable efforts to minimize any increased
costs to the Borrower resulting therefrom (which obligation of the Lender shall not require it to
take, or refrain from taking, actions that it determines would result in increased costs for which
it will not be compensated hereunder or that it determines would be otherwise disadvantageous to it
and in the event of such request for costs for which compensation is provided under this Agreement,
the provisions of Section 3.5 shall apply). On the Revolving Credit Maturity Date, all
Revolving Credit Loans shall be repaid in full.
(c) Subject to and upon the terms and conditions herein set forth, the Swingline Lender in its
individual capacity agrees, at any time and from time to time on and after the Closing Date and
prior to the Swingline Maturity Date, to make a loan or loans (each a “Swingline Loan” and,
collectively, the “Swingline Loans”) to the Borrower in Dollars, which Swingline Loans (i)
shall be ABR Loans, (ii) shall have the benefit of the provisions of Section 2.1(d),
(iii) shall not exceed at any time outstanding the Swingline Commitment, (iv) shall not, after
giving effect thereto and to the application of the proceeds thereof, result at any time in the
aggregate amount of the Lenders’ Revolving Credit Exposures at such time exceeding the lesser of
Total Revolving Credit Commitment and the Borrowing Base then in effect and (v) may be repaid and
reborrowed in accordance with the provisions hereof. On the Swingline Maturity Date, each
outstanding Swingline Loan shall be repaid in full. The Swingline Lender shall not make any
Swingline Loan after receiving a written notice from the Borrower or any Lender stating that a
Default or Event of Default exists and is continuing until such time as the Swingline Lender shall
have received written notice of (i) rescission of all such notices from the party or parties
originally delivering such notice or (ii) the waiver of such Default or Event of Default in
accordance with the provisions of Section 14.1.
(d) On any Business Day, the Swingline Lender may, in its sole discretion, and shall at least
weekly, give notice to the Lenders with a Revolving Credit Commitment that all then-
outstanding Swingline Loans shall be funded with a Borrowing of Revolving Credit Loans, in
which case Revolving Credit Loans constituting ABR Loans (each such Borrowing, a “Mandatory
Borrowing”) shall be made on the immediately succeeding Business Day by all Lenders with a
Revolving Credit Commitment pro rata based on each Lender’s Revolving Credit Commitment Percentage,
and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline
Lender for such outstanding Swingline Loans. Each Lender with a Revolving Credit Commitment hereby
irrevocably agrees to make such Revolving Credit Loans upon one Business Day’s notice pursuant to
each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on
the date specified to it in writing by the Swingline Lender notwithstanding (i) that the amount of
the Mandatory Borrowing may not comply with the minimum amount for each Borrowing specified in
Section 2.2, (ii) whether any conditions specified in Section 7 are then satisfied,
(iii) whether a Default or
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an Event of Default has occurred and is continuing, (iv) the date of
such Mandatory Borrowing or (v) any reduction in the Total Commitment after any such Swingline
Loans were made. In the event that, in the sole judgment of the Swingline Lender, any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above (including as a result
of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each
Lender with a Revolving Credit Commitment hereby agrees that it shall forthwith purchase from the
Swingline Lender (without recourse or warranty) such participation of the outstanding Swingline
Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably based
upon their respective Revolving Credit Commitment Percentages, provided that all
principal and interest payable on such Swingline Loans shall be for the account of the Swingline
Lender until the date the respective participation is purchased and, to the extent attributable to
the purchased participation, shall be payable to the Lender purchasing same from and after such
date of purchase.
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. The aggregate
principal amount of each Borrowing of Revolving Credit Loans shall be in a multiple of $1,000,000
and Swingline Loans shall be in a multiple of $250,000 and, in each case, shall not be less than
the Minimum Borrowing Amount with respect thereto (except that Mandatory Borrowings shall be made
in the amounts required by Section 2.1(d)). More than one Borrowing may be incurred on any
date, provided that at no time shall there be outstanding more than six (6) Borrowings of
LIBOR Loans under this Agreement.
2.3 Notice of Borrowing. (a) [Intentionally Omitted.]
(b) Whenever the Borrower desires to incur Revolving Credit Loans (other than Mandatory
Borrowings or borrowings to repay Unpaid Drawings), it shall give the Administrative Agent at the
Administrative Agent’s Office, (i) prior to 1:00 p.m. (New York City Time) at least three Business
Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing
of LIBOR Revolving Credit Loans, and (ii) written notice prior to 10:00 a.m. (New York City time)
on the date of such Borrowing (or telephonic notice promptly confirmed in writing) of each
Borrowing of ABR Loans. Such Notice of Borrowing, except as otherwise expressly provided in
Section 2.10, shall specify (i) the
aggregate principal amount of the Revolving Credit Loans to be made pursuant to such
Borrowing, (ii) the date of Borrowing (which shall be a Business Day) and (iii) whether the
respective Borrowing shall consist of ABR Loans or LIBOR Revolving Credit Loans and, if LIBOR
Revolving Credit Loans, the Interest Period to be initially applicable thereto. The Administrative
Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in
writing) of each proposed Borrowing of Revolving Credit Loans, of such Lender’s proportionate share
thereof and of the other matters covered by the related Notice of Borrowing.
(c) Whenever the Borrower desires to incur Swingline Loans hereunder, it shall give the
Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Swingline Loans prior to 1:00 p.m. (New York City time) on the date of such Borrowing.
Each such notice shall specify (i) the aggregate principal amount of the Swingline Loans to be
made pursuant to such Borrowing and (ii) the date of Borrowing (which shall be a Business Day).
The Administrative Agent shall promptly give the Swingline Lender written
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notice (or telephonic
notice promptly confirmed in writing) of each proposed Borrowing of Swingline Loans and of the
other matters covered by the related Notice of Borrowing.
(d) Mandatory Borrowings shall be made upon the notice specified in Section 2.1(d),
with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of
Mandatory Borrowings as set forth in such Section.
(e) Borrowings to reimburse Unpaid Drawings shall be made upon the notice specified in
Section 3.4(a).
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the Borrower. In each such
case, the Borrower hereby waives the right to dispute the Administrative Agent’s record of the
terms of any such telephonic notice.
2.4 Disbursement of Funds. (a) No later than 12:00 Noon (New York City time) on
the date specified in each Notice of Borrowing (including Mandatory Borrowings), each Lender will
make available its pro rata portion, if any, of each Borrowing requested to be made on such date in
the manner provided below, provided that all Swingline Loans shall be made available in the
full amount thereof by the Swingline Lender no later than 3:00 p.m. (New York City time) on the
date requested.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the Administrative
Agent at the Administrative Agent’s Office and the Administrative Agent will (except in the case of
Mandatory Borrowings and Borrowings to repay Unpaid Drawings) make available to the Borrower, by
depositing to an account designated by the Borrower to the Administrative Agent the aggregate of
the amounts so made available in Dollars. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of any such
Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent by
such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand
therefor the Administrative Agent shall promptly notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent
shall also be entitled to recover from such Lender or the Borrower interest on such corresponding
amount in respect of each day from the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (i) if paid by such Lender, the Federal Funds
Effective Rate or (ii) if paid
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by the Borrower, the then-applicable rate of interest or fees,
calculated in accordance with Section 2.8, for the respective Loans.
(c) Nothing in this Section 2.4 shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Revolving Credit
Maturity Date, the then-unpaid Revolving Credit Loans made to the Borrower. The Borrower shall
repay to the Administrative Agent in Dollars, for the account of the Swingline Lender, on the
Swingline Maturity Date, the then-unpaid Swingline Loans.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to Section 14.6(b),
and a sub account for each Lender, in which Register and subaccounts (taken together) shall be
recorded (i) the amount of each Loan made hereunder, whether such Loan is a Revolving Credit Loan
or a Swingline Loan, as applicable, the Type of each Loan made and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to become due and payable
from the Borrower to each Lender or the Swingline Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder from the Borrower and each
Lender’s share thereof. After the occurrence and during the continuation of an Event of
Default, the Register shall be available for inspection by any Lender (solely with respect to its
own interest) at any reasonable time and upon reasonable prior notice.
(d) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.5 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or
any error therein, shall not in any manner affect the obligation of the Borrower to repay (with
applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of
this Agreement.
2.6 Conversions and Continuations. (a) The Borrower shall have the option on any
Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of the
outstanding principal amount of Revolving Credit Loans made to the Borrower (as applicable) of one
Type into a Borrowing or Borrowings of another Type and the Borrower shall have the option on any
Business Day to continue the outstanding principal amount of any LIBOR Revolving Credit Loans as
LIBOR Revolving Credit Loans for an additional Interest Period, on the last Business Day of the
existing Interest Period, provided that (i) no partial conversion of
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LIBOR Revolving Credit Loans shall reduce the outstanding principal amount of LIBOR Revolving
Credit Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount, (ii)
ABR Loans may not be converted into LIBOR Revolving Credit Loans if a Default or Event of Default
is in existence on the date of the conversion and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such conversion, (iii) LIBOR
Loans may not be continued as LIBOR Loans for an additional Interest Period if an Event of Default
is in existence on the date of the proposed continuation and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such continuation
and (iv) Borrowings resulting from conversions pursuant to this Section 2.6 shall be
limited in number as provided in Section 2.2. Each such conversion or continuation shall
be effected by the Borrower by giving the Administrative Agent at the Administrative Agent’s Office
prior to 1:00 p.m. (New York City time) at least three Business Days’ prior written notice or
written notice prior to 10:00 a.m. (New York City time) on the same Business Day in the case of a
conversion into ABR Loans (or, in each case, telephonic notice promptly confirmed in writing)
(each, a “Notice of Conversion or Continuation”) specifying the Revolving Credit Loans to
be so converted or continued, the Type of Revolving Credit Loans to be converted or continued into
and, if such Revolving Credit Loans are to be converted into or continued as LIBOR Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent shall give each
Lender notice as promptly as practicable of any such proposed conversion or continuation affecting
any of its Revolving Credit Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans shall
be automatically converted on the last day of the current Interest Period into ABR Loans. If upon
the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed to elect a
new Interest Period to be applicable thereto as provided in paragraph (a) above, the Borrower shall
be deemed to have elected to continue such Borrowing of LIBOR Loans into a Borrowing of ABR Loans,
effective as of the expiration date of such current Interest Period.
2.7 Pro Rata Borrowings. Each Borrowing of Revolving Credit Loans under this Agreement shall be granted by the
Lenders pro rata on the basis of their then-applicable Revolving Credit Commitments. It is
understood that (a) no Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its
commitments hereunder and (b) other than as expressly provided herein with respect to a Defaulting
Lender, failure by a Lender to perform any of its obligations under any of the Credit Documents
shall not release any Person from performance of its obligation under any Credit Document.
2.8 Interest. (a) The unpaid principal amount of each ABR Loan shall bear interest from the date of
the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum
that shall at all times be the Applicable ABR Margin plus the ABR in effect from time to time.
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(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate per annum
that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest (including post-petition interest in any proceeding under
the Bankruptcy Code or other applicable bankruptcy laws) at a rate per annum that is (x) in the
case of overdue principal, the rate that would otherwise be applicable thereto plus 2% or
(y) in the case of any overdue interest, to the extent permitted by applicable law, the rate
described in Section 2.8(a) plus 2% from and including the date of such non-payment
to but excluding the date on which such amount is paid in full (after as well as before judgment).
Payment or acceptance of the increased rates of interest provided for in this Section 2.8 is not a
permitted alternative to timely payment and shall not constitute a waiver of any Event of Default
or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case of
an Interest Period in excess of three months, on each date occurring at three-month intervals after
the first day of such Interest Period, (iii) in respect of each Loan (except, other than in the
case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with Section
5.5.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on all
parties hereto.
2.9 Interest Periods. At the time the Borrower gives a Notice of Borrowing or Notice of Conversion or
Continuation in respect of the making of, or conversion into or continuation as, a Borrowing of
LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior to 10:00 a.m.
(New York City time) on the third Business Day prior to the expiration of an Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in writing) the
Interest Period applicable to such Borrowing, which Interest Period shall, at the option of
the Borrower be a one, two, three, six or (if available to all the Lenders as determined by such
Lenders in good faith based on prevailing market conditions) a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
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(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date of
such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Revolving Credit Loans begins on
the last Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of the calendar month at the end of such Interest Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day, provided that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period if such Interest Period
would extend beyond the applicable maturity date of such Loan.
2.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) below, the Administrative Agent or
(y) in the case of clauses (ii) and (iii) below, any Lender shall have reasonably determined (which
determination shall, absent clearly demonstrable error, be final and conclusive and binding upon
all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
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then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Revolving Credit Loans shall no longer be available until such time
as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving
rise to such notice by the Administrative Agent no longer exist (which notice the Administrative
Agent agrees to give at such time when such circumstances no longer exist), and any Notice of
Borrowing or Notice of Conversion given by the Borrower with respect to LIBOR Revolving Credit
Loans that have not yet been incurred shall be deemed rescinded by the Borrower (y) in the case of
clause (ii) above, the Borrower shall pay to such Lender, promptly after receipt of written demand
therefor such additional amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its reasonable discretion shall determine) as
shall be required to compensate such Lender for such increased costs or reductions in amounts
receivable hereunder (it being agreed that a written notice as to the additional amounts owed to
such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the
Borrower by such Lender shall, absent clearly demonstrable error, be final and conclusive and
binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take
one of the actions specified in Section 2.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in Section
2.10(a)(ii) or (iii), the Borrower may (and in the case of a LIBOR Loan affected
pursuant to Section 2.10(a)(iii) shall) either (x) if the affected LIBOR Loan is then being
made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a
Lender pursuant to Section 2.10(a)(ii) or (iii) or (y) if the affected LIBOR Loan
is then outstanding, upon at least three Business Days’ notice to the Administrative Agent, require
the affected Lender to convert each such LIBOR Revolving Credit Loan into an ABR Loan,
provided that if more than one Lender is affected at any time, then all affected Lenders
must be treated in the same manner pursuant to this Section 2.10(b).
(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or administration
thereof, or compliance by a Lender or its parent with any request or directive made or adopted
after the date hereof regarding capital adequacy (whether or not having the force of law) of any
such authority, association, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender’s or its parent’s or its Affiliate’s
capital or assets as a consequence of such Lender’s commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such Lender’s or its
parent’s policies with respect to capital adequacy), then from time to time, promptly after demand
by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender or its parent for such reduction,
it being understood and agreed, however, that a Lender shall not be entitled to
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such compensation
as a result of such Lender’s compliance with, or pursuant to any request or directive to comply
with, any such law, rule or regulation as in effect on the date hereof. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant to this Section
2.10(c), will give prompt written notice thereof to the Borrower which notice shall set forth
in reasonable detail the basis of the calculation of such additional amounts, although the failure
to give any such notice shall not, subject to Section 2.13, release or diminish the
Borrower’s obligations to pay additional amounts pursuant to this Section 2.10(c) upon
receipt of such notice.
(d) It is understood that to the extent duplicative of Section 5.4, this Section
2.10 shall not apply to Taxes.
2.11 Compensation. If (a) any payment of principal of any LIBOR Loan is made by the Borrower to or for the
account of a Lender other than on the last day of the Interest Period for such LIBOR Loan as a
result of a payment or conversion pursuant to Section 2.5, 2.6, 2.10, 5.1, 5.2 or
14.7, as a result of acceleration of the maturity of the Loans pursuant to Section
11 or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a result of a
withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a result of a
withdrawn Notice of Conversion or Continuation, (d) any LIBOR Loan is not continued as an LIBOR
Loan, as the case may be, as a result of a withdrawn Notice of Conversion or Continuation or (e)
any prepayment of principal of any LIBOR Loan is not made as a result of a withdrawn notice of
prepayment pursuant to Section 5.1 or 5.2, the Borrower shall, after receipt of a written
request by such Lender (which request shall set forth in reasonable detail the basis for requesting
such amount), pay to the Administrative Agent for the account of such Lender any amounts required
to compensate such Lender for any additional losses, costs or expenses that such Lender may
reasonably incur as a result of such payment, failure to convert, failure to continue or failure to
prepay, including any loss, cost or expense (excluding loss of anticipated profits) actually
incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such LIBOR Loan.
2.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of
Section 2.10(a)(ii), 2.10(a)(iii), 2.10(b), 3.5 or 5.4 with
respect to such Lender, it will, if requested by the Borrower use reasonable efforts (subject to
overall policy considerations of such Lender) to designate another lending office for any Loans
affected by such event, provided that such designation is made on such terms that such
Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object
of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this Section 2.12
shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided
in Section 2.10, 3.5 or 5.4.
2.13 Notice of Certain Costs. Notwithstanding anything in this Agreement to the contrary, to the extent any notice
required by Section 2.10, 2.11, 3.5 or 5.4 is given by any Lender more than
180 days after such Lender has knowledge (or should have had knowledge) of the occurrence of the
event giving rise to the additional cost, reduction in amounts, loss, tax or other additional
amounts described in such Sections, such Lender shall not be entitled to compensation under
Section 2.10, 2.11, 3.5 or 5.4, as the case may be, for any such
amounts incurred or accruing prior to the 181st day prior to the giving of such notice to the
Borrower;
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provided that if the event giving rise to such additional cost, reduction in
amounts, loss, tax or other additional amounts has a retroactive effect, then the 180 day period
referred to above shall be extended to include the period of retroactive effect thereof.
2.14 Incremental Facilities. (a) Borrower may by written notice to Administrative Agent elect to request the
establishment of one or more increases in Revolving Credit Commitments (the “New Revolving
Credit Commitments”) by an aggregate amount (together with any New Term Loan Commitments
obtained after the Closing Date) not in excess of the aggregate amounts permitted by clauses (w),
(x) & (y) hereafter and not less than $10,000,000 individually (or such lesser amount which shall
be approved by Administrative Agent). Each such notice shall specify the date (each, an
“Increased Amount Date”) on which the Borrower proposes that the New Revolving Credit
Commitments shall be effective, which shall be a date not less than ten Business Days after the
date on which such notice is delivered to Administrative Agent. The New Revolving Credit
Commitments (together with any New Term Loan Commitments obtained after the Closing Date) shall not
exceed the sum of: (w) up to $200,000,000 solely to the extent used to fund the exercise of the
CanHCo Call Right (as defined under the Red Man Transaction Agreement as in effect on the date
hereof) and the refinancing of certain indebtedness of Midfield Supply Co., plus (x) up to
an additional $150,000,000, plus (y) only after the entire amount in the preceding clause
(x) has been drawn, an amount such that on a Pro Forma Basis after giving effect to the borrowings
to be made on the Increased Amount Date (which shall be deemed to be equal to the amount of the New
Revolving Credit Commitments for the purposes of this clause (y)) and all Specified Transactions
after the beginning of the relevant Test Period but prior to or simultaneous with such borrowing,
the Secured Leverage Ratio shall equal or be less than 4.75 to 1.00; provided that any
Lender offered or approached to provide all or a portion of the New Revolving Credit Commitments
may elect or decline, in its sole discretion, to provide a New Revolving Credit Commitments. Such
New Revolving Credit Commitments shall become effective, as of such Increased Amount Date;
provided that (i) no Default or Event of Default shall exist on such Increased Amount Date
before or after giving effect to such New Revolving Credit Commitments, as applicable; (ii) both
before and after giving effect to the making of any New Revolving Loans, each of the conditions set
forth in Section 7 shall be satisfied; (iii) Borrower and its Subsidiaries shall be in Pro
Forma Compliance with the Borrowing Base as of the last day of the most recently ended fiscal
quarter after giving
effect to such New Revolving Credit Commitments and any Specified Transaction to be
consummated in connection therewith; (iv) the New Revolving Credit Commitments shall be effected
pursuant to one or more Joinder Agreements executed and delivered by the Borrower and
Administrative Agent, and each of which shall be recorded in the Register and shall be subject to
the requirements set forth in Section 5.4(d) and (e); (v) Borrower shall make any
payments required pursuant to Section 2.11 in connection with the New Revolving Credit
Commitments, as applicable; and (vi) Borrower shall deliver or cause to be delivered any legal
opinions or other documents reasonably requested by Administrative Agent in connection with any
such transaction.
(b) On any Increased Amount Date on which New Revolving Loan Commitments are effected, subject
to the satisfaction of the foregoing terms and conditions, (i) each of the Lenders with Revolving
Credit Commitments shall assign to each Lender with a New Revolving Credit Commitment (each, a
“New Revolving Loan Lender”) and each of the New Revolving Loan Lenders shall purchase from
each of the Lenders with Revolving Credit Commitments, at the
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principal amount thereof (together
with accrued interest), such interests in the Revolving Credit Loans outstanding on such Increased
Amount Date as shall be necessary in order that, after giving effect to all such assignments and
purchases, such Revolving Credit Loans will be held by existing Lenders with Revolving Credit Loans
and New Revolving Loan Lenders ratably in accordance with their Revolving Credit Commitments after
giving effect to the addition of such New Revolving Credit Commitments to the Revolving Credit
Commitments, (ii) each New Revolving Credit Commitment shall be deemed for all purposes a Revolving
Credit Commitment and each Loan made thereunder (a “New Revolving Loan”) shall be deemed,
for all purposes, a Revolving Credit Loan and (iii) each New Revolving Loan Lender shall become a
Lender with respect to the New Revolving Loan Commitment and all matters relating thereto.
(c) [Intentionally Omitted].
(d) The terms and provisions of the New Revolving Loans and New Revolving Credit Commitments
shall be identical to the Revolving Credit Loans and the Revolving Credit Commitments.
(e) Each Joinder Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Credit Documents as may be necessary or appropriate, in
the opinion of the Administrative Agent, to effect the provision of this Section 2.14.
2.15 Protective Advances. (a) Subject to the limitations set forth below, the Administrative Agent is authorized
by the Borrower and the Lenders, from time to time in the Administrative Agent’s sole discretion
(but shall have absolutely no obligation to), to make Loans to the Borrower, on behalf of all
Lenders, which the Administrative Agent, in its Permitted Discretion, deems necessary or desirable
(i) to preserve or protect the Collateral or any portion thereof or (ii) to enhance the likelihood
of, or maximize the amount of, repayment of the Loans and other Obligations (any of such Loans are
herein referred to as “Protective Advances”); provided that no Protective Advance
shall cause the aggregate amount of the Lenders’ Revolving Credit
Exposures at such time exceed the Total Revolving Credit Commitment then in effect;
provided further that, the aggregate amount of Protective Advances outstanding at
any time pursuant to clauses (i) and (ii) above shall not exceed an amount equal to five percent
(5%) of the Total Revolving Credit Commitment then in effect. Protective Advances may be made even
if the conditions precedent set forth in Section 7 have not been satisfied. The Protective
Advances shall be secured by the Liens in favor of the Collateral Agent in and to the Collateral
and shall constitute Obligations hereunder. All Protective Advances shall be ABR Borrowings. The
Administrative Agent’s authorization to make Protective Advances may be revoked at any time by the
Required Lenders. Any such revocation must be in writing and shall become effective prospectively
upon the Administrative Agent’s receipt thereof. At any time that there is sufficient Excess
Availability and the conditions precedent set forth in Section 7 have been satisfied, the
Administrative Agent may request the Lenders to make a Revolving Loan to repay a Protective
Advance. At any other time the Administrative Agent may require the Lenders to fund their risk
participations described in Section 2.15(b).
(b) Upon the making of a Protective Advance by the Administrative Agent (whether before or
after the occurrence of a Default or Event of Default), each Lender shall be deemed,
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without further action by any party hereto, to have unconditionally and irrevocably purchased from the
Administrative Agent without recourse or warranty, an undivided interest and participation in such
Protective Advance in proportion to its Revolving Credit Commitment Percentage. Each Lender shall
transfer (a “Transfer”) the amount of such Lender’s Revolving Credit Commitment Percentage
of the outstanding principal amount of the applicable Protective Advance with respect to such
purchased interest and participation promptly when requested to the Administrative Agent, to such
account of the Administrative Agent as the Administrative Agent may designate, but in any case not
later than 3:00 p.m., New York City time, on the Business Day notified (if notice is provided by
the Administrative Agent prior to 12:00 p.m. New York City time, and otherwise on the immediately
following Business Day (the “Transfer Date”). Transfers may occur during the existence of
a Default or Event of Default and whether or not the applicable conditions precedent set forth in
Section 7 have then been satisfied. Such amounts transferred to the Administrative Agent
shall be applied against the amount of the Protective Advance and, together with Lender’s Revolving
Credit Commitment Percentage of such Protective Advance, shall constitute Loans of such Lenders,
respectively. If any such amount is not transferred to the Administrative Agent by any Lender on
such Transfer Date, the Administrative Agent shall be entitled to recover such amount on demand
from such Lender together with interest thereon as specified in Section 2.08. From and
after the date, if any, on which any Lender is required to fund, and funds, its participation in
any Protective Advance purchased hereunder, the Administrative Agent shall promptly distribute to
such Lender, such Lender’s Revolving Credit Commitment Percentage of all payments of principal and
interest and all proceeds of Collateral received by the Administrative Agent in respect of such
Protective Advance.
SECTION 3. Letters of Credit
3.1 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, at any time and
from time to time after the Closing Date and prior to the L/C Maturity Date, the Letter of
Credit Issuer agrees to issue upon the request of, and for the benefit of the Borrower and the
Restricted Subsidiaries letters of credit in Dollars (the “Letters of Credit” and each, a
“Letter of Credit”) in such form as may be approved by the Letter of Credit Issuer in its
reasonable discretion; provided that the Borrower shall be a co-applicant, and
jointly and severally liable with respect to, each Letter of Credit issued for the account of a
Restricted Subsidiary.
Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of
which, when added to the Letters of Credit Outstanding at such time, would exceed the Letter of
Credit Commitment then in effect; (ii) no Letter of Credit shall be issued the Stated Amount of
which would cause the aggregate amount of the Lender’s Revolving Credit Exposures at such time to
exceed the lesser of the Total Revolving Credit Commitment and the Borrowing Base then in effect;
(iii) each Letter of Credit shall have an expiration date occurring no later than one year after
the date of issuance thereof, unless otherwise agreed upon by the Administrative Agent and the
Letter of Credit Issuer; provided, that (x) that in no event shall such expiration date
occur later than the L/C Maturity Date and (y) each Letter of Credit may, upon the request of the
Borrower, include a provision whereby such Letter of Credit shall be renewed automatically for
additional consecutive periods of twelve (12) months or less (but not beyond the L/C Maturity
Date); (iv) each Letter of Credit shall be denominated in Dollars; (v) no Letter of Credit shall be
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issued if it would be illegal under any applicable law for the beneficiary of the Letter of Credit
to have a Letter of Credit issued in its favor; (vi) no Letter of Credit shall be issued if such
Letter of Credit is not in form reasonably acceptable to the Letter of Credit Issuer, and (vii) no
Letter of Credit shall be issued by a Letter of Credit Issuer after it has received a written
notice from any Credit Party or any Lender stating that a Default or Event of Default has occurred
and is continuing until such time as the Letter of Credit Issuer shall have received a written
notice of (x) rescission of such notice from the party or parties originally delivering such notice
or (y) the waiver of such Default or Event of Default in accordance with the provisions of
Section 14.1.
(b) Upon at least one Business Day’s prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent and the Letter of Credit Issuer (which notice the
Administrative Agent shall promptly transmit to each of the applicable Lenders), the Borrower shall
have the right, on any day, permanently to terminate or reduce the Letter of Credit Commitment in
whole or in part, provided that, after giving effect to such termination or reduction, the
Letters of Credit Outstanding shall not exceed the Letter of Credit Commitment.
(c) Except as otherwise agreed between the Borrower and the Letter of Credit Issuer, each
Letter of Credit (other than each standby Letter of Credit), shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as from time to time amended, and to the extent not inconsistent therewith,
shall also be subject to the New York Uniform Commercial Code as in effect from time to time.
Except as otherwise agreed between the Borrower and the Letter of Credit Issuer, each standby
Letter of Credit shall be subject to The International Standby Practices (ISP98 – International
Chamber of Commerce Publication No. 590), as from time to time amended, and to the extent not
inconsistent therewith, shall also be subject to the New York Uniform Commercial Code as in effect
from time to time.
(d) The parties hereto agree that the Existing Letters of Credit shall be deemed Letters of
Credit for all purposes under this Agreement, without any further action by the Borrower.
3.2 Letter of Credit Requests. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account,
it shall give the Administrative Agent and the Letter of Credit Issuer at least five (or such
lesser number as may be agreed upon by the Administrative Agent and the Letter of Credit Issuer)
Business Days’ written notice thereof. Each notice shall be executed by the Borrower and shall be
in the form of Exhibit H (each a “Letter of Credit Request”). The Administrative
Agent shall promptly transmit copies of each Letter of Credit Request to each Lender.
(b) The making of each Letter of Credit Request shall be deemed to be a representation and
warranty by the Borrower that the Letter of Credit may be issued in accordance with, and will not
violate the requirements of, Section 3.1(b).
3.3 Letter of Credit Participations. (a) Immediately upon the issuance by the Letter of Credit Issuer of any Letter of
Credit (and on the Closing Date in respect of Existing Letters of Credit), the Letter of Credit
Issuer shall be deemed to have sold and transferred to each other
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Lender (each such other Lender,
in its capacity under this Section 3.3, an “L/C Participant”), and each such L/C
Participant shall be deemed irrevocably and unconditionally to have purchased and received from the
Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation
(each an “L/C Participation”), to the extent of such L/C Participant’s Revolving Credit
Commitment Percentage in such Letter of Credit, each substitute letter of credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto; provided that the Letter of Credit Fees
will be paid directly to the Administrative Agent for the ratable account of the L/C Participants
as provided in Section 4.1(b) and the L/C Participants shall have no right to receive any
portion of any Fronting Fees.
(b) In determining whether to pay under any Letter of Credit, the relevant Letter of Credit
Issuer shall have no obligation relative to the L/C Participants other than to confirm that any
documents required to be delivered under such Letter of Credit have been delivered and that they
appear to comply on their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by the relevant Letter of Credit Issuer under or in connection with any Letter
of Credit issued by it, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for the Letter of Credit Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit
issued by it and the Borrower shall not have repaid such amount in full to the respective Letter of
Credit Issuer pursuant to Section 3.4(a), the Letter of Credit Issuer shall promptly notify
the Administrative Agent and each applicable L/C Participant of such failure, and each such L/C
Participant shall promptly and unconditionally pay to the Administrative Agent for the account of
the Letter of Credit Issuer, the amount of such L/C Participant’s Revolving Credit
Commitment Percentage of such unreimbursed payment in Dollars and in immediately available
funds; provided, however, that no L/C Participant shall be obligated to pay to the
Administrative Agent for the account of the respective Letter of Credit Issuer its Revolving Credit
Commitment Percentage of such unreimbursed amount arising from any wrongful payment made by the
Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of the Letter of Credit Issuer. If the Letter
of Credit Issuer so notifies, prior to 11:00 a.m. (New York City time) on any Business Day, any L/C
Participant required to fund a payment under a Letter of Credit, such L/C Participant shall make
available to the Administrative Agent for the account of the Letter of Credit Issuer such L/C
Participant’s Revolving Credit Commitment Percentage of the amount of such payment on such Business
Day in immediately available funds. If and to the extent such L/C Participant shall not have so
made its Revolving Credit Commitment Percentage of the amount of such payment available to the
Administrative Agent for the account of the Letter of Credit Issuer, such L/C Participant agrees to
pay to the Administrative Agent for the account of the Letter of Credit Issuer, forthwith on
demand, such amount, together with interest thereon for each day from such date until the date such
amount is paid to the Administrative Agent for the account of the Letter of Credit Issuer at the
Federal Funds Effective Rate. The failure of any L/C Participant to make available to the
Administrative Agent for the account of the Letter of Credit Issuer its Revolving Credit Commitment
Percentage of any payment under any Letter of Credit shall not relieve any other L/C Participant of
its obligation hereunder to make available to the Administrative Agent for the account of the
Letter of Credit Issuer its Revolving Credit Commitment Percentage of any payment under such Letter
of Credit on the date required, as specified above, but no L/C
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Participant shall be responsible for
the failure of any other L/C Participant to make available to the Administrative Agent such other
L/C Participant’s Revolving Credit Commitment Percentage of any such payment.
(d) Whenever the Letter of Credit Issuer receives a payment in respect of an unpaid
reimbursement obligation as to which the Administrative Agent has received for the account of the
Letter of Credit Issuer any payments from the L/C Participants pursuant to paragraph (c) above, the
Letter of Credit Issuer shall pay to the Administrative Agent and the Administrative Agent shall
promptly pay to each L/C Participant that has paid its Revolving Credit Commitment Percentage of
such reimbursement obligation, in Dollars and in immediately available funds, an amount equal to
such L/C Participant’s share (based upon the proportionate aggregate amount originally funded by
such L/C Participant to the aggregate amount funded by all L/C Participants) of the principal
amount of such reimbursement obligation and interest thereon accruing after the purchase of the
respective L/C Participations.
(e) The obligations of the L/C Participants to make payments to the Administrative Agent for
the account of a Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and
not subject to counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this Agreement under
all circumstances, including under any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the
other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit, any
transferee of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, the Letter of Credit Issuer, any Lender or
other Person, whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default;
provided, however, that no L/C Participant shall be obligated to pay to the
Administrative Agent for the account of the Letter of Credit Issuer its Revolving Credit Commitment
Percentage of any unreimbursed amount arising from any wrongful payment made by the Letter of
Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer.
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3.4 Agreement to Repay Letter of Credit Drawings. (a) The Borrower hereby agrees to reimburse the relevant Letter of Credit Issuer, by
making payment in Dollars to the Administrative Agent in immediately available funds for any
payment or disbursement made by the Letter of Credit Issuer under any Letter of Credit (each such
amount so paid until reimbursed, an “Unpaid Drawing”) no later than the date that is one
Business Day after the date on which the Borrower receives notice of such payment or reimbursement
(the “Reimbursement Date”), with interest on the amount so paid or disbursed by the Letter
of Credit Issuer, to the extent not reimbursed prior to 5:00 p.m. (New York City time) on the
Reimbursement Date, from and including the Reimbursement Date to but excluding the date the Letter
of Credit Issuer is reimbursed therefor at a rate per annum that shall at all times be the
Applicable ABR Margin plus the ABR as in effect from time to time, provided that,
notwithstanding anything contained in this Agreement to the contrary, (i) unless the Borrower shall
have notified the Administrative Agent and the relevant Letter of Credit Issuer prior to 10:00 a.m.
(New York City time) on the Reimbursement Date that the Borrower intends to reimburse the relevant
Letter of Credit Issuer for the amount of such drawing with funds other than the proceeds of Loans,
the Borrower shall be deemed to have given a Notice of Borrowing requesting that, with respect to
Letters of Credit, the Lenders with Revolving Credit Commitments make Revolving Credit Loans (which
shall be ABR Loans) on the Reimbursement Date in the amount of such drawing and (ii) the
Administrative Agent shall promptly notify each relevant L/C Participant of such drawing and the
amount of its Revolving Credit Loan to be made in respect thereof, and each L/C Participant shall
be irrevocably obligated to make a Revolving Credit Loan to the Borrower in the manner deemed to
have been requested in the
amount of its Revolving Credit Commitment Percentage of the applicable Unpaid Drawing by 12:00
noon (New York City time) on such Reimbursement Date by making the amount of such Revolving Credit
Loan available to the Administrative Agent. Such Revolving Credit Loans shall be made without
regard to the Minimum Borrowing Amount. The Administrative Agent shall use the proceeds of such
Revolving Credit Loans solely for purpose of reimbursing the Letter of Credit Issuer for the
related Unpaid Drawing.
(b) (i) The obligations of the Borrower under this Section 3.4 to reimburse the Letter
of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall
be absolute and unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment that the Borrower or any other Person may have or have had
against the Letter of Credit Issuer, the Administrative Agent or any Lender (including in its
capacity as an L/C Participant), including any defense based upon the failure of any drawing under
a Letter of Credit (each a “Drawing”) to conform to the terms of the Letter of Credit or
any non-application or misapplication by the beneficiary of the proceeds of such Drawing,
provided that the Borrower shall not be obligated to reimburse the Letter of Credit Issuer
for any wrongful payment made by the Letter of Credit Issuer under the Letter of Credit issued by
it as a result of acts or omissions constituting willful misconduct or gross negligence on the part
of the Letter of Credit Issuer.
(ii) The Borrower further agrees with the Letter of Credit Issuer that the Letter of Credit
Issuer shall not be responsible for, and the Borrower’s reimbursement obligations under Section
3.4 shall not be affected by, among other things, (A) the validity or genuineness of documents
or of any endorsements thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, (B) any dispute between or among the Borrower and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be transferred, (C)
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any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such
transferee, or (D) any change in the time, manner or place of payment of, or in any other term of,
all or any of the Obligations of the Borrower in respect of any Letter of Credit or any other
amendment or waiver of or any consent to departure from the terms of any Letter of Credit or any
document executed or delivered in connection with the issuance or payment thereof
3.5 Increased Costs. If after the date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or administration
thereof, or actual compliance by the Letter of Credit Issuer or any L/C Participant with any
request or directive made or adopted after the date hereof (whether or not having the force of
law), by any such authority, central bank or comparable agency shall either (a) impose, modify or
make applicable any reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by the Letter of Credit Issuer, or any L/C Participant’s L/C Participation therein,
or (b) impose on the Letter of Credit Issuer or any L/C Participant any other conditions affecting
its obligations under this Agreement in respect of Letters of Credit or L/C Participations therein
or any Letter of Credit or such L/C Participant’s L/C Participation therein, and the result of any
of the foregoing is to increase the cost to the Letter of Credit Issuer or such L/C Participant of
issuing, maintaining or participating in any Letter of Credit, or to reduce the
amount of any sum received or receivable by the Letter of Credit Issuer or such L/C
Participant hereunder (other than any such increase or reduction attributable to taxes) in respect
of Letters of Credit or L/C Participations therein, then, promptly after receipt of written demand
to the Borrower by the Letter of Credit Issuer or such L/C Participant, as the case may be, (a copy
of which notice shall be sent by the Letter of Credit Issuer or such L/C Participant to the
Administrative Agent (with respect to Letter of Credit issued on account of the Borrower)) the
Borrower shall pay to the Letter of Credit Issuer or such L/C Participant such additional amount or
amounts as will compensate the Letter of Credit Issuer or such L/C Participant for such increased
cost or reduction, it being understood and agreed, however, that the Letter of Credit Issuer or a
L/C Participant shall not be entitled to such compensation as a result of such Person’s compliance
with, or pursuant to any request or directive to comply with, any such law, rule or regulation as
in effect on the date hereof. A certificate submitted to the Borrower by the relevant Letter of
Credit Issuer or a L/C Participant, as the case may be, (a copy of which certificate shall be sent
by the Letter of Credit Issuer or such L/C Participant to the Administrative Agent (with respect to
Letters of Credit issued on account of the Borrower)) setting forth in reasonable detail the basis
for the determination of such additional amount or amounts necessary to compensate the Letter of
Credit Issuer or such L/C Participant as aforesaid shall be conclusive and binding on the Borrower
absent clearly demonstrable error.
3.6 New or Successor Letter of Credit Issuer. (a) The Letter of Credit Issuer may resign as a Letter of Credit Issuer upon 60 days’
prior written notice to the Administrative Agent, the Lenders and the Borrower. The Borrower may
replace the Letter of Credit Issuer for any reason upon written notice to the Administrative Agent
and the Letter of Credit Issuer. The Borrower may add Letter of Credit Issuers at any time upon
notice to the Administrative Agent. If the Letter of Credit Issuer shall resign or be replaced, or
if the Borrower shall decide to add a new Letter of Credit Issuer under this Agreement, then the
Borrower may appoint from among the Lenders a successor issuer of Letters of Credit or a new Letter
of Credit Issuer, as the case may be, or, with the consent of the Administrative Agent (such
consent not to be unreasonably
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withheld), another successor or new issuer of Letters of Credit,
whereupon such successor issuer shall succeed to the rights, powers and duties of the replaced or
resigning Letter of Credit Issuer under this Agreement and the other Credit Documents, or such new
issuer of Letters of Credit shall be granted the rights, powers and duties of a Letter of Credit
Issuer hereunder, and the term “Letter of Credit Issuer” shall mean such successor or such new
issuer of Letters of Credit effective upon such appointment. At the time such resignation or
replacement shall become effective, the Borrower shall pay to the resigning or replaced Letter of
Credit Issuer all accrued and unpaid fees pursuant to Sections 4.1(c) and
4.1(d). The acceptance of any appointment as a Letter of Credit Issuer hereunder whether
as a successor issuer or new issuer of Letters of Credit in accordance with this Agreement, shall
be evidenced by an agreement entered into by such new or successor issuer of Letters of Credit, in
a form satisfactory to the Borrower and the Administrative Agent and, from and after the effective
date of such agreement, such new or successor issuer of Letters of Credit shall become a “Letter of
Credit Issuer” hereunder. After the resignation or replacement of a Letter of Credit Issuer
hereunder, the resigning or replaced Letter of Credit Issuer shall remain a party hereto and shall
continue to have all the rights and obligations of a Letter of Credit Issuer under this Agreement
and the other Credit Documents with respect to Letters of Credit issued by it prior to such
resignation or replacement, but shall not be required to issue additional Letters of
Credit. In connection with any resignation or replacement pursuant to this clause (a) (but,
in case of any such resignation, only to the extent that a successor issuer of Letters of Credit
shall have been appointed), either (i) the Borrower, the resigning or replaced Letter of Credit
Issuer and the successor issuer of Letters of Credit shall arrange to have any outstanding Letters
of Credit issued by the resigning or replaced Letter of Credit Issuer replaced with Letters of
Credit issued by the successor issuer of Letters of Credit or (ii) the Borrower shall cause the
successor issuer of Letters of Credit, if such successor issuer is reasonably satisfactory to the
replaced or resigning Letter of Credit Issuer, to issue “back-stop” Letters of Credit naming the
resigning or replaced Letter of Credit Issuer as beneficiary for each outstanding Letter of Credit
issued by the resigning or replaced Letter of Credit Issuer, which new Letters of Credit shall have
a face amount equal to the Letters of Credit being back-stopped and the sole requirement for
drawing on such new Letters of Credit shall be a drawing on the corresponding back-stopped Letters
of Credit. After any resigning or replaced Letter of Credit Issuer’s resignation or replacement as
Letter of Credit Issuer, the provisions of this Agreement relating to a Letter of Credit Issuer
shall inure to its benefit as to any actions taken or omitted to be taken by it (A) while it was a
Letter of Credit Issuer under this Agreement or (B) at any time with respect to Letters of Credit
issued by such Letter of Credit Issuer.
(b) To the extent that there are, at the time of any resignation or replacement as set forth
in clause (a) above, any outstanding Letters of Credit, nothing herein shall be deemed to impact or
impair any rights and obligations of any of the parties hereto with respect to such outstanding
Letters of Credit (including, without limitation, any obligations related to the payment of Fees or
the reimbursement or funding of amounts drawn), except that the Borrower, the resigning or replaced
Letter of Credit Issuer and the successor issuer of Letters of Credit shall have the obligations
regarding outstanding Letters of Credit described in clause (a) above.
3.7 Role of the Letter of Credit Issuer. (a) The responsibility of the Letter of Credit Issuer to the Borrower in connection
with any draft presented for payment under any Letter of Credit shall, in addition to any payment
obligation expressly provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such
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Letter of Credit in connection with such
presentment are in conformity with such Letter of Credit. In addition, each Lender and the
Borrower agree that, in paying any drawing or demand for payment under any Letter of Credit, the
Letter of Credit Issuer of such Letter of Credit shall not have any responsibility to inquire as to
the validity or accuracy of any document presented in connection with such drawing or demand for
payment or the authority of the Person executing or delivering the same. In determining whether to
pay under any Letter of Credit, the relevant Letter of Credit Issuer shall have no obligation
relative to the Borrower other than to confirm that any documents required to be delivered under
such Letter of Credit have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken by the relevant
Letter of Credit Issuer under or in connection with any Letter of Credit issued by it, if taken or
omitted in the absence of gross negligence or willful misconduct, shall not create for the Letter
of Credit Issuer any resulting liability.
(b) Neither the Letter of Credit Issuer nor any of the respective correspondents, participants
or assignees of the Letter of Credit Issuer shall be liable to any Lender for: (i) any
action taken or omitted in connection herewith in respect of any Letter of Credit at the
request or with the approval or deemed approval of the Required Lenders; (ii) any action taken or
omitted in respect of any Letter of Credit in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of
Credit or any document delivered in connection with the issuance or payment of such Letter of
Credit.
SECTION 4. Fees; Commitments
4.1 Fees. (a) (i) The Borrower agrees to pay to the Administrative Agent in Dollars, for the account of
each Lender (in each case pro rata according to the respective Revolving Credit Commitments of all
such Lenders), a commitment fee for each day from and including the Closing Date to but excluding
the Revolving Credit Termination Date. Such commitment fee shall be payable in arrears (x) on the
last day of each March, June, September and December (for the three-month period (or portion
thereof) ended on such day for which no payment has been received) and (y) on the Revolving Credit
Termination Date (for the period ended on such date for which no payment has been received pursuant
to clause (x) above), and shall be computed for each day during such period at a rate per annum
equal to the Commitment Fee Rate in effect on such day on the Available Commitments in effect on
such day.
(ii) Notwithstanding the foregoing, the Borrower shall not be obligated to pay any amounts to
any Defaulting Lender pursuant to this Section 4.1.
(b) The Borrower agrees to pay to the Administrative Agent in Dollars for the account of the
Lenders pro rata on the basis of their respective Letter of Credit Exposure, a fee in respect of
each Letter of Credit (the “Letter of Credit Fee”), for the period from and including the
date of issuance of such Letter of Credit to but excluding the termination date of such Letter of
Credit computed at the per annum rate for each day equal to the Applicable LIBOR Margin for
Revolving Credit Loans minus 0.125% per annum on the average daily Stated Amount of such Letter of
Credit. Such Letter of Credit Fees shall be due and payable quarterly in arrears on the last day
of each March, June, September and December and on the date upon which the Total Revolving Credit
Commitment terminates and the Letters of Credit Outstanding shall have been reduced to zero.
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(c) The Borrower agrees to pay to the Administrative Agent in Dollars for the account of the
Letter of Credit Issuer a fee in respect of each Letter of Credit issued by it (the “Fronting
Fee”), for the period from and including the date of issuance of such Letter of Credit to but
excluding the termination date of such Letter of Credit, computed at the rate for each day equal to
0.125% per annum on the average daily Stated Amount of such Letter of Credit (or at such other rate
per annum as agreed in writing between the Borrower and the Letter of Credit Issuer). Such
Fronting Fees shall be due and payable quarterly in arrears on the last day of each March, June,
September and December and on the date upon which the Total Revolving Credit Commitment terminates
and the Letters of Credit Outstanding shall have been reduced to zero.
(d) The Borrower agrees to pay directly to the Letter of Credit Issuer in Dollars upon each
issuance of, drawing under, and/or amendment of, a Letter of Credit issued by it such amount as the
Letter of Credit Issuer and the Borrower shall have agreed upon for issuances of, drawings under or
amendments of, letters of credit issued by it.
(e) The Borrower agrees to pay to each of the Co-Collateral Agents, for its own account, fees
in the amounts and at the times set forth in the Co-Collateral Agent Fee Letters.
4.2 Voluntary Reduction of Revolving Credit Commitments. Upon at least one Business Day’s prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at the Administrative Agent’s Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower (on
behalf of itself) shall have the right, without premium or penalty, on any day, permanently to
terminate or reduce the Revolving Credit Commitments in whole or in part, provided that (a)
any such reduction shall apply proportionately and permanently to reduce the Revolving Credit
Commitment of each of the Lenders, (b) any partial reduction pursuant to this Section 4.2
shall be in the amount of at least $5,000,000 and (c) after giving effect to such termination or
reduction and to any prepayments of the Loans made on the date thereof in accordance with this
Agreement, the aggregate amount of the Lenders’ Revolving Credit Exposures shall not exceed the
lesser of the Total Revolving Credit Commitment and the Borrowing Base then in effect.
4.3 Mandatory Termination of Commitments. (a) [Intentionally Omitted.]
(b) The Total Revolving Credit Commitment shall terminate at 5:00 p.m. (New York City time) on
the Revolving Credit Maturity Date.
(c) The Swingline Commitment shall terminate at 5:00 p.m. (New York City time) on the
Swingline Maturity Date.
SECTION 5. Payments
5.1 Voluntary Prepayments. The Borrower shall have the right to prepay Revolving Credit Loans and Swingline Loans, in
each case, without premium or penalty, in whole or in part from time to time on the following terms
and conditions: (a) the Borrower shall give the Administrative Agent and at the Administrative
Agent’s Office written notice (or telephonic notice promptly confirmed in writing) of its intent to
make such prepayment, the amount of such prepayment and (in the case of LIBOR Loans) the specific
Borrowing(s) pursuant to which
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made, which notice shall be given by the Borrower no later than (i)
in the case of a LIBOR Loans, 12:00 noon (New York City time) three Business Days prior to or (ii)
in the case of ABR Loans, 12:00 noon (New York City time) on, the date of such prepayment and shall
promptly be transmitted by the Administrative Agent to each of the Lenders or the Swingline Lender,
as the case may be; (b) each partial prepayment of any Borrowing of Revolving Credit Loans shall be
in a multiple of $100,000 and
in an aggregate principal amount of at least $1,000,000 and each partial prepayment of
Swingline Loans shall be in a multiple of $10,000 and in an aggregate principal amount of at least
$250,000, provided that no partial prepayment of LIBOR Revolving Credit Loans made pursuant
to a single Borrowing shall reduce the outstanding LIBOR Revolving Credit Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount for LIBOR Revolving Credit Loans
and (c) any prepayment of LIBOR Revolving Credit Loans pursuant to this Section 5.1 on any
day other than the last day of an Interest Period applicable thereto shall be subject to compliance
by the Borrower with the applicable provisions of Section 2.11. At the Borrower’s election
in connection with any prepayment pursuant to this Section 5.1, such prepayment shall not
be applied to any Revolving Credit Loan of a Defaulting Lender.
5.2 Mandatory Prepayments. (a) [Intentionally Omitted].
(b) Repayment of Revolving Credit Loans. If on any date the aggregate amount of the
Lenders’ Revolving Credit Exposures (all the foregoing, collectively, the “Aggregate Revolving
Credit Outstandings”) exceeds 100% of the Total Revolving Credit Commitment or the Borrowing
Base as then in effect, the Borrower shall forthwith repay on such date first, the
principal amount of all Protective Advances, second, after all Protective Advances have
been paid in full, the principal amount of all Swingline Loans and third, after all
Swingline Loans have been paid in full, Revolving Credit Loans in an amount equal to such excess.
If, after giving effect to the prepayment of all outstanding Protective Advances, Swingline Loans
and Revolving Credit Loans, the Aggregate Revolving Credit Outstandings exceed the Total Revolving
Credit Commitment or Borrowing Base then in effect, the Borrower shall pay to the Administrative
Agent an amount in cash equal to such excess and the Administrative Agent shall instruct the
Collateral Agent to hold such payment for the benefit of the Lenders as security for the
obligations of the Borrower hereunder (including obligations in respect of Letters of Credit
Outstanding) pursuant to a cash collateral agreement to be entered into in form and substance
satisfactory to the Administrative Agent (which shall permit certain Investments in Permitted
Investments satisfactory to the Administrative Agent, until the proceeds are applied to the secured
obligations).
(c) [Intentionally Omitted].
(d) [Intentionally Omitted].
(e) Application to Revolving Credit Loans. With respect to each prepayment of
Revolving Credit Loans required by Section 5.2(b), the Borrower may designate (i) the Types
of Loans that are to be prepaid and the specific Borrowing(s) pursuant to which made and (ii) the
Revolving Credit Loans to be prepaid, provided that (y) each prepayment of any
Loans made pursuant to a Borrowing shall be applied pro rata among such Loans; and (z)
notwithstanding the provisions of the preceding clause (y), no prepayment made pursuant to
Section 5.2(b) of
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Revolving Credit Loans shall be applied to the Revolving Credit Loans of
any Defaulting Lender. In the absence of a designation by the Borrower as described in the
preceding sentence, the Administrative Agent shall, subject to the above, make such designation in
its reasonable discretion with a view, but no obligation, to minimize breakage costs owing under
Section 2.11.
(f) LIBOR Interest Periods. In lieu of making any payment pursuant to this
Section 5.2 in respect of any LIBOR Loan other than on the last day of the Interest Period
therefor so long as no Event of Default shall have occurred and be continuing, the Borrower at its
option may deposit with the Administrative Agent an amount equal to the amount of the LIBOR Loan to
be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest Period therefor in
the required amount. Such deposit shall be held by the Administrative Agent in a corporate time
deposit account established on terms reasonably satisfactory to the Administrative Agent, earning
interest at the then-customary rate for accounts of such type. Such deposit shall constitute cash
collateral for the Obligations, provided that the Borrower may at any time direct
that such deposit be applied to make the applicable payment required pursuant to this
Section 5.2.
5.3 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments under this
Agreement shall be made by the Borrower, without set-off, counterclaim or deduction of any kind, to
the Administrative Agent for the ratable account of the Lenders entitled thereto, the Letter of
Credit Issuer or the Swingline Lender entitled thereto, as the case may be, not later than 12:00
Noon (New York City time) on the date when due and shall be made in immediately available funds at
the Administrative Agent’s Office or at such other office as the Administrative Agent shall specify
for such purpose by notice to the Borrower, it being understood that written or facsimile notice by
the Borrower to the Administrative Agent to make a payment from the funds in the Borrower’s account
at the Administrative Agent’s Office shall constitute the making of such payment to the extent of
such funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City time)
shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect immediately prior
to such extension.
5.4 Net Payments. (a) Any and all payments made by or on behalf of the Borrower or any Guarantor under
this Agreement or any other Credit Document shall be made free and clear of, and without deduction
or withholding for or on account of, any Indemnified Taxes; provided that if the Borrower
or any Guarantor shall be required by law to deduct or withhold any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after making all
required deductions and withholdings (including deductions or withholdings applicable to additional
sums payable under this Section 5.4) the Administrative
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Agent, the Collateral Agent, the
Letter of Credit Issuer or any Lender, as the case may be, receives an
amount equal to the sum it would have received had no such deductions or withholdings been
made, (ii) the Borrower or any Guarantor shall make such deductions or withholdings and (iii) the
Borrower or any Guarantor shall pay the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law. Whenever any Indemnified Taxes are
payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt (or other evidence acceptable to such Lender, acting
reasonably) received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent, the
Collateral Agent, the Letter of Credit Issuer and each Lender with regard to any Other Taxes
(whether or not such Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, any Letter of Credit Issuer and each Lender within 15 Business Days after written demand
therefor, for the full amount of any Indemnified Taxes imposed on, or paid by, the Administrative
Agent, the Collateral Agent, the Letter of Credit Issuer or such Lender as the case may be, on or
with respect to any payment by or on account of any obligation of Borrower or any Guarantor under
this Agreement or under any other Credit Document (including Indemnified Taxes imposed or asserted
on or attributable to amounts payable under this Section 5.4) and any reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent,
any Letter of Credit Issuer or the Collateral Agent on its own behalf or on behalf of a Lender
shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of “portfolio interest”, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that
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any such form or
certification expires or becomes obsolete and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to Section 14.6 or a Lender pursuant to Section 14.6 shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this Section 5.4(d), provided that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax
under the laws of the jurisdiction in which any Borrower or Guarantor is organized, or any treaty
to which such jurisdiction is a party, with respect to payments under this Agreement or any other
Credit Document by such Borrower or Guarantor shall deliver to such Borrower or Guarantor (with a
copy to the Administrative Agent), as applicable, at the time or times prescribed by applicable law
and reasonably requested by such Borrower or Guarantor, as applicable, such properly completed and
executed documentation prescribed by applicable law as will permit such payments to be made without
such withholding or at such reduced rate, provided that such Lender is legally entitled to
complete, execute and deliver such documentation, such documentation is necessary in order for such
exemption or reduction to apply and in such Lender’s reasonable judgment the completion, execution
or submission would not materially prejudice the legal position of the Lender. In addition, each
Lender shall deliver such other documentation prescribed by applicable law and reasonably requested
by the Borrower or the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the
Borrower or the Administrative Agent to determine whether such Lender is subject to United States
backup withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting any
taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in a
reasonable challenge of such taxes at the Borrower’s expense if so requested by the Borrower. If
any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund of a
tax for which a payment has been made by the Borrower pursuant to this Agreement, which refund in
the good faith judgment of such Lender, the Administrative Agent or the Collateral Agent, as the
case may be, is attributable to such payment made by the Borrower, then the Lender, the
Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the Borrower for
such amount (together with any interest received thereon) as the Lender, Administrative Agent or
the Collateral Agent, as the case may be, determines to be the proportion of the refund as will
leave it, after such reimbursement, in no better or worse position (taking into account expenses or
any taxes imposed on the refund) than it would have been in if the payment had not been required.
A Lender, the Administrative Agent or the Collateral Agent shall claim any refund that it
determines is available to it, unless it concludes in its reasonable discretion that it would be
adversely affected by making such a claim. The Borrower, upon the request of the Lender, the
Administrative Agent or the Collateral Agent, as applicable, agrees to
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repay the amount paid over
to the Borrower to the Lender, the Administrative Agent or the Collateral Agent, as applicable, in
the event the Lender, the Administrative Agent or the Collateral Agent, as applicable, is required
to repay the refund to the Governmental Authority.
Neither the Lender, the Administrative Agent nor the Collateral Agent shall be obliged to
disclose any information regarding its tax affairs or computations to the Borrower in connection
with this paragraph (f) or any other provision of this Section 5.4.
(g) The agreements in this Section 5.4 shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
5.5 Computations of Interest and Fees. (a) Interest on LIBOR Loans and, except as provided in the next succeeding sentence,
ABR Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. Interest
on ABR Loans in respect of which the rate of interest is calculated on the basis of the Prime Rate
and interest on overdue interest shall be calculated on the basis of a 365- (or 366-, as the case
may be) day year for the actual days elapsed.
(b) Fees and Letters of Credit Outstanding shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed.
5.6 Limit on Rate of Interest.
(a) No Payment shall exceed Lawful Rate. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b) Payment at Highest Lawful Rate. If the Borrower is not obliged to make a payment
which it would otherwise be required to make, as a result of Section 5.6(a), the Borrower
shall make such payment to the maximum extent permitted by or consistent with applicable laws,
rules and regulations.
(c) Adjustment if any Payment exceeds Lawful Rate. If any provision of this Agreement
or any of the other Credit Documents would obligate the Borrower to make any payment of interest or
other amount payable to any Lender in an amount or calculated at a rate which would be prohibited
by any applicable law, rule or regulation, then notwithstanding such provision, such amount or rate
shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of
interest, as the case may be, as would not be so prohibited by law, such adjustment to be effected,
to the extent necessary, by reducing the amount or rate of interest required to be paid by the
Borrower to the affected Lender under Section 2.8.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum permitted by
any applicable law, rule or regulation, then the Borrower shall be entitled, by notice in writing
to the Administrative Agent to obtain reimbursement from that Lender in an amount equal to such
excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that
Lender to the Borrower.
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SECTION 6. Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1 Credit Documents. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Guarantee, executed and delivered by a duly authorized officer of each
Guarantor;
(c) the Security Agreement, executed and delivered by a duly authorized officer of each
grantor party thereto; and
(d) the Intercreditor Agreement, executed and delivered by a duly authorized officer of
each Credit Party, the Collateral Agent and Lehman Commercial Paper Inc., as collateral
agent under the Term Loan Credit Agreement.
6.2 [Reserved].
(b) All documents and instruments, including Uniform Commercial Code or other applicable
personal property and fixture security financing statements, required by law or reasonably
requested by the Collateral Agent, as applicable, to be filed, registered or recorded to create the
Liens intended to be created by the Security Agreement and perfect such Liens to the extent
required by, and with the priority required by, the Security Agreement shall have been filed,
registered or recorded or delivered to the Collateral Agent for filing, registration or recording
(except those to be filed, registered, recorded or delivered pursuant to Section 9.17(c)).
(c) [Intentionally Omitted].
(d) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3 Legal Opinions. The Administrative Agent shall have received the executed legal opinions of (a) Simpson
Thacher & Bartlett LLP, special New York counsel to the Borrower, substantially in the form of
Exhibit I-1 and (b) local counsel to the Borrower in certain jurisdictions as may be
reasonably requested by the Administrative Agent, substantially in the form(s) of Exhibit
I-2.
The Borrower, the other Credit Parties and the Administrative Agent hereby instruct such
counsel to deliver such legal opinions.
6.4 First Amendment to Term Loan Credit Agreement and Intercreditor Agreement. The Borrower
shall deliver to the Collateral Agent a fully-executed copy of the First
Amendment to Term Loan Credit Agreement and the Intercreditor Agreement.
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6.5 Equity Investments; Existing Indebtedness. (a) Equity Investments in an amount equal to not less than the Minimum Equity Investment
Amount shall have been made and (b) after giving effect to the Transactions, the Borrower and its
Subsidiaries shall have no outstanding Indebtedness other than (A) the loans and other extensions
of credit under the Revolving Credit Loans and the Term Loans and (B) other Indebtedness listed on
Schedule 10.1.
6.6 Closing Certificates. The Administrative Agent shall have received a certificate of each Credit Party, dated the
Closing Date, substantially in the form of Exhibit J, with appropriate insertions, executed
by the President or any Vice President and the Secretary or any Assistant Secretary of such Credit
Party, and attaching the documents referred to in Section 6.7.
6.7 Organizational Documents; Incumbency. The Administrative Agent shall have received a copy of (a) each Organizational Document of
each Credit Party certified, to the extent applicable, as of a recent date by the applicable
Governmental Authority, (b) signature and incumbency certificates of the Authorized Officers of
each Credit Party executing the Credit Documents to which it is a party; (c) resolutions of the
Board of Directors or similar governing body of each Credit Party (A) approving and authorizing the
execution, delivery and performance of Credit Documents to which it is a party and (B) in the case
of the Borrower, the extensions of credit contemplated hereunder, certified as of the Closing Date
by its secretary or an assistant secretary as being in full force and effect without modification
or amendment and (d) a good standing certificate from the applicable Governmental Authority of each
Credit Party’s jurisdiction of incorporation, organization or formation.
6.8 Fees. The Co-Lead Arrangers and the Collateral Agent shall have received the fees to be received
on the Closing Date set forth in the Fee Letter and the Collateral Agent Fee Letter, respectively.
The Lenders shall have received the fees in the amounts previously agreed in writing by the Agents
and such Lenders to be received on the Closing Date and all expenses (including the reasonable
fees, disbursements and other charges of counsel) for which invoices have been presented prior to
the Closing Date shall have been paid.
6.9 Representations and Warranties. On the Closing Date, the representations and warranties made by the Credit Parties in
Section 8.2, 8.3(a), Section 8.5 and Section 8.7, as they relate to
the Credit Parties at such time, shall be true and correct in all material respects.
6.10 Related Agreements. Administrative Agent shall have received a fully executed or conformed copy of the Red Man
Transaction Agreement which shall be in full force and effect.
6.11 Solvency Certificate. On the Closing Date, Administrative Agent shall have received a certificate from an
Authorized Officer of the Borrower, with appropriate attachments and demonstrating that after
giving effect to the consummation of the Transactions, the Borrower on a consolidated basis with
its Subsidiaries is Solvent.
6.12 Historical Financial Statements. Lenders shall have received the Historical Financial Statements.
6.13 Red Man Transaction. Concurrently with the initial Credit Event made hereunder, the Red Man Transaction shall
have been consummated in accordance with the terms
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of the Red Man Transaction Agreement, without
giving effect to any amendments or waivers thereto that are materially adverse to the Lenders
without the reasonable consent of the Agents.
6.14 Insurance. Certificates of insurance evidencing the existence of insurance to be maintained by the
Borrower pursuant to Section 9.3 and, if applicable, the designation of the Collateral
Agent as an additional insured and loss payee as its interest may appear thereunder, or solely as
the additional insured, as the case may be, thereunder (provided that if such endorsement
as additional insured cannot be delivered by the Closing Date, the Administrative Agent may consent
to such endorsement being delivered at such later date as it deems appropriate in the
circumstances).
6.15 Pro Forma Financial Statements. The Administrative Agent shall have received a pro forma consolidated balance sheet of
Borrower as of September 30, 2007 and a pro forma statement of income for the twelve month period
ending on such balance sheet date, in each case, after giving effect to the Transactions, together
with a certificate of an Authorized Officer of Borrower to the effect that such balance sheets
accurately present the pro forma financial position of Borrower and its Subsidiaries in a manner
consistent with previous disclosures to the Co-Lead Arrangers, unless disclosed in the notes to the
pro forma statements.
6.16 Borrowing Base Certificate. The Administrative Agent shall have received a Borrowing Base Certificate effective as of
the Business Day preceding the day such initial Loans are to be funded or any such initial Letter
of Credit is to be issued.
6.17 Initial Borrowings. The aggregate amount of the initial Loans and Letters of Credit hereunder on the Closing
Date shall not exceed $450,000,000.
SECTION 7. Conditions Precedent to All Credit Events
The agreement of each Lender to make any Loan requested to be made by it on any date
(excluding Mandatory Borrowings and Protective Advances) and the obligation of the Letter of Credit
Issuer to issue Letters of Credit on any date is subject to the satisfaction of the following
conditions precedent:
7.1 No Default; Representations and Warranties; Excess Availability. At the time of each Credit Event and also after giving effect thereto (other than any
Credit Event on the Closing Date) (a) no Default or Event of Default shall have occurred and be
continuing, (b) all representations and warranties made by any Credit Party contained herein or in
the other Credit Documents shall be true and correct in all material respects with the same effect
as though such representations and warranties had been made on and as of the date of such Credit
Event (except where such representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall have been true and correct in all material
respects as of such earlier date), (c) Excess Availability of not less than the amount of the
proposed Borrowing shall exist and (d) if Excess Availability (after giving effect to the proposed
Borrowing) is less than 7% of the then existing Total Revolving Credit Commitment, the Consolidated
Fixed Charge Coverage Ratio, calculated on a Pro Forma Basis on the date of such proposed Borrowing
and for the most recent Test Period, after giving effect to such proposed Borrowing and all
Specified
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Transactions after the beginning of the relevant Test Period but prior to or simultaneous
with such proposed Borrowing, would not be less than 1.0:1.0.
7.2 Notice of Borrowing; Letter of Credit Request. (a) [Intentionally Omitted].
(b) Prior to the making of each Revolving Credit Loan (other than any Revolving Credit Loan
made pursuant to Section 3.4(a)) and each Swingline Loan, the Administrative Agent shall
have received a Notice of Borrowing (whether in writing or by telephone) meeting the requirements
of Section 2.3.
(c) Prior to the issuance of each Letter of Credit, the Administrative Agent and the Letter of
Credit Issuer shall have received a Letter of Credit Request meeting the requirements of
Section 3.2(a).
The acceptance of the benefits of each Credit Event shall constitute a representation and warranty
by each Credit Party to each of the Lenders that all the applicable conditions specified above
exist as of that time.
SECTION 8. Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans and issue or
participate in Letters of Credit as provided for herein, the Borrower (with respect to itself and
its Subsidiaries) makes the following representations and warranties to, and agreements with, the
Lenders, all of which shall survive the execution and delivery of this Agreement and the making of
the Loans and the issuance of the Letters of Credit:
8.1 Corporate Status. The Borrower and each Material Subsidiary (a) is a duly organized and validly existing
corporation or other entity in good standing under the laws of the jurisdiction of its organization
and has the corporate or other organizational power and authority to own its property and assets
and to transact the business in which it is engaged and (b) has duly qualified and is authorized to
do business and is in good standing in all jurisdictions where it is required to be so qualified,
except where the failure to be so qualified could not reasonably be expected to result in a
Material Adverse Effect.
8.2 Corporate Power and Authority. Each Credit Party has the corporate or other organizational power and authority to execute,
deliver and carry out the terms and provisions of the Credit Documents to which it is a party and
has taken all necessary corporate or other organizational action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. Each Credit Party has
duly executed and delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and subject to general principles
of equity. Each Credit Party is in compliance with all laws, orders, writs and injunctions except
to the extent that failure to do so could not reasonably be expected to have a Material Adverse
Effect.
8.3 No Violation. Neither the execution, delivery or performance by any Credit Party of the Credit Documents
to which it is a party nor compliance with the terms and provisions
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thereof nor the consummation of
the Red Man Transaction and the other transactions contemplated hereby or thereby will (a)
contravene any applicable provision of any material law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (b) result in any breach of any
of the terms, covenants, conditions or provisions of, or constitute a default under, or result in
the creation or imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of such Credit Party or any of the Restricted Subsidiaries (other than Liens
created under the Credit Documents) pursuant to, the terms of any material indenture, loan
agreement, lease agreement, mortgage, deed of trust, agreement or other material instrument to
which such Credit Party or any of the Restricted Subsidiaries is a party or by which it or any
of its property or assets is bound or (c) violate any provision of the certificate of
incorporation, by-laws or other constitutional documents of such Credit Party or any of the
Restricted Subsidiaries.
8.4 Litigation. There are no actions, suits or proceedings (including Environmental Claims) pending or, to
the knowledge of the Borrower, threatened with respect to the Borrower or any of its Subsidiaries
that could reasonably be expected to result in a Material Adverse Effect or a Material Adverse
Change.
8.5 Margin Regulations. Neither Borrower nor any of its Subsidiaries is engaged principally, as one or more of its
important activities, in the business of extending credit for the purpose of purchasing any “margin
stock” as defined in Regulation U. Neither the making of any Loan hereunder nor the use of the
proceeds thereof will violate the provisions of Regulation T, U or X of the Board.
8.6 Governmental Approvals. The execution, delivery and performance of the Red Man Transaction Agreement or any Credit
Document does not require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except for (i) such as have been obtained or made and are in
full force and effect, (ii) filings and recordings in respect of the Liens created pursuant to the
Security Documents and (iii) such licenses, approvals, authorizations or consents the failure to
obtain or make could not reasonably be expected to have a Material Adverse Effect.
8.7 Investment Company Act. No Credit Party is an “investment company”, or a company “controlled” by an “investment
company”, within the meaning of the Investment Company Act of 1940, as amended.
8.8 True and Complete Disclosure. (a) None of the factual information and data (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of the Borrower, any of the Subsidiaries or any of
their respective authorized representatives in writing to the Administrative Agent and/or any
Lender on or before the Closing Date (including (i) the Confidential Information Memorandum and
(ii) all information contained in the Credit Documents) for purposes of or in connection with this
Agreement or any transaction contemplated herein contained any untrue statement or omitted to state
any material fact necessary to make such information and data (taken as a whole) not misleading at
such time in light of the circumstances under which such information or data was furnished, it
being understood and agreed that for purposes of this Section 8.8(a), such factual
information and data shall not include projections and pro forma financial information.
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(b) The projections and pro forma financial information contained in the information and data
referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may differ from the projected results.
8.9 Financial Condition; Financial Statements. The (a) unaudited historical consolidated financial information of the Borrower as set
forth in the Confidential Information Memorandum, and (b) the Historical Financial Statements, in
each case present or will, when provided, present fairly in all material respects the combined
financial position of the Borrower and its Subsidiaries at the respective dates of said
information, statements and results of operations for the respective periods covered thereby. The
financial statements referred to in clause (b) of this Section 8.9 have been prepared in
accordance with GAAP, consistently applied (except to the extent provided in the notes to said
financial statements), and the audit reports accompanying such financial statements are not subject
to any qualification as to the scope of the audit or the status of the Borrower as a going concern.
There has been no Material Adverse Change since December 31, 2006; provided, that on the
Closing Date, the representation in this sentence shall not apply to the Red Man Group.
8.10 Tax Returns and Payments. The Borrower and each of the Subsidiaries has filed all federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it and has paid all
income and other material Taxes payable by it that have become due, other than those (a) not yet
delinquent or (b) contested in good faith as to which adequate reserves have been provided in
accordance with GAAP and which could not reasonably be expected to result in a Material Adverse
Effect. The Borrower and each of the Subsidiaries have paid, or have provided adequate reserves
(in the good faith judgment of the management of the Borrower) in accordance with GAAP for the
payment of, all material federal, state, provincial and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the Closing Date.
8.11 Compliance with ERISA. (a) Each Plan is in compliance with ERISA, the Code and any applicable Requirement of
Law; no Reportable Event has occurred (or is reasonably likely to occur) with respect to any Plan;
no Plan is insolvent or in reorganization (or is reasonably likely to be insolvent or in
reorganization), and no written notice of any such insolvency or reorganization has been given to
the Borrower, any Subsidiary or any ERISA Affiliate; no Plan (other than a multiemployer plan) has
an accumulated or waived funding deficiency (or is reasonably likely to have such a deficiency);
none of the Borrower, any Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely
expected to incur) any liability to or on account of a Plan pursuant to Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or
has been notified in writing that it will incur any liability under any of the foregoing Sections
with respect to any Plan; no proceedings have been instituted (or are reasonably likely to be
instituted) to terminate or to reorganize any Plan or to appoint a trustee to administer any Plan,
and no written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the
Code or ERISA on the assets of the Borrower or any Subsidiary or any ERISA Affiliate exists
(or is reasonably likely to exist) nor has the Borrower, any Subsidiary
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or any ERISA Affiliate been
notified in writing that such a lien will be imposed on the assets of the Borrower, any Subsidiary
or any ERISA Affiliate on account of any Plan, except to the extent that a breach of any of the
representations, warranties or agreements in this Section 8.11 would not result,
individually or in the aggregate, in an amount of liability that would be reasonably likely to have
a Material Adverse Effect. No Plan (other than a multiemployer plan) has an Unfunded Current
Liability that would, individually or when taken together with any other liabilities referenced in
this Section 8.11, be reasonably likely to have a Material Adverse Effect. With respect to
Plans that are multiemployer plans (as defined in Section 3(37) of ERISA), the representations and
warranties in this Section 8.11(a), other than any made with respect to (i) liability under
Section 4201 or 4204 of ERISA or (ii) liability for termination or reorganization of such Plans
under ERISA, are made to the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably be
expected to have a Material Adverse Effect. All contributions or other payments which are due with
respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12 Subsidiaries. Schedule 8.12 lists each Subsidiary of the Borrower (and the direct and indirect
ownership interest of the Borrower therein), in each case existing on the Closing Date. To the
knowledge of the Borrower, after due inquiry, each Material Subsidiary as of the Closing Date has
been so designated on Schedule 8.12.
8.13 Intellectual Property. The Borrower and each of the Restricted Subsidiaries have obtained all intellectual
property, free from burdensome restrictions, that are necessary for the operation of their
respective businesses as currently conducted and as proposed to be conducted, except where the
failure to obtain any such rights could not reasonably be expected to have a Material Adverse
Effect.
8.14 Environmental Laws. (a) Except as could not reasonably be expected to have a Material Adverse Effect: (i)
the Borrower and each of the Subsidiaries and all Real Estate are, and have been, in compliance
with, and possess all permits, licenses and registrations required pursuant to, all Environmental
Laws; (ii) neither the Borrower, nor any of the Subsidiaries is subject to any Environmental Claim
or any other liability under any Environmental Law; (iii) the Borrower and its Subsidiaries are not
conducting, or required to conduct, any investigation, removal, remedial or other corrective action
pursuant to any Environmental Law at any location, including any Real Estate currently owned or
leased by the Borrower or any of its Subsidiaries, and any real
property to which the Borrower or any of its Subsidiaries may have sent Hazardous Materials;
and (iv) no underground storage tank or related piping, or any impoundment or other disposal area
containing Hazardous Materials is located at, on or under any Real Estate currently owned or leased
by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials at,
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on, under or from any currently or formerly owned or leased Real Estate or facility in a manner
that could reasonably be expected to have a Material Adverse Effect.
8.15 Properties. The Borrower and each of the Subsidiaries have good and marketable title to or leasehold
interest in all properties that are necessary for the operation of their respective businesses as
currently conducted and as proposed to be conducted, free and clear of all Liens (other than any
Liens permitted by this Agreement or the Term Loan Credit Agreement) and except where the failure
to have such good title could not reasonably be expected to have a Material Adverse Effect.
8.16 Solvency. On the Closing Date (after giving effect to the Transactions), immediately following the
making of each Loan and after giving effect to the application of the proceeds of such Loans, the
Borrower on a consolidated basis with its Subsidiaries will be Solvent.
SECTION 9. Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments, the Swingline Commitment and each Letter of Credit have terminated and the Loans and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder, are
paid in full:
9.1 Information Covenants. The Borrower will furnish to the Administrative Agent:
(a) Annual Financial Statements. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), the consolidated balance
sheet of the Borrower and the Restricted Subsidiaries as at the end of such fiscal year, and
the related consolidated statement of operations and consolidated statement of cash flows
for such fiscal year, setting forth comparative consolidated figures for the preceding
fiscal year, and certified by independent certified public accountants of recognized
national standing whose opinion shall not be qualified as to the scope of audit or as to the
status of the Borrower or any of the Material Subsidiaries (or group of Subsidiaries that
together would constitute a Material Subsidiary) as a going concern, together in any event
with a certificate of such accounting firm stating that in the course
of its regular audit of the business of the Borrower and the Material Subsidiaries,
which audit was conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default relating to
Section 10.9 that has occurred and is continuing or, if in the opinion of such
accounting firm such a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof which shall be certified by a Financial Officer of the
Borrower.
(b) Quarterly Financial Statements. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
the Borrower (or, if such financial statements are not required to be filed with the SEC,
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on or before the date that is sixty (60) days after the end of each such quarterly accounting
period), the consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries
and (ii) the Borrower and its Subsidiaries, in each case as at the end of such quarterly
period and the related consolidated statement of operations for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and the related consolidated statement of cash flows for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and setting
forth comparative consolidated figures for the related periods in the prior fiscal year or,
in the case of such consolidated balance sheet, for the last day of the prior fiscal year,
all of which shall be certified by a Financial Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.
(c) Monthly Financial Statements. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries and (ii) the
Borrower and its Subsidiaries, in each case as at the end of such fiscal month and the
related consolidated statement of operations for such fiscal month and for the elapsed
portion of the fiscal year ended with the last day of such fiscal month, and the related
consolidated statement of cash flows for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and setting forth comparative consolidated figures for
the related periods in the prior fiscal year or, in the case of such consolidated balance
sheet, for the last day of the prior fiscal year, all of which shall be certified by a
Financial Officer of the Borrower, subject to changes resulting from audit and normal
year-end audit adjustments.
(d) Budgets. Not more than sixty (60) days after the commencement of each
fiscal year of the Borrower, a budget of the Borrower in reasonable detail for such fiscal
year as customarily prepared by management of the Borrower for their internal use consistent
in scope with the financial statements provided pursuant to Section 9.1(a), setting
forth the principal assumptions upon which such budgets are based.
(e) Officer’s Certificates. At the time of the delivery of the financial
statements provided for in Sections 9.1(a) and (b), a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the Consolidated Fixed Charge Coverage Ratio (and
accompanying
calculations) as at the end of such fiscal year or period, as the case may be, (ii) a
specification of any change in the identity of the Restricted Subsidiaries and Unrestricted
Subsidiaries as at the end of such fiscal year or period, as the case may be, from the
Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to the Lenders
on the Closing Date or the most recent fiscal year or period, as the case may be, (iii) the
then applicable Status and (iv) the amount of any Pro Forma Adjustment not previously set
forth in a Pro Forma Adjustment Certificate or any change in the amount of a Pro Forma
Adjustment set forth in any Pro Forma Adjustment Certificate previously provided and, in
either case, in reasonable detail, the calculations and basis therefor. At the time of the
delivery of the financial statements provided for in Section 9.1(a), (i) a
certificate of an Authorized Officer of the Borrower setting forth in reasonable detail the
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Applicable Amount as at the end of the fiscal year to which such financial statements relate
and (ii) a certificate of an Authorized Officer of the Borrower setting forth the
information required pursuant to Section 1(a) of the Perfection Certificate or
confirming that there has been no change in such information since the Closing Date or the
date of the most recent certificate delivered pursuant to this subsection (e)(ii), as the
case may be.
(f) Borrowing Base Certificates. As soon as available but in any event within
twenty-five (25) days of the end of each calendar month, a Borrowing Base Certificate (which
shall be calculated in a consistent manner with the most recently delivered Borrowing Base
Certificate) and supporting information in connection therewith as of the end of such month,
provided that the Borrower will be required to furnish a Borrowing Base Certificate
and supporting information in connection therewith within four (4) days of the end of each
calendar week as of the end of such calendar week if (A) a Cash Dominion Event is continuing
or (B) an Event of Default has occurred and is continuing and the Administrative Agent so
requests.
(g) Collateral Reports. As soon as available but in any event within
twenty-five (25) days of the end of each calendar month, in each case as of the period then
ended:
(i) a detailed aging of the Borrower’s and Guarantors’ Accounts reconciled to
the Borrowing Base Certificate delivered as of such date in a form reasonably
acceptable to the Administrative Agent;
(ii) a schedule detailing the Borrower’s and Guarantors’ Inventory, in form
reasonably satisfactory to the Administrative Agent, (1) by location (showing
Inventory located with a third party under any consignment, bailee arrangement, or
warehouse agreement, in each case, to the extent the Cost of Inventory at such
location exceeds $50,000 in the aggregate which Inventory shall be valued at Cost
and adjusted for Reserves as the Administrative Agent has previously indicated to
the Borrower are deemed by the Administrative Agent to be appropriate in their
Permitted Discretion, (2) including a report of material variances or other results
of Inventory counts performed by the Borrower or any Guarantor since the last
Inventory schedule, and (3) reconciled to the Borrowing Base Certificate delivered
as of such date;
(iii) a worksheet of calculations prepared by the Borrower to determine
Eligible Accounts and Eligible Inventory, such worksheets detailing the Accounts and
Inventory excluded from Eligible Accounts and Eligible Inventory and the reason for
such exclusion; and
(iv) a schedule and aging of the Borrower’s and each Guarantor’s accounts
payable presented at the vendor level.
(h) Notice of Default or Litigation. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
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specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
(i) Environmental Matters. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against any Credit Party or
any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by any Credit Party with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against any Credit Party or
any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
“Real Estate” shall mean land, buildings and improvements owned or leased by any Credit
Party, but excluding all operating fixtures and equipment, whether or not incorporated into
improvements.
(j) Other Information. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Government Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not
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theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
(k) Pro Forma Adjustment Certificate. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l) Information Regarding Collateral. Reasonably promptly but not later than
sixty (60) days following the occurrence of any change referred to in subclauses (i) through
(iv) below, written notice of any change (i) in the legal name of any Credit Party, (ii) in
the jurisdiction of organization or location of any Credit Party for purposes of the Uniform
Commercial Code, (iii) in the identity or type of organization of any Credit Party or (iv)
in the Federal Taxpayer Identification Number or organizational identification number of any
Credit Party. The Borrower shall also promptly provide the Collateral Agent with certified
Organizational Documents reflecting any of the changes described in the first sentence of
this clause (l).
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section
9.1 may be satisfied with respect to financial information of the Borrower and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of the Borrower or (B) the Borrower’s (or any direct or indirect parent thereof’s), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to the Borrower and the Restricted Subsidiaries on a standalone basis, on the
other hand.
9.2 Books, Records and Inspections. The Borrower will, and will cause each of the Subsidiaries to, permit officers and
designated representatives of the Administrative Agents or the Required Lenders to visit and
inspect any of the properties or assets of the Borrower and any such Subsidiary in whomsoever’s
possession to the extent that it is within such party’s control to permit such inspection, and to
examine the books and records of the Borrower and any such Subsidiary and discuss the affairs,
finances and accounts of the Borrower and of any such Subsidiary with, and be advised as to the
same by, its and their officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as the Administrative Agents or the Required Lenders may
desire; provided that, excluding any such visits and inspections during the
continuation of an Event of Default, only the Administrative Agent (or any of their respective
representatives or independent contractors) on behalf of the Required Lenders may exercise rights
of the Administrative Agent and the Lenders under this
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Section 9.2 and the Administrative
Agent shall not exercise such rights more often than two times during any calendar year absent the
existence of an Event of Default and only one such time shall be at the Borrower’s expense unless
Excess Availability is less than 7% of the then Existing Total Revolving Credit Commitments, in
which case the second time shall also be at the Borrower’s expense; provided further that when an
Event of Default exists, the Administrative Agent (or any of its representatives or independent
contractors) or any representative of the Required Lenders may do any of the foregoing at the
expense of the Borrower at any time during normal business hours and upon reasonable advance
notice. The Administrative Agent and the Required Lenders shall give the Borrower the opportunity
to participate in any discussions with the Borrower’s independent public accountants.
9.3 Maintenance of Insurance. The Borrower will, and will cause each of the Material Subsidiaries to, at all times
maintain in full force and effect, with insurance companies that the Borrower believes (in the good
faith judgment of the management of the Borrower) are financially sound and responsible at the time
the relevant coverage is placed or renewed, insurance in at least such amounts (after giving effect
to any self-insurance which the Borrower believes (in the good faith judgment of management of the
Borrower) is reasonable and prudent in light of the size and nature of its business) and against at
least such risks (and with such risk retentions) as the Borrower believes (in the good faith
judgment of management of the Borrower) is reasonable and prudent in light of the size and nature
of its business; and will furnish to the Administrative Agent (for delivery to the Lenders), upon
written request from the Administrative Agent, information presented in reasonable detail as to the
insurance so carried. Each such policy of insurance shall (i) name Collateral Agent, on behalf of
Secured Parties as an additional insured thereunder as its interests may appear and (ii) in the
case of each casualty insurance policy, contain a loss payable clause or endorsement reasonably
satisfactory in form and substance to Collateral Agent, that names Collateral Agent, on behalf of
Lenders as the loss payee thereunder and provides for at least thirty days’ prior written notice to
Collateral Agent of any modification or cancellation of such policy.
9.4 Payment of Taxes. Each Credit Party will pay and discharge, and will cause each of the Subsidiaries to pay
and discharge, all material taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all lawful material claims that, if unpaid, could
reasonably be expected to become a material Lien upon any properties of each Credit Party or any of
the Restricted Subsidiaries, provided that no Credit Party, nor any of the Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim that is being contested in
good faith and by proper proceedings if it has maintained adequate reserves (in the good faith
judgment of the management of the Borrower) with respect thereto in accordance with GAAP and the
failure to pay could not reasonably be expected to result in a Material Adverse Effect.
9.5 Consolidated Corporate Franchises. The Borrower will do, and will cause each Material Subsidiary to do, or cause to be done,
all things necessary to preserve and keep in full force and effect its existence, corporate rights
and authority, except to the extent that the failure to do so could not reasonably be expected to
have a Material Adverse Effect; provided, however, that the Borrower and its
Subsidiaries may consummate any transaction permitted under Section 10.3, 10.4 or
10.5.
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9.6 Compliance with Statutes, Regulations, etc. The Borrower will, and will cause each Subsidiary to, comply with all applicable laws,
rules, regulations and orders applicable to it or its property, including all governmental
approvals or authorizations required to conduct its business, and to maintain all such governmental
approvals or authorizations in full force and effect, in each case except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
9.7 ERISA. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows or has reason to
know of the occurrence of any of the following events that, individually or in the aggregate
(including in the aggregate such events previously disclosed or exempt from disclosure hereunder,
to the extent the liability therefor remains outstanding), would be reasonably likely to have a
Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of an
Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participant’s benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
9.8 Maintenance of Properties. The Borrower will, and will cause each of the Restricted Subsidiaries to, keep and maintain
all property material to the conduct of its business in good working order and condition, ordinary
wear and tear excepted, except to the extent that the failure to do so could reasonably be expected
to have a Material Adverse Effect.
9.9 Transactions with Affiliates. The Borrower will conduct, and cause each of the Restricted Subsidiaries to conduct, all
transactions with any of its Affiliates (other than the Borrower or the Restricted Subsidiaries) on
terms that are substantially as favorable to the Borrower or such Restricted Subsidiary as it would
obtain in a comparable arm’s-length transaction with a Person that is not an Affiliate,
provided that the foregoing restrictions shall not
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apply to (a) the payment of customary
fees to the Sponsors for management, consulting and financial services rendered to the Borrower and
the Subsidiaries and customary investment banking fees paid to the Sponsors for services rendered
to the Borrower and the Subsidiaries in connection with divestitures, acquisitions, financings and
other transactions, (b) transactions permitted by Section 10.6, (c) Transaction Expenses,
(d) the issuance of Stock or Stock Equivalents of the Borrower to the management of the Borrower
(or any direct or indirect parent thereof) or any of its Subsidiaries in connection with the
Transactions or pursuant to arrangements described in clause (f) of this Section 9.9, (e)
loans and other transactions by the Borrower and the Restricted Subsidiaries to the extent
permitted under Section 10, (f) employment and severance arrangements between the Borrower
and the Restricted Subsidiaries and their respective officers and employees in the ordinary course
of business, (g) payments by the Borrower (and any direct or indirect parent thereof) and the
Restricted Subsidiaries pursuant to the tax sharing agreements among the Borrower (and any such
parent) and the Restricted Subsidiaries on customary terms to the extent attributable to the
ownership or operation of the Borrower and the Restricted Subsidiaries, (h) the payment of
customary fees and reasonable out of pocket costs to, and indemnities provided on behalf of,
directors, managers, consultants, officers and employees of the Borrower and the Restricted
Subsidiaries in the ordinary course of business to the extent attributable to the ownership or
operation of the Borrower and the Restricted Subsidiaries, (i) transactions pursuant to permitted
agreements in existence on the Closing Date and set forth on Schedule 9.9 or any amendment
thereto to the extent such an amendment is not adverse, taken as a whole, to the Lenders in any
material respect, and (j) customary payments by the Borrower and any Restricted Subsidiaries to the
Sponsors made for any financial advisory, financing, underwriting or placement services or
in respect of other investment banking activities (including in connection with acquisitions
or divestitures), which payments are approved by the majority of the members of the board of
directors or a majority of the disinterested members of the board of directors of the Borrower (or
any direct or indirect parent thereof), in good faith.
9.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting purposes, cause (a) each of its, and each of its
Subsidiaries’, fiscal years to end on December 31 of each year and (b) each of its, and each of its
Subsidiaries’, fiscal quarters to end on dates consistent with such fiscal year-end and the
Borrower’s past practice; provided, however, that the Borrower may, upon written
notice to the Administrative Agent, change the financial reporting convention specified above to
any other financial reporting convention reasonably acceptable to the Administrative Agent, in
which case the Borrower and the Administrative Agent will, and are hereby authorized by the Lenders
to, make any adjustments to this Agreement that are necessary in order to reflect such change in
financial reporting.
9.11 Additional Guarantors and Grantors. Except as set forth in Section 10.1(B)(j) or 10.1(B)(k) and subject to any
applicable limitations set forth in the Security Documents, the Borrower will cause each direct or
indirect Subsidiary (other than any Excluded Subsidiary) formed or otherwise purchased or acquired
after the date hereof (including pursuant to a Permitted Acquisition) to execute a supplement to
each of the Guarantee and the Security Agreement, substantially in the form of Annex B or
Annex 1, as applicable, to the respective agreement in order to become a Guarantor under
the Guarantee and a grantor under Security Agreement or, to the extent reasonably requested by the
Collateral Agent, enter into a new Security Agreement in form and substance reasonably satisfactory
to the Collateral Agent.
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9.12 [Intentionally Omitted.]
9.13 Use of Proceeds. (a) The Borrower will use the proceeds of all Revolving Loans made on the Closing Date
to effect the Red Man Transaction and Debt Repayment and to pay Transaction Expenses; and
(b) The Borrower will use Letters of Credit and the proceeds of all other Revolving Credit
Loans and Swingline Loans for general corporate purposes (including Permitted Acquisitions and
permitted dividends) and to pay Transaction Expenses.
9.14 Appraisals; Field Examinations. At any time that the Administrative Agent or Collateral Agent reasonably requests, the
Borrower will, and will cause each Borrowing Base Guarantor to, permit Administrative Agent,
Collateral Agent or professionals (including consultants, accountants, lawyers and appraisers)
retained by the Administrative Agent or Collateral Agent, on reasonable prior notice and
during normal business hours and with reasonable frequency, to conduct appraisals and commercial
finance examinations or updates thereof including, without limitation, of (i) the Borrower’s
practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing
Base and related financial information such as, but not limited to, sales, gross margins, payables,
accruals and reserves, in each case, prepared on a basis reasonably satisfactory to the
Administrative Agent and Collateral Agent and at the sole expense of the Borrower;
provided, however, if no Default or Event of Default shall have occurred and be continuing,
only one (1) such appraisal and one (1) such examination or update per fiscal year shall be
conducted at Borrower’s expense; provided, further, however, that if Excess
Availability is less than 7% of the then existing Total Revolving Credit Commitment, one (1)
additional appraisal and one (1) additional examination or update per fiscal year may be conducted
without cost to the Borrower.
9.15 Interest Rate Protection. No later than 90 days following the Closing Date and at all times thereafter until the
third anniversary of the Closing Date, Borrower shall obtain and cause to be maintained protection
against fluctuations in interest rates pursuant to one or more Interest Rate Agreements in order to
ensure that no less than 50% of the aggregate principal amount of the total Indebtedness of the
Borrower and its Subsidiaries then outstanding is either (i) subject to such Interest Rate
Agreements or (ii) Indebtedness that bears interest at a fixed rate.
9.16 Collateral Access Agreements. Borrower and each Guarantor shall use commercially reasonable efforts to obtain a
Collateral Access Agreement with respect to Inventory which is located in any location leased by
such Credit Party, located in any third-party warehouse or in the possession of a bailee, in each
case, to the extent the Cost of Inventory at such location exceeds $50,000 in the aggregate.
9.17 Further Assurances. (a) The Borrower will, and will cause each other Credit Party to, execute any and all
further documents, financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements and other documents), which may
be required under any applicable law, or which the Collateral Agent or the Required Lenders may
reasonably request, in order to grant, preserve, protect and perfect the validity and priority of
the security interests created or intended to be
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created by the Security Agreement, all at the
expense of the Borrower and the Restricted Subsidiaries.
(b) If any assets are acquired by the Borrower or any other Credit Party after the Closing
Date (other than assets constituting Collateral under the Security Agreement that become subject to
the Lien of the Security Agreement upon acquisition thereof) that are of the nature secured by the
Security Agreement, the Borrower will notify the Collateral Agent, and, if requested by the
Collateral Agent, the Borrower will cause such assets to be subjected to a Lien securing the
applicable Obligations and will take, and cause the other Credit Parties to take, such actions as
shall be necessary or reasonably requested by the Collateral Agent to grant and perfect
such Liens consistent with the applicable requirements of the Security Documents, including
actions described in clause (a) of this Section 9.17, all at the expense of the Borrower.
(c) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on Schedule 9.17(c) as soon as commercially reasonable and by
no later than the date set forth in Schedule 9.17(c) with respect to such action or such
later date as the Administrative Agent may reasonably agree.
(d) The Borrower agrees that it will cause Red Man Distributors to comply with the terms of
this Agreement and the other Loan Documents and will not permit Red Man Distributors to amend,
restate, supplement or otherwise modify its Organizational Documents in a manner that amends the
subrogation rights or is materially adverse to the Lenders (other than as required by the
applicable Governmental Authority to become certified as a minority business enterprise) without
obtaining the prior written consent of the Administrative Agent and Collateral Agent to such
amendment, restatement, supplement or other modification.
SECTION 10. Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date (immediately after consummation of the Red Man Transaction) and
thereafter, until the Commitments, the Swingline Commitment and each Letter of Credit have
terminated and the Loans and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
10.1 Limitation on Indebtedness. (A) The Borrower will not, and will not permit any of the Restricted Subsidiaries to,
incur, create, assume or permit to exist, directly or indirectly (collectively, “incur” and
collectively, an “incurrence”), any Indebtedness; provided, however, that
Borrower and the Restricted Subsidiaries will be entitled to incur Indebtedness if the Consolidated
Total Debt to Consolidated EBITDA Ratio at the time such additional Indebtedness is incurred would
have been no greater than 5.50 to 1.0 determined on a Pro Forma Basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness had been incurred and
the application of proceeds therefrom had occurred at the beginning of the most recent Test Period;
provided, that such additional Indebtedness shall not be secured Indebtedness unless (i)
the Secured Leverage Ratio at the time such additional Indebtedness is incurred would have been no
greater than 5.0 to 1.0, determined on a Pro Forma Basis in the manner set forth above, (ii) such
secured Indebtedness has a later final maturity and a longer weighted average life than the Term
Loans, (iii) the Liens securing such Indebtedness
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shall be subordinate to the Liens securing the
Obligations and the “Obligations” (as defined in the Term Loan Credit Agreement) and (iv) the
holders of such Indebtedness, the Collateral Agent and the collateral agent under the Term Loan
Credit Agreement shall have entered into an intercreditor agreement in a form reasonably
satisfactory to Collateral Agent.
(B) The limitation set forth in clause (A) of this Section 10.1 will not prohibit any
of the following:
(a) Indebtedness arising under the Credit Documents and the Term Loan Agreement;
(b) Indebtedness of (i) the Borrower or any Subsidiary Guarantor owing to the Borrower or any
Restricted Subsidiary, (ii) any Subsidiary who is not a Guarantor owing to any other Subsidiary who
is not a Guarantor and (iii) subject to compliance with Section 10.5, any Subsidiary who is
not a Guarantor owing to the Borrower or any Subsidiary Guarantor;
(c) Indebtedness in respect of any bankers’ acceptance, bank guarantees, letter of credit,
warehouse receipt or similar facilities entered into in the ordinary course of business (including
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);
(d) subject to compliance with Section 10.5, Guarantee Obligations incurred by (i)
Restricted Subsidiaries in respect of Indebtedness of the Borrower or other Restricted Subsidiaries
that is permitted to be incurred under this Agreement and (ii) the Borrower in respect of
Indebtedness of the Restricted Subsidiaries that is permitted to be incurred under this Agreement,
provided that, except as provided in clauses (j) and (k) below, there shall be no Guarantee
(a) by a Restricted Subsidiary that is not a Guarantor of any Indebtedness of the Borrower and (b)
in respect of any Permitted Additional Debt, unless such Guarantee is made by a Guarantor and, in
the case of Permitted Additional Debt that is subordinated, is subordinated;
(e) Guarantee Obligations (i) incurred in the ordinary course of business in respect of
obligations of (or to) suppliers, customers, franchisees, lessors and licensees or (ii) or
otherwise constituting Investments permitted by Section 10.5;
(f) (i) Indebtedness (including Indebtedness arising under Capital Leases) incurred within 270
days of the acquisition, construction or improvement of fixed or capital assets to finance the
acquisition, construction or improvement of such fixed or capital assets, (ii) Indebtedness arising
under Capital Leases entered into in connection with Permitted Sale Leasebacks and (iii)
Indebtedness arising under Capital Leases, other than Capital Leases in effect on the date hereof
and Capital Leases entered into pursuant to subclauses (i) and (ii) above, provided, that the
aggregate amount of Indebtedness incurred pursuant to this subclause (iii) shall not exceed
$20,000,000 at any time outstanding, and (iv) any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i), (ii) or (iii)
above, provided that, except to the extent otherwise expressly permitted hereunder, the
principal amount thereof (including pursuant to clause (iii)) does not exceed the principal amount
thereof outstanding immediately prior to such modification, replacement, refinancing, refunding,
renewal or extension, except by an amount equal to the unpaid accrued
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interest and premium thereon
plus other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension;
(g) Indebtedness outstanding on the date hereof (i) listed on Schedule 10.1 and any
modification, replacement, refinancing, refunding, renewal or extension thereof, provided
that, except to the extent otherwise expressly permitted hereunder, (x) the principal amount
thereof does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension, except by an amount equal
to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and fees and
expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension plus an amount equal to any existing commitment
unutilized and letters of credit undrawn thereunder and (y) the direct and contingent obligors with
respect to such Indebtedness are not changed and (ii) owing by the Borrower to any Restricted
Subsidiary or by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary;
(h) Indebtedness in respect of Hedge Agreements;
(i) [Reserved];
(j) (i) Indebtedness of a Person or Indebtedness attaching to assets of a Person that, in
either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives a merger
with such Person) or Indebtedness attaching to assets that are acquired by the Borrower or any
Restricted Subsidiary, in each case after the Closing Date as the result of a Permitted
Acquisition, provided, that (w) such Indebtedness existed at the time such Person became a
Restricted Subsidiary or at the time such assets were acquired and, in each case, was not created
in anticipation thereof, (x) such Indebtedness is not guaranteed in any respect by the Borrower or
any Restricted Subsidiary (other than by any such Person that so becomes a Restricted Subsidiary or
is the survivor of a merger with such Person and any of its Subsidiaries) and (y) such Person
executes a supplement to each of the Guarantee and the Security Agreement to the extent required
under Section 9.11, provided that the requirements of this subclause (y) shall not
apply to (I) an aggregate amount at any time outstanding of up to the greater of (A) $300,000,000
or (B) 10% of Consolidated Total Assets at the time of the incurrence of such Indebtedness
(less all Indebtedness as to which the proviso to clause (k)(i)(y) below then applies) at
such time of such Indebtedness (and modifications, replacements, refinancings, refundings, renewals
and extensions thereof pursuant to subclause (ii) below) and (II) any Indebtedness of the type that
could have been incurred under Section 10.1(B)(f), and (ii) any modification, replacement,
refinancing, refunding, renewal or extension of any Indebtedness specified in subclause (i) above,
provided that, except to the extent otherwise expressly permitted hereunder, (X) the
principal amount of any such Indebtedness does not exceed the principal amount thereof outstanding
immediately prior to such modification, replacement, refinancing, refunding, renewal or extension
except by an amount equal to the unpaid accrued interest and premium thereon plus other
reasonable amounts paid and fees and expenses incurred in connection with such modification,
replacement, refinancing, refunding, renewal or extension plus an amount equal to any
existing commitment unutilized and letters of credit undrawn thereunder and (Y) the direct and
contingent obligors with respect to such Indebtedness are not changed;
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(k) (i) Permitted Additional Debt of the Borrower or any Restricted Subsidiary incurred to
finance a Permitted Acquisition, provided that (x) if such Indebtedness is incurred by a
Restricted Subsidiary that is not a Guarantor, such Indebtedness is not guaranteed by the Borrower
or any Guarantor except as permitted by Section 10.5(g) and (y) such acquired Person
executes a supplement to the Guarantee and the Security Agreement (or alternative guarantee and
security arrangements in relation to the Obligations reasonably acceptable to the Collateral Agent)
to the extent required under Section 9.11, provided that the requirements of this
subclause (y) shall not apply to an aggregate amount at any time outstanding of up to the greater
of (A) $300,000,000 or (B) 10% of Consolidated Total Assets at the time of the incurrence of such
Indebtedness (less all Indebtedness as to which clause (I) of the proviso to clause
(j)(i)(y) above then applies) at such time of the aggregate of such Indebtedness (and
modifications, replacements, refinancings, refundings, renewals and extensions thereof pursuant to
subclause (ii) below), and (ii) any modification, replacement, refinancing, refunding, renewal or
extension of any Indebtedness specified in subclause (i) above, provided that, except to
the extent otherwise expressly permitted hereunder, (x) the principal amount of any such
Indebtedness does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension except by an amount equal
to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and
fees and expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension plus an amount equal to any existing commitment unutilized
and letters of credit undrawn thereunder and (y) the direct and contingent obligors with respect to
such Indebtedness are not changed;
(l) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and
completion guarantees and similar obligations not in connection with money borrowed, in each case
provided in the ordinary course of business, including those incurred to secure health, safety and
environmental obligations in the ordinary course of business;
(m) (i) Indebtedness incurred in connection with any Permitted Sale Leaseback
(provided that the Net Cash Proceeds thereof are promptly applied to the prepayment of the
Term Loans to the extent required by Section 5.2 of the Term Loan Credit Agreement) and
(ii) any refinancing, refunding, renewal or extension of any Indebtedness specified in subclause
(i) above, provided that, except to the extent otherwise permitted hereunder, (x) the
principal amount of any such Indebtedness is not increased above the principal amount thereof
outstanding immediately prior to such refinancing, refunding, renewal or extension and (y) the
direct and contingent obligors with respect to such Indebtedness are not changed;
(n) (i) additional Indebtedness and (ii) any refinancing, refunding, renewal or extension of
any Indebtedness specified in subclause (i) above; provided that the aggregate amount of
Indebtedness incurred and remaining outstanding pursuant to this clause (n) shall not
at any time exceed the greater of (w) $150,000,000 and (x) 5% of Consolidated Total Assets at
the time of the incurrence of such Indebtedness; provided, however, not more than
the greater of (y) $50,000,000 and (z) 1.5% of Consolidated Total Assets at the time of the
incurrence of such Indebtedness in aggregate principal amount of Indebtedness of the Borrower or
any Subsidiary Guarantor incurred under this clause (n) shall be secured;
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(o) Indebtedness in respect of Permitted Additional Debt to the extent that the Net Cash
Proceeds therefrom are, immediately after the receipt thereof, applied to the prepayment of Term
Loans in accordance with Section 5.2 of the Term Loan Credit Agreement;
(p) Indebtedness in respect of overdraft facilities, employee credit card programs and other
cash management arrangements in the ordinary course of business;
(q) unsecured Indebtedness in respect of obligations of the Borrower or any Restricted
Subsidiary to pay the deferred purchase price of goods or services or progress payments in
connection with such goods and services, provided that such obligations are incurred in
connection with open accounts extended by suppliers on customary trade terms (which require that
all such payments be made within 60 days after the incurrence of the related obligation) in the
ordinary course of business and not in connection with the borrowing of money or Hedging
Agreements;
(r) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar obligations, in each case
entered into in connection with Permitted Acquisitions, other Investments and the disposition of
any business, assets or Capital Stock permitted hereunder, other than Guarantee Obligations
incurred by any Person acquiring all or any portion of such business, assets or Capital Stock for
the purpose of financing such acquisition, provided that (i) such Indebtedness is not
reflected on the balance sheet of the Borrower or any Restricted Subsidiary (contingent obligations
referred to in a footnote to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii)
the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds, including non-cash proceeds (the fair market value of such non-cash proceeds being
measured at the time received and without giving effect to any subsequent changes in value),
actually received by the Borrower and the Restricted Subsidiaries in connection with such
disposition;
(s) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (i) obligations to
pay insurance premiums or (ii) take or pay obligations contained in supply agreements, in each case
arising in the ordinary course of business and not in connection with the borrowing of money or
Hedging Agreements;
(t) Indebtedness representing deferred compensation to employees of the Borrower (or any
direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the ordinary course
of business;
(u) Unsecured, subordinated Indebtedness consisting of promissory notes in an aggregate
principal amount of not more than $10,000,000 issued by the Borrower or any
Guarantor to current or former officers, managers, consultants, directors and employees (or
their respective spouses, former spouses, successors, executors, administrators, heirs, legatees or
distributees) to finance the purchase or redemption of Stock or Stock Equivalents of the Borrower
(or any direct or indirect parent thereof) permitted by Section 10.6;
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(v) Indebtedness consisting of obligations of the Borrower or the Restricted Subsidiaries
under deferred compensation or other similar arrangements incurred by such Person in connection
with the Transactions and Permitted Acquisitions or any other Investment expressly permitted
hereunder;
(w) cash management obligations and other Indebtedness in respect of netting services,
automatic clearinghouse arrangements, overdraft protections and similar arrangements in each case
in connection with deposit accounts; and
(x) all premiums (if any), interest (including post-petition interest), fees, expenses,
charges and additional or contingent interest on obligations described in clauses (a) through (w)
above.
10.2 Limitation on Liens. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or
assets of any kind (real or personal, tangible or intangible) of the Borrower or any Restricted
Subsidiary, whether now owned or hereafter acquired, except:
(a) Liens arising under the Credit Documents;
(b) Permitted Liens;
(c) (i) Liens securing Indebtedness permitted pursuant to Section 10.1(B)(f),
provided that (x) such Liens attach at all times only to the assets so financed except for
accessions to such property Indebtedness and the proceeds and the products thereof and (y) that
individual financings of equipment provided by one lender may be cross collateralized to other
financings of equipment provided by such lender, and (ii) Liens on the assets of Restricted
Subsidiaries that are not Guarantors securing Indebtedness permitted pursuant to Section
10.1(B)(n) and (p);
(d) Liens existing on the date hereof and listed on Schedule 10.2;
(e) the replacement, extension or renewal of any Lien permitted by clauses (a) through (d)
above and clause (f) of this Section 10.2 upon or in the same assets (other than after
acquired property that is affixed or incorporated into the property covered by such Lien or
financed by Indebtedness permitted under Section 10.1(B) and proceeds and products thereof)
theretofore subject to such Lien or the replacement, extension or renewal (without increase in the
amount or change in any direct or contingent obligor except to the extent otherwise permitted
hereunder) of the Indebtedness secured thereby;
(f) Liens existing on the assets of any Person that becomes a Restricted Subsidiary (or is a
Restricted Subsidiary that survives a merger with such Person), or existing on assets
acquired, pursuant to a Permitted Acquisition or other Investment to the extent the Liens on
such assets secure Indebtedness permitted by Section 10.1(B)(j) or other obligations
permitted by this Agreement, provided that such Liens attach at all times only to the same
assets that such Liens (other than after acquired property that is affixed or incorporated into the
property covered by such Lien or financed by Indebtedness permitted under Section 10.1(B)
and proceeds and products thereof) attached to, and secure only the same Indebtedness or
obligations (or any modifications, refinancings, extensions, renewals, refundings or replacements
of such
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Indebtedness permitted by Section 10.1(B)) that such Liens secured, immediately prior to
such Permitted Acquisition or other Investment, as applicable;
(g) (i) Liens placed upon the Stock and Stock Equivalents of any Restricted Subsidiary
acquired pursuant to a Permitted Acquisition to secure Indebtedness incurred pursuant to
Section 10.1(B)(k) in connection with such Permitted Acquisition and (ii) Liens placed upon
the assets of such Restricted Subsidiary to secure a guarantee by, or Indebtedness of, such
Restricted Subsidiary of any Indebtedness of the Borrower or any other Restricted Subsidiary
incurred pursuant to Section 10.1(B)(k);
(h) Liens securing Indebtedness or other obligations of the Borrower or a Subsidiary in favor
of the Borrower or any Subsidiary that is a Guarantor and Liens securing Indebtedness or other
obligations of any Subsidiary that is not a Guarantor in favor of any Subsidiary that is not a
Guarantor;
(i) Liens (i) of a collection bank arising under Section 4-210 of the Uniform
Commercial Code on items in the course of collection, (ii) attaching to commodity trading accounts
or other commodities brokerage accounts incurred in the ordinary course of business; and (iii) in
favor of a banking institution arising as a matter of law encumbering deposits (including the right
of set-off) and which are within the general parameters customary in the banking industry;
(j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to Sections 10.5 to be applied against the purchase price for
such Investment, and (ii) consisting of an agreement to sell, transfer, lease or otherwise dispose
of any property in a transaction permitted under Section 10.4, in each case, solely to the
extent such Investment or sale, disposition, transfer or lease, as the case may be, would have been
permitted on the date of the creation of such Lien;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any of the Restricted Subsidiaries
in the ordinary course of business permitted by this Agreement;
(l) Liens deemed to exist in connection with Investments in repurchase agreements permitted
under Section 10.5;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary
course of business and not for speculative purposes;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks not given in connection with the issuance of Indebtedness, (ii)
relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to permit
satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the
Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements
entered into with customers of the Borrower or any Restricted Subsidiary in the ordinary course of
business;
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(o) Liens solely on any cash earnest money deposits made by the Borrower or any of the
Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted
hereunder;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) Liens securing obligations under the Term Loan Agreement; and
(r) additional Liens so long as the aggregate principal amount of the obligations so secured
does not exceed the greater of (y) $50,000,000 at any time outstanding and (z) 1.5% of Consolidated
Total Assets at the time of the incurrence of such obligations.
10.3 Limitation on Fundamental Changes. Except as expressly permitted by Section
10.4 or 10.5, the Borrower will not, and will not permit any of the Restricted
Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all its business units, assets or other
properties, except that:
(a) so long as no Default or Event of Default would result therefrom, any Subsidiary of
the Borrower or any other Person may be merged or consolidated with or into the Borrower,
provided that (i) the Borrower shall be the continuing or surviving corporation or
(ii) if the Person formed by or surviving any such merger or consolidation is not the
Borrower (such Person, the “Successor Borrower”), (A) the Successor Borrower shall
be an entity organized or existing under the laws of the United States, any state thereof,
the District of Columbia or any territory thereof, (B) the Successor Borrower shall
expressly assume all the obligations of the Borrower under this Agreement and the other
Credit Documents pursuant to a supplement hereto or thereto in form reasonably satisfactory
to the Administrative Agent, (C) each Guarantor, unless it is the other party to such merger
or consolidation, shall have by a supplement to the Guarantee confirmed that its Guarantee
shall apply to the Successor Borrower’s obligations under this Agreement, (D) each
Subsidiary grantor and each Subsidiary pledgor, unless it is the other party to such merger
or consolidation, shall have by a supplement to the Security Agreement confirmed that its
obligations thereunder shall apply to the Successor Borrower’s obligations under this
Agreement, and (E) the Borrower shall have delivered to the Administrative Agent (x) an
officer’s certificate stating that such merger or consolidation and such supplements to this
Agreement
preserve the enforceability of the Guarantee and the perfection and priority of the
Liens under the Security Documents and (y) if reasonably requested by the Administrative
Agent, an opinion of counsel to the effect that such merger or consolidation does not
violate this Agreement or any other Credit Document, and provided further
that if the foregoing are satisfied, the Successor Borrower will succeed to, and be
substituted for, such Borrower under this Agreement;
(b) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or
consolidated with or into any one or more Subsidiaries of the Borrower, provided
that (i) in the case of any merger, amalgamation or consolidation involving one
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or more
Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the continuing or surviving
corporation or (B) the Borrower shall take all steps necessary to cause the Person formed by
or surviving any such merger, amalgamation or consolidation (if other than a Restricted
Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger, amalgamation
or consolidation involving one or more Guarantors, a Guarantor shall be the continuing or
surviving corporation or the Person formed by or surviving any such merger, amalgamation or
consolidation (if other than a Guarantor) shall execute a supplement to the Guarantee
Agreement and the Security Agreement in form and substance reasonably satisfactory to the
Collateral Agent in order to become a Guarantor and grantor of Collateral for the benefit
of the Secured Parties, (iii) no Default or Event of Default would result from the
consummation of such merger, amalgamation or consolidation, (iv) the Borrower shall be in
compliance, on a Pro Forma Basis after giving effect to such merger, amalgamation or
consolidation, with the covenant set forth in Section 10.9 of the Term Loan
Agreement, as such covenant is recomputed as at the last day of the most recently ended Test
Period under such Section as if such merger or consolidation had occurred on the first day
of such Test Period, and (v) the Borrower shall have delivered to the Administrative Agent
an officer’s certificate stating that such merger, amalgamation or consolidation and such
supplements to any Security Document preserve the enforceability of the Guarantee and the
perfection and priority of the Liens under the Security Documents;
(c) any Restricted Subsidiary that is not a Guarantor may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower, a Guarantor or any other Restricted Subsidiary;
(d) any Guarantor may sell, lease, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any other Guarantor; and
(e) any Restricted Subsidiary may liquidate or dissolve if (i) the Borrower determines
in good faith that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders and (ii) to the extent such Restricted
Subsidiary is a Credit Party, any assets or business not otherwise disposed of or
transferred in accordance with Section 10.4 or 10.5, or, in the case of any
such business, discontinued, shall be transferred to, or otherwise owned or conducted by,
another Credit Party after giving effect to such liquidation or dissolution.
10.4 Limitation on Sale of Assets. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, (i) convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment or other
disposition resulting from any casualty or condemnation, of any assets of the Borrower or the
Restricted Subsidiaries) or (ii) sell to any Person (other than the Borrower or a Guarantor) any
shares owned by it of any Restricted Subsidiary’s Stock and Stock Equivalents, except that:
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(a) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of (i) used or surplus equipment, vehicles, inventory and other assets in the
ordinary course of business and (ii) Permitted Investments;
(b) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of other assets (other than accounts receivable) (each a “Disposition”) for
fair value, provided that:
(i) with respect to any Disposition pursuant to this clause (b) for a purchase
price in excess of $10,000,000, the Borrower or a Restricted Subsidiary shall
receive not less than 75% of such consideration in the form of cash or Permitted
Investments; provided that for the purposes of this clause (i):
(A) any liabilities (as shown on the Borrower’s or such Restricted
Subsidiary’s most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition, and
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this Section 10.4(b) and
Section 10.4(c) that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (i) be deemed to be cash;
(ii) [intentionally omitted];
(iii) with respect to any such sale, transfer or disposition (or series of
related sales, transfers or dispositions), the Borrower shall be in compliance, on a
Pro Forma Basis after giving effect to such sale, transfer or disposition, with the
covenant set forth in Section 10.9 of the Term Loan Agreement), as such
covenant is recomputed as at the last day of the most recently ended Test Period
under such Section as if such sale, transfer or disposition had occurred on the
first day of such Test Period; and
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(iv) after giving effect to any such sale, transfer or disposition, no Default
or Event of Default shall have occurred and be continuing;
(c) the Borrower and the Restricted Subsidiaries may make sales of assets to the
Borrower or to any Restricted Subsidiary, provided that with respect to any such
sales to Restricted Subsidiaries that are not Guarantors:
(i) such sale, transfer or disposition shall be for fair value;
(ii) with respect to any Disposition pursuant to this clause (c) for a purchase
price in excess of $10,000,000, the Borrower or a Restricted Subsidiary shall
receive not less than 75% of such consideration in the form of cash or Permitted
Investments; provided that for the purposes of this clause (ii):
(A) any liabilities (as shown on the Borrower’s or such Restricted
Subsidiary’s most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition,
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this Section 10.4(c) and
Section 10.4(b) that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (ii) be deemed to be cash; and
(iii) [intentionally omitted].
(d) the Borrower and any Restricted Subsidiary may effect any transaction permitted by
Section 10.3, 10.5 or 10.6;
(e) in addition to selling or transferring accounts receivable pursuant to the other
provisions hereof, the Borrower and the Restricted Subsidiaries may sell or discount without
recourse accounts receivable arising in the ordinary course of business
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in connection with
the compromise or collection thereof consistent with such Person’s current credit and
collection practices;
(f) the Borrower and the Restricted Subsidiaries may lease, sublease, license or
sublicense (on a non-exclusive basis with respect to any intellectual property) real,
personal or intellectual property in the ordinary course of business;
(g) sales, transfers and other dispositions of property to the extent that (i) such
property is exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such
replacement property;
(h) sales, transfers and other dispositions of property pursuant to Permitted Sale
Leaseback transactions;
(i) Dispositions of Non-Core Assets; and
(j) sales, transfers and other dispositions of Investments in joint ventures to the
extent required by, or made pursuant to customary buy/sell arrangements between, the joint
venture parties set forth in joint venture arrangements and similar binding arrangements.
10.5 Limitation on Investments. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, make any advance, loan, extensions of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or any assets of, or
make any other Investment in, any Person, except:
(a) extensions of trade credit and asset purchases in the ordinary course of business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of the Borrower (or any
direct or indirect parent thereof) or any of its Subsidiaries (i) for reasonable and
customary business-related travel, entertainment, relocation and analogous ordinary business
purposes (including employee payroll advances), (ii) in connection with such
Person’s purchase of Stock or Stock Equivalents of the Borrower (or any direct or
indirect parent thereof) to the extent that the amount of such loans and advances are
contributed to the Borrower in cash and (iii) for purposes not described in the foregoing
clauses (i) and (ii), in an aggregate principal amount outstanding not to exceed $5,000,000;
(d) Investments existing on, or contemplated as of, the date hereof and listed on
Schedule 10.5 and any extensions, renewals or reinvestments thereof, so long as the
aggregate amount of all Investments pursuant to this clause (d) is not increased at any time
above the amount of such Investments existing on the date hereof;
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(e) Investments received in connection with the bankruptcy or reorganization of
suppliers or customers and in settlement of delinquent obligations of, and other disputes
with, customers arising in the ordinary course of business or upon foreclosure with respect
to any secured Investment or other transfer of title with respect to any secured Investment;
(f) Investments to the extent that payment for such Investments is made solely with
Stock or Stock Equivalents of the Borrower;
(g) Investments (i) in any Guarantor or the Borrower, (ii) in Restricted Subsidiaries
that are not Guarantors, in an aggregate amount pursuant to this clause (ii) not to exceed
(x) the greater of (A) $50,000,000 and (B) 1.5% of Consolidated Total Assets at the time of
the incurrence of such Investment plus (y) the Applicable Amount at such time, and
(iii) in Restricted Subsidiaries that are not Guarantors so long as such Investment is part
of a series of simultaneous Investments by Restricted Subsidiaries in other Restricted
Subsidiaries that result in the proceeds of the initial Investment being invested in one or
more Guarantors;
(h) Investments constituting Permitted Acquisitions;
(i) (i) Investments (including Investments in Unrestricted Subsidiaries) and (ii)
Investments in joint ventures or similar entities that do not constitute Restricted
Subsidiaries, in each case, as valued at the fair market value of such Investment at the
time each such Investment is made, in an amount that, at the time such Investment is made,
would not exceed the sum of (x) the greater of (A) $100,000,000 and (B) 3% of Consolidated
Total Assets at the time of the incurrence of such Investment, plus (y) the
Applicable Amount at such time plus (z) an amount equal to any repayments, interest,
returns, profits, distributions, income and similar amounts actually received in cash in
respect of any such Investment (which amount shall not exceed the amount of such Investment
valued at the fair market value of such Investment at the time such Investment was made),
(j) Investments constituting non-cash proceeds of sales, transfers and other
dispositions of assets to the extent permitted by Section 10.4;
(k) Investments made to repurchase or retire Stock of the Borrower or any direct or
indirect parent thereof owned by any employee stock ownership plan or key employee stock
ownership plan of the Borrower (or any direct or indirect parent thereof);
(l) Investments permitted under Section 10.6;
(m) loans and advance to any direct or indirect parent of the Borrower in lieu of, and
not in excess of the amount of, dividends to the extent permitted to be made to such parent
in accordance with Section 10.6;
(n) 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
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financially troubled account debtors and other credits to suppliers in the ordinary course
of business;
(o) Investments in the ordinary course of business consisting of Article 3 endorsements
for collection or deposit and Article 4 customary trade arrangements with customers
consistent with past practices;
(p) advances of payroll payments to employees in the ordinary course of business;
(q) [Intentionally Omitted];
(r) Guarantee Obligations of the Borrower or any Restricted Subsidiary of leases (other
than Capitalized Leases) or of other obligations that do not constitute Indebtedness, in
each case entered into in the ordinary course of business;
(s) Investments made to repurchase or retire equity interests of the Borrower (or any
direct or indirect parent thereof) owned by any employee stock ownership plan or key
employee stock ownership plan of the Borrower (or any direct or indirect parent thereof);
(t) Investments of a Restricted Subsidiary acquired after the Closing Date or of any
Person merged into the Borrower or merged or consolidated with a Restricted Subsidiary in
accordance with Section 10.3 after the Closing Date to the extent that such
Investments were not made in contemplation of or in connection with such acquisition, merger
or consolidation and were in existence on the date of such acquisition, merger or
consolidation; and
(u) Investments with respect to the purchase of the outstanding Stock and Stock Equivalents of
Red Man Pipe and Supply Canada, Ltd. in accordance with the exercise of the CanHCo Call Right (as
defined in the Redman Acquisition Agreement) so long as no Default or Event of Default exists or
would exist after giving effect thereto.
10.6
Limitation on Dividends. The Borrower will not declare or pay any dividends (other than dividends payable solely in
its Stock) or return any capital to its stockholders or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for consideration, any shares of any class of its Stock or Stock
Equivalents or the Stock or Stock Equivalents of any direct or indirect parent now or hereafter
outstanding, or set aside any funds for any of the foregoing purposes, or permit any of the
Restricted Subsidiaries to purchase or otherwise acquire for consideration (other than in
connection with an Investment permitted by Section 10.5) any Stock or Stock Equivalents of
the Borrower, now or hereafter outstanding (all of the foregoing “dividends”),
provided that, (x) to the extent that a dividend, distribution or any other return of
capital pursuant to paragraph (c) below is funded with a Borrowing hereunder, Excess Availability
is not less than $100,000,000 after giving effect to such dividend, distribution or other return of
capital and (y) so long as no Default or Event of Default exists or would exist after giving effect
thereto:
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(a) the Borrower may redeem in whole or in part any of its Stock or Stock Equivalents
for another class of its Stock or Stock Equivalents or with proceeds from substantially
concurrent equity contributions or issuances of new Stock or Stock Equivalents,
provided that such new Stock or Stock Equivalents contain terms and provisions at
least as advantageous to the Lenders in all respects material to their interests as those
contained in the Stock or Stock Equivalents redeemed thereby;
(b) the Borrower may (or may make dividends to permit any direct or indirect parent
thereof to) repurchase shares of its (or such parent’s) Stock or Stock Equivalents held by
officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee
stock plans, stock subscription agreements or shareholder agreements; provided, that
the aggregate amount of all cash paid in respect of all such shares so repurchased in any
calendar year does not exceed the sum of (i) $10,000,000 plus (ii) all amounts obtained by
the Borrower during such calendar year from the sale of such Stock or Stock Equivalents to
other officers, directors and employees of the Borrower and its Subsidiaries in connection
with any permitted compensation and incentive arrangements plus (iii) all amounts obtained
from any key-man life insurance policies received during such calendar year;
provided further that the aggregate amount permitted by the foregoing
proviso with respect to any calendar year commencing with 2008 shall be increased by 100% of
the amount of unused share repurchases for the immediately preceding year (such amount, a
“carry-over amount”) without giving effect to any carry-over amount that was added
in such preceding calendar year and assuming any such carry-over amount is utilized first
and so long as the aggregate amount of cash paid in respect of all such shares so
repurchased in any calendar year does not exceed $20,000,000; and provided
still further the aggregate amount of all cash paid in respect of all such
shares so repurchased in any calendar year may exceed the aggregate amount permitted by the
foregoing provisos if Excess Availability is not less than $100,000,000 after giving effect
to such dividend, distribution or other return of capital;
(c) the Borrower may pay dividends on the Stock or Stock Equivalents, provided
that the amount of any such dividends pursuant to this clause (c) shall not exceed
an amount equal to (i)(a) $50,000,000 or (b) $100,000,000, if the Consolidated
Total Debt to Consolidated EBITDA Ratio for the Test Period last ended is less than
4.00:1.00, determined on a Pro Forma Basis after giving effect to such dividend, less any
amount expended pursuant to Section 10.7(a)(i)(x) plus (ii) the Applicable Amount at such
time; and
(d) the Borrower may pay dividends:
(i) so long as the Borrower is a member of a group filing a consolidated,
combined, unitary or affiliated tax return with a parent, the proceeds of which
will be used to pay (or to make dividends to allow any direct or indirect parent of
the Borrower to pay) within 30 days of the receipt thereof, the tax liability to
each relevant jurisdiction in respect of such consolidated, combined, unitary or
affiliated returns for the relevant jurisdiction of such parent to the extent such
tax liability is directly attributable to the taxable income of the
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Borrower or its
Subsidiaries (that are included in such consolidated, combined, unitary or
affiliated tax return), determined as if the Borrower and such Subsidiaries filed a
separate consolidated, combined, unitary or affiliated tax return as a stand-alone
group;
(ii) the proceeds of which shall be used to allow any direct or indirect parent
of Borrower to pay (A) its operating expenses incurred in the ordinary course of
business and other corporate overhead costs and expenses (including administrative,
legal, accounting and similar expenses provided by third parties), which are
reasonable and customary and incurred in the ordinary course of business, in an
aggregate amount not to exceed $2,000,000 in any fiscal year of the Borrower plus
any reasonable and customary indemnification claims made by directors or officers of
the Borrower (or any parent thereof) attributable to the ownership or operations of
the Borrower and its Subsidiaries or (B) fees and expenses otherwise (x) due and
payable by the Borrower or any of its Subsidiaries and (y) permitted to be paid by
the Borrower or such Subsidiary under this Agreement;
(iii) the proceeds of which shall be used to pay franchise taxes and other
fees, taxes and expenses required to maintain the corporate existence of any direct
or indirect parent of the Borrower, within thirty (30) days of the receipt thereof;
(iv) in amount equal to the Net Cash Proceeds of any Disposition of Non-Core
Assets for the purposes of complying with the requirements of the Red Man
Transaction Agreement or the Merger Agreement (as defined in the Existing Revolving
Credit Agreement), as applicable, relating thereto;
(v) to any direct or indirect parent of the Borrower to finance any Investment
permitted to be made pursuant to Section 10.5; provided that (A)
such dividend shall be made substantially concurrently with the closing of such
Investment and (B) such parent shall, immediately following the closing thereof,
cause (1) all property acquired (whether assets, Stock or Stock Equivalents) to be
contributed to the Borrower or its Restricted Subsidiaries or (2) the merger
(to the extent permitted in Section 10.5) of the Person formed or acquired
into the Borrower or its Restricted Subsidiaries in order to consummate such
Permitted Acquisition; and
(vi) in an amount not to exceed the amount necessary to effect the Investment described in
Section 10.5(u).
10.7 Limitations on Debt Payments and Amendments. (a) The Borrower will not, and
will not permit any Restricted Subsidiary to, prepay, repurchase or redeem or otherwise defease any
Subordinated Indebtedness; provided, however, that so long as no Default or Event
of Default shall have occurred and be continuing at the date of such prepayment, repurchase,
redemption or other defeasance or would result after giving effect thereof and Excess Availability
is not less than $50,000,000 after giving effect to such prepayment, repurchase,
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redemption or
other defeasance, the Borrower or any Restricted Subsidiary may prepay, repurchase or redeem
Subordinated Indebtedness (i) for an aggregate price not in excess of (x)(A) $50,000,000 or (B)
$100,000,000, if the Consolidated Total Debt to Consolidated EBITDA Ratio for the Test Period last
ended is less than 4.00:1.00, determined on a Pro Forma Basis after giving effect to such
prepayment, repurchase, redemption or other defeasance, less any amount expended pursuant to
Section 10.6(c)(i) plus (y) the Applicable Amount at the time of such prepayment, repurchase or
redemption, or (ii) with the proceeds of Subordinated Indebtedness that (A) is permitted by
Section 10.1(B) (other than Section 10.1(B)(o)) and (B) has terms material to the
interests of the Lenders not materially less advantageous to the Lenders than those of such
Subordinated Indebtedness being refinanced.
(b) The Borrower will not waive, amend, modify, terminate or release any Subordinated
Indebtedness to the extent that any such waiver, amendment, modification, termination or release
would be adverse to the Lenders in any material respect.
10.8 Limitations on Sale Leasebacks. The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, enter into or effect any Sale Leasebacks, other than Permitted
Sale Leasebacks.
10.9 [Reserved].
10.10 Changes in Business. The Borrower and the Subsidiaries, taken as a whole, will
not fundamentally and substantively alter the character of their business, taken as a whole, from
the business conducted by the Borrower and the Subsidiaries, taken as a whole, on the Closing Date
and other business activities incidental or related to any of the foregoing.
10.11 Burdensome Agreements. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into or
permit to exist any contractual obligation (other than this Agreement or any other Credit Document)
that limits the ability of (a) any Restricted Subsidiary that is not a Guarantor to make dividends
to the Borrower or any Guarantor or (b) the Borrower or any Subsidiary Guarantor to create, incur,
assume or suffer to exist Liens on property of such Person for the benefit of the Lenders with
respect to the Obligations; provided that the foregoing clauses (a) and (b) shall not apply
to contractual obligations which (i) (x) exist on the date hereof and (to the extent not otherwise
permitted by this Section 10.11) are listed on Schedule 10.11 and (y) to the extent
contractual obligations permitted by clause (x) are set forth in an agreement evidencing
Indebtedness, are set forth in any agreement evidencing any permitted renewal, extension or
refinancing of such Indebtedness so long as such renewal, extension or refinancing does not expand
the scope of such contractual obligation, (ii) are binding on a Restricted Subsidiary at the time
such Restricted Subsidiary first becomes a Restricted Subsidiary of the Borrower, so long as such
contractual obligations were not entered into solely in contemplation of such Person becoming a
Restricted Subsidiary of the Borrower; (iii) represent Indebtedness of a Restricted Subsidiary of
the Borrower which is not a Credit Party which is permitted by Section 10.1, (iv) arise in
connection with any Disposition permitted by Section 10.4, (v) are customary provisions in
joint venture agreements and other similar agreements applicable to joint ventures permitted under
Section 10.5 and applicable solely to such joint venture entered into in the ordinary
course of business, (vi) are negative pledges and restrictions on Liens in favor of any holder of
Indebtedness permitted under Section 10.1 but solely to the extent any
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negative pledge
relates to the property financed by or the subject of such Indebtedness, (vii) are customary
restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so
long as such restrictions relate to the assets subject thereto, (viii) comprise restrictions
imposed by any agreement relating to secured Indebtedness permitted pursuant to Section
10.1 to the extent that such restrictions apply only to the property or assets securing such
Indebtedness or, in the case of secured Indebtedness incurred pursuant to Section
10.1(B)(j) or Section 10.1(B)(k)) only, to the Restricted Subsidiaries incurring or
guaranteeing such Indebtedness, (ix) are customary provisions restricting subletting or assignment
of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary, (x) are
customary provisions restricting assignment of any agreement entered into in the ordinary course of
business, (xi) are restrictions on cash or other deposits imposed by customers under contracts
entered into in the ordinary course of business, and (xii) exist under the Term Loan Credit
Agreement or any documentation relating to such debt.
SECTION 11. Events of Default
Upon the occurrence of any of the following specified events (each an “Event of
Default”):
11.1 Payments. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or any Unpaid
Drawings or of any other amounts owing hereunder or under any other Credit Document; or
11.2 Representations, etc. Any representation, warranty or statement made or deemed
made by any Credit Party herein or in any Security Document or any certificate, statement, report
or other document delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made; or
11.3 Covenants. Any Credit Party shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in Section 9.1(h) or Section 10;
(b) default in the due performance or observance by it of any term, covenant or
agreement contained in Section 9.1(f) and such default shall continue unremedied for
a period of at least ten (10) Business Days after the earlier of the date on which an
Authorized Officer of the Borrower has knowledge of such default and the date of receipt of
written notice by the Borrower from the Administrative Agent or the Required Lenders; or
(c) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in Section 11.1 or 11.2 or clauses
(a) or (b) of this Section 11.3) contained in this Agreement, any Security Document
or the Fee Letter and such default shall continue unremedied for a period of at least thirty
(30) days after receipt of written notice by the Borrower from the Administrative Agent or
the Required Lenders; or
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11.4 Default Under Other Agreements. (a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $30,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or condition
exist (other than, with respect to Indebtedness consisting of any Hedge Agreements, termination
events or equivalent events pursuant to the terms of such Hedge Agreements), the effect of which
default or other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) without limiting the provisions of
clause (a) above, any such Indebtedness shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (and,
with respect to Indebtedness consisting of any Hedge Agreements, other than due to a termination
event or equivalent event pursuant to the terms of such Hedge Agreements), prior to the stated
maturity thereof; or
11.5 Bankruptcy, etc. The Borrower or any Specified Subsidiary shall commence a voluntary case, proceeding or
action concerning itself under (a) Title 11 of the United States Code entitled “Bankruptcy,” or (b)
in the case of any Foreign Subsidiary that is a Specified Subsidiary, any domestic or foreign law
relating to bankruptcy, judicial management, insolvency reorganization or relief of debtors
legislation of its jurisdiction of incorporation, in each case as now or hereafter in effect, or
any successor thereto (collectively, the “Bankruptcy Code”); or an involuntary case,
proceeding or action is commenced against the Borrower or any Specified Subsidiary and the petition
is not controverted within 10 days after commencement of the case, proceeding or action; or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not dismissed within 60 days after commencement of the case,
proceeding or action; or a custodian (as defined in the Bankruptcy Code), judicial manager,
receiver, receiver manager, trustee or similar person is appointed for, or takes charge of, all or
substantially all of the property of the Borrower or any Specified Subsidiary; or the Borrower or
any Specified Subsidiary commences any other proceeding or action under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any
Specified Subsidiary; or there is commenced against the Borrower or any Specified Subsidiary any
such proceeding or action that remains undismissed for a period of 60 days; or the Borrower or any
Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding or action is entered; or the Borrower or any Specified
Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee or the like
for it or any substantial part of its property to continue undischarged or unstayed for a period of
60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the benefit of
creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary for the
purpose of effecting any of the foregoing; or
11.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization
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period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan (including
the giving of written notice thereof); any Plan shall have an accumulated funding deficiency
(whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has incurred or is
likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code (including the
giving of written notice thereof); (b) there could result from any event or events set forth in
clause (a) of this Section 11.6 the imposition of a lien, the granting of a security
interest, or a liability, or the reasonable likelihood of incurring a lien, security interest or
liability; and (c) such lien, security interest or liability will or would be reasonably likely to
have a Material Adverse Effect; or
11.7 Guarantee. Any Guarantee provided by any Material Subsidiary or any material
provision thereof shall cease to be in full force or effect or any such Guarantor thereunder or any
Credit Party shall
deny or disaffirm in writing any such Guarantor’s obligations under the Guarantee (or any of
the foregoing shall occur with respect to a Guarantee provided by a Subsidiary that is not a
Material Subsidiary and shall continue unremedied for a period of at least 5 Business Days after
receipt of written notice by the Borrower from the Administrative Agent, the Collateral Agent or
the Required Lenders); or
11.8 [Reserved].; or
11.9 Security Agreement. The Security Agreement pursuant to which the assets of the
Borrower or any Material Subsidiary are pledged as Collateral or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or any grantor thereunder or
any Credit Party shall deny or disaffirm in writing any grantor’s obligations under the Security
Agreement (or any of the foregoing shall occur with respect to Collateral provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 5 Business
Days after receipt of written notice by the Borrower from the Administrative Agent, the Collateral
Agent or the Required Lenders); or
11.10 [Intentionally Omitted].
11.11 Judgments. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of $30,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12 Change of Control. A Change of Control shall occur; or
11.13 Subordination. The subordination provisions of any document or instrument
evidencing any Permitted Additional Debt having a principal amount in excess of $15,000,000
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that
are subordinated shall be invalidated or otherwise cease to be legal, valid and binding obligations
of the holders of such Permitted Additional Debt, enforceable in accordance with their terms;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent,
(A) the Revolving Credit Commitments of each Lender and the obligation of the Letter of Credit
Issuer to issue any Letter of Credit shall immediately terminate; (B) each of the following shall
immediately become due and payable, in each case without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the
unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum
amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of
whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled
at such time to present, the drafts or other documents or certificates required to draw under such
Letters of Credit), and (III) all other Obligations; provided, the foregoing shall not
affect in any way the obligations of Lenders under Section 2.1(d) or Section 3.3(a); (C)
Administrative Agent may cause Collateral Agent to enforce any and all Liens and security interests
created pursuant to Security Documents; and (D) Administrative Agent shall direct the Borrower to
pay (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any
Event of Default specified in Section 11.5 to pay) to Administrative Agent such additional amounts
of cash as reasonably requested by the Letter of Credit Issuer, to be held as security for the
Borrower’s reimbursement Obligations in respect of Letters of Credit then outstanding.
SECTION 12. [Reserved].
SECTION 13. The Administrative Agent
13.1 Appointment. (a) Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity,
to take such action on its behalf under the provisions of this Agreement and the other Credit
Documents and to exercise such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Credit Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Credit Document or otherwise exist against the
Administrative Agent. The provisions of this Section 13 are solely for the benefit of the Agents,
any sub-agent and the Lenders and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and duties hereunder,
each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to
have assumed any obligation towards or relationship of agency or trust with or for Borrower or any
of its Subsidiaries. Except as expressly otherwise provided in this Agreement, the Administrative
Agent shall have and may use its sole discretion with respect to
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(i) the determination of the
applicability of ineligibility criteria and other determinations with
respect to the calculation of the Borrowing Base, (ii) the making of Protective Advances
pursuant to Section 2.15, and (iii) the exercise of remedies pursuant to Section
11.
(b) The Administrative Agent, each Lender, the Swingline Lender and the Letter of Credit
Issuer hereby irrevocably designate and appoint the Collateral Agent as its agent under this
Agreement and the other Credit Documents, and the Administrative Agent, each Lender, the Swingline
Lender and the Letter of Credit Issuer irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any and
all of the Security Documents (including, for the avoidance of doubt, the Intercreditor Agreement)
together with such other documents as shall be necessary to give effect to (x) the ranking and
priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the Collateral
contemplated by the other Security Documents, on its behalf. For the avoidance of doubt, each
Lender agrees to be bound by the terms of the Intercreditor Agreement to the same extent as if it
were a party thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement,
the Collateral Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with the Administrative Agent, any Lender, the
Swingline Lender or the Letter of Credit Issuer, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other
Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties or
responsibilities under this Agreement but shall be entitled to all benefits of this Section
13.
(d) Each Co-Documentation Agent, in its capacity as such, shall not have any obligations,
duties or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13.
13.2 Delegation of Duties. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. Administrative Agent and any
such sub-agent may perform any and all of its duties and exercise its rights and powers by or
through their respective Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any the Affiliates of Administrative Agent and
shall apply to their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent. All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the Affiliates of any such sub-agent,
and shall apply to their respective activities as sub-agent as if such sub-agent and Affiliates
were named herein. Notwithstanding anything herein to the contrary, with respect to each sub-agent
appointed by the Administrative Agent, (i) such sub-agent shall be a third party beneficiary under
this Agreement with respect to all such rights, benefits and privileges (including exculpatory
rights and rights to indemnification) and shall
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have all of the rights and benefits of a third party beneficiary,
including an independent right of action to enforce such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) directly, without the consent or joinder of any
other Person, against any or all of the Credit Parties and the Lenders, (ii) such rights, benefits
and privileges (including exculpatory rights and rights to indemnification) shall not be modified
or amended without the consent of such sub-agent, and (iii) such sub-agent shall only have
obligations to Administrative Agent and not to any Credit Party, Lender or any other Person and no
Credit Party, Lender or any other Person shall have any rights, directly or indirectly, as a third
party beneficiary or otherwise, against such sub-agent.
13.3 General Immunity. (a) No Responsibility for Certain Matters. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit
Party, or for the financial condition or business affairs of any Credit Party or any other Person
liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans
or as to the existence or possible existence of any Event of Default or Default or to make any
disclosures with respect to the foregoing. Anything contained herein to the contrary
notwithstanding, Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Loans or the Letters of Credit Outstanding or the component amounts
thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against any Agent as a result of such Agent acting or (where so instructed)
refraining from acting hereunder or any of the other Credit Documents in accordance
with the instructions of Required Lenders (or such other Lenders as may be required to give
such instructions under Section 14.1)
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13.4 Reliance by Agents. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5 Notice of Default. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a “notice of default”.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders, provided that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, any
Guarantor or any other Credit Party, shall be deemed to constitute
any representation or warranty by the Administrative Agent or the Collateral Agent to any
Lender, the Swingline Lender or the Letter of Credit Issuer. Each Lender, Swingline Lender and
Letter of Credit Issuer represents to the Administrative Agent and the Collateral Agent that it
has, independently and without reliance upon the Administrative Agent, the Collateral Agent or any
other Lender, and based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower, any Guarantor and any other Credit Party and made
its own decision to make its Loans hereunder and enter into this Agreement. Each Lender
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also
represents that it will, independently and without reliance upon the Administrative Agent, the
Collateral Agent or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower, any Guarantor and any other
Credit Party. Except for notices, reports and other documents expressly required to be furnished
to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent nor the
Collateral Agent shall have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, assets, operations, properties, financial condition,
prospects or creditworthiness of the Borrower, any Guarantor or any other Credit Party that may
come into the possession of the Administrative Agent or the Collateral Agent any of their
respective officers, directors, employees, agents, attorneys-in-fact or Affiliate. Notwithstanding
anything herein to the contrary, each Lender acknowledges that the lien and security interest
granted to the Collateral Agent pursuant to the Security Agreement or other applicable Security
Document, and the exercise of any right or remedy by the Collateral Agent thereunder, are subject
to the provisions of the Intercreditor Agreement and that in the event of any conflict between the
terms of the Intercreditor Agreement and such Security Document, the terms of the Intercreditor
Agreement shall govern and control.
13.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent’s or the Collateral Agent’s or such
sub-agent’s gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
13.8 Agents in their Individual Capacity. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same
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as if
it were not performing the duties and functions delegated to it hereunder, and the term “Lender”
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9 Successor Agents. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days’ prior written notice to the
Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or the
Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term “Administrative Agent” or “Collateral Agent”, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agent’s
or Collateral Agent’s rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agent’s or Collateral
Agent’s resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this Section 13 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10 Withholding Tax. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did not properly
withhold tax from amounts paid to
or for the account of any Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the
Administrative Agent has not already been reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, together with all
expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS. By signing this
Agreement, each Lender:
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(a) is deemed to have requested that the Agents furnish such Lender and Agents hereby
agree to deliver to each Lender, promptly after it becomes available, (i) a copy of all
financial statements and Borrowing Base Certificates to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent,
(iii) a copy of each Report and (iv) a copy of each budget and certificate to be delivered
by the Borrower pursuant to Sections 9.1(d) and (e);
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrower’s books and records, as well as on representations of the Borrower’s personnel;
(d) agrees to keep all Reports confidential in accordance with Section 14.16;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender’s
participation in, or the indemnifying Lender’s purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or
indirect result of any third parties who might obtain all or part of any Report through the
indemnifying Lender. Upon a Lender’s reasonable request, the Administrative Agent agrees to
deliver to such Lender a copy of the documents delivered by the Borrower to the Administrative
Agent pursuant to Section 9.1.
SECTION 14. Miscellaneous
14.1 Amendments and Waivers. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this Section 14.1. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with the relevant Credit Party or Credit Parties written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement
or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit
Parties hereunder or thereunder or (b) waive, on such terms and
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conditions as the Required Lenders
or the Administrative Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or Event of Default and
its consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall directly (i) forgive or reduce any portion of any Loan or Unpaid
Drawing or extend the final scheduled maturity date of any Loan or Unpaid Drawing or reduce the
stated rate (it being understood that any change to the definitions of Consolidated Total Debt to
Consolidated EBITDA Ratio, Secured Leverage Ratio or Consolidated Fixed Charge Coverage Ratio or in
the component definitions thereof shall not constitute a reduction in the stated rate and only the
consent of the Required Lenders shall be necessary to waive any obligation of the Borrower to pay
interest at the “default rate” or amend Section 2.8(c)), or forgive any portion, or extend
the date for the payment, of any interest or fee payable hereunder (other than as a result of
waiving the applicability of any post-default increase in interest rates), or extend the final
expiration date of any Lender’s Commitment or extend the final expiration date of any Letter of
Credit beyond the L/C Maturity Date, or increase the aggregate amount of the Commitments of any
Lender, or amend or modify any provisions of Section 5.3(a) (with respect to the ratable
allocation of any payments only), 2.4 (with respect to the ratable disbursement of funds)
and 14.8(a), in each case without the written consent of each Lender directly and adversely
affected thereby, or (ii) amend, modify or waive any provision of this Section 14.1 or
reduce the percentages specified in the definitions of the term “Required Lenders” or
“Super-Majority Lenders” or consent to the assignment or transfer by the Borrower of its rights and
obligations under any Credit Document to which it is a party (except as permitted pursuant to
Section 10.3), in each case without the written consent of each Lender directly and
adversely affected thereby, or (iii) amend, modify or waive any provision of Section 13
without the written consent of the then-current Administrative Agent, or (iv) amend, modify or
waive any provision of Section 3 with respect to any rights or obligations of the Letter of Credit
Issuer, Section 5.4 in a manner that directly and adversely affects the rights of the Letter of
Credit Issuer set forth therein or Section 14.6(b) or Section 14.7 to eliminate or reduce the
Letter of Credit Issuer’s right to consent to assignments of Revolving Credit Commitments or
Revolving Credit Loans, without the written consent of the Letter of Credit Issuer, or (v) amend,
modify or waive any provisions hereof relating to Swingline Loans without the written consent
of the Swingline Lender, or (vi) increase the advance rates or modify the definition of
“Borrowing Base” or any component definition thereof if such increase or modification is intended
to have the effect of making more credit available, in each case without the prior written consent
of the Super-Majority Lenders and, solely in the case of an increase to the $30,000,000 figure in
clause (o) of the definition of Eligible Account and/or clause (a) of the definition of Eligible
Red Man Business Account, the prior written consent of all Lenders; provided that the
foregoing shall not limit the discretion of the Administrative Agent to establish, change or
eliminate Reserves or otherwise exercise its Permitted Discretion, or (vii) release or limit the
liability of all or substantially all of the Guarantors under the Guarantee (except as expressly
permitted by the Guarantee) or release all or substantially all of the Collateral under the
Security Agreement (except with respect to transactions in accordance with Section 10.4) without
the prior written consent of each Lender, or (viii) amend Section 2.9 so as to permit
Interest Period intervals greater than six months without regard to availability to Lenders,
without the written consent of each Lender directly and adversely affected thereby; or (ix) amend,
modify or waive any provisions hereof relating to the Administrative Agent in a manner that
directly and adversely affects it rights and obligations hereunder without the written consent
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of
the Administrative Agent; or (x) amend, modify or waive any provisions hereof relating to the
Collateral Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Collateral Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the affected Lenders and shall
be binding upon the Borrower, such Lenders, the Administrative Agent and all future holders of the
affected Loans. In the case of any waiver, the Borrower, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the other Credit
Documents, and any Default or Event of Default waived shall be deemed to be cured and not
continuing, it being understood that no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
14.2 Notices. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the applicable address, facsimile number or electronic mail address, and all notices
and other communications expressly permitted hereunder to be given by telephone shall be made to
the applicable telephone number, as follows:
(a) if to the Borrower, the Administrative Agent, the Letter of Credit Issuer or the
Swingline Lender, to the address, facsimile number, electronic mail address or telephone
number specified for such Person on Schedule 14.2 or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by
such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower, the Administrative Agent, the Letter of Credit Issuer and
the Swingline Lender.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered; provided that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, 4.2 and 5.1 shall not be effective until
received.
14.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any
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right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4 Survival of Representations and Warranties. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
14.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable and documented costs, fees and expenses
associated with the initial collateral appraisal and field examination and all subsequent
appraisals, examinations or updates to the extent set forth in Section 9.14 and the reasonable
fees, disbursements and other charges of Latham & Watkins LLP, one local counsel in each relevant
local jurisdiction and such additional counsel to the extent consented to by the Borrower, (b) to
pay or reimburse each Lender, Letter of Credit Issuer and Agent for all its reasonable and
documented costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Credit Documents and any such other
documents, including the reasonable fees, disbursements and other charges of one counsel to the
Administrative Agent, Collateral Agent and the other Agents (unless there is an actual or perceived
conflict of interest in which case each such Person may retain its own counsel), (c) to pay,
indemnify, and hold harmless each Lender, Letter of Credit Issuer and Agent from, any and all
recording and filing fees and (d) to pay, indemnify, and hold harmless each Lender, Letter of
Credit Issuer and Agent and their respective directors, officers, employees, trustees, investment
advisors and agents from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including reasonable and documented fees, disbursements and other charges of one
primary counsel and one local counsel in each relevant jurisdiction to such indemnified Persons
(unless there is an actual or perceived conflict of interest or the availability of different
claims or defenses in which case each such Person may retain its own counsel), related to the
Transactions or with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Credit Documents and any such other documents,
including, without limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law or to any actual or alleged presence, release or
threatened release of Hazardous Materials or any other Environmental Claims involving or
attributable to the operations of the Borrower, any of its Subsidiaries or any of the Real Estate
(all the foregoing in this clause (d), collectively, the “indemnified liabilities”),
provided that the Borrower shall have no obligation hereunder to the Administrative Agent
or any Lender nor any of their Related Parties with respect to indemnified liabilities to the
extent attributable to the bad faith, gross negligence or willful misconduct of, or material breach
of the Credit Documents by, the party to be indemnified or any of its Related Parties (other than
its trustees and advisors). All amounts
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payable under this Section 14.5 shall be paid within ten
(10) Business Days of receipt by the Borrower of an invoice relating thereto setting forth such
expense in reasonable detail. No Person indemnified under this Section 14.5 shall be liable for
any special, indirect, consequential or punitive damages relating to this Agreement or any other
Credit Document or arising out of its activities in connection herewith or therewith. The
agreements in this Section 14.5 shall survive repayment of the Loans and all other amounts payable
hereunder
14.6 Successors and Assigns; Participations and Assignments. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of the Letter of Credit
Issuer that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by the Borrower or without such consent shall be
null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations
hereunder except in accordance with this Section 14.6. Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than the parties hereto,
their respective successors and assigns permitted hereby (including any Affiliate of the Letter of
Credit Issuer that issues any Letter of Credit), Participants (to the extent provided in paragraph
(c) of this Section 14.6) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Letter of Credit Issuer and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed; provided that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority), provided that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under Section 11.1 or
Section 11.5 is continuing) or, if an Event of Default under
Section 11.1 or Section 11.5 has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed; provided that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund), or, in the case of assignments in connection with
the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers, and, except in connection with the initial syndication of
Revolving Credit Commitments or Revolving Loans, the Swingline Lender and
the applicable Letter of Credit Issuer;
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(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lender’s Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed), provided that no such
consent of the Borrower shall be required if an Event of Default under
Section 11.1 or Section 11.5 has occurred and is continuing;
provided, further, that contemporaneous assignments to a
single assignee
made by Affiliates of Lenders and related Approved Funds shall be
aggregated for purposes of meeting the minimum assignment amount
requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations
under this Agreement, provided that this clause shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lender’s rights and obligations in respect of one Class of
Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500, provided that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the “Administrative Questionnaire”).
For the purpose of this Section 14.6(b), the term “Approved Fund” means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this Section 14.6, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the case
of an Assignment and Acceptance covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 2.10, 2.11, 3.5,
5.4 and 14.5). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this Section 14.6
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (c) of
this Section 14.6.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agent’s Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of the
names and addresses of the Lenders, and the Commitments of, and principal
amount of the Loans and any payment made by the Letter of Credit Issuer under
any Letter of Credit owing to, each Lender pursuant to the terms hereof from time to
time (the “Register”). Further, the Register shall contain the name and
address of the Administrative Agent and the lending office through which each such
Person acts under this Agreement. The entries in the Register shall be conclusive
absent manifest error, and the Borrower, the Administrative Agent, the Letter of
Credit Issuer and the Lenders shall treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender (with respect to any entry relating to such Lender’s Loans) at any reasonable
time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section 14.6
and any written consent to such assignment required by paragraph (b) of this
Section 14.6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Letter of Credit Issuer or the Swingline Lender, sell
participations to one or more banks or other entities (each, a
“Participant”) in all or a portion of such Lender’s rights and obligations
under this Agreement (including all or a portion of its Commitments and the Loans
owing to it), provided that (A) such Lender’s obligations under this
Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations and (C) the
Borrower, the
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Administrative Agent, the
Letter of Credit Issuer and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and obligations
under this Agreement. Any agreement or instrument pursuant to which a Lender sells
such a participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of any
provision of this Agreement or any other Credit Document, provided that such
agreement or instrument may provide that such Lender will not, without the consent
of the Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 14.1 under subsections (i), (vi), and (vii) that
affects such Participant. Subject to paragraph (c)(ii) of this Section
14.6, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.10, 2.11 and 5.4 to the same extent
as if it were a Lender (subject to the requirements of those Sections) and had
acquired its interest by assignment pursuant to paragraph (b) of this Section
14.6. To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 14.8(b) as though it were a Lender, provided such
Participant agrees to be subject to Section 14.8(a) as though it were a
Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrower’s prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this Agreement
to secure obligations of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section 14.6 shall not apply to any such pledge or
assignment of a security interest, provided that no such pledge or assignment of a security
interest shall release a Lender from any of its obligations hereunder or substitute any such
pledgee or assignee for such Lender as a party hereto. In order to facilitate such pledge or
assignment, the Borrower hereby agrees that, upon request of any Lender at any time and from time
to time after the Borrower has made its initial borrowing hereunder, the Borrower shall provide to
such Lender, at the Borrower’s own expense, a promissory note, substantially in the form of
Exhibit L evidencing the Revolving Credit Loans and Swingline Loans, respectively, owing to
such Lender.
(e) Subject to Section 14.16, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a “Transferee”) and any
prospective Transferee any and all financial information in such Lender’s possession
concerning the Borrower and its Affiliates that has been delivered to such Lender by or on behalf
of the Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such
Lender by or on behalf of the Borrower and its Affiliates in connection with such Lender’s credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7 Replacements of Lenders under Certain Circumstances. (a) The Borrower shall be permitted to
replace any Lender that (a) requests
reimbursement for amounts owing pursuant
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to Section 2.10, 3.5 or 5.4, (b) is
affected in the manner described in Section 2.10(a)(iii) and as a result thereof any of the
actions described in such Section is required to be taken or (c) becomes a Defaulting Lender, with
a replacement bank or other financial institution, provided that (i) such replacement does
not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) the Borrower shall repay (or the replacement bank
or institution shall purchase, at par) all Loans and other amounts (other than any disputed
amounts), pursuant to Section 2.10, 2.11, 3.5 or 5.4, as the case may be) owing to
such replaced Lender prior to the date of replacement, (iv) the replacement bank or institution, if
not already a Lender, and the terms and conditions of such replacement, shall be reasonably
satisfactory to the Administrative Agent, the Swingline Lender and the Letter of Credit Issuer, (v)
the replaced Lender shall be obligated to make such replacement in accordance with the provisions
of Section 14.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein) and (vi) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender
shall have against the replaced Lender.
(b) If any Lender (such Lender, a “Non-Consenting Lender”) has failed to consent to a
proposed amendment, waiver, discharge or termination, then provided no Event of Default then
exists, the Borrower shall have the right (unless such Non-Consenting Lender grants such consent)
to replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the Administrative
Agent, the Swingline Lender and the Letter of Credit Issuer, provided that: (a) all
Obligations of the Borrower owing to such Non-Consenting Lender being replaced shall be paid in
full to such Non-Consenting Lender concurrently with such assignment, (b) the replacement Lender
shall purchase the foregoing by paying to such Non-Consenting Lender a price equal to the principal
amount thereof plus accrued and unpaid interest thereon and (c) the replacement Lender shall grant
such consent. In connection with any such assignment, the Borrower, Administrative Agent, such
Non-Consenting Lender and the replacement Lender shall otherwise comply with Section 14.6.
14.8 Adjustments; Set-off. (a) If any Lender (a “benefited Lender”) shall at
any time receive any payment
of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 11.5, or otherwise), in a greater proportion than any such payment
to or collateral received by any other Lender, if any, in respect of such other Lender’s Loans, or
interest thereon, such benefited Lender shall purchase for cash from the other Lenders a
participating interest in
such portion of each such other Lender’s Loan, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such
benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall
be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but
without interest.
(b) After the occurrence and during the continuance of an Event of Default, in addition to any
rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior
notice to the Borrower, any such notice being expressly waived by the
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Borrower to the extent
permitted by applicable law, subject to the consent of the Administrative Agent (such consent not
to be unreasonably withheld) upon any amount becoming due and payable by the Borrower hereunder
(whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any currency, in each
case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after
any such set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
14.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any
number of separate counterparts (including by facsimile or other electronic transmission), and all
of said counterparts taken together shall be deemed to constitute one and the same instrument. A
set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and
the Administrative Agent.
14.10 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
14.11 Integration. This Agreement and the other Credit Documents represent the agreement of the Borrower, the
Collateral Agent, the Administrative Agent and the Lenders with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties by the Borrower, the
Administrative Agent, the Collateral Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Credit Documents.
14.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
14.13 Submission to Jurisdiction; Waivers. Each party hereto hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
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action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on Schedule 14.2 at
such other address of which the Administrative Agent shall have been notified pursuant to
Section 14.2;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 14.13 any
special, exemplary, punitive or consequential damages.
14.14 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15 WAIVERS OF JURY TRIAL. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
14.16 Confidentiality. The Administrative Agent, each Co-Lead Arranger and each Lender shall hold all non-public
information furnished by or on behalf of the Borrower in connection with such Lender’s evaluation
of whether to become a Lender hereunder or obtained by such Lender, the Administrative Agent or the
Co-Lead Arrangers pursuant to the requirements of this Agreement (“Confidential
Information”), confidential in accordance with its customary procedure for handling
confidential information of this nature and (in the case of a Lender that is a bank) in accordance
with safe and sound banking practices and in any event may (i) make disclosure as required or
requested by any governmental agency or representative thereof or pursuant to legal process or to
such Lender’s, the Administrative Agent’s or Co-Lead
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Arrangers’ attorneys, professional advisors or
independent auditors or Affiliates, provided that unless specifically prohibited by
applicable law or court order, each Lender, each Co-Lead Arranger and the Administrative Agent
shall notify the Borrower of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial condition of such
Lender by such governmental agency or other routine examinations of such Lender by such
governmental agency) for disclosure of any such non-public information prior to disclosure of such
information, and provided, further, that in no event shall any Lender, Co-Lead Arranger or the
Administrative Agent be obligated or required to return any materials furnished by the Borrower or
any Subsidiary of the Borrower, (ii) make disclosures of such information reasonably required by
any bona fide or potential assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any participations therein or
by any direct or indirect contractual counterparties (or the professional advisors thereto) in
Hedge Agreements or any other swap or derivative transaction relating to the Borrower and its
obligations (provided, such assignees, transferees, participants, counterparties and advisors are
advised of and agree to be bound by provisions that in substance are equivalent to those in this
Section 14.16), (iii) make disclosure of such information reasonably required by any lender or
other Person providing financing to such Lender (provided such lenders or other Persons are advised
of the confidential nature of such information and agree to keep such information confidential on
terms consistent with this Section 14.16), and (iv) make disclosure to any rating agency,
provided that, prior to any disclosure, such rating agency shall undertake in writing to
preserve the confidentiality of any Confidential Information received by it from any of the Agents
or any Lender.
14.17
Direct Website Communications.
| (a) | (i) The Borrower may, at its option, provide to the Administrative Agent any information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to the Credit Documents, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (A) relates to a request for a new, or a conversion of an existing, borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (B) relates to the payment of any principal or other amount due under the Credit Agreement prior to the scheduled date therefor, (C) provides notice of any default or event of default under the Credit Agreement or (D) is required to be delivered to satisfy any condition precedent to the effectiveness of the Credit Agreement and/or any borrowing or other extension of credit thereunder (all such non-excluded communications being referred to herein collectively as “Communications”), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Administrative Agent at (212) 461-7760, Attn: Relationship Manager/McJunkin. Nothing in this Section 14.17 shall prejudice the right of the Borrower, the Administrative Agent or any Lender to give any notice or other communication pursuant to any Credit Document in any other manner specified in such Credit Document. |
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| (ii) The Administrative Agent agrees that the receipt of the Communications by the Administrative Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Credit Documents. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Credit Documents. Each Lender agrees (A) to notify the Administrative Agent in writing (including by electronic communication) from time to time of such Lender’s e-mail address to which the foregoing notice may be sent by electronic transmission and (B) that the foregoing notice may be sent to such e-mail address. |
(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the “Platform”), so long as the access to such Platform is
limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality requirements
set forth in Section 14.16.
(c) The Platform is provided “as is” and “as available.” The Agent Parties do not warrant the
accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, any warranty
of merchantability, fitness for a particular purpose, non-infringement of third party rights
or freedom from viruses or other code defects, is made by the Agent Parties in connection with the
Communications or the platform. In no event shall the Administrative Agent, the Collateral Agent
or any of its affiliates or any of their respective officers, directors, employees, agents,
advisors or representatives (collectively, “Agent Parties”) have any liability to the
Borrower, any Lender or any other person or entity for damages of any kind, including, without
limitation, direct or indirect, special, incidental or consequential damages, losses or expenses
(whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative
Agent’s transmission of Communications through the internet, except to the extent the liability of
any Agent Party resulted from such Agent Party’s (or any of its Related Parties (other than
trustees and advisors)) gross negligence, bad faith or willful misconduct or material breach of the
Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be “public-side”
Lenders (Lenders that do not wish to receive material non-public information with respect to the
Borrower, its Subsidiaries or their securities) and, if documents or notices required to be
delivered pursuant to the Credit Documents or otherwise are being distributed through the Platform,
any document or notice that the Borrower has indicated contains only publicly available information
with respect to the Borrower may be posted on that portion of the Platform designated for such
public-side Lenders. If the Borrower has not indicated whether a document or notice delivered
contains only publicly available information, the Administrative Agent shall post such document or
notice solely on that portion of the Platform designated for Lenders who wish to receive material
nonpublic information with respect to the Borrower, its Subsidiaries and their securities.
Notwithstanding the foregoing, the
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Borrower shall be under no obligation under this Section 14.17
(d) to indicate any document or notice as containing only publicly available information.
14.18 USA PATRIOT Act. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot
Act”), it is required to obtain, verify and record information that identifies the Borrower and
each Guarantor, which information includes the name and address of the Borrower and each Guarantor
and other information that will allow such Lender to identify the Borrower and each Guarantor in
accordance with the Patriot Act.
SECTION 15. Limitation on Permitted Discretion; Special Provisions regarding Accounts,
Inventory, and Application of Collateral Proceeds
15.1 Accounts and Account Collections.
(a) At any time that an Event of Default exists or has occurred and is continuing and
after notice of such action has been provided to the Borrower, Collateral Agent shall, at
its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with Account Debtors of any Credit Party or
grant any credits, discounts or allowances.
(b) Collateral Agent shall have the right at any time or times during the continuance
of an Event of Default or Cash Dominion Event and after notice of such action has been
provided to the Borrower, in Collateral Agent’s name or in the name of a nominee of
Collateral Agent, and may communicate directly with any Account Debtor, to verify the
validity, amount or any other matter relating to any Account or other Collateral, by mail,
telephone, e-mail, facsimile transmission or otherwise. To facilitate the exercise of the
right described in the immediately preceding sentence, Borrower hereby agrees to provide
Collateral Agent upon request, at any time during the continuance of an Event of Default,
the name and address of each material Account Debtor of Borrower or any Borrowing Base
Guarantor.
(c) Within sixty (60) days after the Closing Date (or such later date as the
Administration Agent may reasonably agree in writing), the Borrower will, and will cause
each of the Guarantors to establish and maintain, at its sole expense, blocked accounts or
lockboxes and related deposit accounts (in each case, “Blocked Accounts”) with such
banks as are reasonably acceptable to Collateral Agent into which Borrower and the
Guarantors shall promptly deposit and direct their respective Account Debtors to directly
remit all payments on Accounts and all payments constituting proceeds of Inventory or other
Collateral in the identical form in which such payments are made, whether by cash, check or
other manner and shall be identified and segregated from all other funds of the Credit
Parties. All proceeds of the Loans shall be deposited into a Blocked Account. Borrower and
Guarantors shall deliver, or cause to be delivered, to Collateral Agent a Control Agreement
duly authorized, executed and delivered by each bank where a Blocked Account for the benefit
of Borrower or any Guarantor is maintained. Except as permitted by Section
15.1(d)(iii), Borrower and Guarantors shall not establish any deposit accounts after the
Closing Date, unless Borrower or Guarantor
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(as applicable) have complied in full with the
provisions of this Section 15.1 with respect to such deposit accounts.
(d) At all times after the initial Blocked Accounts are established pursuant to the
foregoing paragraph (c), Borrower and each Guarantor shall maintain a cash management system
which is acceptable to the Administrative Agent and the Collateral Agent (the “Cash
Management System”). The Cash Management System shall contain, among other things, the
following:
(i) With respect to the Blocked Accounts of Borrower and such Guarantors as the
Collateral Agent shall determine in its sole discretion, the applicable bank
maintaining such Blocked Accounts shall agree, pursuant to the applicable Control
Agreement, to forward daily all amounts in each Blocked Account to one Blocked
Account designated as concentration account in the name of Borrower (the
“Concentration Account”) at the bank that shall be designated as the
Concentration Account bank for Borrower (the “Concentration Account Bank”).
The Concentration Account Bank shall agree, pursuant to the applicable Control
Agreement from and after the receipt of a notice (an “Activation Notice”)
from the Collateral Agent (which Activation Notice may be given by Collateral
Agent at any time during the existence of a Cash Dominion Event) and so long as such
Cash Dominion Event is continuing, to forward daily all amounts in the Concentration
Account to the account designated as collection account (the “Collection
Account”) which shall be under the exclusive dominion and control of the
Collateral Agent; provided that at any time when no Cash Dominion Event is
continuing, the balance standing to the credit of the Concentration Account shall be
distributed as directed by the Borrower in accordance with this Section 15.1;
(ii) With respect to the Blocked Accounts of such Guarantors as the Collateral
Agent shall determine in its sole discretion, the applicable bank maintaining such
Blocked Accounts shall agree, from and after the receipt of an Activation Notice
from the Collateral Agent (which Activation Notice may be given by Collateral Agent
at any time during the existence of a Cash Dominion Event) and so long as such Cash
Dominion Event is continuing, to forward all amounts in each Blocked Account to the
Collection Account and to commence the process of daily sweeps from such Blocked
Account into the Collection Account; and
(iii) Any provision of this Section 15.1 to the contrary
notwithstanding, Credit Parties may maintain payroll accounts, trust accounts or
other accounts that are not a part of the Cash Management Systems or subject to a
Control Agreement provided that no Credit Party shall accumulate or maintain cash in
such accounts (other than cash not constituting proceeds of Collateral or Loans) as
of any date of determination in excess of checks outstanding against such accounts
as of that date and amounts necessary to meet minimum balance requirements plus
$1,000,000 in the aggregate for all such accounts.
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(e) At all times following the establishment of the Cash Management System pursuant to
this Section 15.1 and after the occurrence and during the continuation of a Cash
Dominion Event, on each Business Day, at or before 1:00 p.m. New York City time, the
Collateral Agent shall apply all funds received in the Collection Account on a daily basis
to the repayment (by transferring same to the account of or pursuant to direction of
Administrative Agent) of (i) first, fees and reimbursable expenses of Agents then due and
payable; (ii) second, to interest then due and payable on all Loans, (iii) third, the Swing
Line Loans, (iv) fourth, ABR Loans (including Protection Advances), (v) fifth, LIBOR Loans,
together with all accrued and unpaid interest thereon, and (vi) last, other amounts which
are then due and owing by the Borrower hereunder or under any other Credit Document, in each
case without a reduction in the Revolving Commitments; all further funds received in any of
the Collection Account shall, unless an Event of Default has occurred and is continuing, be
transferred or applied by the Collateral Agent in accordance with the directions of Borrower
or the respective other Borrowing Base Guarantor. If an Event of Default has occurred and
is continuing, the Collateral Agent shall not transfer or apply any such funds from the
Collection Account in accordance with such directions unless the Administrative Agent and
the Collateral Agent determine to release such funds to Borrower. Absent any such
determination by the Administrative
Agent and the Collateral Agent, all such funds in the Collection Account shall be
transferred to the Cash Collateral Account to be applied to the Obligations as they come due
(whether at stated maturity, by acceleration or otherwise). If consented to by the
Administrative Agent, the Collateral Agent and the Required Lenders, such funds in the Cash
Collateral Account may be released to Borrower.
(f) Borrower and its directors, employees, agents and other Affiliates and Guarantors
shall, acting as trustee for Collateral Agent, receive, as the property of Collateral Agent,
any monies, checks, notes, drafts or any other payment relating to and/or proceeds of
Accounts, Inventory or other Collateral which come into their possession or under their
control and, following the establishment of the Cash Management Systems pursuant to this
Section 15.1, within three (3) Business Days after receipt thereof, shall deposit or
cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same
to be remitted, in kind, to Collateral Agent.
15.2 Limitation on Permitted Discretion..
(a) The Administrative Agent shall have the right to establish, modify or eliminate
Reserves against Eligible Accounts and Eligible Inventory from time to time in its Permitted
Discretion. In addition, the Administrative Agent reserves the right, at any time and from
time to time after the Closing Date, to adjust any of the applicable criteria, to establish
new criteria and to adjust advance rates with respect to Eligible Accounts and Eligible
Inventory, in its Permitted Discretion, subject to clause (vi) of the proviso to Section
14.1.
(b) Notwithstanding the foregoing or any provision in this Agreement to the contrary,
circumstances, conditions, events or contingencies arising prior to the Closing Date and
disclosed to the Co-Lead Arrangers, Administrative Agent or Collateral Agent prior to the
Closing Date shall not be the basis for any establishment or modification of
-132-
Reserves,
eligibility criteria or advance rates unless (i) in the case of Reserves and eligibility
criteria, such Reserves or eligibility criteria were established on the Closing Date or (ii)
such circumstances, conditions, events or contingencies shall have changed in a material
respect since the Closing Date.
(c) Any exercise of Permitted Discretion shall be based on a good faith reasonable
determination of the Administrative Agent that (i) the circumstances, conditions, events or
contingencies giving rise thereto will or reasonably could be expected to adversely affect a
material portion of the value of the Eligible Accounts or Eligible Inventory, the
enforceability or priority of the Collateral Agent’s Liens thereon or the amount the Secured
Parties would likely receive in the liquidation of any material portion of Eligible Accounts
or Eligible Inventory and (ii) the proposed action to be taken by the Administrative Agent
to mitigate the effects described in clause (i) (including the amount of any Reserve) bears
a reasonable relationship to the circumstance, condition, event or other contingency that is
the basis therefor.
(d) Upon delivery of notice to Borrower by the Administrative Agent of its intent to
establish or increase a Reserve, the Administrative Agent shall be available to discuss the
proposed Reserve or increase, and the Borrower may take such action as may be required so
that the circumstance, condition, event or other contingency that is the basis for such
Reserve or increase no longer exists, in a manner and to the extent reasonably satisfactory
to the Administrative Agent in the exercise of its Permitted Discretion. In no event shall
such notice and opportunity limit the right of the Administrative Agent to establish or
change such Reserve, unless the Administrative Agent shall have determined in its Permitted
Discretion that the circumstance, condition, event or other contingency that is the basis
for such new Reserve or such change no longer exists or has otherwise been adequately
addressed by the Borrower.
-133-
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ J.F. UNDERHILL | |||
| Name: | J.F. Underhill | |||
| Title: | Chief Financial Officer | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger and Joint Bookrunner |
||||
| By: | /s/ WALTER A. JACKSON | |||
| Name: | Walter A. Jackson | |||
| Title: | Authorized Signatory | |||
| By: | ||||
| Name: | ||||
| Title: | ||||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent and Co-Collateral Agent |
||||
| By: | /s/ CYNTRA A. TRANI | |||
| Name: | Cyntra A. Trani | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| BANK OF AMERICA, N.A., as Co-Collateral Agent |
||||
| By: | /s/ J.L. BARTHOLOMEW | |||
| Name: | J.L. Bartholomew | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint Bookrunner |
||||
| By: | /s/ LAURIE PERPER | |||
| Name: | Laurie Perper | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| BANK OF AMERICA, N.A., as Syndication Agent |
||||
| By: | /s/ JOY L. BARTHOLOMEW | |||
| Name: | Joy L. Bartholomew | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Allied Irish Banks, p.l.c., as a Lender |
||||
| By: | /s/ ALBERT D. PEREZ | |||
| Name: | Albert D. Perez | |||
| Title: | Vice President | |||
| By: | /s/ EANNA P. MULKERE | |||
| Name: | Eanna P. Mulkere | |||
| Title: | Assistant Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| BANK OF AMERICA, N.A., as a Lender |
||||
| By: | /s/ JOY L. BARTHOLOMEW | |||
| Name: | Joy L. Bartholomew | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Bank
of Oklahoma, N.A. as a Lender |
||||
| By: | /s/ DAN HUGHES | |||
| Name: | Dan Hughes | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| Branch Banking & Trust Company, as a Lender |
||||
| By: | /s/ STEPHANIE J. COOK | |||
| Name: | Stephanie J. Cook | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Burdale Financial Limited, as a Lender |
||||
| By: | /s/ DAVID GRENDE | |||
| Name: | David Grende | |||
| Title: | Managing Director | |||
| By: | /s/ JASON D. SCHICK | |||
| Name: | Jason Schick | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
CATERPILLAR FINANCIAL SERVICES CORPORATION, as a Lender |
||||
| By: | /s/ CHRISTOPHER C. PATTERSON | |||
| Name: | Christopher C. Patterson | |||
| Title: | Global Operations Manager — Capital Markets | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender |
||||
| By: | /s/ CYNTRA A. TRANI | |||
| Name: | Cyntra A. Trani | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
| Citizens Bank, as a Lender |
||||
| By: | /s/ TIMOTHY D. HANCHETT | |||
| Name: | Timothy D. Hanchett | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
City National Bank of West Virginia, as a Lender |
||||
| By: | /s/ JACK CAVENDER | |||
| Name: | Jack Cavender | |||
| Title: | Executive Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Fifth Third Bank an Ohio Banking Corporation, as a Lender |
||||
| By: | /s/ WILLIAM R. HARROD | |||
| Name: | William R. Harrod | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
General
Electric Capital Corporation, as a Lender |
||||
| By: | /s/ MARTIN J. MAHONEY | |||
| Name: | Martin Mahoney | |||
| Title: | Duly Authorized Signatory | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
The Huntington National Bank, as a Lender |
||||
| By: | /s/ L. BLAIR DEVAN | |||
| Name: | L. Blair DeVan | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Israel Discount Bank of New York, as a Lender |
||||
| By: | /s/ RAHUM N. WILLIAMS | |||
| Name: | Rahum N. Williams | |||
| Title: | Vice President | |||
| By: | /s/ JEFFREY S. ACKERMAN | |||
| Name: | Jeffrey S. Ackerman | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
JPMorgan Chase Bank, N.A., as a Lender |
||||
| By: | /s/ KIM NGUYEN | |||
| Name: | Kim Nguyen | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Mizuho Corporate Bank, as a Lender |
||||
| By: | /s/ JAMES R. FAYEN | |||
| Name: | James R. Fayen | |||
| Title: | Deputy General Manager | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
National City Business Credit, Inc., as a Lender |
||||
| By: | /s/ THOMAS J. EVANS | |||
| Name: | Thomas J. Evans | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
North Fork Business Capital Corporation, as a Lender |
||||
| By: | /s/ MICHAEL S. BURNS | |||
| Name: | Michael S. Burns | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
PNC Bank, National Association, as a Lender |
||||
| By: | /s/ SAM V. TRABERMAN | |||
| Name: | Sam V. Traberman | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
RZB Finance LLC, as a Lender |
||||
| By: | /s/ SHIRLEY M. RITCH | |||
| Name: | Shirley M. Ritch | |||
| Title: | Assistant Vice President | |||
| By: | /s/ NICOLAS M. MORIATIS | |||
| Name: | Nicolas M. Moriatis | |||
| Title: | Group Vice President Controller |
|||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
United Bank, Inc, as a Lender |
||||
| By: | /s/ JAMES A. WARD | |||
| Name: | James A. Ward | |||
| Title: | Vice President | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
UPS
Capital Corporation, as a Lender |
||||
| By: | /s/ JOHN P. HOLLOWAY | |||
| Name: | John P. Holloway | |||
| Title: | Director of Portfolio Management | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
Wachovia Bank National Association, as a Lender |
||||
| By: | /s/ STEVEN J. HAAS | |||
| Name: | Steven J. Haas | |||
| Title: | Director | |||
[SIGNATURE PAGE TO MCJUNKIN REVOLVING CREDIT AGREEMENT]
SCHEDULE 1.1(A) — EXISTING
LETTERS OF CREDIT
|
Beneficiary
|
Expiration Date | Amount | Purpose | Issuing Bank | ||||||||
|
Brickstreet
|
11/1/08 | $ | 200,000 | Worker’s Comp | JPMorgan Chase | |||||||
|
St. Paul Travelers
|
12/31/07 | $ | 1,775,000 | Insurance | United Bank | |||||||
|
State of West Virginia
|
1/31/08 | $ | 1,000,000 | Worker’s Comp | JPMorgan Chase | |||||||
|
Sentry Insurance
|
11/1/08 | $ | 75,000 | Insurance | JPMorgan Chase | |||||||
|
Lumberman’s Mutual
|
7/1/08 | $ | 45,000 | Insurance | JPMorgan Chase | |||||||
SCHEDULE 1.1(B) —
BORROWING BASE GUARANTORS
|
McJunkin Appalachian Oilfield Supply Company McJunkin Development Corporation McJunkin Nigeria Limited McJunkin-Puerto Rico Corporation McJunkin-West Africa Corporation Milton Oil & Gas Company Ruffner Realty Company Greenbrier Petroleum Corporation Midway-Tristate Corporation West Oklahoma PVF Company Red Man Pipe & Supply Co. Wesco Acquisition Partners, Inc. |
SCHEDULE
1.1(C) — COMMITMENTS AND ADDRESSES OF
LENDERS1
Allied Irish
Bank, p.l.c.
Bank of America, N.A.
Bank of Oklahoma, N.A.
Branch Banking & Trust Company
Burdale Financial Limited
Caterpillar Financial Services Corporation
The CIT Group/Business Credit, Inc.
Citizens Bank
City National Bank of West Virginia
Fifth Third Bank an Ohio Banking Corporation
General Electric Capital Corporation
The Huntington National Bank
Israel Discount Bank of New York
JPMorgan Chase Bank, N.A.
Mizuho Corporate Bank, Ltd.
National City Business Credit, Inc.
North Fork Business Capital Corporation
PNC Bank, National Association
RZB Finance LLC
United Bank, Inc.
UPS Capital Corporation
Wachovia Bank, National Association
Bank of America, N.A.
Bank of Oklahoma, N.A.
Branch Banking & Trust Company
Burdale Financial Limited
Caterpillar Financial Services Corporation
The CIT Group/Business Credit, Inc.
Citizens Bank
City National Bank of West Virginia
Fifth Third Bank an Ohio Banking Corporation
General Electric Capital Corporation
The Huntington National Bank
Israel Discount Bank of New York
JPMorgan Chase Bank, N.A.
Mizuho Corporate Bank, Ltd.
National City Business Credit, Inc.
North Fork Business Capital Corporation
PNC Bank, National Association
RZB Finance LLC
United Bank, Inc.
UPS Capital Corporation
Wachovia Bank, National Association
1 Addresses and commitments on file with Administrative
Agent.
SCHEDULE
1.1(D) — EXCLUDED SUBSIDIARIES
McJunkin
Receivables Corporation
Red Man
Pipe & Supply International, Ltd.
SCHEDULE
1.1(E) — COST SAVINGS
12/31/07 — $1,120,357
SCHEDULE
1.1(F) — NON-CORE ASSETS
623,521 shares
of common stock of PrimeEnergy Corporation, which comprise
approximately 19% of outstanding stock
19/60
ownership interest in Vision Exploration & Production Co.,
LLC
Hansford
Street property and building (1400, 1401 and 1403 Hansford
Street, Charleston, WV 25301)
Beekman
apartment (575 Park Avenue, Apt. 401, New York, NY 10021)
Piedmont
Farm (State Route 3, Union, WV)
Vacant lot
at Hillcrest Drive (835 Hillcrest Drive, Charleston, WV, 25311)
SCHEDULE
8.12 SUBSIDIARIES
|
Material |
|||||||||
|
Subsidiary |
|||||||||
| Name | Owner | Type | (Y/N) | ||||||
|
McJunkin Appalachian Oilfield Supply Company
|
McJunkin Corporation | corporation | Y | ||||||
|
McJunkin Nigeria Limited
|
McJunkin Corporation | corporation | N | ||||||
|
McJunkin Development Corporation
|
McJunkin Corporation | corporation | N | ||||||
|
McJunkin-Puerto Rico Corporation
|
McJunkin Corporation | corporation | N | ||||||
|
McJunkin Receivables Corporation
|
McJunkin Corporation | corporation | N | ||||||
|
McJunkin-West Africa Corporation
|
McJunkin Corporation | corporation | N | ||||||
|
Milton Oil & Gas Company
|
McJunkin Corporation | corporation | N | ||||||
|
Greenbrier Petroleum Corporation
|
Milton Oil & Gas Company | corporation | N | ||||||
|
Ruffner Realty Company
|
McJunkin Corporation | corporation | N | ||||||
|
Midway-Tristate Corporation
|
McJunkin Appalachian Oilfield Supply Company | corporation | Y | ||||||
|
West Oklahoma PVF Company
|
McJunkin Corporation | corporation | Y | ||||||
|
McJunkin de Angola, Lda
|
McJunkin-West Africa Corporation (49%)/McJunkin Development Corporation (51%) | limited liability company | N | ||||||
|
Red Man Pipe & Supply Co.
|
West Oklahoma PVF Company | corporation | Y | ||||||
|
Wesco Acquisition Partners, Inc.
|
Red Man Pipe & Supply Co. | corporation | N | ||||||
|
Red Man Pipe and Supply Canada, Ltd.
|
Red Man Pipe & Supply Co. | corporation | Y | ||||||
|
Midfield Supply ULC
|
Red Man Pipe and Supply Canada, Ltd. | corporation | Y | ||||||
|
Midfield Supply USA, Ltd.
|
Midfield Supply ULC | corporation | N | ||||||
|
Material |
|||||||||
|
Subsidiary |
|||||||||
|
Name |
Owner |
Type |
(Y/N) | ||||||
| Mega Production Testing Inc. | Midfield Supply ULC | corporation | N | ||||||
| Northern Boreal Supply Ltd. | Midfield Supply ULC | corporation | N | ||||||
|
Red Man Pipe & Supply International, Ltd. |
Red Man Pipe & Supply Co. | corporation | N | ||||||
| Hagan Oilfield Supply Ltd. | Midfield Supply ULC | corporation | N | ||||||
| 1048025 Alberta Ltd. | Midfield Supply ULC | corporation | N | ||||||
| 1236564 Alberta Ltd. | Midfield Supply ULC | corporation | N | ||||||
SCHEDULE
9.9 — CLOSING DATE AFFILIATE TRANSACTIONS
None.
SCHEDULE 9.17(C) — POST
CLOSING ACTIONS
The Borrower agrees that it will, or will cause its relevant
Subsidiaries to, complete each of the actions set forth below as
soon as commercially reasonable and by no later than the date
set forth opposite such action or such later date as the
Administrative Agent may reasonably agree. All documentation
shall be in form and substance reasonably acceptable to the
Administrative Agent.
| Action | Date | ||||
|
1.
|
Deed of Trust for property located in Davis County, Utah | 10 Business Days | |||
|
2.
|
Opinion from Utah counsel relating to item (1) | 10 Business Days | |||
|
3.
|
Indemnity Agreement relating to item (1) | 10 Business Days | |||
|
4.
|
Title insurance relating to item (1) | 10 Business Days | |||
|
5.
|
Mortgage for property located in Tulsa County, Oklahoma | 10 Business Days | |||
|
6.
|
Fixture filing for property located in Tulsa County, Oklahoma | 10 Business Days | |||
|
7.
|
Opinion from Oklahoma counsel relating to item (5) | 10 Business Days | |||
|
8.
|
Title insurance relating to item (5) | 10 Business Days | |||
|
9.
|
Corrective/quit claim vesting deed for Red Man Pipe & Supply Co relating to OK property | 10 Business Days | |||
|
10.
|
Deed of Trust Amendment for property located in Harris County, Texas | 10 Business Days | |||
|
11.
|
Title Insurance relating to item (10) | 10 Business Days | |||
|
12.
|
Mortgage Amendment for property located in West Baton Rouge Parish, Louisiana | 10 Business Days | |||
|
13.
|
Title insurance relating to item (12) | 10 Business Days | |||
|
14.
|
Deed of Trust Amendment for property located in Kanawha County, West Virginia | 10 Business Days | |||
|
15.
|
Title insurance relating to item (13) | 10 Business Days | |||
|
16.
|
Deed of Trust Amendment for property located in Putnam County, West Virginia | 10 Business Days | |||
|
17.
|
Title insurance relating to item (16) | 10 Business Days | |||
|
18.
|
Delivery of original stock certificates, and and executed stock powers in blank, for Red Man Pipe & Supply Co., Wesco Acquisition Partners, Inc., Red Man Pipe & Supply Canada, Ltd. and | 3 Business Days | |||
2
|
West Oklahoma PVF Company
|
|||
|
19. Releases of mortgages set forth on Schedule 10.2,
other than those mortgages relating to the Oklahoma and Utah
properties which shall be released within 10 Business Days
of the closing
|
20 Business Days | ||
|
20. Termination of fixture filings relating the terminated
Bank of America revolving loan and security agreement naming Red
Man Pipe & Supply Co. and its Subsidiaries as debtor,
other than that fixture filing relating to the Utah property,
which shall be released within 10 Business Days of the
closing
|
20 Business Days | ||
|
21. Loss payable endorsements contemplated by
Section 6.14
|
10 Business Days | ||
|
22. Delivery of documents effecting name change of McJunkin
Corporation
|
5 Business Days | ||
|
23. Certified copies of name change certificate for
recording in all necessary county recorder offices
|
5 Business Days | ||
|
24. Ministerial revisions to insurance certificates as
agreed
|
5 Business Days | ||
|
25. Payment of final, approved title company invoice
|
10 Business Days | ||
|
26. Execute and deliver title company closing instructions
|
10 Business Days | ||
SCHEDULE 10.1 — CLOSING DATE INDEBTEDNESS
Letters of Credit
| Beneficiary | Expiration Date | Amount | Purpose | Issuing Bank | ||||||||||||
Brickstreet
|
11/1/08 | $ | 200,000 | Worker’s Comp | JPMorgan Chase | |||||||||||
St. Paul Travelers
|
12/31/07 | $ | 1,775,000 | Insurance | United Bank | |||||||||||
State of West Virginia
|
1/31/08 | $ | 1,000,000 | Worker’s Comp | JPMorgan Chase | |||||||||||
Sentry Insurance
|
11/1/08 | $ | 75,000 | Insurance | JPMorgan Chase | |||||||||||
Lumberman’s Mutual
|
7/1/08 | $ | 45,000 | Insurance | JPMorgan Chase | |||||||||||
Capital Leases
| Lease Expiration | ||||||||||||||
| Warehouse | State | County | Lessor | Date | ||||||||||
Little Rock
|
AR | Pulaski | Hansford Associates, LP | 12/31/2016 | ||||||||||
Bakersfield
|
CA | Kern | Hansford Associates, LP | 3/31/2012 | ||||||||||
Augusta
|
GA | Richmond | Hansford Associates, LP | 12/31/2009 | ||||||||||
Granite City
|
IL | Madison | Hansford Associates, LP | 9/30/2009 | ||||||||||
Calvert City
|
KY | Marshall | Hansford Associates, LP | 10/31/2011 | ||||||||||
Cleveland
|
OH | Summit | Hansford Associates, LP | 10/31/2010 | ||||||||||
North Charleston
|
SC | Charleston | Hansford Associates, LP | 12/31/2009 | ||||||||||
LaMarque
|
TX | Galveston | Hansford Associates, LP | 12/31/2012 | ||||||||||
Rock Springs
|
WY | Sweetwater | Hansford Associates, LP | 3/31/2012 | ||||||||||
Miscellaneous
| Commitment/ | ||||||||||||||
| Original | ||||||||||||||
| Debtor | Debt Description | Principal | Lender/Obligee | Date | ||||||||||
Midfield Supply ULC
|
Loan and Security Agreement | CAD $150,000,000 |
Bank of America N.A. | 11/2/06 | ||||||||||
Midfield Supply ULC
|
Revolving Term Loan Facility |
CAD $15,000,000 |
Alberta Treasury Branch |
5/17/07 | ||||||||||
Midfield Supply ULC
|
Note Payable | CAD $2,500,000 |
Dougins Halwa, Daryl Loney, Don Dashney |
3/31/07 | ||||||||||
Midfield Supply ULC
|
Note Payable | CAD $750,000 | Selling shareholders of Hagan Oilfield | 4/3/07 | ||||||||||
Midfield Supply ULC
|
Note Payable | CAD $16,389,500 |
Midfield Holdings, Inc. | 11/2/06 | ||||||||||
Midfield Supply ULC
|
Note Payable | CAD $8,156,115 |
Midfield Holdings, Inc. | 4/27/07 | ||||||||||
SCHEDULE 10.2 —
CLOSING DATE LIENS
Miscellaneous
| Debtor | Debt Description | Commitment | Lender/Obligee | Date | ||||||||||||||||
|
Midfield Supply ULC
|
Loan and Security Agreement |
CAD $150,000,000 | Bank of America, N.A. | 11/2/06 | ||||||||||||||||
|
Midfield Supply ULC
|
Revolving Term Loan Facility |
CAD $15,000,000 | Alberta Treasury Branch | 5/17/07 | ||||||||||||||||
|
Red Man Pipe &
Supply Co. and its Subsidiaries |
Mortgages relating to the terminated Bank of America revolving loan and security agreement, to the extent such mortgage releases are not filed on the Closing Date |
N/A | Bank of America, N.A. | N/A | ||||||||||||||||
|
Midfield Supply USA,
Ltd. |
All indebtedness and proceeds relating thereto of Canadian Advanced Inc. owing to the Debtor |
N/A | Canadian Western Bank | N/A | ||||||||||||||||
|
Midfield Supply USA,
Ltd. |
All indebtedness and proceeds relating thereto of Stanley Smith Professional Corporation owing to the Debtor |
N/A | HSBC Bank Canada | N/A | ||||||||||||||||
SCHEDULE
10.5 — CLOSING DATE INVESTMENTS
1. Investments
held by McJunkin Corporation
| Investment | Percentage Of Interest | ||
|
Greenbrier Development Drilling Partners 1976 P.O. Box 513 Charleston, West Virginia 25322 |
47 Units, 8.07% | ||
|
W.T. Massey 200 N.W. 66th, Suite 935 Oklahoma City, Oklahoma 73116 |
Own various overriding royalty interests in oil and gas wells in Oklahoma |
||
| & | |||
|
H.A. Moore 4013 N.W. Expressway Suite 605 Oklahoma City, Oklahoma 73116 |
Own various overriding royalty interests in oil and gas wells in Oklahoma. |
||
|
PrimeEnergy Corporation One Landmark Square Stamford, Connecticut 06901 |
Purchased 49.8% interest in K.R.M. Petroleum Company in 1984. Name changed on 5/17/90 from K.R.M. Petroleum to PrimeEnergy (percentage owned approximately 19.33% as of 11/13/06 |
||
2. Investments
held by Milton Oil & Gas Company, a wholly owned
subsidiary of McJunkin Corporation:
| Investment | Percentage Of Interest | ||
|
Butcher & Singer C/O Butcher & Singer, Inc. 211 South Broad Street Philadelphia, Pennsylvania 15105 |
|||
| Buttes 1976-1 (931) | Overriding royalty interest | ||
|
Cabot Oil & Gas Corporation (formerly Appalachian Exploration & Development) C/O Cabot Petroleum Corporation Joint Interest Section 921 Main Street, Suite 900 Houston, Texas 77002 |
|||
| B & H Partnership (935) | 60% working interest | ||
| Investment | Percentage of Interest | ||||
|
Milton Option (938) P & H Partnership (942) |
60% working interest 60% working interest |
||||
|
Dunne Equities C/O Dunne Equities 8100 E. 22nd Street North Building 1100 Wichita, Kansas 67226 Currently (16) Productive Wells/Programs |
Various % |
||||
|
Quad D Operating P.O. Box 5567 Huntington, West Virginia 25703 Closterman M-1 And M-2 (952) Closterman M-3 And M-4 (953) Closterman M-5 (954) Closterman M-6 (955) D.P. Morris Lease Well (956) |
25% working interest 18.75% working interest 18.75% working interest 18.75% working interest 25% working interest |
||||
|
Devon Energy Production Co LP 20 North Broadway Oklahoma City, Oklahoma 73102 Clifton #1 (946) Hawkins #1 (948) Prichard #1 (949), #2, #3 Whisenhunt (950) Clifton #2 (947) Clifton #3 (951) |
0.90868% working interest 1.82364% working interest 0.32835% over-riding royalty interest 0.161948% over-riding royalty interest 1.0138% working interest 1.0447% working interest |
||||
3. Investments
held by Ruffner Realty Company, a wholly owned subsidiary of
McJunkin Corporation:
| Investment | Percentage of Interest | ||||
|
Auburn Lakes — Cost Basis 185 Acres + 370 Units Condominium 2901 Cedar Road Cleveland, Ohio |
2.08% | ||||
|
First Interstate Elyria Shopping Center Elyria, Ohio |
1.04% | ||||
| First Interstate Hawthorne — Cost Basis | 1.85% | ||||
| Investment | Percentage Of Interest | ||
|
Equity Investors Shopping Center 29425 Chagrin Boulevard Cleveland, Ohio |
|||
|
First Interstate Mentor Centers Equity Investors Shopping Center 29425 Chagrin Boulevard Cleveland, Ohio |
1.39% | ||
|
Merc-Ex Investors Ltd. Partnership. - Cost Basis Equity Investors, Inc. Apartment Complex Beachwood, Ohio |
7.75% | ||
|
One Congress Square - Cost Basis Sovereign Realty Office Building - Historic Structure Chicago, Illinois |
1.5% | ||
| 4. | Investments held by Midfield Supply ULC, a non-wholly owned subsidiary of McJunkin Corporation: |
| Investment | Percentage Of Interest | ||
|
Altus Energy Services, Inc. 1,000,000 shares of common stock |
Not Available | ||
|
Altus Energy Services, Inc. Warrants with respect to 1,000,000 shares of common stock |
Not available | ||
| Energize Oil & Gas | 6.6% equity interest | ||
| Brooks, Clay & Feathers Ltd. | 6.6% equity interest | ||
SCHEDULE 10.11 —
CLOSING DATE RESTRICTIONS
None.
Exhibit 10.1.1
JOINDER AGREEMENT
JOINDER AGREEMENT, dated as of June 10, 2008 (this “Agreement”), by and among The
Huntington National Bank (a “New Loan Lender”), McJunkin Red Man Corporation (f/k/a
McJunkin Corporation), a West Virginia corporation (the “Borrower”), and The CIT
Group/Business Credit, Inc. (“CIT”), as Administrative Agent.
RECITALS:
WHEREAS, reference is hereby made to the Revolving Loan Credit Agreement, dated as of October
31, 2007 (as amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”), among the Borrower, the Lenders party thereto, CIT,
as Administrative Agent, and CIT and Bank of America, N.A., collectively, as Collateral Agent
(capitalized terms used but not defined herein having the meaning provided in the Credit
Agreement); and
WHEREAS, subject to the terms and conditions of the Credit Agreement, the Borrower may
establish New Revolving Credit Commitments by, among other things, entering into one or more
Joinder Agreements with New Revolving Loan Lenders, as applicable;
NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants
herein contained, the parties hereto agree as follows:
SECTION 1. The New Loan Lender party hereto hereby agrees to commit to provide its respective
New Revolving Credit Commitment, as set forth on Schedule A annexed hereto, on the terms and
subject to the conditions set forth below:
SECTION 2. The New Loan Lender (a) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial statements referred
to therein and such other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Agreement; (b) agrees that it will, independently
and without reliance upon the Administrative Agent or any other New Loan Lender or any other Lender
or Agent and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement; (c) appoints and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (d) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required to be performed by
it as a New Revolving Loan Lender.
SECTION 3. The New Loan Lender hereby agrees to make its respective Commitment on the
following terms and conditions:
a. Credit Agreement Governs. Except as set forth in this Agreement, the New Revolving
Loans shall otherwise be subject to the provisions of the Credit Agreement and the other Credit
Documents.
b. Borrower Certifications. By its execution of this Agreement, the undersigned
officer, to the best of his or her knowledge, and Borrower hereby certifies that (i) the
representations and warranties contained in the Credit Agreement and the other Credit Documents are
true and correct in all material respects on and as of the date hereof to the same extent as though
made on and as of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations and warranties were true
and correct in all material respects on and as of such earlier date; and (ii) Borrower has
performed in all material respects all agreements and satisfied all conditions which the Credit
Agreement provides shall be performed or satisfied by it on or before the date hereof.
c. Borrower Covenants. By its execution of this Agreement, Borrower hereby covenants
that: (i) it shall make any payments required pursuant to Section 2.11 of the Credit Agreement in
connection with the New Revolving Credit Commitments; and (ii) it shall deliver or cause to be
delivered the following legal opinions and documents: executed legal opinions of Simpson Thacher &
Bartlett, special counsel to the Borrower, and Bowles Rice McDavid Graff & Love LLP, special
counsel to the Borrower, together with all other documents reasonably requested by the
Administrative Agent in connection with this Agreement.
d. Notice. For purposes of the Credit Agreement, the initial notice address of the
New Loan Lender shall be as set forth below its signature below.
e. Tax Forms. For the New Loan Lender, delivered herewith to the Administrative Agent
are such forms, certificates or other evidence with respect to United States federal income tax
withholding matters as the New Loan Lender may be required to deliver to the Administrative Agent
pursuant to Section 5.4(d) and/or Section 5.4(e) of the Credit Agreement.
f. Recordation of the New Loans. Upon execution and delivery hereof, the
Administrative Agent will record the New Revolving Loans, made by the New Loan Lender in the
Register.
g. Amendment, Modification and Waiver. This Agreement may not be amended, modified or
waived except by an instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
h. Entire Agreement. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement among the parties with respect to the subject matter
hereof and thereof and supersede all other prior agreements and understandings, both written and
verbal, among the parties or any of them with respect to the subject matter hereof.
i. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
j. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as
would be enforceable.
k. Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same agreement.
[Remainder of page intentionally left blank].
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute
and deliver this Joinder Agreement as of the date first above written.
| MCJUNKIN RED MAN CORPORATION (f/k/a Mcjunkin Corporation) |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive Officer and President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| THE HUNTINGTON NATIONAL BANK |
||||
| By: | /s/ L. BLAIR DEVAN | |||
| Name: | L. Blair DeVan | |||
| Title: | Vice President | |||
Notice Address:
Attention:
Telephone:
Facsimile:
Attention:
Telephone:
Facsimile:
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| Consented to by: THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent |
||||
| By: | /s/ HOWARD TREBACH | |||
| Name: | Howard Trebach | |||
| Title: | Vice President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
SCHEDULE A
TO JOINDER AGREEMENT
TO JOINDER AGREEMENT
| Name of New Loan | ||||||
| Lender | Type of Commitment | Amount | ||||
The Huntington National Bank |
Revolving Credit Commitment | $ | 5,000,000.00 | |||
Exhibit 10.1.2
JOINDER AGREEMENT
JOINDER AGREEMENT, dated as of June 10, 2008 (this “Agreement”), by and among JP Morgan
Chase Bank, N.A. (a “New Loan Lender”), McJunkin Red Man Corporation (f/k/a McJunkin
Corporation), a West Virginia corporation (the “Borrower”), and The CIT Group/Business
Credit, Inc. (“CIT”), as Administrative Agent.
RECITALS:
WHEREAS, reference is hereby made to the Revolving Loan Credit Agreement, dated as of October
31, 2007 (as amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”), among the Borrower, the Lenders party thereto, CIT,
as Administrative Agent, and CIT and Bank of America, N.A., collectively, as Collateral Agent
(capitalized terms used but not defined herein having the meaning provided in the Credit
Agreement); and
WHEREAS, subject to the terms and conditions of the Credit Agreement, the Borrower may
establish New Revolving Credit Commitments by, among other things, entering into one or more
Joinder Agreements with New Revolving Loan Lenders, as applicable;
NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants
herein contained, the parties hereto agree as follows:
SECTION 1. The New Loan Lender party hereto hereby agrees to commit to provide its respective
New Revolving Credit Commitment, as set forth on Schedule A annexed hereto, on the terms and
subject to the conditions set forth below:
SECTION 2. The New Loan Lender (a) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial statements referred
to therein and such other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Agreement; (b) agrees that it will, independently
and without reliance upon the Administrative Agent or any other New Loan Lender or any other Lender
or Agent and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement; (c) appoints and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (d) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required to be performed by
it as a New Revolving Loan Lender.
SECTION 3. The New Loan Lender hereby agrees to make its respective Commitment on the
following terms and conditions:
a. Credit Agreement Governs. Except as set forth in this Agreement, the New Revolving
Loans shall otherwise be subject to the provisions of the Credit Agreement and the other Credit
Documents.
b. Borrower Certifications. By its execution of this Agreement, the undersigned
officer, to the best of his or her knowledge, and Borrower hereby certifies that (i) the
representations and warranties contained in the Credit Agreement and the other Credit Documents are
true and correct in all material respects on and as of the date hereof to the same extent as though
made on and as of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations and warranties were true
and correct in all material respects on and as of such earlier date; and (ii) Borrower has
performed in all material respects all agreements and satisfied all conditions which the Credit
Agreement provides shall be performed or satisfied by it on or before the date hereof.
c. Borrower Covenants. By its execution of this Agreement, Borrower hereby covenants
that: (i) it shall make any payments required pursuant to Section 2.11 of the Credit Agreement in
connection with the New Revolving Credit Commitments; and (ii) it shall deliver or cause to be
delivered the following legal opinions and documents: executed legal opinions of Simpson Thacher &
Bartlett, special counsel to the Borrower, and Bowles Rice McDavid Graff & Love LLP, special
counsel to the Borrower, together with all other documents reasonably requested by the
Administrative Agent in connection with this Agreement.
d. Notice. For purposes of the Credit Agreement, the initial notice address of the
New Loan Lender shall be as set forth below its signature below.
e. Tax Forms. For the New Loan Lender, delivered herewith to the Administrative Agent
are such forms, certificates or other evidence with respect to United States federal income tax
withholding matters as the New Loan Lender may be required to deliver to the Administrative Agent
pursuant to Section 5.4(d) and/or Section 5.4(e) of the Credit Agreement.
f. Recordation of the New Loans. Upon execution and delivery hereof, the
Administrative Agent will record the New Revolving Loans, made by the New Loan Lender in the
Register.
g. Amendment, Modification and Waiver. This Agreement may not be amended, modified or
waived except by an instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
h. Entire Agreement. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement among the parties with respect to the subject matter
hereof and thereof and supersede all other prior agreements and understandings, both written and
verbal, among the parties or any of them with respect to the subject matter hereof.
i. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
j. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as
would be enforceable.
k. Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same agreement.
[Remainder of page intentionally left blank].
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute
and deliver this Joinder Agreement as of the date first above written.
| MCJUNKIN RED MAN CORPORATION (f/k/a Mcjunkin Corporation) |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive Officer and President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| JP MORGAN CHASE BANK, N.A. |
||||
| By: | /s/ KIM NGUYEN | |||
| Name: | Kim Nguyen | |||
| Title: | Vice President | |||
Notice
Address: 270 Park Ave -
44th
Floor, New York, NY 10017
Attention: Kim Nguyen
Telephone: (212) 270-0398
Facsimile: (646) 534-2274
Attention: Kim Nguyen
Telephone: (212) 270-0398
Facsimile: (646) 534-2274
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| Consented to by: THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent |
||||
| By: | /s/ HOWARD TREBACH | |||
| Name: | Howard Trebach | |||
| Title: | Vice President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
SCHEDULE A
TO JOINDER AGREEMENT
TO JOINDER AGREEMENT
| Name of New Loan | ||||||
| Lender | Type of Commitment | Amount | ||||
JP Morgan Chase Bank, N.A. |
Revolving Credit Commitment | $ | 10,000,000.00 | |||
Exhibit 10.1.3
JOINDER AGREEMENT
JOINDER AGREEMENT, dated as of June 10, 2008 (this “Agreement”), by and among TD Bank, N.A.
(a “New Loan Lender”), McJunkin Red Man Corporation (f/k/a McJunkin Corporation), a West
Virginia corporation (the “Borrower”), and The CIT Group/Business Credit, Inc.
(“CIT”), as Administrative Agent.
RECITALS:
WHEREAS, reference is hereby made to the Revolving Loan Credit Agreement, dated as of October
31, 2007 (as amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”), among the Borrower, the Lenders party thereto, CIT,
as Administrative Agent, and CIT and Bank of America, N.A., collectively, as Collateral Agent
(capitalized terms used but not defined herein having the meaning provided in the Credit
Agreement); and
WHEREAS, subject to the terms and conditions of the Credit Agreement, the Borrower may
establish New Revolving Credit Commitments by, among other things, entering into one or more
Joinder Agreements with New Revolving Loan Lenders, as applicable;
NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants
herein contained, the parties hereto agree as follows:
SECTION 1. The New Loan Lender party hereto hereby agrees to commit to provide its respective
New Revolving Credit Commitment, as set forth on Schedule A annexed hereto, on the terms and
subject to the conditions set forth below:
SECTION 2. The New Loan Lender (a) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial statements referred
to therein and such other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Agreement; (b) agrees that it will, independently
and without reliance upon the Administrative Agent or any other New Loan Lender or any other Lender
or Agent and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement; (c) appoints and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (d) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required to be performed by
it as a New Revolving Loan Lender.
SECTION 3. The New Loan Lender hereby agrees to make its respective Commitment on the
following terms and conditions:
a. New Loan Lender. The New Loan Lender acknowledges and agrees that upon its
execution of this Agreement and the making of New Revolving Loans, that the New Loan Lender shall
become a “Lender” under, and for all purposes of, the Credit Agreement and
the other Credit Documents, and shall be subject to and bound by the terms thereof, and shall
perform all the obligations of and shall have all rights of a Lender thereunder.
b. Credit Agreement Governs. Except as set forth in this Agreement, the New Revolving
Loans shall otherwise be subject to the provisions of the Credit Agreement and the other Credit
Documents.
c. Borrower Certifications. By its execution of this Agreement, the undersigned
officer, to the best of his or her knowledge, and Borrower hereby certifies that (i) the
representations and warranties contained in the Credit Agreement and the other Credit Documents are
true and correct in all material respects on and as of the date hereof to the same extent as though
made on and as of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations and warranties were true
and correct in all material respects on and as of such earlier date; and (ii) Borrower has
performed in all material respects all agreements and satisfied all conditions which the Credit
Agreement provides shall be performed or satisfied by it on or before the date hereof.
d. Borrower Covenants. By its execution of this Agreement, Borrower hereby covenants
that: (i) it shall make any payments required pursuant to Section 2.11 of the Credit Agreement in
connection with the New Revolving Credit Commitments; and (ii) it shall deliver or cause to be
delivered the following legal opinions and documents: executed legal opinions of Simpson Thacher &
Bartlett, special counsel to the Borrower, and Bowles Rice McDavid Graff & Love LLP, special
counsel to the Borrower, together with all other documents reasonably requested by the
Administrative Agent in connection with this Agreement.
e. Notice. For purposes of the Credit Agreement, the initial notice address of the
New Loan Lender shall be as set forth below its signature below.
f. Tax Forms. For the New Loan Lender, delivered herewith to the Administrative Agent
are such forms, certificates or other evidence with respect to United States federal income tax
withholding matters as the New Loan Lender may be required to deliver to the Administrative Agent
pursuant to Section 5.4(d) and/or Section 5.4(e) of the Credit Agreement.
g. Recordation of the New Loans. Upon execution and delivery hereof, the
Administrative Agent will record the New Revolving Loans, made by the New Loan Lender in the
Register.
h. Amendment, Modification and Waiver. This Agreement may not be amended, modified or
waived except by an instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
i. Entire Agreement. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement among the parties with respect to the subject matter
hereof and thereof and supersede all other prior agreements and understandings, both written and
verbal, among the parties or any of them with respect to the subject matter hereof.
j. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
k. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so broad as would be
enforceable.
l. Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same agreement.
[Remainder of page intentionally left blank].
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute
and deliver this Joinder Agreement as of the date first above written.
| MCJUNKIN RED MAN CORPORATION (f/k/a Mcjunkin Corporation) |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive Officer and President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| TD BANK, N.A. | ||||||
| By: | /s/ NICK LOTZ | |||||
| Title: Vice President | ||||||
| Notice Address: 2005 Market
St., 2nd Floor, Philadelphia, PA 19103 |
||||||
| Attention: Chris Helmecci | ||||||
| Telephone: 412.759.1701 | ||||||
| Facsimile: 215.282.4032 | ||||||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
Consented to by:
| THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent |
||||
| By: | /s/ HOWARD TREBACH | |||
| Name: | Howard Trebach | |||
| Title: | Vice President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
SCHEDULE A
TO JOINDER AGREEMENT
TO JOINDER AGREEMENT
| Name of New Loan | ||||||||
| Lender | Type of Commitment | Amount | ||||||
TD Bank, N.A. |
Revolving Credit Commitment | $ | 28,000,000.00 | |||||
Exhibit 10.1.4
JOINDER AGREEMENT
JOINDER AGREEMENT, dated as of June 10, 2008 (this “Agreement”), by and among United Bank,
Inc. (a “New Loan Lender”), McJunkin Red Man Corporation (f/k/a McJunkin Corporation), a
West Virginia corporation (the “Borrower”), and The CIT Group/Business Credit, Inc.
(“CIT”), as Administrative Agent.
RECITALS:
WHEREAS, reference is hereby made to the Revolving Loan Credit Agreement, dated as of October
31, 2007 (as amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”), among the Borrower, the Lenders party thereto, CIT,
as Administrative Agent, and CIT and Bank of America, N.A., collectively, as Collateral Agent
(capitalized terms used but not defined herein having the meaning provided in the Credit
Agreement); and
WHEREAS, subject to the terms and conditions of the Credit Agreement, the Borrower may
establish New Revolving Credit Commitments by, among other things, entering into one or more
Joinder Agreements with New Revolving Loan Lenders, as applicable;
NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants
herein contained, the parties hereto agree as follows:
SECTION 1. The New Loan Lender party hereto hereby agrees to commit to provide its respective
New Revolving Credit Commitment, as set forth on Schedule A annexed hereto, on the terms and
subject to the conditions set forth below:
SECTION 2. The New Loan Lender (a) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial statements referred
to therein and such other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Agreement; (b) agrees that it will, independently
and without reliance upon the Administrative Agent or any other New Loan Lender or any other Lender
or Agent and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement; (c) appoints and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (d) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required to be performed by
it as a New Revolving Loan Lender.
SECTION 3. The New Loan Lender hereby agrees to make its respective Commitment on the
following terms and conditions:
a. Credit Agreement Governs. Except as set forth in this Agreement, the New Revolving
Loans shall otherwise be subject to the provisions of the Credit Agreement and the other Credit
Documents.
b. Borrower Certifications. By its execution of this Agreement, the undersigned
officer, to the best of his or her knowledge, and Borrower hereby certifies that (i) the
representations and warranties contained in the Credit Agreement and the other Credit Documents are
true and correct in all material respects on and as of the date hereof to the same extent as though
made on and as of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations and warranties were true
and correct in all material respects on and as of such earlier date; and (ii) Borrower has
performed in all material respects all agreements and satisfied all conditions which the Credit
Agreement provides shall be performed or satisfied by it on or before the date hereof.
c. Borrower Covenants. By its execution of this Agreement, Borrower hereby covenants
that: (i) it shall make any payments required pursuant to Section 2.11 of the Credit Agreement in
connection with the New Revolving Credit Commitments; and (ii) it shall deliver or cause to be
delivered the following legal opinions and documents: executed legal opinions of Simpson Thacher &
Bartlett, special counsel to the Borrower, and Bowles Rice McDavid Graff & Love LLP, special
counsel to the Borrower, together with all other documents reasonably requested by the
Administrative Agent in connection with this Agreement.
d. Notice. For purposes of the Credit Agreement, the initial notice address of the
New Loan Lender shall be as set forth below its signature below.
e. Tax Forms. For the New Loan Lender, delivered herewith to the Administrative Agent
are such forms, certificates or other evidence with respect to United States federal income tax
withholding matters as the New Loan Lender may be required to deliver to the Administrative Agent
pursuant to Section 5.4(d) and/or Section 5.4(e) of the Credit Agreement.
f. Recordation of the New Loans. Upon execution and delivery hereof, the
Administrative Agent will record the New Revolving Loans, made by the New Loan Lender in the
Register.
g. Amendment, Modification and Waiver. This Agreement may not be amended, modified or
waived except by an instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
h. Entire Agreement. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement among the parties with respect to the subject matter
hereof and thereof and supersede all other prior agreements and understandings, both written and
verbal, among the parties or any of them with respect to the subject matter hereof.
i. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
j. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as
would be enforceable.
k. Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same agreement.
[Remainder of page intentionally left blank].
IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute
and deliver this Joinder Agreement as of the date first above written.
| MCJUNKIN RED MAN CORPORATION (f/k/a Mcjunkin Corporation) |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive Officer and President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
| UNITED BANK, INC. |
||||
| By: | /s/ JAMES A. WARD | |||
| Name: | James A. Ward | |||
| Title: | Vice President | |||
Notice
Address: 500 Virginia St. East,
Charleston, WV 25301
Attention: Tony Ward
Telephone: 304.348.8372
Facsimile: 304.348.8353
Attention: Tony Ward
Telephone: 304.348.8372
Facsimile: 304.348.8353
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
Consented to by:
| THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent |
||||
| By: | /s/ HOWARD TREBACH | |||
| Name: | Howard Trebach | |||
| Title: | Vice President | |||
MCJUNKIN RED MAN CORPORATION
Joinder Agreement
Joinder Agreement
SCHEDULE A
TO JOINDER AGREEMENT
TO JOINDER AGREEMENT
| Name of New Loan | ||||||||
| Lender | Type of Commitment | Amount | ||||||
United Bank, Inc. |
Revolving Credit Commitment | $ | 7,000,000.00 | |||||
Exhibit 10.2
REVOLVING LOAN SECURITY AGREEMENT
THIS REVOLVING LOAN SECURITY AGREEMENT (this “Agreement”) dated as of October
31, 2007, among McJunkin Corporation, a West Virginia corporation (the “Borrower”), each of
the Subsidiaries of the Borrower listed on the signature pages hereto (each such entity being a
“Subsidiary Grantor” and, collectively, the “Subsidiary Grantors”; the Subsidiary
Grantors and the Borrower are referred to collectively as the “Grantors”) and The CIT
Group/Business Credit, Inc. and Bank of America, N.A., each as Co-Collateral Agent (in such
capacity, collectively, the “Collateral Agent”) under the Credit Agreement (as defined
below) for the benefit of the Secured Parties (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower is party to the Revolving Loan Credit Agreement, dated as of October 31,
2007 (as the same may be amended, restated, supplemented or otherwise modified, refinanced or
replaced from time to time, the “Credit Agreement”), among the Borrower, the lending
institutions from time to time party thereto (the “Lenders”), the letter of credit issuers
from time to time party thereto (the “Letter of Credit Issuers”), The CIT Group/Business
Credit, Inc. (“CIT”), as Administrative Agent, CIT and Bank of America, N.A., collectively,
as Collateral Agent, and the other Persons from time to time party thereto, pursuant to which the
Lenders have severally agreed to make Loans to the Borrower, and the Letter of Credit Issuers have
severally agreed to issue Letters of Credit for the account of the Borrower, upon the terms and
subject to the conditions set forth therein (collectively, the “Extensions of Credit”);
WHEREAS, pursuant to the Guarantee, dated as of the date hereof, (as amended, restated,
supplemented or otherwise modified from time to time, the “Guarantee”) each Subsidiary
Grantor party thereto has agreed to unconditionally and irrevocably guarantee, as primary obligor
and not merely as surety, to the Collateral Agent for the benefit of the Secured Parties, the
prompt and complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations;
WHEREAS, each Subsidiary Grantor is a Subsidiary Guarantor;
WHEREAS, the proceeds of the Extensions of Credit will be used in part to enable the Borrower
to make valuable transfers to the Subsidiary Grantors in connection with the operation of their
respective businesses;
WHEREAS, each Grantor acknowledges that it will derive substantial direct and indirect benefit
from the making of the Extensions of Credit; and
WHEREAS, it is a condition precedent to the obligation of the Lenders and the Letter of Credit
Issuers to make their respective Extensions of Credit to the Borrower under the Credit Agreement
that the Grantors shall have executed and delivered this Agreement to the Collateral Agent for the
ratable benefit of the Secured Parties;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Collateral Agent, the Syndication Agent, the Lenders, and the Letter of Credit Issuers to enter
into the Credit Agreement and to induce the Lenders and the Letter of Credit Issuers to make their
respective Extensions of Credit to the Borrower under the Credit Agreement, the Grantors hereby
agree with the Collateral Agent for the benefit of the Secured Parties, as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, all capitalized terms used herein (including the preamble
and recitals hereto) and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement or, if not defined therein, in the UCC.
(b) The following terms shall have the following meanings:
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Collateral” shall have the meaning provided in Section 2 hereof.
“Collateral Account” shall mean any collateral account established by the Collateral
Agent as provided in Section 5.1 or Section 5.3.
“Collateral Agent” shall have the meaning assigned to such term in the preamble
hereto.
“Control” shall mean (i) in the case of each Deposit Account, “control,” as such term
is defined in Section 9-104 of the UCC, and (ii) in the case of any Security Entitlement,
“control,” as such term is defined in Section 8-106 of the UCC.
“Control Agreements” shall mean, collectively, Deposit Account Control Agreements and
the Securities Account Control Agreements.
“Copyright License” shall mean any written agreement, now or hereafter in effect,
naming any Grantor as licensor or licensee, granting any right to any third party under any
copyright now or hereafter owned by any Grantor (including all Copyrights) or that any Grantor
otherwise has the right to license, or granting any right to any Grantor under any copyright now or
hereafter owned by any third party, and all rights of any Grantor under any such agreement,
including those listed on Schedule I (as such schedule may be amended or supplemented from time to
time).
“copyrights” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all copyright rights in any work subject to the copyright
laws of the United States, any other country or any group of countries, whether as author,
assignee, transferee or otherwise, and (ii) all registrations and applications for registration
2
of any such copyright in the United States or any other country, including registrations, recordings,
supplemental registrations and pending applications for registration in the United States Copyright
Office.
“Copyrights” shall mean all copyrights now owned or hereafter acquired by any Grantor,
including those listed on Schedule II (as such schedule may be amended or supplemented from time to
time).
“Credit Agreement” shall have the meaning assigned to such term in the recitals
hereto.
“Deposit Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Deposit Account.
“Deposit Accounts” shall mean, collectively, with respect to each Pledgor, (i) all
“deposit accounts” as such term is defined in Article 9 of the UCC and in any event shall include
all accounts and sub-accounts relating to any of the foregoing accounts and (ii) all cash, funds,
checks, notes and instruments from time to time on deposit in any of the accounts or sub-accounts
described in clause (i) of this definition.
“Equipment” shall mean all “equipment,” as such term is defined in Article 9 of the
UCC, now or hereafter owned by any Grantor or to which any Grantor has rights and, in any event,
shall include all machinery, equipment, computers, furnishings, appliances, fixtures, tools and
vehicles (in each case, regardless of whether characterized as equipment under the UCC) now or
hereafter owned by any Grantor or to which any Grantor has rights and any and all Proceeds,
accessions, additions, substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories installed thereon or
affixed thereto; but excluding equipment to the extent it is subject to a Lien permitted by the
Credit Agreement and the terms of the Indebtedness securing such Lien prohibit assignment of, or
granting of a security interest in, such Grantor’s rights and interests therein (other than to the
extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction
or any other applicable law), provided, that immediately upon the repayment of all
Indebtedness secured by such Lien, such Grantor shall be deemed to have granted a Security Interest
in all the rights and interests with respect to such equipment.
“Extensions of Credit” shall have the meaning assigned to such term in the recitals
hereto.
“General Intangibles” shall mean all “general intangibles” as such term is defined in
Article 9 of the UCC, including “payment intangibles” also as such term is defined in Article 9 of
the UCC, and, in any event, including with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such Grantor is a party or
under which such Grantor has any right, title or interest or to which such Grantor or any property
of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise
modified, including (a) all rights of such Grantor to receive moneys due and to become
3
due to it
thereunder or in connection therewith, (b) all rights of such Grantor to receive proceeds of any
insurance, indemnity, warranty or guarantee with respect thereto, (c) all claims of such Grantor
for damages arising out of any breach of or default thereunder and (d) all rights of such Grantor
to terminate, amend, supplement, modify or exercise rights or options thereunder, to perform
thereunder and to compel performance and otherwise exercise all remedies thereunder, in each case
to the extent the grant by such Grantor of a Security Interest pursuant to this Agreement in its
right, title and interest in any such contract, agreement, instrument or indenture (i) is not
prohibited by such contract, agreement, instrument or indenture without the consent of any other
party thereto, (ii) would not give any other party to any such contract, agreement, instrument or
indenture the right to terminate its obligations thereunder or (iii) is permitted with consent if
all necessary consents to such grant of a Security Interest have been obtained from the other
parties thereto (other than to the extent that any such prohibition referred to in clauses (i),
(ii) and (iii) would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of
the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction
or any other applicable law) (it being understood that the foregoing shall not be deemed to
obligate such Grantor to obtain such consents), provided that the foregoing limitation
shall not affect, limit, restrict or impair the grant by such Grantor of a Security Interest
pursuant
to this Agreement in any Account or any money or other amounts due or to become due under any
such contract, agreement, instrument or indenture.
“Grantor” shall have the meaning assigned to such term in the recitals hereto.
“Guarantee” shall have the meaning assigned to such term in the recitals hereto.
“Intellectual Property” shall mean all of the following now owned or hereafter
acquired by any Grantor: rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws, including the Trade
Secrets, the Copyrights, the Patents, the Trademarks and the Licenses and all rights to sue at law
or in equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom, in each case to the extent the grant by such Grantor of a Security
Interest pursuant to this Agreement in any such rights, priorities and privileges relating to
intellectual property (i) is not prohibited by any contract, agreement or other instrument
governing such rights, priorities and privileges without the consent of any other party thereto,
(ii) would not give any other party to any such contract, agreement or other instrument the right
to terminate its obligations thereunder or (iii) is permitted with consent if all necessary
consents to such grant of a Security Interest have been obtained from the relevant parties (other
than to the extent that any such prohibition referred to in clauses (i), (ii) and (iii) would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other applicable law) (it being
understood that the foregoing shall not be deemed to obligate such Grantor to obtain such
consents).
“Investment Property” shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts and Commodity
Accounts of any Grantor (other than as pledged pursuant to the Pledge Agreements), whether now or
hereafter acquired by any Grantor, in each case to the extent the grant by a Grantor of a Security
Interest therein pursuant to this Agreement in its right, title and interest in
4
any such Investment
Property (i) is not prohibited by any contract, agreement, instrument or indenture governing such
Investment Property without the consent of any other party thereto, (ii) would not give any other
party to any such contract, agreement, instrument or indenture the right to terminate its
obligations thereunder or (iii) is permitted with consent if all necessary consents to such grant
of a Security Interest have been obtained from the other parties thereto (other than to the extent
that any such prohibition referred to in clauses (i), (ii) and (iii) would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or
provisions) of any relevant jurisdiction or any other applicable law) (it being understood that the
foregoing shall not be deemed to obligate such Grantor to obtain such consents).
“License” shall mean any Patent License, Trademark License, Copyright License or other
license or sublicense to which any Grantor is a party.
“Obligations” shall mean the collective reference to (i) the due and punctual payment
of (x) the principal of and premium, if any, and interest at the applicable rate provided in the
Credit Agreement (including interest at the contract rate applicable upon default accrued or
accruing after the commencement of any proceeding, under the Bankruptcy Code or any applicable
provision of comparable state or foreign law, whether or not such interest is an allowed claim in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (y) each payment required to be made by any Borrower
under the Credit Agreement or any other Credit Documents in respect of any Letter of Credit, when
and as due, including payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral, and (z) all other monetary obligations, including fees,
costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any proceeding under the Bankruptcy
Code or any applicable provision of comparable state or foreign law, whether or not such interest
is an allowed claim in such proceeding), of any Borrower or any other Credit Party to any of the
Secured Parties under the Credit Agreement and any other Credit Documents, (ii) the due and
punctual performance of all covenants, agreements, obligations and liabilities of the Borrower
under or pursuant to the Credit Agreement and the other Credit Documents, and (iii) the due and
punctual payment and performance of all the covenants, agreements, obligations and liabilities of
each other Credit Party under or pursuant to this Agreement or the other Credit Documents.
“Patent License” shall mean any written agreement, now or hereafter in effect, naming
any Grantor as licensor or licensee, granting to any third party any right to make, use or sell any
invention on which a patent, now or hereafter owned by any Grantor (including all Patents) or that
any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any
right to make, use or sell any invention on which a patent, now or hereafter owned by any third
party, is in existence, and all rights of any Grantor under any such agreement, including those
listed on Schedule III (as such schedule may be amended or supplemented from time to time).
“patents” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (a) all letters patent of the United States or the equivalent
5
thereof in any other country or group of countries, all registrations and recordings thereof, and
all applications for letters patent of the United States or the equivalent thereof in any other
country, including registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals, reexaminations or extensions thereof,
all rights corresponding thereto throughout the world and all inventions and improvements disclosed
or
claimed therein, including the right to make, use and/or sell the inventions disclosed or
claimed therein.
“Patents” shall mean all patents now owned or hereafter acquired by any Grantor,
including those listed on Schedule IV (as such schedule may be amended or supplemented from time to
time).
“Proceeds” shall mean all “proceeds” as such term is defined in Article 9 of the UCC
and, in any event, shall include with respect to any Grantor, any consideration received from the
sale, exchange, license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any Collateral and any payment
received from any insurer or other person or entity as a result of the destruction, loss, theft,
damage or other involuntary conversion of whatever nature of any asset or property that constitutes
Collateral, and shall include (a) all cash and negotiable instruments received by or held on behalf
of the Collateral Agent, (b) any claim of any Grantor against any third party for (and the right to
sue and recover for and the rights to damages or profits due or accrued arising out of or in
connection with) (i) past, present or future infringement of any Patent now or hereafter owned by
any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark
License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter
owned by any Grantor, (iii) past, present or future breach of any License and (iv) past, present or
future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a
Copyright License and (c) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
“Secured Parties” shall mean, collectively, (i) the Lenders, (ii) the Administrative
Agent, (iii) the Collateral Agent, (iv) the Letter of Credit Issuers, (v) the Swingline Lender,
(vi) the Syndication Agent, (vii) the beneficiaries of each indemnification obligation undertaken
by any Credit Party under the Credit Agreement or any document executed pursuant thereto and (viii)
any successors, indorsees, transferees and assigns of each of the foregoing.
“Securities Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Securities Account.
“Security Interest” shall have the meaning provided in Section 2 hereof.
“Specified Revolving Credit Collateral” means all Letter of Credit Rights, Chattel
Paper, Instruments, Investment Property and General Intangibles pertaining to the property
described in the clauses (i) and (ii) Section 2(a) of this Agreement.
6
“Subsidiary Grantor” shall have the meaning assigned to such term in the preamble
hereto.
“Trade Secrets” shall mean all information used or useful arising from the business
including all goodwill, trade secrets, trade secret rights, know-how, customer lists, processes of
production, ideas, confidential business information, techniques, processes, formulas and all other
proprietary information.
“Trademark License” shall mean any written agreement, now or hereafter in effect,
naming any Grantor as licensor or licensee, granting to any third party any right to use any
trademark now or hereafter owned by any Grantor (including any Trademark) or that any Grantor
otherwise has the right to license, or granting to any Grantor any right to use any trademark now
or hereafter owned by any third party, and all rights of any Grantor under any such agreement,
including those listed on Schedule V (as such schedule may be amended or supplemented from time to
time).
“trademarks” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business names, Internet domain names, trade
styles, trade dress, logos, other source or business identifiers, designs and general intangibles
of like nature, now existing or hereafter adopted or acquired, all registrations and recordings
thereof (if any), and all registration and recording applications filed in connection therewith,
including registrations and registration applications in the United States Patent and Trademark
Office or any similar offices in any State of the United States or any other country or any
political subdivision thereof, and all extensions or renewals thereof, (ii) all goodwill associated
therewith or symbolized thereby and (iii) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
“Trademarks” shall mean all trademarks now owned or hereafter acquired by any Grantor,
including those listed on Schedule VI (as such schedule may be amended or supplemented from time to
time); provided that any “intent to use” Trademark applications for which a “Statement of
Use” or “Amendment to Allege Use” has not been filed (but only until such statement is filed) are
excluded from this definition.
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in the
State of New York; provided, however, that, in the event that, by reason of mandatory
provisions of law, any of the attachment, perfection or priority of the Collateral Agent’s and the
Secured Parties’ Security Interest in any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of definitions related
to such provisions.
(c) The words “hereof”, “herein”, “hereto” and “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to
7
any particular provision of this Agreement, and Section, subsection, clause and Schedule
references are to this Security Agreement unless otherwise specified. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without limitation.”
(d) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
(e) Where the context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part
thereof.
2. Grant of Security Interest.
(a) Each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, for the ratable benefit of the Secured Parties,
and grants to the Collateral Agent, for the ratable benefit of the Secured Parties a lien on and
continuing security interest in (the “Security Interest”), all of its right, title and
interest in, to and under all of the following property (other than any property constituting
Non-Core Assets) now owned or at any time hereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any right, title or interest
(collectively, the “Collateral”), as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of
the Obligations:
i. all Accounts,
ii. all Inventory or documents of title, customs receipts, insurance certificates, shipping
documents and other written materials related to the purchase or import of any Inventory,
iii. all Specified Revolving Credit Collateral,
iv. all Deposit Accounts (other than the Net Available Cash Account (as defined in the
Intercreditor Agreement), to the extent that it constitutes a Deposit Account) and Securities
Accounts (other than the Net Available Cash Account (as defined in the Intercreditor Agreement), to
the extent it constitutes a Securities Account), including all cash, marketable securities,
securities entitlements, financial assets and other funds held in or on deposit in any of the
foregoing,
v. all Records, “supporting obligations” (as defined in Article 9 of the UCC) and related
Letters of Credit, commercial tort claims or other claims and causes of action, in each case, to
the extent not primarily related to Term Loan Collateral (as defined in the Intercreditor
Agreement); and
vi. to the extent not otherwise included, all substitutions, replacements, accessions,
products and proceeds (including, without limitation, insurance proceeds, investment property,
licenses, royalties, income, payments, claims, damages and proceeds of suit) of any or all of the
foregoing.
8
(b) Each Grantor hereby irrevocably authorizes the Collateral Agent and its Affiliates,
counsel and other representatives, at any time and from time to time, to file or record financing
statements, amendments to financing statements and, with notice to the Borrower, other filing or
recording documents or instruments with respect to the Collateral in such form and in such offices
as the Collateral Agent reasonably determines appropriate to perfect the Security Interests of the
Collateral Agent under this Agreement, and such financing statements and amendments may describe
the Collateral covered thereby as “all assets” or “all personal property” or words of similar
effect, whether now owned or hereafter acquired. Each Grantor hereby also authorizes the
Collateral Agent and its Affiliates, counsel and other representatives, at any time and from time
to time, to file continuation statements with respect to previously filed financing statements. A
photographic or other reproduction of this Agreement shall be sufficient as a financing statement
or other filing or recording document or instrument for filing or recording in any jurisdiction to
the Collateral Agent.
Each Grantor hereby agrees to provide to the Collateral Agent, promptly upon request, any
information reasonably necessary to effectuate the filings or recordings authorized by this Section
2(b).
This Agreement secures the payment of all the Obligations. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed to the Collateral Agent or the Secured Parties under the Credit
Documents but for the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Grantor.
The Security Interests are granted as security only and shall not subject the Collateral Agent
or any other Secured Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Collateral.
3. Representations and Warranties.
Each Grantor hereby represents and warrants to the Collateral Agent and each other Secured
Party that:
3.1 Title; No Other Liens. Except for (a) the Security Interest granted to the
Collateral Agent for the ratable benefit of the Secured Parties pursuant to this Agreement, (b) the
Liens permitted by the Credit Agreement and (c) any Liens securing Indebtedness which is no longer
outstanding or any Liens with respect to commitments to lend which have been terminated, such
Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with respect to all or any part
of the Collateral that evidences a Lien securing any material Indebtedness is on file or of record
in any public office, except such as (i) have been filed in favor of the Collateral Agent for the
ratable benefit of the Secured Parties pursuant to this Agreement or (ii) are permitted by the
Credit Agreement.
3.2 Perfected First Priority Liens. (a) This Agreement is effective to create in
favor of the Collateral Agent, for its benefit and for the benefit of the Secured Parties, legal,
valid
9
and enforceable Security Interests in the Collateral, subject to the effects of bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and general equitable principles.
(b) Subject to the limitations set forth in clause (c) of this Section 3.2, the Security
Interests granted pursuant to this Agreement (i) will constitute valid and perfected Security
Interests in the Collateral (as to which perfection may be obtained by the filings or other actions
described in clause (A) or (B) of this paragraph in favor of the Collateral Agent, for the ratable
benefit of the Secured Parties, as collateral security for the Obligations, upon (A) the filing of
all financing statements, in each case, naming each Grantor as “debtor” and the Collateral Agent as
“secured party” and describing the Collateral in the filing offices specified in Schedule 3.2(b) or
(B) delivery to Collateral Agent (or its bailee) of all Instruments, Chattel Paper, Certificated
Securities and Negotiable Documents, in each case, properly endorsed for transfer or in blank, and
(ii) are prior to all other Liens on the Collateral other than Liens permitted pursuant to Section
10.2 of the Credit Agreement.
(c) Notwithstanding anything to the contrary herein, no Grantor shall be required to perfect
the Security Interests granted by this Agreement (including Security Interests in cash, cash
accounts and Investment Property) by any means other than (i) filings pursuant to the UCC of the
relevant state(s) or (ii) delivery to the Collateral Agent (or its bailee) to be held in its
possession of all Collateral consisting of Instruments or Negotiable Documents.
(d) It is understood and agreed that the Security Interests in cash and Investment Property
created hereunder shall not prevent the Grantors from using such assets in the ordinary course of
their respective businesses, subject to the provisions of the Control Agreements with respect to
such cash and Investment Property.
4. Covenants.
Each Grantor hereby covenants and agrees with the Collateral Agent and the Secured Parties
that, from and after the date of this Agreement until the Obligations under the Credit Documents
are paid in full and the Commitments are terminated and no Letter of Credit remains outstanding:
4.1 Maintenance of Perfected Security Interest; Further Documentation. (a) Such
Grantor shall maintain the Security Interest created by this Agreement as a perfected Security
Interest having at least the priority described in Section 3.1 and shall defend such Security
Interest against the claims and demands of all Persons whomsoever, in each case subject to Section
3.2(c).
(b) Such Grantor will furnish to the Collateral Agent, the Lenders and the Letter of Credit
Issuers from time to time statements and schedules further identifying and describing the assets
and property of such Grantor and such other reports in connection therewith as the Collateral Agent
may reasonably request.
(c) Subject to clause (d) below and Section 3.2(c), each Grantor agrees that at any time and
from time to time, at the expense of such Grantor, it will execute any and all further documents,
financing statements, agreements and instruments, and take all such further actions
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(including the filing and recording of financing statements and other documents), which may be
required under any applicable law, or which the Collateral Agent or the Required Lenders may
reasonably request, in order (i) to grant, preserve, protect and perfect the validity and priority
of the Security Interests created or intended to be created hereby or (ii) to enable the Collateral
Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral,
including the filing of any financing or continuation statements under the UCC in effect in any
jurisdiction with respect to the Security Interests created hereby, all at the expense of such
Grantor.
(d) Notwithstanding anything in this Section 4.1 to the contrary, (i) with respect to any
assets acquired by such Grantor after the date hereof that are required by the Credit Agreement to
be subject to the Lien created hereby or (ii) with respect to any Person that, subsequent to the
date hereof, becomes a U.S. Subsidiary that is required by the Credit Agreement to become a party
hereto, the relevant Grantor after the acquisition or creation thereof shall promptly take all
actions required by the Credit Agreement or this Section 4.1.
4.2 Changes in Locations, Name, etc. Each Grantor will furnish to the Collateral
Agent prompt written notice of any change (i) in its legal name, (ii) in its jurisdiction of
organization or location for purposes of the UCC, (iii) in its identity or type of organization or
corporate structure or (iv) in its Federal Taxpayer Identification Number or organizational
identification number. Each Grantor agrees promptly to provide the Collateral Agent with
certified organizational documents reflecting any of the changes described in the first sentence
of this paragraph. Each Grantor also agrees promptly to notify the Collateral Agent if any
material portion of the Collateral is damaged or destroyed.
4.3 Notices. Each Grantor will advise the Collateral Agent the Lenders and the
Letter of Credit Issuers promptly, in reasonable detail, of any Lien of which it has knowledge
(other than the Security Interests created hereby or Liens permitted under the Credit Agreement)
on any of the Collateral which would adversely affect, in any material respect, the ability of the
Collateral Agent to exercise any of its remedies hereunder.
5. Remedial Provisions.
5.1 Certain Matters Relating to Accounts. (a) At any time after the occurrence and
during the continuance of an Event of Default or, as contemplated by the Credit Agreement, a Cash
Dominion Event and after giving reasonable notice to the Borrower and any other relevant Grantor,
the Administrative Agent shall have the right, but not the obligation, to instruct the Collateral
Agent to (and upon such instruction, the Collateral Agent shall) make test verifications of the
Accounts in any manner and through any medium that such Agent reasonably considers advisable, and
each Grantor shall furnish all such assistance and information as such Agent may require in
connection with such test verifications. Such Agent shall have the absolute right to share any
information it gains from such inspection or verification with any Secured Party.
(b) The Collateral Agent hereby authorizes each Grantor to collect such Grantor’s Accounts and
the Collateral Agent may curtail or terminate said authority at any time after the occurrence and
during the continuance of an Event of Default. If required in writing by
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the Collateral Agent at any time after the occurrence and during the continuance of an Event
of Default, any payments of Accounts, when collected by any Grantor, (i) shall be forthwith (and,
in any event, within two Business Days) deposited by such Grantor in the exact form received, duly
endorsed by such Grantor to the Collateral Agent if required, in a Collateral Account maintained
under the sole dominion and control of and on terms and conditions reasonably satisfactory to the
Collateral Agent, subject to withdrawal by the Collateral Agent for the account of the Secured
Parties only as provided in Section 5.5, and (ii) until so turned over, shall be held by such
Grantor in trust for the Collateral Agent and the Secured Parties, segregated from other funds of
such Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a report
identifying in reasonable detail the nature and source of the payments included in the deposit.
(c) At the Collateral Agent’s request at any time after the occurrence and during the
continuance of an Event of Default, each Grantor shall deliver to the Collateral Agent all original
and other documents evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including all original orders, invoices and shipping receipts.
(d) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not
grant any extension of the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any person liable for
the payment thereof, or allow any credit or discount whatsoever thereon if the Collateral Agent
shall have instructed the Grantors not to grant or make any such extension, credit, discount,
compromise or settlement under any circumstances during the continuance of such Event of Default.
(e) At the direction of the Collateral Agent, upon the occurrence and during the continuance
of an Event of Default, each Grantor shall grant to the Collateral Agent to the extent assignable,
an irrevocable, non-exclusive, fully paid-up, royalty-free, worldwide license to use, assign,
license or sublicense any of the Intellectual Property now owned or hereafter acquired by such
Grantor. Such license shall include access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or printout thereof.
5.2 Communications with Credit Parties; Grantors Remain Liable. (a) The Collateral
Agent in its own name or in the name of others may at any time after the occurrence and during the
continuance of an Event of Default or, as contemplated by the Credit Agreement, a Cash Dominion
Event, after giving reasonable notice to the relevant Grantor of its intent to do so, communicate
with obligors under the Accounts to verify with them to the Collateral Agent’s satisfaction the
existence, amount and terms of any Accounts. The Collateral Agent shall have the absolute right
to share any information it gains from such inspection or verification with any Secured Party.
(b) Upon the written request of the Collateral Agent at any time after the occurrence and
during the continuance of an Event of Default, each Grantor shall notify obligors on the Accounts
that the Accounts have been assigned to the Collateral Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the Collateral Agent.
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(c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under
each of the Accounts to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto.
Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the
receipt by the Collateral Agent or any Secured Party of any payment relating thereto, nor shall the
Collateral Agent or any Secured Party be obligated in any manner to perform any of the obligations
of any Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party thereunder, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
5.3 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of the
Collateral Agent and the Secured Parties specified in Section 5.1 with respect to payments of
Accounts, if an Event of Default shall occur and be continuing and the Collateral Agent so
requires by notice in writing to the relevant Grantor (it being understood that the exercise of
remedies by the Secured Parties in connection with an Event of Default under Section 11.5 of the
Credit Agreement shall be deemed to constitute a request by the Collateral Agent for the purposes
of this sentence and in such circumstances, no such written notice shall be required), all
Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be
held by such Grantor in trust for the Collateral Agent and the Secured Parties, segregated from
other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Collateral Agent in the exact form received by such Grantor (duly endorsed by such Grantor to
the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall
be held by the Collateral Agent in a Collateral Account maintained under its dominion and control
and on terms and conditions reasonably satisfactory to the Collateral Agent. All Proceeds while
held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the
Collateral Agent and the Secured Parties) shall continue to be held as collateral security for all
the Obligations and shall not constitute payment thereof until applied as provided in Section 5.4.
5.4 Application of Proceeds. The Collateral Agent shall apply the proceeds of any
collection or sale of the Collateral as well as any Collateral consisting of cash, at any time
after receipt as follows:
(a) first, to the payment of all reasonable and documented costs and expenses incurred by the
Collateral Agent or any other Secured Party in connection with such collection or sale or otherwise
in connection with this Agreement, the other Credit Documents or any of the Obligations, including
all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment
of all advances made by the Collateral Agent hereunder or under any other Credit Document on behalf
of any Grantor and any other reasonable and documented costs or expenses incurred in connection
with the exercise of any right or remedy hereunder or under any other Credit Document;
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(b) second, to the Secured Parties, an amount equal to all Obligations owing to them on the
date of any distribution, and, if such moneys shall be insufficient to pay such amounts in full,
then ratably (without priority of any one over any other) to such Secured Parties in proportion to
the unpaid amounts thereof; and
(c) third, any surplus then remaining shall be paid to the Grantors or their successors or
assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
5.5 Code and Other Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC or any other applicable law and also may with notice to
the relevant Grantor, sell the Collateral or any part thereof in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or office of the Collateral Agent or any
Lender or Letter of Credit Issuer or elsewhere for cash or on credit or for future delivery at
such price or prices and upon such other terms as are commercially reasonable irrespective of the
impact of any such sales on the market price of the Collateral. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers of Collateral to Persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and, upon consummation of any such sale, the Collateral Agent shall
have the right to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and/or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or hereafter enacted. The
Collateral Agent and any Secured Party shall have the right upon any such public sale, and, to the
extent permitted by law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold, and the Collateral Agent or such Secured Party may, subject to (x) the
satisfaction in full in cash of all payments due pursuant to Section 5.4(a) hereof and (y) the
satisfaction of the Obligations in accordance with the priorities set forth in Section 5.4 hereof,
pay the purchase price by crediting the amount thereof against the Obligations. Each Grantor
agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to
such Grantor of the time and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given. The Collateral
Agent may adjourn any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the time and place to
which it was so adjourned. To the extent
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permitted by law, each Grantor hereby waives any claim against the Collateral Agent arising
by reason of the fact that the price at which any Collateral may have been sold at such a private
sale was less than the price that might have been obtained at a public sale, even if the
Collateral Agent accepts the first offer received and does not offer such Collateral to more than
one offeree. Each Grantor further agrees, at the Collateral Agent’s request, to assemble the
Collateral and make it available to the Collateral Agent, at places which the Collateral Agent
shall reasonably select, whether at such Grantor’s premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any action taken by it pursuant to this Section 5.5 in accordance
with the provisions of Section 5.4.
5.6 Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Collateral Agent or any Secured Party to
collect such deficiency.
5.7 Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each Grantor
shall remain obligated hereunder notwithstanding that, without any reservation of rights against
any Grantor and without notice to or further assent by any Grantor, (a) any demand for payment of
any of the Obligations made by the Collateral Agent or any other Secured Party may be rescinded by
such party and any of the Obligations continued, (b) the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or released by the
Collateral Agent or any other Secured Party, (c) the Credit Agreement, the other Credit Documents,
the Letters of Credit and any other documents executed and delivered in connection therewith and
any other documents executed and delivered in connection therewith and any documents entered into
with the applicable Administrative Agent or the Collateral Agent or any of its respective
affiliates in connection with treasury, depositary or cash management services or in connection
with any automated clearinghouse transfer of funds may be amended, modified, supplemented or
terminated, in whole or in part, as the applicable Administrative Agent (or the Required Lenders,
as the case may be, or, in the case of documents entered into with the applicable Administrative
Agent or any of its respective affiliates in connection with treasury, depositary or cash
management services or in connection with any automated clearinghouse transfer of funds, the party
thereto) may deem advisable from time to time, and (d) any collateral security, guarantee or right
of offset at any time held by the Collateral Agent or any other Secured Party for the payment of
the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Collateral
Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Obligations or for this Agreement or any
property subject thereto. When making any demand hereunder against any Grantor, the Collateral
Agent or any other Secured Party may, but shall be under no obligation to, make a similar demand
on any Borrower or any Grantor or any other person, and any failure by the Collateral Agent or any
other Secured Party to make any such demand or to collect any payments from any Borrower or any
Grantor or any other person or any release of any Borrower or any Grantor or any other person
shall not relieve any Grantor in respect of which a demand or collection is not made or any
Grantor not so released of its several obligations or liabilities hereunder, and shall not impair
or affect the rights and remedies, express or implied,
15
or as a matter of law, of the Collateral Agent or any other Secured Party against any
Grantor. For the purposes hereof “demand” shall include the commencement and continuance of any
legal proceedings.
5.8 Access Rights on Mortgaged Properties. The Grantors hereby agree with the
Collateral Agent that, at any time during the continuance of an Event of Default and after notice
of such action to the Borrower, the Revolving Credit Collateral Agent (as defined in the
Intercreditor Agreement) shall have access, during the Access Period (as defined in the
Intercreditor Agreement), and each such Grantor that owns any of the Mortgaged Premises has
granted a non-exclusive easement in gross over its property to permit the uses by Revolving Credit
Collateral Agent (as defined in the Intercreditor Agreement) contemplated by Section 3.3 of the
Intercreditor Agreement. The Collateral Agent hereby consents to such easement.
5.9 Conflict with Credit Agreement. In the event of any conflict between the terms
of this Section 5 and the Credit Agreement, the Credit Agreement shall control.
5.10 Access Rights on Mortgaged Properties. The Grantors hereby agree that, at any
time during the continuance of an Event of Default and after notice of such action to the
Borrower, the Collateral Agent shall have access, during the Access Period (as defined in the
Intercreditor Agreement), and each such Grantor that owns any of the Mortgaged Premises a
non-exclusive easement in gross over its property to permit the uses by Collateral Agent (as
defined in the Intercreditor Agreement) contemplated by Section 3.3 of the Intercreditor
Agreement.
6. The Collateral Agent.
6.1 Collateral Agent’s Appointment as Attorneys-in-Fact, etc. (a) Each Grantor
hereby appoints, which appointment is irrevocable and coupled with an interest, effective upon and
during the occurrence of an Event of Default, the Collateral Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in the name of such
Grantor or otherwise, for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of
the foregoing, each Grantor hereby gives the Collateral Agent the power and right, on behalf of
such Grantor, either in the Collateral Agent’s name or in the name of such Grantor or otherwise,
without assent by such Grantor, to do any or all of the following, in each case after and during
the occurrence of an Event of Default and after written notice by the Collateral Agent of its
intent to do so:
(i) take possession of and endorse and collect any checks, drafts, notes, acceptances
or other instruments for the payment of moneys due under any Account or with respect to any
other Collateral and file any claim or take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Account or with respect to any other
Collateral whenever payable;
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(ii) [intentionally omitted];
(iii) pay or discharge taxes and Liens levied or placed on or threatened against the
Collateral;
(iv) execute, in connection with any sale provided for in Section 5.5, any
endorsements, assignments or other instruments of conveyance or transfer with respect to the
Collateral;
(v) obtain and adjust insurance required to be maintained by such Grantor or paid to
the Collateral Agent pursuant to Section 9.3 of the Credit Agreement;
(vi) direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the Collateral
Agent or as the Collateral Agent shall direct;
(vii) ask or demand for, collect and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of or arising
out of any Collateral;
(viii) sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral;
(ix) commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral;
(x) defend any suit, action or proceeding brought against such Grantor with respect to
any Collateral (with such Grantor’s consent (not to be unreasonably withheld or delayed) to
the extent such action or its resolution could materially affect such Grantor or any of its
affiliates in any manner other than with respect to its continuing rights in such
Collateral);
(xi) settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Collateral Agent may deem
appropriate (with such Grantor’s consent (not to be unreasonably withheld or delayed) to the
extent such action or its resolution could materially affect such Grantor or any of its
affiliates in any manner other than with respect to its continuing rights in such
Collateral);
(xii) [intentionally omitted]; and
(xiii) generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent’s
option and such Grantor’s expense, at any time, or from time to time, all acts and things
that the Collateral Agent deems necessary to protect, preserve or realize upon the
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Collateral and the Collateral Agent’s and the Secured Parties’ Security Interests
therein and to effect the intent of this Agreement, all as fully and effectively as such
Grantor might do.
Anything in this Section 6.1(a) to the contrary notwithstanding, the Collateral Agent agrees
that it will not exercise any rights under the power of attorney provided for in this Section
6.1(a) unless an Event of Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its agreements contained herein, the
Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.
(c) The expenses of the Collateral Agent incurred in connection with actions undertaken as
provided in this Section 6.1, together with interest thereon at a rate per annum equal to the
highest rate per annum at which interest would then be payable on any category of past due ABR
Loans under the Credit Agreement, from the date of payment by the Collateral Agent to the date
reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral Agent on
demand.
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the Security Interests
created hereby are released.
6.2 Duty of Collateral Agent. The Collateral Agent’s sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its possession, under Section
9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent
deals with similar property for its own account. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in its possession if
such Collateral is accorded treatment substantially equal to that which the Collateral Agent
accords its own property. Neither the Collateral Agent, any Secured Party nor any of their
respective officers, directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Collateral Agent and the Secured Parties hereunder are
solely to protect the Collateral Agent’s and the Secured Parties’ interests in the Collateral and
shall not impose any duty upon the Collateral Agent or any Secured Party to exercise any such
powers. The Collateral Agent and the Secured Parties shall be accountable only for amounts that
they actually receive as a result of the exercise of such powers, and neither they nor any of
their officers, directors, employees or agents shall be responsible to any Grantor for any act or
failure to act hereunder, except for their own gross negligence or willful misconduct.
6.3 Authority of Collateral Agent. Each Grantor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of
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any option, voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Collateral Agent and the Secured
Parties, be governed by the Credit Agreement, and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Collateral Agent and the Grantors, the
Collateral Agent shall be conclusively presumed to be acting as agent for the applicable Secured
Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such authority.
6.4 Security Interest Absolute. All rights of the Collateral Agent hereunder, the
Security Interest, and all obligations of the Grantors hereunder shall be absolute and
unconditional.
6.5 Continuing Security Interest; Assignments Under the Credit Agreement; Release.
(a) This Agreement shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon each Grantor and the successors and assigns thereof and shall inure
to the benefit of the Collateral Agent and the other Secured Parties and their respective
successors, indorsees, transferees and assigns until all Obligations under the Credit Documents
(other than any contingent indemnity obligations not then due) and the obligations of each Grantor
under this Agreement shall have been satisfied by payment in full, the Commitments shall be
terminated and no Letters of Credit shall be outstanding, notwithstanding that from time to time
during the term of the Credit Agreement the Credit Parties may be free from any Obligations.
(b) A Subsidiary Grantor shall automatically be released from its obligations hereunder and
the Security Interest in the Collateral of such Subsidiary Grantor shall be automatically released
upon the consummation of any transaction permitted under the Credit Agreement as a result of which
such Subsidiary Grantor ceases to be a Subsidiary Guarantor.
(c) Upon any sale or other transfer by any Grantor of any Collateral that is permitted under
the Credit Agreement or upon the effectiveness of any written consent to the release of the
Security Interest granted hereby in any Collateral pursuant to Section 14.1 of the Credit
Agreement, the Security Interest in such Collateral shall be automatically released and such
Collateral sold free and clear of the Lien and Security Interests created hereby.
(d) In connection with any termination or release pursuant to paragraph (a), (b) or (c), the
Collateral Agent shall execute and deliver to any Grantor, at such Grantor’s expense, all documents
that such Grantor shall reasonably request to evidence such termination or release. Any execution
and delivery of documents pursuant to this Section 6.5 shall be without recourse to or warranty by
the Collateral Agent.
6.6 Reinstatement. Each Grantor further agrees that, if any payment made by any
Credit Party or other Person and applied to the Obligations is at any time annulled, avoided, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the proceeds of Collateral are required to be returned by any Secured
Party to such Credit Party, its estate, trustee, receiver or any other party, including any
Grantor, under any bankruptcy law, state or federal law, common law or equitable cause,
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then, to the extent of such payment or repayment, any Lien or other Collateral securing such
liability shall be and remain in full force and effect, as fully as if such payment had never been
made or, if prior thereto the Lien granted hereby or other Collateral securing such liability
hereunder shall have been released or terminated by virtue of such cancellation or surrender),
such Lien or other Collateral shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect any
Lien or other Collateral securing the obligations of any Grantor in respect of the amount of such
payment.
7. Collateral Agent As Agent.
(a) The CIT Group/Business Credit, Inc. and Bank of America, N.A. have been appointed,
collectively, to act as the Collateral Agent under the Credit Agreement, by the Lenders and Letter
of Credit Issuers under the Credit Agreement and, by their acceptance of the benefits hereof, the
other Secured Parties. The Collateral Agent shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including the release or substitution of Collateral),
solely in accordance with this Agreement and the Credit Agreement, provided that the
Collateral Agent shall exercise, or refrain from exercising, any remedies provided for in Section 5
in accordance with the instructions of Required Lenders. In furtherance of the foregoing
provisions of this Section 7(a), each Secured Party, by its acceptance of the benefits hereof,
agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Secured Party that all rights and remedies hereunder may be
exercised solely by the Collateral Agent for the ratable benefit of the applicable Lenders and
Letter of Credit Issuers and Secured Parties in accordance with the terms of this Section 7(a).
(b) The Collateral Agent shall at all times be the same Person that is the Collateral Agent
under the Credit Agreement. Written notice of resignation by the Collateral Agent pursuant to
Section 13.9 of the Credit Agreement shall also constitute notice of resignation as Collateral
Agent under this Agreement; removal of the Collateral Agent shall also constitute removal under
this Agreement; and appointment of a Collateral Agent pursuant to Section 13.9 of the Credit
Agreement shall also constitute appointment of a successor Collateral Agent under this Agreement.
Upon the acceptance of any appointment as Collateral Agent under Section 13.9 of the Credit
Agreement by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the retiring or removed
Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this
Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, securities and
other items of Collateral held hereunder, together with all records and other documents necessary
or appropriate in connection with the performance of the duties of the successor Collateral Agent
under this Agreement, and (ii) execute and deliver to such successor Collateral Agent or otherwise
authorize the filing of such amendments to financing statements and take such other actions, as may
be necessary or appropriate in connection with the assignment to such successor Collateral Agent of
the Security Interests created hereunder, whereupon such retiring or removed Collateral Agent shall
be discharged from its duties and obligations under this Agreement. After any retiring or removed
Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this
Agreement
20
shall inure to its benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was Collateral Agent hereunder.
8. Miscellaneous.
8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a written instrument executed by the
affected Grantor and the Collateral Agent in accordance with Section 14.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands pursuant hereto shall be made in
accordance with Section 14.2 of the Credit Agreement. All communications and notices hereunder to
any Subsidiary Grantor shall be given to it in care of the Borrower at the Borrower’s address set
forth in Section 14.2 of the Credit Agreement.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral
Agent nor any Secured Party shall by any act (except by a written instrument pursuant to Section
8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of
the Collateral Agent or any other Secured Party, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Collateral Agent or any other Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that
the Collateral Agent or such other Secured Party would otherwise have on any future occasion. The
rights, remedies, powers and privileges herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Grantor agrees to pay any and
all expenses (including all reasonable fees and disbursements of counsel) that may be paid or
incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, such Grantor under this Agreement.
(b) Each Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the transactions contemplated by this
Agreement.
(c) Each Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and administration of this
21
Agreement to the extent a Borrower would be required to do so pursuant to Section 12.5 of the
Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all
other amounts payable under the Credit Agreement and the other Credit Documents.
8.5 Successors and Assigns. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the Collateral Agent except
pursuant to a transaction permitted by the Credit Agreement.
8.6 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Collateral Agent and the Borrower.
8.7 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
8.8 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
8.9 Integration. This Agreement together with the other Credit Documents represents
the agreement of each of the Grantors with respect to the subject matter hereof and there are no
promises, undertakings, representations or warranties by the Collateral Agent or any other Secured
Party relative to the subject matter hereof not expressly set forth or referred to herein or in
the other Credit Documents.
8.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
8.11 Submission To Jurisdiction Waivers. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for
22
recognition and enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the courts of the State of New York, the courts of the United States
of America for the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address referred to in Section 8.2 or at such
other address of which such Person shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right of any other party hereto (or any
Secured Party) to effect service of process in any other manner permitted by law or shall
limit the right of any party hereto (or any Secured Party) to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 8.11 any special,
exemplary, punitive or consequential damages.
8.12 Acknowledgments. Each party hereto hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents to which it is a party;
(b) neither the Collateral Agent nor any other Secured Party has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with this Agreement
or any of the other Credit Documents, and the relationship between the Grantors, on the one
hand, and the Collateral Agent and the other Secured Parties, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders, Letter of Credit
Issuers and any other Secured Party or among the Grantors and the Lenders and Letter of
Credit Issuers and any other Secured Party.
8.13 Additional Grantors. Each Subsidiary of the Borrower that is required to become
a party to this Agreement pursuant to Section 9.11 of the Credit Agreement shall become a Grantor,
with the same force and effect as if originally named as a Grantor herein, for all purposes of
this Agreement upon execution and delivery by such Subsidiary of a written supplement
substantially in the form of Annex B hereto. The execution and delivery of any instrument
adding an additional Grantor as a party to this Agreement shall not require the consent of any
other Grantor hereunder. The rights and obligations of each Grantor hereunder
23
shall remain in full force and effect notwithstanding the addition of any new Grantor as a
party to this Agreement.
8.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9. Intercreditor Agreement
9.1 Intercreditor Agreement. Notwithstanding anything herein to the contrary, the
lien and security interest granted to the Collateral Agent pursuant to this Agreement and the
exercise of any right or remedy by the Collateral Agent hereunder are subject to the provisions of
that certain Amended and Restated Intercreditor Agreement, dated as of October ___, 2007 (as
amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor
Agreement”), among the Borrower, CIT and Bank of America, N.A., collectively, as Collateral
Agent, and certain other persons which may be or become parties thereto, or become bound thereto
from time to time. In the event of any conflict between the terms of the Intercreditor Agreement
and this Agreement, the terms of the Intercreditor Agreement shall govern and control.
[Signature Pages Follow]
24
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and
delivered as of the date first above written.
| MCJUNKIN CORPORATION, as a Grantor |
||||
| By: | /s/ J.F. UNDERHILL | |||
| Name: | James F. Underhill | |||
| Title: | Chief Financial Officer | |||
| RED MAN PIPE & SUPPLY CO., as a Grantor |
||||
| By: | /s/ DEE PAIGE | |||
| Name: | Dee Paige | |||
| Title: | Chief Financial Officer | |||
| MIDWAY-TRISTATE CORPORATION, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| MCJUNKIN APPALACHIAN OILFIELD SUPPLY COMPANY, as a Grantor |
||||
| By: | /s/ DAVID A. FOX, III | |||
| Name: | David A. Fox, III | |||
| Title: | Executive Vice President | |||
| MCJUNKIN NIGERIA LIMITED, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | Vice President | |||
[Signature Page to Revolving Loan Security Agreement]
| MCJUNKIN DEVELOPMENT CORPORATION, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | Vice President | |||
| MCJUNKIN-PUERTO RICO CORPORATION, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| MCJUNKIN-WEST AFRICA CORPORATION, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| MILTON OIL & GAS COMPANY, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| GREENBRIER PETROLEUM CORPORATION, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
[Signature
Page to Revolving Loan Security Agreement]
| RUFFNER REALTY COMPANY, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| WEST OKLAHOMA PVF COMPANY, as a Grantor |
||||
| By: | /s/ H.B. WEHRLE III | |||
| Name: | H.B. Wehrle III | |||
| Title: | President | |||
| WESCO ACQUISITION PARTNERS, INC., as a Grantor |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chairman of the Board | |||
[SIGNATURE PAGE TO REVOLVING LOAN SECURITY AGREEMENT]
| The CIT Group/Business Credit, Inc., as Co-Collateral Agent |
||||
| By: | /s/ CYNTRA A. TRANI | |||
| Name: | Cyntra A. Trani | |||
| Title: | Senior Vice President | |||
| Bank of America, N.A., as Co-Collateral Agent |
||||
| By: | /s/ J.L. BARTHOLOMEW | |||
| Name: | Jon L. Bartholomew | |||
| Title: | Senior Vice President | |||
[SIGNATURE PAGE TO REVOLVING LOAN SECURITY AGREEMENT]
Exhibit 10.3
EXECUTION VERSION
$575,000,000
TERM LOAN CREDIT AGREEMENT
Dated as of January 31, 2007
among
Dated as of January 31, 2007
among
MCJUNKIN CORPORATION,
as the Borrower
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent and Collateral Agent
as Administrative Agent and Collateral Agent
and
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
as Syndication Agent
TABLE OF CONTENTS
| Page | ||||
SECTION 1. DEFINITIONS |
2 | |||
1.1 Defined Terms |
2 | |||
1.2 Other Interpretive Provisions |
36 | |||
1.3 Accounting Terms; Exchange Rates |
37 | |||
1.4 Rounding |
37 | |||
1.5 References to Agreements, Laws, Etc |
38 | |||
SECTION 2. AMOUNT AND TERMS OF CREDIT |
38 | |||
2.1 Commitments |
38 | |||
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings |
38 | |||
2.3 Notice of Borrowing |
38 | |||
2.4 Disbursement of Funds |
39 | |||
2.5 Repayment of Loans; Evidence of Debt |
40 | |||
2.6 Conversions and Continuations |
41 | |||
2.7 Pro Rata Borrowings |
42 | |||
2.8 Interest |
42 | |||
2.9 Interest Periods |
43 | |||
2.10 Increased Costs, Illegality, etc |
44 | |||
2.11 Compensation |
46 | |||
2.12 Change of Lending Office |
46 | |||
2.13 Notice of Certain Costs |
46 | |||
2.14 Incremental Facilities |
47 | |||
SECTION 3. [INTENTIONALLY OMITTED] |
48 | |||
SECTION 4. FEES; COMMITMENTS |
48 | |||
4.1 Fees |
48 | |||
4.2 [Intentionally Omitted] |
48 | |||
4.3 Mandatory Termination of Commitments |
48 | |||
SECTION 5. PAYMENTS |
48 | |||
5.1 Voluntary Prepayments |
48 | |||
5.2 Mandatory Prepayments |
49 | |||
5.3 Method and Place of Payment |
51 | |||
5.4 Net Payments |
51 | |||
5.5 Computations of Interest and Fees |
54 | |||
5.6 Limit on Rate of Interest |
54 | |||
-i-
TABLE OF CONTENTS
| Page | ||||
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING |
55 | |||
6.1 Credit Documents |
55 | |||
6.2 Collateral |
55 | |||
6.3 Legal Opinions |
56 | |||
6.4 [Intentionally Omitted] |
56 | |||
6.5 Equity Investments; Existing Indebtedness |
56 | |||
6.6 Closing Certificates |
56 | |||
6.7 Organizational Documents; Incumbency |
56 | |||
6.8 Fees |
56 | |||
6.9 Representations and Warranties |
57 | |||
6.10 Related Agreements |
57 | |||
6.11 Solvency Certificate |
57 | |||
6.12 Historical Financial Statements |
57 | |||
6.13 Merger |
57 | |||
6.14 Insurance |
57 | |||
6.15 Pro Forma Financial Statements |
57 | |||
6.16 [Intentionally Omitted] |
57 | |||
6.17 [Intentionally Omitted] |
57 | |||
6.18 Leverage |
57 | |||
6.19 [Intentionally Omitted] |
58 | |||
6.20 Legal and Organizational Structure |
58 | |||
SECTION 7. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS |
58 | |||
7.1 No Default; Representations and Warranties |
58 | |||
7.2 Notice of Borrowing |
58 | |||
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS |
58 | |||
8.1 Corporate Status |
58 | |||
8.2 Corporate Power and Authority |
59 | |||
8.3 No Violation |
59 | |||
8.4 Litigation |
59 | |||
8.5 Margin Regulations |
59 | |||
8.6 Governmental Approvals |
59 | |||
8.7 Investment Company Act |
60 | |||
8.8 True and Complete Disclosure |
60 | |||
8.9 Financial Condition; Financial Statements |
60 | |||
8.10 Tax Returns and Payments |
60 | |||
8.11 Compliance with ERISA |
61 | |||
8.12 Subsidiaries |
61 | |||
8.13 Intellectual Property |
61 | |||
8.14 Environmental Laws |
62 | |||
-ii-
TABLE OF CONTENTS
| Page | ||||
8.15 Properties |
62 | |||
8.16 Solvency |
62 | |||
SECTION 9. AFFIRMATIVE COVENANTS |
62 | |||
9.1 Information Covenants |
62 | |||
9.2 Books, Records and Inspections |
66 | |||
9.3 Maintenance of Insurance |
67 | |||
9.4 Payment of Taxes |
67 | |||
9.5 Consolidated Corporate Franchises |
67 | |||
9.6 Compliance with Statutes, Regulations, etc |
67 | |||
9.7 ERISA |
68 | |||
9.8 Maintenance of Properties |
68 | |||
9.9 Transactions with Affiliates |
68 | |||
9.10 End of Fiscal Years; Fiscal Quarters |
69 | |||
9.11 Additional Guarantors and Grantors |
69 | |||
9.12 Pledges of Additional Stock and Evidence of Indebtedness |
69 | |||
9.13 Use of Proceeds |
70 | |||
9.14 [Intentionally Omitted] |
70 | |||
9.15 Interest Rate Protection |
70 | |||
9.16 [Intentionally Omitted] |
70 | |||
9.17 Further Assurances |
70 | |||
SECTION 10. NEGATIVE COVENANTS |
71 | |||
10.1 Limitation on Indebtedness |
71 | |||
10.2 Limitation on Liens |
75 | |||
10.3 Limitation on Fundamental Changes |
77 | |||
10.4 Limitation on Sale of Assets |
79 | |||
10.5 Limitation on Investments |
82 | |||
10.6 Limitation on Dividends |
84 | |||
10.7 Limitations on Debt Payments and Amendments |
85 | |||
10.8 Limitations on Sale Leasebacks |
86 | |||
10.9 Consolidated Total Debt to Consolidated EBITDA Ratio |
86 | |||
10.10 Consolidated EBITDA to Consolidated Interest Expense Ratio. |
87 | |||
10.11 Capital Expenditures: |
87 | |||
10.12 Changes in Business |
88 | |||
10.13 Burdensome Agreements |
88 | |||
SECTION 11. EVENTS OF DEFAULT |
89 | |||
11.1 Payments |
89 | |||
11.2 Representations, etc |
89 | |||
11.3 Covenants |
89 | |||
-iii-
TABLE OF CONTENTS
| Page | ||||
11.4 Default Under Other Agreements |
89 | |||
11.5 Bankruptcy, etc |
90 | |||
11.6 ERISA |
90 | |||
11.7 Guarantee |
91 | |||
11.8 Pledge Agreement |
91 | |||
11.9 Security Agreement |
91 | |||
11.10 Mortgages |
91 | |||
11.11 Judgments |
91 | |||
11.12 Change of Control |
91 | |||
11.13 Subordination |
91 | |||
SECTION 12. INVESTORS’ RIGHT TO CURE |
92 | |||
SECTION 13. THE ADMINISTRATIVE AGENT |
92 | |||
13.1 Appointment |
92 | |||
13.2 Delegation of Duties |
93 | |||
13.3 General Immunity |
94 | |||
13.4 Reliance by Agents |
95 | |||
13.5 Notice of Default |
95 | |||
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders
|
95 | |||
13.7 Indemnification |
96 | |||
13.8 Agents in their Individual Capacity |
97 | |||
13.9 Successor Agents |
97 | |||
13.10 Withholding Tax |
97 | |||
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS |
98 | |||
SECTION 14. MISCELLANEOUS |
98 | |||
14.1 Amendments and Waivers |
98 | |||
14.2 Notices |
100 | |||
14.3 No Waiver; Cumulative Remedies |
101 | |||
14.4 Survival of Representations and Warranties |
101 | |||
14.5 Payment of Expenses and Taxes |
101 | |||
14.6 Successors and Assigns; Participations and Assignments |
102 | |||
14.7 Replacements of Lenders under Certain Circumstances |
105 | |||
14.8 Adjustments; Set-off |
106 | |||
14.9 Counterparts |
107 | |||
14.10 Severability |
107 | |||
14.11 Integration |
107 | |||
14.12 GOVERNING LAW |
107 | |||
-iv-
TABLE OF CONTENTS
| Page | ||||
14.13 Submission to Jurisdiction; Waivers |
107 | |||
14.14 Acknowledgments |
108 | |||
14.15 WAIVERS OF JURY TRIAL |
108 | |||
14.16 Confidentiality |
108 | |||
14.17 Direct Website Communications |
109 | |||
14.18 USA PATRIOT Act |
111 | |||
-v-
SCHEDULES |
||
Schedule 1.1(A)
|
Existing Letters of Credit | |
Schedule 1.1 (B)
|
Mortgaged Properties | |
Schedule 1.1 (C)
|
Commitments and Addresses of Lenders | |
Schedule 1.1 (D)
|
Excluded Subsidiaries | |
Schedule 1.1(E)
|
Initial Cost Savings | |
Schedule 1.1(F)
|
Non-Core Assets | |
Schedule 8.12
|
Subsidiaries | |
Schedule 9.9
|
Closing Date Affiliate Transactions | |
Schedule 9.17(C)
|
Post-Closing Actions | |
Schedule 10.1
|
Closing Date Indebtedness | |
Schedule 10.2
|
Closing Date Liens | |
Schedule 10.5
|
Closing Date Investments | |
Schedule 10.11
|
Closing Date Restrictions | |
Schedule 14.2
|
Notice Addresses | |
EXHIBITS |
||
Exhibit C
|
Form of Guarantee | |
Exhibit D
|
Form of Mortgage (Real Property) | |
Exhibit E
|
Form of Perfection Certificate | |
Exhibit F
|
Form of Pledge Agreement | |
Exhibit G
|
Form of Security Agreement | |
Exhibit H
|
[Intentionally Omitted] | |
Exhibit I-1
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP | |
Exhibit I-2
|
Form of Legal Opinion of Bowles Rice McDavid Graff & Love LLP | |
Exhibit J
|
Form of Closing Certificate | |
Exhibit K
|
Form of Assignment and Acceptance | |
Exhibit L
|
Form of Promissory Note | |
Exhibit M
|
Form of Joinder Agreement | |
Exhibit N
|
[Intentionally Omitted] | |
Exhibit O
|
Form of Intercreditor Agreement |
-vi-
TERM LOAN CREDIT AGREEMENT dated as of January 31, 2007, among MCJUNKIN CORPORATION, a West
Virginia corporation (the “Borrower”), the lending institutions from time to time parties
hereto (each a “Lender” and, collectively, the “Lenders”), Goldman Sachs Credit
Partners L.P. and Lehman Brothers Inc., as Co-Lead Arrangers and Joint Bookrunners, Lehman
Commercial Paper Inc., as Administrative Agent and Collateral Agent, and Goldman Sachs Credit
Partners L.P., as Syndication Agent (such term and each other capitalized term used but not defined
in this introductory statement having the meaning provided in Section 1).
WHEREAS, pursuant to the Agreement and Plan of Merger (as amended from time to time in
accordance therewith, the “Merger Agreement”), dated as of December 4, 2006, among
Borrower, McJ Holding Corporation, a Delaware corporation, and Hg Acquisition Corp., a West
Virginia corporation (“Merger Sub”), Merger Sub will merge (the “Merger”) with and
into the Borrower with the Borrower as the surviving corporation;
WHEREAS, to fund, in part, the Merger, (a) the Sponsors and certain other investors (including
the Management Investors) will contribute an amount in cash to Merger Sub and/or a direct or
indirect parent thereof (the “Equity Contribution”) in exchange for Stock and Stock
Equivalents (which cash, if received by a parent company, will be contributed to Merger Sub in
exchange for common and/or preferred Stock), which shall be no less than an amount (the
“Minimum Equity Contribution Amount”) equal to 15% of the aggregate pro forma
capitalization of the Borrower on the Closing Date and (b) certain equity investments in McJunkin
Corporation held by existing shareholders of McJunkin Corporation (or any direct or indirect parent
thereof) will be rolled over as equity of Borrower (the “Rollover Equity” and together with
the Equity Contribution, the “Equity Investments”), which together with the amount of the
Equity Contribution, shall be no less than an amount (the “Minimum Equity Investment
Amount”) equal to 30% of the aggregate pro forma capitalization of the Borrower on the Closing
Date;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of (a) Term Loans, in an aggregate principal amount of $575,000,000 and (b)
revolving credit loans (the “Revolving Credit Loans”) made available to the Borrower
pursuant to the Revolving Loan Credit Agreement (as defined below) at any time and from time to
time prior to the Revolving Credit Maturity Date as defined in the Revolving Loan Credit Agreement,
in an aggregate principal amount at any time outstanding not in excess of the aggregate of
$300,000,000 plus the amount of New Revolving Credit Commitments (as defined below).
WHEREAS, the repayment of the Revolving Credit Loans will be secured by perfected security
interests in and liens upon substantially all of the accounts and inventory and certain personal
property relating to such accounts and inventory of the Borrower and each Guarantor, and the
repayment of the Term Loans will be secured by perfected security interests in and liens upon
substantially all of the personal property and certain real property of the Borrower and each
Guarantor. The respective rights and priorities of the Lenders and the lenders under the Revolving
Loan Credit Agreement to such collateral will be as set forth in the Intercreditor Agreement;
WHEREAS, the proceeds of up to $75,000,000 of Revolving Credit Loans will be used by the
Borrower, together with (a) the net proceeds of the Term Loans and (b) the net proceeds of the
Equity Investments, on the Closing Date solely to repay existing indebtedness of the Borrower, to
effect the Merger and to pay Transaction Expenses; and
WHEREAS, the Lenders are willing to make available to the Borrower such term loans, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1. Definitions
1.1 Defined Terms. (a) As used herein, the following terms shall have the meanings
specified in this Section 1.1 unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
“ABR” shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
“ABR Loan” shall mean each Loan bearing interest at the rate provided in
Section 2.8(a).
“Acquired EBITDA” shall mean, with respect to any Acquired Entity or Business, any
Converted Restricted Subsidiary (any of the foregoing, a “Pro Forma Entity”) for any
period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined
using such definitions as if references to the Borrower and its Subsidiaries therein were to such
Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro
Forma Entity in accordance with GAAP.
“Acquired Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Adjusted Total Term Loan Commitment” shall mean at any time the Total Term Loan
Commitment less the Term Loan Commitments of all Defaulting Lenders.
“Administrative Agent” shall mean Lehman Commercial Paper Inc., as the administrative
agent for the Lenders under this Agreement and the other Credit Documents, or any successor
administrative agent pursuant to Section 13.
“Administrative Agent’s Office” shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 745 Seventh Avenue,
New York City, New York, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
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“Administrative Questionnaire” shall have the meaning provided in
Section 14.6(b).
“Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b)to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
“Agent Parties” shall have the meaning provided in Section 14.17(c).
“Agents” shall mean each Co-Lead Arranger, the Administrative Agent, the Collateral
Agent and the Syndication Agent.
“Agreement” shall mean this Term Loan Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
“Applicable ABR Margin” shall mean at any date, with respect to each ABR Loan that is
a Term Loan, the applicable percentage per annum set forth below based upon the Status in effect on
such date:
| Applicable ABR Margin for | ||||
| Status | Term Loans | |||
Level I Status
|
1.25 | % | ||
Level II Status
|
1.00 | % | ||
Notwithstanding the foregoing, the term “Applicable ABR Margin” shall mean, with respect to
all ABR Loans, 1.25% per annum, during the period from and including the Closing Date to but
excluding the Trigger Date.
“Applicable Amount” shall mean, at any time (the “Reference Time”), an amount equal to
(a) the sum, without duplication, of:
(i) an amount (which shall not be less than zero) equal to 50% of Consolidated Net Income
commencing on the Closing Date and ending on the last day of the most recent fiscal quarter for
which Section 9.1 Financials have been delivered (taken as one accounting period); and
(ii) the amount of any capital contributions (other than the Equity Investments and any Cure
Amount) made in cash to, or any proceeds of an equity issuance received by, the Borrower from and
including the Business Day immediately following the Closing Date through and including the
Reference Time, including proceeds from the issuance of Stock or Stock Equivalents of any direct or
indirect parent of the Borrower,
minus (b) the sum, without duplication, of:
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(iii) the aggregate amount of Investments made pursuant to Section 10.5(g)(ii)(y) or
10.5(i)(ii)(y) since the Closing Date and prior to the Reference Time;
(iv) the aggregate amount of dividends pursuant to Section 10.6(c)(ii) since the
Closing Date and prior to the Reference Time; and
(v) the aggregate amount of prepayments, repurchases and redemptions of Subordinated
Indebtedness pursuant to Section 10.7(a)(i)(y) since the Closing Date and prior to the
Reference Time.
“Applicable LIBOR Margin” shall mean at any date, with respect to each LIBOR Loan that
is a Term Loan, the applicable percentage per annum set forth below based upon the Status in effect
on such date:
| Applicable LIBOR Margin for | ||||
| Status | Term Loans | |||
Level I Status
|
2.25 | % | ||
Level II Status
|
2.00 | % | ||
Notwithstanding the foregoing, the term “Applicable LIBOR Margin” shall mean, with respect to
all LIBOR Loans, 2.25% per annum, during the period from and including the Closing Date to but
excluding the Trigger Date.
“Approved Fund” shall have the meaning provided in Section 14.6.
“Asset Sale Prepayment Event” shall mean any Disposition of any business units, assets
or other property of the Borrower or any of the Restricted Subsidiaries not in the ordinary course
of business (including any Disposition of any Stock or Stock Equivalents of any Subsidiary of the
Borrower owned by the Borrower or a Restricted Subsidiary, including any sale of any Stock or Stock
Equivalents of any Restricted Subsidiary). Notwithstanding the foregoing, the term “Asset Sale
Prepayment Event” shall not include any (a) transaction permitted by Section 10.4, other
than transactions permitted by Section 10.4(b) or (b) Disposition of Revolving Credit
Collateral (as defined in the Intercreditor Agreement); provided, that this clause (b)
shall only apply prior to a Discharge of Revolving Credit Obligations (as defined in the
Intercreditor Agreement).
“Assignment and Acceptance” shall mean an assignment and acceptance substantially in
the form of Exhibit K.
“Authorized Officer” shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
“Bankruptcy Code” shall have the meaning provided in Section 11.5.
“Board” shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
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“Borrower” shall have the meaning provided in the preamble to this Agreement.
“Borrowing” shall mean and include the incurrence of one Type of Term Loan on the
Closing Date (or resulting from conversions on a given date after the Closing Date) having, in the
case of LIBOR Loans, the same Interest Period (provided that ABR Loans incurred pursuant to
Section 2.10(b) shall be considered part of any related Borrowing of LIBOR Loans).
“Business Day” shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in New York City a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
“Capital Expenditures” shall mean, for any period, the aggregate of all expenditures
(whether paid in cash or accrued as liabilities and including in all events all amounts expended or
capitalized under Capital Leases, but excluding any amount representing capitalized interest) by
the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are
or are required to be included as additions during such period to property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its Subsidiaries, provided
that the term “Capital Expenditures” shall not include (a) expenditures made in connection with the
replacement, substitution, restoration or repair of assets (i) to the extent financed from
insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored
or repaired or (ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (b) the purchase price of equipment that is purchased
simultaneously with the trade-in of existing equipment pursuant to Section 10.4 to the extent that
the gross amount of such purchase price is reduced by the credit granted by the seller of such
equipment for the equipment being traded in at such time, (c) the purchase of plant, property or
equipment made within fifteen months of the sale of any asset to the extent purchased with the
proceeds of such sale, (d) expenditures that constitute any part of Consolidated Lease Expense, (e)
expenditures that are accounted for as capital expenditures by the Borrower or any Restricted
Subsidiary and that actually are paid for by a Person other than the Borrower or any Restricted
Subsidiary and for which neither the Borrower nor any Restricted Subsidiary has provided or is
required to provide or incur, directly or indirectly, any consideration or obligation to such
Person or any other Person (whether before, during or after such period), (f) the book value of any
asset owned by the Borrower or any Restricted Subsidiary prior to or during such period to the
extent that such book value is included as a capital expenditure during such period as a result of
such Person reusing or beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period, provided that (x) any expenditure
necessary in order to permit such asset to be reused shall be included as a Capital Expenditure
during the period in which such expenditure actually is made and (y) such book value shall have
been included in Capital Expenditures when such asset was originally acquired, (g) expenditures
that constitute Permitted Acquisitions or (h) Transaction Expenses.
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“Capital Lease” shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
“Capitalized Lease Obligations” shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
“Casualty Event” shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
“Change in Law” shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
“Change of Control” shall mean and be deemed to have occurred if (a) the Sponsors
shall at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at
least 35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result
of one or more widely distributed offerings of the common Stock of the Borrower or any direct or
indirect parent thereof, in each case whether by the Borrower, such parent, or the Sponsors); or
(b) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended) shall at any time have acquired direct or indirect
beneficial ownership of a percentage of the voting power of the outstanding Voting Stock of
Borrower that exceeds the percentage of the voting power of such Voting Stock then beneficially
owned, in the aggregate, by the Sponsors, unless, in the case of either clause (a) or (b) above,
the Sponsors have, at such time, the right or the ability by voting power, contract or otherwise to
elect or designate for election at least a majority of the board of directors of Borrower; or (c)
Continuing Directors shall not constitute at least a majority of the board of directors of the
Borrower.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Term Loans or New Term Loans and, when used in
reference to any Commitment, refers to whether such Commitment is a Term Loan Commitment or a New
Term Loan Commitment.
“Closing Date” shall mean the date of the initial Borrowing hereunder.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
“Co-Lead Arrangers” shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
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“Collateral” shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
“Collateral Agent” shall mean Lehman Commercial Paper Inc., a New York corporation, as
collateral agent for the Lenders and the other Secured Parties.
“Commitments” shall mean, with respect to each Lender (to the extent applicable), such
Lender’s Term Loan Commitment and New Term Loan Commitment.
“Communications” shall have the meaning provided in Section 14.17(a).
“Confidential Information” shall have the meaning provided in Section 14.16.
“Confidential Information Memorandum” shall mean the Confidential Information
Memorandum of the Borrower dated January 2007, delivered to the Lenders in connection with this
Agreement.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such
period, plus:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of the Borrower and the
Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges (including, for the purposes of Section 6.18 only, LIFO
expenses),
(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests,
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(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsors,
(ix) any costs or expenses incurred by the Borrower or a Restricted Subsidiary pursuant
to any management equity plan or stock option plan or any other management or employee
benefit plan or agreement or any stock subscription or shareholder agreement, to the extent
that such costs or expenses are funded with cash proceeds contributed to the capital of the
Borrower or net cash proceeds of an issuance of Stock or Stock Equivalents of the Borrower;
and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Closing Date, the cost savings described on Schedule 1.1(e) and
(B) for any period that includes a fiscal quarter occurring thereafter, the amount of net
cost savings projected by the Borrower in good faith to be realized as a result of specified
actions taken by the Borrower and its Restricted Subsidiaries in connection with the
Transactions (calculated on a Pro Forma Basis as though such cost savings had been realized
on the first day of such period), net of the amount of actual benefits realized during such
period from such actions, provided that (A) such cost savings are reasonably
identifiable and factually supportable, (B) such actions are taken on or prior to the third
anniversary of the Closing Date, (C) no cost savings shall be added pursuant to this clause
(x) to the extent duplicative of any expenses or charges relating to such cost savings that
are included in clause (vi) above with respect to such period and (D) the aggregate amount
of cost savings added pursuant to this clause (x)(B) shall not exceed $5,000,000 for any
period consisting of four consecutive quarters, less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for the Borrower and the Restricted
Subsidiaries in accordance with GAAP; provided that, to the extent included in Consolidated
Net Income,
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of
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Indebtedness or intercompany balances (including the net loss or gain resulting from
Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
the Borrower or any Restricted Subsidiary during such period (but not the Acquired EBITDA of
any related Person, property, business or assets to the extent not so acquired) to the
extent not subsequently sold, transferred, abandoned or otherwise disposed by the Borrower
or such Restricted Subsidiary (each such Person, property, business or asset acquired and
not subsequently so disposed of, an “Acquired Entity or Business”) and the Acquired
EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during
such period (each, a “Converted Restricted Subsidiary”), based on the actual
Acquired EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary for
such period (including the portion thereof occurring prior to such acquisition or
conversion) and (B) an adjustment in respect of each Acquired Entity or Business equal to
the amount of the Pro Forma Adjustment with respect to such Acquired Entity or Business for
such period (including the portion thereof occurring prior to such acquisition) as specified
in a Pro Forma Adjustment Certificate and delivered to the Lenders and the Administrative
Agents and (C) there shall be excluded in determining Consolidated EBITDA for any period the
Disposed EBITDA of any Person, property, business or asset (other than an Unrestricted
Subsidiary) sold, transferred, abandoned or otherwise disposed of, closed or classified as
discontinued operations by the Borrower or any Restricted Subsidiary during such period
(each such Person, property, business or asset so sold or disposed of, a “Sold Entity or
Business”), and the Acquired EBITDA of any Restricted Subsidiary that is converted into
an Unrestricted Subsidiary during such period (each, a “Converted Unrestricted
Subsidiary”) based on the actual Disposed EBITDA of such Sold Entity or Business or
Converted Restricted Subsidiary for such period (including the portion thereof occurring
prior to such sale, transfer or disposition or conversion).
“Consolidated EBITDA to Consolidated Interest Expense Ratio” shall mean, as of any
date of determination, the ratio of (a) Consolidated EBITDA for the relevant Test Period to (b)
Consolidated Interest Expense for such Test Period.
“Consolidated Interest Expense” shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of the Borrower and the Restricted Subsidiaries on a consolidated basis in
accordance with GAAP with respect to all outstanding Indebtedness of the Borrower and the
Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers’ acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and other similar
agreements) and (ii) any cash payments made during such period in respect of obligations referred
to in clause (b) below relating to Funded Debt that were amortized or accrued in a
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previous period (other than any such obligations resulting from the discounting of
Indebtedness in connection with the application of purchase accounting in connection with the
Transaction or any Permitted Acquisition), but excluding, however, (a) amortization of deferred
financing costs and any other amounts of non-cash interest, (b) the accretion or accrual of
discounted liabilities during such period, and (c) all non-recurring cash interest expense
consisting of liquidated damages for failure to timely comply with registration rights obligations
and financing fees, all as calculated on a consolidated basis in accordance with GAAP and
excluding, for the avoidance of doubt, any interest in respect of items excluded from Indebtedness
in the proviso to the definition thereof, provided that (a) except as provided in
clause (b) below, there shall be excluded from Consolidated Interest Expense for any period the
cash interest expense (or cash interest income) of all Unrestricted Subsidiaries for such period to
the extent otherwise included in Consolidated Interest Expense, (b) there shall be included in
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Acquired Entity or Business acquired during such period and of any Converted Restricted
Subsidiary converted during such period, in each case based on the cash interest expense (or
income) of such Acquired Entity or Business or Converted Restricted Subsidiary for such period
(including the portion thereof occurring prior to such acquisition or conversion) assuming any
Indebtedness incurred or repaid in connection with any such acquisition or conversion had been
incurred or prepaid on the first day of such period, and (c) there shall be excluded from
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Sold Entity or Business disposed of during such period, based on the cash interest expense (or
income) relating to any Indebtedness relieved, retired or repaid in connection with any such
disposition of such Sold Entity or Business for such period (including the portion thereof
occurring prior to such disposal) assuming such debt relieved, retired or repaid in connection with
such disposition had been relieved, retired or repaid on the first day of such period.
Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated
Interest Expense for any period ending prior to the first anniversary of the Closing Date,
Consolidated Interest Expense shall be an amount equal to actual Consolidated Interest Expense from
the Closing Date through the date of determination multiplied by a fraction the numerator of which
is 365 and the denominator of which is the number of days from the Closing Date through the date of
determination.
“Consolidated Lease Expense” shall mean, for any period, all rental expenses of the
Borrower and the Restricted Subsidiaries during such period under operating leases for real or
personal property (including in connection with Permitted Sale Leasebacks), excluding real estate
taxes, insurance costs and common area maintenance charges and net of sublease income, other than
(a) obligations under vehicle leases entered into in the ordinary course of business, (b) all such
rental expenses associated with assets acquired pursuant to a Permitted Acquisition to the extent
that such rental expenses relate to operating leases in effect at the time of (and immediately
prior to) such acquisition and (c) Capital Lease Obligations, all as determined on a consolidated
basis in accordance with GAAP, provided that there shall be excluded from Consolidated
Lease Expense for any period the rental expenses of all Unrestricted Subsidiaries for such period
to the extent otherwise included in Consolidated Lease Expense.
“Consolidated Net Income” shall mean, for any period, the net income (loss) of the
Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, excluding, without duplication, (a) extraordinary items for such period,
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(b) the cumulative effect of a change in accounting principles during such period to the
extent included in Consolidated Net Income, (c) in the case of any period that includes a period
ending prior to or during the fiscal year ending December 31, 2007, Transaction Expenses, (d) any
fees and expenses incurred during such period, or any amortization thereof for such period, in
connection with any acquisition, investment, recapitalization, asset disposition, issuance or
repayment of debt, issuance of equity securities, refinancing transaction or amendment or other
modification of any debt instrument (in each case, including any such transaction consummated prior
to the Closing Date and any such transaction undertaken but not completed) and any charges or
non-recurring merger costs incurred during such period as a result of any such transaction, (e) any
income (loss) for such period attributable to the early extinguishment of Indebtedness and (f)
accruals and reserves that are established that are so required to be established or adjusted as a
result of the Transactions in accordance with GAAP or changes as a result of adoption of or
modification of accounting policies, in each case, within twelve months after the Closing Date.
There shall be excluded from Consolidated Net Income for any period the purchase accounting effects
of adjustments to inventory, property and equipment, software and other intangible assets and
deferred revenue in component amounts required or permitted by GAAP and related authoritative
pronouncements (including the effects of such adjustments pushed down to the Borrower and the
Restricted Subsidiaries), as a result of the Transactions, any acquisition whether consummated
before or after the Closing Date, any Permitted Acquisition or other Investment, or the
amortization or write-off of any amounts thereof.
“Consolidated Total Assets” shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like
caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such
date.
“Consolidated Total Debt” shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of the Borrower and the Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, minus (b) the aggregate amount of cash and cash
equivalents held in accounts on the consolidated balance sheet of the Borrower and the Restricted
Subsidiaries as at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Borrower or any of the
Restricted Subsidiaries is a party.
“Consolidated Total Debt to Consolidated EBITDA Ratio” shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
“Consolidated Working Capital” shall mean, at any date, the excess of (a) the sum of
all amounts (other than cash and Permitted Investments) that would, in conformity with GAAP, be set
forth opposite the caption “total current assets” (or any like caption) on a consolidated balance
sheet of the Company and the Restricted Subsidiaries at such date excluding the current portion of
current and deferred income taxes plus any LIFO reserve over (b) the sum of all
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amounts that would, in conformity with GAAP, be set forth opposite the caption “total current
liabilities” (or any like caption) on a consolidated balance sheet of the Company and the
Restricted Subsidiaries on such date, including deferred revenue but excluding, without
duplication, (i) the current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans
and Letter of Credit Exposure to the extent otherwise included therein, (iii) the current portion
of interest and (iv) the current portion of current and deferred income taxes.
“Continuing Director” shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
“Contract Consideration” shall have the meaning provided in the definition of Excess
Cash Flow.
“Contractual Obligation” means, as applied to any Person, any provision of any
security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking,
agreement or other instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
“Converted Restricted Subsidiary” shall have the meaning provided in the definition of
the term “Consolidated EBITDA”.
“Converted Unrestricted Subsidiary” shall have the meaning provided in the definition
of the term “Consolidated EBITDA”.
“Cost” shall mean, with respect to Inventory, the weighted average cost thereof, as
determined in the same manner and consistent with the most recent Inventory Appraisal which has
been received and approved by Collateral Agent in its reasonable discretion.
“Credit Documents” shall mean this Agreement, the Security Documents, and any
promissory notes issued by the Borrower hereunder.
“Credit Event” shall mean and include the making (but not the conversion or
continuation) of a Loan.
“Credit Party” shall mean each of the Borrower, the Guarantors and each other
Subsidiary of the Borrower that is a party to a Credit Document.
“Cure Amount” shall have the meaning provided in Section 12.
“Cure Right” shall have the meaning provided in Section 12.
“Currency Agreement” means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each
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of which is for the purpose of hedging the foreign currency risk associated with Borrower’s
and its Subsidiaries’ operations and not for speculative purposes.
“Debt Incurrence Prepayment Event” shall mean any issuance or incurrence by the
Borrower or any of the Restricted Subsidiaries of any Indebtedness (including any issuance by the
Borrower of Permitted Additional Debt to the extent the Net Cash Proceeds are not used for a
Permitted Acquisition but excluding any other Indebtedness permitted to be issued or incurred under
Section 10.1 other than Section 10.1(o)).
“Default” shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in
effect.
“Deferred Net Cash Proceeds” shall have the meaning provided such term in the
definition of “Net Cash Proceeds.”
“Designated Non-Cash Consideration” shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to Section 10.4(b) and Section 10.4(c) that is designated as Designated
Non-Cash Consideration pursuant to a certificate of an Authorized Officer of the Borrower, setting
forth the basis of such valuation (which amount will be reduced by the fair market value of the
portion of the non-cash consideration converted to cash within 180 days following the consummation
of the applicable Disposition).
“Disposed EBITDA” shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
“Disposition” shall have the meaning provided in Section 10.4(b).
“Dividends” or “dividends” shall have the meaning provided in Section
10.6.
“Dollar Equivalent” shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
“Dollars” and “$” shall mean dollars in lawful currency of the United States
of America.
“Domestic Subsidiary” shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
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“Environmental Claims” shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Person’s business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter, “Claims”), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
“Environmental Law” shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
“Equity Contribution” shall have the meaning provided in the preamble to this
Agreement.
“Equity Investments” shall mean the Equity Contribution and the Rollover Equity.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a “single employer” within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“Event of Default” shall have the meaning provided in Section 11.
“Excess Cash Flow” shall mean, for any period, an amount equal to the excess of
(a) the sum, without duplication, of
| (i) | Consolidated Net Income for such period, |
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| (ii) | an amount equal to the amount of all non-cash charges to the extent deducted in arriving at such Consolidated Net Income, | ||
| (iii) | decreases in Consolidated Working Capital and long-term account receivables for such period, and | ||
| (iv) | an amount equal to the aggregate net non-cash loss on Dispositions by the Borrower and the Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income, over |
(b) the sum, without duplication, of
| (i) | an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income and cash charges included in clauses (a) through (f) of the definition of Consolidated Net Income (other than cash charges in respect of Transaction Expenses paid on or about the Closing Date to the extent financed with the proceeds of Indebtedness incurred on the Closing Date or the Equity Investments), | ||
| (ii) | without duplication of amounts deducted pursuant to clause (xi) below in prior years, the amount of capital expenditures made in cash during such period, except to the extent that such capital expenditures were financed with the proceeds of Indebtedness of the Borrower or the Restricted Subsidiaries, | ||
| (iii) | the aggregate amount of all principal payments of Indebtedness of the Borrower and the Restricted Subsidiaries (including (A) the principal component of payments in respect of Capitalized Leases and (B) the amount of any mandatory prepayment of Term Loans pursuant to Section 5.2(a) to the extent required due to a Disposition that resulted in an increase to Consolidated Net Income and not in excess of the amount of such increase but excluding (x) all other prepayments of Term Loans and (y) all prepayments of Revolving Credit Loans and Swing Line Loans) made during such period (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), except to the extent financed with the proceeds of other Indebtedness of the Borrower or the Restricted Subsidiaries, | ||
| (iv) | an amount equal to the aggregate net non-cash gain on Dispositions by the Borrower and the Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income, |
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| (v) | increases in Consolidated Working Capital for such period and long-term account receivables for such period, | ||
| (vi) | cash payments by the Borrower and the Restricted Subsidiaries during such period in respect of long-term liabilities of the Borrower and the Restricted Subsidiaries other than Indebtedness, | ||
| (vii) | without duplication of amounts deducted pursuant to clause (xi) below in prior fiscal years, the aggregate amount of cash consideration paid by the Borrower and the Restricted Subsidiaries in connection with Investments (including acquisitions) made during such period pursuant to Section 10.5 to the extent that such Investments were financed with internally generated cash flow of the Borrower and the Restricted Subsidiaries, | ||
| (viii) | the amount of dividends paid during such period to the extent such dividends were financed with internally generated cash flow of the Borrower and the Restricted Subsidiaries, | ||
| (ix) | the aggregate amount of expenditures actually made by the Borrower and the Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) to the extent that such expenditures are not expensed during such period, | ||
| (x) | the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by the Borrower and the Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness, | ||
| (xi) | without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by the Borrower or any of the Restricted Subsidiaries pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such period relating to Permitted Acquisitions, Investments in the nature of joint ventures or capital expenditures to be consummated or made during the period of four consecutive fiscal quarters of the Borrower following the end of such period, provided that to the extent the aggregate amount of internally generated cash actually utilized to finance such Permitted Acquisitions, Investment in the nature of joint ventures or capital expenditures during such period of four consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of four consecutive fiscal quarters, and |
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| (xii) | the amount of cash taxes paid in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period. |
“Exchange Rate” shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately
11:00 a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency;
in the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate
shall be determined by reference to such other publicly available service for displaying exchange
rates as may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of
such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of
exchange of the Administrative Agent in the market where its foreign currency exchange operations
in respect of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City
time) on such date for the purchase of Dollars for delivery two Business Days later.
“Excluded Subsidiary” means (a) each Subsidiary listed on Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) any Subsidiary that is
prohibited by any applicable Requirement of Law from guaranteeing the Obligations, (d) any Domestic
Subsidiary that is a Subsidiary of a Foreign Subsidiary, (e) any Subsidiary acquired pursuant to a
Permitted Acquisition financed with secured Indebtedness incurred pursuant to Section
10.1(j) or Section 10.1(k) and each Restricted Subsidiary thereof that guarantees such
Indebtedness to the extent and so long as the financing documentation relating to such Permitted
Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted Subsidiary
from guaranteeing, or granting a Lien on any of its assets to secure, the Obligations;
provided that after such time that such prohibitions on guarantees or granting of Liens
lapses or terminates, such Restricted Subsidiary shall no longer be an Excluded Subsidiary, (f) any
other Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent
(confirmed in writing by notice to the Borrower), the cost or other consequences (including any
adverse tax consequences) of providing a Guarantee shall be excessive in view of the benefits to be
obtained by the Lenders therefrom, and (g) each Unrestricted Subsidiary.
“Excluded Taxes” shall mean, with respect to the Administrative Agent, the Collateral
Agent, or any Lender (a) (i) net income taxes and franchise taxes (imposed in lieu of net income
taxes) and capital taxes imposed on the Administrative Agent, or any Lender and (ii) any taxes
imposed on the Administrative Agent, or any Lender as a result of any current or former connection
between the Administrative Agent, or such Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or having been a party to or
having enforced this Agreement or any other Credit Document) and (b) (i) any withholding tax that
is imposed by a jurisdiction in which the Borrower is located or organized on amounts payable to
such Lender under the law in effect at the time such Lender becomes a party to this Agreement (or,
in the case of a Participant, on the date such Participant became a Participant hereunder);
provided that this clause (b)(i) shall not apply to the extent that (x) the
indemnity payments or additional amounts any Lender (or Participant) would be entitled to receive
(without regard to this clause (b)(i)) do not exceed the
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indemnity payment or additional amounts that the person making the assignment, participation
or transfer to such Lender (or Participant) would have been entitled to receive in the absence of
such assignment, participation or transfer or (y) any Tax is imposed on a Lender in connection with
an interest or participation in any Loan or other obligation that such Lender was required to
acquire pursuant to Section 14.8(a) or that such Lender acquired pursuant to Section
14.7 (it being understood and agreed, for the avoidance of doubt, that any withholding tax
imposed on a Lender as a result of a Change in Law occurring after the time such Lender became a
party to this Agreement (or designates a new lending office) shall not be an Excluded Tax) or (ii)
any Tax to the extent attributable to such Lender’s failure to comply with Section 5.4(d)
or Section 5.4(e).
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the
per annum rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
“Fee Letter” shall mean that certain confidential fee letter dated as of December 1,
2006 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman Commercial Paper
Inc., Lehman Brothers Commercial Bank and the Borrower.
“Fees” shall mean all amounts payable pursuant to, or referred to in, Section
4.1.
“Financial Officer” shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
“Foreign Asset Sale” shall have the meaning provided in Section 5.2(g).
“Foreign Currencies” shall mean any currency other than Dollars.
“Foreign Plan” shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
“Foreign Subsidiary” shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
“Funded Debt” shall mean all indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of the
Borrower or any Restricted Subsidiary, to a date more than one year from such date or arises under
a revolving credit or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including all amounts of Funded Debt
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required to be paid or prepaid within one year from the date of its creation and, in the case
of the Borrower, Indebtedness in respect of the Loans.
“GAAP” shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time; provided, however, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
“Governmental Authority” shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
“Guarantee” shall mean (a) the Guarantee, made by each Guarantor in favor of the
Administrative Agent for the benefit of the Secured Parties, substantially in the form of
Exhibit C, and (b) any other guarantee of the Obligations made by a Restricted Subsidiary
in form and substance reasonably acceptable to the Administrative Agent, in each case as the same
may be amended, supplemented or otherwise modified from time to time.
“Guarantee Obligations” shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof; provided, however, that the term “Guarantee Obligations” shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of
which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
“Guarantors” shall mean the Subsidiary Guarantors.
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“Hazardous Materials” shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
“hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous waste”,
“restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, or
“pollutants”, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
“Hedge Agreement” means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrower’s or any of its Subsidiaries’ businesses.
“Historical Financial Statements” shall mean as of the Closing Date, the audited
financial statements of the Borrower and its Subsidiaries, for the 2005 and 2006 fiscal years,
consisting of balance sheets and the related consolidated statements of income, stockholders’
equity and cash flows for such fiscal years.
“Increased Amount Date” shall have the meaning provided in Section 2.14.
“Indebtedness” of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person, provided that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
“Indemnified Taxes” shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
“Intercreditor Agreement” means an intercreditor agreement substantially in the form
of Exhibit O, as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
“Interest Period” shall mean, with respect to any Term Loan, the interest period
applicable thereto, as determined pursuant to Section 2.9.
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“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrower’s and its Subsidiaries’ operations and not for speculative purposes.
“Investment” shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures, partnership or other ownership interests or other securities of any other Person
(including any “short sale” or any sale of any securities at a time when such securities are not
owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan
or other extension of credit to, any other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to resell such property
to such Person), but excluding any such advance, loan or extension of credit having a term not
exceeding 364 days arising in the ordinary course of business; or (c) the entering into of any
guarantee of, or other contingent obligation with respect to, Indebtedness.
“Investors” shall mean the Sponsors, the Management Investors and each other investor
providing a portion of the Equity Investments on the Closing Date.
“Joinder Agreement” shall mean an agreement substantially in the form of
Exhibit M.
“Lender” shall have the meaning provided in the preamble to this Agreement.
“Lender Default” shall mean, (a) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under Section
2.1 or (b) a Lender being deemed insolvent or becoming the subject of a bankruptcy or
insolvency proceeding.
“Level I Status” shall mean, on any date, the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 3.50 to 1.00 as of such date.
“Level II Status” shall mean, on any date, the circumstance that the Consolidated
Total Debt to Consolidated EBITDA Ratio is less than 3.50 to 1.00 as of such date.
“LIBOR Loan” shall mean any Loan bearing interest at a rate determined by reference to
the LIBOR Rate.
“LIBOR Rate” shall mean, in the case of any LIBOR Loan, with respect to each day
during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing
on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
a.m. (London time) two Business Days prior to the beginning of such Interest Period multiplied by
(b) the Statutory Reserve Rate. In the event that any such rate does not appear on the applicable
Page of the Telerate Service (or otherwise on such service), the “LIBOR Rate” for the
purposes of this paragraph shall be determined by reference to such other publicly available
service for displaying LIBOR rates as may be agreed upon by the Administrative Agent and the
Borrower or, in the absence of such agreement, the “LIBOR Rate” for the purposes of this
paragraph shall instead be the rate per annum notified to the Administrative Agent by the
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Reference Lender as the rate at which the Reference Lender is offered Dollar deposits at or
about 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest Period in
the interbank LIBOR market where the LIBOR and foreign currency and exchange operations in respect
of its LIBOR Loans are then being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the amount of its LIBOR
Loan, as the case may be, to be outstanding during such Interest Period.
“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
“Loan” shall mean any Term Loan, or New Term Loan made by any Lender.
“Management Investors” shall mean the directors, management officers and employees of
the Borrower and its Subsidiaries who are investors in the Borrower (or any direct or indirect
parent thereof) on the Closing Date.
“Material Adverse Change” shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower and the other Credit Parties, taken
as a whole, to perform their respective payment obligations under this Agreement or any of the
other Credit Documents.
“Material Adverse Effect” shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower and the other Credit Parties, taken as a whole, to perform
their respective payment obligations under this Agreement or any of the other Credit Documents or
(c) the rights and remedies of the Administrative Agent , Collateral Agent and the Lenders under
this Agreement or any of the other Credit Documents.
“Material Subsidiary” shall mean, at any date of determination, each Restricted
Subsidiary of the Borrower (a) whose total assets at the last day of the Test Period ending on the
last day of the most recent fiscal period for which Section 9.1 Financials have been
delivered were equal to or greater than 5% of the consolidated total assets of the Borrower and the
Restricted Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to
or greater than 5% of the consolidated gross revenues of the Borrower and the Restricted
Subsidiaries for such period, in each case determined in accordance with GAAP.
“Merger” shall have the meaning provided in the preamble to this Agreement.
“Merger Agreement” shall have the meaning provided in the preamble to this Agreement.
“Merger Sub” shall have the meaning provided in the preamble to this Agreement.
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“Minimum Borrowing Amount” shall mean $1,000,000 with respect to the Term Loans.
“Minimum Equity Contribution Amount” shall have the meaning provided in the recitals
hereto.
“Minimum Equity Investment Amount” shall have the meaning provided in the recitals
hereto.
“Moody’s” shall mean Moody’s Investors Service, Inc. or any successor by merger or
consolidation to its business.
“Mortgage” shall mean a Mortgage, Assignment of Leases and Rents, Security Agreement
and Financing Statement or other security document entered into by the owner of a Mortgaged
Property and the Collateral Agent for the benefit of the Secured Parties in respect of that
Mortgaged Property, substantially in the form of Exhibit D, as the same may be amended,
supplemented or otherwise modified from time to time.
“Mortgaged Property” shall mean, initially, each parcel of real estate and the
improvements thereto owned by a Credit Party and identified on Schedule 1.1(b), and
includes each other parcel of real property and improvements thereto with respect to which a
Mortgage is granted pursuant to Section 9.17.
“Net Cash Proceeds” shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries, provided that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or evidencing
such Indebtedness requires that such Indebtedness be repaid upon consummation of such
Prepayment Event,
(iv) in the case of any Asset Sale Prepayment Event, Casualty Event or Permitted Sale
Leaseback, the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the
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Reinvestment Period to reinvest) in the business of the Borrower or any of the
Restricted Subsidiaries (subject to Section 10.12), provided that
any portion of such proceeds that has not been so reinvested within such Reinvestment Period
(with respect to such Prepayment Event, the “Deferred Net Cash Proceeds”) shall,
unless the Borrower or a Subsidiary has entered into a binding commitment prior to the last
day of such Reinvestment Period to reinvest such proceeds, (x) be deemed to be Net Cash
Proceeds of an Asset Sale Prepayment Event, Casualty Event or Permitted Sale Leaseback
occurring on the last day of such Reinvestment Period or 180 days after the date such
Borrower or such Subsidiary has entered into such binding commitment, as applicable, and (y)
be applied to the repayment of Term Loans in accordance with Section 5.2(a)(i); and
(v) reasonable and customary fees.
“New Loan Commitments” shall have the meaning provided in Section 2.14.
“New Revolving Credit Commitments” shall have the meaning provided in the Revolving
Loan Credit Agreement.
“New Term Loan Commitments” shall have the meaning provided in Section 2.14.
“New Term Loan Lender” shall have the meaning provided in Section 2.14.
“New Term Loans” shall have the meaning provided in Section 2.14.
“New Term Loan Maturity Date” shall mean the date on which a New Term Loan matures.
“New Term Loan Repayment Amount” shall have the meaning provided in Section
2.5(c).
“Non-Cash Charges” shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(provided that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
“Non-Consenting Lender” shall have the meaning provided in Section 14.7(b).
“Non-Core Assets” shall mean the assets described on Schedule 1.1(e).
“Non-Defaulting Lender” shall mean and include each Lender other than a Defaulting
Lender.
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“Non-U.S. Lender” shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
“Non-U.S. Participant” shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
“Notice of Borrowing” shall mean each notice of a Borrowing of Term Loans pursuant to
Section 2.3(a).
“Notice of Conversion or Continuation” shall have the meaning provided in Section
2.6.
“Obligations” shall have the meaning assigned to such term in the Security Documents.
“Organizational Documents” means (a) with respect to any corporation, its certificate
or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with
respect to any limited partnership, its certificate of limited partnership (if any), as amended,
and its partnership agreement, as amended, (c) with respect to any general partnership, its
partnership agreement, as amended, and (d) with respect to any limited liability company, its
articles of organization (if any), as amended, and its operating agreement, as amended.
“Other Taxes” shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
“Participant” shall have the meaning provided in Section 14.6(c).
“Patriot Act” shall have the meaning provided in Section 14.18.
“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
“Perfection Certificate” shall mean a certificate of the Borrower in the form of
Exhibit E or any other form approved by the Administrative Agent.
“Permitted Acquisition” shall mean the acquisition, by merger or otherwise, by the
Borrower or any of the Restricted Subsidiaries of assets or Stock or Stock Equivalents, so long as
(a) such acquisition and all transactions related thereto shall be consummated in accordance with
applicable law; (b) such acquisition shall result in the issuer of such Stock or Stock Equivalents
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becoming a Restricted Subsidiary and a Subsidiary Guarantor, to the extent required by
Section 9.11; (c) such acquisition shall result in the Administrative Agent, for the
benefit of the Secured Parties, being granted a security interest in any Stock, Stock Equivalent or
any assets so acquired, to the extent required by Sections 9.11, 9.12 and/or 9.17;
(d) after giving effect to such acquisition, no Default or Event of Default shall have occurred and
be continuing; and (e) the Borrower shall be in compliance, on a Pro Forma Basis after giving
effect to such acquisition (including any Indebtedness assumed or permitted to exist or incurred
pursuant to Sections 10.1(j) and 10.1(k), respectively, and any related Pro Forma
Adjustment), with the covenants set forth in Section 10.9 as such covenant is recomputed as
at the last day of the most recently ended Test Period under such Section as if such acquisition
had occurred on the first day of such Test Period.
“Permitted Additional Debt” shall mean senior unsecured or subordinated Indebtedness,
issued by the Borrower or a Subsidiary Guarantor, (a) the terms of which (i) do not provide for any
scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 90
days following the final maturity of the Term Loans (as in effect on the Closing Date) (other than
customary offers to purchase upon a change of control, asset sale or event of loss and customary
acceleration rights after an event of default) and (ii) to the extent subordinated provide for
customary subordination to the Obligations under the Credit Documents, (b) the covenants, events of
default, guarantees and other terms of which (other than interest rate and redemption premiums),
taken as a whole, are not more restrictive to the Borrower and the Subsidiaries than those in this
Agreement; provided that a certificate of an Authorized Officer of the Borrower is
delivered to the Administrative Agents at least five Business Days (or such shorter period as the
Administrative Agents may reasonably agree) prior to the incurrence of such Indebtedness, together
with a reasonably detailed description of the material terms and conditions of such Indebtedness or
drafts of the documentation relating thereto, stating that the Borrower has determined in good
faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence
that such terms and conditions satisfy the foregoing requirement unless the Administrative Agents
notify the Borrower within such period that it disagrees with such determination (including a
reasonable description of the basis upon which it disagrees), and (c) of which no Subsidiary of the
Borrower (other than a Guarantor) is an obligor.
“Permitted Investments” shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any political
subdivision of any such state or any public instrumentality thereof having maturities of not
more than 12 months from the date of acquisition thereof and, at the time of acquisition,
having an investment grade rating generally obtainable from either S&P or Moody’s (or, if at
any time neither S&P nor Moody’s shall be rating such obligations, then from another
nationally recognized rating service);
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(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers’ acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moody’s, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets otherwise satisfying the requirements of this definition
(including this proviso) and (iv) other short-term investments utilized by Foreign
Restricted Subsidiaries in accordance with normal investment practices for cash management
in investments analogous to the foregoing investments in clauses (a) through (i).
“Permitted Liens” shall mean:
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(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under Section 11.11;
(d) Liens incurred or deposits made in connection with workers’ compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by Section 10.5;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessor’s interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries, provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under Section 10.1;
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be,
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to facilitate the operation of cash pooling and/or interest set-off arrangements in
respect of such bank accounts in the ordinary course of business.
“Permitted Sale Leaseback” shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Closing Date, provided that any
such Sale Leaseback not between the Borrower and any Guarantor or any Guarantor and another
Guarantor is consummated for fair value as determined at the time of consummation in good faith by
the Borrower or such Restricted Subsidiary and, in the case of any Sale Leaseback (or series of
related Sales Leasebacks) the aggregate proceeds of which exceed $25,000,000 the board of directors
of the Borrower or such Restricted Subsidiary (which such determination may take into account any
retained interest or other Investment of the Borrower or such Restricted Subsidiary in connection
with, and any other material economic terms of, such Sale Leaseback).
“Person” shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
“Plan” shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
“Platform” shall have the meaning provided in Section 14.17(b).
“Pledge Agreement” shall mean (a) the Pledge Agreement, entered into by the relevant
pledgors party thereto and the Collateral Agent for the benefit of the Lenders and other Secured
Parties, substantially in the form of Exhibit F, on the Closing Date and (b) any other
pledge agreement delivered pursuant to Section 9.12, in each case, as the same may be
amended, supplemented or otherwise modified from time to time.
“Post-Acquisition Period” means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
“Prepayment Event” shall mean any Asset Sale Prepayment Event, Casualty Event, Debt
Incurrence Prepayment Event or any Permitted Sale Leaseback
“Prime Rate” means the rate of interest quoted in the Wall Street Journal, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nation’s thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
customer. The Administrative Agent or any other Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
“Pro Forma Adjustment” shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the
-29 -
case may be, projected by the Borrower in good faith as a result of (a) actions taken during
such Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired Entity or
Business with the operations of the Borrower and the Restricted Subsidiaries; provided
that, so long as such actions are taken during such Post-Acquisition Period or such costs are
incurred during such Post-Acquisition Period, as applicable, it may be assumed, for purposes of
projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA,
as the case may be, that such cost savings will be realizable during the entirety of such Test
Period, or such additional costs, as applicable, will be incurred during the entirety of such Test
Period; provided further that any such pro forma increase or decrease to such
Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for
cost savings or additional costs already included in such Acquired EBITDA or such Consolidated
EBITDA, as the case may be, for such Test Period.
“Pro Forma Adjustment Certificate” shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to Section 9.1(h) or Section 9.1(d).
“Pro Forma Basis”, “Pro Forma Compliance” and “Pro Forma Effect” shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Stock and Stock Equivalents in any Subsidiary of the Borrower or any division, product line, or
facility used for operations of the Borrower or any of its Subsidiaries, shall be excluded, and
(ii) in the case of a Permitted Acquisition or Investment described in the definition of
“Specified Transaction”, shall be included, (b) any retirement of Indebtedness, and (c) any
Indebtedness incurred or assumed by the Borrower or any of the Restricted Subsidiaries in
connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied
rate of interest for the applicable period for purposes of this definition determined by utilizing
the rate which is or would be in effect with respect to such Indebtedness as at the relevant date
of determination; provided that, without limiting the application of the Pro Forma
Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such
test or covenant solely to the extent that such adjustments are consistent with the definition of
Consolidated EBITDA and give effect to events (including operating expense reductions) that are (i)
(x) directly attributable to such transaction, (y) expected to have a continuing impact on the
Borrower and the Restricted Subsidiaries and (z) factually supportable or (ii) otherwise consistent
with the definition of Pro Forma Adjustment.
“Real Estate” shall have the meaning provided in Section 9.1(i).
“Reference Lender” shall mean JPMorgan Chase Bank, N.A.
“Register” shall have the meaning provided in Section 14.6(b)(iv).
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“Regulation D” shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Reinvestment Period” shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
“Related Parties” shall mean, with respect to any specified Person, such Person’s
Affiliates and the directors, officers, employees, agents, trustees, advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
“Repayment Amount” shall mean the Term Loan Repayment Amount or the New Term Loan
Repayment Amount with respect to any Series, as applicable.
“Repayment Date” shall mean a Term Loan Repayment Date or a New Term Loan Repayment
Date, as applicable.
“Report” shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
“Reportable Event” shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
“Required Lenders” shall mean, at any date, Non Defaulting Lenders having or holding a
majority of the outstanding principal amount of the Term Loans in the aggregate at such date.
“Requirement of Law” shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
“Restricted Foreign Subsidiary” shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
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“Restricted Subsidiary” shall mean any Subsidiary of the Borrower other than an
Unrestricted Subsidiary.
“Revolving Loan Credit Agreement” shall mean that certain revolving loan credit
agreement dated as of the Closing Date, by and among the Borrower, The CIT Group/Business Credit,
Inc. as administrative agent and collateral agent, Goldman Sachs Credit Partners L.P. and Lehman
Brothers Inc., as the co-lead arrangers and joint bookrunners, and Goldman Sachs Credit Partners
L.P., as the syndication agent.
“Rollover Equity” shall have the meaning provided in the recitals hereto.
“Sale Leaseback” shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
“S&P” shall mean Standard & Poor’s Ratings Services or any successor by merger or
consolidation to its business.
“SEC” shall mean the Securities and Exchange Commission or any successor thereto.
“Section 9.1 Financials” shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officer’s
certificate delivered, or required to be delivered, pursuant to Section 9.1(e).
“Secured Parties” shall have the meaning assigned to such term in the applicable
Security Documents.
“Security Agreement” shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of Exhibit G, as the same may be amended, supplemented or
otherwise modified from time to time.
“Security Documents” shall mean, collectively, (a) the Guarantee, (b) the Security
Agreement, (c) the Intercreditor Agreement, (d) each Mortgage , (e) the Pledge Agreement and (f)
each other security agreement or other instrument or document executed and delivered pursuant to
Section 9.11, 9.12 or 9.17 or pursuant to any of the Security Documents to secure
any of the Obligations.
“Series” shall have the meaning as provided in Section 2.14
“Sold Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Solvent” shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrower’s debt (including contingent liabilities) does not exceed the
present
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fair saleable value of the Borrower’s present assets; (ii) the Borrower’s capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is “solvent” within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, the amount of any contingent liability at any time shall be computed as the
amount that, in light of all of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability (irrespective of
whether such contingent liabilities meet the criteria for accrual under Statement of Financial
Accounting Standard No. 5).
“Specified Subsidiary” shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which Section 9.1
Financials have been delivered were equal to or greater than 15% of the consolidated total assets
of the Borrower and the Subsidiaries at such date, (ii) whose gross revenues for such Test Period
were equal to or greater than 15% of the consolidated gross revenues of the Borrower and the
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiary’s total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in Section 11.5 would constitute a Specified Subsidiary under
clause (a) or (b) above.
“Specified Transaction” shall mean, with respect to any period, any Investment, sale,
transfer or other disposition of assets, incurrence or repayment of Indebtedness, Dividend,
Subsidiary designation, New Term Loan Commitment or other event that by the terms of this Agreement
requires “Pro Forma Compliance” with a test or covenant hereunder or requires such test or
covenant to be calculated on a “Pro Forma Basis.”
“Sponsor” shall mean GS Capital Partners V Fund, L.P. and its respective Affiliates.
“Status” shall mean, as to the Borrower as of any date, the existence of Level I
Status or Level II Status, as the case may be on such date. Changes in Status resulting from
changes in the Consolidated Total Debt to Consolidated EBITDA Ratio shall become effective (the
date of such effectiveness, the “Effective Date”) as of the first day following the last
day of the most recent fiscal year or period for which (a) Section 9.1 Financials are delivered to
the Lenders under Section 9.1 and (b) an officer’s certificate is delivered by the Borrower
to the Lenders setting forth, with respect to such Section 9.1 Financials, the
then-applicable Status, and shall remain in effect until the next change to be effected pursuant to
this definition, provided that (i) if the Borrower shall have made any payments in respect
of interest or commitment fees during the period (the “Interim Period”) from and including
the Effective Date to but excluding the day any change in Status is determined as provided above,
then the amount of the next such payment due on or after such day shall be increased or decreased
by an amount equal to any underpayment or overpayment so made by the Borrower during such Interim
Period and (ii) each determination of the Consolidated Total Debt to Consolidated EBITDA Ratio
pursuant to this definition shall be
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made with respect to the Test Period ending at the end of the fiscal period covered by the
relevant financial statements.
“Statutory Reserve Rate” shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in effect
on that day (including any marginal, special, emergency or supplemental reserves), expressed as a
decimal, as prescribed by the Board and to which the Administrative Agent is subject, for
eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D
of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D.
LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
“Stock” shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
“Stock Equivalents” shall mean all securities convertible into or exchangeable for
Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or
not presently convertible, exchangeable or exercisable.
“Subordinated Indebtedness” shall mean Indebtedness of the Borrower or any Guarantor
that is by its terms subordinated in right of payment to the obligations of the Borrower and such
Guarantor, as applicable, under this Agreement.
“Subsidiary” of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries and (b) any partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time.
Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a
Subsidiary of the Borrower.
“Subsidiary Guarantors” shall mean (a) each Domestic Subsidiary (other than an
Excluded Subsidiary) existing on the Closing Date and (b) each Domestic Subsidiary that becomes a
party to the Guarantee after the Closing Date pursuant to Section 9.11 or otherwise.
“Successor Borrower” shall have the meaning provided in Section 10.3(a).
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“Syndication Agent” shall mean Goldman Sachs Credit Partners L.P., together with its
affiliates, as the syndication agent for the Lenders under this Agreement and the other Credit
Documents.
“Taxes” shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
“Term Loan Commitment” shall mean (a) in the case of each Lender that is a Lender on
the date hereof, the amount set forth opposite such Lender’s name on Schedule 1.1(c) as
such Lender’s “Term Loan Commitment” and (b) in the case of any Lender that becomes a Lender after
the date hereof, the amount specified as such Lender’s “Commitment” in the Assignment and
Acceptance pursuant to which such Lender assumed a portion of the Total Term Loan Commitment, in
each case as the same may be changed from time to time pursuant to the terms hereof. The aggregate
amount of the Term Loan Commitments as of the Closing Date is $575,000,000.
“Term Loans” shall have the meaning provided in Section 2.1. To the extent any New
Term Loans are made hereunder, “Term Loans” shall, to the extent appropriate, include such New Term
Loans.
“Term Loan Maturity Date” shall mean the date that is seven (7) years after the
Closing Date, or, if such date is not a Business Day, the next preceding Business Day
“Term Loan Repayment Amount” shall have the meaning provided in
Section 2.5(b).
“Term Loan Repayment Date” shall have the meaning provided in Section 2.5(b).
“Test Period” shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
“Total Commitment” shall mean the Total Term Loan Commitment.
“Total Credit Exposure” shall mean, at any date, the sum of (a) the Total Term Loan
Commitment at such date and (b) the outstanding principal amount of all Term Loans at such date.
“Total Term Loan Commitment” shall mean the sum of the Term Loan Commitments and New
Term Loan Commitments, if applicable, of all the Lenders.
“Transaction Expenses” shall mean any fees or expenses incurred or paid by the
Borrower or any of its Subsidiaries in connection with the Transactions, this Agreement and the
other Credit Documents and the transactions contemplated hereby and thereby.
“Transactions” shall mean, collectively, the transactions contemplated by this
Agreement, the Revolving Loan Credit Agreement, the Merger and the Equity Investments.
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“Transferee” shall have the meaning provided in Section 14.6(e).
“Trigger Date” shall mean the date on which Section 9.1 Financials are delivered to
the Lenders under Section 9.1 for the fiscal quarter ending on June 30, 2007.
“Type” shall mean as to any Term Loan, its nature as an ABR Loan or a LIBOR Loan.
“Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plan’s actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
“Unrestricted Subsidiary” shall mean (a) any Subsidiary of the Borrower that is formed
or acquired after the Closing Date, provided that at such time (or promptly thereafter) the
Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice to the
Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted
Subsidiary by the Borrower in a written notice to the Administrative Agent, provided that
in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an
Investment on the date of such re-designation in an Unrestricted Subsidiary in an amount equal to
the sum of (i) the Borrower’s direct or indirect equity ownership percentage of the net worth of
such designated or re-designated Restricted Subsidiary immediately prior to such designated or
re-designation (such net worth to be calculated without regard to any guarantee provided by such
designated or re-designated Restricted Subsidiary) and (ii) the aggregate principal amount of any
Indebtedness owed by such designated or re-designated Restricted Subsidiary to the Borrower or any
other Restricted Subsidiary immediately prior to such designated or re-designation, all calculated,
except as set forth in the parenthetical to clause (i), on a consolidated basis in accordance with
GAAP and (y) no Default or Event of Default would result from such designation or re-designation
and (c) each Subsidiary of an Unrestricted Subsidiary; provided, however, that at
the time of any written designation or re-designation by the Borrower to the Administrative Agent
that any Unrestricted Subsidiary shall no longer constitute an Unrestricted Subsidiary, such
Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary to the extent no Default or
Event of Default would result from such designation or re-designation. On or promptly after the
date of its formation, acquisition, designation or re-designation, as applicable, each Unrestricted
Subsidiary (other than an Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered
into a tax sharing agreement containing terms that, in the reasonable judgment of the
Administrative Agent, provide for an appropriate allocation of tax liabilities and benefits. An
Unrestricted Subsidiary which has been re-designated as a Restricted Subsidiary may not be
subsequently re-designated as an Unrestricted Subsidiary.
“Voting Stock” shall mean, with respect to any Person, such Person’s Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2 Other Interpretive Provisions. With reference to this Agreement and each other Credit Document, unless otherwise specified
herein or in such other Credit Document:
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(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term “including” is by way of example and not limitation.
(e) The term “documents” includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including”; the words “to” and “until” each mean “to
but excluding”; and the word “through” means “to and including”.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3 Accounting Terms; Exchange Rates. (a) All accounting terms not
specifically or completely defined herein shall be construed in conformity with, and all
financial data (including financial ratios and other financial calculations) required to be
submitted pursuant to this Agreement shall be prepared in conformity with, GAAP.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to
such period and such Specified Transaction on a Pro Forma Basis.
For purposes of determining compliance under Sections 10.4, 10.5 (other than with respect to
determining the amount of any Indebtedness), 10.6 and 10.9 with respect to any amount in a Foreign
Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on the average
Exchange Rate for a Foreign Currency for the most recent twelve-month period immediately prior to
the date of determination determined in a manner consistent with that used in calculating
Consolidated EBITDA for the related period. For purposes of determining
compliance with Sections 10.1, 10.2 and 10.5, with respect to any amount of Indebtedness in a
Foreign Currency, compliance will be determined at the time of incurrence or advancing thereof
using the Dollar Equivalent thereof at the Exchange Rate in effect at the time of such incurrence
or advancement.
1.4 Rounding. Any financial ratios required to be maintained by the Borrower pursuant
to this Agreement (or required to be satisfied in order for a specific action to be
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permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5 References to Agreements, Laws, Etc. Unless otherwise expressly provided herein,
(a) references to Organizational Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such applicable law.
SECTION 2. Amount and Terms of Credit
2.1 Commitments. Subject to and upon the terms and conditions herein set
forth, each Lender having a Term Loan Commitment severally agrees to make a loan or loans (each a
“Term Loan”) on the Closing Date to the Borrower in Dollars, which Term Loans shall not
exceed for any such Lender the Term Loan Commitment of such Lender and in the aggregate shall not
exceed $575,000,000.
Such Term Loans (i) shall be made on the Closing Date in accordance with the preceding paragraph,
(ii) may at the option of the Borrower be incurred and maintained as, and/or converted into, ABR
Loans or LIBOR Loans, provided that all such Term Loans made by each of the Lenders
pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Term Loans of the same Type, (iii) may be repaid or prepaid in accordance with the
provisions hereof, but once repaid or prepaid, may not be reborrowed, (iv) shall not exceed for any
such Lender its Term Loan Commitment and (v) shall not exceed in the aggregate the total of all
Term Loan Commitments. On the Term Loan Maturity Date, all then unpaid Term Loans shall be repaid
in full.
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. The aggregate principal amount of each Borrowing of Term Loans shall be in a multiple of
$1,000,000 and, shall not be less than the Minimum Borrowing Amount with respect thereto. More
than one Borrowing may be incurred on any date, provided that at no time shall there be
outstanding more than six (6) Borrowings of LIBOR Loans under this Agreement.
2.3 Notice of Borrowing. (a) The Borrower shall give the Administrative Agent
at the Administrative Agent’s Office (i) prior to 12:00 Noon (New York City time) at least three
Business Days’ prior written notice (or telephonic notice promptly confirmed in writing no later
than 1:00 p.m. (New York City time)) of the Borrowing of Term Loans if all or any of such Term
Loans are to be initially LIBOR Loans, and (ii) prior written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) prior to 10:00 a.m.
(New York City time) on the date of the Borrowing of Term Loans if all such Term Loans are to be
ABR Loans. Such Notice of Borrowing shall specify (i) the aggregate principal amount of the Term
Loans to be made, (ii) the date of the Borrowing (which shall be
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the Closing Date) and (iii)
whether the Term Loans shall consist of ABR Loans and/or LIBOR Loans and, if the Term Loans are
to include LIBOR Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of the proposed Borrowing of Term Loans, of such Lender’s
proportionate share thereof and of the other matters covered by the related Notice of Borrowing.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) [Intentionally Omitted]
(e) [Intentionally Omitted].
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the Borrower. In each
such case, the Borrower hereby waives the right to dispute the Administrative Agent’s record of
the terms of any such telephonic notice.
2.4 Disbursement of Funds. (a) No later than 12:00 Noon (New York City time)
on the date specified in each Notice of Borrowing each Lender will make available its pro rata
portion, if any, of each Borrowing requested to be made on such date in the manner provided
below.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the
Administrative Agent at the Administrative Agent’s Office and the Administrative Agent will make
available to the Borrower, by depositing to an account designated by the Borrower
to the Administrative Agent the aggregate of the amounts so made available in Dollars.
Unless the Administrative Agent shall have been notified by any Lender prior to the date of any
such Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative Agent on such date
of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s
demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from such Lender or the Borrower interest on such
corresponding amount in respect of each day from the date such corresponding amount was made
available by the
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Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (i) if paid by such Lender,
the Federal Funds Effective Rate or (ii) if paid by the Borrower, the then-applicable rate of
interest or fees, calculated in accordance with Section 2.8, for the respective Loans.
(c) Nothing in this Section 2.4 shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Term Loan
Maturity Date, the then-unpaid Term Loans made to the Borrower.
(b) The Borrower shall repay to the Administrative Agent, in Dollars, for the benefit of the
Lenders of Term Loans, on each date set forth below (each, a “Term Loan Repayment Date”),
the principal amount of the Term Loans equal to (x) the outstanding principal amount of Term
Loans immediately after closing on the Closing Date multiplied by (y) the percentage set forth
below opposite such Repayment Date (each, a “Term Loan Repayment Amount”):
| Repayment Date | Term Loan Repayment Amount | |||
March 31, 2007 |
0.25 | % | ||
June 30, 2007 |
0.25 | % | ||
September 30, 2007 |
0.25 | % | ||
December 31, 2007 |
0.25 | % | ||
March 31, 2008 |
0.25 | % | ||
June 30, 2008 |
0.25 | % | ||
September 30, 2008 |
0.25 | % | ||
December 31, 2008 |
0.25 | % | ||
March 31, 2009 |
0.25 | % | ||
June 30, 2009 |
0.25 | % | ||
September 30, 2009 |
0.25 | % | ||
December 31, 2009 |
0.25 | % | ||
March 31, 2010 |
0.25 | % | ||
June 30, 2010 |
0.25 | % | ||
September 30, 2010 |
0.25 | % | ||
December 31, 2010 |
0.25 | % | ||
March 31, 2011 |
0.25 | % | ||
June 30, 2011 |
0.25 | % | ||
September 30, 2011 |
0.25 | % | ||
December 31, 2011 |
0.25 | % | ||
March 31, 2012 |
0.25 | % | ||
June 30, 2012 |
0.25 | % | ||
September 30, 2012 |
0.25 | % | ||
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| Repayment Date | Term Loan Repayment Amount | |||
December 31, 2012 |
0.25 | % | ||
March 31, 2013 |
0.25 | % | ||
June 30, 2013 |
0.25 | % | ||
September 30, 2013 |
0.25 | % | ||
December 31, 2013 |
0.25 | % | ||
Term Loan Maturity Date |
93.00 | % | ||
(c) In the event that any New Term Loans are made, such New Term Loans shall, subject to
Section 2.14(d), be repaid by the borrower thereof in the amounts (each, a “New Term
Loan Repayment Amount”) and on the dates (each a “New Repayment Date”) set forth in
the applicable Joinder Agreement.
(d) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(e) The Administrative Agent shall maintain the Register pursuant to Section
14.6(b), and a sub account for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount of each Term Loan made hereunder, the Type of each
Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower
and each Lender’s share thereof.
(f) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (d) and (e) of this Section 2.5 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such account, such Register or such subaccount, as
applicable, or any error therein, shall not in any manner affect the obligation of the Borrower
to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance
with the terms of this Agreement.
2.6 Conversions and Continuations. (a) The Borrower shall have the option on
any Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of
the outstanding principal amount of Term Loans made to the Borrower (as applicable) of one Type
into a Borrowing or Borrowings of another Type and the Borrower shall have the option on any
Business Day to continue the outstanding principal amount of any LIBOR Loans as LIBOR Loans for
an additional Interest Period on the last Business Day of the existing Interest Period,
provided that (i) no partial conversion of LIBOR Loans shall reduce the outstanding
principal amount of LIBOR Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount, (ii) ABR Loans may not be converted into LIBOR Loans if a Default or Event of
Default is in existence on the date of the conversion and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such conversion,
(iii) LIBOR Loans may not be continued as LIBOR
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Loans for an additional Interest Period if an
Event of Default is in existence on the date of the proposed continuation and the Administrative
Agent has or the Required Lenders have determined in its or their sole discretion not to permit
such continuation and (iv) Borrowings resulting from conversions pursuant to this Section
2.6 shall be limited in number as provided in Section 2.2. Each such conversion or
continuation shall be effected by the Borrower by giving the Administrative Agent at the
Administrative Agent’s Office prior to 1:00 p.m. (New York City time) at least three Business
Days’ prior written notice or written notice prior to 10:00 a.m. (New York City time) on the same
Business Day in the case of a conversion into ABR Loans (or, in each case, telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) (each, a “Notice
of Conversion or Continuation”) specifying the Term Loans to be so converted or continued,
the Type of Term Loans to be converted or continued into and, if such Term Loans are to be
converted into or continued as LIBOR Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Lender notice as promptly as practicable of
any such proposed conversion or continuation affecting any of its Term Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans
shall be automatically converted on the last day of the current Interest Period into ABR Loans.
If upon the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed
to elect a new Interest Period to be applicable thereto as provided in paragraph (a) above, the
Borrower shall be deemed to have elected to continue such Borrowing of LIBOR Loans into a
Borrowing of ABR Loans, effective as of the expiration date of such current Interest Period.
2.7 Pro Rata Borrowings. Each Borrowing of Term Loans under this Agreement shall be granted by the Lenders pro rata
on the basis of their then-applicable Term Loan Commitments. Each Borrowing of New Term Loans
under this Agreement shall be granted by the Lenders pro rata on the basis of their then applicable
New Term Loan Commitments. It is understood that (a) no Lender shall be responsible for any
default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any
other Lender to fulfill its commitments hereunder and (b) other than as expressly provided herein
with respect to a Defaulting Lender, failure by a Lender to perform any of its obligations under
any of the Credit Documents shall not release any Person from performance of its obligation under
any Credit Document.
2.8 Interest. (a) The unpaid principal amount of each ABR Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by acceleration or
otherwise) at a rate per annum that shall at all times be the Applicable ABR Margin plus the ABR
in effect from time to time.
(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate per
annum that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
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(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code or other applicable bankruptcy laws) at a rate per annum
that is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto
plus 2% or (y) in the case of any overdue interest, to the extent permitted by applicable
law, the rate described in Section 2.8(a) plus 2% from and including the date of
such non-payment to but excluding the date on which such amount is paid in full (after as well as
before judgment). Payment or acceptance of the increased rates of interest provided for in this
Section 2.8 is not a permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative
Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case
of an Interest Period in excess of three months, on each date occurring at three-month intervals
after the first day of such Interest Period, (iii) in respect of each Loan (except, other than in
the case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with Section
5.5.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on
all parties hereto.
2.9 Interest Periods. At the time the Borrower gives a Notice of Borrowing or Notice
of Conversion or Continuation in respect of the making of, or conversion into or continuation as, a
Borrowing of LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior
to 10:00 a.m. (New York City time) on the third Business Day prior to the expiration of an Interest
Period applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by
giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing
no later than 1:00 p.m. (New York City time)) the Interest Period applicable to such Borrowing,
which Interest Period shall, at the option of the Borrower be a one, two, three, six or if
available to all the Lenders as determined by the Lenders in good faith based on prevailing market
conditions, a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date
of such Borrowing (including the date of any conversion from a Borrowing of
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ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Loans begins on the last
Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of the calendar month at the end of such Interest Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day, provided that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period in respect of any LIBOR
Loan if such Interest Period would extend beyond the applicable maturity date of such Loan.
2.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case
of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below,
any Lender shall have reasonably
determined (which determination shall, absent clearly demonstrable error, be final and
conclusive and binding upon all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
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then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to
such notice by the Administrative Agent no longer exist (which notice the Administrative Agent
agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing
or Notice of Conversion given by the Borrower with respect to LIBOR Loans that have not yet been
incurred shall be deemed rescinded by the Borrower (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, promptly after receipt of written demand therefor such
additional amounts (in the form of an increased rate of, or a different method of calculating,
interest or otherwise as such Lender in its reasonable discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in amounts receivable
hereunder (it being agreed that a written notice as to the additional amounts owed to such Lender,
showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by
such Lender shall, absent clearly demonstrable error, be final and conclusive and binding upon all
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 2.10(b) as promptly as possible and, in any event, within the
time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in
Section 2.10(a)(ii) or (iii), the Borrower may (and in the case of a LIBOR Loan
affected pursuant to Section 2.10(a)(iii) shall) either (x) if the affected LIBOR Loan is
then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent
telephonic notice thereof on the same date that the Borrower was notified by a Lender pursuant to
Section 2.10(a)(ii) or (iii) (confirmed promptly in writing no later than 10:00
a.m. (New York City time) on the next day) or (y) if the affected LIBOR Loan is then outstanding,
upon at least three Business Days’ notice to the Administrative Agent, require the affected
Lender to convert each such LIBOR Loan into an ABR Loan, provided that if more than one
Lender is affected at any time, then all affected Lenders must be treated in the same manner
pursuant to this Section 2.10(b).
(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Lender or its parent with any request or directive
made or adopted after the date hereof regarding capital adequacy (whether or not having the force
of law) of any such authority, association, central bank or comparable agency, has or would have
the effect of reducing the rate of return on such Lender’s or its parent’s or its Affiliate’s
capital or assets as a consequence of such Lender’s commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or
its parent’s policies with respect to capital adequacy), then from time to time, promptly after
demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate
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such Lender or its parent for such
reduction, it being understood and agreed, however, that a Lender shall not be entitled to such
compensation as a result of such Lender’s compliance with, or pursuant to any request or
directive to comply with, any such law, rule or regulation as in effect on the date hereof. Each
Lender, upon determining in good faith that any additional amounts will be payable pursuant to
this Section 2.10(c), will give prompt written notice thereof to the Borrower which
notice shall set forth in reasonable detail the basis of the calculation of such additional
amounts, although the failure to give any such notice shall not, subject to Section 2.13,
release or diminish the Borrower’s obligations to pay additional amounts pursuant to this
Section 2.10(c) upon receipt of such notice.
(d) It is understood that to the extent duplicative of Section 5.4, this Section
2.10 shall not apply to Taxes.
2.11 Compensation. If (a) any payment of principal of any LIBOR Loan is made by the
Borrower to or for the account of a Lender other than on the last day of the Interest Period for
such LIBOR Loan as a result of a payment or conversion pursuant to Section 2.5, 2.6, 2.10, 5.1,
5.2 or 14.7, as a result of acceleration of the maturity of the Loans pursuant to
Section 11 or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a
result of a withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a
result of a withdrawn Notice of
Conversion or Continuation, (d) any LIBOR Loan is not continued as an LIBOR Loan, as the case
may be, as a result of a withdrawn Notice of Conversion or Continuation or (e) any prepayment of
principal of any LIBOR Loan is not made as a result of a withdrawn notice of prepayment pursuant to
Section 5.1 or 5.2, the Borrower shall, after receipt of a written request by such Lender
(which request shall set forth in reasonable detail the basis for requesting such amount), pay to
the Administrative Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that such Lender may reasonably incur as a
result of such payment, failure to convert, failure to continue or failure to prepay, including any
loss, cost or expense (excluding loss of anticipated profits) actually incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain
such LIBOR Loan.
2.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any
event giving rise to the operation of Section 2.10(a)(ii), 2.10(a)(iii),
2.10(b), or 5.4 with respect to such Lender, it will, if requested by the Borrower
use reasonable efforts (subject to overall policy considerations of such Lender) to designate
another lending office for any Loans affected by such event, provided that such designation
is made on such terms that such Lender and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to
the operation of any such Section. Nothing in this Section 2.12 shall affect or postpone
any of the obligations of the Borrower or the right of any Lender provided in Section 2.10,
3.5 or 5.4.
2.13 Notice of Certain Costs. Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by Section 2.10, 2.11, or 5.4 is given
by any Lender more than 180 days after such Lender has knowledge (or should have had knowledge) of
the occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or
other additional amounts described in such Sections, such Lender shall not be entitled to
compensation under Section 2.10, 2.11, or 5.4, as the case may be, for any
such amounts incurred or accruing
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prior to the 181st day prior to the giving of such notice to the
Borrower; provided that if the event giving rise to such additional cost, reduction in
amounts, loss, tax or other additional amounts has a retroactive effect, then the 180 day period
referred to above shall be extended to include the period of retroactive effect thereof.
2.14 Incremental Facilities. (a) Borrower may by written notice to
Administrative Agent elect to request the establishment of one or more increases in Term Loan
Commitments (the “New Term Loan Commitments”), by an aggregate amount not in excess of
the difference between $100,000,000 and the sum of all New Term Loan Commitments and New
Revolving Credit Commitments obtained prior to such date and not less than $10,000,000
individually (or such lesser amount which shall be approved by Administrative Agent or such
lesser amount that shall constitute the difference between $100,000,000 and the sum of all New
Revolving Credit Commitments and New Term Loan Commitments obtained prior to such date). Each
such
notice shall specify the date (each, an “Increased Amount Date”) on which the
Borrower proposes that the New Term Loan Commitments shall be effective, which shall be a date
not less than ten Business Days after the date on which such notice is delivered to
Administrative Agent; provided that any Lender offered or approached to provide all or a
portion of the New Term Loan Commitments may elect or decline, in its sole discretion, to provide
a New Term Loan Commitments. Such New Term Loan Commitments shall become effective, as of such
Increased Amount Date; provided that (i) no Default or Event of Default shall exist on
such Increased Amount Date before or after giving effect to such New Term Loan Commitments, as
applicable; (ii) both before and after giving effect to the making of any Series of New Term
Loans, each of the conditions set forth in Section 7 shall be satisfied; (iii) Borrower
and its Subsidiaries shall be in Pro Forma Compliance with each of the covenants set forth in
Section 10.9 as of the last day of the most recently ended fiscal quarter after giving
effect to such New Term Loan Commitments and any Specified Transaction to be consummated in
connection therewith; (iv) the New Term Loan Commitments shall be effected pursuant to one or
more Joinder Agreements executed and delivered by the Borrower and Administrative Agent, and each
of which shall be recorded in the Register and shall be subject to the requirements set forth in
Section 5.4(d) and (e); (v) Borrower shall make any payments required pursuant to
Section 2.11 in connection with the New Term Loan Commitments, as applicable; and (vi)
Borrower shall deliver or cause to be delivered any legal opinions or other documents reasonably
requested by Administrative Agent in connection with any such transaction. Any New Term Loans
made on an Increased Amount Date shall be designated, a separate series (a “Series”) of
New Term Loans for all purposes of this Agreement.
(b) [Intentionally Omitted]
(c) On any Increased Amount Date on which any New Term Loan Commitments of any Series are
effective, subject to the satisfaction of the foregoing terms and conditions, (i) each Lender
with a New Term Loan Commitment (each, a “New Term Loan Lender”) of any Series shall make
a Loan to the Borrower (a “New Term Loan”) in an amount equal to its New Term Loan
Commitment of such Series, and (ii) each New Term Loan Lender of any Series shall become a Lender
hereunder with respect to the New Term Loan Commitment of such Series and the New Term Loans of
such Series made pursuant thereto.
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(d) The terms and provisions of the New Term Loans and New Term Loan Commitments of any
Series shall be, except as otherwise set forth herein or in the applicable Joinder Agreement,
identical to the existing Term Loans; provided that (i) the applicable New Term Loan
Maturity Date of each Series shall be no earlier than the final maturity of the Term Loans
outstanding on the Increased Amount Date with respect to such New Term Loans and the mandatory
prepayment and other payment rights (other than scheduled amortization) of the New Term Loans and
the existing Term Loans shall be identical, (ii) the weighted average life to maturity of all New
Term Loans of any Series shall be no shorter than the weighted average life to maturity of the
Term Loans outstanding on the Increased Amount Date, (iii) the rate of interest and the
amortization schedule applicable to the New Term Loans of each Series shall be determined by the
Borrower and the applicable new Lenders and shall be set forth in each applicable Joinder
Agreement; provided that such Borrower shall be the Borrower or a Subsidiary Guarantor
and (iv) all other terms applicable to the New Term Loans of each Series
that differ from the existing Term Loans shall be reasonably acceptable to the
Administrative Agent (as evidenced by its execution of the applicable Joinder Agreement).
(e) Each Joinder Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Credit Documents as may be necessary or appropriate,
in the opinion of the Administrative Agent, to effect the provision of this Section 2.14.
SECTION 3. [Intentionally Omitted]
SECTION 4. Fees; Commitments
4.1
Fees. (a) The Borrower agrees to pay to the Collateral Agent, for its
own account, fees in the amounts and at the times set forth in the Fee Letter.
4.2 [Intentionally Omitted].
4.3
Mandatory Termination of Commitments. (a) (i) The Term Loan Commitments
shall terminate at 5:00 p.m. (New York City time) on the Closing Date.
(b) The New Term Loan Commitments for any Series shall terminate at 5:00 p.m. (New York
City time) on the Increased Amount Date for such Series.
SECTION 5. Payments
5.1 Voluntary Prepayments. The Borrower shall have the right to prepay Term Loans, in
each case, without premium or penalty, in whole or in part from time to time on the following terms
and conditions: (a) the Borrower shall give the Administrative Agent and at the Administrative
Agent’s Office written notice (or telephonic notice promptly confirmed in writing no later than
1:00 p.m. (New York City time)) of its intent to make such prepayment, the amount of such
prepayment and (in the case of LIBOR Loans) the specific Borrowing(s) pursuant to which made, which
notice shall be given by the Borrower no later than (i) in the case of a LIBOR Loans, 12:00 noon
(New York City time) three Business Days prior to or (ii) in the case of ABR Loans, 12:00 noon (New
York City time) on, the date of such prepayment and shall promptly be transmitted by the
Administrative Agent to each of the Lenders; (b) each partial
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prepayment of any Borrowing of Term
Loans shall be in a multiple of $100,000 and in an aggregate principal amount of at least
$1,000,000, provided that no partial prepayment of LIBOR Loans made pursuant to a
single Borrowing shall reduce the outstanding LIBOR Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for LIBOR Loans and (c) any prepayment of LIBOR Loans
pursuant to this Section 5.1 on any day other than the last day of an Interest Period
applicable thereto shall be subject to compliance by the Borrower with the applicable provisions of
Section 2.11. Each prepayment in respect of any Term Loans pursuant to this Section
5.1 shall be (a) applied to Term Loans in such manner as the Borrower may determine and (b)
applied to reduce Repayment Amounts, and/or any New Term Loan Repayment Amounts, as the case may
be, in such order as the Borrower may determine. At the Borrower’s election in connection with any
prepayment pursuant to this Section 5.1, such prepayment shall not be applied to any Term
Loan of a Defaulting Lender.
5.2 Mandatory Prepayments. (a) Term Loan Prepayments. (i) On each
occasion that a Prepayment Event occurs, the Borrower shall, within one Business Day after the
occurrence of a Debt Incurrence Prepayment Event and within five Business Days after the occurrence
of any other Prepayment Event (or, in the case of Deferred Net Cash Proceeds, within five Business
Days after the Reinvestment Period relating to such Prepayment Event or 180 days thereafter, as
applicable), prepay, in accordance with paragraph (c) below, the principal amount of Term Loans in
an amount equal to 100% of the Net Cash Proceeds from such Prepayment Event. If the Stock or Stock
Equivalents of any Credit Party is sold or any Credit Party is sold as a going concern on any date,
the sale proceeds shall be allocated as follows: (x) that portion of the sale proceeds equal to
the aggregate value of “Accounts” and “Cost” of “Inventory” (in each case, as defined in the
Revolving Loan Credit Agreement”) shall be allocated to the Revolving Credit Collateral (as defined
in the Intercreditor Agreement) of the Credit Parties so sold and shall be deemed to be proceeds
thereof and (y) the balance of sale proceeds shall be allocated to the Collateral of the Credit
Parties so sold and shall be deemed to be proceeds thereof and applied pursuant to the foregoing
sentence.
(ii) Not later than the date that is ninety days after the last day of any fiscal year
(commencing with and including the fiscal year ending December 31, 2007), the Borrower shall
prepay, in accordance with paragraph (c) below, the principal of Term Loans in an amount equal to
(x) 50% of Excess Cash Flow for such fiscal year, provided that (A) the percentage
in this Section 5.2(a)(ii) shall be reduced to 25% if the Borrower’s ratio of Consolidated
Total Debt on the date of prepayment (prior to giving effect thereto) to Consolidated EBITDA for
the most recent Test Period ended prior to such prepayment date is no greater than 4.00 to 1.00 but
greater than 3.00 to 1.00 and (B) no payment of any Term Loans shall be required under this
Section 5.2(a)(ii) if the Borrower’s ratio of Consolidated Total Debt on the date of
prepayment (prior to giving effect thereto) to Consolidated EBITDA for the most recent Test Period
ended prior to such prepayment date is no greater than 3.00 to 1.00), minus (y) the principal
amount of Term Loans voluntarily prepaid pursuant to Section 5.1 during such fiscal year.
(b) [Intentionally Omitted]
(c) Application to Repayment Amounts. Each prepayment of Term Loans required by
Section 5.2(a)(i) or (ii) shall be applied to the next four Repayment Amounts in
chronological order and further applied on a pro rata basis to the remaining Repayment
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Amounts. With respect to each such prepayment, the Borrower will, not later than the date
specified in Section 5.2(a) for making such prepayment, give the Administrative Agent
telephonic notice (promptly confirmed in writing no later than 1:00 p.m. (New York City time))
requesting that the Administrative Agent provide notice of such prepayment Term Loan Lender.
(d) Application to Term Loans. With respect to prepayment of Term Loans required by
Section 5.2(a), the Borrower may designate the Types of Loans that are to be prepaid and
the specific Borrowing(s) pursuant to which made. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its reasonable discretion with a view, but no obligation, to
minimize breakage costs owing under Section 2.11.
(e) LIBOR Interest Periods. In lieu of making any payment pursuant to this
Section 5.2 in respect of any LIBOR Loan other than on the last day of the Interest
Period therefor so long as no Event of Default shall have occurred and be continuing, the
Borrower at its option may deposit with the Administrative Agent an amount equal to the amount of
the LIBOR Loan to be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest
Period therefor in the required amount. Such deposit shall be held by the Administrative Agent
in a corporate time deposit account established on terms reasonably satisfactory to the
Administrative Agent, earning interest at the then-customary rate for accounts of such type.
Such deposit shall constitute cash collateral for the Obligations, provided that
the Borrower may at any time direct that such deposit be applied to make the applicable payment
required pursuant to this Section 5.2.
(f) Minimum Amount. No prepayment shall be required pursuant to Section
5.2(a)(i) unless and until the amount at any time of Net Cash Proceeds from Prepayment Events
required to be applied at or prior to such time pursuant to such Section and not yet applied at or
prior to such time to prepay Term Loans pursuant to such Section exceeds (i) $5,000,000 for a
single Prepayment Event or (ii) $10,000,000 in the aggregate for all such Prepayment Events.
(g) Foreign Asset Sales. Notwithstanding any other provisions of this Section
5.2, (i) to the extent that any of or all the Net Cash Proceeds of a Casualty Event or any
asset sale by a Restricted Foreign Subsidiary giving rise to an Asset Sale Prepayment Event (a
“Foreign Asset Sale”) or Excess Cash Flow are prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Cash Proceeds or Excess Cash
Flow so affected will not be required to be applied to repay Term Loans at the times provided in
this Section 5.2 but may be retained by the applicable Restricted Foreign Subsidiary so
long, but only so long, as the applicable local law will not permit repatriation to the United
States (the Borrower hereby agreeing to cause the applicable Restricted Foreign Subsidiary to
promptly take all actions required by the applicable local law to permit such repatriation), and
once such repatriation of any of such affected Net Cash Proceeds or Excess Cash Flow is permitted
under the applicable local law, such repatriation will be immediately effected and such repatriated
Net Cash Proceeds or Excess Cash Flow will be promptly (and in any event not later than two
Business Days after such repatriation) applied (net of additional taxes payable or reserved against
as a result thereof) to the repayment of the Term Loans pursuant to this Section 5.2 and
(ii) to the extent that the Borrower has determined in good faith that repatriation of any of
or all
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the Net Cash Proceeds of any Foreign Asset Sale or Excess Cash Flow would have an adverse
tax or accounting consequence with respect to such Net Cash Proceeds or Excess Cash Flow, the Net
Cash Proceeds or Excess Cash Flow so affected may be retained by the applicable Restricted Foreign
Subsidiary, provided that, in the case of this clause (ii), on or before the date on which
any Net Cash Proceeds or Excess Cash Flow so retained would otherwise have been required to be
applied to reinvestments or prepayments pursuant to Section 5.2(a), (x) the Borrower
applies an amount equal to such Net Cash Proceeds or Excess Cash Flow to such reinvestments or
prepayments as if such Net Cash Proceeds or Excess Cash Flow had been received by the Borrower
rather than such Restricted Foreign Subsidiary, less the amount of additional taxes that would have
been payable or reserved against if such Net Cash Proceeds or Excess Cash Flow had been repatriated
(or, if less, the Net Cash Proceeds or Excess Cash Flow that would be calculated if received by
such Foreign Subsidiary) or (y) such Net Cash Proceeds or Excess Cash Flow are applied to the
repayment of Indebtedness of a Restricted Foreign Subsidiary.
5.3 Method and Place of Payment. (a) Except as otherwise specifically provided
herein, all payments under this Agreement shall be made by the Borrower, without set-off,
counterclaim or deduction of any kind, to the Administrative Agent for the ratable account of the
Lenders entitled thereto, not later than 12:00 Noon (New York City time) on the date when due and
shall be made in immediately available funds at the Administrative Agent’s Office or at such
other office as the Administrative Agent shall specify for such purpose by notice to the
Borrower, it being understood that written or facsimile notice by the Borrower to the
Administrative Agent to make a payment from the funds in the Borrower’s account at the
Administrative Agent’s Office shall constitute the making of such payment to the extent of such
funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City
time) shall be deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the applicable rate in
effect immediately prior to such extension.
5.4 Net Payments. (a) Any and all payments made by or on behalf of the
Borrower or any Guarantor under this Agreement or any other Credit Document shall be made free
and clear of, and without deduction or withholding for or on account of, any Indemnified Taxes;
provided that if the Borrower or any Guarantor shall be required by law to deduct or
withhold any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions and withholdings (including deductions
or withholdings applicable to additional sums payable under this Section 5.4) the
Administrative Agent, the Collateral Agent, or any Lender, as the case may be, receives an amount
equal to the sum it would have received had no such deductions or withholdings been made, (ii)
the Borrower or any Guarantor shall make such deductions or withholdings and (iii)
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the Borrower
or any Guarantor shall pay the full amount deducted or withheld to the relevant Governmental
Authority in accordance with applicable law. Whenever any Indemnified Taxes are payable by the
Borrower, as promptly as possible thereafter, the Borrower shall send to the Administrative Agent
for its own account or for the account of such Lender, as the case may be, a certified copy of an
original official receipt (or other evidence acceptable to such Lender, acting reasonably)
received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent,
the Collateral Agent, and each Lender with regard to any Other Taxes (whether or not such Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, and each Lender within 15 Business Days after written demand therefor, for the full amount
of any Indemnified Taxes imposed on, or paid by, the Administrative Agent, the Collateral Agent,
or such Lender as the case may be, on or with respect to any payment by or on account of any
obligation of Borrower or any Guarantor under this Agreement or under any other Credit Document
(including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this
Section 5.4) and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or by the Administrative Agent or the Collateral Agent on
its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a Loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of “portfolio interest”, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that
any such form or certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or
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would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to Section 14.6 or a Lender pursuant to Section 14.6 shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this Section 5.4(d), provided that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding
tax under the laws of the jurisdiction in which any Borrower or Guarantor is organized, or any
treaty to which such jurisdiction is a party, with respect to payments under this Agreement or
any other Credit Document by such Borrower or Guarantor shall deliver to such Borrower or
Guarantor (with a copy to the Administrative Agent), as applicable, at the time or times
prescribed by applicable law and reasonably requested by such Borrower or Guarantor, as
applicable, such properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without such withholding or at such reduced rate,
provided that such Lender is legally entitled to complete, execute and deliver such
documentation, such documentation is necessary in order for such exemption or reduction to apply
and in such Lender’s reasonable judgment the completion, execution or submission would not
materially prejudice the legal position of the Lender. In addition, each Lender shall deliver
such other documentation prescribed by applicable law and reasonably requested by the Borrower or
the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the Borrower or the
Administrative Agent to determine whether such Lender is subject to United States backup
withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting
any taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in
a reasonable challenge of such taxes at the Borrower’s expense if so requested by the Borrower.
If any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund
of a tax for which a payment has been made by the Borrower pursuant to this Agreement, which
refund in the good faith judgment of such Lender, the Administrative Agent or the Collateral
Agent, as the case may be, is attributable to such payment made by the Borrower, then the Lender,
the Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the
Borrower for such amount (together with any interest received thereon) as the Lender,
Administrative Agent or the Collateral Agent, as the case may be, determines to be the proportion
of the refund as will leave it, after such reimbursement, in no better or worse position (taking
into account expenses or any taxes imposed on the refund) than it would have been in if the
payment had not been required. A Lender, the Administrative Agent or the Collateral Agent shall
claim any refund that it determines is available to it, unless it concludes in its reasonable
discretion that it would be adversely affected by making such a claim. The Borrower, upon the
request of the Lender, the
Administrative Agent or the Collateral Agent, as applicable, agrees to repay the amount paid
over to the Borrower to the Lender, the Administrative Agent or the Collateral Agent, as
applicable, in the event the Lender, the Administrative Agent or the Collateral Agent, as
applicable, is required to repay the refund to the Governmental Authority. Neither the Lender,
the Administrative Agent nor the Collateral Agent shall be obliged to disclose any information
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regarding its tax affairs or computations to the Borrower in connection with this paragraph (f)
or any other provision of this Section 5.4.
(g) The agreements in this Section 5.4 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
5.5 Computations of Interest and Fees. (a) Interest on LIBOR Loans and, except
as provided in the next succeeding sentence, ABR Loans shall be calculated on the basis of a
360-day year for the actual days elapsed. Interest on ABR Loans in respect of which the rate of
interest is calculated on the basis of the Prime Rate and interest on overdue interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed.
(b) Fees shall be calculated on the basis of a 365- (or 366-, as the case may be) day year
for the actual days elapsed.
5.6 Limit on Rate of Interest.
(a) No Payment shall exceed Lawful Rate. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b) Payment at Highest Lawful Rate. If the Borrower is not obliged to make a
payment which it would otherwise be required to make, as a result of Section 5.6(a), the
Borrower shall make such payment to the maximum extent permitted by or consistent with applicable
laws, rules and regulations.
(c) Adjustment if any Payment exceeds Lawful Rate. If any provision of this
Agreement or any of the other Credit Documents would obligate the Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a rate which would
be prohibited by any applicable law, rule or regulation, then notwithstanding such provision,
such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by law, such
adjustment to be effected, to the extent necessary, by reducing the amount or rate of interest
required to be paid by the Borrower to the affected Lender under Section 2.8.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum
permitted by any applicable law, rule or regulation, then the Borrower shall be entitled, by notice
in writing to the Administrative Agent to obtain reimbursement from that Lender in an amount equal
to such excess, and pending such reimbursement, such amount shall be deemed to be an amount payable
by that Lender to the Borrower.
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SECTION 6. Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1 Credit Documents. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Guarantee, executed and delivered by a duly authorized officer of each
Guarantor;
(c) the Pledge Agreement, executed and delivered by a duly authorized officer of each
pledgor party thereto;
(d) the Security Agreement, executed and delivered by a duly authorized officer of each
grantor party thereto;
(e) a Mortgage in respect of each Mortgaged Property to be Mortgaged on the Closing
Date; and
(f) the Intercreditor Agreement, executed and delivered by a duly authorized officer of
each Credit Party, the Collateral Agent and The CIT Group/Business Credit Inc., as
collateral agent under the Revolving Loan Credit Agreement.
6.2 Collateral. (a) All outstanding equity interests in whatever form of the
Borrower and each Restricted Subsidiary (except those to be provided pursuant to Section
9.17(c)) directly owned by or on behalf of any Credit Party and required to be pledged
pursuant to the Pledge Agreement shall have been pledged pursuant thereto (except that the
Borrower and its Restricted Subsidiaries shall not be required to pledge more than 65% of the
outstanding voting equity interests of any Foreign Subsidiary) and the Collateral Agent shall
have received all certificates representing securities pledged under the Pledge Agreement to the
extent certificated, accompanied by instruments of transfer and undated stock powers endorsed in
blank (except those to be delivered pursuant to Section 9.17(c)).
(b) All documents and instruments, including Uniform Commercial Code or other applicable
personal property and fixture security financing statements, required by law or
reasonably requested by the Collateral Agent, as applicable, to be filed, registered or
recorded to create the Liens intended to be created by the Security Agreement and perfect such
Liens to the extent required by, and with the priority required by, the Security Agreement shall
have been filed, registered or recorded or delivered to the Collateral Agent for filing,
registration or recording (except those to be filed, registered, recorded or delivered pursuant
to Section 9.17(c)).
(c) The Collateral Agent shall have received, in respect of each Mortgaged Property owned by
the Borrower or a Subsidiary Guarantor (except those to be provided
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pursuant to Section 9.17(c)):
a policy or policies of title insurance issued by a nationally recognized title insurance
company insuring the Lien of each Mortgage as a valid Lien on the Mortgaged Property described
therein, free of any other Liens except as expressly permitted by Section 10.2 or the
Collateral Agent, together with such endorsements, coinsurance and reinsurance as the Collateral
Agent may reasonably request.
(d) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3 Legal Opinions. The Administrative Agent shall have received the executed legal
opinions of (a) Simpson Thacher & Bartlett LLP, special New York counsel to the Borrower,
substantially in the form of Exhibit I-1 and (b) local counsel to the Borrower in certain
jurisdictions as may be reasonably requested by the Administrative Agent, substantially in the
form(s) of Exhibit I-2. The Borrower, the other Credit Parties and the Administrative
Agent hereby instruct such counsel to deliver such legal opinions.
6.4 [Intentionally Omitted]
6.5 Equity Investments; Existing Indebtedness. (a) Equity Contribution in an amount
equal to not less than the Minimum Equity Contribution Amount shall have been made, and Equity
Investments in an amount equal to not less than the Minimum Equity Investment Amount shall have
been made and (b) after giving effect to the Transactions, the Borrower and its Subsidiaries shall
have no outstanding Indebtedness other than (A) the loans and other extensions of credit under the
Revolving Credit Loans and the Term Loans and (B) other Indebtedness listed on Schedule 10.1.
6.6 Closing Certificates. The Administrative Agent shall have received a certificate
of each Credit Party, dated the Closing Date, substantially in the form of Exhibit J, with
appropriate insertions, executed by the President or any Vice President and the Secretary or any
Assistant Secretary of such Credit Party, and attaching the documents referred to in Section
6.7.
6.7 Organizational Documents; Incumbency. The Administrative Agent shall have
received a copy of (a) each Organizational Document of each Credit Party certified, to the extent
applicable, as of a recent date by the applicable Governmental Authority, (b) signature and
incumbency certificates of the Authorized Officers of each Credit Party executing the Credit
Documents to which it is a party; (c) resolutions of the Board of Directors or similar governing
body of each Credit Party (A) approving and authorizing the execution, delivery and performance of
Credit Documents to which it is a party and (B) in the case of the Borrower, the extensions of
credit contemplated hereunder, certified as of the Closing Date by its secretary or an assistant
secretary as being in full force and effect without modification or amendment and (d) a good
standing certificate from the applicable Governmental Authority of each Credit Party’s jurisdiction
of incorporation, organization or formation.
6.8 Fees. The Co-Lead Arrangers and the Collateral Agent shall have received the fees
to be received on the Closing Date set forth in the Fee Letter. The Lenders shall have received the
fees in the amounts previously agreed in writing by the Agents and such Lenders to be
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received on
the Closing Date and all expenses (including the reasonable fees, disbursements and other charges
of counsel) for which invoices have been presented prior to the Closing Date shall have been paid.
6.9 Representations and Warranties. On the Closing Date, the representations and
warranties made by the Credit Parties in Section 8.2, Section 8.5 and Section
8.7, as they relate to the Credit Parties at such time, shall be true and correct in all
material respects.
6.10 Related Agreements. Administrative Agent shall have received a fully executed or
conformed copy of the Merger Agreement which shall be in full force and effect.
6.11 Solvency Certificate. On the Closing Date, Administrative Agent shall have
received a certificate from an Authorized Officer of the Borrower, with appropriate attachments and
demonstrating that after giving effect to the consummation of the Transactions, the Borrower on a
consolidated basis with its Subsidiaries is Solvent.
6.12 Historical Financial Statements. Lenders shall have received the Historical
Financial Statements.
6.13 Merger. Concurrently with the initial Credit Event made hereunder, the Merger shall have been
consummated in accordance with the terms of the Merger Agreement, without giving effect to any
amendments or waivers thereto that are materially adverse to the Lenders without the reasonable
consent of the Agents.
6.14 Insurance. Certificates of insurance evidencing the existence of insurance to be
maintained by the Borrower pursuant to Section 9.3 and, if applicable, the designation of
the Collateral Agent as an additional insured and loss payee as its interest may appear thereunder,
or solely as the additional insured, as the case may be, thereunder (provided that if such
endorsement as additional insured cannot be delivered by the Closing Date, the Administrative Agent
may consent to such endorsement being delivered at such later date as it deems appropriate in the
circumstances).
6.15 Pro Forma Financial Statements. The Administrative Agent shall have received a
pro forma consolidated balance sheet of Borrower as of December 31, 2006 and a pro forma statement
of income for the twelve month period ending on such balance sheet date, in each case, after giving
effect to the Transactions, together with a certificate of an Authorized Officer of Borrower to the
effect that such balance sheets accurately present the pro forma financial position of Borrower and
its Subsidiaries (but, in any event, excluding the effects of purchase accounting).
6.16 [Intentionally Omitted]
6.17 [Intentionally Omitted]
6.18 Leverage. The Borrower shall have delivered evidence to the reasonable
satisfaction of the Administrative Agent demonstrating that the ratio of (a) Consolidated Total
Debt of the Borrower and its Subsidiaries as of the Closing Date after giving effect to the initial
Loans and to the other Transactions, to (b) Consolidated EBITDA of the Borrower for the twelve
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(12)
month period ending December 31, 2006, determined on a pro forma basis after giving effect to the
after giving effect to the initial Loans and to the other Transactions, shall be not greater than
4.40:1.00.
6.19 [Intentionally Omitted]
6.20 Legal and Organizational Structure. McJunkin Appalachian Oil Field Supply Company, a Delaware corporation, shall be a
wholly-owned Subsidiary of the Borrower and a Guarantor.
SECTION 7. Conditions Precedent to All Credit Events
The agreement of each Lender to make any Loan requested to be made by it on any date is
subject to the satisfaction of the following conditions precedent:
7.1 No Default; Representations and Warranties. At the time of each Credit Event and
also after giving effect thereto (other than any Credit Event on the Closing Date) (a) no Default
or Event of Default shall have occurred and be continuing, and (b) all representations and
warranties made by any Credit Party contained herein or in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such Credit Event (except where such
representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all material respects as of such
earlier date).
7.2 Notice of Borrowing Prior to the making of each Term Loan, the Administrative
Agent shall have received a Notice of Borrowing (whether in writing or by telephone) meeting the
requirements of Section 2.3.
The acceptance of the benefits of each Credit Event shall constitute a representation and warranty
by each Credit Party to each of the Lenders that all the applicable conditions specified above
exist as of that time.
SECTION 8. Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans as provided for
herein, the Borrower (with respect to itself and its Subsidiaries) makes the following
representations and warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans and the issuance of the
Letters of Credit:
8.1 Corporate Status. The Borrower and each Material Subsidiary (a) is a duly
organized and validly existing corporation or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational power and authority
to own its property and assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all jurisdictions where it is
required to be so qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
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8.2 Corporate Power and Authority. Each Credit Party has the corporate or other organizational power and authority to execute,
deliver and carry out the terms and provisions of the Credit Documents to which it is a party and
has taken all necessary corporate or other organizational action to authorize the execution,
delivery and performance of the Credit Documents to which it is a party. Each Credit Party has
duly executed and delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and subject to general principles
of equity. Each Credit Party is in compliance with all laws, orders, writs and injunctions except
to the extent that failure to do so could not reasonably be expected to have a Material Adverse
Effect.
8.3 No Violation. Neither the execution, delivery or performance by any Credit Party
of the Credit Documents to which it is a party nor compliance with the terms and provisions thereof
nor the consummation of the Merger and the other transactions contemplated hereby or thereby will
(a) contravene any applicable provision of any material law, statute, rule, regulation, order,
writ, injunction or decree of any court or governmental instrumentality, (b) result in any breach
of any of the terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose) any Lien upon any
of the property or assets of such Credit Party or any of the Restricted Subsidiaries (other than
Liens created under the Credit Documents) pursuant to, the terms of any material indenture, loan
agreement, lease agreement, mortgage, deed of trust, agreement or other material instrument to
which such Credit Party or any of the Restricted Subsidiaries is a party or by which it or any of
its property or assets is bound or (c) violate any provision of the certificate of incorporation,
by-laws or other constitutional documents of such Credit Party or any of the Restricted
Subsidiaries.
8.4 Litigation. There are no actions, suits or proceedings (including Environmental
Claims) pending or, to the knowledge of the Borrower, threatened with respect to the Borrower or
any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect or
a Material Adverse Change.
8.5 Margin Regulations. Neither Borrower nor any of its Subsidiaries is engaged
principally, as one or more of its important activities, in the business of extending credit for
the purpose of purchasing any “margin stock” as defined in Regulation U. Neither the making of any
Loan hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, U
or X of the Board.
8.6 Governmental Approvals. The execution, delivery and performance of the Merger
Agreement or any Credit Document does not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except for (i) such as have been
obtained or made and are in full force and effect, (ii) filings and recordings in respect of the
Liens created pursuant to
the Security Documents and (iii) such licenses, approvals, authorizations or consents the
failure to obtain or make could not reasonably be expected to have a Material Adverse Effect.
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8.7 Investment Company Act. No Credit Party is an “investment company”, or a company
“controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940,
as amended.
8.8 True and Complete Disclosure. (a) None of the factual information and data
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower, any
of the Subsidiaries or any of their respective authorized representatives in writing to the
Administrative Agent and/or any Lender on or before the Closing Date (including (i) the
Confidential Information Memorandum and (ii) all information contained in the Credit Documents)
for purposes of or in connection with this Agreement or any transaction contemplated herein
contained any untrue statement or omitted to state any material fact necessary to make such
information and data (taken as a whole) not misleading at such time in light of the circumstances
under which such information or data was furnished, it being understood and agreed that for
purposes of this Section 8.8(a), such factual information and data shall not include
projections and pro forma financial information.
(b) The projections and pro forma financial information contained in the information and
data referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may differ from the projected
results.
8.9 Financial Condition; Financial Statements. The (a) unaudited historical
consolidated financial information of the Borrower as set forth in the Confidential Information
Memorandum, and (b) the Historical Financial Statements, in each case present or will, when
provided, present fairly in all material respects the combined financial position of the Borrower
and its Subsidiaries at the respective dates of said information, statements and results of
operations for the respective periods covered thereby. The financial statements referred to in
clause (b) of this Section 8.9 have been prepared in accordance with GAAP, consistently
applied (except to the extent provided in the notes to said financial statements), and the audit
reports accompanying such financial statements are not subject to any qualification as to the scope
of the audit or the status of the Borrower as a going concern. There has been no Material Adverse
Change since December 31, 2006.
8.10 Tax Returns and Payments. The Borrower and each of the Subsidiaries has filed
all federal income tax returns and all other material tax returns, domestic and foreign, required
to be filed by it and has paid all income and other material Taxes payable by it that have become
due, other than those (a) not yet
delinquent or (b) contested in good faith as to which adequate reserves have been provided in
accordance with GAAP and which could not reasonably be expected to result in a Material Adverse
Effect. The Borrower and each of the Subsidiaries have paid, or have provided adequate reserves
(in the good faith judgment of the management of the Borrower) in accordance with GAAP for the
payment of, all material federal, state, provincial and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the Closing Date.
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8.11 Compliance with ERISA. (a) Each Plan is in compliance with ERISA, the
Code and any applicable Requirement of Law; no Reportable Event has occurred (or is reasonably
likely to occur) with respect to any Plan; no Plan is insolvent or in reorganization (or is
reasonably likely to be insolvent or in reorganization), and no written notice of any such
insolvency or reorganization has been given to the Borrower, any Subsidiary or any ERISA
Affiliate; no Plan (other than a multiemployer plan) has an accumulated or waived funding
deficiency (or is reasonably likely to have such a deficiency); none of the Borrower, any
Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely expected to incur) any
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or has been notified in
writing that it will incur any liability under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted (or are reasonably likely to be instituted) to
terminate or to reorganize any Plan or to appoint a trustee to administer any Plan, and no
written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist) nor has the Borrower,
any Subsidiary or any ERISA Affiliate been notified in writing that such a lien will be imposed
on the assets of the Borrower, any Subsidiary or any ERISA Affiliate on account of any Plan,
except to the extent that a breach of any of the representations, warranties or agreements in
this Section 8.11 would not result, individually or in the aggregate, in an amount of
liability that would be reasonably likely to have a Material Adverse Effect. No Plan (other than
a multiemployer plan) has an Unfunded Current Liability that would, individually or when taken
together with any other liabilities referenced in this Section 8.11, be reasonably likely
to have a Material Adverse Effect. With respect to Plans that are multiemployer plans (as
defined in Section 3(37) of ERISA), the representations and warranties in this Section
8.11(a), other than any made with respect to (i) liability under Section 4201 or 4204 of
ERISA or (ii) liability for termination or reorganization of such Plans under ERISA, are made to
the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably
be expected to have a Material Adverse Effect. All contributions or other payments which are due
with respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12 Subsidiaries. Schedule 8.12 lists each Subsidiary of the Borrower (and the direct and indirect
ownership interest of the Borrower therein), in each case existing on the Closing Date. To the
knowledge of the Borrower, after due inquiry, each Material Subsidiary as of the Closing Date has
been so designated on Schedule 8.12.
8.13 Intellectual Property. The Borrower and each of the Restricted Subsidiaries have
obtained all intellectual property, free from burdensome restrictions, that are necessary for the
operation of their respective businesses as currently conducted and as proposed to be conducted,
except where the failure to obtain any such rights could not reasonably be expected to have a
Material Adverse Effect.
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8.14 Environmental Laws. (a) Except as could not reasonably be expected to
have a Material Adverse Effect: (i) the Borrower and each of the Subsidiaries and all Real
Estate are, and have been, in compliance with, and possess all permits, licenses and
registrations required pursuant to, all Environmental Laws; (ii) neither the Borrower, nor any of
the Subsidiaries is subject to any Environmental Claim or any other liability under any
Environmental Law; (iii) the Borrower and its Subsidiaries are not conducting, or required to
conduct, any investigation, removal, remedial or other corrective action pursuant to any
Environmental Law at any location, including any Real Estate currently owned or leased by the
Borrower or any of its Subsidiaries, and any real property to which the Borrower or any of its
Subsidiaries may have sent Hazardous Materials; and (iv) no underground storage tank or related
piping, or any impoundment or other disposal area containing Hazardous Materials is located at,
on or under any Real Estate currently owned or leased by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials
at, on, under or from any currently or formerly owned or leased Real Estate or facility in a
manner that could reasonably be expected to have a Material Adverse Effect.
8.15 Properties. (a) The Borrower and each of the Subsidiaries have good and
marketable title to or leasehold interest in all properties that are necessary for the operation of
their respective businesses as currently conducted and as proposed to be conducted, free and clear
of all Liens (other than any Liens permitted by this Agreement or the Revolving Loan Credit
Agreement) and except where the failure to have such good title could not reasonably be expected to
have a Material Adverse Effect and (b) no Mortgage encumbers improved Real Estate that is located
in an area that has been identified by the Secretary of Housing and Urban Development as an area
having special flood hazards within the meaning of the National Flood Insurance Act of 1968 unless
flood insurance available under such Act has been obtained in accordance with Section 9.3.
8.16 Solvency. On the Closing Date (after giving effect to the Transactions), immediately following the
making of each Loan and after giving effect to the application of the proceeds of such Loans, the
Borrower on a consolidated basis with its Subsidiaries will be Solvent.
SECTION 9. Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
9.1 Information Covenants. The Borrower will furnish to the Administrative Agent:
(a) Annual Financial Statements. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), (i) the consolidated
balance
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sheet of the Borrower and the Restricted Subsidiaries as at the end of such fiscal
year, and the related consolidated statement of operations and consolidated statement of
cash flows for such fiscal year, setting forth comparative consolidated figures for the
preceding fiscal year, and certified by independent certified public accountants of
recognized national standing whose opinion shall not be qualified as to the scope of audit
or as to the status of the Borrower or any of the Material Subsidiaries (or group of
Subsidiaries that together would constitute a Material Subsidiary) as a going concern,
together in any event with a certificate of such accounting firm stating that in the course
of its regular audit of the business of the Borrower and the Material Subsidiaries, which
audit was conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default relating to
Sections 10.9, 10.10 or 10.11 that has occurred and is continuing or,
if in the opinion of such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and (ii) with respect to the fiscal
year ending December 31, 2007 only, the unaudited balance sheet of McJunkin Appalachian Oil
Field Supply Company as at the end of such fiscal year, and the related income statement for
such fiscal year, each of which shall be certified by a Financial Officer of the Borrower.
(b) Quarterly Financial Statements. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
the Borrower (or, if such financial statements are not required to be filed with the SEC, on
or before the date that is forty-five (45) days after the end of each such quarterly
accounting period), (i) the consolidated balance sheet of (A) the Borrower and the
Restricted Subsidiaries and (B) the Borrower and its Subsidiaries, in each case as at the
end of such quarterly period and the related consolidated statement of operations for such
quarterly accounting period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, and the related consolidated statement of cash flows
for the elapsed portion of the fiscal year ended with the last day of such quarterly period,
and setting forth comparative consolidated figures for the related periods in the prior
fiscal year or, in the case of such consolidated balance sheet, for the last day of the
prior fiscal year, all of which shall be certified by a Financial Officer of the Borrower,
subject to changes resulting from audit and normal year-end audit adjustments and (ii) with
respect to the 2007 fiscal year only, the balance sheet of McJunkin Appalachian Oil Field
Supply Company as at the end of such quarterly period and the related income statement for
such quarterly accounting period and for the elapsed portion of the fiscal year ended with
the last day of such quarterly period, all of which shall be certified by a Financial
Officer of the Borrower, subject to changes resulting from audit and normal year-end audit
adjustments.
(c) Monthly Financial Statements. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) the Borrower and the Restricted Subsidiaries and (ii) the
Borrower and its Subsidiaries, in each case as at the end of such fiscal month and the
related consolidated statement of operations for such fiscal month and for the elapsed
portion of the fiscal year ended with
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the last day of such fiscal month, and the related
consolidated statement of cash flows for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and setting forth comparative consolidated figures for
the related periods in the prior fiscal year or, in the case of such consolidated balance
sheet, for the last day of the prior fiscal year, all of which shall be certified by a
Financial Officer of the Borrower, subject to changes resulting from audit and normal
year-end audit adjustments.
(d) Budgets. Not more than sixty (60) days after the commencement of each
fiscal year of the Borrower, a budget of the Borrower in reasonable detail for such fiscal
year as customarily prepared by management of the Borrower for their internal use consistent
in scope with the financial statements provided pursuant to Section 9.1(a), setting
forth the principal assumptions upon which such budgets are based.
(e) Officer’s Certificates. At the time of the delivery of the financial
statements provided for in Sections 9.1(a) and (b), a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the calculations required to establish whether the
Borrower and the Subsidiaries were in compliance with the provisions of Sections
10.9 and 10.10 as at the end of such fiscal year or period, as the case may be,
(ii) a specification of any change in the identity of the Restricted Subsidiaries and
Unrestricted Subsidiaries as at the end of such fiscal year or period, as the case may be,
from the Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to
the Lenders on the Closing Date or the most recent fiscal year or period, as the case may
be, (iii) the amount of any Pro Forma Adjustment not previously set forth in a Pro Forma
Adjustment Certificate or any change in the amount of a Pro Forma Adjustment set forth in
any Pro Forma Adjustment Certificate previously provided and, in either case, in reasonable
detail, the calculations and basis therefor. At the time of the delivery of the financial
statements provided for in
Section 9.1(a), (i) a certificate of an Authorized Officer of the Borrower
setting forth in reasonable detail the Applicable Amount as at the end of the fiscal year to
which such financial statements relate and (ii) a certificate of an Authorized Officer of
the Borrower setting forth the information required pursuant to Section 1(a) of the
Perfection Certificate or confirming that there has been no change in such information since
the Closing Date or the date of the most recent certificate delivered pursuant to this
subsection (e)(ii), as the case may be.
(f) [Intentionally Omitted]
(g) [Intentionally Omitted]
(h) Notice of Default or Litigation. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
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(i) Environmental Matters. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against any Credit Party or
any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by any Credit Party with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against any Credit Party or
any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
“Real Estate” shall mean land, buildings and improvements owned or leased by any Credit
Party, but excluding all operating fixtures and equipment, whether or not incorporated into
improvements.
(j) Other Information. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Governmental Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
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(k) Pro Forma Adjustment Certificate. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l) Information Regarding Collateral. Not later than sixty (60) days following
the occurrence of any change referred to in subclauses (i) through
(iv) below, written notice of any change (i) in the legal name of any Credit Party,
(ii) in the jurisdiction of organization or location of any Credit Party for purposes of the
Uniform Commercial Code, (iii) in the identity or type of organization of any Credit Party
or (iv) in the Federal Taxpayer Identification Number or organizational identification
number of any Credit Party. The Borrower shall also promptly provide the Collateral Agent
with certified Organizational Documents reflecting any of the changes described in the first
sentence of this clause (1).
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section
9.1 may be satisfied with respect to financial information of the Borrower and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of the Borrower or (B) the Borrower’s (or any direct or indirect parent thereof’s), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to the Borrower and the Restricted Subsidiaries on a standalone basis, on the
other hand.
9.2 Books, Records and Inspections. The Borrower will, and will cause each of the
Subsidiaries to, permit officers and designated representatives of the Administrative Agents or the
Required Lenders to visit and inspect any of the properties or assets of the Borrower and any such
Subsidiary in whomsoever’s possession to the extent that it is within such party’s control to
permit such inspection, and to examine the books and records of the Borrower and any such
Subsidiary and discuss the affairs, finances and accounts of the Borrower and of any such
Subsidiary with, and be advised as to the same by, its and their officers and independent
accountants, all at such reasonable times and intervals and to such reasonable extent as the
Administrative Agents or the Required Lenders may desire; provided that, excluding
any such visits and inspections during the continuation of an Event of Default, only the
Administrative Agent (or any of their respective representatives or independent contractors) on
behalf of the Required Lenders may exercise rights of the Administrative Agent and the Lenders
under this Section 9.2 and the Administrative Agent shall not exercise such rights more
often than two times during any calendar year absent the existence of an Event of Default and only
one such time shall be at the Borrower’s expense; provided further that when an Event of Default
exists, the Administrative Agent (or any of its representatives or independent contractors) or any
representative of the Required Lenders may do any of the foregoing at the expense of the Borrower
at any time during normal business hours and upon reasonable advance notice. The
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Administrative Agent and the Required Lenders shall give the Borrower the opportunity to
participate in any discussions with the Borrower’s independent public accountants.
9.3 Maintenance of Insurance. The Borrower will, and will cause each of the Material
Subsidiaries to, at all times maintain in full force and effect, with insurance companies that the
Borrower believes (in the good faith judgment of the management of the Borrower) are financially
sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least
such amounts (after giving effect to any self-insurance which the Borrower believes (in the good
faith judgment of management of the Borrower) is reasonable and prudent in light of the size and
nature of its business) and against at least such risks (and with such risk retentions) as the
Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and
prudent in light of the size and nature of its business; and will furnish to the Administrative
Agent (for deliver to the Lenders), upon written request from the Administrative Agent, information
presented in reasonable detail as to the insurance so carried. Each such policy of insurance shall
(i) name Collateral Agent, on behalf of Secured Parties as an additional insured thereunder as its
interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable
clause or endorsement reasonably satisfactory in form and substance to Collateral Agent, that names
Collateral Agent, on behalf of Lenders as the loss payee thereunder and provides for at least
thirty days’ prior written notice to Collateral Agent of any modification or cancellation of such
policy.
9.4 Payment of Taxes. Each Credit Party will pay and discharge, and will cause each
of the Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties belonging to it,
prior to the date on which material penalties attach thereto, and all lawful material claims that,
if unpaid, could reasonably be expected to become a material Lien upon any properties of each
Credit Party or any of the Restricted Subsidiaries, provided that no Credit Party, nor any
of the Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim that
is being contested in good faith and by proper proceedings if it has maintained adequate reserves
(in the good faith judgment of the management of the Borrower) with respect thereto in accordance
with GAAP and the failure to pay could not reasonably be expected to result in a Material Adverse
Effect.
9.5 Consolidated Corporate Franchises. The Borrower will do, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full
force and effect its existence, corporate rights and authority, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse Effect;
provided, however, that the Borrower and its Subsidiaries may consummate any
transaction permitted under Section 10.3, 10.4 or 10.5.
9.6 Compliance with Statutes, Regulations, etc. The Borrower will, and will cause
each Subsidiary to, comply with all applicable laws, rules, regulations and orders applicable to it
or its property, including all governmental approvals or authorizations required to conduct its
business, and to maintain all such governmental approvals or authorizations in full force and
effect, in each case except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
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9.7 ERISA. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following events that, individually or in the
aggregate (including in the aggregate such events previously disclosed or exempt from disclosure
hereunder, to the extent the liability therefor remains outstanding), would be reasonably likely to
have a Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of
an Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participant’s benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
9.8 Maintenance of Properties. The Borrower will, and will cause each of the
Restricted Subsidiaries to, keep and maintain all property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted, except to the extent that the
failure to do so could reasonably be expected to have a Material Adverse Effect.
9.9 Transactions with Affiliates. The Borrower will conduct, and cause each of the
Restricted Subsidiaries to conduct, all transactions with any of its Affiliates (other than the
Borrower or the Restricted Subsidiaries) on terms that are substantially as favorable to the
Borrower or such Restricted Subsidiary as it would obtain in a comparable arm’s-length transaction
with a Person that is not an Affiliate, provided that the foregoing restrictions shall not
apply to (a) the payment of customary fees to the Sponsors for management, consulting and financial
services rendered to the Borrower and the Subsidiaries and customary investment banking fees paid
to the Sponsors for services rendered to the Borrower and the Subsidiaries in connection with
divestitures, acquisitions, financings and other transactions, (b) transactions permitted by
Section 10.6, (c) Transaction Expenses, (d) the issuance of Stock or Stock Equivalents of
the Borrower to the management of the Borrower (or any direct or indirect parent thereof) or any of
its Subsidiaries in connection with the Transactions or pursuant to
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arrangements described in clause (f) of this Section 9.9, (e) loans and other
transactions by the Borrower and the Restricted Subsidiaries to the extent permitted under
Section 10, (f) employment and severance arrangements between the Borrower and the
Restricted Subsidiaries and their respective officers and employees in the ordinary course of
business, (g) payments by the Borrower (and any direct or indirect parent thereof) and the
Restricted Subsidiaries pursuant to the tax sharing agreements among the Borrower (and any such
parent) and the Restricted Subsidiaries on customary terms to the extent attributable to the
ownership or operation of the Borrower and the Restricted Subsidiaries, (h) the payment of
customary fees and reasonable out of pocket costs to, and indemnities provided on behalf of,
directors, managers, consultants, officers and employees of the Borrower and the Restricted
Subsidiaries in the ordinary course of business to the extent attributable to the ownership or
operation of the Borrower and the Restricted Subsidiaries, (i) transactions pursuant to permitted
agreements in existence on the Closing Date and set forth on Schedule 9.9 or any amendment
thereto to the extent such an amendment is not adverse, taken as a whole, to the Lenders in any
material respect, and (j) customary payments by the Borrower and any Restricted Subsidiaries to the
Sponsors made for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities (including in connection with acquisitions or
divestitures), which payments are approved by the majority of the members of the board of directors
or a majority of the disinterested members of the board of directors of the Borrower (or any direct
or indirect parent thereof), in good faith.
9.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting
purposes, cause (a) each of its, and each of its Subsidiaries’, fiscal years to end on December 31
of each year and (b) each of its, and each of its Subsidiaries’, fiscal quarters to end on dates
consistent with such fiscal year-end and the Borrower’s past practice; provided,
however, that the Borrower may, upon written notice to the Administrative Agent, change the
financial reporting convention specified above to any other financial reporting convention
reasonably acceptable to the Administrative Agent, in which case the Borrower and the
Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to
this Agreement that are necessary in order to reflect such change in financial reporting.
9.11 Additional Guarantors and Grantors. Except as set forth in Section
10.1(j) or 10.1(k) and subject to any applicable limitations set forth in the Security
Documents, the Borrower will cause each direct or indirect Subsidiary (other than any Excluded
Subsidiary) formed or otherwise purchased or acquired after the date hereof (including pursuant to
a Permitted Acquisition) to execute a supplement to each of the Guarantee and the Security
Agreement, substantially in the form of Annex B or Annex 1, as applicable, to the
respective agreement in order to become a Guarantor under the Guarantee and a grantor under
Security Agreement or, to the extent reasonably requested by the Collateral Agent, enter into a new
Security Agreement in form and substance reasonably satisfactory to the Collateral Agent.
9.12 Pledges of Additional Stock and Evidence of Indebtedness(a) . (a) Except as
set forth in Section 10.1(j) or (k) and subject to any applicable limitations set
forth in the Security Documents or with respect to which, in the reasonable judgment of the
Administrative Agent and the Collateral Agent (confirmed in writing by notice to the Borrower),
the cost or other consequences (including any adverse tax consequences) of doing so shall be
excessive in view of the benefits to be obtained by the Lenders therefrom, the Borrower will
pledge, and, if
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applicable, will cause each Subsidiary Guarantor to pledge, to the Collateral Agent for the
benefit of the Secured Parties, (i) all the Stock of each Domestic Subsidiary (other than any
Excluded Subsidiary) held by the Borrower or any Subsidiary Guarantor and the Stock of any
Foreign Subsidiary (other than any Excluded Subsidiary) held directly by the Borrower or any
Subsidiary Guarantor (provided that in no event shall more than 65% of the issued and
outstanding Stock of any such Foreign Subsidiary be so pledged), in each case, formed or
otherwise purchased or acquired after the date hereof, in each case pursuant to the Pledge
Agreement (or a supplement thereto) in form and substance reasonably satisfactory to
Administrative Agent and the Collateral Agent, (ii) all evidences of Indebtedness in excess of
$5,000,000 received by the Borrower or any of the Subsidiary Guarantors in connection with any
disposition of assets pursuant to Section 10.4(b), in each case pursuant to the Pledge
Agreement (or a supplement thereto) in form and substance reasonably satisfactory to
Administrative Agent and the Collateral Agent and (iii) any promissory notes executed after the
date hereof evidencing Indebtedness of the Borrower, each Subsidiary that is owing to the
Borrower or any Subsidiary Guarantor, in each case pursuant the Pledge Agreement (or a supplement
thereto) in form and substance reasonably satisfactory to the Administrative Agent and the
Collateral Agent.
(b) The Borrower agrees that all Indebtedness in excess of $5,000,000 of the Borrower and
each Subsidiary that is owing to any Credit Party pledged pursuant to the Pledge Agreement shall
be evidenced by one or more promissory notes.
9.13 Use of Proceeds(a) . The Borrower will use the proceeds of all Term Loans made
on the Closing Date to effect the Merger, to repay indebtedness and to pay Transaction Expenses.
9.14 [Intentionally Omitted].
9.15 Interest Rate Protection. No later than 90 days following the Closing Date and
at all times thereafter until the third anniversary of the Closing Date, Borrower shall obtain and
cause to be maintained protection against fluctuations in interest rates pursuant to one or more
Interest Rate Agreements in order to ensure that no less than 50% of the aggregate principal amount
of the total Indebtedness of the Borrower and its Subsidiaries then outstanding is either (i)
subject to such Interest Rate Agreements or (ii) Indebtedness that bears interest at a fixed rate.
9.16 [Intentionally Omitted].
9.17 Further Assurances(a) . (a) The Borrower will, and will cause each other
Credit Party to, execute any and all further documents, financing statements, agreements and
instruments, and take all such further actions (including the filing and recording of financing
statements and other documents), which may be required under any applicable law, or which the
Collateral Agent or the Required Lenders may reasonably request, in order to grant, preserve,
protect and perfect the validity and priority of the security interests created or intended to be
created by the Security Documents, all at the expense of the Borrower and the Restricted
Subsidiaries.
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(b) If any assets having a book value or fair market value in excess of $1,000,000 are
acquired by the Borrower or any other Credit Party after the Closing Date (other than assets
constituting Collateral under the Security Agreement that become subject to the Lien of the
Security Agreement upon acquisition thereof) that are of the nature secured by the Security
Agreement or any Mortgage, as the case may be, the Borrower will notify the Collateral Agent,
and, if requested by the Collateral Agent, the Borrower will cause such assets to be subjected to
a Lien securing the applicable Obligations and will take, and cause the other Credit Parties to
take, such actions as shall be necessary or reasonably requested by the Collateral Agent to grant
and perfect such Liens consistent with the applicable requirements of the Security Documents,
including actions described in clause (a) of this Section 9.17, all at the expense of the
Borrower.
(c) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on Schedule 9.17(c) as soon as commercially reasonable and
by no later than the date set forth in Schedule 9.17(c) with respect to such action or
such later date as the Administrative Agent may reasonably agree.
SECTION 10. Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date (immediately after consummation of the Merger) and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
10.1 Limitation on Indebtedness. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness arising under the Credit Documents and the Revolving Loan Credit Agreement;
(b) Indebtedness of (i) the Borrower or any Subsidiary Guarantor owing to the Borrower or
any Restricted Subsidiary, (ii) any Subsidiary who is not a Guarantor owing to any other
Subsidiary who is not a Guarantor and (iii) subject to compliance with Section 10.5, any
Subsidiary who is not a Guarantor owing to the Borrower or any Subsidiary Guarantor;
(c) Indebtedness in respect of any bankers’ acceptance, bank guarantees, letter of credit,
warehouse receipt or similar facilities entered into in the ordinary course of business
(including 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);
(d) subject to compliance with Section 10.5, Guarantee Obligations incurred by (i)
Restricted Subsidiaries in respect of Indebtedness of the Borrower or other Restricted
Subsidiaries that is permitted to be incurred under this Agreement and (ii) the Borrower in
respect of Indebtedness of the Restricted Subsidiaries that is permitted to be incurred under
this Agreement, provided that, except as provided in clauses (j) and (k) below, there
shall be
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no Guarantee (a) by a Restricted Subsidiary that is not a Guarantor of any Indebtedness of
the Borrower and (b) in respect of any Permitted Additional Debt, unless such Guarantee is made
by a Guarantor and, in the case of Permitted Additional Debt that is subordinated, is
subordinated;
(e) Guarantee Obligations (i) incurred in the ordinary course of business in respect of
obligations of (or to) suppliers, customers, franchisees, lessors and licensees or (ii) or
otherwise constituting Investments permitted by Section 10.5;
(f) (i) Indebtedness (including Indebtedness arising under Capital Leases) incurred within
270 days of the acquisition, construction or improvement of fixed or capital assets to finance
the acquisition, construction or improvement of such fixed or capital assets, (ii) Indebtedness
arising under Capital Leases entered into in connection with Permitted Sale Leasebacks and (iii)
Indebtedness arising under Capital Leases, other than Capital Leases in effect on the date hereof
and Capital Leases entered into pursuant to subclauses (i) and (ii) above, provided, that the
aggregate amount of Indebtedness incurred pursuant to this subclause (iii) shall not exceed
$20,000,000 at any time outstanding, and (iv) any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i), (ii) or (iii)
above, provided that, except to the extent otherwise expressly permitted hereunder, the
principal amount thereof (including pursuant to clause (iii)) does not exceed the principal
amount thereof outstanding immediately prior to such modification, replacement, refinancing,
refunding, renewal or extension, except by an amount equal to the unpaid accrued interest and
premium thereon plus other reasonable amounts paid and fees and expenses incurred in connection
with such modification, replacement, refinancing, refunding, renewal or extension;
(g) Indebtedness outstanding on the date hereof (i) listed on Schedule 10.1 and any
modification, replacement, refinancing, refunding, renewal or extension thereof, provided
that, except to the extent otherwise expressly permitted hereunder, (x) the principal amount
thereof does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension, except by an amount
equal to the unpaid accrued interest and premium thereon plus other reasonable amounts paid and
fees and expenses incurred in connection with such modification, replacement, refinancing,
refunding, renewal or extension plus an amount equal to any existing commitment
unutilized and letters of credit undrawn thereunder and (y) the direct and contingent obligors
with respect to such Indebtedness are not changed and (ii) owing by the Borrower to any
Restricted Subsidiary or by any Restricted Subsidiary to the Borrower or any other Restricted
Subsidiary;
(h) Indebtedness in respect of Hedge Agreements;
(i) [Reserved];
(j) (i) Indebtedness of a Person or Indebtedness attaching to assets of a Person that, in
either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives a
merger with such Person) or Indebtedness attaching to assets that are acquired by the Borrower or
any Restricted Subsidiary, in each case after the Closing Date as the result of a
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Permitted Acquisition, provided, that (w) such Indebtedness existed at the time such Person
became a Restricted Subsidiary or at the time such assets were acquired and, in each case, was
not created in anticipation thereof, (x) such Indebtedness is not guaranteed in any respect by
the Borrower or any Restricted Subsidiary (other than by any such Person that so becomes a
Restricted Subsidiary or is the survivor of a merger with such Person and any of its
Subsidiaries) and (y)(A) the Stock and Stock Equivalents of such Person is pledged to the
Collateral Agent to the extent required under Section 9.12 and (B) such Person executes a
supplement to each of the Guarantee, the Security Agreement and the Pledge Agreement to the
extent required under Section 9.11 or 9.12, as applicable, provided that
the requirements of this subclause (y) and the preceding proviso shall not apply to (I) an
aggregate amount at any time outstanding of up to $150,000,000 (less all Indebtedness as
to which the proviso to clause (k)(i)(y) below then applies) at such time of the aggregate of
such Indebtedness (and modifications, replacements, refinancings, refundings, renewals and
extensions thereof pursuant to subclause (ii) below) and (II) any Indebtedness of the type that
could have been incurred under Section 10.1(f), and (ii) any modification, replacement,
refinancing, refunding, renewal or extension of any Indebtedness specified in subclause (i)
above, provided that, except to the extent otherwise expressly permitted hereunder, (X)
the principal amount of any such Indebtedness does not exceed the principal amount thereof
outstanding immediately prior to such modification, replacement, refinancing, refunding, renewal
or extension except by an amount equal to the unpaid accrued interest and premium thereon
plus other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension plus an amount
equal to any existing commitment unutilized and letters of credit undrawn thereunder and (Y) the
direct and contingent obligors with respect to such Indebtedness are not changed;
(k) (i) Permitted Additional Debt of the Borrower or any Restricted Subsidiary incurred to
finance a Permitted Acquisition, provided that (x) if such Indebtedness is incurred by a
Restricted Subsidiary that is not a Guarantor, such Indebtedness is not guaranteed by the
Borrower or any Guarantor except as permitted by Section 10.5(g) and (y)(A) the Borrower
or another Credit Party pledges the Stock and Stock Equivalents of such acquired Person to the
Collateral Agent to the extent required under Section 9.12 and (B) such acquired Person
executes a supplement to the Guarantee and the Security Agreement (or alternative guarantee and
security arrangements in relation to the Obligations reasonably acceptable to the Collateral
Agent) to the extent required under Section 9.11 or 9.12, as applicable,
provided that the requirements of this subclause (y) shall not apply to an aggregate
amount at any time outstanding of up to $150,000,000 (less all Indebtedness as to which
clause (I) of the second proviso to clause (j)(i)(y) above then applies) at such time of the
aggregate of such Indebtedness (and modifications, replacements, refinancings, refundings,
renewals and extensions thereof pursuant to subclause (ii) below) and (ii) any modification,
replacement, refinancing, refunding, renewal or extension of any Indebtedness specified in
subclause (i) above, provided that, except to the extent otherwise expressly permitted
hereunder, (x) the principal amount of any such Indebtedness does not exceed the principal amount
thereof outstanding immediately prior to such modification, replacement, refinancing, refunding,
renewal or extension except by an amount equal to the unpaid accrued interest and premium thereon
plus other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension plus an amount
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equal to any existing commitment unutilized and letters of credit undrawn thereunder and (y)
the direct and contingent obligors with respect to such Indebtedness are not changed;
(l) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and
completion guarantees and similar obligations not in connection with money borrowed, in each case
provided in the ordinary course of business, including those incurred to secure health, safety
and environmental obligations in the ordinary course of business;
(m) (i) Indebtedness incurred in connection with any Permitted Sale Leaseback
(provided that the Net Cash Proceeds thereof are promptly applied to the prepayment of
the Term Loans to the extent required by Section 5.2) and (ii) any refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (i) above,
provided that, except to the extent otherwise permitted hereunder, (x) the principal
amount of any such Indebtedness is not increased above the principal amount thereof outstanding
immediately prior to such refinancing, refunding, renewal or extension and (y) the direct and
contingent obligors with respect to such Indebtedness are not changed;
(n) (i) additional Indebtedness and (ii) any refinancing, refunding, renewal or extension of
any Indebtedness specified in subclause (i) above; provided that the aggregate amount of
Indebtedness incurred and remaining outstanding pursuant to this clause (n) shall not at any time
exceed $75,000,000; provided, however, not more than $25,000,000 in aggregate
principal amount of Indebtedness of the Borrower or any Subsidiary Guarantor incurred under this
clause (n) shall be secured;
(o) Indebtedness in respect of Permitted Additional Debt to the extent that the Net Cash
Proceeds therefrom are, immediately after the receipt thereof, applied to the prepayment of Term
Loans in accordance with Section 5.2;
(p) Indebtedness in respect of overdraft facilities, employee credit card programs and other
cash management arrangements in the ordinary course of business;
(q) unsecured Indebtedness in respect of obligations of the Borrower or any Restricted
Subsidiary to pay the deferred purchase price of goods or services or progress payments in
connection with such goods and services, provided that such obligations are incurred in
connection with open accounts extended by suppliers on customary trade terms (which require that
all such payments be made within 60 days after the incurrence of the related obligation) in the
ordinary course of business and not in connection with the borrowing of money or Hedge
Agreements;
(r) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar obligations, in each case
entered into in connection with Permitted Acquisitions, other Investments and the disposition of
any business, assets, or Stock and Stock Equivalents permitted hereunder, other than Guarantee
Obligations incurred by any Person acquiring all or any portion of such business, assets or Stock
and Stock Equivalents for the purpose of financing such acquisition, provided that (i)
such Indebtedness is not reflected on the balance sheet of the Borrower or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial statements
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and not otherwise reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds, including non-cash
proceeds (the fair market value of such non-cash proceeds being measured at the time received and
without giving effect to any subsequent changes in value), actually received by the Borrower and
the Restricted Subsidiaries in connection with such disposition;
(s) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (i) obligations
to pay insurance premiums or (ii) take or pay obligations contained in supply agreements, in each
case arising in the ordinary course of business and not in connection with the borrowing of money
or Hedge Agreements;
(t) Indebtedness representing deferred compensation to employees of the Borrower (or any
direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the ordinary
course of business;
(u) Unsecured, subordinated Indebtedness consisting of promissory notes in an aggregate
principal amount of not more than $10,000,000 issued by the Borrower or any Guarantor to current
or former officers, managers, consultants, directors and employees (or their respective spouses,
former spouses, successors, executors, administrators, heirs, legatees or distributees) to
finance the purchase or redemption of Stock or Stock Equivalents of the Borrower (or any direct
or indirect parent thereof) permitted by Section 10.6;
(v) Indebtedness consisting of obligations of the Borrower or the Restricted Subsidiaries
under deferred compensation or other similar arrangements incurred by such Person in connection
with the Transactions and Permitted Acquisitions or any other Investment expressly permitted
hereunder;
(w) cash management obligations and other Indebtedness in respect of netting services,
automatic clearinghouse arrangements, overdraft protections and similar arrangements in each case
in connection with deposit accounts; and
(x) all premiums (if any), interest (including post-petition interest), fees, expenses,
charges and additional or contingent interest on obligations described in clauses (a) through (w)
above.
10.2 Limitation on Liens. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or
assets of any kind (real or personal, tangible or intangible) of the Borrower or any Restricted
Subsidiary, whether now owned or hereafter acquired, except:
(a) Liens arising under the Credit Documents;
(b) Permitted Liens;
(c) (i) Liens securing Indebtedness permitted pursuant to Section 10.1(f),
provided that (x) such Liens attach at all times only to the assets so financed except
for accessions to such property Indebtedness and the proceeds and the products thereof and (y)
that individual
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financings of equipment provided by one lender may be cross collateralized to other
financings of equipment provided by such lender, and (ii) Liens on the assets of Restricted
Subsidiaries that are not Guarantors securing Indebtedness permitted pursuant to Section
10.1(n) and (p);
(d) Liens existing on the date hereof and listed on Schedule 10.2;
(e) the replacement, extension or renewal of any Lien permitted by clauses (a) through (d)
above and clause (f) of this Section 10.2 upon or in the same assets (other than after
acquired property that is affixed or incorporated into the property covered by such Lien or
financed by Indebtedness permitted under Section 10.1 and proceeds and products thereof)
theretofore subject to such Lien or the replacement, extension or renewal (without increase in
the amount or change in any direct or contingent obligor except to the extent otherwise permitted
hereunder) of the Indebtedness secured thereby;
(f) Liens existing on the assets of any Person that becomes a Restricted Subsidiary (or is a
Restricted Subsidiary that survives a merger with such Person), or existing on assets acquired,
pursuant to a Permitted Acquisition or other Investment to the extent the Liens on such assets
secure Indebtedness permitted by Section 10.1(j) or other obligations permitted by this
Agreement, provided that such Liens attach at all times only to the same assets that such
Liens (other than after acquired property that is affixed or incorporated into the property
covered by such Lien or financed by Indebtedness permitted under Section 10.1 and
proceeds and products thereof) attached to, and secure only the same Indebtedness or obligations
(or any modifications, refinancings, extensions, renewals, refundings or replacements of such
Indebtedness permitted by Section 10.1) that such Liens secured, immediately prior to such
Permitted Acquisition or other Investment, as applicable;
(g) (i) Liens placed upon the Stock and Stock Equivalents of any Restricted Subsidiary
acquired pursuant to a Permitted Acquisition to secure Indebtedness incurred pursuant to
Section 10.1(k) in connection with such Permitted Acquisition and (ii) Liens placed upon
the assets of such Restricted Subsidiary to secure a guarantee by, or Indebtedness of, such
Restricted Subsidiary of any Indebtedness of the Borrower or any other Restricted Subsidiary
incurred pursuant to Section 10.1(k);
(h) Liens securing Indebtedness or other obligations of the Borrower or a Subsidiary in
favor of the Borrower or any Subsidiary that is a Guarantor and Liens securing Indebtedness or
other obligations of any Subsidiary that is not a Guarantor in favor of any Subsidiary that is
not a Guarantor;
(i) Liens (i) of a collection bank arising under Section 4-210 of the Uniform
Commercial Code on items in the course of collection, (ii) attaching to commodity trading
accounts or other commodities brokerage accounts incurred in the ordinary course of business; and
(iii) in favor of a banking institution arising as a matter of law encumbering deposits
(including the right of set-off) and which are within the general parameters customary in the
banking industry;
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(j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to Sections 10.5 to be applied against the purchase price
for such Investment, and (ii) consisting of an agreement to sell, transfer, lease or otherwise
dispose of any property in a transaction permitted under Section 10.4, in each case,
solely to the extent such Investment or sale, disposition, transfer or lease, as the case may be,
would have been permitted on the date of the creation of such Lien;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any of the Restricted Subsidiaries
in the ordinary course of business permitted by this Agreement;
(l) Liens deemed to exist in connection with Investments in repurchase agreements permitted
under Section 10.5;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens attaching to commodity trading accounts or other brokerage accounts incurred in the
ordinary course of business and not for speculative purposes;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks not given in connection with the issuance of Indebtedness, (ii)
relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to
permit satisfaction of overdraft or similar obligations incurred in the ordinary course of
business of the Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and
other agreements entered into with customers of the Borrower or any Restricted Subsidiary in the
ordinary course of business;
(o) Liens solely on any cash earnest money deposits made by the Borrower or any of the
Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted
hereunder;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) subject to the terms of the Intercreditor Agreement, Liens securing obligations under
the Revolving Loan Credit Agreement; and
(r) additional Liens so long as the aggregate principal amount of the obligations so secured
does not exceed $25,000,000 at any time outstanding.
10.3 Limitation on Fundamental Changes. Except as expressly permitted by Section
10.4 or 10.5, the Borrower will not, and will not permit any of the Restricted
Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all its business units, assets or other
properties, except that:
(a) so long as no Default or Event of Default would result therefrom, any Subsidiary of
the Borrower or any other Person may be merged or consolidated with or into the Borrower,
provided that (i) the Borrower shall be the continuing or surviving
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corporation or (ii) if the Person formed by or surviving any such merger or
consolidation is not the Borrower (such Person, the “Successor Borrower”), (A) the
Successor Borrower shall be an entity organized or existing under the laws of the United
States, any state thereof, the District of Columbia or any territory thereof, (B) the
Successor Borrower shall expressly assume all the obligations of the Borrower under this
Agreement and the other Credit Documents pursuant to a supplement hereto or thereto in form
reasonably satisfactory to the Administrative Agent, (C) each Guarantor, unless it is the
other party to such merger or consolidation, shall have by a supplement to the Guarantee
confirmed that its Guarantee shall apply to the Successor Borrower’s obligations under this
Agreement, (D) each Subsidiary grantor and each Subsidiary pledgor, unless it is the other
party to such merger or consolidation, shall have by a supplement to the Security Agreement
or the Pledge Agreement, as applicable, confirmed that its obligations thereunder shall
apply to the Successor Borrower’s obligations under this Agreement, (E) each mortgagor of a
Mortgaged Property, unless it is the other party to such merger or consolidation, shall have
by an amendment to or restatement of the applicable Mortgage confirmed that its obligations
thereunder shall apply to the Successor Borrower’s obligations under this Agreement, and (F)
the Borrower shall have delivered to the Administrative Agent (x) an officer’s certificate
stating that such merger or consolidation and such supplements to this Agreement preserve
the enforceability of the Guarantee and the perfection and priority of the Liens under the
Security Documents and (y) if reasonably requested by the Administrative Agent, an opinion
of counsel to the effect that such merger or consolidation does not violate this Agreement
or any other Credit Document, and provided further that if the foregoing are
satisfied, the Successor Borrower will succeed to, and be substituted for, such Borrower
under this Agreement;
(b) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or
consolidated with or into any one or more Subsidiaries of the Borrower, provided
that (i) in the case of any merger, amalgamation or consolidation involving one or more
Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the continuing or surviving
corporation or (B) the Borrower shall take all steps necessary to cause the Person formed by
or surviving any such merger, amalgamation or consolidation (if other than a Restricted
Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger, amalgamation
or consolidation involving one or more Guarantors, a Guarantor shall be the continuing or
surviving corporation or the Person formed by or surviving any such merger, amalgamation or
consolidation (if other than a Guarantor) shall execute a supplement to the Guarantee
Agreement, Pledge Agreement, the Security Agreement and any applicable Mortgage in form and
substance reasonably satisfactory to the Collateral Agent in order to become a Guarantor
and pledgor, mortgager, and grantor of Collateral for the benefit of the Secured Parties,
(iii) no Default or Event of Default would result from the consummation of such merger,
amalgamation or consolidation, (iv) the Borrower shall be in compliance, on a Pro Forma
Basis after giving effect to such merger, amalgamation or consolidation, with the covenant
set forth in Section 10.9, as such covenant is recomputed as at the last day of the
most recently ended Test Period under such Section as if such merger or consolidation had
occurred on the first day of such Test Period, and (v) the Borrower shall have delivered to
the Administrative Agent an officer’s certificate stating that such merger, amalgamation or
consolidation and such
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supplements to any Security Document preserve the enforceability of the Guarantee and
the perfection and priority of the Liens under the Security Documents;
(c) any Restricted Subsidiary that is not a Guarantor may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower, a Guarantor or any other Restricted Subsidiary;
(d) any Guarantor may sell, lease, transfer or otherwise dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any other Guarantor; and
(e) any Restricted Subsidiary may liquidate or dissolve if (i) the Borrower determines
in good faith that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders and (ii) to the extent such Restricted
Subsidiary is a Credit Party, any assets or business not otherwise disposed of or
transferred in accordance with Section 10.4 or 10.5, or, in the case of any
such business, discontinued, shall be transferred to, or otherwise owned or conducted by,
another Credit Party after giving effect to such liquidation or dissolution.
10.4 Limitation on Sale of Assets. The Borrower will not, and will not permit any of
the Restricted Subsidiaries to, (i) convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment or other
disposition resulting from any casualty or condemnation, of any assets of the Borrower or the
Restricted Subsidiaries) or (ii) sell to any Person (other than the Borrower or a Guarantor) any
shares owned by it of any Restricted Subsidiary’s Stock and Stock Equivalents, except that:
(a) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of (i) used or surplus equipment, vehicles, inventory and other assets in the
ordinary course of business and (ii) Permitted Investments;
(b) the Borrower and the Restricted Subsidiaries may sell, transfer or otherwise
dispose of other assets (other than accounts receivable) (each a “Disposition”) for
fair value, provided that:
(i) with respect to any Disposition pursuant to this clause (b) for a purchase
price in excess of $5,000,000, the Borrower or a Restricted Subsidiary shall receive
not less than 75% of such consideration in the form of cash or Permitted
Investments; provided that for the purposes of this clause (i):
(A) any liabilities (as shown on the Borrower’s or such Restricted
Subsidiary’s most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the payment in cash of
the Obligations, that are assumed by the transferee with respect to the
applicable Disposition and for which the Borrower and all of the Restricted
Subsidiaries shall have been validly released by all applicable creditors in
writing,
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(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition, and
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this Section 10.4(b) and
Section 10.4(c) that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (i) be deemed to be cash;
(ii) any non-cash proceeds received are pledged to the Collateral Agent to the
extent required under Section 9.12;
(iii) with respect to any such sale, transfer or disposition (or series of
related sales, transfers or dispositions), the Borrower shall be in compliance, on a
Pro Forma Basis after giving effect to such sale, transfer or disposition, with the
covenant set forth in Section 10.9, as such covenant is recomputed as at the
last day of the most recently ended Test Period under such Section as if such sale,
transfer or disposition had occurred on the first day of such Test Period; and
(iv) to the extent applicable, the Net Cash Proceeds thereof to the Borrower
and the Restricted Subsidiaries are promptly applied to the prepayment and/or
commitment reductions as provided for in Section 5.2; and
(v) after giving effect to any such sale, transfer or disposition, no Default
or Event of Default shall have occurred and be continuing;
(c) the Borrower and the Restricted Subsidiaries may make sales of assets to the
Borrower or to any Restricted Subsidiary, provided that with respect to any such
sales to Restricted Subsidiaries that are not Guarantors:
(i) such sale, transfer or disposition shall be for fair value;
(ii) with respect to any Disposition pursuant to this clause (c) for a purchase
price in excess of $5,000,000, the Borrower or a Restricted Subsidiary shall receive
not less than 75% of such consideration in the form of cash or Permitted
Investments; provided that for the purposes of this clause (ii):
(A) any liabilities (as shown on the Borrower’s or such Restricted
Subsidiary’s most recent balance sheet provided hereunder or in the
footnotes thereto) of the Borrower or such Restricted Subsidiary, other
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than liabilities that are by their terms subordinated to the payment in
cash of the Obligations, that are assumed by the transferee with respect to
the applicable Disposition and for which the Borrower and all of the
Restricted Subsidiaries shall have been validly released by all applicable
creditors in writing,
(B) any securities received by the Borrower or such Restricted
Subsidiary from such transferee that are converted by the Borrower or such
Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of the applicable Disposition,
(C) any Designated Non-Cash Consideration received by the Borrower or
such Restricted Subsidiary in respect of such Disposition having an
aggregate fair market value, taken together with all other Designated
Non-Cash Consideration received pursuant to this Section 10.4(c) and
Section 10.4(b) that is at that time outstanding, not in excess of
6% of Consolidated Total Assets at the time of the receipt of such
Designated Non-Cash Consideration, with the fair market value of each item
of Designated Non-Cash Consideration being measured at the time received and
without giving effect to subsequent changes in value,
shall in each case under this clause (ii) be deemed to be cash; and
(iii) any non-cash proceeds received are pledged to the Collateral Agent to the
extent required under Section 9.12.
(d) the Borrower and any Restricted Subsidiary may effect any transaction permitted by
Section 10.3, 10.5 or 10.6;
(e) in addition to selling or transferring accounts receivable pursuant to the other
provisions hereof, the Borrower and the Restricted Subsidiaries may sell or discount without
recourse accounts receivable arising in the ordinary course of business in connection with
the compromise or collection thereof consistent with such Person’s current credit and
collection practices;
(f) the Borrower and the Restricted Subsidiaries may lease, sublease, license or
sublicense (on a non-exclusive basis with respect to any intellectual property) real,
personal or intellectual property in the ordinary course of business;
(g) sales, transfers and other dispositions of property to the extent that (i) such
property is exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such
replacement property;
(h) sales, transfers and other dispositions of property pursuant to Permitted Sale
Leaseback transactions;
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(i) sales, transfers and other dispositions of Investments in joint ventures to the
extent required by, or made pursuant to customary buy/sell arrangements between, the joint
venture parties set forth in joint venture arrangements and similar binding arrangements;
and
(j) the Disposition of Non-Core Assets.
10.5 Limitation on Investments. The Borrower will not, and will not permit any of the
Restricted Subsidiaries to, make any advance, loan, extensions of credit or capital contribution
to, or purchase any stock, bonds, notes, debentures or other securities of or any assets of, or
make any other Investment in, any Person, except:
(a) extensions of trade credit and asset purchases in the ordinary course of business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of the Borrower (or any
direct or indirect parent thereof) or any of its Subsidiaries (i) for reasonable and
customary business-related travel, entertainment, relocation and analogous ordinary business
purposes (including employee payroll advances), (ii) in connection with such Person’s
purchase of Stock or Stock Equivalents of the Borrower (or any direct or indirect parent
thereof) to the extent that the amount of such loans and advances are contributed to the
Borrower in cash and (iii) for purposes not described in the foregoing clauses (i) and (ii),
in an aggregate principal amount outstanding not to exceed $2,000,000;
(d) Investments existing on, or contemplated as of, the date hereof and listed on
Schedule 10.5 and any extensions, renewals or reinvestments thereof, so long as the
aggregate amount of all Investments pursuant to this clause (d) is not increased at any time
above the amount of such Investments existing on the date hereof;
(e) Investments received in connection with the bankruptcy or reorganization of
suppliers or customers and in settlement of delinquent obligations of, and other disputes
with, customers arising in the ordinary course of business or upon foreclosure with respect
to any secured Investment or other transfer of title with respect to any secured Investment;
(f) Investments to the extent that payment for such Investments is made solely with
Stock or Stock Equivalents of the Borrower;
(g) Investments (i) in any Guarantor or the Borrower, (ii) in Restricted Subsidiaries
that are not Guarantors, in an aggregate amount pursuant to this clause (ii) not to exceed
(x) $25,000,000 plus (y) the Applicable Amount at such time, and (iii) in Restricted
Subsidiaries that are not Guarantors so long as such Investment is part of a series of
simultaneous Investments by Restricted Subsidiaries in other Restricted Subsidiaries that
result in the proceeds of the initial Investment being invested in one or more Guarantors;
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(h) Investments constituting Permitted Acquisitions;
(i) (i) Investments (including Investments in Unrestricted Subsidiaries) and (ii)
Investments in joint ventures or similar entities that do not constitute Restricted
Subsidiaries, in each case, as valued at the fair market value of such Investment at the
time each such Investment is made, in an amount that, at the time such Investment is made,
would not exceed the sum of (x) $50,000,000, plus (y) the Applicable Amount at such
time plus (z) an amount equal to any repayments, interest, returns, profits,
distributions, income and similar amounts actually received in cash in respect of any such
Investment (which amount shall not exceed the amount of such Investment valued at the fair
market value of such Investment at the time such Investment was made),
(j) Investments constituting non-cash proceeds of sales, transfers and other
dispositions of assets to the extent permitted by Section 10.4;
(k) Investments made to repurchase or retire Stock of the Borrower or any direct or
indirect parent thereof owned by any employee stock ownership plan or key employee stock
ownership plan of the Borrower (or any direct or indirect parent thereof);
(l) Investments permitted under Section 10.6;
(m) loans and advance to any direct or indirect parent of the Borrower in lieu of, and
not in excess of the amount of, dividends to the extent permitted to be made to such parent
in accordance with Section 10.6;
(n) 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 and other credits to suppliers in the ordinary course
of business;
(o) Investments in the ordinary course of business consisting of Article 3 endorsements
for collection or deposit and Article 4 customary trade arrangements with customers
consistent with past practices;
(p) advances of payroll payments to employees in the ordinary course of business;
(q) [Intentionally Omitted]
(r) Guarantee Obligations of the Borrower or any Restricted Subsidiary of leases (other
than Capitalized Leases) or of other obligations that do not constitute Indebtedness, in
each case entered into in the ordinary course of business;
(s) Investments made to repurchase or retire equity interests of the Borrower (or any
direct or indirect parent thereof) or the Borrower owned by any employee stock ownership
plan or key employee stock ownership plan of the Borrower (or any direct or indirect parent
thereof); and
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(t) Investments of a Restricted Subsidiary acquired after the Closing Date or of any
Person merged into the Borrower or merged or consolidated with a Restricted Subsidiary in
accordance with Section 10.3 after the Closing Date to the extent that such
Investments were not made in contemplation of or in connection with such acquisition, merger
or consolidation and were in existence on the date of such acquisition, merger or
consolidation.
10.6 Limitation on Dividends. The Borrower will not declare or pay any dividends
(other than dividends payable solely in its Stock) or return any capital to its stockholders or
make any other distribution, payment or delivery of property or cash to its stockholders as such,
or redeem, retire, purchase or otherwise acquire, directly or indirectly, for consideration, any
shares of any class of its Stock or Stock Equivalents or the Stock or Stock Equivalents of any
direct or indirect parent now or hereafter outstanding, or set aside any funds for any of the
foregoing purposes, or permit any of the Restricted Subsidiaries to purchase or otherwise acquire
for consideration (other than in connection with an Investment permitted by Section 10.5)
any Stock or Stock Equivalents of the Borrower, now or hereafter outstanding (all of the foregoing
“dividends”), provided that, so long as no Default or Event of Default exists or
would exist after giving effect thereto:
(a) the Borrower may redeem in whole or in part any of its Stock or Stock Equivalents
for another class of its Stock or Stock Equivalents or with proceeds from substantially
concurrent equity contributions or issuances of new Stock or Stock Equivalents,
provided that such new Stock or Stock Equivalents contain terms and provisions at
least as advantageous to the Lenders in all respects material to their interests as those
contained in the Stock or Stock Equivalents redeemed thereby;
(b) the Borrower may (or may make dividends to permit any direct or indirect parent
thereof to) repurchase shares of its (or such parent’s) Stock or Stock Equivalents held by
officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee
stock plans, stock subscription agreements or shareholder agreements;
(c) the Borrower may pay dividends on the Stock or Stock Equivalents, provided
that the amount of any such dividends pursuant to this clause (c) shall not exceed
an amount equal to (i) $50,000,000 (less any amount expended pursuant to Section
10.7(a)(i)(x)), plus (ii) the Applicable Amount at such time; and
(d) the Borrower may pay dividends:
(i) so long as the Borrower is a member of a group filing a consolidated,
combined, unitary or affiliated tax return with a parent, the proceeds of which
will be used to pay (or to make dividends to allow any direct or indirect parent of
the Borrower to pay) within 30 days of the receipt thereof, the tax liability to
each relevant jurisdiction in respect of such consolidated, combined, unitary or
affiliated returns for the relevant jurisdiction of such parent
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to the extent such tax liability is directly attributable to the taxable income
of the Borrower or its Subsidiaries (that are included in such consolidated,
combined, unitary or affiliated tax return), determined as if the Borrower and such
Subsidiaries filed a separate consolidated, combined, unitary or affiliated tax
return as a stand-alone group;
(ii) the proceeds of which shall be used to allow any direct or indirect parent
of Borrower to pay (A) its operating expenses incurred in the ordinary course of
business and other corporate overhead costs and expenses (including administrative,
legal, accounting and similar expenses provided by third parties), which are
reasonable and customary and incurred in the ordinary course of business, in an
aggregate amount not to exceed $1,000,000 in any fiscal year of the Borrower plus
any reasonable and customary indemnification claims made by directors or officers of
the Borrower (or any parent thereof) attributable to the ownership or operations of
the Borrower and its Subsidiaries or (B) fees and expenses otherwise (x) due and
payable by the Borrower or any of its Subsidiaries and (y) permitted to be paid by
the Borrower or such Subsidiary under this Agreement;
(iii) the proceeds of which shall be used to pay franchise taxes and other
fees, taxes and expenses required to maintain the corporate existence of any of its
direct or indirect parent of the Borrower, within thirty (30) days of the receipt
thereof;
(iv) in amount equal to the Net Cash Proceeds of any Disposition of Non-Core
Assets for the purposes of complying with the requirements of the Merger Agreement
relating thereto; and
(v) to any direct or indirect parent of the Borrower to finance any Investment
permitted to be made pursuant to Section 10.5; provided that (A)
such dividend shall be made substantially concurrently with the closing of such
Investment and (B) such parent shall, immediately following the closing thereof,
cause (1) all property acquired (whether assets, Stock or Stock Equivalents) to be
contributed to the Borrower or its Restricted Subsidiaries or (2) the merger (to the
extent permitted in Section 10.5) of the Person formed or acquired into the
Borrower or its Restricted Subsidiaries in order to consummate such Permitted
Acquisition.
10.7 Limitations on Debt Payments and Amendments. (a) The Borrower will not,
and will not permit any Restricted Subsidiary to, prepay, repurchase or redeem or otherwise
defease any Subordinated Indebtedness; provided, however, that so long as no
Default or Event of Default shall have occurred and be continuing at the date of such prepayment,
repurchase, redemption or other defeasance or would result after giving effect thereof, the
Borrower or any Restricted Subsidiary may prepay, repurchase or redeem Subordinated Indebtedness
(i) for an aggregate price not in excess of (x) $50,000,000 (less any amount expended pursuant to
Section 10.6(c)(i)) plus (y) the Applicable Amount at the time of such prepayment, repurchase or
redemption, or (ii) with the proceeds of Subordinated Indebtedness
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that (A) is permitted by Section 10.1 (other than Section 10.1(o)) and (B)
has terms material to the interests of the Lenders not materially less advantageous to the
Lenders than those of such Subordinated Indebtedness being refinanced.
(b) The Borrower will not waive, amend, modify, terminate or release any Subordinated
Indebtedness to the extent that any such waiver, amendment, modification, termination or release
would be adverse to the Lenders in any material respect.
10.8 Limitations on Sale Leasebacks. The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, enter into or effect any Sale Leasebacks, other than Permitted
Sale Leasebacks.
10.9 Consolidated Total Debt to Consolidated EBITDA Ratio
The Borrower will not permit the Consolidated Total Debt to Consolidated EBITDA Ratio for any
Test Period ending during any period set forth below to be greater than the ratio set forth below
opposite such period:
| Period | Ratio | |
March 31, 2007
|
5.75:1.00 | |
June 30, 2007
|
5.75:1.00 | |
September 30, 2007
|
5.75:1.00 | |
December 31, 2007
|
5.75:1.00 | |
March 31, 2008
|
5.50:1.00 | |
June 30, 2008
|
5.50:1.00 | |
September 30, 2008
|
5.25:1.00 | |
December 31, 2008
|
5.25:1.00 | |
March 31, 2009
|
5.00:1.00 | |
June 30, 2009
|
5.00:1.00 | |
September 30, 2009
|
4.50:1.00 | |
December 31, 2009
|
4.50:1.00 | |
March 31, 2010
|
4.50:1.00 | |
June 30, 2010
|
4.50:1.00 | |
September 30, 2010
|
4.00:1.00 | |
December 31, 2010
|
4.00:1.00 | |
March 31, 2011
|
4.00:1.00 | |
June 30, 2011
|
4.00:1.00 | |
September 30, 2011
|
3.50:1.00 | |
December 31, 2011
|
3.50:1.00 | |
March 31, 2012
|
3.50:1.00 | |
June 30, 2012
|
3.50:1.00 | |
September 30, 2012
|
3.00:1.00 | |
December 31, 2012
|
3.00:1.00 | |
March 31, 2013
|
3.00:1.00 | |
June 30, 2013
|
3.00:1.00 | |
September 30, 2013
|
3.00:1.00 | |
December 31, 2013
|
3.00:1.00 |
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10.10 Consolidated EBITDA to Consolidated Interest Expense Ratio.
The Borrower will not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio
for any Test Period ending during any period set forth below to be less than the ratio set forth
below opposite such period:
| Period | Ratio | |
March 31, 2007
|
2.00:1.00 | |
June 30, 2007
|
2.00:1.00 | |
September 30, 2007
|
2.00:1.00 | |
December 31, 2007
|
2.00:1.00 | |
March 31, 2008
|
2.25:1.00 | |
June 30, 2008
|
2.25:1.00 | |
September 30, 2008
|
2.50:1.00 | |
December 31, 2008
|
2.50:1.00 | |
March 31, 2009
|
2.50:1.00 | |
June 30, 2009
|
2.50:1.00 | |
September 30, 2009
|
2.50:1.00 | |
December 31, 2009
|
2.50:1.00 | |
March 31, 2010
|
2.75:1.00 | |
June 30, 2010
|
2.75:1.00 | |
September 30, 2010
|
2.75:1.00 | |
December 31, 2010
|
2.75:1.00 | |
March 31, 2011
|
3.00:1.00 | |
June 30, 2011
|
3.00:1.00 | |
September 30, 2011
|
3.00:1.00 | |
December 31, 2011
|
3.00:1.00 | |
March 31, 2012
|
3.25:1.00 | |
June 30, 2012
|
3.25:1.00 | |
September 30, 2012
|
3.25:1.00 | |
December 31, 2012
|
3.25:1.00 | |
March 31, 2013
|
3.25:1.00 | |
June 30, 2013
|
3.25:1.00 | |
September 30, 2013
|
3.25:1.00 | |
December 31, 2013
|
3.25:1.00 |
10.11 Capital Expenditures:
The Borrower will not, and will not permit any of its Restricted Subsidiaries to, make, or be
committed to make, Capital Expenditures which in the aggregate in any Fiscal Year set forth below
exceed the amount set forth below for such Fiscal Year:
| Fiscal Year | Amount | |||
2007 |
$ | 12,000,000 | ||
2008 |
$ | 12,000,000 | ||
2009 |
$ | 12,000,000 | ||
2010 |
$ | 12,000,000 | ||
2011 |
$ | 12,000,000 | ||
2012 |
$ | 12,000,000 | ||
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The amount of permitted Capital Expenditures set forth above in respect of any Fiscal Year
commencing with Fiscal Year 2008 shall be increased by 100% of the amount of unused permitted
Capital Expenditures for the immediately preceding Fiscal Year (such amount, a “carry-forward
amount”) without giving effect to any carry-forward amount that was added in such preceding
Fiscal Year and assuming any such carry-forward amount is utilized first.
10.12 Changes in Business. The Borrower and the Subsidiaries, taken as a whole, will
not fundamentally and substantively alter the character of their business, taken as a whole, from
the business conducted by the Borrower and the Subsidiaries, taken as a whole, on the Closing Date
and other business activities incidental or related to any of the foregoing.
10.13 Burdensome Agreements. The Borrower will not, and will not permit any
Restricted Subsidiary to, enter into or permit to exist any contractual obligation (other than this
Agreement or any other Credit Document) that limits the ability of (a) any Restricted Subsidiary
that is not a Guarantor to make dividends to the Borrower or any Guarantor or (b) the Borrower or
any Subsidiary Guarantor to create, incur, assume or suffer to exist Liens on property of such
Person for the benefit of the Lenders with respect to the Obligations; provided that the
foregoing clauses (a) and (b) shall not apply to contractual obligations which (i) (x) exist on the
date hereof and (to the extent not otherwise permitted by this Section 10.13) are listed on
Schedule 10.13 and (y) to the extent contractual obligations permitted by clause (x) are
set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any
permitted renewal, extension or refinancing of such Indebtedness so long as such renewal, extension
or refinancing does not expand the scope of such contractual obligation, (ii) are binding on a
Restricted Subsidiary at the time such Restricted Subsidiary first becomes a Restricted Subsidiary
of the Borrower, so long as such contractual obligations were not entered into solely in
contemplation of such Person becoming a Restricted Subsidiary of the Borrower; (iii) represent
Indebtedness of a Restricted Subsidiary of the Borrower which is not a Credit Party which is
permitted by Section 10.01, (iv) arise in connection with any Disposition permitted by
Section 10.04, (v) are customary provisions in joint venture agreements and other similar
agreements applicable to joint ventures permitted under Section 10.05 and applicable solely
to such joint venture entered into in the ordinary course of business, (vi) are negative pledges
and restrictions on Liens in favor of any holder of Indebtedness permitted under Section
10.01 but solely to the extent any negative pledge relates to the property financed by or the
subject of such Indebtedness, (vii) are customary restrictions on leases, subleases, licenses or
asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets
subject thereto, (viii) comprise restrictions imposed by any agreement relating to secured
Indebtedness permitted pursuant to Section 10.01 to the extent that such restrictions apply
only to the property or assets securing such Indebtedness or, in the case of secured Indebtedness
incurred pursuant to Section 10.01(j) or Section 10.01(k)) only, to the Restricted
Subsidiaries incurring or guaranteeing such Indebtedness, (ix) are customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of the Borrower or any
Restricted Subsidiary, (x) are customary provisions restricting
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assignment of any agreement entered into in the ordinary course of business, (xi) are
restrictions on cash or other deposits imposed by customers under contracts entered into in the
ordinary course of business, and (xii) exist under the Revolving Loan Credit Agreement or any
documentation relating to such debt.
SECTION 11. Events of Default
Upon the occurrence of any of the following specified events (each an “Event of
Default”):
11.1 Payments. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or of any other
amounts owing hereunder or under any other Credit Document; or
11.2 Representations, etc. Any representation, warranty or statement made or deemed
made by any Credit Party herein or in any Security Document or any certificate, statement, report
or other document delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made; or
11.3 Covenants. Any Credit Party shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in Section 9.1(h) or Section 10; or
(b) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in Section 11.1 or 11.2 or clause
(a) of this Section 11.3) contained in this Agreement, any Security Document or the
Fee Letter and such default shall continue unremedied for a period of at least thirty (30)
days after receipt of written notice by the Borrower from the Administrative Agent or the
Required Lenders; or
11.4 Default Under Other Agreements (a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $15,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or condition
exist (other than, with respect to Indebtedness consisting of any Hedge Agreements, termination
events or equivalent events pursuant to the terms of such Hedge Agreements), the effect of which
default or other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) without limiting the provisions
of clause (a) above, any such Indebtedness shall be declared to be due and payable, or required
to be prepaid other than by a regularly scheduled required prepayment or as a mandatory
prepayment (and, with respect to Indebtedness consisting of any Hedge
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Agreements, other than due to a termination event or equivalent event pursuant to the terms
of such Hedge Agreements), prior to the stated maturity thereof; or
11.5 Bankruptcy, etc. The Borrower or any Specified Subsidiary shall commence a
voluntary case, proceeding or action concerning itself under (a) Title 11 of the United States Code
entitled “Bankruptcy,” or (b) in the case of any Foreign Subsidiary that is a Specified Subsidiary,
any domestic or foreign law relating to bankruptcy, judicial management, insolvency reorganization
or relief of debtors legislation of its jurisdiction of incorporation, in each case as now or
hereafter in effect, or any successor thereto (collectively, the “Bankruptcy Code”); or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not controverted within 10 days after commencement of the case,
proceeding or action; or an involuntary case, proceeding or action is commenced against the
Borrower or any Specified Subsidiary and the petition is not dismissed within 60 days after
commencement of the case, proceeding or action; or a custodian (as defined in the Bankruptcy Code),
judicial manager, receiver, receiver manager, trustee or similar person is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any Specified Subsidiary; or
the Borrower or any Specified Subsidiary commences any other proceeding or action under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any Specified Subsidiary; or there is commenced against the Borrower or any Specified
Subsidiary any such proceeding or action that remains undismissed for a period of 60 days; or the
Borrower or any Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding or action is entered; or the Borrower or any
Specified Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee
or the like for it or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary
for the purpose of effecting any of the foregoing; or
11.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan
(including the giving of written notice thereof); any Plan shall have an accumulated funding
deficiency (whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code
(including the giving of written notice thereof); (b) there could result from any event or events
set forth in clause (a) of this Section 11.6 the imposition of a lien, the granting of a
security interest, or a liability, or the reasonable likelihood of incurring a lien, security
interest or liability; and (c) such lien, security interest or liability will or would be
reasonably likely to have a Material Adverse Effect; or
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11.7 Guarantee. Any Guarantee provided by any Material Subsidiary or any material
provision thereof shall cease to be in full force or effect or any such Guarantor thereunder or any
Credit Party shall deny or disaffirm in writing any such Guarantor’s obligations under the
Guarantee (or any of the foregoing shall occur with respect to a Guarantee provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 30
Business Days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.8 Pledge Agreement. The Pledge Agreement pursuant to which the Stock or Stock
Equivalents of any Material Subsidiary is pledged or any material provision thereof shall cease to
be in full force or effect (other than pursuant to the terms hereof or thereof or as a result of
acts or omissions of the Collateral Agent or any Lender) or any pledgor thereunder or any Credit
Party shall deny or disaffirm in writing any pledgor’s obligations under the Pledge Agreement (or
any of the foregoing shall occur with respect to a pledge of the Stock or Stock Equivalents of a
Subsidiary that is not a Material Subsidiary and shall continue unremedied for a period of at least
30 days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.9 Security Agreement. The Security Agreement pursuant to which the assets of the
Borrower or any Material Subsidiary are pledged as Collateral or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or any grantor thereunder or
any Credit Party shall deny or disaffirm in writing any grantor’s obligations under the Security
Agreement (or any of the foregoing shall occur with respect to Collateral provided by a Subsidiary
that is not a Material Subsidiary and shall continue unremedied for a period of at least 30
Business Days after receipt of written notice by the Borrower from the Administrative Agent, the
Collateral Agent or the Required Lenders); or
11.10 Mortgages. Any Mortgage or any material provision of any Mortgage relating to
any material portion of the Collateral shall cease to be in full force or effect (other than
pursuant to the terms hereof or thereof or as a result of acts or omissions of the Collateral Agent
or any Lender) or any mortgagor thereunder or any Credit Party shall deny or disaffirm in writing
any mortgagor’s obligations under any Mortgage; or
11.11 Judgments. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of $15,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12 Change of Control. A Change of Control shall occur; or
11.13 Subordination. The subordination provisions of any document or instrument
evidencing any Permitted Additional Debt having a principal amount in excess of $15,000,000 that
are subordinated shall be invalidated or otherwise cease to be legal, valid and binding
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obligations of the holders of such Permitted Additional Debt, enforceable in accordance with
their terms;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent, (A)
each of the following shall immediately become due and payable, in each case without presentment,
demand, protest or other requirements of any kind, all of which are hereby expressly waived by each
Credit Party: (I) first to the unpaid principal amount of and accrued interest on the Loans, and
(II) then to all other Obligations; (B) Administrative Agent may cause Collateral Agent to enforce
any and all Liens and security interests created pursuant to Security Documents.
SECTION 12. Investors’ Right to Cure. Notwithstanding anything to the contrary
contained in Section 11.3(a), in the event that the Borrower fails to comply with the
requirement of the covenant set forth in Section 10.9, until the expiration of the tenth
day after the date on which Section 9.1 Financials with respect to the Test Period in which
the covenant set forth in such Section is being measured are required to be delivered pursuant to
Section 9.1, any of the Investors shall have the right to make a direct or indirect equity
investment in the Borrower or any Restricted Subsidiary in cash (the “Cure Right”), and
upon the receipt by such Person of net cash proceeds pursuant to the exercise of the Cure Right
(including through the capital contribution of any such Net Cash proceeds to such person, the
“Cure Amount”), the covenant set forth in such Section shall be recalculated, giving effect
to a pro forma increase to Consolidated EBITDA for such Test Period in an amount equal to such net
cash proceeds; provided that such pro forma adjustment to Consolidated EBITDA shall be
given solely for the purpose of determining the existence of a Default or an Event of Default under
the covenant set forth in such Section with respect to any Test Period that includes the fiscal
quarter for which such Cure Right was exercised and not for any other purpose under any Credit
Document.
If, after the exercise of the Cure Right and the recalculations pursuant to the preceding
paragraph, the Borrower shall then be in compliance with the requirements of the covenant set forth
in Section 10.9 during such Test Period (including for purposes of Section 7.1),
the Borrower shall be deemed to have satisfied the requirements of such covenant as of the relevant
date of determination with the same effect as though there had been no failure to comply therewith
at such date, and the applicable Default or Event of Default under Section 11.3 that had
occurred shall be deemed cured; provided that (i) in each Test Period there shall be at
least one fiscal quarter in which no Cure Right is exercised and (ii) with respect to any exercise
of the Cure Right, the Cure Amount shall be no greater than the amount required to cause the
Borrower to be in compliance with the covenant set forth in Section 10.9.
SECTION 13. The Administrative Agent
13.1 Appointment. (a) Each Lender hereby irrevocably designates and appoints
the Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such
capacity, to take such action on its behalf under the provisions of this Agreement and the other
Credit Documents and to exercise such powers and perform such duties as are expressly
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delegated to the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Administrative Agent. The provisions of this Section 13 are solely
for the benefit of the Agents, any sub-agent and the Lenders and no Credit Party shall have any
rights as a third party beneficiary of any of the provisions hereof. In performing its functions
and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and
shall not be deemed to have assumed any obligation towards or relationship of agency or trust
with or for Borrower or any of its Subsidiaries.
(b) The Administrative Agent and each Lender hereby irrevocably designate and appoint the
Collateral Agent as its agent under this Agreement and the other Credit Documents, and the
Administrative Agent and each Lender irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any
and all of the Security Documents (including, for the avoidance of doubt, the Intercreditor
Agreement) together with such other documents as shall be necessary to give effect to (x) the
ranking and priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the
Collateral contemplated by the other Security Documents, on its behalf. For the avoidance of
doubt, each Lender agrees to be bound by the terms of the Intercreditor Agreement to the same
extent as if it were a party thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with the Administrative Agent, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties
or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13.
13.2 Delegation of Duties. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. Administrative Agent and any
such sub-agent may perform any and all of its duties and exercise its rights and powers by or
through their respective Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any of the Affiliates of Administrative Agent and
shall apply to their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent. All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the
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Affiliates of any such sub-agent, and shall apply to their respective activities as sub-agent
as if such sub-agent and Affiliates were named herein. Notwithstanding anything herein to the
contrary, with respect to each sub-agent appointed by the Administrative Agent, (i) such sub-agent
shall be a third party beneficiary under this Agreement with respect to all such rights, benefits
and privileges (including exculpatory rights and rights to indemnification) and shall have all of
the rights and benefits of a third party beneficiary, including an independent right of action to
enforce such rights, benefits and privileges (including exculpatory rights and rights to
indemnification) directly, without the consent or joinder of any other Person, against any or all
of the Credit Parties and the Lenders, (ii) such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) shall not be modified or amended without the
consent of such sub-agent, and (iii) such sub-agent shall only have obligations to Administrative
Agent and not to any Credit Party, Lender or any other Person and no Credit Party, Lender or any
other Person shall have any rights, directly or indirectly, as a third party beneficiary or
otherwise, against such sub-agent.
13.3 General Immunity. (a) No Responsibility for Certain Matters. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit
Party, or for the financial condition or business affairs of any Credit Party or any other Person
liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans
or as to the existence or possible existence of any Event of Default or Default or to make any
disclosures with respect to the foregoing other than to the extent required under this Agreement.
Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any
liability arising from confirmations of the amount of outstanding Loans or the component amount
thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries),
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accountants, experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent acting or (where so
instructed) refraining from acting hereunder or any of the other Credit Documents in accordance
with the instructions of Required Lenders (or such other Lenders as may be required to give such
instructions under Section 14.1)
13.4 Reliance by Agents. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5 Notice of Default. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a “notice of default”.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders, provided that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, any
Guarantor or any other Credit Party, shall be deemed to constitute any representation or warranty
by the Administrative Agent or the Collateral Agent to any Lender. Each Lender represents to the
Administrative Agent and the Collateral Agent that it has, independently and without reliance
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upon the Administrative Agent, the Collateral Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other condition and
creditworthiness of the Borrower, any Guarantor and any other Credit Party and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent, the Collateral
Agent or any other Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions in taking or not
taking action under this Agreement and the other Credit Documents, and to make such investigation
as it deems necessary to inform itself as to the business, operations, property, financial and
other condition and creditworthiness of the Borrower, any Guarantor and any other Credit Party.
Except for notices, reports and other documents expressly required to be furnished to the Lenders
by the Administrative Agent hereunder, neither the Administrative Agent nor the Collateral Agent
shall have any duty or responsibility to provide any Lender with any credit or other information
concerning the business, assets, operations, properties, financial condition, prospects or
creditworthiness of the Borrower, any Guarantor or any other Credit Party that may come into the
possession of the Administrative Agent or the Collateral Agent any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliate. Notwithstanding anything herein to
the contrary, each Lender acknowledges that the lien and security interest granted to the
Collateral Agent pursuant to the Security Agreement or other applicable Security Document, and the
exercise of any right or remedy by the Collateral Agent thereunder, are subject to the provisions
of the Intercreditor Agreement and that in the event of any conflict between the terms of the
Intercreditor Agreement and such Security Document, the terms of the Intercreditor Agreement shall
govern and control.
13.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent’s or the Collateral Agent’s or such
sub-agent’s gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
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13.8 Agents in their Individual Capacity. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same as if
it were not performing the duties and functions delegated to it hereunder, and the term “Lender”
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9 Successor Agents. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days’ prior written notice to the
Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or the
Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term “Administrative Agent” or “Collateral Agent”, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agent’s
or Collateral Agent’s rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agent’s or Collateral
Agent’s resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this Section 13 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10 Withholding Tax. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction
asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the
Administrative Agent has not already been reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, together with all
expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
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13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS. By signing this
Agreement, each Lender:
(a) is deemed to have requested that the Agents furnish such Lender, promptly after it
becomes available, (i) a copy of all financial statements to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent
and (iii) a copy of each Report;
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrower’s books and records, as well as on representations of the Borrower’s personnel;
(d) agrees to keep all Reports confidential in accordance with Section 14.16;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender’s
participation in, or the indemnifying Lender’s purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or
indirect result of any third parties who might obtain all or part of any Report through the
indemnifying Lender.
SECTION 14. Miscellaneous
14.1 Amendments and Waivers. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this Section 14.1. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with the relevant Credit Party or Credit Parties written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement
or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit
Parties hereunder or thereunder or (b) waive, on such terms and
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conditions as the Required Lenders
or the Administrative Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Credit Documents or any Default or Event of Default and
its consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall directly (i) forgive or reduce any portion of any Loan or any
Repayment Amount or extend the final scheduled maturity date of any Loan or extend any scheduled
Repayment Date for any Loan or reduce the stated rate (it being understood that any change to the
definitions of Consolidated Total Debt to Consolidated EBITDA Ratio or in the component definitions
thereof shall not constitute a reduction in the rate and only the consent of the Required Lenders
shall be necessary to waive any obligation of the Borrower to pay interest at the “default rate” or
amend Section 2.8(c)), or forgive any portion, or extend the date for the payment, of any
interest or fee payable hereunder (other than as a result of waiving the applicability of any
post-default increase in interest rates), or extend the final expiration date of any Lender’s
Commitment, or increase the aggregate amount of the Commitments of any Lender, or amend or modify
any provisions of Section 5.3(a) (with respect to the ratable allocation of any payments
only), 2.4 (with respect to the ratable disbursement of funds) and 14.8(a), in each
case without the written consent of each Lender directly and adversely affected thereby, or (ii)
amend, modify or waive any provision of this Section 14.1 or reduce the percentages
specified in the definitions of the term “Required Lenders” or consent to the assignment or
transfer by the Borrower of its rights and obligations under any Credit Document to which it is a
party (except as permitted pursuant to Section 10.3), in each case without the written
consent of each Lender directly and adversely affected thereby, or (iii) amend, modify or waive any
provision of Section 13 without the written consent of the then-current Administrative
Agent, or, (iv) release all or substantially all of the Guarantors under the Guarantee (except as
expressly permitted by the Guarantee) or release all or substantially all of the Collateral under
the Security Agreement or the Pledge Agreement without the prior written consent of each Lender, or
(v) amend Section 2.9 so as to permit Interest Period intervals greater than six months
without regard to availability to Lenders, without the written consent of each Lender directly and
adversely affected thereby; or (vi) amend, modify or waive any provisions hereof relating to the
Administrative Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Administrative Agent; or (x) amend, modify or waive
any provisions hereof relating to the Collateral Agent in a manner that directly and adversely
affects it rights and obligations hereunder without the written consent of the Collateral
Agent. Any such waiver and any such amendment, supplement or modification shall apply equally
to each of the affected Lenders and shall be binding upon the Borrower, such Lenders, the
Administrative Agent and all future holders of the affected Loans. In the case of any waiver, the
Borrower, the Lenders and the Administrative Agent shall be restored to their former positions and
rights hereunder and under the other Credit Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing, it being understood that no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any right consequent
thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
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Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with
the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add
one or more additional credit facilities to this Agreement and to permit the extensions of credit
from time to time outstanding thereunder and the accrued interest and fees in respect thereof to
share ratably in the benefits of this Agreement and the other Credit Documents with the Term Loans
and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders
holding such credit facilities in any determination of the Required Lenders and other definitions
related to such new Term Loans.
In addition, notwithstanding the foregoing, this Agreement may be amended with the written
consent of the Administrative Agent, the Borrower and the Lenders providing the relevant
Replacement Term Loans (as defined below) to permit the refinancing of all outstanding Term Loans
(“Refinanced Term Loans”) with a replacement term loan tranche (“Replacement Term
Loans”) hereunder; provided that (a) the aggregate principal amount of such Replacement
Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the
Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin
for such Refinanced Term Loans, (c) the weighted average life to maturity of such Replacement Term
Loans shall not be shorter than the weighted average life to maturity of such Refinanced Term Loans
at the time of such refinancing (except to the extent of nominal amortization for periods where
amortization has been eliminated as a result of prepayment of the applicable Term Loans) and (d)
all other terms applicable to such Replacement Term Loans shall be substantially identical to, or
less favorable to the Lenders providing such Replacement Term Loans than those applicable to such
Refinanced Term Loans, except to the extent necessary to provide for covenants and other terms
applicable to any period after the latest final maturity of the Term Loans in effect immediately
prior to such refinancing.
14.2 Notices. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the
applicable address, facsimile number or electronic mail address, and all notices and other
communications expressly permitted hereunder to be given by telephone shall be made to the
applicable telephone number, as follows:
(a) if to the Borrower or the Administrative Agent, to the address, facsimile number,
electronic mail address or telephone number specified for such Person on Schedule
14.2 or to such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower or the Administrative Agent.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
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when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered; provided that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, and 5.1 shall not be effective until received.
14.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4 Survival of Representations and Warranties. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
14.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable fees, disbursements and other charges of
Latham & Watkins LLP, one local counsel in each relevant local jurisdiction and such
additional counsel to the extent consented to by the Borrower, (b) to pay or reimburse each
Lender, and Agent for all its reasonable and documented costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the other Credit Documents
and any such other documents, including the reasonable fees, disbursements and other charges of one
counsel to the Administrative Agent, Collateral Agent and the other Agents (unless there is an
actual or perceived conflict of interest in which case each such Person may retain its own
counsel), (c) to pay, indemnify, and hold harmless each Lender, and Agent from, any and all
recording and filing fees and (d) to pay, indemnify, and hold harmless each Lender, and Agent and
their respective directors, officers, employees, trustees, investment advisors and agents from and
against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable and
documented fees, disbursements and other charges of one primary counsel and one local counsel in
each relevant jurisdiction to such indemnified Persons (unless there is an actual or perceived
conflict of interest or the availability of different claims or defenses in which case each such
Person may retain its own counsel), related to the Transactions or with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the other Credit Documents
and any such other documents, including, without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any Environmental Law or to any actual or
alleged presence, release or threatened release of Hazardous Materials or any other Environmental
Claims involving or attributable to the operations of the Borrower, any of its Subsidiaries or any
of the Real Estate (all the foregoing in this clause (d), collectively, the “indemnified
liabilities”), provided that the Borrower shall have no obligation hereunder to the
Administrative Agent or any Lender nor any of their Related
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Parties with respect to indemnified
liabilities to the extent attributable to the bad faith, gross negligence or willful misconduct of,
or material breach of the Credit Documents by, the party to be indemnified or any of its Related
Parties. All amounts payable under this Section 14.5 shall be paid within ten (10) Business Days
of receipt by the Borrower of an invoice relating thereto setting forth such expense in reasonable
detail. No Person indemnified under this Section 14.5 shall be liable for any special, indirect,
consequential or punitive damages relating to this Agreement or any other Credit Document or
arising out of its activities in connection herewith or therewith. The agreements in this Section
14.5 shall survive repayment of the Loans and all other amounts payable hereunder
14.6 Successors and Assigns; Participations and Assignments. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that (i) the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower or
without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this Section 14.6. Nothing
in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby, Participants (to
the extent provided in paragraph (c) of this Section 14.6), pledges to the extent
provided in paragraph (d) of this Section 14.6 and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent,
and the Lenders) any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed; provided that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority), provided that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under Section 11.1 or
Section 11.5 is continuing) or, if an Event of Default under
Section 11.1 or Section 11.5 has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed; provided that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund), or, in the case of assignments in connection with
the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers.
-102-
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lender’s Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed), provided that no such
consent of the Borrower shall be required if an Event of Default under
Section 11.1 or Section 11.5 has occurred and is continuing;
provided, further, that contemporaneous assignments to
a single assignee made by Affiliates of Lenders and related Approved Funds
or by a single assignor made to Affiliates or related Approved Funds shall
be aggregated for purposes of meeting the minimum assignment amount
requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations
under this Agreement, provided that this clause shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lender’s rights and obligations in respect of one Class of
Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500, provided that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the “Administrative Questionnaire”).
For the purpose of this Section 14.6(b), the term “Approved Fund” means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this Section 14.6, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the case
of an Assignment and Acceptance covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 2.10, 2.11, 5.4
and 14.5). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this Section 14.6 shall be
treated for purposes of this Agreement as a sale by such Lender of a participation
in such rights and obligations in accordance with paragraph (c) of this Section
14.6.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agent’s Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitments of, and principal amount
of the Loans, each Lender pursuant to the terms hereof from time to time (the
“Register”). Further, the Register shall contain the name and address of
the Administrative Agent and the lending office through which each such Person acts
under this Agreement. The entries in the Register shall be conclusive absent
manifest error, and the Borrower, the Administrative Agent and the Lenders shall
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement. The Register shall
be available for inspection by the Borrower or any Lender (with respect to any entry
relating to such Lender’s Loans) at any reasonable time and from time to time upon
reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section 14.6
and any written consent to such assignment required by paragraph (b) of this
Section 14.6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(each, a “Participant”) in all or a portion of such Lender’s
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rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans owing to it), provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and
(C) the Borrower, the Administrative Agent, and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender’s rights
and obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain the
sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement or any other Credit Document,
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment, modification or
waiver described in the first proviso to Section 14.1 under subsections (i)
and (iv) that affects such Participant. Subject to paragraph (c)(ii) of this
Section 14.6, the Borrower agrees that each Participant shall be entitled to
the benefits of Sections 2.10, 2.11 and 5.4 to the same
extent as if it were a Lender (subject to the requirements of those Sections) and
had acquired its interest by assignment pursuant to paragraph (b) of this
Section 14.6. To the extent permitted by law, each Participant also shall
be entitled to the benefits of Section 14.8(b) as though it were a Lender,
provided such Participant agrees to be subject to Section 14.8(a) as though
it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrower’s prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 14.6 shall not apply to any such
pledge or assignment of a security interest, provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto. In order to facilitate such
pledge or assignment, the Borrower hereby agrees that, upon request of any Lender at any time and
from time to time after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrower’s own expense, a promissory note, substantially in the
form of Exhibit L evidencing the Term Loans, respectively, owing to such Lender.
(e) Subject to Section 14.16, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a “Transferee”) and any
prospective Transferee any and all financial information in such Lender’s possession concerning
the Borrower and its Affiliates that has been delivered to such Lender by or on behalf of the
Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower and its Affiliates in connection with such Lender’s credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7 Replacements of Lenders under Certain Circumstances. (a) The Borrower
shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing
pursuant to Section 2.10, 3.5 or 5.4, (b) is affected in the manner described in
Section 2.10(a)(iii) and as a result thereof any of the actions described in such Section
is required to be taken or (c)
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becomes a Defaulting Lender, with a replacement bank or other
financial institution, provided that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of
such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts (other than any disputed amounts), pursuant to
Section 2.10, 2.11 or 5.4, as the case may be) owing to such replaced Lender
prior to the date of replacement, (iv) the replacement bank or institution, if not already a
Lender, and the terms and conditions of such replacement, shall be reasonably satisfactory to the
Administrative Agent, (v) the replaced Lender shall be obligated to make such replacement in
accordance with the provisions of Section 14.6 (provided that the
Borrower shall be obligated to pay the registration and processing fee referred to therein) and
(vi) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the
Administrative Agent or any other Lender shall have against the replaced Lender.
(b) If any Lender (such Lender, a “Non-Consenting Lender”) has failed to consent to
a proposed amendment, waiver, discharge or termination which pursuant to the terms of Section
14.1 requires the consent of all of the Lenders affected and with respect to which the
Required Lenders shall have granted their consent, then provided no Event of Default then exists,
the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) to
replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the
Administrative Agent, provided that: (a) all Obligations of the Borrower owing to such
Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender
concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by
paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued
and unpaid interest thereon and (c) the replacement Lender shall grant such consent. In
connection with any such assignment, the Borrower, Administrative Agent, such Non-Consenting
Lender and the replacement Lender shall otherwise comply with Section 14.6.
14.8 Adjustments; Set-off. (a) If any Lender (a “benefited Lender”)
shall at any time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 11.5, or
otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender’s Loans, or interest thereon, such benefited
Lender shall purchase for cash from the other Lenders a participating interest in such portion of
each such other Lender’s Loan, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such recovery, but without
interest.
(b) After the occurrence and during the continuance of an Event of Default, in addition to
any rights and remedies of the Lenders provided by law, each Lender shall have the right, without
prior notice to the Borrower, any such notice being expressly waived by the
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Borrower to the
extent permitted by applicable law, subject to the consent of the Administrative Agent (such
consent not to be unreasonably withheld) upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of such
set-off and application.
14.9 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Administrative Agent.
14.10 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11 Integration. This Agreement and the other Credit Documents represent the
agreement of the Borrower, the Collateral Agent, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings, representations or
warranties by the Borrower, the Administrative Agent, the Collateral Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the other Credit
Documents.
14.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
14.13 Submission to Jurisdiction; Waivers. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such
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action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on Schedule
14.2 at such other address of which the Administrative Agent shall have been
notified pursuant to Section 14.2;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 14.13 any
special, exemplary, punitive or consequential damages.
14.14 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15 WAIVERS OF JURY TRIAL. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.16 Confidentiality. The Administrative Agent and each Lender shall hold all
non-public information furnished by or on behalf of the Borrower in connection with such Lender’s
evaluation of whether to become a Lender hereunder or obtained by such Lender or the Administrative
Agent pursuant to the requirements of this Agreement (“Confidential Information”),
confidential in accordance with its customary procedure for handling confidential information of
this nature and (in the case of a Lender that is a bank) in accordance with safe and sound banking
practices and in any event may (i) make disclosure as required or requested by any governmental
agency or representative thereof or pursuant to legal process or to such Lender’s or the
Administrative Agent’s attorneys, professional advisors or independent auditors
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or Affiliates,
provided that unless specifically prohibited by applicable law or court order, each Lender
and the
Administrative Agent shall notify the Borrower of any request by any governmental agency or
representative thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency or other routine examinations of
such Lender by such governmental agency) for disclosure of any such non-public information prior to
disclosure of such information, and provided, further, that in no event shall any Lender or the
Administrative Agent be obligated or required to return any materials furnished by the Borrower or
any Subsidiary of the Borrower, (ii) make disclosures of such information reasonably required by
any bona fide or potential assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any participations therein or
by any pledgees referred to in Section 14.16(d) or by direct or indirect contractual counterparties
(or the professional advisors thereto) in Hedge Agreements (provided, such assignees, transferees,
participants, pledgees, counterparties and advisors are advised of and agree to be bound by
provisions that in substance are the equivalent to those in this Section 14.16), (iii) make
disclosure of such information reasonably required by any lender or other Person providing
financing to such Lender (provided such lenders or other Persons are advised of the confidential
nature of such information and agree to keep such information confidential on terms consistent with
this Section 14.16), and (iv) make disclosure to any rating agency, provided that, prior to
any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of
any Confidential Information received by it from any of the Agents or any Lender.
14.17 Direct Website Communications.
(a) (i) The Borrower may, at its option, provide to the Administrative
Agent any information, documents and other materials that it is obligated to furnish
to the Administrative Agent pursuant to the Credit Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (A) relates to a request for a new, or a conversion of an
existing, borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto), (B) relates to the payment of
any principal or other amount due under the Credit Agreement prior to the scheduled
date therefor, (C) provides notice of any default or event of default under the
Credit Agreement or (D) is required to be delivered to satisfy any condition
precedent to the effectiveness of the Credit Agreement and/or any borrowing or other
extension of credit thereunder (all such non-excluded communications being referred
to herein collectively as “Communications”), by transmitting the
Communications in an electronic/soft medium in a format reasonably acceptable to the
Administrative Agent to lpgloans@lehman.com or such other email address as disclosed
in writing to the Borrower. Nothing in this Section 14.17 shall prejudice
the right of the Borrower, the Administrative Agent or any Lender to give any notice
or other
communication pursuant to any Credit Document in any other manner specified in
such Credit Document.
(ii) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above
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shall constitute
effective delivery of the Communications to the Administrative Agent for purposes of
the Credit Documents. Each Lender agrees that notice to it (as provided in the next
sentence) specifying that the Communications have been posted to the Platform shall
constitute effective delivery of the Communications to such Lender for purposes of
the Credit Documents. Each Lender agrees (A) to notify the Administrative Agent in
writing (including by electronic communication) from time to time of such Lender’s
e-mail address to which the foregoing notice may be sent by electronic transmission
and (B) that the foregoing notice may be sent to such e-mail address.
(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the “Platform”), so long as the access to such Platform is
limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality
requirements set forth in Section 14.16.
(c) The Platform is provided “as is” and “as available.” The Agent Parties do not warrant
the accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, any warranty of merchantability,
fitness for a particular purpose, non-infringement of third party rights or freedom from viruses
or other code defects, is made by the Agent Parties in connection with the Communications or the
platform. In no event shall the Administrative Agent, the Collateral Agent or any of its
affiliates or any of their respective officers, directors, employees, agents, advisors or
representatives (collectively, “Agent Parties”) have any liability to the Borrower, any
Lender or any other person or entity for damages of any kind, including, without limitation,
direct or indirect, special, incidental or consequential damages, losses or expenses (whether in
tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s
transmission of Communications through the internet, except to the extent the liability of any
Agent Party resulted from such Agent Party’s (or any of its Related Parties) gross negligence,
bad faith or willful misconduct or material breach of the Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be
“public-side” Lenders (Lenders that do not wish to receive material non-public information with
respect to the Borrower, its Subsidiaries or their securities) and, if documents or notices
required to be delivered pursuant to the Credit Documents or otherwise are being distributed
through the Platform, any document or notice that the Borrower has indicated contains only
publicly available information with respect to the Borrower may be posted on that portion of the
Platform designated for such public-side Lenders. If the Borrower has not indicated whether a
document or notice delivered contains only publicly available information, the Administrative
Agent shall post such document or notice solely on that portion of the Platform
designated for Lenders who wish to receive material nonpublic information with respect to
the Borrower, its Subsidiaries and their securities. Notwithstanding the foregoing, the Borrower
shall be under no obligation under this Section 14.17 (d) to indicate any document or notice as
containing only publicly available information.
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14.18 USA PATRIOT Act. Each Lender hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Patriot Act”), it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and other
information that will allow such Lender to identify the Borrower in accordance with the Patriot
Act.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ J.F. UNDERHILL | |||
| Name: | ||||
| Title: | ||||
[SIGNATURE PAGE TO TERM CREDIT AGREEMENT]
| LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, as Collateral Agent and as a Lender |
||||
| By: | /s/ JEFF OGDEN | |||
| Name: | Jeff Ogden | |||
| Title: | Managing Director | |||
[SIGNATURE PAGE TO TERM CREDIT AGREEMENT]
| GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Joint Bookrunner, Syndication Agent and as a Lender |
||||
| By: | /s/ BRUCE MENDELSOHN | |||
| Name: | Bruce Mendelsohn | |||
| Title: | Authorized Signatory | |||
| By: | ||||
| Name: | ||||
| Title: | ||||
[SIGNATURE PAGE TO TERM LOAN CREDIT AGREEMENT]
| LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint
Bookrunner |
||||
| By: | /s/ JEFF OGDEN | |||
| Name: Jeff Ogden | ||||
| Title: Managing Director | ||||
[SIGNATURE PAGE TO TERM LOAN CREDIT AGREEMENT]
SCHEDULE 1.1(A) — EXISTING
LETTERS OF CREDIT
|
Beneficiary
|
Expiration Date | Amount | Purpose | Issuing Bank | ||||||
|
Brickstreet
|
11/1/07 | $ | 200,000 | Worker’s Comp | JPMorgan Chase | |||||
|
St. Paul Travelers
|
11/4/07 | $ | 1,775,000 | Insurance | United Bank | |||||
|
State of West Virginia
|
1/31/08 | $ | 1,000,000 | Worker’s Comp | JPMorgan Chase | |||||
|
Sentry Insurance
|
11/1/07 | $ | 130,000 | Insurance | JPMorgan Chase | |||||
SCHEDULE 1.1(B) — MORTGAGED PROPERTY
| Name of Pertection Entity | Location | ||||
| McJunkin Corporation | 4732 Darien Houston, TX 77028 |
||||
| McJunkin Corporation | 1100 Leblanc Road, Port Allen, LA 70767 West Baton Rouge Parish, LA |
||||
| McJunkin Corporation | 835 Hillcrest Drive, Charleston, WV 25311 |
||||
| McJunkin Corporation | Nitro, WV | ||||
SCHEDULE
1.1(c)
TERM LOAN COMMITMENTS
TERM LOAN COMMITMENTS
|
Lender
|
Term Loan Commitment | ||
|
Goldman Sachs Credit Partners L.P.
|
$575,000,000 | ||
Addresses on
file with Administrative Agent.
SCHEDULE 1.1(D) –
EXCLUDED SUBSIDIARY
McJunkin
Receivables Corporation
SCHEDULE
1.1(E) — INITIAL COST SAVINGS
|
3/31/07
|
— | $11,203,565 | ||
|
6/30/07
|
— | $7,842,496 | ||
|
9/30/07
|
— | $4,481,426 | ||
|
12/31/07
|
— | $1,120,357 |
SCHEDULE
1.1(F) — NON-CORE ASSETS
623,521 shares
of common stock of PrimeEnergy Corporation, which comprise
approximately 19% of outstanding stock
19/60
ownership interest in Vision Exploration & Production Co.,
LLC
Hansford
Street property and building (1400, 1401 and 1403 Hansford
Street, Charleston, WV 25301)
Beekman
apartment (575 Park Avenue, Apt. 401, New York, NY 10021)
Piedmont
Farm (State Route 3, Union, WV)
Vacant lot
at Hillcrest Drive (835 Hillcrest Drive, Charleston, WV, 25311)
SCHEDULE
8.12 SUBSIDIARIES
|
Material |
||||||||||||
| Name | Owner | FEIN | Type | Subsidiary (Y/N) | ||||||||
|
McJunkin Appalachian Oilfield Supply Company
|
McJunkin Corporation | 55-0685701 | corporation | Y | ||||||||
|
McJunkin Nigeria Limited
|
McJunkin Corporation | 55-0758030 | corporation | N | ||||||||
|
McJunkin Development Corporation
|
McJunkin Corporation | 55-0825430 | corporation | N | ||||||||
|
McJunkin-Puerto Rico Corporation
|
McJunkin Corporation | 27-0094172 | corporation | N | ||||||||
|
McJunkin Receivables Corporation
|
McJunkin Corporation | 55-2070733 | corporation | N | ||||||||
|
McJunkin-West Africa Corporation
|
McJunkin Corporation | 20-7303835 | corporation | N | ||||||||
|
Milton Oil & Gas Company
|
McJunkin Corporation | 55-0547779 | corporation | N | ||||||||
|
Greenbrier Petroleum Corporation
|
Milton Oil & Gas Company | 55-0566559 | corporation | N | ||||||||
|
Piedmont Farms, Inc.
|
McJunkin Corporation | 55-0547781 | corporation | N | ||||||||
|
Ruffner Realty Company
|
McJunkin Corporation | 55-0547777 | corporation | N | ||||||||
|
McJunkin Nigeria Limited
|
McJunkin Corporation | N/A | corporation | N | ||||||||
SCHEDULE
9.9 — CLOSING DATE AFFILIATE TRANSACTIONS
NONE.
SCHEDULE
9.17(C) — POST CLOSING ACTIONS
1. The Company agrees that it will provide the stock
certificate and stock power for Greenbrier Petroleum Corporation
no later than 30 days after the Closing Date or such later
date as the Administrative Agent may reasonably agree.
2. The Company agrees that it will provide evidence
of title insurance policies on each property listed on
Schedule 1.1(B) no later than 45 days after the
Closing Date or such later date as the Administrative Agent may
reasonably agree.
3. [Other real estate items TBD]
SCHEDULE
10.1 — CLOSING DATE INDEBTEDNESS
Letters
of Credit
| Beneficiary | Expiration Date | Amount | Purpose | Issuing Bank | ||||||||||||||||
|
Brickstreet
|
11/1/07 | $ | 200,000 | Worker’s Comp | JP Morgan Chase | |||||||||||||||
|
St. Paul Travelers
|
11/4/07 | $ | 1,175,000 | Insurance | United Bank | |||||||||||||||
|
State of West Virginia
|
1/31/08 | $ | 1,000,000 | Worker’s Comp | JP Morgan Chase | |||||||||||||||
|
Sentry Insurance
|
11/1/07 | $ | 130,000 | Insurance | JP Morgan Chase | |||||||||||||||
|
Lumberman’s Mutual
|
7/1/07 | $ | 89,653 | Insurance | National City | |||||||||||||||
Capital
Leases
| Warehouse | State | County | Lessor | Lease Expir Date | ||||||||||
|
Little Rock
|
AR | Pulaski | Hansford Associates, LP | 12/31/2016 | ||||||||||
|
Bakersfield
|
CA | Kern | Hansford Associates, LP | 3/31/2012 | ||||||||||
|
Augusta
|
GA | Richmond | Hansford Associates, LP | 12/31/2009 | ||||||||||
|
Granite City
|
IL | Madison | Hansford Associates, LP | 9/30/2009 | ||||||||||
|
Calvert City
|
KY | Marshall | Hansford Associates, LP | 10/31/2011 | ||||||||||
|
Cleveland
|
OH | Summit | Hansford Associates, LP | 10/31/2010 | ||||||||||
|
North Charleston
|
SC | Charleston | Hansford Associates, LP | 12/31/2009 | ||||||||||
|
LaMarque
|
TX | Galveston | Hansford Associates, LP | 12/31/2012 | ||||||||||
|
Rock Springs
|
WY | Sweetwater | Hansford Associates, LP | 3/31/2012 | ||||||||||
1
SCHEDULE
10.2 — CLOSING DATE LIENS
None.
SCHEDULE
10.5 – CLOSING DATE INVESTMENTS
1. Investments
held by McJunkin Corporation
| Investment | Percentage Of Interest | ||
|
Greenbrier Development Drilling Partners 1976 P.O. Box 513 Charleston, West Virginia 25322 |
47 Units, 8.07% | ||
|
W.T. Massey
200 N.W. 66th, Suite 935 Oklahoma City, Oklahoma 73116 & H.A. Moore 4013 N.W. Expressway Suite 605 Oklahoma City, Oklahoma 73116 |
Own various overriding royalty
interests in oil and gas wells in Oklahoma Own various overriding royalty interests in oil and gas wells in Oklahoma. |
||
|
PrimeEnergy Corporation One Landmark Square Stamford, Connecticut 06901 |
Purchased 49.8% interest in K.R.M. Petroleum Company in 1984. Name changed on 5/17/90 from K.R.M. Petroleum to PrimeEnergy (percentage owned approximately 19.0% as of 6/30/06) | ||
|
Vision Exploration & Production Co., LLC 8100 E. 22nd No. Bldg. 1100 Wichita, Kansas 67226 |
Purchased 1/3 interest in Vision Exploration & Production, LLC |
2. Investments
held by Milton Oil & Gas Company, a wholly owned subsidiary
of McJunkin Corporation:
| Investment | Percentage Of Interest | ||
|
Butcher & Singer
C/O Butcher & Singer, Inc. 211 South Broad Street Philadelphia, Pennsylvania 15105 Buttes 1976-1 (931) |
Overriding royalty interest | ||
|
Cabot Oil & Gas Corporation (formerly Appalachian Exploration & Development) C/O Cabot Petroleum Corporation Joint Interest Section |
| Investment | Percentage Of Interest | |||||
|
921 Main Street, Suite 900 Houston, Texas 77002 |
||||||
| B & H Partnership (935) | 60% working interest | |||||
| Milton Option (938) | 60% working interest | |||||
| P & H Partnership (942) | 60% working interest | |||||
|
Dunne Equities C/O Dunne Equities 8100 E. 22nd Street North Building 1100 Wichita, Kansas 67226 |
||||||
|
Currently (24) Productive Wells/Programs |
Various % | |||||
|
Quad D Operating P.O. Box 5567 Huntington, West Virginia 25703 |
||||||
| Closterman M-1 And M-2 (952) | 25% working interest | |||||
|
Closterman M-3 And M-4 (953)
|
18.75% working interest | |||||
|
Closterman M-5 (954)
|
18.75% working interest | |||||
|
Closterman M-6 (955)
|
18.75% working interest | |||||
|
D.P. Morris Lease Well (956)
|
25% working interest | |||||
|
Devon Energy Production Co LP 20 North Broadway Oklahoma City, Oklahoma 73102 |
||||||
| Clifton #1 (946) | .90868% working interest | |||||
|
Hawkins #1 (948)
|
1.82364% working interest | |||||
|
Pritchard #1 (949).
|
32835% net revenue interest | |||||
|
Whisenhunt (950)
|
||||||
|
Clifton #2 (947)
|
1.0138% working interest | |||||
|
Clifton #3 (951)
|
1.0447% working interest | |||||
3. Investments held by Ruffner Realty Company, a
wholly owned subsidiary of McJunkin Corporation:
| Investment | Percentage Of Interest | ||
|
Auburn Lakes - Cost Basis 185 Acres + 370 Units Condominium 2901 Cedar Road Cleveland, Ohio |
2.08% | ||
| Investment | Percentage Of Interest | ||
|
First Interstate Elyria Shopping Center Elyria, Ohio |
1.04% | ||
|
First Interstate Hawthorne - Cost Basis Equity Investors Shopping Center 29425 Chagrin Boulevard Cleveland, Ohio |
1.85% | ||
|
First Interstate Mentor Centers Equity Investors Shopping Center 29425 Chagrin Boulevard Cleveland, Ohio |
1.39% | ||
|
Merc-Ex Investors Ltd. Partnership. - Cost Basis Equity Investors, Inc. Apartment Complex Beachwood, Ohio |
7.75% | ||
|
One Congress Square - Cost Basis Sovereign Realty Office Building - Historic Structure Chicago, Illinois |
1.5% | ||
SCHEDULE
10.11 — CLOSING DATE RESTRICTIONS
None.
Exhibit 10.3.1
POSTED VERSION
FIRST AMENDMENT
TO TERM LOAN CREDIT AGREEMENT
TO TERM LOAN CREDIT AGREEMENT
THIS FIRST AMENDMENT TO TERM LOAN CREDIT AGREEMENT (this “Amendment”) is dated as of October
31, 2007 and is entered into by and among MCJUNKIN CORPORATION, a West Virginia corporation (the
“Borrower”), CERTAIN FINANCIAL INSTITUTIONS listed on the signature pages hereto (the “Lenders”),
GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Joint Bookrunner and Syndication Agent,
LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint Bookrunner, LEHMAN COMMERCIAL PAPER INC., as
Administrative Agent (“Administrative Agent”) and Collateral Agent, and, for purposes of Section V
hereof, the CREDIT SUPPORT PARTIES listed on the signature pages hereto, and is made with reference
to that certain TERM LOAN CREDIT AGREEMENT dated as of January 31, 2007 (as amended through the
date hereof, the “Credit Agreement”) by and among Borrower, the Lenders, Syndication Agent,
Administrative Agent, Collateral Agent, Joint Bookrunners and the Co-Lead Arrangers. Capitalized
terms used herein without definition shall have the same meanings herein as set forth in the Credit
Agreement after giving effect to this Amendment.
RECITALS
WHEREAS, the Credit Parties have requested that Required Lenders agree to amend certain
provisions of the Credit Agreement as provided for herein; and
WHEREAS, subject to certain conditions, Required Lenders are willing to agree to such
amendment relating to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants
herein contained, the parties hereto agree as follows:
SECTION I. AMENDMENTS TO CREDIT AGREEMENT
A. The following definitions set forth in Section 1.1 of the Credit Agreement are
hereby amended and restated in their entirety to read as follows:
““Applicable ABR Margin” shall mean at any date, with respect to each
ABR Loan that is a Term Loan, 2.25% per annum.”
““Applicable LIBOR Margin” shall mean at any date, with respect to
each LIBOR Loan that is a Term Loan, 3.25% per annum.”
““Consolidated Secured Debt” shall mean, as of any date of
determination, (a) the aggregate principal amount of Indebtedness of the
Borrower and the Restricted Subsidiaries outstanding on such date, determined
on a consolidated basis in accordance with GAAP (but excluding the effects of
any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition),
consisting of Indebtedness for borrowed money, Capital Lease Obligations and
debt obligations evidenced by promissory notes or
similar instruments, in each case secured by Liens, minus (b) the
aggregate amount of cash and cash equivalents held in accounts on the
consolidated balance sheet of the Borrower and the Restricted Subsidiaries as
at such date to the extent the use thereof for application to payment of
Indebtedness is not prohibited by law or any contract to which the Borrower
or any of the Restricted Subsidiaries is a party.”
““Revolving Loan Credit Agreement” shall mean that certain revolving
loan credit agreement dated as of the Revolving Loan Closing Date by and
among the Borrower, The CIT Group/Business Credit, Inc. as administrative
agent and co-collateral agent, Bank of America, N.A., as co-collateral agent,
Goldman Sachs Credit Partners L.P. and Lehman Brothers Inc., as the co-lead
arrangers and joint bookrunners, and Goldman Sachs Credit Partners L.P., as
the syndication agent.”
““Secured Leverage Ratio” shall mean, as of any date of
determination, the ratio of (a) Consolidated Secured Debt as of the last day
of the relevant Test Period to (b) Consolidated EBITDA for such Test Period.”
B. Section 1.1 of the Credit Agreement is hereby amended by deleting the definitions
“Level I Status”, “Level II Status”, “Status” and “Trigger Date” and inserting the following
definitions in the appropriate alphabetical order:
““Red Man Acquisition Agreement” shall mean that certain stock
purchase agreement dated as of July 6, 2007, among McJ Holding LLC, a
Delaware limited liability company, Red-Man Pipe and Supply Company, an
Oklahoma corporation, West Oklahoma PVF Company, a Delaware corporation and
the shareholders of Red Man, as amended from time to time in accordance with
the terms thereof.”
““Revolving Loan Closing Date” shall mean October 31, 2007.”
C. Section 1.1 of the Credit Agreement is hereby amended by deleting subsection
(a)(ii) of the definition “Applicable Amount” and inserting the following in its place:
“(ii) the amount of any capital contributions (other than any Cure Amount)
made in cash to, or any proceeds of any equity issuance received by, the
Borrower from and including the Business Day immediately following the
Revolving Loan Closing Date through and including the Reference Time,
including proceeds from the issuance of Stock or Stock Equivalents of any
direct or indirect parent of the Borrower,”
D. Section 2.14(a) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(a) Borrower may by written notice to Administrative Agent elect to request
the establishment of one or more increases in Term Loan Commitments (the
“New Term Loan Commitments”), by an aggregate
2
amount not in excess of the difference between the aggregate amounts
permitted by clauses (x) & (y) hereafter and the sum of all New Term Loan
Commitments and New Revolving Credit Commitments obtained on or prior to such
date and not less than $10,000,000 individually (or such lesser amount which
shall be approved by Administrative Agent or such lesser amount that shall
constitute the difference between the aggregate amounts permitted by clauses
(x) & (y) hereafter and the sum of all New Revolving Credit Commitments and
New Term Loan Commitments obtained on or prior to such date). Each such
notice shall specify the date (each, an “Increased Amount Date”) on
which the Borrower proposes that the New Term Loan Commitments shall be
effective, which shall be a date not less than ten Business Days after the
date on which such notice is delivered to Administrative Agent. The New Term
Loan Commitments shall not exceed the sum of: (x) up to $200,000,000 solely
to the extent used to fund the exercise of the CanHCO Call Right (as defined
under the Red Man Acquisition Agreement as in effect on the date hereof) and
the refinancing of certain indebtedness of Midfield Supply Co. plus
(y) up to an additional $100,000,000; provided that any Lender
offered or approached to provide all or a portion of the New Term Loan
Commitments may elect or decline, in its sole discretion, to provide a New
Term Loan Commitments. Such New Term Loan Commitments shall become
effective, as of such Increased Amount Date; provided that (i) no
Default or Event of Default shall exist on such Increased Amount Date before
or after giving effect to such New Term Loan Commitments, as applicable; (ii)
both before and after giving effect to the making of any Series of New Term
Loans, each of the conditions set forth in Section 7 shall be
satisfied; (iii) Borrower and its Subsidiaries shall be in Pro Forma
Compliance with each of the covenants set forth in Section 10.9 as of
the last day of the most recently ended fiscal quarter after giving effect to
such New Term Loan Commitments and any Specified Transaction to be
consummated in connection therewith; (iv) the New Term Loan Commitments shall
be effected pursuant to one or more Joinder Agreements executed and delivered
by the Borrower and Administrative Agent, and each of which shall be recorded
in the Register and shall be subject to the requirements set forth in
Section 5.4(d) and (e); (v) Borrower shall make any payments
required pursuant to Section 2.11 in connection with the New Term
Loan Commitments, as applicable; and (vi) Borrower shall deliver or cause to
be delivered any legal opinions or other documents reasonably requested by
Administrative Agent in connection with any such transaction. Any New Term
Loans made on an Increased Amount Date shall be designated, a separate series
(a “Series”) of New Term Loans for all purposes of this Agreement.”
E. Section 5.1 of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
“(a) The Borrower shall have the right to prepay Term Loans, in each case, without
premium or penalty except as set forth in subsection (b) below, in whole or in part
3
from time to time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent and at the Administrative Agent’s Office written notice (or telephonic
notice promptly confirmed in writing no later than 1:00 p.m. (New York City time)) of its
intent to make such prepayment, the amount of such prepayment and (in the case of LIBOR Loans)
the specific Borrowing(s) pursuant to which made, which notice shall be given by the Borrower
no later than (x) in the case of a LIBOR Loans, 12:00 noon (New York City time) three Business
Days prior to or (y) in the case of ABR Loans, 12:00 noon (New York City time) on, the date of
such prepayment and shall promptly be transmitted by the Administrative Agent to each of the
Lenders; (ii) each partial prepayment of any Borrowing of Term Loans shall be in a multiple of
$100,000 and in an aggregate principal amount of at least $1,000,000, provided that no
partial prepayment of LIBOR Loans made pursuant to a single Borrowing shall reduce the
outstanding LIBOR Loans made pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount for LIBOR Loans and (iii) any prepayment of LIBOR Loans pursuant to this
Section 5.1 on any day other than the last day of an Interest Period applicable
thereto shall be subject to compliance by the Borrower with the applicable provisions of
Section 2.11. Each prepayment in respect of any Term Loans pursuant to this
Section 5.1 shall be (1) applied to Term Loans in such manner as the Borrower may
determine and (2) applied to reduce Repayment Amounts, and/or any New Term Loan Repayment
Amounts, as the case may be, in such order as the Borrower may determine. At the Borrower’s
election in connection with any prepayment pursuant to this Section 5.1, such
prepayment shall not be applied to any Term Loan of a Defaulting Lender.
(b) In the event that all but not less than all of the Term Loans are repaid prior to the
first anniversary of the Revolving Loan Closing Date with the proceeds of a substantially
concurrent issuance or incurrence of new bank loans which (i) are incurred solely for the
purpose of refinancing the Term Loans and decreasing the Applicable ABR Margin and/or
Applicable LIBOR Margin with respect thereto, (ii) otherwise have terms and conditions (and
are in an aggregate principal amount) substantially the same as those of the Term Loans as in
effect prior to the prepayment thereof and (iii) are not otherwise in connection with an
initial public offering by the Borrower, any of its Subsidiaries or any direct or indirect
parent thereof, such prepayment will be accompanied by a premium equal to 1.00% of the
aggregate principal amount of such prepayment.”
F. Section 5.2(a)(ii) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(ii) Not later than the date that is ninety days after the last day of any fiscal
year (commencing with and including the fiscal year ending December 31, 2007), the
Borrower shall prepay, in accordance with paragraph (c) below, the principal of Term
Loans in an amount equal to (x) 50% of Excess Cash Flow for such fiscal year,
provided that (A) the percentage in this Section 5.2(a)(ii)
shall be reduced to 25% if the Borrower’s ratio of Consolidated Total Debt on the
date of prepayment (prior to giving effect thereto) to Consolidated EBITDA for the
most recent Test Period ended prior to such prepayment date is no greater than 2.50
to 1.00 but greater than 2.00 to 1.00 and (B) no payment of any Term Loans shall be
required under this Section 5.2(a)(ii) if the Borrower’s ratio of
Consolidated Total Debt on
4
the date of prepayment (prior to giving effect thereto) to Consolidated EBITDA for
the most recent Test Period ended prior to such prepayment date is no greater than
2.00 to 1.00), minus (y) the principal amount of Term Loans voluntarily prepaid
pursuant to Section 5.1 during such fiscal year.
G. Section 9.1(a) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(a) Annual Financial Statements. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with
the SEC (or, if such financial statements are not required to be filed with the SEC,
on or before the date that is 105 days after the end of each such fiscal year), the
consolidated balance sheet of the Borrower and the Restricted Subsidiaries as at the
end of such fiscal year, and the related consolidated statement of operations and
consolidated statement of cash flows for such fiscal year, setting forth comparative
consolidated figures for the preceding fiscal year, and certified by independent
certified public accountants of recognized national standing whose opinion shall not
be qualified as to the scope of audit or as to the status of the Borrower or any of
the Material Subsidiaries (or group of Subsidiaries that together would constitute a
Material Subsidiary) as a going concern, together in any event with a certificate of
such accounting firm stating that in the course of its regular audit of the business
of the Borrower and the Material Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm has
obtained no knowledge of any Default or Event of Default relating to Sections
10.9, 10.10 or 10.11 that has occurred and is continuing or, if
in the opinion of such accounting firm such a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof which shall be
certified by a Financial Officer of the Borrower.”
H. Section 9.1(b) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(b) Quarterly Financial Statements. As soon as available and in any event
on or before the date on which such financial statements are required to be filed
with the SEC with respect to each of the first three quarterly accounting periods in
each fiscal year of the Borrower (or, if such financial statements are not required
to be filed with the SEC, on or before the date that is sixty (60) days after the end
of each such quarterly accounting period), the consolidated balance sheet of (i) the
Borrower and the Restricted Subsidiaries and (ii) the Borrower and its Subsidiaries,
in each case as at the end of such quarterly period and the related consolidated
statement of operations for such quarterly accounting period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and the
related consolidated statement of cash flows for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, and setting forth comparative
consolidated figures for the related periods in the prior fiscal year or, in the case
of such consolidated balance sheet, for the last day of the prior fiscal year, all of
5
which shall be certified by a Financial Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.”
I. Section 9.15 of the Credit Agreement is hereby amended by deleting the first
occurrence of the defined term “Closing Date” and inserting the defined term “Revolving Loan
Closing Date” in its place.
J. Section 10.1(n) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(n) (i) additional Indebtedness and (ii) any refinancing, refunding, renewal
or extension of any Indebtedness specified in subclause (i) above;
provided that the aggregate amount of Indebtedness incurred and
remaining outstanding pursuant to this clause (n) shall not at any time
exceed the greater of (w) $150,000,000 and (x) 5% of Consolidated Total
Assets at the time of the incurrence of such Indebtedness; provided,
however, not more than the greater of (y) $50,000,000 and (z) 1.5% of
Consolidated Total Assets at the time of the incurrence of such Indebtedness
in aggregate principal amount of Indebtedness of the Borrower or any
Subsidiary Guarantor incurred under this clause (n) shall be secured;”
K. Section 10.2(r) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(r) additional Liens so long as the aggregate principal amount of the
obligations so secured does not exceed the greater of (y) $50,000,000 at any
time outstanding and (z) 1.5% of Consolidated Total Asset at the time of the
incurrence of such obligations.”
L. Subsection (i) of Section 10.4(b) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
“(i) with respect to any Disposition pursuant to this clause (b) for a
purchase price in excess of $10,000,000, the Borrower or a Restricted
Subsidiary shall receive not less than 75% of such consideration in the form
of cash or Permitted Investments; provided that for the purposes of
this clause (i):”
M. Subsection (ii) of Section 10.4(c) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
“(ii) with respect to any Disposition pursuant to this clause (c) for a
purchase price in excess of $10,000,000, the Borrower or a Restricted
Subsidiary shall receive not less than 75% of such consideration in the form
of cash or Permitted Investments; provided that for the purposes of
this clause (ii):”
6
N. Section 10.5(c) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(c) loans and advances to officers, directors and employees of the Borrower
(or any direct or indirect parent thereof) or any of its Subsidiaries (i) for
reasonable and customary business-related travel, entertainment, relocation
and analogous ordinary business purposes (including employee payroll
advances), (ii) in connection with such Person’s purchase of Stock or Stock
Equivalents of the Borrower (or any direct or indirect parent thereof) to the
extent that the amount of such loans and advances are contributed to the
Borrower in cash and (iii) for purposes not described in the foregoing
clauses (i) and (ii), in an aggregate principal amount outstanding not to
exceed $5,000,000;”
O. Section 10.5(i) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“(i) (i) Investments (including Investments in Unrestricted Subsidiaries) and
(ii) Investments in joint ventures or similar entities that do not constitute
Restricted Subsidiaries, in each case, as valued at the fair market value of
such Investment at the time each such Investment is made, in an amount that,
at the time such Investment is made, would not exceed the sum of (x) the
greater of (A) $100,000,000 and (B) 3% of Consolidated Total Assets at the
time of the incurrence of such Investment, plus (y) the Applicable
Amount at such time plus (z) an amount equal to any repayments,
interest, returns, profits, distributions, income and similar amounts
actually received in cash in respect of any such Investment (which amount
shall not exceed the amount of such Investment valued at the fair market
value of such Investment at the time such Investment was made),”
P. Section 10.5(s) of the Credit Agreement is hereby amended by deleting “; and” at
the end of such subsection and inserting “;” in its place.
Q. Section 10.5(t) of the Credit Agreement is hereby amended by deleting “.” at the
end of such subsection and inserting “; and” in its place.
R. A new Section 10.5(u) is hereby added to the Credit Agreement to read as follows:
“(u) Investments with respect to the purchase of the outstanding Stock and Stock
Equivalents of Red Man Pipe and Supply Canada, Ltd. in accordance with the exercise
of the CanHCO Call Right (as defined in the Red Man Acquisition Agreement) so long as
no Default or Event of Default exists or would exist after giving effect thereto.”
S. Section 10.6(d)(ii) of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
7
“(ii) the proceeds of which shall be used to allow any direct or indirect
parent of Borrower to pay (A) its operating expenses incurred in the ordinary
course of business and other corporate overhead costs and expenses (including
administrative, legal, accounting and similar expenses provided by third
parties), which are reasonable and customary and incurred in the ordinary
course of business, in an aggregate amount not to exceed $2,000,000 in any
fiscal year of the Borrower plus any reasonable and customary indemnification
claims made by directors or officers of the Borrower (or any parent thereof)
attributable to the ownership or operations of the Borrower and its
Subsidiaries or (B) fees and expenses otherwise (x) due and payable by the
Borrower or any of its Subsidiaries and (y) permitted to be paid by the
Borrower or such Subsidiary under this Agreement;”
T. Section 10.6(d)(iv) of the Credit Agreement is hereby amended by deleting “; and”
at the end of such subsection and inserting “;” in its place
U. Section 10.6(d)(v) of the Credit Agreement is hereby amended by deleting “.” at
the end of such subsection and inserting “; and” in its place.
V. A new Section 10.6(d)(vi) is hereby added to the Credit Agreement to read as
follows:
“(vi) in an amount not to exceed the amount necessary to effect the Investment
described in Section 10.5(u).”
W. Section 10.9 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“The Borrower will not permit the Consolidated Total Debt to Consolidated EBITDA
Ratio for any Test Period ending during any period set forth below to be greater than
the ratio set forth below opposite such period:
| Period | Ratio | |||
March 31, 2007 |
5.75:1.00 | |||
June 30, 2007 |
5.75:1.00 | |||
September 30, 2007 |
5.75:1.00 | |||
December 31, 2007 |
4.25:1.00 | |||
March 31, 2008 |
4.25:1.00 | |||
June 30, 2008 |
4.25:1.00 | |||
September 30, 2008 |
4.25:1.00 | |||
December 31, 2008 |
4.25:1.00 | |||
March 31, 2009 |
3.50:1.00 | |||
June 30, 2009 |
3.50:1.00 | |||
September 30, 2009 |
3.50:1.00 | |||
December 31, 2009 |
3.50:1.00 | |||
March 31, 2010 |
2.75:1.00 | |||
8
| Period | Ratio | |||
June 30, 2010 |
2.75:1.00 | |||
September 30, 2010 |
2.75:1.00 | |||
December 31, 2010 |
2.75:1.00 | |||
March 31, 2011 |
2.50:1.00 | |||
June 30, 2011 |
2.50:1.00 | |||
September 30, 2011 |
2.50:1.00 | |||
December 31, 2011 |
2.50:1.00 | |||
March 31, 2012 |
2.50:1.00 | |||
June 30, 2012 |
2.50:1.00 | |||
September 30, 2012 |
2.50:1.00 | |||
December 31, 2012 |
2.50:1.00 | |||
March 31, 2013 |
2.50:1.00 | |||
June 30, 2013 |
2.50:1.00 | |||
September 30, 2013 |
2.50:1.00 | |||
December 31, 2013 |
2.50:1.00 | |||
X. Section 10.10 of the Credit Agreement is hereby amended is hereby amended and
restated in its entirety to read as follows:
“The Borrower will not permit the Consolidated EBITDA to Consolidated Interest
Expense Ratio for any Test Period ending during any period set forth below to be less
than the ratio set forth below opposite such period:
| Period | Ratio | |||
March 31, 2007 |
2.00:1.00 | |||
June 30, 2007 |
2.00:1.00 | |||
September 30, 2007 |
2.00:1.00 | |||
December 31, 2007 |
3.00:1.00 | |||
March 31, 2008 |
3.00:1.00 | |||
June 30, 2008 |
3.00:1.00 | |||
September 30, 2008 |
3.00:1.00 | |||
December 31, 2008 |
3.00:1.00 | |||
March 31, 2009 |
3.25:1.00 | |||
June 30, 2009 |
3.25:1.00 | |||
September 30, 2009 |
3.25:1.00 | |||
December 31, 2009 |
3.25:1.00 | |||
March 31, 2010 |
3.25:1.00 | |||
June 30, 2010 |
3.25:1.00 | |||
September 30, 2010 |
3.25:1.00 | |||
December 31, 2010 |
3.25:1.00 | |||
March 31, 2011 |
3.25:1.00 | |||
June 30, 2011 |
3.25:1.00 | |||
September 30, 2011 |
3.25:1.00 | |||
December 31, 2011 |
3.25:1.00 | |||
March 31, 2012 |
3.50:1.00 | |||
9
| Period | Ratio | |||
June 30, 2012 |
3.50:1.00 | |||
September 30, 2012 |
3.50:1.00 | |||
December 31, 2012 |
3.50:1.00 | |||
March 31, 2013 |
3.50:1.00 | |||
June 30, 2013 |
3.50:1.00 | |||
September 30, 2013 |
3.50:1.00 | |||
December 31, 2013 |
3.50:1.00 | |||
Y. Section 10.11 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
“The Borrower will not, and will not permit any of its Restricted Subsidiaries
to, make, or be committed to make, Capital Expenditures which in the aggregate in any
Fiscal Year set forth below exceed the amount set forth below for such Fiscal Year:
| Fiscal Year | Amount | |||
2007 |
$ | 18,000,000 | ||
2008 |
$ | 25,000,000 | ||
2009 |
$ | 25,000,000 | ||
2010 |
$ | 25,000,000 | ||
2011 |
$ | 25,000,000 | ||
2012 |
$ | 25,000,000 | ||
The amount of permitted Capital Expenditures set forth above in respect of any Fiscal
Year commencing with Fiscal Year 2008 shall be increased by 100% of the amount of
unused permitted Capital Expenditures for the immediately preceding Fiscal Year (such
amount, a “carry-forward amount”) without giving effect to any carry-forward
amount that was added in such preceding Fiscal Year and assuming any such
carry-forward amount is utilized first.”
Z. Section 14.1 of the Credit Agreement is hereby amended by deleting the
parenthetical “(it being understood that any change to the definitions of Consolidated Total
Debt to Consolidated EBITDA Ratio or Consolidated Fixed Charge Coverage Ratio or in the
component definitions thereof shall not constitute a reduction in the rate and only the
consent of the Required Lenders shall be necessary to waive any obligation of the Borrower to
pay interest at the “default rate” or amend Section 2.8(c))” and inserting “(it being
understood that any change to the definitions of Consolidated Total Debt to Consolidated
EBITDA Ratio, Secured Leverage Ratio or Consolidated Fixed Charge Coverage Ratio or in the
component definitions thereof shall not constitute a reduction in the rate and only the
consent of the Required Lenders shall be necessary to waive any obligation of the Borrower to
pay interest at the “default rate” or amend Section 2.8(c))” in its place.
10
SECTION II. AMENDMENT TO EXHIBIT O (FORM OF INTERCREDITOR AGREEMENT) TO CREDIT AGREEMENT
A. Section 1.1 of Exhibit O (Form of Intercreditor Agreement) to the Credit Agreement
is hereby amended by amending the definition of “Cap Amount” therein by deleting the amount
“$330,000,000” and inserting “$715,000,000” in its place.
SECTION III. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the date hereof only upon the satisfaction of all
of the following conditions precedent (the date of satisfaction of such conditions being referred
to herein as the “First Amendment Effective Date”):
A. Execution. Administrative Agent shall have received a counterpart signature page
of this Amendment duly executed by each of the Credit Parties and Required Lenders.
B. Revolving Loan Credit Agreement and Intercreditor Agreement. Administrative Agent
shall have received a fully-executed copy of the Revolving Loan Credit Agreement and the
Intercreditor Agreement as amended hereby.
C. Fees. Administrative Agent shall have received, for the account of each Lender
delivering an executed counterpart of this Amendment to the Administrative Agent, an amendment
fee in an amount equal to 0.25% on such Lender’s Commitment and any other fees and expenses
required to be paid on or before the date hereof.
D. Necessary Consents. Each Credit Party shall have obtained all material consents
necessary or advisable in connection with the transactions contemplated by this Amendment.
E. Other Documents. Administrative Agent and Lenders shall have received such other
documents, information or agreements regarding Credit Parties as Administrative Agent or
Collateral Agent may reasonably request.
SECTION IV. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in
the manner provided herein, each Credit Party which is a party hereto represents and warrants to
each Lender that the following statements are true and correct in all material respects:
A. Corporate Power and Authority; Authorization; Binding Obligation. Each Credit
Party has the corporate or other organizational power and authority to execute and deliver
this Amendment and to carry out the terms and provisions of the Credit Agreement as amended by
this Amendment (the “Amended Agreement”) and the other Credit Documents to which it is a party
and has taken all necessary corporate or other organizational action to authorize the
execution and delivery of the Amendment and performance of the Amended Agreement and the other
Credit Documents to which it is a party. Each Credit Party has duly executed and delivered
this Amendment and the
11
Amendment and the Amended Agreement constitute the legal, valid and binding obligation of
such Credit Party each enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights
generally and subject to general principles of equity.
B. No Violation. Neither the execution and delivery by any Credit Party of this
Amendment or performance by any Credit Party of the Amended Agreement and the other Credit
Documents to which it is a party will (a) contravene any applicable provision of any material
law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental
instrumentality, (b) result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets of such Credit
Party or any of the Restricted Subsidiaries (other than Liens created under the Credit
Documents) pursuant to, the terms of any material indenture, loan agreement, lease agreement,
mortgage, deed of trust, agreement or other material instrument to which such Credit Party or
any of the Restricted Subsidiaries is a party or by which it or any of its property or assets
is bound or (c) violate any provision of the certificate of incorporation, by-laws or other
constitutional documents of such Credit Party or any of the Restricted Subsidiaries.
C. Governmental Approvals. The execution and delivery of this Amendment and the
performance of the Amended Agreement and the other Credit Documents does not require any
consent or approval of, registration or filing with, or any other action by, any Governmental
Authority, except for (i) such as have been obtained or made and are in full force and effect,
(ii) filings and recordings in respect of the Liens created pursuant to the Security Documents
and (iii) such licenses, approvals, authorizations or consents the failure to obtain or make
could not reasonably be expected to have a Material Adverse Effect.
D. Incorporation of Representations and Warranties From Credit Agreement. The
representations and warranties contained in Section 8 of the Amended Agreement are and will be
true and correct in all material respects on and as of the First Amendment Effective Date to
the same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which case they were
true and correct in all material respects on and as of such earlier date.
E. Absence of Default. No event has occurred and is continuing or will result from
the consummation of the transactions contemplated by this Amendment that would constitute an
Event of Default or a Default.
SECTION V. ACKNOWLEDGMENT AND CONSENT
Each Domestic Subsidiary listed on the signature pages hereto are referred to herein as a
“Credit Support Party” and collectively as the “Credit Support Parties”, and the Credit Documents
to which they are a party are collectively referred to herein as the “Credit Support Documents”.
12
Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of
the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement
effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit
Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby
will continue to guarantee or secure, as the case may be, to the fullest extent possible in
accordance with the Credit Support Documents the payment and performance of all “Obligations” under
each of the Credit Support Documents to which is a party (in each case as such terms are defined in
the applicable Credit Support Document).
Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to
which it is a party or otherwise bound shall continue in full force and effect and that all of its
obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants
that all representations and warranties contained in the Amended Agreement and the Credit Support
Documents to which it is a party or otherwise bound are true and correct in all material respects
on and as of the First Amendment Effective Date to the same extent as though made on and as of that
date, except to the extent such representations and warranties specifically relate to an earlier
date, in which case they were true and correct in all material respects on and as of such earlier
date.
Each Credit Support Party acknowledges and agrees that (i) notwithstanding the conditions to
effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms
of the Credit Agreement or any other Credit Support Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Credit Support Document shall be deemed to require the consent of such
Credit Support Party to any future amendments to the Credit Agreement.
SECTION VI. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Credit Documents.
(i) On and after the First Amendment Effective Date, each reference in the
Credit Agreement to “this Amendment”, “hereunder”, “hereof”, “herein” or words of
like import referring to the Credit Agreement, and each reference in the other
Credit Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like
import referring to the Credit Agreement shall mean and be a reference to the Credit
Agreement as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the Credit Agreement
and the other Credit Documents shall remain in full force and effect and are hereby
ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall not
constitute a waiver of any provision of, or operate as a waiver of any right,
13
power or remedy of any Agent or Lender under, the Credit Agreement or any of
the other Credit Documents.
B. Agent’s Direction. The Administrative Agent and Required Lenders hereby
irrevocably authorize and direct the Collateral Agent, in such capacity, to enter into any and
all Security Documents (including, for the avoidance of doubt, the Intercreditor Agreement as
amended hereby).
C. Headings. Section and Subsection headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this Amendment for any
other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
E. Counterparts. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts (including by facsimile or other electronic
transmission), each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument; signature
pages may be detached from multiple separate counterparts and attached to a single counterpart
so that all signature pages are physically attached to the same document.
[Remainder of this page intentionally left blank.]
14
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date above written.
|
MCJUNKIN CORPORATION |
||||
| By: | /s/ J. F. Underhill | |||
| Name: | James F. Underhill | |||
| Title: | Chief Financial Officer | |||
|
MCJUNKIN APPALACHIAN OILFIELD SUPPLY COMPANY |
||||
| By: | /s/ David A. Fox III | |||
| Name: | David A. Fox III | |||
| Title: | Executive Vice President | |||
| MCJUNKIN NIGERIA LIMITED |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| MCJUNKIN DEVELOPMENT CORPORATION |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| MCJUNKIN-PUERTO RICO CORPORATION |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| MCJUNKIN-WEST AFRICA CORPORATION |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
[Signature Page to First Amendment to Term Loan Credit Agreement]
| MILTON OIL & GAS COMPANY |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| GREENBRIER PETROLEUM CORPORATION |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| RUFFNER REALTY COMPANY |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| MIDWAY-TRISTATE CORPORATION |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| WEST OKLAHOMA PVF COMPANY |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
[Signature Page to First Amendment to Term Loan Credit Agreement]
| RED MAN PIPE & SUPPLY CO. |
||||
| By: | /s/ Dee Paige | |||
| Name: | Dee Paige | |||
| Title: | Chief Financial Officer | |||
| WESCO ACQUISITION PARTNERS, INC. |
||||
| By: | /s/ Craig Ketchum | |||
| Name: | Craig Ketchum | |||
| Title: | Chairman of the Board | |||
[Signature Page to First Amendment to Term Loan Credit Agreement]
| LEHMAN COMMERCIAL PAPER INC., as Administrative Agent, as Collateral Agent and as a Lender |
||||
| By: | /s/ Maria M. Lund | |||
| Name: | Maria M. Lund | |||
| Title: | Authorized Signatory | |||
[Signature Page to First Amendment to Term Loan Credit Agreement]
| GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Joint Bookrunner, Syndication Agent and as a Lender |
||||
| By: | /s/ Pedro Ramirez | |||
| Name: | Pedro Ramirez | |||
| Title: | Authorized Signatory | |||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to First Amendment to Term Loan Credit Agreement]
| LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint Bookrunner |
||||
| By: | /s/ D. Albanese | |||
| Name: | Diane Albanese | |||
| Title: | Vice President | |||
[Signature Page to First Amendment to Term Loan Credit Agreement]
Exhibit 10.4
TERM LOAN PLEDGE AGREEMENT
TERM LOAN PLEDGE AGREEMENT (this “Agreement”) dated as of January 31, 2007 among McJunkin
Corporation, a West Virginia corporation (the “Borrower”), each of the Subsidiaries of the
Borrower listed on the signature pages hereto (each such Subsidiary being a “Subsidiary
Pledgor” and, collectively, the “Subsidiary Pledgors”; the Subsidiary Pledgors and the
Borrower are referred to collectively as the “Pledgors”) and Lehman Commercial Paper Inc.,
as Collateral Agent (in such capacity, the “Collateral Agent”) under the Credit Agreement
(as defined below) for the benefit of the Secured Parties (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower is party to the Term Loan Credit Agreement dated as of January 31, 2007
(as the same may be amended, restated, supplemented or otherwise modified, refinanced or replaced
from time to time, the “Credit Agreement”) among the Borrower, the lending institutions
from time to time party thereto (the “Lenders”), Lehman Commercial Paper Inc., as
Administrative Agent and as Collateral Agent, pursuant to which (1) the Lenders have severally
agreed to make Loans to the Borrower upon the terms and subject to the conditions set forth
therein, and (2) one or more Lenders or affiliates of Lenders may from time to time enter into
Hedge Agreements with the Borrower (the items in clauses (1) and (2) collectively, the
“Extensions of Credit”);
WHEREAS, pursuant to the Guarantee, dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the “Guarantee”), each of the
Subsidiary Pledgors, have agreed to unconditionally and irrevocably guarantee, as primary obligor
and not merely as surety, to the Collateral Agent, for the ratable benefit of the Secured Parties,
the prompt and complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations (as defined below);
WHEREAS, each Subsidiary Pledgor is a Subsidiary Guarantor;
WHEREAS, the proceeds of the Extensions of Credit will be used in part to enable the Borrower
to make valuable transfers to the Subsidiary Pledgors in connection with the operation of their
respective businesses;
WHEREAS, each Pledgor acknowledges that it will derive substantial direct and indirect benefit
from the making of the Extensions of Credit;
WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective
Extensions of Credit to the Borrower under the Credit Agreement that the Borrower and the
Subsidiary Pledgors shall have executed and delivered this Agreement to the Collateral Agent for
the ratable benefit of the Secured Parties;
WHEREAS, (a) Each of the Pledgors is the legal and beneficial owner of the Equity Interests
(as defined below) described in Schedule 1 hereto and issued by the entities named therein (such
Equity Interests, together with all other Equity Interests required to be
pledged hereunder (the “After-acquired Shares”), are referred to collectively herein
as the “Pledged Shares”), and (b) each of the Pledgors is the legal and beneficial owner of
the Indebtedness (the “Pledged Debt”) described in Schedule 1 hereto and issued by the
entities named therein, in each case as such schedule may be amended or supplemented pursuant to
Section 9.12 of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Collateral Agent, the Syndication Agent, and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Extensions of Credit to the Borrower under the Credit
Agreement and to induce one or more Lenders or affiliates of Lenders to enter into Hedge Agreements
with the Borrower, the Pledgors hereby agree with the Collateral Agent, for the benefit of the
Secured Parties, as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, all capitalized terms used herein (including the preamble
and recitals hereto) and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement or, if not defined therein, in the UCC.
(b) The following terms shall have the following meanings:
“After-acquired Shares” shall have the meaning assigned to such term in the recitals
hereto.
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Collateral” shall have the meaning provided in Section 2 hereof.
“Collateral Agent” shall have the meaning assigned to such term in the preamble
hereto.
“Credit Agreement” shall have the meaning assigned to such term in the recitals
hereto.
“Equity Interests” shall mean, collectively, Stock and Stock Equivalents.
“Extensions of Credit” shall have the meaning assigned to such term in the recitals
hereto.
“Lender Counterparty” means each Lender or any Affiliate of a Lender that is a
counterparty to a Hedge Agreement (including any Person that ceases to be a Lender (or any
Affiliate thereof) (a) on the date such Lender becomes a party to the Credit Agreement or (b) as of
the date such Hedge Agreement was entered into.
“Lenders” shall have the meaning assigned to such term in the recitals hereto.
“Obligations” shall mean the collective reference to (i) the due and punctual payment
of (x) the principal of and premium, if any, and interest at the applicable rate provided in the
Credit Agreement (including interest at the contract rate applicable upon default accrued or
accruing after the commencement of any proceeding, under the Bankruptcy Code or any applicable
provision of comparable state or foreign law, whether or not such interest is an allowed claim in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (y) each payment required to be made by any Borrower
under the Credit Agreement, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and (z) all other
monetary obligations, including fees, costs, payments for early termination of Hedge Agreements,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any proceeding under the Bankruptcy
Code or any applicable provision of comparable state or foreign law, whether or not such interest
is an allowed claim in such proceeding), of any Borrower or any other Credit Party to any of the
Secured Parties under the Credit Agreement and any other Credit Documents, (ii) the due and
punctual performance of all covenants, agreements, obligations and liabilities of the Borrower
under or pursuant to the Credit Agreement and the other Credit Documents, (iii) the due and
punctual payment and performance of all the covenants, agreements, obligations and liabilities of
each other Credit Party under or pursuant to this Agreement or the other Credit Documents and (iv)
the due and punctual payment and performance of all obligations of each Credit Party under each
Hedge Agreement that (x) is in effect on the Closing Date with a counterparty that is a Lender or
an affiliate of a Lender as of the Closing Date or (y) is entered into after the Closing Date with
any counterparty that is a Lender or an affiliate of a Lender at the time such Hedge Agreement is
entered into.
“Pledged Debt” shall have the meaning assigned to such term in the recitals hereto.
“Pledged Shares” shall have the meaning assigned to such term in the recitals hereto.
“Pledgors” shall have the meaning assigned to such term in the preamble hereto.
“Proceeds” shall mean: (i) all “proceeds” as defined in Article 9 of the UCC and (ii)
whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary, including proceeds of
any indemnity or guarantee payable to any Pledgor or the Collateral Agent from time to time with
respect to any of the Collateral.
“Secured Parties” shall mean, collectively, (i) the Lenders, (ii) the Administrative
Agent, (iii) the Collateral Agent, (iv) the Syndication Agent, (v) each Lender Counterparty party
to a Hedge Agreement the obligations under which constitute Obligations, (vi) the beneficiaries
of each indemnification obligation undertaken by any Credit Party under the Credit Documents
and (vii) any successors, indorsees, transferees and assigns of each of the foregoing.
“Subsidiary Pledgors” shall have the meaning assigned to such term in the preamble
hereto.
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in the
State of New York; provided, however, that, in the event that, by reason of mandatory
provisions of law, any of the attachment, perfection or priority of the Collateral Agent’s and the
Secured Parties’ security interest in any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of definitions related
to such provisions.
(c) References to “Lenders” in this Agreement shall be deemed to include affiliates of Lenders
that may from time to time enter into Hedge Agreements with the Borrower.
(d) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section references are to Sections of this Agreement unless otherwise specified.
The words “include,” “includes” and “including” shall be deemed to be followed by the phrase
“without limitation.”
(e) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
SECTION 2. Grant of Security. Each Pledgor hereby transfers, assigns and pledges to
the Collateral Agent, for the ratable benefit of the Secured Parties, and grants to the Collateral
Agent, for the benefit of the Secured Parties, a security interest in and continuing lien on all of
such Pledgor’s right, title and interest in, to and under the following, whether now owned or
existing or at any time hereafter acquired or existing or arising (collectively, the
“Collateral”):
(a) the Pledged Shares held by such Pledgor and the certificates representing such
Pledged Shares and any interest of such Pledgor in the entries on the books or records of
the issuer of such Pledged Shares or on the books or records of any financial intermediary
pertaining to such Pledged Shares and all dividends, cash, warrants, rights, instruments and
other property or proceeds from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt owed to such
Pledgor, and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange for any or
all of such Pledged Debt; and
(c) to the extent not covered by clauses (a) and (b) above, respectively, all Proceeds of any
or all of the foregoing Collateral.
SECTION 3. Security for Obligations. This Agreement secures the payment of all the
Obligations. Without limiting the generality of the foregoing, this Agreement secures the payment
of all amounts that constitute part of the Obligations and would be owed to the Collateral Agent or
the Secured Parties under the Credit Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any
Pledgor.
SECTION 4. Delivery of the Collateral. All original stock certificates or
instruments, if any, representing or evidencing the Collateral shall be promptly delivered to and
held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the Collateral Agent.
The Collateral Agent shall have the right, at any time after the occurrence and during the
continuance of an Event of Default and with notice to the relevant Pledgor, to transfer to or to
register in the name of the Collateral Agent or any of its nominees any or all of the Pledged
Shares. Each delivery of Collateral (including any After-acquired Shares) shall be accompanied by
a schedule describing the securities theretofore and then being pledged hereunder, which shall be
attached hereto as part of Schedule 1 and made a part hereof; provided that the failure to
deliver or attach any such schedule hereto shall not affect the validity of such pledge of such
securities; provided, further, that the failure by the Collateral Agent to attach
any schedule so delivered shall not constitute a Default or Event of Default hereunder or under any
other Credit Document . Each schedule so delivered shall supersede any prior schedules so
delivered.
SECTION 5. Representations and Warranties. Each Pledgor represents and warrants to
the Collateral Agent and each other Secured Party as follows:
(a) Schedule 1 hereto (i) correctly represents as of the Closing Date (A) the issuer, the
certificate number, the Pledgor and the record and beneficial owner, the number and class and the
percentage of the issued and outstanding Equity Interests of such class of all Pledged Shares and
(B) the issuer, the initial principal amount, the Pledgor and holder, date of issuance and maturity
date of all Pledged Debt, and (ii) together with the comparable schedule to each supplement hereto,
accurately and completely describes all Equity Interests, debt securities and promissory notes
required to be pledged hereunder. Except as set forth on Schedule 1, the Pledged Shares represent
all (or 65% in the case of pledges of Foreign Subsidiaries) of the issued and outstanding Equity
Interests of each class of Equity Interests in the issuer on the Closing Date.
(b) Such Pledgor is the legal and beneficial owner of the Collateral pledged or assigned by
such Pledgor hereunder, free and clear of any Lien, except for the Lien created by this Agreement.
(c) As of the Closing Date, the Pledged Shares pledged by such Pledgor hereunder have been
duly authorized and validly issued and, in the case of Pledged Shares issued by a corporation, are
fully paid and non-assessable.
(d) As of the Closing Date, all of the Pledged Debt, to the knowledge of such Pledgor only
with respect to Pledged Debt owed by an issuer other than a Subsidiary of a Pledgor, has been duly
authorized, authenticated or issued, and delivered, and is the legal, valid and binding obligation
of the issuers thereof and is not in default.
(e) The execution and delivery by such Pledgor of this Agreement and the pledge of the
Collateral pledged by such Pledgor hereunder pursuant hereto create a legal, valid and enforceable
security interest in such Collateral and, upon the earlier of (i) delivery of such Collateral to
the Collateral Agent in the State of New York or (ii) the filing of all UCC financing statements
naming each Pledgor as “debtor” and the Collateral Agent as “secured party” and describing the
Collateral in the filing offices set forth opposite such Pledgor’s name on Schedule 5(e) hereto,
shall constitute a fully perfected Lien on and first priority security interest in the Collateral,
securing the payment of the Obligations, in favor of the Collateral Agent for the benefit of the
Secured Parties, except as enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws affecting creditors’ rights generally and subject to general principles of equity.
(f) Such Pledgor has full power, authority and legal right to pledge all the Collateral
pledged by such Pledgor pursuant to this Agreement, and this Agreement constitutes a legal, valid
and binding obligation of each Pledgor, enforceable in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency or other similar laws affecting
creditors’ rights generally and subject to general principles of equity.
SECTION 6. Certification of Limited Liability Company, Limited Partnership Interests and
Pledged Debt. (a) The Equity Interests in any Domestic Subsidiary that is organized as a
limited liability company or limited partnership and pledged hereunder shall be represented by a
certificate and in the organizational documents of such Domestic Subsidiary, the applicable Pledgor
shall cause the issuer of such interests to elect to treat such interests as a “security” within
the meaning of Article 8 of the UCC of its jurisdiction of organization or formation, as
applicable, by including in its organizational documents language substantially similar to the
following and, accordingly, such interests shall be governed by Article 8 of the UCC:
“The Partnership/Company hereby irrevocably elects that all membership interests in
the Partnership/Company shall be securities governed by Article 8 of the Uniform
Commercial Code of [jurisdiction of organization or formation, as applicable]. Each
certificate evidencing partnership/membership interests in the Partnership/Company
shall bear the following legend: “This certificate evidences an interest in [name
of Partnership/LLC] and shall be a security for purposes of Article 8 of the Uniform
Commercial Code.” No change to this provision shall be effective until all
outstanding certificates have been surrendered for cancellation and any new
certificates thereafter issued shall not bear the foregoing legend.”
(b) Each Pledgor will cause any Indebtedness for borrowed money in an aggregate principal
amount exceeding $5,000,000 owed to such Pledgor to be evidenced by a duly executed promissory note
that is pledged and delivered to the Collateral Agent pursuant to the terms hereof.
SECTION 7. Further Assurances. Each Pledgor agrees that at any time and from time to
time, at the expense of such Pledgor, it will promptly execute or otherwise authorize the filing of
any and all further documents, financing statements, agreements and instruments, and take all such
further actions (including the filing and recording of financing statements, fixture filings,
mortgages, deeds of trust and other documents), which may be required under any applicable law, or
which the Collateral Agent or the Administrative Agent may reasonably request, in order (x) to
perfect and protect any pledge, assignment or security interest granted or purported to be granted
hereby (including the priority thereof) or (y) to enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
SECTION 8. Voting Rights; Dividends and Distributions; Etc. (a) So long as no Event
of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting and other consensual
rights pertaining to the Collateral or any part thereof for any purpose not prohibited by
the terms of this Agreement or the other Credit Documents.
(ii) The Collateral Agent shall execute and deliver (or cause to be executed and
delivered) to each Pledgor all such proxies and other instruments as such Pledgor may
reasonably request for the purpose of enabling such Pledgor to exercise the voting and other
rights that it is entitled to exercise pursuant to paragraph (i) above.
(b) Subject to paragraph (c) below, each Pledgor shall be entitled to receive and retain and
use, free and clear of the Lien created by this Agreement, any and all dividends, distributions,
principal and interest made or paid in respect of the Collateral to the extent permitted by the
Credit Agreement, as applicable; provided, however, that any and all noncash
dividends, interest, principal or other distributions that would constitute Pledged Shares or
Pledged Debt, whether resulting from a subdivision, combination or reclassification of the
outstanding Equity Interests of the issuer of any Pledged Shares or received in exchange for
Pledged Shares or Pledged Debt or any part thereof, or in redemption thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party
or otherwise, shall be, and shall be forthwith delivered to the Collateral Agent to hold as,
Collateral and shall, if received by such Pledgor, be received in trust for the benefit of the
Collateral Agent, be segregated from the other property or funds of such Pledgor and be forthwith
delivered to the Collateral Agent as Collateral in the same form as so received (with any necessary
indorsement).
(c) Upon written notice to a Pledgor by the Collateral Agent following the occurrence and
during the continuance of an Event of Default,
(i) all rights of such Pledgor to exercise or refrain from exercising the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant to Section
8(a)(i) shall cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights during the continuance of such Event of Default,
provided that, unless otherwise directed by the Required Lenders, the Collateral
Agent shall have the right from time to time following the occurrence and
during the continuance of an Event of Default to permit the Pledgors to exercise such
rights. When no Events of Default are continuing and the Borrower has delivered to the
Collateral Agent a certificate to that effect, or after all Events of Default have been
cured or waived pursuant to Section 12 or Section 14.1 of the Credit Agreement, as
applicable, each Pledgor shall have the right to exercise the voting and consensual rights
that such Pledgor would otherwise be entitled to exercise pursuant to the terms of Section
8(a)(i) (and the obligations of the Collateral Agent under Section 8(a)(ii) shall be
reinstated);
(ii) all rights of such Pledgor to receive the dividends, distributions and principal
and interest payments that such Pledgor would otherwise be authorized to receive and retain
pursuant to Section 8(b) shall cease, and all such rights shall thereupon become vested in
the Collateral Agent, which shall thereupon have the sole right to receive and hold as
Collateral such dividends, distributions and principal and interest payments during the
continuance of such Event of Default. When no Events of Default are continuing and the
Borrower has delivered to the Collateral Agent a certificate to that effect, or after all
Events of Default have been cured or waived pursuant to Section 12 or Section 14.1 of the
Credit Agreement, as applicable, the Collateral Agent shall repay to each Pledgor (without
interest) all dividends, distributions and principal and interest payments that such Pledgor
would otherwise be permitted to receive, retain and use pursuant to the terms of Section
8(b);
(iii) all dividends, distributions and principal and interest payments that are
received by such Pledgor contrary to the provisions of Section 8(b) shall be received in
trust for the benefit of the Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall forthwith be delivered to the Collateral Agent as Collateral
in the same form as so received (with any necessary indorsements); and
(iv) in order to permit the Collateral Agent to receive all dividends, distributions
and principal and interest payments to which it may be entitled under Section 8(b) above, to
exercise the voting and other consensual rights that it may be entitled to exercise pursuant
to Section 8(c)(i) above, and to receive all dividends, distributions and principal and
interest payments that it may be entitled to under Sections 8(c)(ii) and (c)(iii) above,
such Pledgor shall from time to time execute and deliver to the Collateral Agent appropriate
proxies, dividend payment orders and other instruments as the Collateral Agent may
reasonably request in writing.
SECTION 9. Transfers and Other Liens; Additional Collateral; Etc. Each Pledgor shall:
(a) not (i) except as permitted by the Credit Agreement sell or otherwise dispose of,
or grant any option or warrant with respect to, any of the Collateral or (ii) create or
suffer to exist any consensual Lien upon or with respect to any of the Collateral, except
for the Lien created by this Agreement, provided that in the event such Pledgor
sells or otherwise disposes of assets as permitted by the Credit Agreement, and such assets
are or include any of the Collateral, the Collateral Agent shall release such Collateral to
such Pledgor free and clear of the Lien created by this Agreement concurrently with the
consummation of such sale;
(b) pledge and, if applicable, cause each Domestic Subsidiary to pledge, to the
Collateral Agent for the ratable benefit of the Secured Parties, immediately upon
acquisition thereof, all the Equity Interests and all evidence of Indebtedness held or
received by such Pledgor or Domestic Subsidiary required to be pledged hereunder pursuant to
Section 9.12 of the Credit Agreement, in each case pursuant to a supplement to this
Agreement substantially in the form of Annex A hereto (it being understood that the
execution and delivery of such a supplement shall not require the consent of any Pledgor
hereunder and that the rights and obligations of each Pledgor hereunder shall remain in full
force and effect notwithstanding the addition of any new Subsidiary Pledgor as a party to
this Agreement); and
(c) defend its and the Collateral Agent’s title or interest in and to all the
Collateral (and in the Proceeds thereof) against any and all Liens (other than the Lien
created by this Agreement), however arising, and any and all Persons whomsoever.
SECTION 10. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby
appoints, which appointment is irrevocable and coupled with an interest, the Collateral Agent as
such Pledgor’s attorney-in-fact, with full authority in the place and stead of such Pledgor and in
the name of such Pledgor or otherwise, to take any action and to execute any instrument, in each
case after the occurrence and during the continuance of an Event of Default, that the Collateral
Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement,
including to receive, indorse and collect all instruments made payable to such Pledgor representing
any dividend, distribution or principal or interest payment in respect of the Collateral or any
part thereof and to give full discharge for the same.
SECTION 11. The Collateral Agent’s Duties. The powers conferred on the Collateral
Agent hereunder are solely to protect its interest and the interests of the Secured Parties in the
Collateral and shall not impose any duty upon the Collateral Agent or any other Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as
to any Collateral, as to ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged Shares, whether or not the
Collateral Agent or any other Secured Party has or is deemed to have knowledge of such matters, or
as to the taking of any necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Collateral Agent accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all the rights and remedies
of a secured party upon default under the UCC (whether or not the UCC applies to the affected
Collateral) or other applicable law or in equity and also may, with notice to the relevant Grantor,
sell the Collateral or any part thereof in one or more parcels at public or private sale, at
any exchange broker’s board or at any of the Collateral Agent’s offices or elsewhere, for
cash, on credit or for future delivery, at such price or prices and upon such other terms as are
commercially reasonable irrespective of the impact of any such sales on the market price of the
Collateral. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to
do so) to restrict the prospective bidders or purchasers of Collateral to Persons who will
represent and agree that they are purchasing the Collateral for their own account for investment
and not with a view to the distribution or sale thereof, and, upon consummation of any such sale,
the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby
waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal that it now
has or may at any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent or any other Secured Party shall have the right upon any
such public sale and, to the extent permitted by law, upon any such private sale, to purchase all
or any part of the Collateral so sold, and the Collateral Agent or such other Secured Party may pay
the purchase price by crediting the amount thereof against the Obligations. Each Pledgor agrees
that, to the extent notice of sale shall be required by law, at least ten days’ notice to such
Pledgor of the time and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and place to which it was
so adjourned. To the extent permitted by law, each Pledgor hereby waives any claim against the
Collateral Agent arising by reason of the fact that the price at which any Collateral may have been
sold at such a private sale was less than the price that might have been obtained at a public sale,
even if the Collateral Agent accepts the first offer received and does not offer such Collateral to
more than one offeree.
(b) The Collateral Agent shall apply the proceeds of any collection or sale of the Collateral
at any time after receipt as follows:
(i) first, to the payment of all reasonable and documented costs and expenses
incurred by the Collateral Agent in connection with such collection or sale or
otherwise in connection with this Agreement, the other Credit Documents or any of
the Obligations, including all court costs and the reasonable fees and expenses of
its agents and legal counsel, the repayment of all advances made by the Collateral
Agent hereunder or under any other Credit Document on behalf of any Pledgor and any
other reasonable and documented costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Credit Document;
(ii) second, to the Secured Parties, an amount equal to all Obligations owing
to them on the date of any such distribution, and, if such moneys shall be
insufficient to pay such amounts in full, then ratably (without priority of any one
over any other) to such Secured Parties in proportion to the unpaid amounts thereof;
and
(iii) third, any surplus then remaining shall be paid to the Pledgors or their
successors or assigns or to whomsoever may be lawfully entitled to receive the same
or as a court of competent jurisdiction may direct.
Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
(c) The Collateral Agent may exercise any and all rights and remedies of each Pledgor in
respect of the Collateral.
(d) All payments received by any Pledgor in respect of the Collateral after the occurrence and
during the continuance of an Event of Default shall be received in trust for the benefit of the
Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be
forthwith delivered to the Collateral Agent as Collateral in the same form as so received (with any
necessary indorsement).
SECTION 13. Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each
Pledgor shall remain obligated hereunder notwithstanding that, without any reservation of rights
against any Pledgor and without notice to or further assent by any Pledgor, (a) any demand for
payment of any of the Obligations made by the Collateral Agent or any other Secured Party may be
rescinded by such party and any of the Obligations continued, (b) the Obligations, or the liability
of any other party upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or released by the
Collateral Agent or any other Secured Party, (c) the Credit Agreement, the other Credit Documents
and any other documents executed and delivered in connection therewith and the Hedge Agreements and
any other documents executed and delivered in connection therewith and any documents entered into
with the applicable Administrative Agent or the Collateral Agent or any of its respective
affiliates in connection with treasury, depositary or cash management services or in connection
with any automated clearinghouse transfer of funds may be amended, modified, supplemented or
terminated, in whole or in part, as the applicable Administrative Agent (or the Required Lenders,
as the case may be, or, in the case of any Hedge Agreement or documents entered into with the
applicable Collateral Agent or any of its respective affiliates in connection with treasury,
depositary or cash management services or in connection with any automated clearinghouse transfer
of funds, the party thereto) may deem advisable from time to time, and (d) any collateral security,
guarantee or right of offset at any time held by the Collateral Agent or any other Secured Party
for the payment of the Obligations may be sold, exchanged, waived, surrendered or released.
Neither the Collateral Agent nor any other Secured Party shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the Obligations or for
this Agreement or any property subject thereto. When making any demand hereunder against any
Pledgor, the Collateral Agent or any other Secured Party may, but shall be under no obligation to,
make a similar demand on any Borrower or any Pledgor or any other person, and any failure by the
Collateral Agent or any other Secured Party to make any such demand or to collect any
payments from any Borrower or any Pledgor or any other person or any release of any Borrower
or any Pledgor or any other person shall not relieve any Pledgor in respect of which a demand or
collection is not made or any Pledgor not so released of its several obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Collateral Agent or any other Secured Party against any Pledgor. For the
purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.
SECTION 14. Continuing Security Interest; Assignments Under the Credit Agreement;
Release. (a) This Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon each Pledgor and the successors and assigns
thereof, and shall inure to the benefit of the Collateral Agent and the other Secured Parties and
their respective successors, indorsees, transferees and assigns until all the Obligations (other
than any contingent indemnity obligations not then due) under the Credit Documents shall have been
satisfied by payment in full, and the Commitments shall be terminated, notwithstanding that from
time to time during the term of the Credit Agreement and any Hedge Agreement the Credit Parties may
be free from any Obligations.
(b) A Subsidiary Pledgor shall automatically be released from its obligations hereunder and
the pledge of such Subsidiary Pledgor shall be automatically released upon the consummation of any
transaction expressly permitted under the Credit Agreement, as a result of which such Subsidiary
Pledgor ceases to be a Subsidiary Guarantor.
(c) Upon any sale or other transfer by any Pledgor of any Collateral that is permitted under
the Credit Agreement or upon the effectiveness of any written consent to the release of the
security interest granted hereby in any Collateral pursuant to Section 14.1 of the Credit
Agreement, the obligations of such Pledgor with respect to such Collateral shall be automatically
released and such Collateral sold free and clear of the Lien and security interests created hereby.
(d) In connection with any termination or release pursuant to the foregoing paragraph (a), (b)
or (c), the Collateral Agent shall execute and deliver to any Pledgor or authorize the filing of,
at such Pledgor’s expense, all documents that such Pledgor shall reasonably request to evidence
such termination or release. Any execution and delivery of documents pursuant to this Section 14
shall be without recourse to or warranty by the Collateral Agent.
SECTION 15. Reinstatement. Each Pledgor further agrees that, if any payment made by
any Credit Party or other Person and applied to the Obligations is at any time annulled, avoided,
set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required
to be refunded or repaid, or the proceeds of Collateral are required to be returned by any Secured
Party to such Credit Party, its estate, trustee, receiver or any other party, including any
Pledgor, under any bankruptcy law, state, federal or foreign law, common law or equitable cause,
then, to the extent of such payment or repayment, any Lien or other Collateral securing such
liability shall be and remain in full force and effect, as fully as if such payment had never been
made or, if prior thereto the Lien granted hereby or other Collateral securing such liability
hereunder shall have been released or terminated by virtue of such cancellation or surrender),
such Lien or other Collateral shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect any
Lien or other Collateral securing the obligations of any Pledgor in respect of the amount of such
payment.
SECTION 16. Notices. All notices, requests and demands pursuant hereto shall be made
in accordance with Section 14.2 of the Credit Agreement. All communications and notices hereunder
to any Pledgor shall be given to it in care of the Borrower at the Borrower’s address set forth in
Section 14.2 of the Credit Agreement.
SECTION 17. Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by facsimile or other
electronic transmission), and all of said counterparts taken together shall be deemed to constitute
one and the same instrument. A set of the copies of this Agreement signed by all the parties shall
be lodged with the Collateral Agent and the Borrower.
SECTION 18. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 19. Integration. This Agreement together with the other Credit Documents
represents the agreement of each of the Pledgors with respect to the subject matter hereof and
there are no promises, undertakings, representations or warranties by the Collateral Agent or any
other Secured Party relative to the subject matter hereof not expressly set forth or referred to
herein or in the other Credit Documents.
SECTION 20. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified
except by a written instrument executed by the affected Pledgor and the Collateral Agent in
accordance with Section 14.1 of the Credit Agreement.
(b) Neither the Collateral Agent nor any other Secured Party shall by any act (except by a
written instrument pursuant to Section 20(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event
of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Collateral Agent or any other Secured Party, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Collateral Agent or any other
Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar
to any right or remedy that the Collateral Agent or such other Secured Party would otherwise have
on any future occasion.
(c) The rights, remedies, powers and privileges herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or remedies provided by
law.
SECTION 21. Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
SECTION 22. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of the Collateral Agent and
the other Secured Parties and their respective successors and assigns, except that no Pledgor may
assign, transfer or delegate any of its rights or obligations under this Agreement without the
prior written consent of the Collateral Agent.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 24. Submission to Jurisdiction; Waivers. Each party hereto irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address referred to in Section 16 or at such
other address of which the Collateral Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right of any other party hereto (or any
Secured Party) to effect service of process in any other manner permitted by law or shall
limit the right of any party hereto (or any Secured Party) to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 24 any special,
exemplary, punitive or consequential damages.
SECTION 25. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 26. Intercreditor Agreement. Notwithstanding anything herein to the contrary,
the lien and security interest granted to the Collateral Agent pursuant to this Agreement and the
exercise of any right or remedy by the Collateral Agent hereunder are subject to the provisions of
the Intercreditor Agreement, dated as of January 31, 2007 (as amended, restated, supplemented or
otherwise modified from time to time, the “Intercreditor Agreement”), among the Borrower,
Lehman Commercial Paper Inc., as Administrative Agent and as Collateral Agent, and certain other
persons which may be or become parties thereto, or become bound thereto from time to time. In the
event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the
terms of the Intercreditor Agreement shall govern and control.
(signature pages follow)
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and
delivered by its duly authorized officer as of the day and year first above written.
| MCJUNKIN CORPORATION, as Pledgor |
||||
| By: | /s/ JAMES F. UNDERHILL | |||
| Name: | James F. Underhill | |||
| Title: | Chief Financial Officer | |
||
| MCJUNKIN APPALACHIAN
OILFIELD COMPANY, as Pledgor |
||||
| By: | /s/ DAVID FOX III | |||
| Name: | David Fox III | |||
| Title: | Executive Vice President | |
||
| MCJUNKIN NIGERIA LIMITED, as Pledgor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |
||
| MCJUNKIN DEVELOPMENT CORPORATION, as Pledgor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |
||
| MCJUNKIN-PUERTO RICO CORPORATION, as Pledgor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |
||
| MILTON OIL & GAS COMPANY, as Pledgor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |
||
| GREENBRIER PETROLEUM CORPORATION, as Pledgor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |
||
| PIEDMONT FARMS, INC., as Pledgor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | President | |
||
| RUFFNER REALTY COMPANY, as Pledgor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | Vice President | |
||
| MCJUNKIN-WEST AFRICA CORPORATION, as Pledgor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | President | |
||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ JEFF OGDEN | |||
| Name: | Jeff Ogden | |||
| Title: | Managing Director | |
||
[SIGNATURE PAGE TO PLEDGE AGREEMENT]
Exhibit 10.4.1
SUPPLEMENT NO. 1 dated as of April 30, 2007 (this
“Supplement”), to the PLEDGE AGREEMENT dated as of January 31, 2007, among McJunkin
Corporation, a West Virginia corporation (the “Borrower”), each of the Subsidiaries of the
Borrower listed on the signature pages thereto (each such Subsidiary being a “Subsidiary
Pledgor” and, collectively, the “Subsidiary Pledgors”; the Subsidiary Pledgors and the
Borrower are referred to collectively as the “Pledgors”) and Lehman Commercial Paper Inc.,
as Collateral Agent (in such capacity, the “Collateral Agent”) under the Credit Agreement
referred to below.
A. Reference is made to the Term Loan Credit Agreement dated as of January
31, 2007(as the same may be amended, restated, supplemented or otherwise modified, refinanced
or replaced from time to time, the “Credit Agreement”) among the Borrower, the lending
institutions from time to time party thereto (the “Lenders”), Lehman Commercial Paper
Inc., as Administrative Agent and as Collateral Agent and the Term Loan Guarantee dated as of January
31, 2007 (as the same may be amended, restated, supplemented and or otherwise modified from
time to time, the “Guarantee”), among the Guarantors party thereto and the Collateral
Agent.
B. Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Pledge Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce the Administrative Agent, the Collateral Agent, the Syndication Agent, and the Lenders to
enter into the Credit Agreement, to induce the Lenders to make their respective Extensions of Credit
to the Borrower under the Credit Agreement and to induce one or more Lenders or affiliates of
Lenders to enter into Hedge Agreements with the Borrower.
D. The undersigned Pledgor (the “Additional Pledgor”) is (a) the legal and
beneficial owner of the Equity Interests described under Schedule 1 hereto and issued by the
entity named therein (such pledged Equity Interests, together with all other Equity Interests
required to be pledged under the Pledge Agreement (the “After-acquired Additional
Pledged Shares”), referred to collectively herein as the “Additional Pledged Shares”)
and (b) the legal and beneficial owner of the Indebtedness described under Schedule 1 hereto and issued by the
entity named therein (such Indebtedness, together with all other Indebtedness required to be pledged
under the Pledge Agreement, the “Additional Pledged Debt”), in each case as such schedule may
be amended in accordance with the Credit Agreement.
E. Section 9.12 of the Credit Agreement and Section 9(b) of the Pledge
Agreement provide that additional Subsidiaries may become Subsidiary Pledgors under the
Pledge Agreement by execution and delivery of an instrument in the form of this Supplement.
The undersigned Additional Pledgor is executing this Supplement in accordance with the
requirements of Section 9(b) of the Pledge Agreement to pledge to the Collateral Agent for the
ratable benefit of the Secured Parties the Additional Pledged Shares and the Additional
Pledged Debt in order to induce (i) the Lenders to make additional Extensions of Credit and as
consideration for Extensions of Credit previously made and (ii) the Lender Counterparties to
enter into Hedge Agreements with the Borrower.
Accordingly, the Collateral Agent and the undersigned Additional Pledgor agree as follows:
SECTION 1. In accordance with Section 9(b) of the Pledge Agreement, the Additional Pledgor by
its signature hereby transfers, assigns and pledges to the Collateral Agent for the ratable benefit
of the Secured Parties, and hereby grants to the Collateral Agent for the ratable benefit of the
Secured Parties, a security interest in all of the Additional Pledgor’s right, title and interest
in the following, whether now owned or existing or hereafter acquired or existing or arising
(collectively, the “Additional Collateral”):
(a) the Additional Pledged Shares held by the Additional Pledgor and the certificates
representing such Additional Pledged Shares and any interest of such Additional Pledgor in
the entries on the books of the issuer of the Additional Pledged Shares or any financial
intermediary pertaining to the Additional Pledged Shares and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Additional Pledged
Shares;
(b) the Additional Pledged Debt and the instruments evidencing the Additional
Pledged Debt owed to such Additional Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Additional Pledged
Debt; and
(c) to the extent not covered by clauses (a) and (b) above, respectively, all Proceeds
of any or all of the foregoing Additional Collateral.
For purposes of the Pledge Agreement, (x) the Collateral shall be deemed to include the
Additional Collateral and (y) the After-acquired Pledged Shares shall be deemed to include the
Additional After-acquired Pledge Shares.
SECTION 2. The Additional Pledgor represents and warrants as follows:
(a) Schedule 1 hereto (i) correctly represents as of the date hereof (A) the
issuer, the certificate number, the Pledgor and registered owner, the number and class and
the percentage of the issued and outstanding Equity Interests of such class of all
Additional Pledged Shares and (B) the issuer, the initial principal amount, the Pledgor and
holder, date of and maturity date of all Additional Pledged Debt and (ii) together with
Schedule 1 to the Pledge Agreement and the comparable schedules to each other Supplement to
the Pledge Agreement, accurately and completely describes all Equity Interests, debt
securities and promissory notes required to be pledged under the Pledge Agreement. Except as
set forth on Schedule 1 hereto, the Additional Pledged Shares represent all (or 65% in the
case of pledges of Foreign Subsidiaries)of the issued and outstanding Equity Interests of
each class of Equity Interests of the issuer on the date hereof.
(b) The Additional Pledgor is the legal and beneficial owner of the Additional
Collateral pledged or assigned by such Additional Pledgor hereunder free and clear of any
Lien, except for the Lien created by this Supplement to the Pledge Agreement.
(c) As of the date of this Supplement, the Additional Pledged Shares pledged by the
Additional Pledgor hereunder have been duly authorized and validly issued and, in the case
of Additional Pledged Shares issued by a corporation, are fully paid and nonassessable.
(d) The execution and delivery by the Additional Pledgor of this Supplement and the
pledge of the Additional Collateral pledged by the Additional Pledgor hereunder pursuant
hereto create a valid and perfected first priority security interest in the Additional
Collateral, securing the payment of the Obligations, in favor of the Collateral Agent for
the ratable benefit of the Secured Parties.
(e) The Additional Pledgor has full power, authority and legal right to pledge all the
Additional Collateral pledged by such Additional Pledgor pursuant to this Supplement and
this Supplement constitutes a legal, valid and binding obligation of the Additional
Pledgor, enforceable in accordance with its terms, except as enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights
generally and subject to general principles of equity.
SECTION 3. This Supplement may be executed by one or more of the parties to this Supplement on
any number of separate counterparts (including by facsimile or other electronic transmission), and
all of said counterparts taken together shall be deemed to constitute one and the same instrument.
A set of the copies of this Supplement signed by all the parties shall be lodged with the
Collateral Agent and the Borrower. This Supplement shall become effective as to the Additional
Pledgor when the Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of such Additional Pledgor and the Collateral Agent.
SECTION 4. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full
force and effect.
SECTION 5. THIS SUPPLEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Any provision of this Supplement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof and in
the Pledge Agreement, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 7. All notices, requests and demands pursuant hereto shall be made in accordance with
Section 16 of the Pledge Agreement. All communications and notices hereunder to the Additional
Pledgor shall be given to it in care of the Borrower at the Borrower’s address set forth in Section
14.2 of the Credit Agreement.
SECTION 8. The Additional Pledgor agrees to reimburse the Collateral Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other
charges and disbursements of counsel for the Collateral Agent.
[Signature Pages Follow]
IN WITNESS WHEREOF, the Additional Pledgor and the Collateral Agent have duly executed this
Supplement to the Pledge Agreement as of the day and year first above written.
| McJunkin Appalachian Oilfield Supply Company, as Additional Pledgor |
||||
| By: | /s/ S. D. Wehrle | |||
| Name: | S. D. Wehrle | |||
| Title: | Vice President | |||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Supplement No. 1 to Term Pledge Agreement
IN WITNESS WHEREOF, the Additional Pledgor and the Collateral Agent have duly executed this
Supplement to the Pledge Agreement as of the day and year first above written.
| McJunkin Appalachian Oilfield Supply Company, as Additional Pledgor |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ Maria M. Lund | |||
| Name: | Maria M. Lund | |||
| Title: | Authorized Signatory | |||
Supplement
No. 1 to Term Loan Pledge Agreement
Exhibit 10.4.2
SUPPLEMENT NO. 2 dated as of April 30, 2007 (this “Supplement”), to the PLEDGE
AGREEMENT dated as of January 31, 2007, among McJunkin Corporation, a West Virginia corporation
(the “Borrower”), each of the Subsidiaries of the Borrower listed on the signature pages
thereto (each such Subsidiary being a “Subsidiary Pledgor” and, collectively, the
“Subsidiary Pledgors”; the Subsidiary Pledgors and the Borrower are referred to
collectively as the “Pledgors”) and Lehman Commercial Paper Inc., as Collateral Agent (in
such capacity, the “Collateral Agent”) under the Credit Agreement referred to below.
A. Reference is made to the Term Loan Credit Agreement dated as of January
31, 2007 (as the same may be amended, restated, supplemented or otherwise modified, refinanced
or replaced from time to time, the “Credit Agreement”) among the Borrower, the lending
institutions from time to time party thereto (the “Lenders”), Lehman Commercial Paper
Inc., as
Administrative Agent and as Collateral Agent and the Term Loan Guarantee dated as of January
31, 2007 (as the same may be amended, restated, supplemented and or otherwise modified from
time to time, the “Guarantee”), among the Guarantors party thereto and the Collateral
Agent.
B. Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Pledge Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce
the Administrative Agent, the Collateral Agent, the Syndication Agent, and the Lenders to
enter
into the Credit Agreement, to induce the Lenders to make their respective Extensions of Credit
to
the Borrower under the Credit Agreement and to induce one or more Lenders or affiliates of
Lenders to enter into Hedge Agreements with the Borrower.
D. The undersigned Subsidiary Guarantor (the “Additional Pledgor”) is (a)
the legal and beneficial owners of the Equity Interests described under Schedule 1 hereto and
issued by the entities named therein (such pledged Equity Interests, together with all other
Equity
Interests required to be pledged under the Pledge Agreement (the “After-acquired
Additional Pledged Shares”), referred to collectively herein as the “Additional Pledged
Shares”) and (b) the
legal and beneficial owners of the Indebtedness described under Schedule 1 hereto and issued
by
the entities named therein (such Indebtedness, together with all other Indebtedness required
to be
pledged under the Pledge Agreement, the “Additional Pledged Debt”), in each case as
such
schedule may be amended in accordance with the Credit Agreement.
E. Section 9.12 of the Credit Agreement and Section 9(b) of the Pledge
Agreement provide that additional Subsidiaries may become Subsidiary Pledgors under the
Pledge Agreement by execution and delivery of an instrument in the form of this Supplement.
The undersigned Additional Pledgor is executing this Supplement in accordance with the
requirements of Section 9(b) of the Pledge Agreement to pledge to the Collateral Agent for the
ratable benefit of the Secured Parties the Additional Pledged Shares and the Additional
Pledged
Debt and to become a Subsidiary Pledgor under the Pledge Agreement in order to induce (i) the
Lenders to make additional Extensions of Credit and as consideration for Extensions of Credit
previously made and (ii) the Lender Counterparties to enter into Hedge Agreements with the
Borrower.
Accordingly, the Collateral Agent and the undersigned Additional Pledgor agree as follows:
SECTION 1. In accordance with Section 9(b) of the Pledge Agreement, the Additional Pledgor by
its signature hereby transfers, assigns and pledges to the Collateral Agent for the ratable benefit
of the Secured Parties, and hereby grants to the Collateral Agent for the ratable benefit of the
Secured Parties, a security interest in all of the Additional Pledgor’s right, title and interest
in the following, whether now owned or existing or hereafter acquired or existing or arising
(collectively, the “Additional Collateral”):
(a) the Additional Pledged Shares held by the Additional Pledgor and the certificates
representing such Additional Pledged Shares and any interest of the Additional Pledgor in
the entries on the books of the issuer of the Additional Pledged Shares or any financial
intermediary pertaining to the Additional Pledged Shares and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the Additional
Pledged Shares;
(b) the Additional Pledged Debt and the instruments evidencing the Additional
Pledged Debt owed to the Additional Pledgor, and all interest, cash, instruments and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Additional Pledged
Debt; and
(c) to the extent not covered by clauses (a) and (b) above, respectively, all Proceeds
of any or all of the foregoing Additional Collateral.
For purposes of the Pledge Agreement, (x) the Collateral shall be deemed to include the
Additional Collateral and (y) the After-acquired Pledged Shares shall be deemed to include the
Additional After-acquired Pledge Shares.
SECTION 2. The Additional Pledgor by its signature below becomes a Pledgor under the Pledge
Agreement with the same force and effect as if originally named therein as a Pledgor and the
Additional Pledgor hereby agrees to all the terms and provisions of the Pledge Agreement applicable
to it as a Pledgor thereunder. Each reference to a “Subsidiary Pledgor” or a “Pledgor” in the
Pledge Agreement shall be deemed to include each Additional Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
SECTION 3. The Additional Pledgor represents and warrants as follows:
(a) Schedule 1
hereto (i) correctly represents as of the date hereof (A) the issuer, the certificate
number, the Pledgor and registered owner, the number and class and the percentage of the
issued and outstanding Equity Interests of such class of all Additional Pledged Shares and
(B) the issuer, the initial principal amount, the Pledgor and holder, date of and maturity
date of all Additional Pledged Debt and (ii) together with Schedule 1 to the Pledge
Agreement and the comparable schedules to each other Supplement to the Pledge Agreement,
accurately and completely describes all Equity Interests, debt securities and promissory
notes required to be pledged under the Pledge
Agreement. Except as set forth on Schedule 1 hereto, the Additional Pledged Shares
represent all (or 65% in the case of pledges of Foreign Subsidiaries) of the issued and
outstanding Equity Interests of each class of Equity Interests of the issuer on the
date hereof.
(b) The Additional Pledgor is the legal and beneficial owner of the Additional
Collateral pledged or assigned by such Additional Pledgor hereunder free and clear of any
Lien, except for the Lien created by this Supplement to the Pledge Agreement.
(c) As of the date of this Supplement, the Additional Pledged Shares pledged by such
Additional Pledgor hereunder have been duly authorized and validly issued and, in the case
of Additional Pledged Shares issued by a corporation, are fully paid and non-assessable.
(d) The execution and delivery by the Additional Pledgor of this Supplement and the
pledge of the Additional Collateral pledged by such Additional Pledgor hereunder pursuant
hereto create a valid and perfected first priority security interest in the Additional
Collateral, securing the payment of the Obligations, in favor of the Collateral Agent for
the ratable benefit of the Secured Parties.
(e) The Additional Pledgor has full power, authority and legal right to pledge all the
Additional Collateral pledged by the Additional Pledgor pursuant to this Supplement and this
Supplement constitutes a legal, valid and binding obligation of the Additional Pledgor,
enforceable in accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and
subject to general principles of equity.
SECTION 4. This Supplement may be executed by one or more of the parties to this Supplement on
any number of separate counterparts (including by facsimile or other electronic transmission), and
all of said counterparts taken together shall be deemed to constitute one and the same instrument.
A set of the copies of this Supplement signed by all the parties shall be lodged with the
Collateral Agent and the Borrower. This Supplement shall become effective as to the Additional
Pledgor when the Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the Additional Pledgor and the Collateral Agent.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full
force and effect.
SECTION 6. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Any provision of this Supplement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof and in the
Pledge Agreement, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 8. All notices, requests and demands pursuant hereto shall be made in accordance with
Section 16 of the Pledge Agreement. All communications and notices hereunder to the Additional
Pledgor shall be given to it in care of the Borrower at the Borrower’s address set forth in Section
14.2 of the Credit Agreement.
SECTION 9. The Additional Pledgor agrees to reimburse the Collateral Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other
charges and disbursements of counsel for the Collateral Agent.
[Signature
Pages Follow]
IN WITNESS WHEREOF, the Additional Pledgor and the Collateral Agent have duly executed this
Supplement to the Pledge Agreement as of the day and year first above written.
| Midway-Tristate Corporation, as Additional Pledgor |
||||
| By: | /s/ S. D. Wehrle | |||
| Name: | S. D. Wehrle | |||
| Title: | Vice President | |||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Supplement No. 2 to Term Loan Pledge Agreement
IN WITNESS WHEREOF, the Additional Pledgor and the Collateral Agent have duly executed this
Supplement to the Pledge Agreement as of the day and year first above written.
| Midway-Tristate Corporation, as Additional Pledgor |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ Maria M. Lund | |||
| Name: | Maria M. Lund | |||
| Title: | Authorized Signatory | |||
Supplement No. 2 to Term Loan Pledge Agreement
Exhibit 10.4.3
SUPPLEMENT NO. 3 TO TERM PLEDGE AGREEMENT
SUPPLEMENT NO. 3 dated as of October 31, 2007 (this “Supplement”), to the PLEDGE
AGREEMENT dated as of January 31, 2007 (as the same may be amended, restated, supplemented or
otherwise modified or replaced from time to time, the “Pledge Agreement”), among McJunkin
Corporation, a West Virginia corporation (the “Borrower”), each of the Subsidiaries of the
Borrower listed on the signature pages thereto (each such Subsidiary being a “Subsidiary
Pledgor” and, collectively, the “Subsidiary Pledgors”; the Subsidiary Pledgors and the
Borrower are referred to collectively as the “Pledgors”) and Lehman Commercial Paper Inc.,
as Collateral Agent (in such capacity, the “Collateral Agent”) under the Credit Agreement
referred to below.
A. Reference is made to the Term Loan Credit Agreement dated as of January 31, 2007 (as the
same may be amended, restated, supplemented or otherwise modified, refinanced or replaced from time
to time, the “Credit Agreement”) among the Borrower, the lending institutions from time to
time party thereto (the “Lenders”), Lehman Commercial Paper Inc., as Administrative Agent
and as Collateral Agent, and the Term Loan Guarantee dated as of January 31, 2007 (as the same may
be amended, restated, supplemented and or otherwise modified from time to time, the
“Guarantee”), among the Guarantors party thereto and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Pledge Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce the Administrative
Agent, the Collateral Agent, the Syndication Agent, and the Lenders to enter into the Credit
Agreement, to induce the Lenders to make their respective Extensions of Credit to the Borrower
under the Credit Agreement and to induce one or more Lenders or affiliates of Lenders to enter into
Hedge Agreements with the Borrower.
D. The Borrower and Red Man Pipe & Supply Co. (“Red Man” and, together with Borrower,
the “Additional Pledgors” and each an “Additional Pledgor”) are (a) the legal and
beneficial owners of the Equity Interests described under Schedule 1 hereto and issued by the
entities named therein (such pledged Equity Interests, together with all other Equity Interests
required to be pledged under the Pledge Agreement (the “After-acquired Additional Pledged
Shares”), referred to collectively herein as the “Additional Pledged Shares”) and (b)
the legal and beneficial owners of the Indebtedness described under Schedule 1 hereto and issued by
the entities named therein (such Indebtedness, together with all other Indebtedness required to be
pledged under the Pledge Agreement, the “Additional Pledged Debt”), in each case as such
schedule may be amended in accordance with the Credit Agreement.
E. Section 9.11 of the Credit Agreement and Section 9(b) of the Pledge Agreement provide that
additional Subsidiaries may become Subsidiary Pledgors under the Pledge Agreement by execution and
delivery of an instrument in the form of this Supplement. In order to induce the Lenders to make
additional Extensions of Credit and as consideration for Extensions of Credit previously made and
the Lender Counterparties to enter into Hedge Agreements with the Borrower, (i) Red Man is
executing this Supplement in accordance with the
requirements of Section 9(b) of the Pledge
Agreement to pledge to the Collateral Agent for the ratable benefit of the Secured Parties all of
its right, title and interest in and to the Additional Pledged Shares and the Additional Pledged
Debt
and to become a Subsidiary Pledgor under the Pledge Agreement and (ii) Borrower is executing
this Supplement in accordance with the requirements of Section 9(b) of the Pledge Agreement to
pledge to the Collateral Agent for the ratable benefit of the Secured Parties all of its right,
title and interest in and to the Additional Pledged Shares and the Additional Pledged Debt.
Accordingly, the Collateral Agent and each undersigned Additional Pledgor agree as follows:
SECTION 1. In accordance with Section 9(b) of the Pledge Agreement, each Additional Pledgor
by its signature hereby transfers, assigns and pledges to the Collateral Agent for the ratable
benefit of the Secured Parties, and hereby grants to the Collateral Agent for the ratable benefit
of the Secured Parties, a security interest in all of such Additional Pledgor’s right, title and
interest in the following, whether now owned or existing or hereafter acquired or existing or
arising (collectively, the “Additional Collateral”):
(a) the Additional Pledged Shares held by such Additional Pledgor and the certificates
representing such Additional Pledged Shares and any interest of such Additional Pledgor in
the entries on the books of the issuer of the Additional Pledged Shares or any financial
intermediary pertaining to the Additional Pledged Shares and all dividends, cash, warrants,
rights, instruments and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Additional Pledged
Shares;
(b) the Additional Pledged Debt and the instruments evidencing the Additional Pledged
Debt owed to such Additional Pledgor, and all interest, cash, instruments and other property
or proceeds from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such Additional Pledged Debt; and
(c) to the extent not covered by clauses (a) and (b) above, respectively, all Proceeds
of any or all of the foregoing Additional Collateral.
For purposes of the Pledge Agreement, (x) the Collateral shall be deemed to include the
Additional Collateral and (y) the After-acquired Pledged Shares shall be deemed to include the
Additional After-acquired Pledge Shares.
SECTION 2. Red Man by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and Red Man hereby agrees to
all the terms and provisions of the Pledge Agreement applicable to it as a Pledgor thereunder.
Each reference to a “Subsidiary Pledgor” or a “Pledgor” in the Pledge Agreement shall be deemed to
include Red Man. The Pledge Agreement is hereby incorporated herein by reference.
SECTION 3. Each Additional Pledgor represents and warrants as follows:
(a) Schedule 1 hereto (i) correctly represents as of the date hereof (A) the issuer,
the certificate number, the Pledgor and registered owner, the number and class and the
percentage of the issued and outstanding Equity Interests of such class of all Additional
Pledged Shares and (B) the issuer, the initial principal amount, the Pledgor and holder,
date of and maturity date of all Additional Pledged Debt and (ii) together with Schedule 1
to the Pledge Agreement and the comparable schedules to each other Supplement to the Pledge
Agreement, accurately and completely describes all Equity Interests, debt securities and
promissory notes required to be pledged under the Pledge Agreement. Except as set forth on
Schedule 1 hereto, the Additional Pledged Shares represent all (or 65% in the case of
pledges of Foreign Subsidiaries) of the issued and outstanding Equity Interests of each
class of Equity Interests of the issuer on the date hereof.
(b) Such Additional Pledgor is the legal and beneficial owner of the Additional
Collateral pledged or assigned by such Additional Pledgor hereunder free and clear of any
Lien, except for the Lien created by this Supplement to the Pledge Agreement.
(c) As of the date of this Supplement, the Additional Pledged Shares pledged by such
Additional Pledgor hereunder have been duly authorized and validly issued and, in the case
of Additional Pledged Shares issued by a corporation, are fully paid and non-assessable.
(d) The execution and delivery by such Additional Pledgor of this Supplement and the
pledge of the Additional Collateral pledged by such Additional Pledgor hereunder pursuant
hereto create a valid and perfected first priority security interest in the Additional
Collateral, securing the payment of the Obligations, in favor of the Collateral Agent for
the ratable benefit of the Secured Parties.
(e) Such Additional Pledgor has full power, authority and legal right to pledge all the
Additional Collateral pledged by such Additional Pledgor pursuant to this Supplement and
this Supplement constitutes a legal, valid and binding obligation of each Additional
Pledgor, enforceable in accordance with its terms, except as enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights
generally and subject to general principles of equity.
SECTION 4. This Supplement may be executed by one or more of the parties to this Supplement
on any number of separate counterparts (including by facsimile or other electronic transmission),
and all of said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Supplement signed by all the parties shall be lodged with
the Collateral Agent and the Borrower. This Supplement shall become effective as to each
Additional Pledgor when the Collateral Agent shall have received counterparts of this Supplement
that, when taken together, bear the signatures of such Additional Pledgor and the Collateral Agent.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full
force and effect.
SECTION 6. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Any provision of this Supplement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and in the Pledge Agreement,
and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 8. All notices, requests and demands pursuant hereto shall be made in accordance with
Section 16 of the Pledge Agreement. All communications and notices hereunder to each Additional
Pledgor shall be given to it in care of the Borrower at the Borrower’s address set forth in Section
14.2 of the Credit Agreement.
SECTION 9. Each Additional Pledgor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable
fees, other charges and disbursements of counsel for the Collateral Agent.
[Signature Pages Follow]
IN WITNESS WHEREOF, each Additional Pledgor and the Collateral Agent have duly executed this
Supplement to the Pledge Agreement as of the day and year first above written.
| McJunkin Corporation, | ||||||
| as Pledgor | ||||||
| By: | /s/ J. F. Underhill | |||||
| Name: James F. Underhill | ||||||
| Title: Chief Financial Officer | ||||||
| Red Man Pipe & Supply Co., | ||||||
| as Additional Pledgor | ||||||
| By: | /s/ Dee Paige | |||||
| Name: Dee Paige | ||||||
| Title: Chief Financial Officer | ||||||
[Signature Page to Supplement No. 3 to Term Loan Pledge Agreement]
| WEST OKLAHOMA PVF COMPANY, as Additional Pledgor |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
[Signature
Page to Supplement No. 3 to the Term Loan Pledge Agreement]
| MCJUNKIN DEVELOPMENT CORPORATION, as Additional Pledgor |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
[Signature
Page to Supplement No. 3 to the Term Loan Pledge Agreement]
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| MCJUNKIN-WEST AFRICA CORPORATION, as Additional Pledgor |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
[Signature
Page to Supplement No. 3 to the Term Loan Pledge Agreement]
3
| MCJUNKIN DE ANGOLA, LDA, as Additional Pledgor |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Chairman of the Board of Directors | |||
| By: | /s/ Stephen D. Wehrle | |||
| Name: | Stephen D. Wehrle | |||
| Title: | Director | |||
| By: | ||||
| Name: | James Christopher Noble | |||
| Title: | Director | |||
[Signature
Page to Supplement No. 3 to the Term Loan Pledge Agreement]
3
| MCJUNKIN DE ANGOLA, LDA, as Additional Pledgor |
||||
| By: | ||||
| Name: | Henry B. Wehrle III | |||
| Title: | Chairman of the Board of Directors | |||
| By: | ||||
| Name: | Stephen D. Wehrle | |||
| Title: | Director | |||
| By: | /s/ James Christopher Noble | |||
| Name: | James Christopher Noble | |||
| Title: | Director | |||
[Signature
Page to Supplement No. 3 to the Term Loan Pledge Agreement]
| Lehman Commercial Paper Inc., | ||||||
| as Collateral Agent | ||||||
| By: | /s/ Laurie Perper | |||||
| Name: Laurie Perper | ||||||
| Title: Senior Vice President | ||||||
[Signature Page to Supplement No. 3 to Term Loan Pledge Agreement]
Exhibit 10.5
TERM LOAN SECURITY AGREEMENT
THIS TERM LOAN SECURITY AGREEMENT (this “Agreement”)dated as of January 31, 2007,
among McJunkin Corporation, a West Virginia corporation (the “Borrower”), each of the
Subsidiaries of the Borrower listed on the signature pages hereto (each such entity being a
“Subsidiary Grantor” and, collectively, the “Subsidiary Grantors”; the Subsidiary
Grantors and the Borrower are referred to collectively as the “Grantors”) and Lehman
Commercial Paper Inc., as Collateral Agent (in such capacity, the “Collateral Agent”) under
the Credit Agreement (as defined below) for the benefit of the Secured Parties (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower is party to the Term Loan Credit Agreement, dated as of January 31, 2007
(as the same may be amended, restated, supplemented or otherwise modified, refinanced or replaced
from time to time, the “Credit Agreement”), among the Borrower, the lending institutions
from time to time party thereto (the “Lenders”), Lehman Commercial Paper Inc., as
Administrative Agent and as Collateral Agent, pursuant to which (1) the Lenders have severally
agreed to make Loans to the Borrower upon the terms and subject to the conditions set forth
therein, and (2) one or more Lenders or affiliates of Lenders may from time to time enter into
Hedge Agreements with the Borrower (the items in clauses (1) and (2) collectively, the
“Extensions of Credit”);
WHEREAS, pursuant to the Guarantee, dated as of the date hereof, (as amended, restated,
supplemented or otherwise modified from time to time, the “Guarantee”) each Subsidiary
Grantor party thereto has agreed to unconditionally and irrevocably guarantee, as primary obligor
and not merely as surety, to the Administrative Agent for the benefit of the Secured Parties, the
prompt and complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations;
WHEREAS, each Subsidiary Grantor is a Subsidiary Guarantor;
WHEREAS, the proceeds of the Extensions of Credit will be used in part to enable the Borrower
to make valuable transfers to the Subsidiary Grantors in connection with the operation of their
respective businesses;
WHEREAS, each Grantor acknowledges that it will derive substantial direct and indirect benefit
from the making of the Extensions of Credit; and
WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective
Extensions of Credit to the Borrower under the Credit Agreement that the Grantors shall have
executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the
Secured Parties;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Collateral Agent, the Syndication Agent, and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Extensions of Credit to the Borrower under the Credit
Agreement and to induce one or more Lenders or affiliates of
Lenders to enter into Hedge Agreements with the Borrower, the Grantors hereby agree with the
Collateral Agent for the benefit of the Secured Parties, as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, all capitalized terms used herein (including the preamble
and recitals hereto) and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement or, if not defined therein, in the UCC.
(b) The following terms shall have the following meanings:
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Collateral” shall have the meaning provided in Section 2 hereof.
“Collateral Agent” shall have the meaning assigned to such term in the preamble
hereto.
“Collateral Account” shall mean any collateral account established by the Collateral
Agent as provided in Section 5.1 or Section 5.3.
“Collateral Agent” shall have the meaning provided in the preamble hereto.
“Control” shall mean (i) in the case of each Deposit Account, “control,” as such term
is defined in Section 9-104 of the UCC, and (ii) in the case of any Security Entitlement,
“control,” as such term is defined in Section 8-106 of the UCC.
“Control Agreements” shall mean, collectively, Deposit Account Control Agreements and
the Securities Account Control Agreements.
“Copyright License” shall mean any written agreement, now or hereafter in effect,
naming any Grantor as licensor or licensee, granting any right to any third party under any
copyright now or hereafter owned by any Grantor (including all Copyrights) or that any Grantor
otherwise has the right to license, or granting any right to any Grantor under any copyright now or
hereafter owned by any third party, and all rights of any Grantor under any such agreement,
including those listed on Schedule I (as such schedule may be amended or supplemented from time to
time).
“copyrights” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all copyright rights in any work subject to the copyright
laws of the United States, any other country or any group of countries, whether as author,
assignee, transferee or otherwise, and (ii) all registrations and applications for registration of
any such copyright in the United States or any other country, including registrations,
2
recordings, supplemental registrations and pending applications for registration in the United
States Copyright Office.
“Copyrights” shall mean all copyrights now owned or hereafter acquired by any Grantor,
including those listed on Schedule II (as such schedule may be amended or supplemented from time to
time).
“Credit Agreement” shall have the meaning assigned to such term in the recitals
hereto.
“Deposit Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Deposit Account.
“Deposit Accounts” shall mean, collectively, with respect to each Pledgor, (i) all
“deposit accounts” as such term is defined in Article 9 of the UCC and in any event shall include
all accounts and sub-accounts relating to any of the foregoing accounts and (ii) all cash, funds,
checks, notes and instruments from time to time on deposit in any of the accounts or sub-accounts
described in clause (i) of this definition.
“Equipment” shall mean all “equipment,” as such term is defined in Article 9 of the
UCC, now or hereafter owned by any Grantor or to which any Grantor has rights and, in any event,
shall include all machinery, equipment, computers, furnishings, appliances, fixtures, tools and
vehicles (in each case, regardless of whether characterized as equipment under the UCC) now or
hereafter owned by any Grantor or to which any Grantor has rights and any and all Proceeds,
accessions, additions, substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories installed thereon or
affixed thereto; but excluding equipment to the extent it is subject to a Lien permitted by the
Credit Agreement and the terms of the Indebtedness securing such Lien prohibit assignment of, or
granting of a security interest in, such Grantor’s rights and interests therein (other than to the
extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction
or any other applicable law), provided, that immediately upon the repayment of all
Indebtedness secured by such Lien, such Grantor shall be deemed to have granted a Security Interest
in all the rights and interests with respect to such equipment.
“Extensions of Credit” shall have the meaning assigned to such term in the recitals
hereto.
“General Intangibles” shall mean all “general intangibles” as such term is defined in
Article 9 of the UCC, including “payment intangibles” also as such term is defined in Article 9 of
the UCC, and, in any event, including with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such Grantor is a party or
under which such Grantor has any right, title or interest or to which such Grantor or any property
of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise
modified, including (a) all rights of such Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (b) all rights of such Grantor to receive proceeds
3
of any insurance, indemnity, warranty or guarantee with respect thereto, (c) all claims of
such Grantor for damages arising out of any breach of or default thereunder and (d) all rights of
such Grantor to terminate, amend, supplement, modify or exercise rights or options thereunder, to
perform thereunder and to compel performance and otherwise exercise all remedies thereunder, in
each case to the extent the grant by such Grantor of a Security Interest pursuant to this Agreement
in its right, title and interest in any such contract, agreement, instrument or indenture (i) is
not prohibited by such contract, agreement, instrument or indenture without the consent of any
other party thereto, (ii) would not give any other party to any such contract, agreement,
instrument or indenture the right to terminate its obligations thereunder or (iii) is permitted
with consent if all necessary consents to such grant of a Security Interest have been obtained from
the other parties thereto (other than to the extent that any such prohibition referred to in
clauses (i), (ii) and (iii) would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408
or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law) (it being understood that the foregoing shall not be
deemed to obligate such Grantor to obtain such consents), provided that the foregoing
limitation shall not affect, limit, restrict or impair the grant by such Grantor of a Security
Interest pursuant to this Agreement in any Account or any money or other amounts due or to become
due under any such contract, agreement, instrument or indenture.
“Grantor” shall have the meaning assigned to such term in the recitals hereto.
“Guarantee” shall have the meaning assigned to such term in the recitals hereto.
“Intellectual Property” shall mean all of the following now owned or hereafter
acquired by any Grantor: rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws, including the Trade
Secrets, the Copyrights, the Patents, the Trademarks and the Licenses and all rights to sue at law
or in equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom, in each case to the extent the grant by such Grantor of a Security
Interest pursuant to this Agreement in any such rights, priorities and privileges relating to
intellectual property (i) is not prohibited by any contract, agreement or other instrument
governing such rights, priorities and privileges without the consent of any other party thereto,
(ii) would not give any other party to any such contract, agreement or other instrument the right
to terminate its obligations thereunder or (iii) is permitted with consent if all necessary
consents to such grant of a Security Interest have been obtained from the relevant parties (other
than to the extent that any such prohibition referred to in clauses (i), (ii) and (iii) would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other applicable law) (it being
understood that the foregoing shall not be deemed to obligate such Grantor to obtain such
consents).
“Investment Property” shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts and Commodity
Accounts of any Grantor (other than as pledged pursuant to the Pledge Agreements), whether now or
hereafter acquired by any Grantor, in each case to the extent the grant by a Grantor of a Security
Interest therein pursuant to this Agreement in its right, title and interest in any such Investment
Property (i) is not prohibited by any contract, agreement, instrument or
4
indenture governing such Investment Property without the consent of any other party thereto,
(ii) would not give any other party to any such contract, agreement, instrument or indenture the
right to terminate its obligations thereunder or (iii) is permitted with consent if all necessary
consents to such grant of a Security Interest have been obtained from the other parties thereto
(other than to the extent that any such prohibition referred to in clauses (i), (ii) and (iii)
would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any
successor provision or provisions) of any relevant jurisdiction or any other applicable law) (it
being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such
consents).
“Lender Counterparty” means each Lender or any Affiliate of a Lender that is a
counterparty to a Hedge Agreement (including any Person that ceases to be a Lender (or any
Affiliate thereof) (a) on the date such Lender becomes a party to the Credit Agreement or (b) as of
the date such Hedge Agreement was entered into.
“License” shall mean any Patent License, Trademark License, Copyright License or other
license or sublicense to which any Grantor is a party.
“Obligations” shall mean the collective reference to (i) the due and punctual payment
of (x) the principal of and premium, if any, and interest at the applicable rate provided in the
Credit Agreement (including interest at the contract rate applicable upon default accrued or
accruing after the commencement of any proceeding, under the Bankruptcy Code or any applicable
provision of comparable state or foreign law, whether or not such interest is an allowed claim in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (y) each payment required to be made by any Borrower
under the Credit Agreement, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and (z) all other
monetary obligations, including fees, costs, payments for early termination of Hedge Agreements,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any proceeding under the Bankruptcy
Code or any applicable provision of comparable state or foreign law, whether or not such interest
is an allowed claim in such proceeding), of any Borrower or any other Credit Party to any of the
Secured Parties under the Credit Agreement and any other Credit Documents, (ii) the due and
punctual performance of all covenants, agreements, obligations and liabilities of the Borrower
under or pursuant to the Credit Agreement and the other Credit Documents, (iii) the due and
punctual payment and performance of all the covenants, agreements, obligations and liabilities of
each other Credit Party under or pursuant to this Agreement or the other Credit Documents and (iv)
the due and punctual payment and performance of all obligations of each Credit Party under each
Hedge Agreement that (x) is in effect on the Closing Date with a counterparty that is a Lender or
an affiliate of a Lender as of the Closing Date or (y) is entered into after the Closing Date with
any counterparty that is a Lender or an affiliate of a Lender at the time such Hedge Agreement is
entered into.
“Patent License” shall mean any written agreement, now or hereafter in effect, naming
any Grantor as licensor or licensee, granting to any third party any right to make, use or sell any
invention on which a patent, now or hereafter owned by any Grantor (including all
5
Patents) or that any Grantor otherwise has the right to license, is in existence, or granting
to any Grantor any right to make, use or sell any invention on which a patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under any such agreement,
including those listed on Schedule III (as such schedule may be amended or supplemented from time
to time).
“patents” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (a) all letters patent of the United States or the equivalent
thereof in any other country or group of countries, all registrations and recordings thereof, and
all applications for letters patent of the United States or the equivalent thereof in any other
country, including registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals, reexaminations or extensions thereof,
all rights corresponding thereto throughout the world and all inventions and improvements disclosed
or claimed therein, including the right to make, use and/or sell the inventions disclosed or
claimed therein.
“Patents” shall mean all patents now owned or hereafter acquired by any Grantor,
including those listed on Schedule IV (as such schedule may be amended or supplemented from time to
time).
“Proceeds” shall mean all “proceeds” as such term is defined in Article 9 of the UCC
and, in any event, shall include with respect to any Grantor, any consideration received from the
sale, exchange, license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any Collateral and any payment
received from any insurer or other person or entity as a result of the destruction, loss, theft,
damage or other involuntary conversion of whatever nature of any asset or property that constitutes
Collateral, and shall include (a) all cash and negotiable instruments received by or held on behalf
of the Collateral Agent, (b) any claim of any Grantor against any third party for (and the right to
sue and recover for and the rights to damages or profits due or accrued arising out of or in
connection with) (i) past, present or future infringement of any Patent now or hereafter owned by
any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark
License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter
owned by any Grantor, (iii) past, present or future breach of any License and (iv) past, present or
future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a
Copyright License and (c) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
“Secured Parties” shall mean, collectively, (i) the Lenders, (ii) the Administrative
Agent, (iii) the Collateral Agent, (iv) the Syndication Agent, (v) each Lender Counterparty party
to a Hedge Agreement the obligations under which constitute Obligations, (vi) the beneficiaries of
each indemnification obligation undertaken by any Credit Party under the Credit Agreement or any
document executed pursuant thereto and (vii) any successors, indorsees, transferees and assigns of
each of the foregoing.
6
“Securities Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Securities Account.
“Security Interest” shall have the meaning provided in Section 2 hereof.
“Subsidiary Grantor” shall have the meaning assigned to such term in the preamble
hereto.
“Trade Secrets” shall mean all information used or useful arising from the business
including all goodwill, trade secrets, trade secret rights, know-how, customer lists, processes of
production, ideas, confidential business information, techniques, processes, formulas and all other
proprietary information.
“Trademark License” shall mean any written agreement, now or hereafter in effect,
naming any Grantor as licensor or licensee, granting to any third party any right to use any
trademark now or hereafter owned by any Grantor (including any Trademark) or that any Grantor
otherwise has the right to license, or granting to any Grantor any right to use any trademark now
or hereafter owned by any third party, and all rights of any Grantor under any such agreement,
including those listed on Schedule V (as such schedule may be amended or supplemented from time to
time).
“trademarks” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business names, Internet domain names, trade
styles, trade dress, logos, other source or business identifiers, designs and general intangibles
of like nature, now existing or hereafter adopted or acquired, all registrations and recordings
thereof (if any), and all registration and recording applications filed in connection therewith,
including registrations and registration applications in the United States Patent and Trademark
Office or any similar offices in any State of the United States or any other country or any
political subdivision thereof, and all extensions or renewals thereof, (ii) all goodwill associated
therewith or symbolized thereby and (iii) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
“Trademarks” shall mean all trademarks now owned or hereafter acquired by any Grantor,
including those listed on Schedule VI (as such schedule may be amended or supplemented from time to
time); provided that any “intent to use” Trademark applications for which a “Statement of
Use” or “Amendment to Allege Use” has not been filed (but only until such statement is filed) are
excluded from this definition.
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in the
State of New York; provided, however, that, in the event that, by reason of mandatory
provisions of law, any of the attachment, perfection or priority of the Collateral Agent’s and the
Secured Parties’ Security Interest in any Collateral is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of the
7
provisions hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) The words “hereof”, “herein”, “hereto” and “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, subsection, clause and Schedule references are to this Security
Agreement unless otherwise specified. The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “without limitation.”
(d) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
(e) Where the context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part
thereof.
(f) References to “Lenders” in this Agreement shall be deemed to include Affiliates of any
Lender that may from time to time enter into Hedge Agreements with the Borrower.
2. Grant of Security Interest.
(a) Each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, for the ratable benefit of the Secured Parties,
and grants to the Collateral Agent, for the ratable benefit of the Secured Parties a lien on and
continuing security interest in (the “Security Interest”), all of its right, title and
interest in, to and under all of the following property (other than any property constituting
Non-Core Assets) now owned or at any time hereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any right, title or interest
(collectively, the “Collateral”), as collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of
the Obligations:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Commercial Tort Claims, if any;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Intellectual Property;
8
(ix) all Inventory;
(x) all Investment Property;
(xi) all Letters of Credit and Letter-of-Credit Rights;
(xii) all Money;
(xiii) all Supporting Obligations;
(xiv) all Collateral Accounts;
(xv) all books and records pertaining to the Collateral;
(xvi) to the extent not otherwise included, all Proceeds and products of any and all of
the foregoing.
(b) Each Grantor hereby irrevocably authorizes the Collateral Agent and its Affiliates,
counsel and other representatives, at any time and from time to time, to file or record financing
statements, amendments to financing statements and, with notice to the Borrower, other filing or
recording documents or instruments with respect to the Collateral in such form and in such offices
as the Collateral Agent reasonably determines appropriate to perfect the Security Interests of the
Collateral Agent under this Agreement, and such financing statements and amendments may describe
the Collateral covered thereby as “all assets” or “all personal property” or words of similar
effect, whether now owned or hereafter acquired. Each Grantor hereby also authorizes the
Collateral Agent and its Affiliates, counsel and other representatives, at any time and from time
to time, to file continuation statements with respect to previously filed financing statements. A
photographic or other reproduction of this Agreement shall be sufficient as a financing statement
or other filing or recording document or instrument for filing or recording in any jurisdiction to
the Collateral Agent.
Each Grantor hereby agrees to provide to the Collateral Agent, promptly upon request, any
information reasonably necessary to effectuate the filings or recordings authorized by this Section
2(b).
The Collateral Agent is further authorized to file with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office or any similar office in any
other country) such documents as may be necessary or advisable for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interests granted by each Grantor
hereunder, without the signature of any Grantor, and naming any Grantor or the Grantors as debtors
and the Collateral Agent, as the case may be, as secured party.
This Agreement secures the payment of all the Obligations. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed to the Collateral Agent or the Secured Parties under the Credit
Documents but for the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any Grantor.
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The Security Interests are granted as security only and shall not subject the Collateral Agent
or any other Secured Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Collateral.
3. Representations and Warranties.
Each Grantor hereby represents and warrants to the Collateral Agent and each other Secured
Party that:
3.1 Title; No Other Liens. Except for (a) the Security Interest granted to the
Collateral Agent for the ratable benefit of the Secured Parties pursuant to this Agreement, (b) the
Liens permitted by the Credit Agreement and (c) any Liens securing Indebtedness which is no longer
outstanding or any Liens with respect to commitments to lend which have been terminated, such
Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with respect to all or any part
of the Collateral that evidences a Lien securing any material Indebtedness is on file or of record
in any public office, except such as (i) have been filed in favor of the Collateral Agent for the
ratable benefit of the Secured Parties pursuant to this Agreement or (ii) are permitted by the
Credit Agreement.
3.2 Perfected First Priority Liens. (a) This Agreement is effective to create in
favor of the Collateral Agent, for its benefit and for the benefit of the Secured Parties, legal,
valid and enforceable Security Interests in the Collateral, subject to the effects of bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and general equitable principles.
(b) Subject to the limitations set forth in clause (c) of this Section 3.2, the Security
Interests granted pursuant to this Agreement (i) will constitute valid and perfected Security
Interests in the Collateral (as to which perfection may be obtained by the filings or other actions
described in clause (A), (B), or (C) of this paragraph in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, as collateral security for the Obligations, upon (A) the
filing of all financing statements, in each case, naming each Grantor as “debtor” and the
Collateral Agent as “secured party” and describing the Collateral in the filing offices specified
in Schedule 3.2(b), (B) delivery to Collateral Agent (or its bailee) of all Instruments, Chattel
Paper, Certificated Securities and Negotiable Documents, in each case, properly endorsed for
transfer or in blank, and (C) completion of the filing and recording of fully executed agreements
in the form hereof (or a supplement hereto) and containing a description of all Collateral
constituting Patents and Trademarks in the United States Patent and Trademark Office (or any
successor office) within the three month period (commencing as of the date hereof) or, with respect
to all Collateral constituting Patents and registered Trademarks acquired after the date hereof,
within three months thereafter, and all Collateral constituting registered Copyrights in the United
States Copyright Office (or a successor office) within the one month period (commencing as of the
date hereof) or, with respect to all Collateral constituting Copyrights acquired after the date
hereof, within one month thereafter pursuant to 35 USC § 261, and 15 USC § 1060, or 17 USC § 205
and the regulations thereunder, and otherwise as may be required pursuant to the laws of any other
necessary jurisdiction to the extent that a security interest may be perfected by such filings and
recordings, and (ii) are prior to all other Liens on the Collateral other than Liens permitted
pursuant to Section 10.2 of the Credit Agreement.
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(c) Notwithstanding anything to the contrary herein, no Grantor shall be required to perfect
the Security Interests granted by this Agreement (including Security Interests in cash, cash
accounts and Investment Property) by any means other than (i) filings pursuant to the UCC of the
relevant state(s), (ii) filings approved by United States government offices with respect to
Intellectual Property or (iii) delivery to the Collateral Agent (or its bailee) to be held in its
possession of all Collateral consisting of Instruments, Certificated Securities or Negotiable
Documents.
(d) It is understood and agreed that the Security Interests in cash and Investment Property
created hereunder shall not prevent the Grantors from using such assets in the ordinary course of
their respective businesses, subject to the provisions of the Control Agreements with respect to
such cash and Investment Property.
4. Covenants.
Each Grantor hereby covenants and agrees with the Collateral Agent and the Secured Parties
that, from and after the date of this Agreement until the Obligations under the Credit Documents
are paid in full and the Commitments are terminated:
4.1 Maintenance of Perfected Security Interest; Further Documentation. (a) Such
Grantor shall maintain the Security Interest created by this Agreement as a perfected Security
Interest having at least the priority described in Section 3.1 and shall defend such Security
Interest against the claims and demands of all Persons whomsoever, in each case subject to Section
3.2(c).
(b) Such Grantor will furnish to the Collateral Agent and the Lenders from time to time
statements and schedules further identifying and describing the assets and property of such Grantor
and such other reports in connection therewith as the Collateral Agent may reasonably request. In
addition, within 30 days after the end of each calendar quarter, such Grantor will deliver to the
Collateral Agent a written supplement substantially in the form of Annex A hereto with
respect to any additional Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses acquired by such Grantor after the date hereof, all in reasonable detail.
(c) Subject to clause (d) below and Section 3.2(c), each Grantor agrees that at any time and
from time to time, at the expense of such Grantor, it will execute any and all further documents,
financing statements, agreements and instruments, and take all such further actions (including the
filing and recording of financing statements and other documents, including all applicable
documents required under Section 3.2(b)(C)), which may be required under any applicable law, or
which the Collateral Agent or the Required Lenders may reasonably request, in order (i) to grant,
preserve, protect and perfect the validity and priority of the Security Interests created or
intended to be created hereby or (ii) to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral, including the filing of any financing
or continuation statements under the UCC in effect in any jurisdiction with respect to the Security
Interests created hereby and all applicable documents required under Section 3.2(b)(C), all at the
expense of such Grantor.
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(d) Notwithstanding anything in this Section 4.1 to the contrary, (i) with respect to any
assets acquired by such Grantor after the date hereof that are required by the Credit Agreement to
be subject to the Lien created hereby or (ii) with respect to any Person that, subsequent to the
date hereof, becomes a U.S. Subsidiary that is required by the Credit Agreement to become a party
hereto, the relevant Grantor after the acquisition or creation thereof shall promptly take all
actions required by the Credit Agreement or this Section 4.1.
4.2 Changes in Locations, Name, etc. Each Grantor will furnish to the Collateral
Agent prompt written notice of any change (i) in its legal name, (ii) in its jurisdiction of
organization or location for purposes of the UCC, (iii) in its identity or type of organization or
corporate structure or (iv) in its Federal Taxpayer Identification Number or organizational
identification number. Each Grantor agrees promptly to provide the Collateral Agent with
certified organizational documents reflecting any of the changes described in the first sentence
of this paragraph. Each Grantor also agrees promptly to notify the Collateral Agent if any
material portion of the Collateral is damaged or destroyed.
4.3 Notices. Each Grantor will advise the Collateral Agent and the Lenders promptly,
in reasonable detail, of any Lien of which it has knowledge (other than the Security Interests
created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would
adversely affect, in any material respect, the ability of the Collateral Agent to exercise any of
its remedies hereunder.
5. Remedial Provisions.
5.1 Certain Matters Relating to Accounts. (a) At any time after the occurrence and
during the continuance of an Event of Default and after giving reasonable notice to the Borrower
and any other relevant Grantor, the Administrative Agent shall have the right, but not the
obligation, to instruct the Collateral Agent to (and upon such instruction, the Collateral Agent
shall) make test verifications of the Accounts in any manner and through any medium that such
Agent reasonably considers advisable, and each Grantor shall furnish all such assistance and
information as such Agent may require in connection with such test verifications. Such Agent
shall have the absolute right to share any information it gains from such inspection or
verification with any Secured Party.
(b) The Collateral Agent hereby authorizes each Grantor to collect such Grantor’s Accounts and
the Collateral Agent may curtail or terminate said authority at any time after the occurrence and
during the continuance of an Event of Default. If required in writing by the Collateral Agent at
any time after the occurrence and during the continuance of an Event of Default, any payments of
Accounts, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two
Business Days) deposited by such Grantor in the exact form received, duly endorsed by such Grantor
to the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and
control of and on terms and conditions reasonably satisfactory to the Collateral Agent, subject to
withdrawal by the Collateral Agent for the account of the Secured Parties only as provided in
Section 5.5, and (ii) until so turned over, shall be held by such Grantor in trust for the
Collateral Agent and the Secured Parties, segregated from other funds of such Grantor. Each such
deposit of Proceeds of Accounts shall be accompanied by a
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report identifying in reasonable detail the nature and source of the payments included in the
deposit.
(c) At the Collateral Agent’s request at any time after the occurrence and during the
continuance of an Event of Default, each Grantor shall deliver to the Collateral Agent all original
and other documents evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including all original orders, invoices and shipping receipts.
(d) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not
grant any extension of the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any person liable for
the payment thereof, or allow any credit or discount whatsoever thereon if the Collateral Agent
shall have instructed the Grantors not to grant or make any such extension, credit, discount,
compromise or settlement under any circumstances during the continuance of such Event of Default.
(e) At the direction of the Collateral Agent, upon the occurrence and during the continuance
of an Event of Default, each Grantor shall grant to the Collateral Agent to the extent assignable,
an irrevocable, non-exclusive, fully paid-up, royalty-free, worldwide license to use, assign,
license or sublicense any of the Intellectual Property now owned or hereafter acquired by such
Grantor. Such license shall include access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or printout thereof.
5.2 Communications with Credit Parties; Grantors Remain Liable. (a) The Collateral
Agent in its own name or in the name of others may at any time after the occurrence and during the
continuance of an Event of Default, after giving reasonable notice to the relevant Grantor of its
intent to do so, communicate with obligors under the Accounts to verify with them to the
Collateral Agent’s satisfaction the existence, amount and terms of any Accounts. The Collateral
Agent shall have the absolute right to share any information it gains from such inspection or
verification with any Secured Party.
(b) Upon the written request of the Collateral Agent at any time after the occurrence and
during the continuance of an Event of Default, each Grantor shall notify obligors on the Accounts
that the Accounts have been assigned to the Collateral Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the Collateral Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under
each of the Accounts to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto.
Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the
receipt by the Collateral Agent or any Secured Party of any payment relating thereto, nor shall the
Collateral Agent or any Secured Party be obligated in any manner to perform any of the obligations
of any Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the
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nature or the sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any action to enforce
any performance or to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
5.3 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of the
Collateral Agent and the Secured Parties specified in Section 5.1 with respect to payments of
Accounts, if an Event of Default shall occur and be continuing and the Collateral Agent so
requires by notice in writing to the relevant Grantor (it being understood that the exercise of
remedies by the Secured Parties in connection with an Event of Default under Section 11.5 of the
Credit Agreement shall be deemed to constitute a request by the Collateral Agent for the purposes
of this sentence and in such circumstances, no such written notice shall be required), all
Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be
held by such Grantor in trust for the Collateral Agent and the Secured Parties, segregated from
other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Collateral Agent in the exact form received by such Grantor (duly endorsed by such Grantor to
the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall
be held by the Collateral Agent in a Collateral Account maintained under its dominion and control
and on terms and conditions reasonably satisfactory to the Collateral Agent. All Proceeds while
held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the
Collateral Agent and the Secured Parties) shall continue to be held as collateral security for all
the Obligations and shall not constitute payment thereof until applied as provided in Section 5.4.
5.4 Application of Proceeds. The Collateral Agent shall apply the proceeds of any
collection or sale of the Collateral as well as any Collateral consisting of cash, at any time
after receipt as follows:
(a) first, to the payment of all reasonable and documented costs and expenses incurred by the
Collateral Agent in connection with such collection or sale or otherwise in connection with this
Agreement, the other Credit Documents or any of the Obligations, including all court costs and the
reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by
the Collateral Agent hereunder or under any other Credit Document on behalf of any Grantor and any
other reasonable and documented costs or expenses incurred in connection with the exercise of any
right or remedy hereunder or under any other Credit Document;
(b) second, to the Secured Parties, an amount equal to all Obligations owing to them on the
date of any distribution, and, if such moneys shall be insufficient to pay such amounts in full,
then ratably (without priority of any one over any other) to such Secured Parties in proportion to
the unpaid amounts thereof; and
(c) third, any surplus then remaining shall be paid to the Grantors or their successors or
assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
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Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
5.5 Code and Other Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC or any other applicable law and also may with notice to
the relevant Grantor, sell the Collateral or any part thereof in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or office of the Collateral Agent or any
Lender or elsewhere for cash or on credit or for future delivery at such price or prices and upon
such other terms as are commercially reasonable irrespective of the impact of any such sales on
the market price of the Collateral. The Collateral Agent shall be authorized at any such sale (if
it deems it advisable to do so) to restrict the prospective bidders or purchasers of Collateral to
Persons who will represent and agree that they are purchasing the Collateral for their own account
for investment and not with a view to the distribution or sale thereof, and, upon consummation of
any such sale, the Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of any Grantor, and
each Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or
appraisal that it now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. The Collateral Agent and any Secured Party shall have the
right upon any such public sale, and, to the extent permitted by law, upon any such private sale,
to purchase the whole or any part of the Collateral so sold, and the Collateral Agent or such
Secured Party may, subject to (x) the satisfaction in full in cash of all payments due pursuant to
Section 5.4(a) hereof and (y) the satisfaction of the Obligations in accordance with the
priorities set forth in Section 5.4 hereof, pay the purchase price by crediting the amount thereof
against the Obligations. Each Grantor agrees that, to the extent notice of sale shall be required
by law, at least ten days’ notice to such Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable notification. The
Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. To the extent permitted by
law, each Grantor hereby waives any claim against the Collateral Agent arising by reason of the
fact that the price at which any Collateral may have been sold at such a private sale was less
than the price that might have been obtained at a public sale, even if the Collateral Agent
accepts the first offer received and does not offer such Collateral to more than one offeree.
Each Grantor further agrees, at the Collateral Agent’s request, to assemble the Collateral and
make it available to the Collateral Agent, at places which the Collateral Agent shall reasonably
select, whether at such Grantor’s premises or elsewhere. The Collateral Agent shall apply the net
proceeds of any action taken by it pursuant to this Section 5.5 in accordance with the provisions
of Section 5.4.
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5.6 Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Collateral Agent or any Secured Party to
collect such deficiency.
5.7 Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each Grantor
shall remain obligated hereunder notwithstanding that, without any reservation of rights against
any Grantor and without notice to or further assent by any Grantor, (a) any demand for payment of
any of the Obligations made by the Collateral Agent or any other Secured Party may be rescinded by
such party and any of the Obligations continued, (b) the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or released by the
Collateral Agent or any other Secured Party, (c) the Credit Agreement, the other Credit Documents,
the Letters of Credit and any other documents executed and delivered in connection therewith and
the Hedge Agreements and any other documents executed and delivered in connection therewith and
any documents entered into with the applicable Administrative Agent or the Collateral Agent or any
of its respective affiliates in connection with treasury, depositary or cash management services
or in connection with any automated clearinghouse transfer of funds may be amended, modified,
supplemented or terminated, in whole or in part, as the applicable Administrative Agent (or the
Required Lenders, as the case may be, or, in the case of any Hedge Agreement or documents entered
into with the applicable Administrative Agent or any of its respective affiliates in connection
with treasury, depositary or cash management services or in connection with any automated
clearinghouse transfer of funds, the party thereto) may deem advisable from time to time, and (d)
any collateral security, guarantee or right of offset at any time held by the Collateral Agent or
any other Secured Party for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. Neither the Collateral Agent nor any other Secured Party shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it as security for
the Obligations or for this Agreement or any property subject thereto. When making any demand
hereunder against any Grantor, the Collateral Agent or any other Secured Party may, but shall be
under no obligation to, make a similar demand on any Borrower or any Grantor or any other person,
and any failure by the Collateral Agent or any other Secured Party to make any such demand or to
collect any payments from any Borrower or any Grantor or any other person or any release of any
Borrower or any Grantor or any other person shall not relieve any Grantor in respect of which a
demand or collection is not made or any Grantor not so released of its several obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied,
or as a matter of law, of the Collateral Agent or any other Secured Party against any Grantor.
For the purposes hereof “demand” shall include the commencement and continuance of any legal
proceedings.
5.8 Access Rights on Mortgaged Properties. The Grantors hereby agree with the
Collateral Agent that, at any time during the continuance of an Event of Default and after notice
of such action to the Borrower, the Revolving Credit Collateral Agent (as defined in the
Intercreditor Agreement) shall have access, during the Access Period (as defined in the
Intercreditor Agreement), and each such Grantor that owns any of the Mortgaged Premises has
granted a non-exclusive easement in gross over its property to permit the uses by Revolving
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Credit Collateral Agent (as defined in the Intercreditor Agreement) contemplated by
Section 3.3 of the Intercreditor Agreement. The Collateral Agent hereby consents to such
easement.
6. The Collateral Agent.
6.1 Collateral Agent’s Appointment as Attorneys-in-Fact, etc. (a) Each Grantor
hereby appoints, which appointment is irrevocable and coupled with an interest, effective upon and
during the occurrence of an Event of Default, the Collateral Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in the name of such
Grantor or otherwise, for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of
the foregoing, each Grantor hereby gives the Collateral Agent the power and right, on behalf of
such Grantor, either in the Collateral Agent’s name or in the name of such Grantor or otherwise,
without assent by such Grantor, to do any or all of the following, in each case after and during
the occurrence of an Event of Default and after written notice by the Collateral Agent of its
intent to do so:
(i) take possession of and endorse and collect any checks, drafts, notes, acceptances
or other instruments for the payment of moneys due under any Account or with respect to any
other Collateral and file any claim or take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Account or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver, and have recorded,
any and all agreements, instruments, documents and papers as the Collateral Agent may
request to evidence the Collateral Agent’s and the Secured Parties’ Security Interest in
such Intellectual Property and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or threatened against the
Collateral;
(iv) execute, in connection with any sale provided for in Section 5.5, any
endorsements, assignments or other instruments of conveyance or transfer with respect to the
Collateral;
(v) obtain and adjust insurance required to be maintained by such Grantor or paid to
the Collateral Agent pursuant to Section 9.3 of the Credit Agreement;
(vi) direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the Collateral
Agent or as the Collateral Agent shall direct;
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(vii) ask or demand for, collect and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of or arising
out of any Collateral;
(viii) sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral;
(ix) commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral;
(x) defend any suit, action or proceeding brought against such Grantor with respect to
any Collateral (with such Grantor’s consent (not to be unreasonably withheld or delayed) to
the extent such action or its resolution could materially affect such Grantor or any of its
affiliates in any manner other than with respect to its continuing rights in such
Collateral);
(xi) settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Collateral Agent may deem
appropriate (with such Grantor’s consent (not to be unreasonably withheld or delayed) to the
extent such action or its resolution could materially affect such Grantor or any of its
affiliates in any manner other than with respect to its continuing rights in such
Collateral);
(xii) assign any Copyright, Patent or Trademark (along with the goodwill of the
business to which any such Copyright, Patent or Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the Collateral Agent
shall in its sole discretion determine; and
(xiii) generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent’s
option and such Grantor’s expense, at any time, or from time to time, all acts and things
that the Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent’s and the Secured Parties’ Security Interests therein
and to effect the intent of this Agreement, all as fully and effectively as such Grantor
might do.
Anything in this Section 6.1(a) to the contrary notwithstanding, the Collateral Agent agrees
that it will not exercise any rights under the power of attorney provided for in this Section
6.1(a) unless an Event of Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its agreements contained herein, the
Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.
(c) The expenses of the Collateral Agent incurred in connection with actions undertaken as
provided in this Section 6.1, together with interest thereon at a rate per annum
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equal to the highest rate per annum at which interest would then be payable on any category of
past due ABR Loans under the Credit Agreement, from the date of payment by the Collateral Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral
Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the Security Interests
created hereby are released.
6.2 Duty of Collateral Agent. The Collateral Agent’s sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its possession, under Section
9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent
deals with similar property for its own account. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in its possession if
such Collateral is accorded treatment substantially equal to that which the Collateral Agent
accords its own property. Neither the Collateral Agent, any Secured Party nor any of their
respective officers, directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Collateral Agent and the Secured Parties hereunder are
solely to protect the Collateral Agent’s and the Secured Parties’ interests in the Collateral and
shall not impose any duty upon the Collateral Agent or any Secured Party to exercise any such
powers. The Collateral Agent and the Secured Parties shall be accountable only for amounts that
they actually receive as a result of the exercise of such powers, and neither they nor any of
their officers, directors, employees or agents shall be responsible to any Grantor for any act or
failure to act hereunder, except for their own gross negligence or willful misconduct.
6.3 Authority of Collateral Agent. Each Grantor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or resulting or arising out
of this Agreement shall, as between the Collateral Agent and the Secured Parties, be governed by
the Credit Agreement, and by such other agreements with respect thereto as may exist from time to
time among them, but, as between the Collateral Agent and the Grantors, the Collateral Agent shall
be conclusively presumed to be acting as agent for the applicable Secured Parties with full and
valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
6.4 Security Interest Absolute. All rights of the Collateral Agent hereunder, the
Security Interest, and all obligations of the Grantors hereunder shall be absolute and
unconditional.
19
6.5 Continuing Security Interest; Assignments Under the Credit Agreement; Release.
(a) This Agreement shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon each Grantor and the successors and assigns thereof and shall inure
to the benefit of the Collateral Agent and the other Secured Parties and their respective
successors, indorsees, transferees and assigns until all Obligations under the Credit Documents
(other than any contingent indemnity obligations not then due) and the obligations of each Grantor
under this Agreement shall have been satisfied by payment in full, the Commitments shall be
terminated and no Letters of Credit shall be outstanding, notwithstanding that from time to time
during the term of the Credit Agreement and any Hedge Agreement the Credit Parties may be free
from any Obligations.
(b) A Subsidiary Grantor shall automatically be released from its obligations hereunder and
the Security Interest in the Collateral of such Subsidiary Grantor shall be automatically released
upon the consummation of any transaction permitted under the Credit Agreement as a result of which
such Subsidiary Grantor ceases to be a Subsidiary Guarantor.
(c) Upon any sale or other transfer by any Grantor of any Collateral that is permitted under
the Credit Agreement or upon the effectiveness of any written consent to the release of the
Security Interest granted hereby in any Collateral pursuant to Section 14.1 of the Credit
Agreement, the Security Interest in such Collateral shall be automatically released and such
Collateral sold free and clear of the Lien and Security Interests created hereby.
(d) In connection with any termination or release pursuant to paragraph (a), (b) or (c), the
Collateral Agent shall execute and deliver to any Grantor, at such Grantor’s expense, all documents
that such Grantor shall reasonably request to evidence such termination or release. Any execution
and delivery of documents pursuant to this Section 6.5 shall be without recourse to or warranty by
the Collateral Agent.
6.6 Reinstatement. Each Grantor further agrees that, if any payment made by any
Credit Party or other Person and applied to the Obligations is at any time annulled, avoided, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the proceeds of Collateral are required to be returned by any Secured
Party to such Credit Party, its estate, trustee, receiver or any other party, including any
Grantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, any Lien or other Collateral securing such liability
shall be and remain in full force and effect, as fully as if such payment had never been made or,
if prior thereto the Lien granted hereby or other Collateral securing such liability hereunder
shall have been released or terminated by virtue of such cancellation or surrender), such Lien or
other Collateral shall be reinstated in full force and effect, and such prior cancellation or
surrender shall not diminish, release, discharge, impair or otherwise affect any Lien or other
Collateral securing the obligations of any Grantor in respect of the amount of such payment.
7. Collateral Agent As Agent.
(a) Lehman Commercial Paper Inc. has been appointed to act as the Collateral Agent under the
Credit Agreement, by the Lenders under the Credit Agreement and, by their
20
acceptance of the benefits hereof, the other Secured Parties. The Collateral Agent shall be
obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking any action (including the
release or substitution of Collateral), solely in accordance with this Agreement and the Credit
Agreement, provided that the Collateral Agent shall exercise, or refrain from exercising,
any remedies provided for in Section 5 in accordance with the instructions of Required Lenders. In
furtherance of the foregoing provisions of this Section 7(a), each Secured Party, by its acceptance
of the benefits hereof, agrees that it shall have no right individually to realize upon any of the
Collateral hereunder, it being understood and agreed by such Secured Party that all rights and
remedies hereunder may be exercised solely by the Collateral Agent for the ratable benefit of the
applicable Lenders and Secured Parties in accordance with the terms of this Section 7(a).
(b) The Collateral Agent shall at all times be the same Person that is the Collateral Agent
under the Credit Agreement. Written notice of resignation by the Collateral Agent pursuant to
Section 13.9 of the Credit Agreement shall also constitute notice of resignation as Collateral
Agent under this Agreement; removal of the Collateral Agent shall also constitute removal under
this Agreement; and appointment of a Collateral Agent pursuant to Section 13.9 of the Credit
Agreement shall also constitute appointment of a successor Collateral Agent under this Agreement.
Upon the acceptance of any appointment as Collateral Agent under Section 13.9 of the Credit
Agreement by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the retiring or removed
Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this
Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, securities and
other items of Collateral held hereunder, together with all records and other documents necessary
or appropriate in connection with the performance of the duties of the successor Collateral Agent
under this Agreement, and (ii) execute and deliver to such successor Collateral Agent or otherwise
authorize the filing of such amendments to financing statements and take such other actions, as may
be necessary or appropriate in connection with the assignment to such successor Collateral Agent of
the Security Interests created hereunder, whereupon such retiring or removed Collateral Agent shall
be discharged from its duties and obligations under this Agreement. After any retiring or removed
Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent hereunder.
(c) The Collateral Agent shall not be deemed to have any duty whatsoever with respect to any
Secured Party that is a counterparty to a Hedge Agreement the obligations under which constitute
Obligations, unless it shall have received written notice in form and substance satisfactory to the
Collateral Agent from a Grantor or any such Secured Party as to the existence and terms of the
applicable Hedge Agreement.
8. Miscellaneous.
8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a written
21
instrument executed by the affected Grantor and the Collateral Agent in accordance with
Section 14.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands pursuant hereto shall be made in
accordance with Section 14.2 of the Credit Agreement. All communications and notices hereunder to
any Subsidiary Grantor shall be given to it in care of the Borrower at the Borrower’s address set
forth in Section 14.2 of the Credit Agreement.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral
Agent nor any Secured Party shall by any act (except by a written instrument pursuant to Section
8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of
the Collateral Agent or any other Secured Party, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Collateral Agent or any other Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that
the Collateral Agent or such other Secured Party would otherwise have on any future occasion. The
rights, remedies, powers and privileges herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Grantor agrees to pay any and
all expenses (including all reasonable fees and disbursements of counsel) that may be paid or
incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, such Grantor under this Agreement.
(b) Each Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the transactions contemplated by this
Agreement.
(c) Each Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and administration of this Agreement to the
extent a Borrower would be required to do so pursuant to Section 12.5 of the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all
other amounts payable under the Credit Agreement and the other Credit Documents.
22
8.5 Successors and Assigns. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the Collateral Agent except
pursuant to a transaction permitted by the Credit Agreement.
8.6 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Collateral Agent and the Borrower.
8.7 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
8.8 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
8.9 Integration. This Agreement together with the other Credit Documents represents
the agreement of each of the Grantors with respect to the subject matter hereof and there are no
promises, undertakings, representations or warranties by the Collateral Agent or any other Secured
Party relative to the subject matter hereof not expressly set forth or referred to herein or in
the other Credit Documents.
8.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
8.11 Submission To Jurisdiction Waivers. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
23
action or proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address referred to in Section 8.2 or at such
other address of which such Person shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right of any other party hereto (or any
Secured Party) to effect service of process in any other manner permitted by law or shall
limit the right of any party hereto (or any Secured Party) to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 8.11 any special,
exemplary, punitive or consequential damages.
8.12 Acknowledgments. Each party hereto hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents to which it is a party;
(b) neither the Collateral Agent nor any other Secured Party has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with this Agreement
or any of the other Credit Documents, and the relationship between the Grantors, on the one
hand, and the Collateral Agent and the other Secured Parties, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders and any other
Secured Party or among the Grantors and the Lenders and any other Secured Party.
8.13 Additional Grantors. Each Subsidiary of the Borrower that is required to become
a party to this Agreement pursuant to Section 9.11 of the Credit Agreement shall become a Grantor,
with the same force and effect as if originally named as a Grantor herein, for all purposes of
this Agreement upon execution and delivery by such Subsidiary of a written supplement
substantially in the form of Annex B hereto. The execution and delivery of any instrument
adding an additional Grantor as a party to this Agreement shall not require the consent of any
other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in
full force and effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
24
8.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9. Intercreditor Agreement
9.1 Intercreditor Agreement. Notwithstanding anything herein to the contrary, the
lien and security interest granted to the Collateral Agent pursuant to this Agreement and the
exercise of any right or remedy by the Collateral Agent hereunder are subject to the provisions of
the Intercreditor Agreement, dated as of January 31, 2007 (as amended, restated, supplemented or
otherwise modified from time to time, the “Intercreditor Agreement”), among the Borrower,
Lehman Commercial Paper Inc., as Administrative Agent and as Collateral Agent, and certain other
persons which may be or become parties thereto, or become bound thereto from time to time. In the
event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the
terms of the Intercreditor Agreement shall govern and control.
[Signature Pages Follow]
25
IN
WITNESS WHEREOF, each of the undersigned has caused this Agreement to
be duly executed and delivered as of the date first above written.
| MCJUNKIN CORPORATION, as Grantor |
||||
| By: | /s/ JAMES F. UNDERHILL | |||
| Name: | James F. Underhill | |||
| Title: | Chief Financial Officer | |||
| MCJUNKIN APPALACHIAN OILFIELD COMPANY, as Grantor |
||||
| By: | /s/ DAVID FOX III | |||
| Name: | David Fox III | |||
| Title: | Executive Vice President | |||
| MCJUNKIN NIGERIA LIMITED, as Grantor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| MCJUNKIN DEVELOPMENT CORPORATION, as Grantor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| MCJUNKIN-PUERTO RICO CORPORATION, as Grantor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| MILTON OIL & GAS COMPANY, as Grantor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| GREENBRIER PETROLEUM CORPORATION, as Grantor |
||||
| By: | /s/ HENRY B. WEHRLE III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | Vice President | |||
| PIEDMONT FARMS, INC., as Grantor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | President | |||
| RUFFNER REALTY COMPANY, as Grantor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | Vice President | |||
| MCJUNKIN-WEST AFRICA CORPORATION, as Grantor |
||||
| By: | /s/ STEPHEN WEHRLE | |||
| Name: | Stephen Wehrle | |||
| Title: | President | |||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ JEFF OGDEN | |||
| Name: | Jeff Ogden | |||
| Title: | Managing Director | |||
[SIGNATURE PAGE TO TERM
SECURITY AGREEMENT]
Exhibit 10.5.1
SUPPLEMENT NO. 1 dated as of April 30, 2007 (this “Supplement”)
to the SECURITY AGREEMENT dated as of January 31, 2007 among each of the
Grantors listed on the signature pages thereto (each such subsidiary
individually, a “Grantor” and, collectively, the
“Grantors”), and Lehman Commercial Paper Inc., as Collateral Agent
for the lenders (the “Lenders”) from time to time parties to the
Credit Agreement referred to below.
A. Reference is made to the Term Loan Credit Agreement, dated as of January
31, 2007 (as the same may be amended, restated, supplemented or otherwise modified, refinanced
or replaced from time to time, the “Credit Agreement”), among McJunkin Corporation, a West
Virginia corporation (the “Borrower”), the lending institutions from time to time party
thereto (the
“Lenders”) and Lehman Commercial Paper Inc. as Administrative Agent and as Collateral Agent
B. Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Security Agreement.
C. Section 8.13 of the Security Agreement provides that each Subsidiary of the
Borrower that is required to become a party to the Security Agreement pursuant to Section 9.11
of the Credit Agreement shall become a Grantor, with the same force and effect as if originally
named as a Grantor therein, for all purposes of the Security Agreement upon execution and
delivery by such Subsidiary of an instrument in the form of this Supplement. Each undersigned
Subsidiary (each, a “New Grantor”) is executing this Supplement in accordance with the
requirements of the Security Agreement to become a Subsidiary Grantor under the Security
Agreement as consideration for the Obligations.
Accordingly, the Collateral Agent and the New Grantors agree as follows:
SECTION 1. In accordance with Section 8.13 of the Security Agreement, each New Grantor by its
signature below becomes a Grantor under the Security Agreement with the same force and effect as if
originally named therein as a Grantor and each New Grantor hereby (a) agrees to all the terms and
provisions of the Security Agreement applicable to it as a Grantor thereunder and (b) represents
and warrants that the representations and warranties made by it as a Grantor thereunder are true
and correct on and as of the date hereof. In furtherance of the foregoing, each New Grantor, as
security for the payment and performance in full of the Obligations, does hereby bargain, sell,
convey, assign, set over, mortgage, pledge, hypothecate and transfer to the Collateral Agent, for
the benefit of the Secured Parties, and hereby grants to the Collateral Agent, for the benefit of
the Secured Parties, a security interest in all of the Collateral of such New Grantor, in each case
whether now or hereafter existing or in which it now has or hereafter acquires an interest. Each
reference to a “Grantor” in the Security Agreement shall be deemed to include each New Grantor. The
Security Agreement is hereby incorporated herein by reference.
SECTION 2. Each New Grantor represents and warrants to the Collateral Agent and the other
Secured Parties that this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to the effects of bankruptcy, insolvency or similar laws
affecting creditors’ rights generally and general equitable principles.
SECTION 3. This Supplement may be executed by one or more of the parties to this Supplement on
any number of separate counterparts (including by facsimile or other electronic transmission), and
all of said counterparts taken together shall be deemed to constitute one and the same instrument.
A set of the copies of this Supplement signed by all the parties shall be lodged with the
Collateral Agent and the Borrower. This Supplement shall become effective as to each New Grantor
when the Collateral Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of such New Grantor and the Collateral Agent.
SECTION 4. Such New Grantor hereby represents and warrants that (a) set forth on Schedule A
hereto is (i) the legal name of such New Grantor, (ii) the jurisdiction of incorporation or
organization of such New Grantor, (iii) the identity or type of organization or corporate structure
of such New Grantor and (iv) the Federal Taxpayer Identification Number and organizational number
of such New Grantor and (b) as of the date hereof (i) Schedule I hereto sets forth all of such New
Grantor’s exclusive Licenses of registered Copyrights, (ii) Schedule II hereto sets forth all of
such New Grantor’s registered Copyrights (and all applications therefor), (iii) Schedule III hereto
sets forth all of such New Grantor’s exclusive Licenses of registered Patents, (iv) Schedule IV
hereto sets forth all of such New Grantor’s registered Patents (and all applications therefor), (v)
Schedule V hereto sets forth all of such New Grantor’s exclusive Licenses of registered Trademarks,
and (vi) Schedule VI hereto sets forth all of such New Grantor’s registered Trademarks (and all
applications therefor).
SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in
full force and effect.
SECTION 6. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Any provision of this Supplement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and in the Security
Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 8. All notices, requests and demands pursuant hereto shall be made in accordance with
Section 8.2 of the Security Agreement. All communications and notices hereunder to each New Grantor
shall be given to it in care of the Borrower at the Borrower’s address set forth in Section 14.2 of
the Credit Agreement.
SECTION 9. Each New Grantor agrees to reimburse the Collateral Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other
charges and disbursements of counsel for the Collateral Agent.
[Signature Pages Follow]
IN WITNESS WHEREOF, each New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first above written
| Midway-Tristate Corporation, as New Grantor |
||||
| By: | /s/ S. D. Wehrle | |||
| Name: | S. D. Wehrle | |||
| Title: | Vice President | |||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Supplement No. 1 to Term Loan Security Agreement
IN WITNESS WHEREOF, each New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written
| Midway-Tristate Corporation, as New Grantor |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ Maria M. Lund | |||
| Name: | Maria M. Lund | |||
| Title: | Authorized Signatory | |||
Supplement No. 1 to Term Loan Security Agreement
Exhibit 10.5.2
SUPPLEMENT NO. 2 dated as of October 31, 2007 (this
“Supplement”) to the SECURITY AGREEMENT dated as of January 31, 2007
(as the same may be amended, restated, supplemented or otherwise modified or
replaced from time to time, the “Security Agreement”) among each of
the Grantors listed on the signature pages thereto (each such subsidiary
individually, a “Grantor” and, collectively, the “Grantors”),
and Lehman Commercial Paper Inc., as Collateral Agent for the lenders (the
“Lenders”) from time to time parties to the Credit Agreement referred
to below.
A. Reference is made to the Term Loan Credit Agreement, dated as of January 31, 2007 (as the
same may be amended, restated, supplemented or otherwise modified, refinanced or replaced from time
to time, the “Credit Agreement”), among McJunkin Corporation, a West Virginia corporation
(the “Borrower”), the lending institutions from time to time party thereto (the
“Lenders”) and Lehman Commercial Paper Inc. as Administrative Agent and as Collateral Agent
B. Capitalized terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Security Agreement.
C. Section 8.13 of the Security Agreement provides that each Subsidiary of the Borrower that
is required to become a party to the Security Agreement pursuant to Section 9.11 of the Credit
Agreement shall become a Grantor, with the same force and effect as if originally named as a
Grantor therein, for all purposes of the Security Agreement upon execution and delivery by such
Subsidiary of an instrument in the form of this Supplement. Each undersigned Subsidiary (each, a
“New Grantor”) is executing this Supplement in accordance with the requirements of the
Security Agreement to become a Subsidiary Grantor under the Security Agreement as consideration for
the Obligations.
Accordingly, the Collateral Agent and the New Grantors agree as follows:
SECTION 1. In accordance with Section 8.13 of the Security Agreement, each New Grantor by its
signature below becomes a Grantor under the Security Agreement with the same force and effect as if
originally named therein as a Grantor and each New Grantor hereby (a) agrees to all the terms and
provisions of the Security Agreement applicable to it as a Grantor thereunder and (b) represents
and warrants that the representations and warranties made by it as a Grantor thereunder are true
and correct on and as of the date hereof. In furtherance of the foregoing, each New Grantor, as
security for the payment and performance in full of the Obligations, does hereby bargain, sell,
convey, assign, set over, mortgage, pledge, hypothecate and transfer to the Collateral Agent, for
the benefit of the Secured Parties, and hereby grants to the Collateral Agent, for the benefit of
the Secured Parties, a security interest in all of the Collateral of such New Grantor, in each case
whether now or hereafter existing or in which it now has or hereafter acquires an interest. Each
reference to a “Grantor” in the Security Agreement shall be deemed to include each New Grantor.
The Security Agreement is hereby incorporated herein by reference.
SECTION 2. Each New Grantor represents and warrants to the Collateral Agent and the other
Secured Parties that this Supplement has been duly authorized, executed and
delivered by it and constitutes its legal, valid and binding obligation, enforceable against
it in accordance with its terms, subject to the effects of bankruptcy, insolvency or similar laws
affecting creditors’ rights generally and general equitable principles.
SECTION 3. This Supplement may be executed by one or more of the parties to this Supplement
on any number of separate counterparts (including by facsimile or other electronic transmission),
and all of said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Supplement signed by all the parties shall be lodged with
the Collateral Agent and the Borrower. This Supplement shall become effective as to each New
Grantor when the Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of such New Grantor and the Collateral Agent.
SECTION 4. Such New Grantor hereby represents and warrants that (a) set forth on Schedule A
hereto is (i) the legal name of such New Grantor, (ii) the jurisdiction of incorporation or
organization of such New Grantor, (iii) the identity or type of organization or corporate structure
of such New Grantor and (iv) the Federal Taxpayer Identification Number and organizational number
of such New Grantor and (b) as of the date hereof (i) Schedule I hereto sets forth all of such New
Grantor’s exclusive Licenses of registered Copyrights, (ii) Schedule II hereto sets forth all of
such New Grantor’s registered Copyrights (and all applications therefor), (iii) Schedule III hereto
sets forth all of such New Grantor’s exclusive Licenses of registered Patents, (iv) Schedule IV
hereto sets forth all of such New Grantor’s registered Patents (and all applications therefor), (v)
Schedule V hereto sets forth all of such New Grantor’s exclusive Licenses of registered Trademarks,
and (vi) Schedule VI hereto sets forth all of such New Grantor’s registered Trademarks (and all
applications therefor).
SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in
full force and effect.
SECTION 6. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Any provision of this Supplement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and in the Security
Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 8. All notices, requests and demands pursuant hereto shall be made in accordance with
Section 8.2 of the Security Agreement. All communications and notices hereunder to each New
Grantor shall be given to it in care of the Borrower at the Borrower’s address set forth in Section
14.2 of the Credit Agreement.
SECTION 9. Each New Grantor agrees to reimburse the Collateral Agent for its reasonable
out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other
charges and disbursements of counsel for the Collateral Agent.
[Signature Pages Follow]
IN WITNESS WHEREOF, each New Grantor and the Collateral Agent have duly executed this
Supplement to the Security Agreement as of the day and year first above written.
| West Oklahoma PVF Company, as New Grantor |
||||
| By: | /s/ H. B. Wehrle III | |||
| Name: | Henry B. Wehrle III | |||
| Title: | President | |||
| Red Man Pipe & Supply Co., as New Grantor |
||||
| By: | /s/ Dee Paige | |||
| Name: | Dee Paige | |||
| Title: | Chief Financial Officer | |||
| Wesco Acquisition Partners, Inc., as New Grantor |
||||
| By: | /s/ Craig Ketchum | |||
| Name: | Craig Ketchum | |||
| Title: | Chairman of the Board | |||
[Signature Page to Supplement No. 2 to Term Loan Security Agreement]
| Lehman Commercial Paper
Inc., as Collateral Agent |
||||
| By: | /s/ Laurie Perper | |||
| Name: | Laurie Perper | |||
| Title: | Senior Vice President | |||
[Signature Page to Supplement No. 2 to Term Loan Security Agreement]
Exhibit 10.6
EXECUTION VERSION
$450,000,000
TERM LOAN CREDIT AGREEMENT
Dated as of May 22, 2008
among
Dated as of May 22, 2008
among
MCJUNKIN RED MAN HOLDING CORPORATION,
as the Borrower
as the Borrower
The Several Lenders
from Time to Time Parties Hereto
from Time to Time Parties Hereto
GOLDMAN SACHS CREDIT PARTNERS L.P. and
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN BROTHERS INC.,
as Co-Lead Arrangers and Joint Bookrunners
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent and Collateral Agent
as Administrative Agent and Collateral Agent
and
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
as Syndication Agent
TABLE OF CONTENTS
| Page | ||||
SECTION 1. DEFINITIONS |
2 | |||
1.1 Defined Terms |
2 | |||
1.2 Other Interpretive Provisions |
35 | |||
1.3 Accounting Terms; Exchange Rates |
35 | |||
1.4 Rounding |
36 | |||
1.5
References to Agreements, Laws, Etc. |
36 | |||
SECTION 2. AMOUNT AND TERMS OF CREDIT |
36 | |||
2.1 Commitments |
36 | |||
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings |
36 | |||
2.3 Notice of Borrowing |
37 | |||
2.4 Disbursement of Funds |
37 | |||
2.5 Repayment of Loans; Evidence of Debt |
38 | |||
2.6 Conversions and Continuations |
39 | |||
2.7 Pro Rata Borrowings |
39 | |||
2.8 Interest |
40 | |||
2.9 Interest Periods |
41 | |||
2.10
Increased Costs, Illegality, etc. |
41 | |||
2.11 Compensation |
43 | |||
2.12 Change of Lending Office |
43 | |||
2.13 Notice of Certain Costs |
44 | |||
SECTION 3. SPONSOR AND BORROWER PURCHASES. |
44 | |||
3.1 Notice of Sponsor and Borrower Purchases |
44 | |||
3.2 Cancellation of Loans |
44 | |||
3.3 Acknowledgement |
45 | |||
SECTION 4. FEES; COMMITMENTS |
45 | |||
4.1 Fees |
45 | |||
4.2 [Intentionally Omitted] |
45 | |||
4.3 Mandatory Termination of Commitments |
45 | |||
SECTION 5. PAYMENTS |
45 | |||
5.1 Voluntary Prepayments |
45 | |||
5.2 Mandatory Prepayments |
46 | |||
5.3 Method and Place of Payment |
48 | |||
5.4 Net Payments |
49 | |||
5.5 Computations of Interest and Fees |
51 | |||
5.6 Limit on Rate of Interest |
51 | |||
-i-
TABLE OF CONTENTS
| Page | ||||
SECTION 6. CONDITIONS PRECEDENT TO INITIAL BORROWING |
52 | |||
6.1 Credit Documents |
52 | |||
6.2 Collateral |
52 | |||
6.3 Legal Opinions |
53 | |||
6.4 Equity Investments; Existing Indebtedness |
53 | |||
6.5 Closing Certificates |
53 | |||
6.6 Organizational Documents; Incumbency |
53 | |||
6.7 Fees |
53 | |||
6.8 Representations and Warranties |
53 | |||
6.9 Solvency Certificate |
54 | |||
6.10 Historical Financial Statements |
54 | |||
6.11 Notice of Borrowing |
54 | |||
6.12 No Default |
54 | |||
SECTION 7. [INTENTIONALLY OMITTED] |
54 | |||
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS |
54 | |||
8.1 Corporate Status |
54 | |||
8.2 Corporate Power and Authority |
54 | |||
8.3 No Violation |
54 | |||
8.4 Litigation |
55 | |||
8.5 Margin Regulations |
55 | |||
8.6 Governmental Approvals |
55 | |||
8.7 Investment Company Act |
55 | |||
8.8 True and Complete Disclosure |
55 | |||
8.9 Financial Condition; Financial Statements |
56 | |||
8.10 Tax Returns and Payments |
56 | |||
8.11 Compliance with ERISA |
56 | |||
8.12 Subsidiaries |
57 | |||
8.13 Intellectual Property |
57 | |||
8.14 Environmental Laws |
57 | |||
8.15 Properties |
58 | |||
8.16 Solvency |
58 | |||
SECTION 9. AFFIRMATIVE COVENANTS |
58 | |||
9.1 Information Covenants |
58 | |||
9.2 Books, Records and Inspections |
62 | |||
9.3 Maintenance of Insurance |
62 | |||
9.4 Payment of Taxes |
62 | |||
9.5 Consolidated Corporate Franchises |
63 | |||
-ii-
TABLE OF CONTENTS
| Page | ||||
9.6
Compliance with Statutes, Regulations, etc. |
63 | |||
9.7 ERISA |
63 | |||
9.8 Maintenance of Properties |
64 | |||
9.9 Transactions with Affiliates |
64 | |||
9.10 End of Fiscal Years; Fiscal Quarters |
64 | |||
9.11 [Intentionally Omitted] |
65 | |||
9.12 [Intentionally Omitted] |
65 | |||
9.13 Use of Proceeds |
65 | |||
9.14 [Intentionally Omitted] |
65 | |||
9.15 [Intentionally Omitted] |
65 | |||
9.16 [Intentionally Omitted] |
65 | |||
9.17 Further Assurances |
65 | |||
SECTION 10. NEGATIVE COVENANTS |
65 | |||
10.1 Consolidated Total Debt to Consolidated EBITDA Ratio |
65 | |||
10.2 Consolidated EBITDA to Consolidated Interest Expense Ratio |
66 | |||
10.3 Capital Expenditures: |
67 | |||
10.4 Permitted Activities of Borrower |
67 | |||
SECTION 11. EVENTS OF DEFAULT |
68 | |||
11.1 Payments |
68 | |||
11.2
Representations, etc. |
68 | |||
11.3 Covenants |
68 | |||
11.4 Default Under Other Agreements |
68 | |||
11.5
Bankruptcy, etc. |
69 | |||
11.6 ERISA |
69 | |||
11.7 [Intentionally Omitted] |
70 | |||
11.8 Pledge Agreement |
70 | |||
11.9 Security Agreement |
70 | |||
11.10 [Intentionally Omitted] |
70 | |||
11.11 Judgments |
70 | |||
11.12 Change of Control |
70 | |||
SECTION 12. INVESTORS’ RIGHT TO CURE |
70 | |||
SECTION 13. THE ADMINISTRATIVE AGENT |
71 | |||
13.1 Appointment |
71 | |||
13.2 Delegation of Duties |
72 | |||
13.3 General Immunity |
73 | |||
13.4 Reliance by Agents |
73 | |||
-iii-
TABLE OF CONTENTS
| Page | ||||
13.5 Notice of Default |
74 | |||
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other
Lenders |
74 | |||
13.7 Indemnification |
75 | |||
13.8 Agents in their Individual Capacity |
75 | |||
13.9 Successor Agents |
75 | |||
13.10 Withholding Tax |
76 | |||
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS |
76 | |||
SECTION 14. MISCELLANEOUS |
77 | |||
14.1 Amendments and Waivers |
77 | |||
14.2 Notices |
79 | |||
14.3 No Waiver; Cumulative Remedies |
79 | |||
14.4 Survival of Representations and Warranties |
79 | |||
14.5 Payment of Expenses and Taxes |
80 | |||
14.6 Successors and Assigns; Participations and Assignments |
80 | |||
14.7 Replacements of Lenders under Certain Circumstances |
84 | |||
14.8 Adjustments; Set-off |
85 | |||
14.9 Counterparts |
86 | |||
14.10 Severability |
86 | |||
14.11 Integration |
86 | |||
14.12 GOVERNING LAW |
86 | |||
14.13 Submission to Jurisdiction; Waivers |
86 | |||
14.14 Acknowledgments |
87 | |||
14.15 WAIVERS OF JURY TRIAL |
87 | |||
14.16 Confidentiality |
87 | |||
14.17 Direct Website Communications |
88 | |||
14.18 USA Patriot Act |
90 | |||
-iv-
SCHEDULES |
||
Schedule 1.1 (C)
|
Commitments and Addresses of Lenders | |
Schedule 1.1 (D)
|
Excluded Subsidiaries | |
Schedule 1.1(E)
|
Initial Cost Savings | |
Schedule 8.12
|
Subsidiaries | |
Schedule 9.9
|
Closing Date Affiliate Transactions | |
Schedule 9.17(B)
|
Post-Closing Actions | |
Schedule 14.2
|
Notice Addresses | |
EXHIBITS |
||
Exhibit D
|
Form of Sponsor Affiliated Lender Waiver | |
Exhibit E
|
Form of Perfection Certificate | |
Exhibit F
|
Form of Pledge Agreement | |
Exhibit G
|
Form of Security Agreement | |
Exhibit H
|
[Intentionally Omitted] | |
Exhibit I
|
Form of Legal Opinion of Simpson Thacher & Bartlett LLP | |
Exhibit J
|
Form of Closing Certificate | |
Exhibit K
|
Form of Assignment and Acceptance | |
Exhibit L
|
Form of Promissory Note |
-v-
TERM LOAN CREDIT AGREEMENT dated as of May 22, 2008, among MCJUNKIN RED MAN HOLDING
CORPORATION, a Delaware corporation (the “Borrower”), the lending institutions from time to
time parties hereto (each a “Lender” and, collectively, the “Lenders”), Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as Co-Lead Arrangers and Joint Bookrunners,
Lehman Commercial Paper Inc., as Administrative Agent and Collateral Agent, and Goldman Sachs
Credit Partners L.P., as Syndication Agent (such term and each other capitalized term used but not
defined in this introductory statement having the meaning provided in Section 1).
WHEREAS, Borrower owns 100% of the outstanding equity interests of McJunkin Red Man
Corporation (f/k/a McJunkin Corporation), a West Virginia corporation (“McJunkin Opco”);
WHEREAS, on January 31, 2007 (the “Original Closing Date”), McJunkin Opco, Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as the co-lead arrangers and joint
bookrunners, Lehman Commercial Paper Inc., as administrative agent and collateral agent, and
Goldman Sachs Credit Partners L.P., as the syndication agent, entered into that certain term loan
credit agreement (as amended, restated, increased or otherwise supplemented from time to time in
accordance with the McJunkin Opco Loan Documents (as hereinafter defined), the “McJunkin Opco
Term Loan Credit Agreement”) to, among other things, provide a portion of the consideration for
the acquisition of McJunkin Corporation (the “McJunkin Transaction”);
WHEREAS, on October 31, 2007 (the “Red Man Closing Date”), McJunkin Opco, Goldman
Sachs Credit Partners L.P. and Lehman Brothers Inc., as the co-lead arrangers and joint
bookrunners, The CIT Group/Business Credit, Inc., as administrative agent and co-collateral agent,
Bank of America, N.A., as co-collateral agent, and Goldman Sachs Credit Partners L.P., as the
syndication agent, entered into that certain revolving credit agreement (as amended, restated,
increased or otherwise supplemented from time to time in accordance with the McJunkin Opco Loan
Documents (as hereinafter defined), the “McJunkin Opco Revolving Credit Agreement”) to,
among other things, provide a portion of the consideration for the acquisition of Red Man Pipe &
Supply Co. (the “Red Man Transaction”);
WHEREAS, certain of the Investors made an additional equity investment in the amount of
$475,000,000 in PVF Holdings LLC f/k/a McJ Holding LLC (“Holdings”) (which equity
investment was contributed to Borrower and in turn to McJunkin Opco in exchange for common Stock)
on the Red Man Closing Date to provide a portion of the consideration for the Red Man Transaction;
WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders extend
credit in the form of Term Loans, in an aggregate principal amount of $450,000,000;
WHEREAS, the repayment of the Term Loans will be secured by perfected security interests in
and liens upon substantially all of the personal property and certain real property of the
Borrower;
WHEREAS, the proceeds of up to $25,000,000 of revolving credit loans made available to
McJunkin Opco pursuant to the McJunkin Opco Revolving Credit Agreement will be distributed to the
Borrower and used by the Borrower, together with the proceeds of the Term Loans, on the Closing
Date solely to fund a distribution to and/or stock redemption from the Investors in an aggregate
amount not to exceed $475,000,000 (such distribution to and/or stock redemption, the “Special
Equity Dividend”); and
WHEREAS, the Lenders are willing to make available to the Borrower such term loans, upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, the parties hereto hereby agree as follows:
SECTION 1. Definitions
1.1 Defined Terms. (a) As used herein, the following terms shall have the meanings
specified in this Section 1.1 unless the context otherwise requires (it being understood
that defined terms in this Agreement shall include in the singular number the plural and in the
plural the singular):
“ABR” shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day or (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
“ABR Loan” shall mean each Loan bearing interest at the rate provided in
Section 2.8(a).
“Acquired Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Acquisition Transactions” shall mean, collectively, the McJunkin Transaction, the Red
Man Transaction and the transactions contemplated by the McJunkin Opco Credit Agreements and the
acquisition documents with respect to the McJunkin Transaction and the Red Man Transaction.
“Acquisition Transaction Expenses” shall mean any fees or expenses incurred or paid by
the Borrower or any of its Subsidiaries in connection with the Acquisition Transactions, the
McJunkin Opco Credit Agreements and the other McJunkin Opco Loan Documents and the transactions
contemplated thereby.
“Adjusted Total Term Loan Commitment” shall mean at any time the Total Term Loan
Commitment less the Term Loan Commitments of all Defaulting Lenders.
“Administrative Agent” shall mean Lehman Commercial Paper Inc., as the administrative
agent for the Lenders under this Agreement and the other Credit Documents, or any successor
administrative agent pursuant to Section 13.
2
“Administrative Agent’s Office” shall mean in respect of all Credit Events for the
account of the Borrower, the office of the Administrative Agent located at 745 Seventh Avenue, New
York City, New York, or such other office as the Administrative Agent may hereafter designate in
writing as such to the other parties hereto.
“Administrative Questionnaire” shall have the meaning provided in
Section 14.6(b).
“Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common control with such Person.
A Person shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 20% or more of the securities having ordinary voting power for
the election of directors of such corporation or (b) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
“Agent Parties” shall have the meaning provided in Section 14.17(c).
“Agents” shall mean each Co-Lead Arranger, the Administrative Agent, the Collateral
Agent and the Syndication Agent.
“Agreement” shall mean this Term Loan Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
“Applicable ABR Margin” shall mean at any date, with respect to each ABR Loan that is
a Term Loan, 2.25% per annum.
“Applicable LIBOR Margin” shall mean at any date, with respect to each LIBOR Loan that
is a Term Loan, 3.25% per annum.
“Approved Fund” shall have the meaning provided in Section 14.6.
“Asset Sale Prepayment Event” shall mean any Disposition of any business units, assets
or other property of the Borrower or any of the Restricted Subsidiaries not in the ordinary course
of business (including any Disposition of any Stock or Stock Equivalents of any Subsidiary of the
Borrower owned by the Borrower or a Restricted Subsidiary, including any sale of any Stock or Stock
Equivalents of any Restricted Subsidiary). Notwithstanding the foregoing, the term “Asset Sale
Prepayment Event” shall not include any (a) transaction permitted by Section 10.4 of the
McJunkin Opco Term Loan Credit Agreement, other than transactions permitted by Section
10.4(b) thereof or (b) Disposition of Revolving Credit Collateral (as defined in the
Intercreditor Agreement); provided, that this clause (b) shall only apply prior to a
Discharge of Revolving Credit Obligations (as defined in the Intercreditor Agreement).
“Assignment and Acceptance” shall mean an assignment and acceptance substantially in
the form of Exhibit K.
“Authorized Officer” shall mean the President, the Chief Financial Officer, the
Treasurer or any other senior officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
3
“Bankruptcy Code” shall have the meaning provided in Section 11.5.
“Board” shall mean the Board of Governors of the Federal Reserve System of the United
States (or any successor).
“Borrower” shall have the meaning provided in the preamble to this Agreement.
“Borrower Purchase” shall have the meaning provided in Section 3.1.
“Borrowing” shall mean and include the incurrence of one Type of Term Loan on the
Closing Date (or resulting from conversions on a given date after the Closing Date) having, in the
case of LIBOR Loans, the same Interest Period (provided that ABR Loans incurred pursuant to
Section 2.10(b) shall be considered part of any related Borrowing of LIBOR Loans).
“Business Day” shall mean (a) for all purposes other than as covered by clause (b)
below, any day excluding Saturday, Sunday and any day that shall be in New York City a legal
holiday or a day on which banking institutions are authorized by law or other governmental actions
to close and (b) with respect to all notices and determinations in connection with, and payments of
principal and interest on, LIBOR Loans, any day which is a Business Day described in clause (a) and
which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar
market.
“Capital Expenditures” shall mean, for any period, the aggregate of all expenditures
(whether paid in cash or accrued as liabilities and including in all events all amounts expended or
capitalized under Capital Leases, but excluding any amount representing capitalized interest) by
McJunkin Opco and the other Restricted Subsidiaries during such period that, in conformity with
GAAP, are or are required to be included as additions during such period to property, plant or
equipment reflected in the consolidated balance sheet of McJunkin Opco and the other Restricted
Subsidiaries, provided that the term “Capital Expenditures” shall not include (a)
expenditures made in connection with the replacement, substitution, restoration or repair of assets
(i) to the extent financed from insurance proceeds paid on account of the loss of or damage to the
assets being replaced, restored or repaired or (ii) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being replaced, (b) the purchase price of
equipment that is purchased simultaneously with the trade-in of existing equipment pursuant to
Section 10.4 of the McJunkin Opco Credit Agreements to the extent that the gross amount of such
purchase price is reduced by the credit granted by the seller of such equipment for the equipment
being traded in at such time, (c) the purchase of plant, property or equipment made within fifteen
months of the sale of any asset to the extent purchased with the proceeds of such sale, (d)
expenditures that constitute any part of Consolidated Lease Expense, (e) expenditures that are
accounted for as capital expenditures by any Restricted Subsidiary and that actually are paid for
by a Person other than any Restricted Subsidiary and for which no Restricted Subsidiary has
provided or is required to provide or incur, directly or indirectly, any consideration or
obligation to such Person or any other Person (whether before, during or after such period), (f)
the book value of any asset owned by any Restricted Subsidiary prior to or during such period to
the extent that such book value is included as a capital expenditure during such period as a result
of such Person reusing or beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period, provided that (x) any
4
expenditure necessary in order to permit such asset to be reused shall be included as a
Capital Expenditure during the period in which such expenditure actually is made and (y) such book
value shall have been included in Capital Expenditures when such asset was originally acquired, (g)
expenditures that constitute Permitted Acquisitions or (h) Acquisition Transaction Expenses.
“Capital Lease” shall mean, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is
required to be, accounted for as a capital lease on the balance sheet of that Person.
“Capitalized Lease Obligations” shall mean, as applied to any Person, all obligations
under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
“Casualty Event” shall mean, with respect to any Collateral, any loss of or damage to,
or any condemnation or other taking by a Governmental Authority of, such property for which such
Collateral for which the Borrower or any of its Restricted Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
“Change in Law” shall mean (a) the adoption of any law, treaty, order, policy, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule
or regulation or in the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental or quasi
governmental authority (whether or not having the force of law).
“Change of Control” shall mean and be deemed to have occurred if (a) the Sponsor shall
at any time not own, in the aggregate, directly or indirectly, beneficially and of record, at least
35% of the voting power of the outstanding Voting Stock of Borrower (other than as the result of
one or more Qualified IPOs); or (b) any person, entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall at
any time have acquired direct or indirect beneficial ownership of a percentage of the voting power
of the outstanding Voting Stock of Borrower that exceeds the percentage of the voting power of such
Voting Stock then beneficially owned, in the aggregate, by the Sponsor, unless, in the case of
either clause (a) or (b) above, the Sponsor have, at such time, the right or the ability by voting
power, contract or otherwise to elect or designate for election at least a majority of the board of
directors of Borrower; or (c) Borrower shall at any time not directly own 100% of the outstanding
Stock of McJunkin Opco; or (d) Continuing Directors shall not constitute at least a majority of the
board of directors of the Borrower.
“Closing Date” shall mean the date of the initial Borrowing hereunder.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and rulings issued thereunder. Section references to the Code are to
the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
“Co-Lead Arrangers” shall mean Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc.
5
“Collateral” shall have the meaning provided in the Security Agreement or any other
Security Document, as applicable.
“Collateral Agent” shall mean Lehman Commercial Paper Inc., a New York corporation, as
collateral agent for the Lenders and the other Secured Parties.
“Commitments” shall mean, with respect to each Lender, such Lender’s Term Loan
Commitment.
“Communications” shall have the meaning provided in Section 14.17(a).
“Confidential Information” shall have the meaning provided in Section 14.16.
“Confidential Information Memorandum” shall mean the Confidential Information
Memorandum of the Borrower dated May, 2008, delivered to the Lenders in connection with this
Agreement.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such
period, plus:
(a) without duplication and to the extent already deducted (and not added back) in arriving at
such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total interest
expense, any losses on hedging obligations or other derivative instruments entered into for
the purpose of hedging interest rate risk, net of interest income and gains on such hedging
obligations, and costs of surety bonds in connection with financing activities,
(ii) provision for taxes based on income, profits or capital of McJunkin Opco and the
other Restricted Subsidiaries, including state, franchise and similar taxes and foreign
withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) Non-Cash Charges,
(v) extraordinary losses and unusual or non-recurring charges, severance, relocation
costs and curtailments or modifications to pension and post-retirement employee benefit
plans,
(vi) restructuring charges or reserves (including restructuring costs related to
acquisitions after the date hereof and to closure and/or consolidation of facilities),
(vii) any deductions attributable to minority interests,
6
(viii) the amount, if any, of management, monitoring, consulting and advisory fees and
related expenses paid to the Sponsor,
(ix) any costs or expenses incurred by any Restricted Subsidiary pursuant to any
management equity plan or stock option plan or any other management or employee benefit plan
or agreement or any stock subscription or shareholder agreement, to the extent that such
costs or expenses are funded with cash proceeds contributed to the capital of McJunkin Opco
or net cash proceeds of an issuance of Stock or Stock Equivalents of McJunkin Opco; and
(x) (A) for any period that includes a fiscal quarter occurring prior to fifth fiscal
quarter occurring after the Original Closing Date, the cost savings described on Schedule
1.1(e) and (B) for any period that includes a fiscal quarter occurring thereafter, the
amount of net cost savings projected by the Borrower and/or McJunkin Opco in good faith to
be realized as a result of specified actions taken by the Borrower and its Restricted
Subsidiaries in connection with the Acquisition Transactions (calculated on a Pro Forma
Basis as though such cost savings had been realized on the first day of such period), net of
the amount of actual benefits realized during such period from such actions,
provided that (A) such cost savings are reasonably identifiable and
factually supportable, (B) such actions are taken on or prior to the third anniversary of
the Closing Date, (C) no cost savings shall be added pursuant to this clause (x) to the
extent duplicative of any expenses or charges relating to such cost savings that are
included in clause (vi) above with respect to such period and (D) the aggregate amount of
cost savings added pursuant to this clause (x)(B) shall not exceed $5,000,000 for any period
consisting of four consecutive quarters, less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the
reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net
Income in any prior period),
(iii) gains on asset sales (other than asset sales in the ordinary course of business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or hedging
obligations or other derivative instruments, and
(v) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for McJunkin Opco and the Restricted
Subsidiaries in accordance with GAAP; provided that, to the extent included in Consolidated
Net Income,
7
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of Indebtedness or intercompany balances
(including the net loss or gain resulting from Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by
any Restricted Subsidiary during such period (but not the Acquired EBITDA of any related
Person, property, business or assets to the extent not so acquired) to the extent not
subsequently sold, transferred, abandoned or otherwise disposed by any Restricted Subsidiary
(each such Person, property, business or asset acquired and not subsequently so disposed of,
an “Acquired Entity or Business”) and the Acquired EBITDA of any Unrestricted
Subsidiary that is converted into a Restricted Subsidiary during such period (each, a
“Converted Restricted Subsidiary”), based on the actual Acquired EBITDA of such
Acquired Entity or Business or Converted Restricted Subsidiary for such period (including
the portion thereof occurring prior to such acquisition or conversion) and (B) an adjustment
in respect of each Acquired Entity or Business equal to the amount of the Pro Forma
Adjustment with respect to such Acquired Entity or Business for such period (including the
portion thereof occurring prior to such acquisition) as specified in a Pro Forma Adjustment
Certificate and delivered to the Lenders and the Administrative Agents and (C) there shall
be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any
Person, property, business or asset (other than an Unrestricted Subsidiary) sold,
transferred, abandoned or otherwise disposed of, closed or classified as discontinued
operations by any Restricted Subsidiary during such period (each such Person, property,
business or asset so sold or disposed of, a “Sold Entity or Business”), and the
Acquired EBITDA of any Restricted Subsidiary that is converted into an Unrestricted
Subsidiary during such period (each, a “Converted Unrestricted Subsidiary”) based on
the actual Disposed EBITDA of such Sold Entity or Business or Converted Restricted
Subsidiary for such period (including the portion thereof occurring prior to such sale,
transfer or disposition or conversion).
“Consolidated EBITDA to Consolidated Interest Expense Ratio” shall mean, as of any
date of determination, the ratio of (a) Consolidated EBITDA for the relevant Test Period to (b)
Consolidated Interest Expense for such Test Period.
“Consolidated Interest Expense” shall mean, for any period, the sum of (i) the cash
interest expense (including that attributable to Capital Leases in accordance with GAAP), net of
cash interest income, of McJunkin Opco and the other Restricted Subsidiaries on a consolidated
basis in accordance with GAAP with respect to all outstanding Indebtedness of McJunkin Opco and the
other Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers’ acceptance financing and net costs under Hedge
Agreements (other than currency swap agreements, currency future or option contracts and other
similar agreements) and (ii) any cash payments made during such period in
8
respect of obligations referred to in clause (b) below relating to Funded Debt that were
amortized or accrued in a previous period (other than any such obligations resulting from the
discounting of Indebtedness in connection with the application of purchase accounting in connection
with the Acquisition Transactions or any Permitted Acquisition), but excluding, however, (a)
amortization of deferred financing costs and any other amounts of non-cash interest, (b) the
accretion or accrual of discounted liabilities during such period, and (c) all non-recurring cash
interest expense consisting of liquidated damages for failure to timely comply with registration
rights obligations and financing fees, all as calculated on a consolidated basis in accordance with
GAAP and excluding, for the avoidance of doubt, any interest in respect of items excluded from
Indebtedness in the proviso to the definition thereof, provided that (a) except as provided
in clause (b) below, there shall be excluded from Consolidated Interest Expense for any period the
cash interest expense (or cash interest income) of all Unrestricted Subsidiaries for such period to
the extent otherwise included in Consolidated Interest Expense, (b) there shall be included in
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Acquired Entity or Business acquired during such period and of any Converted Restricted
Subsidiary converted during such period, in each case based on the cash interest expense (or
income) of such Acquired Entity or Business or Converted Restricted Subsidiary for such period
(including the portion thereof occurring prior to such acquisition or conversion) assuming any
Indebtedness incurred or repaid in connection with any such acquisition or conversion had been
incurred or prepaid on the first day of such period, and (c) there shall be excluded from
determining Consolidated Interest Expense for any period the cash interest expense (or income) of
any Sold Entity or Business disposed of during such period, based on the cash interest expense (or
income) relating to any Indebtedness relieved, retired or repaid in connection with any such
disposition of such Sold Entity or Business for such period (including the portion thereof
occurring prior to such disposal) assuming such debt relieved, retired or repaid in connection with
such disposition had been relieved, retired or repaid on the first day of such period.
“Consolidated Lease Expense” shall mean, for any period, all rental expenses of
McJunkin Opco and the other Restricted Subsidiaries during such period under operating leases for
real or personal property (including in connection with Permitted Sale Leasebacks), excluding real
estate taxes, insurance costs and common area maintenance charges and net of sublease income, other
than (a) obligations under vehicle leases entered into in the ordinary course of business, (b) all
such rental expenses associated with assets acquired pursuant to a Permitted Acquisition to the
extent that such rental expenses relate to operating leases in effect at the time of (and
immediately prior to) such acquisition and (c) Capital Lease Obligations, all as determined on a
consolidated basis in accordance with GAAP, provided that there shall be excluded from
Consolidated Lease Expense for any period the rental expenses of all Unrestricted Subsidiaries for
such period to the extent otherwise included in Consolidated Lease Expense.
“Consolidated Net Income” shall mean, for any period, the net income (loss) of
McJunkin Opco and the other Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, excluding, without duplication, (a) extraordinary items for such
period, (b) the cumulative effect of a change in accounting principles during such period to the
extent included in Consolidated Net Income, (c) in the case of any period that includes a period
ending prior to or during the fiscal year ending December 31, 2007, Acquisition Transaction
Expenses, (d) any fees and expenses incurred during such period, or any amortization thereof for
such period, in connection with any acquisition, investment,
9
recapitalization, asset disposition, issuance or repayment of debt, issuance of equity
securities, refinancing transaction or amendment or other modification of any debt instrument (in
each case, including any such transaction consummated prior to the Closing Date and any such
transaction undertaken but not completed) and any charges or non-recurring merger costs incurred
during such period as a result of any such transaction, (e) any income (loss) for such period
attributable to the early extinguishment of Indebtedness and (f) accruals and reserves that are
established that are so required to be established or adjusted as a result of the Acquisition
Transactions in accordance with GAAP or changes as a result of adoption of or modification of
accounting policies, in each case, within twelve months after the Red Man Closing Date. There
shall be excluded from Consolidated Net Income for any period the purchase accounting effects of
adjustments to inventory, property and equipment, software and other intangible assets and deferred
revenue in component amounts required or permitted by GAAP and related authoritative pronouncements
(including the effects of such adjustments pushed down to McJunkin Opco and the other Restricted
Subsidiaries), as a result of the Acquisition Transactions, any acquisition whether consummated
before or after the Closing Date, any Permitted Acquisition or other Investment, or the
amortization or write-off of any amounts thereof.
“Consolidated Secured Debt” shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Transaction or any Permitted Acquisition), consisting of
Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by
promissory notes or similar instruments, in each case secured by Liens, minus (b) the
aggregate amount of cash and cash equivalents held in accounts on the consolidated balance sheet of
McJunkin Opco and the other Restricted Subsidiaries as at such date to the extent the use thereof
for application to payment of Indebtedness is not prohibited by law or any contract to which any
Restricted Subsidiary is a party.
“Consolidated Total Assets” shall mean, as of any date of determination, the amount
that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like
caption) on a consolidated balance sheet of McJunkin Opco and the other Restricted Subsidiaries at
such date.
“Consolidated Total Debt” shall mean, as of any date of determination, (a) the
aggregate principal amount of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries
outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding
the effects of any discounting of Indebtedness resulting from the application of purchase
accounting in connection with the Acquisition Transactions or any Permitted Acquisition),
consisting of Indebtedness for borrowed money, Capital Lease Obligations and debt obligations
evidenced by promissory notes or similar instruments, minus (b) the aggregate amount of
cash and cash equivalents held in accounts on the consolidated balance sheet of the McJunkin Opco
and the other Restricted Subsidiaries as at such date to the extent the use thereof for application
to payment of Indebtedness is not prohibited by law or any contract to which any Restricted
Subsidiary is a party.
10
“Consolidated Total Debt to Consolidated EBITDA Ratio” shall mean, as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the relevant Test
Period to (b) Consolidated EBITDA for such Test Period.
“Consolidated Working Capital” shall mean, at any date, the excess of (a) the sum of
all amounts (other than cash and Permitted Investments) that would, in conformity with GAAP, be set
forth opposite the caption “total current assets” (or any like caption) on a consolidated balance
sheet of McJunkin Opco and the other Restricted Subsidiaries at such date excluding the current
portion of current and deferred income taxes plus any LIFO reserve over (b) the sum of all amounts
that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities”
(or any like caption) on a consolidated balance sheet of McJunkin Opco and the other Restricted
Subsidiaries on such date, including deferred revenue but excluding, without duplication, (i) the
current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans and Letter of Credit
Exposure (as defined in the McJunkin Opco Revolving Credit Agreement) to the extent otherwise
included therein, (iii) the current portion of interest and (iv) the current portion of current and
deferred income taxes.
“Continuing Director” shall mean, at any date, an individual (a) who is a member of
the board of directors of the Borrower on the date hereof, (b) who, as at such date, has been a
member of such board of directors for at least the twelve preceding months, (c) who has been
nominated to be a member of such board of directors, directly or indirectly, by a Sponsor or
Persons nominated by a Sponsor or (d) who has been nominated to be a member of such board of
directors by a majority of the other Continuing Directors then in office.
“Contract Consideration” shall have the meaning provided in the definition of Excess
Cash Flow.
“Contractual Obligation” means, as applied to any Person, any provision of any
security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking,
agreement or other instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
“Converted Restricted Subsidiary” shall have the meaning provided in the definition of
the term “Consolidated EBITDA”.
“Converted Unrestricted Subsidiary” shall have the meaning provided in the definition
of the term “Consolidated EBITDA”.
“Credit Documents” shall mean this Agreement, the Security Documents, and any
promissory notes issued by the Borrower hereunder.
“Credit Event” shall mean and include the making (but not the conversion or
continuation) of a Loan.
“Cure Amount” shall have the meaning provided in Section 12.
“Cure Right” shall have the meaning provided in Section 12.
11
“Currency Agreement” means any foreign exchange contract, currency swap agreement,
futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of
which is for the purpose of hedging the foreign currency risk associated with Borrower’s and its
Subsidiaries’ operations and not for speculative purposes.
“Debt Incurrence Prepayment Event” shall mean any issuance or incurrence by the
Borrower or any of the Restricted Subsidiaries of any Indebtedness (excluding any Indebtedness
permitted to be issued or incurred under Section 10.1 of the McJunkin Opco Credit
Agreements other than Section 10.1(o) thereof and any issuance by McJunkin Opco of
Permitted Additional Debt (as defined therein) to the extent the Net Cash Proceeds are used for a
Permitted Acquisition).
“Default” shall mean any event, act or condition that with notice or lapse of time, or
both, would constitute an Event of Default.
“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in
effect.
“Deferred Net Cash Proceeds” shall have the meaning provided such term in the
definition of “Net Cash Proceeds.”
“Designated Non-Cash Consideration” shall mean the fair market value of non-cash
consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition
pursuant to Sections 10.4(b) and (c) of the McJunkin Opco Term Loan Credit
Agreement that is designated as Designated Non-Cash Consideration pursuant to a certificate of an
Authorized Officer of the Borrower, setting forth the basis of such valuation (which amount will be
reduced by the fair market value of the portion of the non-cash consideration converted to cash
within 180 days following the consummation of the applicable Disposition).
“Discharge of McJunkin Opco Term Loan Obligations” shall mean the payment in full of
the Obligations (as defined in the McJunkin Opco Term Loan Credit Agreement) and any refinancing
Indebtedness in respect thereof permitted to be incurred by the McJunkin Opco Loan Documents.
“Disposed EBITDA” shall mean, with respect to any Sold Entity or Business or any
Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA
of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references
to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were
references to such Sold Entity or Business or Converted Unrestricted Subsidiary and its
Subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business.
“Disposition” shall have the meaning assigned to such term in the McJunkin Opco Term
Loan Credit Agreement.
“Dividend Transactions” shall mean the transactions contemplated by this Agreement,
including without limitation the funding and making of the Special Equity Dividend.
12
“Dividend Transaction Expenses” shall mean any fees or expenses incurred or paid by
the Borrower or any of its Subsidiaries in connection with the Dividend Transactions, this
Agreement and the other Credit Documents and the transactions contemplated hereby and thereby.
“Dollar Equivalent” shall mean, on any date of determination, (a) with respect to any
amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any
Foreign Currency, the equivalent in Dollars of such amount, determined by the Administrative Agent
pursuant using the applicable Exchange Rate.
“Dollars” and “$” shall mean dollars in lawful currency of the United States
of America.
“Domestic Subsidiary” shall mean each Subsidiary of the Borrower that is organized
under the laws of the United States, any state or territory thereof, or the District of Columbia.
“Engagement Letter” shall mean that certain confidential engagement letter dated as of
May 15, 2008 by and among Goldman Sachs Credit Partners L.P., Lehman Brothers Inc., Lehman
Commercial Paper Inc., Lehman Brothers Commercial Bank, Borrower and McJunkin Opco.
“Environmental Claims” shall mean any and all actions, suits, orders, decrees,
demands, demand letters, claims, liens, notices of noncompliance, violation or potential
responsibility or investigation (other than internal reports prepared by the Borrower or any of the
Subsidiaries (a) in the ordinary course of such Person’s business or (b) as required in connection
with a financing transaction or an acquisition or disposition of real estate) or proceedings
relating in any way to any Environmental Law or any permit issued, or any approval given, under any
such Environmental Law (hereinafter, “Claims”), including, without limitation, (i) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief relating to the presence, release or threatened release of
Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the
extent relating to human exposure to Hazardous Materials), or the environment including, without
limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural
resources such as wetlands.
“Environmental Law” shall mean any applicable Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect
and in each case as amended, and any binding judicial or administrative interpretation thereof,
including any binding judicial or administrative order, consent decree or judgment, relating to the
protection of environment, including, without limitation, ambient air, surface water, groundwater,
land surface and subsurface strata and natural resources such as wetlands, or human health or
safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time. Section references to ERISA are to ERISA as in effect at the date of this
13
Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) that
together with the Borrower or a Subsidiary would be deemed to be a “single employer” within the
meaning of Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“Event of Default” shall have the meaning provided in Section 11.
“Excess Cash Flow” shall mean, for any period, an amount equal to the excess of
| (a) | the sum, without duplication, of |
| (i) | Consolidated Net Income for such period, | ||
| (ii) | an amount equal to the amount of all non-cash charges to the extent deducted in arriving at such Consolidated Net Income, | ||
| (iii) | decreases in Consolidated Working Capital and long-term account receivables for such period, and | ||
| (iv) | an amount equal to the aggregate net non-cash loss on Dispositions by McJunkin Opco and the other Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income, over |
| (b) | the sum, without duplication, of |
| (i) | an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income and cash charges included in clauses (a) through (f) of the definition of Consolidated Net Income (other than cash charges in respect of Acquisition Transaction Expenses paid on or about the Original Closing Date and Red Man Closing Date to the extent financed with the proceeds of Indebtedness incurred on such dates or the equity investments made by the Investors on such dates), | ||
| (ii) | without duplication of amounts deducted pursuant to clause (xi) below in prior years, the amount of capital expenditures made in cash during such period, except to the extent that such capital expenditures were financed with the proceeds of Indebtedness of McJunkin Opco or any other Restricted Subsidiary, | ||
| (iii) | the aggregate amount of all principal payments of Indebtedness of McJunkin Opco and the other Restricted Subsidiaries (including |
14
(A) the principal component of payments in respect of Capitalized
Leases and (B) the amount of any mandatory prepayment of Term Loans
pursuant to Section 5.2(a) of the McJunkin Term Loan Credit Agreement
and, without duplication, Section 5.2(a) hereof to the extent
required due to a Disposition that resulted in an increase to
Consolidated Net Income and not in excess of the amount of such
increase but excluding (x) all other prepayments of the Term Loans,
(y) all other prepayments of Term Loans (as defined in the McJunkin
Opco Term Loan Credit Agreement), and (z) all prepayments of
Revolving Credit Loans and Swing Line Loans) made during such period
(other than in respect of any revolving credit facility to the extent
there is not an equivalent permanent reduction in commitments
thereunder), except to the extent financed with the proceeds of other
Indebtedness of McJunkin Opco or any other Restricted Subsidiary,
| (iv) | an amount equal to the aggregate net non-cash gain on Dispositions by McJunkin Opco and the other Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income, | ||
| (v) | increases in Consolidated Working Capital for such period and long-term account receivables for such period, | ||
| (vi) | cash payments by McJunkin Opco and the other Restricted Subsidiaries during such period in respect of long-term liabilities of McJunkin Opco and the other Restricted Subsidiaries other than Indebtedness, | ||
| (vii) | without duplication of amounts deducted pursuant to clause (xi) below in prior fiscal years, the aggregate amount of cash consideration paid by McJunkin Opco and the other Restricted Subsidiaries in connection with Investments (including acquisitions) made during such period pursuant to Section 10.5 of the McJunkin Opco Credit Agreements to the extent that such Investments were financed with internally generated cash flow of McJunkin Opco and the other Restricted Subsidiaries, | ||
| (viii) | the amount of dividends paid during such period to the extent such dividends were financed with internally generated cash flow of McJunkin Opco and the other Restricted Subsidiaries, | ||
| (ix) | the aggregate amount of expenditures actually made by McJunkin Opco and the other Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) |
15
| to the extent that such expenditures are not expensed during such period, |
| (x) | the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by McJunkin Opco and the other Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness, | ||
| (xi) | without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by any Restricted Subsidiary pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such period relating to Permitted Acquisitions, Investments in the nature of joint ventures or capital expenditures to be consummated or made during the period of four consecutive fiscal quarters of McJunkin Opco following the end of such period, provided that to the extent the aggregate amount of internally generated cash actually utilized to finance such Permitted Acquisitions, Investment in the nature of joint ventures or capital expenditures during such period of four consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of four consecutive fiscal quarters, and | ||
| (xii) | the amount of cash taxes paid in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period. |
“Exchange Rate” shall mean on any day with respect to any Foreign Currency, the rate
at which such Foreign Currency may be exchanged into Dollars, as set forth at approximately
11:00 a.m. (London time) on such day on the Reuters World Currency Page for such Foreign Currency;
in the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate
shall be determined by reference to such other publicly available service for displaying exchange
rates as may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of
such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of
exchange of the Administrative Agent in the market where its foreign currency exchange operations
in respect of such Foreign Currency are then being conducted, at or about 10:00 a.m. (New York City
time) on such date for the purchase of Dollars for delivery two Business Days later.
“Excluded Subsidiary” means (a) each Subsidiary listed on Schedule 1.1(d)
hereto, (b) any Subsidiary that is not a wholly-owned Subsidiary, (c) each Unrestricted Subsidiary
and (d) each other Subsidiary that satisfies the definition of “Excluded Subsidiary” in the
McJunkin Opco Credit Agreements.
“Excluded Taxes” shall mean, with respect to the Administrative Agent, the Collateral
Agent, or any Lender (a) (i) net income taxes and franchise taxes (imposed in lieu of net income
16
taxes) and capital taxes imposed on the Administrative Agent, or any Lender and (ii) any taxes
imposed on the Administrative Agent, or any Lender as a result of any current or former connection
between the Administrative Agent, or such Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or having been a party to or
having enforced this Agreement or any other Credit Document) and (b) (i) any withholding tax that
is imposed by a jurisdiction in which the Borrower is located or organized on amounts payable to
such Lender under the law in effect at the time such Lender becomes a party to this Agreement (or,
in the case of a Participant, on the date such Participant became a Participant hereunder);
provided that this clause (b)(i) shall not apply to the extent that (x) the
indemnity payments or additional amounts any Lender (or Participant) would be entitled to receive
(without regard to this clause (b)(i)) do not exceed the indemnity payment or additional amounts
that the person making the assignment, participation or transfer to such Lender (or Participant)
would have been entitled to receive in the absence of such assignment, participation or transfer or
(y) any Tax is imposed on a Lender in connection with an interest or participation in any Loan or
other obligation that such Lender was required to acquire pursuant to Section 14.8(a) or
that such Lender acquired pursuant to Section 14.7 (it being understood and agreed, for the
avoidance of doubt, that any withholding tax imposed on a Lender as a result of a Change in Law
occurring after the time such Lender became a party to this Agreement (or designates a new lending
office) shall not be an Excluded Tax) or (ii) any Tax to the extent attributable to such Lender’s
failure to comply with Section 5.4(d) or Section 5.4(e).
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the
per annum rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day,
the Federal Funds Effective Rate for such day shall be the average rate charged to the
Administrative Agent on such day on such transactions as determined by the Administrative Agent.
“Fees” shall mean all amounts payable pursuant to, or referred to in, Section
4.1.
“Financial Officer” shall mean the Chief Financial Officer, principal accounting
officer, Treasurer, or Controller or any other senior financial officer of the Borrower designated
in writing to the Administrative Agent by any of the foregoing and reasonably acceptable to the
Administrative Agent.
“Foreign Asset Sale” shall have the meaning provided in Section 5.2(g).
“Foreign Currencies” shall mean any currency other than Dollars.
“Foreign Plan” shall mean any employee benefit plan, program, policy, arrangement or
agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to
employees employed outside the United States.
17
“Foreign Subsidiary” shall mean each Subsidiary of the Borrower that is not a Domestic
Subsidiary.
“Fund” shall mean GS Capital Partners V Fund, L.P. and GS Capital Partners VI Fund,
L.P.
“Funded Debt” shall mean all indebtedness of McJunkin Opco and the other Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of any
Restricted Subsidiary, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend credit during a period
of more than one year from such date, including all amounts of Funded Debt required to be paid or
prepaid within one year from the date of its creation and, in the case of McJunkin Opco,
Indebtedness in respect of the Loans (as defined in the McJunkin Opco Term Loan Credit Agreement).
“GAAP” shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time; provided, however, that if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof
to eliminate the effect of any change occurring after the Closing Date in GAAP or in the
application thereof on the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
“Governmental Authority” shall mean any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, and any entity or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to
government, including a central bank or stock exchange.
“Guarantee Obligations” shall mean, as to any Person, any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, including any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of
any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or
(d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect
thereof; provided, however, that the term “Guarantee Obligations” shall not
include endorsements of instruments for deposit or collection in the ordinary course of business or
customary and reasonable indemnity obligations in effect on the Closing Date or entered into in
connection with any acquisition or disposition of assets permitted under this Agreement (other than
such obligations with respect to Indebtedness). The amount of any Guarantee Obligation
18
shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness
in respect of which such Guarantee Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
“Hazardous Materials” shall mean (a) any petroleum or petroleum products, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon
gas; (b) any chemicals, materials or substances defined as or included in the definition of
“hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous waste”,
“restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, or
“pollutants”, or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, which is prohibited, limited or regulated by any Environmental
Law.
“Hedge Agreement” means an Interest Rate Agreement or a Currency Agreement entered
into in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of
Borrower’s or any of its Subsidiaries’ businesses.
“Historical Financial Statements” shall mean as of the Closing Date, the audited
financial statements of McJunkin Opco and its Subsidiaries, for the 2005, 2006 and 2007 fiscal
years, consisting of balance sheets and the related consolidated statements of income,
stockholders’ equity and cash flows for such fiscal years.
“Holdings” shall have the meaning provided in the recitals to this Agreement.
“Holdings Contribution” shall have the meaning provided in Section 3.1.
“Indebtedness” of any Person shall mean (a) all indebtedness of such Person for
borrowed money, (b) the deferred purchase price of assets or services that in accordance with GAAP
would be included as liabilities in the balance sheet of such Person, (c) the face amount of all
letters of credit issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person, provided that Indebtedness shall not include (i) trade payables and accrued
expenses, in each case payable directly or through a bank clearing arrangement and arising in the
ordinary course of business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in
respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed
obligations of the respective seller and (iv) all intercompany Indebtedness having a term not
exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary
course of business.
“Indemnified Taxes” shall mean all Taxes (other than Excluded Taxes) and Other Taxes.
19
“Intercreditor Agreement” shall mean that certain Amended and Restated Intercreditor
Agreement dated as of the Red Man Closing Date, by and among McJunkin Opco, the Guarantors from
time to time party thereto, The CIT Group/Business Credit, Inc., Bank of America, N.A., and Lehman
Commercial Paper Inc., as it may be amended, restated, amended and restated, supplemented or
otherwise modified from time to time.
“Interest Period” shall mean, with respect to any Term Loan, the interest period
applicable thereto, as determined pursuant to Section 2.9.
“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with Borrower’s and its Subsidiaries’ operations and not for speculative purposes.
“Investment” shall mean, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Stock, Stock Equivalents, bonds, notes,
debentures, partnership or other ownership interests or other securities of any other Person
(including any “short sale” or any sale of any securities at a time when such securities are not
owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan
or other extension of credit to, any other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to resell such property
to such Person), but excluding any such advance, loan or extension of credit having a term not
exceeding 364 days arising in the ordinary course of business; or (c) the entering into of any
guarantee of, or other contingent obligation with respect to, Indebtedness.
“Investors” shall mean the Sponsor, the Management Investors and each other investor
providing a portion of the equity investments in connection with the McJunkin Transaction on the
Original Closing Date and the Red Man Transaction on the Red Man Closing Date.
“McJunkin Opco” shall have the meaning provided in the preamble to this Agreement.
“Lender” shall have the meaning provided in the preamble to this Agreement.
“Lender Default” shall mean, (a) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under Section
2.1 or (b) a Lender being deemed insolvent or becoming the subject of a bankruptcy or
insolvency proceeding.
“LIBOR Loan” shall mean any Loan bearing interest at a rate determined by reference to
the LIBOR Rate.
“LIBOR Rate” shall mean, in the case of any LIBOR Loan, with respect to each day
during each Interest Period pertaining to such LIBOR Loan, (a) the rate of interest determined on
the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing
on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
a.m. (London time) two Business Days prior to the beginning of such Interest Period multiplied by
(b) the Statutory Reserve Rate. In the event that any such rate does not appear on the applicable
Page of the Telerate Service (or otherwise on such service), the “LIBOR Rate” for the
20
purposes of this paragraph shall be determined by reference to such other publicly available
service for displaying LIBOR rates as may be agreed upon by the Administrative Agent and the
Borrower or, in the absence of such agreement, the “LIBOR Rate” for the purposes of this
paragraph shall instead be the rate per annum notified to the Administrative Agent by the Reference
Lender as the rate at which the Reference Lender is offered Dollar deposits at or about 11:00 a.m.
(London time) two Business Days prior to the beginning of such Interest Period in the interbank
LIBOR market where the LIBOR and foreign currency and exchange operations in respect of its LIBOR
Loans are then being conducted for delivery on the first day of such Interest Period for the number
of days comprised therein and in an amount comparable to the amount of its LIBOR Loan, as the case
may be, to be outstanding during such Interest Period.
“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
“Loan” shall mean any Term Loan made by any Lender.
“Management Investors” shall mean the directors, management officers and employees of
McJunkin Opco and its Subsidiaries who are investors in the McJunkin Opco or Borrower (or any
direct or indirect parent thereof) on the Red Man Closing Date.
“Material Adverse Change” shall mean any event or circumstance which has resulted or
is reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of the Borrower and its Subsidiaries, taken as a whole or that
would materially adversely affect the ability of the Borrower to perform its payment obligations
under this Agreement or any of the other Credit Documents.
“Material Adverse Effect” shall mean a circumstance or condition affecting the
business, assets, operations, properties or financial condition of the Borrower and the
Subsidiaries, taken as a whole, that would materially adversely affect (a) the business, assets,
operations, properties, or financial condition of the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower to perform its payment obligations under this Agreement or
any of the other Credit Documents or (c) the rights and remedies of the Administrative Agent,
Collateral Agent and the Lenders under this Agreement or any of the other Credit Documents.
“Material Subsidiary” shall mean, at any date of determination, each Restricted
Subsidiary (a) whose total assets at the last day of the Test Period ending on the last day of the
most recent fiscal period for which Section 9.1 Financials have been delivered were equal
to or greater than 5% of the consolidated total assets of McJunkin Opco and the other Restricted
Subsidiaries at such date or (b) whose gross revenues for such Test Period were equal to or greater
than 5% of the consolidated gross revenues of McJunkin Opco and the other Restricted Subsidiaries
for such period, in each case determined in accordance with GAAP.
“McJunkin Opco” shall have the meaning provided in the preamble to this Agreement.
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“McJunkin Opco Credit Agreements” shall have the McJunkin Opco Revolving Credit
Agreement and the McJunkin Opco Term Loan Credit Agreement, or any of them, as the context
requires.
“McJunkin Opco Revolving Credit Agreement” shall have the meaning provided in the
recitals to this Agreement.
“McJunkin Opco Revolving Loan Documents” shall mean the Credit Documents (as defined
in the McJunkin Revolving Credit Agreement).
“McJunkin Opco Term Loan Credit Agreement” shall have the meaning provided in recitals
to this Agreement (it being agreed that at any time after the Discharge of the McJunkin Opco Term
Loan Obligations, “McJunkin Opco Term Loan Credit Agreement” shall mean such agreement as in effect
immediately prior to such Discharge).
“McJunkin Opco Term Loan Documents” shall mean the Credit Documents (as defined in the
McJunkin Term Loan Credit Agreement).
“McJunkin Opco Loan Documents” shall mean, collectively, the McJunkin Opco Revolving
Loan Documents and the McJunkin Opco Term Loan Documents.
“McJunkin Transaction” shall have the meaning provided in recitals to this Agreement.
“Minimum Borrowing Amount” shall mean $1,000,000 with respect to the Term Loans.
“Moody’s” shall mean Moody’s Investors Service, Inc. or any successor by merger or
consolidation to its business.
“Net Cash Proceeds” shall mean, with respect to any Prepayment Event, (a) the gross
cash proceeds (including payments from time to time in respect of installment obligations, if
applicable) received by or on behalf of the Borrower or any of the Restricted Subsidiaries in
respect of such Prepayment Event or issuance, as the case may be, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by the Borrower or
any of the Restricted Subsidiaries in connection with such Prepayment Event,
(ii) the amount of any reasonable reserve established in accordance with GAAP against
any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated
with the assets that are the subject of such Prepayment Event and (y) retained by the
Borrower or any of the Restricted Subsidiaries, provided that the amount of any
subsequent reduction of such reserve (other than in connection with a payment in respect of
any such liability) shall be deemed to be Net Cash Proceeds of such a Prepayment Event
occurring on the date of such reduction,
(iii) the amount of any Indebtedness secured by a Lien on the assets that are the
subject of such Prepayment Event to the extent that the instrument creating or
22
evidencing such Indebtedness requires that such Indebtedness be repaid upon
consummation of such Prepayment Event,
(iv) in the case of any Asset Sale Prepayment Event, Casualty Event or Permitted Sale
Leaseback, the amount of any proceeds of such Prepayment Event that the Borrower or any
Subsidiary has reinvested (or intends to reinvest within the Reinvestment Period or has
entered into a binding commitment prior to the last day of the Reinvestment Period to
reinvest) in the business of the Borrower or any of the Restricted Subsidiaries (subject to
Section 10.12 of the McJunkin Opco Credit Agreements), provided that
any portion of such proceeds that has not been so reinvested within such Reinvestment Period
(with respect to such Prepayment Event, the “Deferred Net Cash Proceeds”) shall,
unless the Borrower or a Subsidiary has entered into a binding commitment prior to the last
day of such Reinvestment Period to reinvest such proceeds, (x) be deemed to be Net Cash
Proceeds of an Asset Sale Prepayment Event, Casualty Event or Permitted Sale Leaseback
occurring on the last day of such Reinvestment Period or 180 days after the date such
Borrower or such Subsidiary has entered into such binding commitment, as applicable, and (y)
be applied to the repayment of Term Loans in accordance with Section 5.2(a)(i); and
(v) reasonable and customary fees.
“Non-Cash Charges” shall mean (a) losses on asset sales (other than asset sales in the
ordinary course of business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and investments in
debt and equity securities pursuant to GAAP, (c) all losses from investments recorded using the
equity method, (d) stock-based awards compensation expense, and (e) other non-cash charges
(provided that if any non-cash charges referred to in this clause (e) represent an accrual
or reserve for potential cash items in any future period, the cash payment in respect thereof in
such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period).
“Non-Consenting Lender” shall have the meaning provided in Section 14.7(b).
“Non-Defaulting Lender” shall mean and include each Lender other than a Defaulting
Lender.
“Non-U.S. Lender” shall mean any Lender that is not, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a corporation or partnership or
entity treated as a corporation or partnership created or organized in or under the laws of the
United States, or any political subdivision thereof, (c) an estate whose income is subject to U.S.
federal income taxation regardless of its source or (d) a trust if a court within the United States
is able to exercise primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions of such trust or a
trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a United States person.
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“Non-U.S. Participant” shall mean any Participant that if it were a Lender would
qualify as a Non-U.S. Lender.
“Notice of Borrowing” shall mean each notice of a Borrowing of Term Loans pursuant to
Section 2.3(a).
“Notice of Conversion or Continuation” shall have the meaning provided in Section
2.6.
“Obligations” shall have the meaning assigned to such term in the Security Documents.
“Organizational Documents” shall mean (a) with respect to any corporation, its
certificate or articles of incorporation or organization, as amended, and its by-laws, as amended,
(b) with respect to any limited partnership, its certificate of limited partnership (if any), as
amended, and its partnership agreement, as amended, (c) with respect to any general partnership,
its partnership agreement, as amended, and (d) with respect to any limited liability company, its
articles of organization (if any), as amended, and its operating agreement, as amended.
“Original Closing Date” shall have the meaning provided in the recitals to this
Agreement.
“Other Taxes” shall mean any and all present or future stamp, documentary or any other
excise, property or similar taxes (including interest, fines, penalties, additions to tax and
related expenses with regard thereto) arising directly from any payment made or required to be made
under this Agreement or from the execution or delivery of, registration or enforcement of,
consummation or administration of, or otherwise with respect to, this Agreement or any other Credit
Document.
“Participant” shall have the meaning provided in Section 14.6(c).
“Patriot Act” shall have the meaning provided in Section 14.18.
“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to
Section 4002 of ERISA, or any successor thereto.
“Perfection Certificate” shall mean a certificate of the Borrower in the form of
Exhibit E or any other form approved by the Administrative Agent.
“Permitted Acquisition” shall have the meaning assigned to such term in the McJunkin
Opco Credit Agreements.
“Permitted Investments” shall mean:
(a) securities issued or unconditionally guaranteed by the United States government or
any agency or instrumentality thereof, in each case having maturities of not more than 12
months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any
24
political subdivision of any such state or any public instrumentality thereof or any
political subdivision of any such state or any public instrumentality thereof having
maturities of not more than 12 months from the date of acquisition thereof and, at the time
of acquisition, having an investment grade rating generally obtainable from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, then
from another nationally recognized rating service);
(c) commercial paper issued by any Lender or any bank holding company owning any
Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof
and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers’ acceptances maturing no more
than two years after the date of acquisition thereof issued by any Lender or any other bank
having combined capital and surplus of not less than $250,000,000 in the case of domestic
banks;
(f) repurchase agreements with a term of not more than 30 days for underlying
securities of the type described in clauses (a), (b) and (e) above entered into with any
bank meeting the qualifications specified in clause (e) above or securities dealers of
recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in
excess of $250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or
Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an
equivalent rating from another nationally recognized rating service);
(h) shares of investment companies that are registered under the Investment Company Act
of 1940 and substantially all the investments of which are one or more of the types of
securities described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made
in a country outside the United States of America, Permitted Investments shall also include
((i) direct obligations of the sovereign nation (or any agency thereof) in which such
Restricted Foreign Subsidiary is organized and is conducting business or where such
Investment is made, or in obligations fully and unconditionally guaranteed by such sovereign
nation (or any agency thereof), in each case maturing within a two years after such date and
having, at the time of the acquisition thereof, a rating equivalent to at least A-1 from S&P
and at least P-1 from Moody’s, (ii) investments of the type and maturity described in
clauses (a) through (h) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies, (iii) shares of money market mutual or similar funds
which invest exclusively in assets
otherwise satisfying the requirements of this definition (including this proviso) and
(iv) other short-term investments utilized by Foreign Restricted Subsidiaries in accordance
25
with normal investment practices for cash management in investments analogous to the
foregoing investments in clauses (a) through (i).
“Permitted Liens” shall mean:
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which
are being contested in good faith and by appropriate proceedings for which appropriate
reserves have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of the Subsidiaries
imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar
Liens arising in the ordinary course of business, in each case so long as such Liens arise
in the ordinary course of business and do not individually or in the aggregate have a
Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event
of Default under Section 11.11;
(d) Liens incurred or deposits made in connection with workers’ compensation,
unemployment insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations incurred in the ordinary
course of business or otherwise constituting Investments permitted by Section 10.5
of the McJunkin Opco Credit Agreements;
(e) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not interfering in any material respect with the
business of the Borrower and its Subsidiaries, taken as a whole;
(g) any interest or title of a lessor or secured by a lessor’s interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of
credit issued for the account of the Borrower or any of its Subsidiaries, provided
that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect
of such letter of credit to the extent permitted under Section 10.1 of the McJunkin
Opco Credit Agreements;
(j) leases or subleases granted to others not interfering in any material respect with
the business of the Borrower and its Subsidiaries, taken as a whole;
26
(k) Liens arising from precautionary Uniform Commercial Code financing statement or
similar filings made in respect of operating leases entered into by the Borrower or any of
its Subsidiaries; and
(l) Liens created in the ordinary course of business in favor of banks and other
financial institutions over credit balances of any bank accounts of the Borrower and the
Restricted Subsidiaries held at such banks or financial institutions, as the case may be, to
facilitate the operation of cash pooling and/or interest set-off arrangements in respect of
such bank accounts in the ordinary course of business.
“Permitted Sale Leaseback” shall mean any Sale Leaseback consummated by the Borrower
or any of the Restricted Subsidiaries after the Original Closing Date, provided
that any such Sale Leaseback not between the Borrower and any Restricted Subsidiary or any
Restricted Subsidiary and another Restricted Subsidiary is consummated for fair value as determined
at the time of consummation in good faith by the Borrower or such Restricted Subsidiary and, in the
case of any Sale Leaseback (or series of related Sales Leasebacks) the aggregate proceeds of which
exceed $25,000,000 the board of directors of the Borrower or such Restricted Subsidiary (which such
determination may take into account any retained interest or other Investment of the Borrower or
such Restricted Subsidiary in connection with, and any other material economic terms of, such Sale
Leaseback).
“Person” shall mean any individual, partnership, joint venture, firm, corporation,
limited liability company, association, trust or other enterprise or any Governmental Authority.
“Plan” shall mean any multiemployer or single-employer plan, as defined in Section
4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan
years maintained or contributed to by (or to which there is or was an obligation to contribute or
to make payments to) the Borrower, a Subsidiary or an ERISA Affiliate.
“Platform” shall have the meaning provided in Section 14.17(b).
“Pledge Agreement” shall mean the Pledge Agreement, entered into by the relevant
pledgors party thereto and the Collateral Agent for the benefit of the Lenders and other Secured
Parties, substantially in the form of Exhibit F, on the Closing Date, as the same may be
amended, supplemented or otherwise modified from time to time.
“Post-Acquisition Period” means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
“Prepayment Event” shall mean any Asset Sale Prepayment Event, Casualty Event, Debt
Incurrence Prepayment Event or any Permitted Sale Leaseback
“Prime Rate” means the rate of interest quoted in the Wall Street Journal, Money Rates
Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least
75% of the nation’s thirty (30) largest banks), as in effect from time to time. The Prime Rate is
a reference rate and does not necessarily represent the lowest or best rate actually charged to any
27
customer. The Administrative Agent or any other Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
“Pro Forma Adjustment” shall mean, for any Test Period that includes all or any part
of a fiscal quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of
the applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrower, the pro
forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be,
projected by the Borrower or McJunkin Opco in good faith as a result of (a) actions taken during
such Post-Acquisition Period for the purposes of realizing reasonably identifiable and factually
supportable cost savings or (b) any additional costs incurred during such Post-Acquisition Period,
in each case in connection with the combination of the operations of such Acquired Entity or
Business with the operations of McJunkin Opco and the other Restricted Subsidiaries;
provided that, so long as such actions are taken during such Post-Acquisition Period or
such costs are incurred during such Post-Acquisition Period, as applicable, it may be assumed, for
purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, that such cost savings will be realizable during the
entirety of such Test Period, or such additional costs, as applicable, will be incurred during the
entirety of such Test Period; provided further that any such pro forma increase or
decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without
duplication for cost savings or additional costs already included in such Acquired EBITDA or such
Consolidated EBITDA, as the case may be, for such Test Period.
“Pro Forma Adjustment Certificate” shall mean any certificate of an Authorized Officer
of the Borrower delivered pursuant to Section 9.1(h) or Section 9.1(d).
“Pro Forma Basis”, “Pro Forma Compliance” and “Pro Forma Effect” shall
mean, with respect to compliance with any test or covenant hereunder, that (A) to the extent
applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and
the following transactions in connection therewith shall be deemed to have occurred as of the first
day of the applicable period of measurement in such test or covenant: (a) income statement items
(whether positive or negative) attributable to the property or Person subject to such Specified
Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all
Stock and Stock Equivalents in any Subsidiary of the Borrower or any division, product line, or
facility used for operations of McJunkin Opco or any of its Subsidiaries, shall be excluded, and
(ii) in the case of a Permitted Acquisition or Investment described in the definition of
“Specified Transaction”, shall be included, (b) any retirement of Indebtedness, and (c) any
Indebtedness incurred or assumed by McJunkin Opco or any of the other Restricted Subsidiaries in
connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied
rate of interest for the applicable period for purposes of this definition determined by utilizing
the rate which is or would be in effect with respect to such Indebtedness as at the relevant date
of determination; provided that, without limiting the application of the Pro Forma
Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such
test or covenant solely to the extent that such adjustments are consistent with the definition of
Consolidated EBITDA and give effect to events (including operating expense reductions) that are (i)
(x) directly attributable to such transaction, (y) expected to have a continuing impact on McJunkin
Opco and the other Restricted Subsidiaries and (z) factually supportable or (ii) otherwise
consistent with the definition of Pro Forma Adjustment.
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“Qualified IPO” shall mean a bona fide underwritten sale to the public of common Stock
of the Borrower, any of its direct or indirect Subsidiaries or any of its direct or indirect parent
companies pursuant to a registration statement (other than on Form S-8 or any other form relating
to securities issuable under any benefit plan of Borrower, any of its direct or indirect
Subsidiaries or any of its direct or indirect parent companies) that is declared effective by the
SEC or the equivalent offering on a private exchange or platform.
“Real Estate” shall have the meaning provided in Section 9.1(i).
“Red Man Closing Date” shall have the meaning provided in the recitals to this
Agreement.
“Red Man Transaction” shall have the meaning provided in recitals to this Agreement.
“Reference Lender” shall mean JPMorgan Chase Bank, N.A.
“Register” shall have the meaning provided in Section 14.6(b)(iv).
“Regulation D” shall mean Regulation D of the Board as from time to time in effect and
any successor to all or a portion thereof establishing reserve requirements.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and
any successor to all or a portion thereof establishing margin requirements.
“Reinvestment Period” shall mean 15 months following the date of an Asset Sale
Prepayment Event or Casualty Event.
“Related Parties” shall mean, with respect to any specified Person, such Person’s
Affiliates and the directors, officers, employees, agents, trustees, advisors of such Person and
any Person that possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of such Person, whether through the ability to exercise voting power, by
contract or otherwise.
“Report” shall mean reports prepared in good faith by an Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets
from information furnished by or on behalf of the Borrower, after an Agent has exercised its rights
of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the
applicable Agent.
“Reportable Event” shall mean an event described in Section 4043 of ERISA and the
regulations thereunder.
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“Required Lenders” shall mean, at any date, Non Defaulting Lenders having or holding a
majority of the outstanding principal amount of the Term Loans in the aggregate at such date.
“Requirement of Law” shall mean, as to any Person, the Certificate of Incorporation
and by-laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or assets or to which
such Person or any of its property or assets is subject.
“Restricted Foreign Subsidiary” shall mean a Foreign Subsidiary that is a Restricted
Subsidiary.
“Restricted Subsidiary” shall mean McJunkin Opco and any other Subsidiary of the
Borrower other than an Unrestricted Subsidiary.
“Sale Leaseback” shall mean any transaction or series of related transactions pursuant
to which the Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise
disposes of any property, real or personal, whether now owned or hereafter acquired, and (b) as
part of such transaction, thereafter rents or leases such property or other property that it
intends to use for substantially the same purpose or purposes as the property being sold,
transferred or disposed.
“S&P” shall mean Standard & Poor’s Ratings Services or any successor by merger or
consolidation to its business.
“SEC” shall mean the Securities and Exchange Commission or any successor thereto.
“Section 9.1 Financials” shall mean the financial statements delivered, or required to
be delivered, pursuant to Section 9.1(a) or (b) together with the accompanying officer’s
certificate delivered, or required to be delivered, pursuant to Section 9.1(e).
“Secured Leverage Ratio” shall mean, as of any date of determination, the ratio of (a)
Consolidated Secured Debt as of the last day of the relevant Test Period to (b) Consolidated EBITDA
for such Test Period.
“Secured Parties” shall have the meaning assigned to such term in the applicable
Security Documents.
“Security Agreement” shall mean the Security Agreement entered into by the Borrower,
the other grantors party thereto and the Collateral Agent for the benefit of the Lenders,
substantially in the form of Exhibit G, as the same may be amended, supplemented or
otherwise modified from time to time.
“Security Documents” shall mean, collectively, (a) the Security Agreement, (b) the
Pledge Agreement and (c) each other security agreement or other instrument or document
executed and delivered pursuant to Section 9.17 or pursuant to any of the Security
Documents to secure any of the Obligations.
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“Sold Entity or Business” shall have the meaning provided in the definition of the
term “Consolidated EBITDA”.
“Solvent” shall mean, with respect to the Borrower, that as of the Closing Date, both
(a) (i) the sum of the Borrower’s debt (including contingent liabilities) does not exceed the
present fair saleable value of the Borrower’s present assets; (ii) the Borrower’s capital is not
unreasonably small in relation to its business as contemplated on the Closing Date; and (iii) the
Borrower has not incurred and does not intend to incur, or believe that it will incur, debts
including current obligations beyond its ability to pay such debts as they become due (whether at
maturity or otherwise); and (b) such Person is “solvent” within the meaning given that term and
similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes
of this definition, the amount of any contingent liability at any time shall be computed as the
amount that, in light of all of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability (irrespective of
whether such contingent liabilities meet the criteria for accrual under Statement of Financial
Accounting Standard No. 5).
“Special Equity Dividend” shall have the meaning provided in recitals to this
Agreement.
“Specified Subsidiary” shall mean, at any date of determination (a) any Material
Subsidiary or (b) any Unrestricted Subsidiary (i) whose total assets at the last day of the Test
Period ending on the last day of the most recent fiscal period for which Section 9.1
Financials have been delivered were equal to or greater than 15% of the consolidated total assets
of McJunkin Opco and its Subsidiaries at such date, (ii) whose gross revenues for such Test Period
were equal to or greater than 15% of the consolidated gross revenues of McJunkin Opco and its
Subsidiaries for such period, in each case determined in accordance with GAAP and (c) each other
Subsidiary that, when such Subsidiary’s total assets or gross revenues are aggregated with the
total assets or gross revenues, as applicable, of each other Subsidiary that is the subject of an
Event of Default described in Section 11.5 would constitute a Specified Subsidiary under
clause (a) or (b) above.
“Specified Transaction” shall have the meaning assigned to such term in the McJunkin
Opco Credit Agreements.
“Sponsor” shall mean the Fund and its respective Affiliates.
“Sponsor Affiliated Institutional Lender” means any investment fund or other
institutional lender that is an Affiliate of Fund so long as (a) Fund owns directly or indirectly
less than all of the equity interests of such Person and (b) Fund does not directly appoint any
Person with responsibility for reviewing or approving credit decisions with respect to the
transactions contemplated by the Credit Documents; provided that each Sponsor Affiliated
Institutional Lender shall agree in the applicable Assignment and Acceptance that it will not
provide any information obtained by such Person in its capacity as a Lender to any Sponsor
Affiliated Lender.
“Sponsor Affiliated Lender” means any investment fund, managed account or other entity
with respect to which the Principal Investment Area of Goldman, Sachs & Co. acts as an advisor
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or manager (other than any private equity fund or other Person that is primarily engaged in the making
of investments in loans or debt securities); provided such Person (a) together with each
other Sponsor Affiliated Lender, holds no more than 30% of the aggregate principal amount of the
Loans outstanding at any time, (b) executes and delivers a waiver in substantially the form of
Exhibit D stating that it shall have no right whatsoever so long as such Person is an
Affiliate of Borrower or the Fund to (i) consent to any amendment, modification, waiver, consent or
other such action with respect to any of the terms of this Agreement or any other Credit Document;
provided that such Person shall also instruct the Administrative Agent to automatically
deem any Loans held by such Person to be voted pro rata according to the Loans of all other Lenders
(other than any Sponsor Affiliated Lender) in connection with any such amendment, modification,
waiver, consent or other action, (ii) require any Agent or other Lender to undertake any action (or
refrain from taking any action) with respect to this Agreement or any other Credit Document, (iii)
otherwise vote on any matter related to this Agreement or any other Credit Document;
provided that such Person shall also instruct the Administrative Agent to automatically
deem any Loans held by such Person to be voted pro rata according to the Loans of all other Lenders
(other than any Sponsor Affiliated Lender), (iv) attend any meeting (live or by any electronic
means) in its capacity as a Lender with any Agent or other Lender or receive any information from
any Agent or other Lender, (v) have access to the Platform, or (vi) make or bring any claim, in
such Person’s capacity as Lender, against the Agent or any Lender with respect to the duties and
obligations of such Person under this Agreement and the other Credit Documents; provided
that no such amendment, modification, waiver or consent referred to above shall deprive us of such
Person’s share of any payments or other recoveries which the Lenders are entitled to share on a pro
rata basis hereunder and (c) includes a representation in the Assignment and Acceptance with
respect to each Sponsor Purchase and each Sponsor Sale stating that such Sponsor Affiliated Lender
does not have any material non-public information (“MNPI”) with respect to Borrower or any
of its Subsidiaries or securities that either (i) has not been disclosed to the Lenders (other than
Lenders that do not wish to receive MNPI with respect to Borrower or any of its Subsidiaries or
securities) prior to such time or (ii) if not disclosed to the Lenders, could reasonably be
expected to have a material adverse effect upon, or otherwise be material to, a Lender’s decision
to sell their Loans to such Sponsor Affiliated Lender or purchase Loans from such Sponsor
Affiliated Lender, as applicable.
“Sponsor Purchase” shall have the meaning provided in Section 3.1.
“Sponsor Purchase Cap Amount” shall have the meaning provided in Section 3.1.
“Sponsor Contribution” shall have the meaning provided in Section 3.1.
“Sponsor Sale” means the sale, assignment or transfer by a Sponsor Affiliated Lender
of all or a portion of its rights and obligations under this Agreement, including, without
limitation, all or a portion of its Loans owing to it, in accordance with Section 14.6.
“Statutory Reserve Rate” shall mean for any day as applied to any LIBOR Loan, a
fraction (expressed as a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages that are in
effect on that day (including any marginal, special, emergency or supplemental reserves),
expressed as a decimal, as prescribed by the Board and to which the Administrative Agent is
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subject, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D. LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to
such reserve requirements without benefit of or credit for proration, exemptions or offsets that
may be available from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
“Stock” shall mean shares of capital stock or shares in the capital, as the case may
be (whether denominated as common stock or preferred stock or ordinary shares or preferred shares,
as the case may be), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
“Stock Equivalents” shall mean all securities convertible into or exchangeable for
Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or
not presently convertible, exchangeable or exercisable.
“Subsidiary” of any Person shall mean and include (a) any corporation more than 50% of
whose Stock of any class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at the time Stock of
any class or classes of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries and (b) any partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time.
Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a
Subsidiary of the Borrower.
“Syndication Agent” shall mean Goldman Sachs Credit Partners L.P., together with its
affiliates, as the syndication agent for the Lenders under this Agreement and the other Credit
Documents.
“Taxes” shall mean any and all present or future taxes, duties, levies, imposts,
assessments, deductions, withholdings or other similar charges imposed by any Governmental
Authority whether computed on a separate, consolidated, unitary, combined or other basis and any
and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing.
“Term Loan Commitment” shall mean (a) in the case of each Lender that is a Lender on
the date hereof, the amount set forth opposite such Lender’s name on Schedule 1.1(c) as
such Lender’s “Term Loan Commitment” and (b) in the case of any Lender that becomes a Lender after
the date hereof, the amount specified as such Lender’s “Commitment” in the Assignment and
Acceptance pursuant to which such Lender assumed a portion of the Total Term Loan Commitment, in
each case as the same may be changed from time to time pursuant to the terms
hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is
$450,000,000.
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“Term Loans” shall have the meaning provided in Section 2.1.
“Term Loan Maturity Date” shall mean January 31, 2014, or, if such date is not a
Business Day, the next preceding Business Day.
“Test Period” shall mean, for any determination under this Agreement, the four
consecutive fiscal quarters of the Borrower then last ended.
“Total Commitment” shall mean the Total Term Loan Commitment.
“Total Credit Exposure” shall mean, at any date, the sum of (a) the Total Term Loan
Commitment at such date and (b) the outstanding principal amount of all Term Loans at such date.
“Total Term Loan Commitment” shall mean the sum of the Term Loan Commitments of all
the Lenders.
“Transferee” shall have the meaning provided in Section 14.6(e).
“Type” shall mean as to any Term Loan, its nature as an ABR Loan or a LIBOR Loan.
“Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the
present value of the accrued benefits under the Plan as of the close of its most recent plan year,
determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect on
the date hereof, based upon the actuarial assumptions that would be used by the Plan’s actuary in a
termination of the Plan, exceeds the fair market value of the assets allocable thereto.
“Unrestricted Subsidiary” shall mean (a) any Subsidiary of McJunkin Opco that is
formed or acquired after the Closing Date, provided that at such time (or promptly
thereafter) the Borrower designates such Subsidiary an Unrestricted Subsidiary in a written notice
to the Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an
Unrestricted Subsidiary by the Borrower in a written notice to the Administrative Agent,
provided that in the case of (a) and (b), (x) such designation or re-designation shall be
deemed to be an Investment by McJunkin Opco on the date of such re-designation in an Unrestricted
Subsidiary in an amount equal to the sum of (i) McJunkin Opco’s direct or indirect equity ownership
percentage of the net worth of such designated or re-designated Restricted Subsidiary immediately
prior to such designated or re-designation (such net worth to be calculated without regard to any
guarantee provided by such designated or re-designated Restricted Subsidiary) and (ii) the
aggregate principal amount of any Indebtedness owed by such designated or re-designated Restricted
Subsidiary to McJunkin Opco or any other Restricted Subsidiary immediately prior to such designated
or re-designation, all calculated, except as set forth in the parenthetical to clause (i), on a
consolidated basis in accordance with GAAP and (y) no Default or Event of Default would result from
such designation or re-designation and (c) each Subsidiary of an Unrestricted Subsidiary;
provided, however, that at the time of any written designation or re-designation by
the Borrower to the Administrative Agent that any Unrestricted Subsidiary
shall no longer constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall
cease to be an Unrestricted Subsidiary to the extent no Default or Event of Default would result
from such designation or re-designation. On or promptly after the date of its formation,
acquisition,
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designation or re-designation, as applicable, each Unrestricted Subsidiary (other than
an Unrestricted Subsidiary that is a Foreign Subsidiary) shall have entered into a tax sharing
agreement containing terms that, in the reasonable judgment of the Administrative Agent, provide
for an appropriate allocation of tax liabilities and benefits. An Unrestricted Subsidiary which
has been re-designated as a Restricted Subsidiary may not be subsequently re-designated as an
Unrestricted Subsidiary.
“Voting Stock” shall mean, with respect to any Person, such Person’s Stock or Stock
Equivalents having the right to vote for the election of directors of such Person under ordinary
circumstances.
1.2 Other Interpretive Provisions. With reference to this Agreement and each other Credit
Document, unless otherwise specified herein or in such other Credit Document:
(a) The meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import
when used in any Credit Document shall refer to such Credit Document as a whole and not to
any particular provision thereof.
(c) Article, Section, Exhibit and Schedule references are to the Credit Document in
which such reference appears.
(d) The term “including” is by way of example and not limitation.
(e) The term “documents” includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced,
whether in physical or electronic form.
(f) In the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including”; the words “to” and “until” each mean “to
but excluding”; and the word “through” means “to and including”.
(g) Section headings herein and in the other Credit Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Credit Document.
1.3 Accounting Terms; Exchange Rates. (a) All accounting terms not specifically or
completely defined herein shall be construed in conformity with, and all financial data
(including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be
prepared in conformity with, GAAP.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance
with any test or covenant contained in this Agreement with respect to any period during which any
Specified Transaction occurs, the Consolidated Total Debt to Consolidated EBITDA and the
Consolidated EBITDA to Consolidated Interest Expense Ratio shall be calculated with respect to
such period and such Specified Transaction on a Pro Forma Basis.
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For purposes of determining compliance under Section 10.1 with respect to any amount
in a Foreign Currency, such amount shall be deemed to equal the Dollar Equivalent thereof based on
the average Exchange Rate for a Foreign Currency for the most recent twelve-month period
immediately prior to the date of determination determined in a manner consistent with that used in
calculating Consolidated EBITDA for the related period.
1.4 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to
this Agreement (or required to be satisfied in order for a specific action to be permitted under
this Agreement) shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.5 References to Agreements, Laws, Etc. Unless otherwise expressly provided herein, (a)
references to Organizational Documents, agreements (including the Credit Documents) and other
Contractual Obligations shall be deemed to include all subsequent amendments, restatements,
amendment and restatements, extensions, supplements and other modifications thereto, but only to
the extent that such amendments, restatements, amendment and restatements, extensions, supplements
and other modifications are permitted by any Credit Document; and (b) references to any Applicable
Law shall include all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such applicable law.
SECTION 2. Amount and Terms of Credit
2.1 Commitments. Subject to and upon the terms and conditions herein set forth,
each Lender having a Term Loan Commitment severally agrees to make a loan or loans (each a
“Term Loan”) on the Closing Date to the Borrower in Dollars, which Term Loans shall not
exceed for any such Lender the Term Loan Commitment of such Lender and in the aggregate shall not
exceed $450,000,000.
Such Term Loans (i) shall be made on the Closing Date in accordance with the preceding paragraph,
(ii) may at the option of the Borrower be incurred and maintained as, and/or converted into, ABR
Loans or LIBOR Loans, provided that all such Term Loans made by each of the Lenders
pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist
entirely of Term Loans of the same Type, (iii) may be repaid or prepaid in accordance with the
provisions hereof, but once repaid or prepaid, may not be reborrowed, (iv) shall not exceed for any
such Lender its Term Loan Commitment and (v) shall not exceed in the aggregate the total of all
Term Loan Commitments. On the Term Loan Maturity Date, all then unpaid Term Loans shall be repaid
in full.
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. The aggregate
principal amount of each Borrowing of Term Loans shall be in a multiple of $1,000,000 and, shall
not be less than the Minimum Borrowing Amount with respect thereto. More than one Borrowing may be
incurred on any date, provided that at no time shall there be outstanding more than six (6)
Borrowings of LIBOR Loans under this Agreement.
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2.3 Notice of Borrowing. (a) The Borrower shall give the Administrative Agent at
the Administrative Agent’s Office (i) prior to 12:00 Noon (New York City time) at least three
Business Days’ prior written notice (or telephonic notice promptly confirmed in writing no later
than 1:00 p.m. (New York City time)) of the Borrowing of Term Loans if all or any of such Term
Loans are to be initially LIBOR Loans, and (ii) prior written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) prior to 10:00 a.m.
(New York City time) on the date of the Borrowing of Term Loans if all such Term Loans are to be
ABR Loans. Such Notice of Borrowing shall specify (i) the aggregate principal amount of the Term
Loans to be made, (ii) the date of the Borrowing (which shall be the Closing Date) and (iii)
whether the Term Loans shall consist of ABR Loans and/or LIBOR Loans and, if the Term Loans are
to include LIBOR Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of the proposed Borrowing of Term Loans, of such Lender’s
proportionate share thereof and of the other matters covered by the related Notice of Borrowing.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) [Intentionally Omitted]
(e) [Intentionally Omitted].
(f) Without in any way limiting the obligation of the Borrower to confirm in writing any
notice it may give hereunder by telephone, the Administrative Agent may act prior to receipt of
written confirmation without liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower. In each such case, the Borrower hereby waives the right to dispute the
Administrative Agent’s record of the terms of any such telephonic notice.
2.4 Disbursement of Funds. (a) No later than 12:00 Noon (New York City time) on
the date specified in each Notice of Borrowing each Lender will make available its pro rata
portion, if any, of each Borrowing requested to be made on such date in the manner provided
below.
(b) Each Lender shall make available all amounts it is to fund to the Borrower under any
Borrowing for its applicable Commitments, and in immediately available funds to the
Administrative Agent at the Administrative Agent’s Office and the Administrative Agent will make
available to the Borrower, by depositing to an account designated by the Borrower to the
Administrative Agent the aggregate of the amounts so made available in Dollars. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of any such
Borrowing that such Lender does not intend to make available to the Administrative Agent its
portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative Agent on such date
of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to
37
the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s
demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from such Lender or the Borrower interest on such
corresponding amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (i) if paid by such Lender,
the Federal Funds Effective Rate or (ii) if paid by the Borrower, the then-applicable rate of
interest or fees, calculated in accordance with Section 2.8, for the respective Loans.
(c) Nothing in this Section 2.4 shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may
have against any Lender as a result of any default by such Lender hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower shall repay to the
Administrative Agent in Dollars, for the benefit of the applicable Lenders, on the Term Loan
Maturity Date, the then-unpaid Term Loans made to the Borrower.
(b) [Intentionally Omitted].
(c) [Intentionally Omitted].
(d) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such Lender from time to time, including
the amounts of principal and interest payable and paid to such lending office of such Lender from
time to time under this Agreement.
(e) The Administrative Agent shall maintain the Register pursuant to Section
14.6(b), and a sub account for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount of each Term Loan made hereunder, the Type of each
Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower
and each Lender’s share thereof.
(f) The entries made in the Register and accounts and subaccounts maintained pursuant to
paragraphs (d) and (e) of this Section 2.5 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such account, such Register or such subaccount, as
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applicable,
or any error therein, shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Loans made to the Borrower by such Lender in accordance with the
terms of this Agreement.
2.6 Conversions and Continuations . (a) The Borrower shall have the option on any
Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount of the
outstanding principal amount of Term Loans made to the Borrower (as applicable) of one Type into
a Borrowing or Borrowings of another Type and the Borrower shall have the option on any Business
Day to continue the outstanding principal amount of any LIBOR Loans as LIBOR Loans for an
additional Interest Period on the last Business Day of the existing Interest Period,
provided that (i) no partial conversion of LIBOR Loans shall reduce the outstanding
principal amount of LIBOR Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount, (ii) ABR Loans may not be converted into LIBOR Loans if a Default or Event of
Default is in existence on the date of the conversion and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit such conversion,
(iii) LIBOR Loans may not be continued as LIBOR Loans for an additional Interest Period if an
Event of Default is in existence on the date of the proposed continuation and the Administrative
Agent has or the Required Lenders have determined in its or their sole discretion not to permit
such continuation and (iv) Borrowings resulting from conversions pursuant to this Section
2.6 shall be limited in number as provided in Section 2.2. Each such conversion or
continuation shall be effected by the Borrower by giving the Administrative Agent at the
Administrative Agent’s Office prior to 1:00 p.m. (New York City time) at least three Business
Days’ prior written notice or written notice prior to 10:00 a.m. (New York City time) on the same
Business Day in the case of a conversion into ABR Loans (or, in each case,
telephonic notice promptly confirmed in writing no later than 1:00 p.m. (New York City
time)) (each, a “Notice of Conversion or Continuation”) specifying the Term Loans to be
so converted or continued, the Type of Term Loans to be converted or continued into and, if such
Term Loans are to be converted into or continued as LIBOR Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall give each Lender notice as promptly
as practicable of any such proposed conversion or continuation affecting any of its Term Loans.
(b) If any Default or Event of Default is in existence at the time of any proposed
continuation of any LIBOR Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such LIBOR Loans
shall be automatically converted on the last day of the current Interest Period into ABR Loans.
If upon the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed
to elect a new Interest Period to be applicable thereto as provided in paragraph (a) above, the
Borrower shall be deemed to have elected to continue such Borrowing of LIBOR Loans into a
Borrowing of ABR Loans, effective as of the expiration date of such current Interest Period.
2.7 Pro Rata Borrowings. Each Borrowing of Term Loans under this Agreement shall be
granted by the Lenders pro rata on the basis of their then-applicable Term Loan Commitments. It is
understood that (a) no Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other
39
Lender to fulfill its
commitments hereunder and (b) other than as expressly provided herein with respect to a Defaulting
Lender, failure by a Lender to perform any of its obligations under any of the Credit Documents
shall not release any Person from performance of its obligation under any Credit Document.
2.8 Interest. (a) The unpaid principal amount of each ABR Loan shall bear interest
from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a
rate per annum that shall at all times be the Applicable ABR Margin plus the ABR in effect from
time to time.
(b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the
Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate per
annum that shall at all times be the Applicable LIBOR Margin in effect from time to time plus the
relevant LIBOR Rate.
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code or other applicable bankruptcy laws) at a rate per annum
that is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto
plus 2% or (y) in the case of any overdue interest, to the extent permitted by applicable
law, the rate described in Section 2.8(a) plus 2% from and including the
date of such non-payment to but excluding the date on which such amount is paid in full (after as
well as before judgment). Payment or acceptance of the increased rates of interest provided for
in this Section 2.8 is not a permitted alternative to timely payment and shall not constitute a
waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of
Administrative Agent or any Lender.
(d) Interest on each Loan shall accrue from and including the date of any Borrowing to but
excluding the date of any repayment thereof and shall be payable (i) in respect of each ABR Loan,
quarterly in arrears on the last day of each March, June, September and December, (ii) in respect
of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case
of an Interest Period in excess of three months, on each date occurring at three-month intervals
after the first day of such Interest Period, (iii) in respect of each Loan (except, other than in
the case of prepayments, any ABR Loan), on any prepayment date (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance with Section
5.5.
(f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR
Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such
determination shall, absent clearly demonstrable error, be final and conclusive and binding on
all parties hereto.
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2.9 Interest Periods. At the time the Borrower gives a Notice of Borrowing or Notice of
Conversion or Continuation in respect of the making of, or conversion into or continuation as, a
Borrowing of LIBOR Loans (in the case of the initial Interest Period applicable thereto) or prior
to 10:00 a.m. (New York City time) on the third Business Day prior to the expiration of an Interest
Period applicable to a Borrowing of LIBOR Loans, the Borrower shall have the right to elect by
giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing
no later than 1:00 p.m. (New York City time)) the Interest Period applicable to such Borrowing,
which Interest Period shall, at the option of the Borrower be a one, two, three, six or if
available to all the Lenders as determined by the Lenders in good faith based on prevailing market
conditions, a nine or twelve month period.
Notwithstanding anything to the contrary contained above:
(a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date
of such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each
Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(b) if any Interest Period relating to a Borrowing of LIBOR Loans begins on the last
Business Day of a calendar month or begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of the calendar month at the end of such Interest
Period;
(c) if any Interest Period would otherwise expire on a day that is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day, provided that if any
Interest Period would otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period in respect of any LIBOR
Loan if such Interest Period would extend beyond the applicable maturity date of such Loan.
2.10 Increased Costs, Illegality, etc(a) . (a) In the event that (x) in the case of
clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below,
any Lender shall have reasonably determined (which determination shall, absent clearly
demonstrable error, be final and conclusive and binding upon all parties hereto):
(i) on any date for determining the LIBOR Rate for any Interest Period that (x) deposits in
the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in
the relevant market or (y) by reason of any changes arising on or after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of LIBOR Rate; or
(ii) at any time, that such Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder with respect to any LIBOR Loans (other than any
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such increase or
reduction attributable to Taxes) because of (x) any change since the date hereof in any applicable
law, governmental rule, regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule, regulation, guideline
or order), such as, for example, without limitation, a change in official reserve requirements,
and/or (y) other circumstances affecting the interbank LIBOR market or the position of such Lender
in such market; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by
compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or
order (or would conflict with any such governmental rule, regulation, guideline or order not having
the force of law even though the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date hereof that materially and
adversely affects the interbank LIBOR market;
then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i)
above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in
writing) to the Borrower and to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the
case of clause (i) above, LIBOR Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to
such notice by the Administrative Agent no longer exist (which notice the Administrative Agent
agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing
or Notice of Conversion given by the Borrower with respect to LIBOR Loans that have not yet been
incurred shall be deemed rescinded by the Borrower (y) in the case of clause (ii) above, the
Borrower shall pay to such Lender, promptly after receipt of written demand therefor such
additional amounts (in the form of an increased rate of, or a different method of calculating,
interest or otherwise as such Lender in its reasonable discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in amounts receivable
hereunder (it being agreed that a written notice as to the additional amounts owed to such Lender,
showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by
such Lender shall, absent clearly demonstrable error, be final and conclusive and binding upon all
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 2.10(b) as promptly as possible and, in any event, within the
time period required by law.
(b) At any time that any LIBOR Loan is affected by the circumstances described in
Section 2.10(a)(ii) or (iii), the Borrower may (and in the case of a LIBOR Loan
affected pursuant to Section 2.10(a)(iii) shall) either (x) if the affected LIBOR Loan is
then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent
telephonic notice thereof on the same date that the Borrower was notified by a Lender pursuant to
Section 2.10(a)(ii) or (iii) (confirmed promptly in writing no later than 10:00
a.m. (New York City time) on the next day) or (y) if the affected LIBOR Loan is then outstanding,
upon at least three Business Days’ notice to the Administrative Agent, require the affected
Lender to convert each such LIBOR Loan into an ABR Loan, provided that if more than one
Lender is affected at any time, then all affected Lenders must be treated in the same manner
pursuant to this Section 2.10(b).
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(c) If, after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, the National Association of Insurance
Commissioners, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Lender or its parent with any request or directive
made or adopted after the date hereof regarding capital adequacy (whether or not having the force
of law) of any such authority, association, central bank or comparable agency, has or would have
the effect of reducing the rate of return on such Lender’s or its parent’s or its Affiliate’s
capital or assets as a consequence of such Lender’s commitments or obligations hereunder to a
level below that which such Lender or its parent or its Affiliate could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or
its parent’s policies with respect to capital adequacy), then from time to time, promptly after
demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or its parent for such
reduction, it being understood and agreed, however, that a Lender shall not be entitled to such
compensation as a result of such Lender’s compliance with, or pursuant to any request or
directive to comply with, any such law, rule or regulation as in effect on the date hereof. Each
Lender, upon determining in good faith that any additional amounts will be payable pursuant to
this Section 2.10(c), will give prompt written
notice thereof to the Borrower which notice shall set forth in reasonable detail the basis
of the calculation of such additional amounts, although the failure to give any such notice shall
not, subject to Section 2.13, release or diminish the Borrower’s obligations to pay
additional amounts pursuant to this Section 2.10(c) upon receipt of such notice.
(d) It is understood that to the extent duplicative of Section 5.4, this Section
2.10 shall not apply to Taxes.
2.11 Compensation. If (a) any payment of principal of any LIBOR Loan is made by the
Borrower to or for the account of a Lender other than on the last day of the Interest Period for
such LIBOR Loan as a result of a payment or conversion pursuant to Section 2.5, 2.6, 2.10, 5.1,
5.2 or 14.7, as a result of acceleration of the maturity of the Loans pursuant to
Section 11 or for any other reason, (b) any Borrowing of LIBOR Loans is not made as a
result of a withdrawn Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan as a
result of a withdrawn Notice of Conversion or Continuation, (d) any LIBOR Loan is not continued as
an LIBOR Loan, as the case may be, as a result of a withdrawn Notice of Conversion or Continuation
or (e) any prepayment of principal of any LIBOR Loan is not made as a result of a withdrawn notice
of prepayment pursuant to Section 5.1 or 5.2, the Borrower shall, after receipt of a
written request by such Lender (which request shall set forth in reasonable detail the basis for
requesting such amount), pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses that such Lender
may reasonably incur as a result of such payment, failure to convert, failure to continue or
failure to prepay, including any loss, cost or expense (excluding loss of anticipated profits)
actually incurred by reason of the liquidation or reemployment of deposits or other funds acquired
by any Lender to fund or maintain such LIBOR Loan.
2.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event
giving rise to the operation of Section 2.10(a)(ii), 2.10(a)(iii), 2.10(b),
or 5.4 with respect
43
to such Lender, it will, if requested by the Borrower use reasonable
efforts (subject to overall policy considerations of such Lender) to designate another lending
office for any Loans affected by such event, provided that such designation is made on such
terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage,
with the object of avoiding the consequence of the event giving rise to the operation of any such
Section. Nothing in this Section 2.12 shall affect or postpone any of the obligations of
the Borrower or the right of any Lender provided in Section 2.10, 3.5 or
5.4.
2.13 Notice of Certain Costs. Notwithstanding anything in this Agreement to the contrary,
to the extent any notice required by Section 2.10, 2.11, or 5.4 is given by any
Lender more than 180 days after such Lender has knowledge (or should have had knowledge) of the
occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or
other additional amounts described in such Sections, such Lender shall not be entitled to
compensation under Section 2.10, 2.11, or 5.4,
as the case may be, for any such amounts incurred or accruing prior to the 181st day prior to
the giving of such notice to the Borrower; provided that if the event giving rise to such
additional cost, reduction in amounts, loss, tax or other additional amounts has a retroactive
effect, then the 180 day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 3. Sponsor and Borrower Purchases.
3.1 Notice of Sponsor and Borrower Purchases. Sponsor may (i) from time to time seek to
purchase in accordance with Section 14.6 Loans from Lenders pursuant to open market
purchases, including, without limitation, pursuant to a Dutch auction, on terms to be agreed among
the Sponsor and the Lenders participating in such open market purchases (each, a “Sponsor
Purchase”, and collectively, the “Sponsor Purchases”), in an aggregate amount for all
such Sponsor Purchases by Sponsor Affiliated Lenders not to exceed 30% of the aggregate principal
amount of the Loans outstanding at any time (the “Sponsor Purchase Cap Amount”), and (ii)
at any time on or after the date of such Sponsor Purchase, contribute (the “Sponsor
Contribution”) the Loans acquired in such Sponsor Purchase to Holdings as a contribution to the
equity of Holdings in return for additional Stock in Holdings and Holdings will then contribute
(the “Holdings Contribution” and, together with the Sponsor Contribution, the
“Contributions”) the Loans acquired in such Sponsor Purchase to Borrower as a contribution
to the equity of Borrower in return for additional Stock of Borrower. Additionally, the Borrower
may from time to time seek to purchase in accordance with Section 14.6 Loans from Lenders
pursuant to open market purchases, including, without limitation, pursuant to a Dutch auction, on
terms to be agreed among the Borrower and the Lenders participating in such open market purchases
(each, a “Borrower Purchase”, and collectively, the “Borrower Purchases”).
3.2 Cancellation of Loans. Notwithstanding any provision in this Agreement or the other
Credit Documents, (a) if the Sponsor Purchases are contributed by any Sponsor Affiliated Lender as
an equity contribution to Holdings and Borrower pursuant to and to the extent provided in the
definition of “Contributions”, then promptly following such Contributions, any Loans that are the
subject of such Contributions shall be forgiven by Sponsor, Holdings and Borrower, as applicable,
and shall be cancelled and no longer outstanding (and may not be resold by Borrower), for all
purposes of this Agreement and all other Credit Documents, including, but not limited to (A) the
making of, or the application of, any payments to the Lenders under this
44
Agreement or any other
Credit Document, (B) the making of any request, demand, authorization, direction, notice, consent
or waiver under this Agreement or any other Credit Document or (C) the determination of Required
Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document;
(b) immediately following the consummation of a Borrower Purchase, any Loans that are the subject
of such Borrower Purchase shall be forgiven by Borrower and shall be cancelled and no longer
outstanding (and may not be resold by Borrower), for all purposes of this Agreement and all other
Credit Documents, including, but not limited to (A) the making of, or the application of, any
payments to the Lenders under this Agreement or any other Credit Document, (B) the making of any
request, demand, authorization, direction, notice, consent or
waiver under this Agreement or any other Credit Document or (C) the determination of Required
Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document;
and (c) the parties hereto hereby agree that any Contribution or Borrower Purchase will not be a
voluntary prepayment by Borrower for any purpose under this Agreement and the other Credit
Documents, including, without limitation, the application of Section 5.3(a) and Section
14.8(a).
3.3 Acknowledgement. Each Lender acknowledges that (a) Affiliates of Borrower, including
the Fund and/or entities controlled by the Fund that have complied with the definition of “Sponsor
Affiliated Lender” may purchase Loans hereunder from Lenders from time to time on or after the
Closing Date in an aggregate amount not to exceed the Sponsor Purchase Cap Amount, subject to the
restrictions set forth in Section 14.6 and (b) other Affiliates of Borrower constituting
Sponsor Affiliated Institutional Lenders may purchase Loans hereunder from Lenders from time to
time on or after the Closing Date, subject to the restrictions set forth in Section 14.6
but not subject to the Sponsor Purchase Cap Amount or any other obligations described in the
definition of “Sponsor Affiliated Lender.”
SECTION 4. Fees; Commitments
4.1 Fees. (b) The Borrower agrees to pay to the Collateral Agent, for its own account,
fees in the amounts and at the times set forth in the Engagement Letter.
4.2 [Intentionally Omitted].
4.3 Mandatory Termination of Commitments. (i) The Term Loan Commitments shall terminate
at 5:00 p.m. (New York City time) on the Closing Date.
SECTION 5. Payments
5.1 Voluntary Prepayments. The Borrower shall have the right to prepay Term Loans, in
each case, without premium or penalty except as set forth in subsection (b) below, in whole or in
part from time to time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent and at the Administrative Agent’s Office written notice (or telephonic notice
promptly confirmed in writing no later than 1:00 p.m. (New York City time)) of its intent to make
such prepayment, the amount of such prepayment and (in the case of LIBOR Loans) the specific Borrowing(s)
pursuant to which made, which notice shall be given by the Borrower no later than (x) in the case
of a LIBOR Loans, 12:00 noon (New York City time) three Business Days prior to or (y) in the case
of ABR Loans, 12:00 noon (New York City time) on, the date of
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such prepayment and shall promptly be
transmitted by the Administrative Agent to each of the Lenders; (ii) each partial prepayment of any
Borrowing of Term Loans shall be in a multiple of $100,000 and in an aggregate principal amount of
at least $1,000,000, provided that no partial prepayment of LIBOR Loans made pursuant to a
single Borrowing shall reduce the outstanding LIBOR Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for LIBOR Loans and (iii) any prepayment of LIBOR
Loans pursuant to this Section 5.1 on any day other than the last day of an Interest Period
applicable thereto shall be subject to compliance by the Borrower with the applicable provisions of
Section 2.11. Each prepayment in respect of any Term Loans pursuant to this Section
5.1 shall be applied to Term Loans in such manner as the Borrower may determine. At the
Borrower’s election in connection with any prepayment pursuant to this Section 5.1, such
prepayment shall not be applied to any Term Loan of a Defaulting Lender.
5.2 Mandatory Prepayments. (a) Term Loan Prepayments. (i) After the
Discharge of McJunkin Opco Term Obligations, on each occasion that a Prepayment Event occurs, the
Borrower shall, within one Business Day after the occurrence of a Debt Incurrence Prepayment Event
and within five Business Days after the occurrence of any other Prepayment Event (or, in the case
of Deferred Net Cash Proceeds, within five Business Days after the Reinvestment Period relating to
such Prepayment Event or 180 days thereafter, as applicable), prepay, in accordance with paragraph
(c) below, the principal amount of Term Loans in an amount equal to 100% of the Net Cash Proceeds
from such Prepayment Event. If the Stock or Stock Equivalents of any Restricted Subsidiary is sold
or any Restricted Subsidiary is sold as a going concern on any date, the sale proceeds shall be
allocated as follows: (x) that portion of the sale proceeds equal to the aggregate value of
“Accounts” and “Cost” of “Inventory” (in each case, as defined in the McJunkin Opco Revolving
Credit Agreement”) shall be allocated to the Revolving Credit Collateral (as defined in the
Intercreditor Agreement) of the Restricted Subsidiary so sold and shall be deemed to be proceeds
thereof and (y) the balance of sale proceeds shall be allocated to the Collateral of the Restricted
Subsidiaries so sold and shall be deemed to be proceeds thereof and applied pursuant to the
foregoing sentence.
(ii) After the Discharge of McJunkin Opco Term Obligations, not later than the date that is
ninety days after the last day of any fiscal year (commencing with and including the fiscal year
ending December 31, 2007), the Borrower shall prepay, in accordance with paragraph (c) below, the
principal of Term Loans in an amount equal to (x) 50% of Excess Cash Flow for such fiscal year,
provided that (A) the percentage in this Section 5.2(a)(ii) shall be
reduced to 25% if the Borrower’s ratio of Consolidated Total Debt on the date of prepayment (prior
to giving effect thereto) to Consolidated EBITDA for the most recent Test Period ended prior to
such prepayment date is no greater than 2.50 to 1.00 but greater than 2.00 to 1.00 and (B) no
payment of any Term Loans shall be required under this Section 5.2(a)(ii) if the Borrower’s
ratio of Consolidated Total Debt on the date of prepayment (prior to giving effect thereto) to
Consolidated EBITDA for the most recent Test Period ended prior to such prepayment date is no
greater than 2.00 to 1.00), minus (y) the principal amount of Term Loans voluntarily prepaid
pursuant to Section 5.1 during such fiscal year.
(iii) On each occasion that a Qualified IPO occurs, the Borrower shall, within one Business
Day after the occurrence thereof, prepay, in accordance with paragraph (c) below, the principal
amount of Term Loans in an amount equal to 50% of the cash proceeds received
46
from such Qualified
IPO, net of underwriting discounts and commissions and other reasonable costs and expenses
associated therewith, including reasonable legal fees and expenses.
(b) Compliance with McJunkin Opco Term Loan Credit Agreement. Notwithstanding
anything to the contrary, (A) no prepayments of Loans shall be required or permitted pursuant to
Section 5.2(a)(i) or (ii) if dividends (as defined in the McJunkin Opco Credit
Agreements) are not permitted to be made by McJunkin Opco pursuant to the McJunkin Opco Credit
Agreements and (B) the amount of Net Cash Proceeds required to be applied toward prepayment of
Loans pursuant to Section 5.2(a)(i) or (ii) shall be reduced on a dollar for
dollar basis by amounts actually applied toward prepayment of McJunkin Opco Term Loans pursuant
to Section 5.2(a)(i) or (ii) of the McJunkin Opco Term Loan Credit Agreement, as
applicable.
(c) Application to Repayment Amounts. With respect to each prepayment of Term Loans
required by Section 5.2(a), the Borrower will, not later than the date specified in
Section 5.2(a) for making such prepayment, give the Administrative Agent telephonic
notice (promptly confirmed in writing no later than 1:00 p.m. (New York City time)) requesting
that the Administrative Agent provide notice of such prepayment to the applicable Term Loan
Lenders.
(d) Application to Term Loans. With respect to prepayment of Term Loans required by
Section 5.2(a), the Borrower may designate the Types of Loans that are to be prepaid and
the specific Borrowing(s) pursuant to which made. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its reasonable discretion with a view, but no obligation, to
minimize breakage costs owing under Section 2.11.
(e) LIBOR Interest Periods. In lieu of making any payment pursuant to this
Section 5.2 in respect of any LIBOR Loan other than on the last day of the Interest
Period therefor so long as no Event of Default shall have occurred and be continuing, the
Borrower at its option may deposit with the Administrative Agent an amount equal to the amount of
the LIBOR Loan to be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest
Period therefor in the required amount. Such deposit shall be held by the Administrative Agent
in a corporate time deposit account established on terms reasonably satisfactory to the
Administrative Agent, earning interest at the then-customary rate for accounts of such type.
Such deposit shall constitute cash collateral for the Obligations, provided that
the Borrower may at any time direct that such deposit be applied to make the applicable payment
required pursuant to this Section 5.2.
(f) Minimum Amount. No prepayment shall be required pursuant to Section
5.2(a)(i) unless and until the amount at any time of Net Cash Proceeds from Prepayment Events
required to be applied at or prior to such time pursuant to such Section and not yet applied at or
prior to such time to prepay Term Loans pursuant to such Section exceeds (i) $5,000,000 for a
single Prepayment Event or (ii) $10,000,000 in the aggregate for all such Prepayment Events (it
being understood that (x) Net Cash Proceeds from Prepayment Events not applied toward prepayment of
McJunkin Opco Term Loans pursuant to Section 5.2(a)(i) of the McJunkin Opco Term Loan
Credit Agreement as a result of the operation of Section 5.2(f) of the McJunkin Opco Term
Loan
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Credit Agreement shall reduce the $10,000,000 basket in this clause (ii) on a dollar for
dollar basis) and (y) only the portion of Net Cash Proceeds in excess of the $10,000,000 basket in
this clause (ii) (as may be reduced pursuant to the preceding clause (x)) shall be required to
prepay the Term Loans.
(g) Foreign Asset Sales. Notwithstanding any other provisions of this Section
5.2, (i) to the extent that any of or all the Net Cash Proceeds of a Casualty Event or any
asset sale by a Restricted Foreign Subsidiary giving rise to an Asset Sale Prepayment Event (a
“Foreign Asset Sale”) or Excess Cash Flow are prohibited or delayed by applicable local law
from being repatriated to the United States, the portion of such Net Cash Proceeds or Excess Cash
Flow so affected will not be required to be applied to repay Term Loans at the times provided in
this Section 5.2 but may be retained by the applicable Restricted Foreign Subsidiary so
long, but only so long, as the applicable local law will not permit repatriation to the United
States (the Borrower hereby agreeing to cause the applicable Restricted Foreign Subsidiary to
promptly take all actions required by the applicable local law to permit such repatriation), and
once such repatriation of any of such affected Net Cash Proceeds or Excess Cash Flow is permitted
under the applicable local law, such repatriation will be immediately effected and such repatriated
Net Cash Proceeds or Excess Cash Flow will be promptly (and in any event not later than two
Business Days after such repatriation) applied (net of additional taxes payable or reserved against
as a result thereof) to the repayment of the Term Loans pursuant to this Section 5.2 and
(ii) to the extent that the Borrower has determined in good faith that repatriation of any of or
all the Net Cash Proceeds of any Foreign Asset Sale or Excess Cash Flow would have an adverse tax
or accounting consequence with respect to such Net Cash Proceeds or Excess Cash Flow, the Net Cash
Proceeds or Excess Cash Flow so affected may be retained by the applicable Restricted Foreign
Subsidiary, provided that, in the case of this clause (ii), on or before the date on which
any Net Cash Proceeds or Excess Cash Flow so retained would otherwise have been required to be
applied to reinvestments or prepayments pursuant to Section 5.2(a), (x) the Borrower
applies an amount equal to such Net Cash Proceeds or Excess Cash Flow to such reinvestments or
prepayments as if such Net Cash Proceeds or Excess Cash Flow had been received by the Borrower
rather than such Restricted Foreign Subsidiary, less the amount of additional taxes that would have
been payable or reserved against if such Net Cash Proceeds or Excess Cash Flow had been repatriated
(or, if less, the Net Cash Proceeds or Excess Cash Flow that would be calculated if received by
such Foreign Subsidiary) or (y) such Net Cash Proceeds or Excess Cash Flow are applied to the
repayment of Indebtedness of a Restricted Foreign Subsidiary.
(h) Optional Waiver of Mandatory Prepayments. Notwithstanding the foregoing
provisions of this Section 5.2, the Lenders shall have the right to waive by written notice
to Borrower and the Administrative Agent on or before the date on which such mandatory prepayment
would otherwise be required to be made hereunder the right to receive the amount of such mandatory
prepayment of the Loans. If any Lender elects to waive the right to receive the amount of such
mandatory prepayment, all of the amount that otherwise would have been
applied to mandatorily prepay such Loans of such Lender shall be retained by Borrower for use
at its discretion.
5.3 Method and Place of Payment . (a) Except as otherwise specifically provided
herein, all payments under this Agreement shall be made by the Borrower, without set-off,
counterclaim or deduction of any kind, to the Administrative Agent for the ratable account of
48
the
Lenders entitled thereto, not later than 12:00 Noon (New York City time) on the date when due and
shall be made in immediately available funds at the Administrative Agent’s Office or at such
other office as the Administrative Agent shall specify for such purpose by notice to the
Borrower, it being understood that written or facsimile notice by the Borrower to the
Administrative Agent to make a payment from the funds in the Borrower’s account at the
Administrative Agent’s Office shall constitute the making of such payment to the extent of such
funds held in such account. All repayments or prepayments of Loans (whether of principal,
interest or otherwise) hereunder shall be made in Dollars. The Administrative Agent will
thereafter cause to be distributed on the same day (if payment was actually received by the
Administrative Agent prior to 2:00 p.m. (New York City time) on such day) like funds relating to
the payment of principal or interest or Fees ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 p.m. (New York City
time) shall be deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the applicable rate in
effect immediately prior to such extension.
5.4 Net Payments. (a) Any and all payments made by or on behalf of the Borrower
under this Agreement or any other Credit Document shall be made free and clear of, and without
deduction or withholding for or on account of, any Indemnified Taxes; provided that if
the Borrower shall be required by law to deduct or withhold any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after making all
required deductions and withholdings (including deductions or withholdings applicable to
additional sums payable under this Section 5.4) the Administrative Agent, the Collateral
Agent, or any Lender, as the case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made, (ii) the Borrower shall make such
deductions or withholdings and (iii) the Borrower shall pay the full amount deducted or withheld
to the relevant Governmental Authority in accordance with applicable law. Whenever any
Indemnified Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower
shall send to the Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt (or other evidence acceptable
to such Lender, acting reasonably) received by the Borrower showing payment thereof.
(b) The Borrower shall pay and shall indemnify and hold harmless the Administrative Agent,
the Collateral Agent, and each Lender with regard to any Other Taxes (whether or not such Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority).
(c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral
Agent, and each Lender within 15 Business Days after written demand therefor, for the full amount
of any Indemnified Taxes imposed on, or paid by, the Administrative Agent, the Collateral Agent,
or such Lender as the case may be, on or with respect to any payment by or on account of any
obligation of Borrower under this Agreement or under any other Credit
49
Document (including
Indemnified Taxes imposed or asserted on or attributable to amounts payable under this
Section 5.4) and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or by the Administrative Agent or the Collateral Agent on
its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(d) Each Non-U.S. Lender making or acquiring a Loan to the Borrower shall:
(i) deliver to the Borrower and the Administrative Agent two copies of either (x) in the case
of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of “portfolio interest”, United States Internal Revenue
Service Form W-8BEN (together with a certificate representing that such Non-U.S. Lender is not a
bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the
Code)), (y) Internal Revenue Service Form W-8BEN or Form W-8ECI, or (z) Internal Revenue Service
Form W-8IMY (together with the forms and certificates described in clauses (x) and (y), as
appropriate), in each case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the
Borrower under this Agreement; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form
or certification (or any applicable successor form) on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to the Borrower;
unless in any such case any Change in Law or other event has occurred prior to the date on which
any such delivery would otherwise be required that renders any such form inapplicable or would
prevent such Lender from duly completing and delivering any such form with respect to it and such
Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a
Participant pursuant to Section 14.6 or a Lender pursuant to Section 14.6 shall,
upon the effectiveness of the related transfer, be required to provide all the forms and statements
required pursuant to this Section 5.4(d), provided that in the case of a
Participant such Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
(e) Each Lender that is entitled to an exemption from or reduction of non-U.S. withholding
tax under the laws of the jurisdiction in which the Borrower is organized, or any treaty to which
such jurisdiction is a party, with respect to payments under this Agreement or any other Credit
Document by Borrower shall deliver to Borrower (with a copy to the Administrative Agent), as
applicable, at the time or times prescribed by applicable law and reasonably requested by
Borrower such properly completed and executed documentation prescribed by applicable law as will
permit such payments to be made without such withholding or at such reduced rate,
provided that such Lender is legally entitled to complete, execute and deliver such
documentation, such documentation is necessary in order for such
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exemption or reduction to apply
and in such Lender’s reasonable judgment the completion, execution or submission would not
materially prejudice the legal position of the Lender. In addition, each Lender shall deliver
such other documentation prescribed by applicable law and reasonably requested by the Borrower or
the Administrative Agent (including an IRS Form W-8 or W-9) as will enable the Borrower or the
Administrative Agent to determine whether such Lender is subject to United States backup
withholding or information reporting requirements.
(f) If the Borrower determines in good faith that a reasonable basis exists for contesting
any taxes for which indemnification has been demanded hereunder, the relevant Lender, the
Administrative Agent or the Collateral Agent, as applicable, shall cooperate with the Borrower in
a reasonable challenge of such taxes at the Borrower’s expense if so requested by the Borrower.
If any Lender, the Administrative Agent or the Collateral Agent, as applicable, receives a refund
of a tax for which a payment has been made by the Borrower pursuant to this Agreement, which
refund in the good faith judgment of such Lender, the Administrative Agent or the Collateral
Agent, as the case may be, is attributable to such payment made by the Borrower, then the Lender,
the Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the
Borrower for such amount (together with any interest received thereon) as the Lender,
Administrative Agent or the Collateral Agent, as the case may be, determines to be the proportion
of the refund as will leave it, after such reimbursement, in no better or worse position (taking
into account expenses or any taxes imposed on the refund) than it would have been in if the
payment had not been required. A Lender, the Administrative Agent or the Collateral Agent shall
claim any refund that it determines is available to it, unless it concludes in its reasonable
discretion that it would be adversely affected by making such a claim. The Borrower, upon the
request of the Lender, the Administrative Agent or the Collateral Agent, as applicable, agrees to
repay the amount paid over to the Borrower to the Lender, the Administrative Agent or the
Collateral Agent, as applicable, in the event the Lender, the Administrative Agent or the
Collateral Agent, as applicable, is required to repay the refund to the Governmental Authority.
Neither the Lender, the Administrative Agent nor the Collateral Agent shall be obliged to
disclose any information regarding its tax affairs or computations to the Borrower in connection
with this paragraph (f) or any other provision of this Section 5.4.
(g) The agreements in this Section 5.4 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
5.5 Computations of Interest and Fees. (a) Interest on LIBOR Loans and, except as provided in the next succeeding sentence,
ABR Loans shall be calculated on the basis of a 360-day year for the actual days elapsed.
Interest on ABR Loans in respect of which the rate of interest is calculated on the basis of the
Prime Rate and interest on overdue interest shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed.
(b) Fees shall be calculated on the basis of a 365- (or 366-, as the case may be) day year
for the actual days elapsed.
5.6 Limit on Rate of Interest.
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(a) No Payment shall exceed Lawful Rate. Notwithstanding any other term of this
Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in
connection with this Agreement in excess of the amount or rate permitted under or consistent with
any applicable law, rule or regulation.
(b) Payment at Highest Lawful Rate. If the Borrower is not obliged to make a
payment which it would otherwise be required to make, as a result of Section 5.6(a), the
Borrower shall make such payment to the maximum extent permitted by or consistent with applicable
laws, rules and regulations.
(c) Adjustment if any Payment exceeds Lawful Rate. If any provision of this
Agreement or any of the other Credit Documents would obligate the Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a rate which would
be prohibited by any applicable law, rule or regulation, then notwithstanding such provision,
such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by law, such
adjustment to be effected, to the extent necessary, by reducing the amount or rate of interest
required to be paid by the Borrower to the affected Lender under Section 2.8.
Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if
any Lender shall have received from the Borrower an amount in excess of the maximum permitted by
any applicable law, rule or regulation, then the Borrower shall be entitled, by notice in writing
to the Administrative Agent to obtain reimbursement from that Lender in an amount equal to such
excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that
Lender to the Borrower.
SECTION 6. Conditions Precedent to Initial Borrowing
The initial Borrowing under this Agreement is subject to the satisfaction of the following
conditions precedent, except as otherwise agreed between the Borrower and the Administrative Agent.
6.1 Credit Documents. The Administrative Agent shall have received:
(a) this Agreement, executed and delivered by a duly authorized officer of the Borrower
and each Lender;
(b) the Pledge Agreement, executed and delivered by a duly authorized officer of
Borrower; and
(c) the Security Agreement, executed and delivered by a duly authorized officer of
Borrower.
6.2 Collateral. (a) All outstanding equity interests in whatever form of McJunkin
Opco directly owned by or on behalf of Borrower and required to be pledged pursuant to the Pledge
Agreement shall have been pledged pursuant thereto and the Collateral Agent shall have received
all certificates (if any) representing securities pledged under the Pledge
52
Agreement to the
extent certificated, accompanied by instruments of transfer and undated stock powers endorsed in
blank.
(b) All Uniform Commercial Code financing statements, required by law or reasonably
requested by the Collateral Agent to be filed to create the Liens intended to be created by the
Security Agreement and perfect such Liens to the extent required by, and with the priority
required by, the Security Agreement shall have been delivered to the Collateral Agent for filing.
(c) The Borrower shall deliver to the Collateral Agent a completed Perfection Certificate,
executed and delivered by an Authorized Officer of the Borrower, together with all attachments
contemplated thereby.
6.3 Legal Opinions. The Administrative Agent shall have received the executed legal
opinion of Simpson Thacher & Bartlett LLP, special New York counsel to the Borrower, substantially
in the form of Exhibit I. The Borrower and the Administrative Agent hereby instruct such
counsel to deliver such legal opinions.
6.4 Equity Investments; Existing Indebtedness. After giving effect to the Dividend
Transactions, the Borrower shall have no outstanding Indebtedness other than the Term Loans.
6.5 Closing Certificates. The Administrative Agent shall have received a certificate of
Borrower, dated the Closing Date, substantially in the form of Exhibit J, with appropriate
insertions, executed by the President or any Vice President and the Secretary or any Assistant
Secretary of Borrower, and attaching the documents referred to in Section 6.6.
6.6 Organizational Documents; Incumbency. The Administrative Agent shall have received a
copy of (a) each Organizational Document of Borrower certified, to the extent applicable, as of a
recent date by the applicable Governmental Authority, (b) signature and incumbency certificates of
the Authorized Officers of Borrower executing the Credit Documents; (c) resolutions of the Board of
Directors or similar governing body of Borrower approving and authorizing the execution, delivery
and performance of Credit Documents and the extensions of credit contemplated hereunder, certified
as of the Closing Date by its secretary or an assistant secretary as being in full force and effect
without modification or amendment and (d) a good standing certificate from the applicable
Governmental Authority of Borrower’s jurisdiction of incorporation, organization or formation.
6.7 Fees. The Co-Lead Arrangers and the Collateral Agent shall have received the fees to
be received on the Closing Date set forth in the Engagement Letter and all expenses required to be
paid by the Borrower pursuant to the Engagement Letter (including the reasonable fees,
disbursements and other charges of counsel) for which invoices have been presented prior to the
Closing Date shall have been paid.
6.8 Representations and Warranties. On the Closing Date, the representations and
warranties made by the Borrower contained herein or in the other Credit Documents shall be true and
correct in all material respects.
53
6.9 Solvency Certificate. On the Closing Date, Administrative Agent shall have received a
certificate from an Authorized Officer of the Borrower, with appropriate attachments and
demonstrating that after giving effect to the consummation of the Dividend Transactions, the
Borrower on a consolidated basis with its Subsidiaries is Solvent.
6.10 Historical Financial Statements. Lenders shall have received the Historical Financial
Statements.
6.11 Notice of Borrowing. The Administrative Agent shall have received a Notice of
Borrowing (whether in writing or by telephone) meeting the requirements of Section 2.3.
6.12 No Default. At the time of the initial Borrowing and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing.
SECTION 7. [Intentionally Omitted.]
SECTION 8. Representations, Warranties and Agreements
In order to induce the Lenders to enter into this Agreement, to make the Loans as provided for
herein, the Borrower (with respect to itself and its Subsidiaries) makes the following
representations and warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans:
8.1 Corporate Status. The Borrower and each Material Subsidiary (a) is a duly organized
and validly existing corporation or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational power and authority
to own its property and assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all jurisdictions where it is
required to be so qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
8.2 Corporate Power and Authority. Borrower has the corporate or other organizational
power and authority to execute, deliver and carry out the terms and provisions of the Credit
Documents and has taken all necessary corporate or other organizational action to authorize the
execution, delivery and performance of the Credit Documents. Borrower has duly executed and
delivered each Credit Document and each such Credit Document constitutes the legal, valid and
binding obligation of Borrower enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors’ rights generally and subject to general principles of equity. Borrower is in compliance
with all laws, orders, writs and injunctions except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect.
8.3 No Violation. Neither the execution, delivery or performance by Borrower of the
Credit Documents nor compliance with the terms and provisions thereof nor the consummation of the
other transactions contemplated hereby or thereby will (a) contravene any applicable provision of
any material law, statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (b) result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the creation or imposition of
54
(or the obligation to create or impose) any Lien upon any of the property or assets of
Borrower or any of the Restricted Subsidiaries (other than Liens created under the Credit
Documents) pursuant to, the terms of any material indenture, loan agreement, lease agreement,
mortgage, deed of trust, agreement or other material instrument to which Borrower or any of the
Restricted Subsidiaries is a party or by which it or any of its property or assets is bound or (c)
violate any provision of the certificate of incorporation, by-laws or other constitutional
documents of Borrower or any of the Restricted Subsidiaries.
8.4 Litigation. There are no actions, suits or proceedings (including Environmental
Claims) pending or, to the knowledge of the Borrower, threatened with respect to the Borrower or
any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect or
a Material Adverse Change.
8.5 Margin Regulations. Neither Borrower nor any of its Subsidiaries is engaged
principally, as one or more of its important activities, in the business of extending credit for
the purpose of purchasing any “margin stock” as defined in Regulation U. Neither the making of any
Loan hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, U
or X of the Board.
8.6 Governmental Approvals. The execution, delivery and performance of any Credit
Document does not require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except for (i) such as have been obtained or made and are in
full force and effect, (ii) filings and recordings in respect of the Liens created pursuant to the
Security Documents and (iii) such licenses, approvals, authorizations or consents the failure to
obtain or make could not reasonably be expected to have a Material Adverse Effect.
8.7 Investment Company Act. The Borrower is not an “investment company”, or a company
“controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940,
as amended.
8.8 True and Complete Disclosure. (a) None of the factual information and data
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower, any
of the Subsidiaries or any of their respective authorized representatives in writing to the
Administrative Agent and/or any Lender on or before the Closing Date (including (i) the
Confidential Information Memorandum and (ii) all information contained in the Credit Documents)
for purposes of or in connection with this Agreement or any transaction contemplated herein
contained any untrue statement or omitted to state any material fact necessary to make such
information and data (taken as a whole) not misleading at such time in light of the circumstances
under which such information or data was furnished, it being understood and agreed that for
purposes of this Section 8.8(a), such factual information and data shall not include
projections and pro forma financial information.
(b) The projections and pro forma financial information contained in the information and
data referred to in paragraph (a) above were based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events are not to be viewed as
55
facts and that actual results during the period or periods covered by any such projections
may differ from the projected results.
8.9 Financial Condition; Financial Statements. The (a) unaudited historical
consolidated financial information of the Borrower and its Subsidiaries as set forth in the
Confidential Information Memorandum, and (b) the Historical Financial Statements, in each case
present or will, when provided, present fairly in all material respects the combined financial
position of the Borrower and its Subsidiaries at the respective dates of said information,
statements and results of operations for the respective periods covered thereby. The financial
statements referred to in clause (b) of this Section 8.9 have been prepared in accordance
with GAAP, consistently applied (except to the extent provided in the notes to said financial
statements), and the audit reports accompanying such financial statements are not subject to any
qualification as to the scope of the audit or the status of McJunkin Opco as a going concern.
There has been no Material Adverse Change since December 31, 2007.
8.10 Tax Returns and Payments. The Borrower and each of the Subsidiaries has filed
all federal income tax returns and all other material tax returns, domestic and foreign, required
to be filed by it and has paid all income and other material Taxes payable by it that have become
due, other than those (a) not yet delinquent or (b) contested in good faith as to which adequate
reserves have been provided in accordance with GAAP and which could not reasonably be expected to
result in a Material Adverse Effect. The Borrower and each of the Subsidiaries have paid, or have
provided adequate reserves (in the good faith judgment of the management of the Borrower) in
accordance with GAAP for the payment of, all material federal, state, provincial and foreign income
taxes applicable for all prior fiscal years and for the current fiscal year to the Closing Date.
8.11 Compliance with ERISA. (a) Each Plan is in compliance with ERISA, the
Code and any applicable Requirement of Law; no Reportable Event has occurred (or is reasonably
likely to occur) with respect to any Plan; no Plan is insolvent or in reorganization (or is
reasonably likely to be insolvent or in reorganization), and no written notice of any such
insolvency or reorganization has been given to the Borrower, any Subsidiary or any ERISA
Affiliate; no Plan (other than a multiemployer plan) has an accumulated or waived funding
deficiency (or is reasonably likely to have such a deficiency); none of the Borrower, any
Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely expected to incur) any
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or has been notified in
writing that it will incur any liability under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted (or are reasonably likely to be instituted) to
terminate or to reorganize any Plan or to appoint a trustee to administer any Plan, and no
written notice of any such proceedings has been given to the Borrower, any Subsidiary or any
ERISA Affiliate; and no lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist) nor has the Borrower,
any Subsidiary or any ERISA Affiliate been notified in writing that such a lien will be imposed
on the assets of the Borrower, any Subsidiary or any ERISA Affiliate on account of any Plan,
except to the extent that a breach of any of the representations, warranties or agreements in
this Section 8.11 would not result, individually or in the aggregate, in an amount of
liability that would be reasonably likely to have a Material Adverse Effect. No
56
Plan (other than a multiemployer plan) has an Unfunded Current Liability that would,
individually or when taken together with any other liabilities referenced in this Section
8.11, be reasonably likely to have a Material Adverse Effect. With respect to Plans that are
multiemployer plans (as defined in Section 3(37) of ERISA), the representations and warranties in
this Section 8.11(a), other than any made with respect to (i) liability under Section
4201 or 4204 of ERISA or (ii) liability for termination or reorganization of such Plans under
ERISA, are made to the best knowledge of the Borrower.
(b) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably
be expected to have a Material Adverse Effect. All contributions or other payments which are due
with respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.12 Subsidiaries. Schedule 8.12 lists each Subsidiary of the Borrower (and
the direct and indirect ownership interest of the Borrower therein), in each case existing on the
Closing Date. To the knowledge of the Borrower, after due inquiry, each Material Subsidiary as of
the Closing Date has been so designated on Schedule 8.12.
8.13 Intellectual Property. The Borrower and each of the Restricted Subsidiaries have
obtained all intellectual property, free from burdensome restrictions, that are necessary for the
operation of their respective businesses as currently conducted and as proposed to be conducted,
except where the failure to obtain any such rights could not reasonably be expected to have a
Material Adverse Effect.
8.14 Environmental Laws. (a) Except as could not reasonably be expected to
have a Material Adverse Effect: (i) the Borrower and each of the Subsidiaries and all Real
Estate are, and have been, in compliance with, and possess all permits, licenses and
registrations required pursuant to, all Environmental Laws; (ii) neither the Borrower, nor any of
the Subsidiaries is subject to any Environmental Claim or any other liability under any
Environmental Law; (iii) the Borrower and its Subsidiaries are not conducting, or required to
conduct, any investigation, removal, remedial or other corrective action pursuant to any
Environmental Law at any location, including any Real Estate currently owned or leased by the
Borrower or any of its Subsidiaries, and any real property to which the Borrower or any of its
Subsidiaries may have sent Hazardous Materials; and (iv) no underground storage tank or related
piping, or any impoundment or other disposal area containing Hazardous Materials is located at,
on or under any Real Estate currently owned or leased by the Borrower or any of its Subsidiaries.
(b) Neither the Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous Materials
at, on, under or from any currently or formerly owned or leased Real Estate or facility in a
manner that could reasonably be expected to have a Material Adverse Effect.
57
8.15 Properties. The Borrower and each of the Subsidiaries have good and marketable
title to or leasehold interest in all properties that are necessary for the operation of their
respective businesses as currently conducted and as proposed to be conducted, free and clear of all
Liens (other than any Liens permitted by this Agreement or the McJunkin Opco Revolving Credit
Agreement) and except where the failure to have such good title could not reasonably be expected to
have a Material Adverse Effect.
8.16 Solvency. On the Closing Date (after giving effect to the Dividend
Transactions), immediately following the making of each Loan and after giving effect to the
application of the proceeds of such Loans, the Borrower on a consolidated basis with its
Subsidiaries will be Solvent.
SECTION 9. Affirmative Covenants
The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the
Commitments have terminated and the Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
9.1 Information Covenants. The Borrower will furnish to the Administrative Agent:
(a) Annual Financial Statements. As soon as available and in any event on or
before the date on which such financial statements are required to be filed with the SEC
(or, if such financial statements are not required to be filed with the SEC, on or before
the date that is 105 days after the end of each such fiscal year), the consolidated balance
sheet of McJunkin Opco and the other Restricted Subsidiaries (and, to the extent prepared,
of Borrower and the Restricted Subsidiaries) as at the end of such fiscal year, and the
related consolidated statement of operations and consolidated statement of cash flows for
such fiscal year, setting forth comparative consolidated figures for the preceding fiscal
year, and certified by independent certified public accountants of recognized national
standing whose opinion shall not be qualified as to the scope of audit or as to the status
of McJunkin Opco or any of the Material Subsidiaries (or group of Subsidiaries that together
would constitute a Material Subsidiary) as a going concern, together in any event with a
certificate of such accounting firm stating that in the course of its regular audit of the
business of McJunkin Opco and the Material Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm has obtained no
knowledge of any Default or Event of Default relating to Sections 10.1, 10.2
or 10.3 that has occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof which shall be certified by a Financial Officer of the Borrower.
(b) Quarterly Financial Statements. As soon as available and in any event on
or before the date on which such financial statements are required to be filed with the SEC
with respect to each of the first three quarterly accounting periods in each fiscal year of
McJunkin Opco (or, if such financial statements are not required to be filed with the SEC,
on or before the date that is sixty (60) days after the end of each such quarterly
accounting period), the consolidated balance sheet of (i) McJunkin Opco and the other
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Restricted Subsidiaries (and, to the extent prepared, Borrower and the Restricted
Subsidiaries) and (ii) McJunkin Opco and its Subsidiaries (and, to the extent prepared,
Borrower and its Restricted Subsidiaries), in each case as at the end of such quarterly
period and the related consolidated statement of operations for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and the related consolidated statement of cash flows for the elapsed
portion of the fiscal year ended with the last day of such quarterly period, and setting
forth comparative consolidated figures for the related periods in the prior fiscal year or,
in the case of such consolidated balance sheet, for the last day of the prior fiscal year,
all of which shall be certified by a Financial Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.
(c) Monthly Financial Statements. As soon as available and in any event on or
before the date that is thirty (30) days after the end of each fiscal month of Borrower, the
consolidated balance sheet of (i) McJunkin Opco and the other Restricted Subsidiaries (and,
to the extent prepared, Borrower and the Restricted Subsidiaries) and (ii) McJunkin Opco and
its Subsidiaries (and, to the extent prepared, Borrower and its Restricted Subsidiaries), in
each case as at the end of such fiscal month and the related consolidated statement of
operations for such fiscal month and for the elapsed portion of the fiscal year ended with
the last day of such fiscal month, and the related consolidated statement of cash flows for
the elapsed portion of the fiscal year ended with the last day of such fiscal month, and
setting forth comparative consolidated figures for the related periods in the prior fiscal
year or, in the case of such consolidated balance sheet, for the last day of the prior
fiscal year, all of which shall be certified by a Financial Officer of the Borrower, subject
to changes resulting from audit and normal year-end audit adjustments.
(d) Budgets. Not more than sixty (60) days after the commencement of each
fiscal year of McJunkin Opco, a budget of McJunkin Opco in reasonable detail for such fiscal
year as customarily prepared by management of McJunkin Opco for their internal use
consistent in scope with the financial statements provided pursuant to Section
9.1(a), setting forth the principal assumptions upon which such budgets are based.
(e) Officer’s Certificates. At the time of the delivery of the financial
statements provided for in Sections 9.1(a) and (b), a certificate of an
Authorized Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the calculations required to establish whether the
Borrower and the Subsidiaries were in compliance with the provisions of Sections
10.1 and 10.2 as at the end of such fiscal year or period, as the case may be,
(ii) a specification of any change in the identity of the Restricted Subsidiaries and
Unrestricted Subsidiaries as at the end of such fiscal year or period, as the case may be,
from the Restricted Subsidiaries and Unrestricted Subsidiaries, respectively, provided to
the Lenders on the Closing Date or the most recent fiscal year or period, as the case may
be, (iii) the amount of any Pro Forma Adjustment not previously set forth in a Pro Forma
Adjustment Certificate or any change in the amount of a Pro Forma Adjustment set forth in
any Pro Forma Adjustment Certificate previously provided and, in either case, in reasonable
detail, the calculations and basis therefor. At the time of the delivery of the financial
statements provided for in
59
Section 9.1(a), a certificate of an Authorized Officer of the Borrower setting
forth the information required pursuant to Section 1(a) of the Perfection
Certificate or confirming that there has been no change in such information since the
Closing Date or the date of the most recent certificate delivered pursuant to this
subsection (e)(ii), as the case may be.
(f) [Intentionally Omitted]
(g) [Intentionally Omitted]
(h) Notice of Default or Litigation. Promptly after an Authorized Officer of
the Borrower or any of the Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event that constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto and (ii) any litigation or governmental proceeding
pending against the Borrower or any of the Subsidiaries that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change.
(i) Environmental Matters. The Borrower will promptly advise the
Administrative Agent in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters could not, individually
or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against Borrower or any
Restricted Subsidiary or any current or former Real Estate;
(ii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that (x) could reasonably be expected to result in noncompliance
by Borrower or any Restricted Subsidiary with any applicable Environmental Law or
(y) could reasonably be anticipated to form the basis of an Environmental Claim
against Borrower or any Restricted Subsidiary or any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or
former Real Estate that could reasonably be anticipated to cause such Real Estate to
be subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Estate under any Environmental Law; and
(iv) The conduct or need to conduct of any investigation, or any removal,
remedial or other corrective action in response to the actual or alleged presence,
release or threatened release of any Hazardous Material on, at, under or from any
current or former Real Estate or otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term
“Real Estate” shall mean land, buildings and improvements owned or leased by Borrower
60
or any Restricted Subsidiary, but excluding all operating fixtures and equipment, whether or
not incorporated into improvements.
(j) Other Information. Promptly upon filing thereof, copies of any filings
(including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the
SEC or any analogous Governmental Authority in any relevant jurisdiction by the Borrower or
any of the Subsidiaries (other than amendments to any registration statement (to the extent
such registration statement, in the form it becomes effective, is delivered to the Lenders
and the Administrative Agent), exhibits to any registration statement and, if applicable,
any registration statements on Form S-8) and copies of all financial statements, proxy
statements, notices and reports that the Borrower or any of the Subsidiaries shall send to
the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries in
their capacity as such holders (in each case to the extent not theretofore delivered to the
Lenders and the Administrative Agent pursuant to this Agreement) and, with reasonable
promptness, such other information (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of any Lender (acting through the Administrative Agent) may
reasonably request in writing from time to time.
(k) Pro Forma Adjustment Certificate. Not later than any date on which
financial statements are delivered with respect to any Test Period in which a Pro Forma
Adjustment is made as a result of the consummation of the acquisition of any Acquired Entity
or Business by the Borrower or any Restricted Subsidiary for which there shall be a Pro
Forma Adjustment, a certificate of an Authorized Officer of the Borrower setting forth the
amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis
therefor.
(l) Information Regarding Collateral. Not later than sixty (60) days following
the occurrence of any change referred to in subclauses (i) through
(iv) below, written notice of any change (i) in the legal name of Borrower, (ii) in
the jurisdiction of organization or location of Borrower for purposes of the Uniform
Commercial Code, (iii) in the identity or type of organization of Borrower or (iv) in the
Federal Taxpayer Identification Number or organizational identification number of Borrower.
The Borrower shall also promptly provide the Collateral Agent with certified Organizational
Documents reflecting any of the changes described in the first sentence of this clause
(1).
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section
9.1 may be satisfied with respect to financial information of McJunkin Opco and the Restricted
Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent
of McJunkin Opco or (B) the Borrower’s (or any direct or indirect parent thereof’s), as applicable,
Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect
to each of clauses (A) and (B) above, to the extent such information relates to a parent of the
Borrower, such information is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to such parent, on the one hand, and the
information relating to McJunkin Opco and the Restricted Subsidiaries on a standalone basis, on the
other hand.
61
9.2 Books, Records and Inspections. The Borrower will, and will cause each of the
Subsidiaries to, permit officers and designated representatives of the Administrative Agents or the
Required Lenders to visit and inspect any of the properties or assets of the Borrower and any such
Subsidiary in whomsoever’s possession to the extent that it is within such party’s control to
permit such inspection, and to examine the books and records of the Borrower and any such
Subsidiary and discuss the affairs, finances and accounts of the Borrower and of any such
Subsidiary with, and be advised as to the same by, its and their officers and independent
accountants, all at such reasonable times and intervals and to such reasonable extent as the
Administrative Agents or the Required Lenders may desire; provided that, excluding
any such visits and inspections during the continuation of an Event of Default, only the
Administrative Agent (or any of their respective representatives or independent contractors) on
behalf of the Required Lenders may exercise rights of the Administrative Agent and the Lenders
under this Section 9.2 and the Administrative Agent shall not exercise such rights more
often than two times during any calendar year absent the existence of an Event of Default and only
one such time shall be at the Borrower’s expense; provided further that when an Event of Default
exists, the Administrative Agent (or any of its representatives or independent contractors) or any
representative of the Required Lenders may do any of the foregoing at the expense of the Borrower
at any time during normal business hours and upon reasonable advance notice. The Administrative
Agent and the Required Lenders shall give the Borrower the opportunity to participate in any
discussions with the Borrower’s independent public accountants.
9.3 Maintenance of Insurance. The Borrower will, and will cause each of the Material
Subsidiaries to, at all times maintain in full force and effect, with insurance companies that the
Borrower believes (in the good faith judgment of the management of the Borrower) are financially
sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least
such amounts (after giving effect to any self-insurance which the Borrower believes (in the good
faith judgment of management of the Borrower) is reasonable and prudent in light of the size and
nature of its business) and against at least such risks (and with such risk retentions) as the
Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and
prudent in light of the size and nature of its business; and will furnish to the Administrative
Agent (for deliver to the Lenders), upon written request from the Administrative Agent, information
presented in reasonable detail as to the insurance so carried. Each such policy of insurance shall
(i) name Collateral Agent, on behalf of Secured Parties as an additional insured thereunder as its
interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable
clause or endorsement reasonably satisfactory in form and substance to Collateral Agent, that names
Collateral Agent, on behalf of Lenders as the loss payee thereunder and provides for at least
thirty days’ prior written notice to Collateral Agent of any modification or cancellation of such
policy.
9.4 Payment of Taxes. Borrower and each Restricted Subsidiary will pay and discharge,
and will cause each of the Subsidiaries to pay and discharge, all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which material penalties attach thereto, and all
lawful material claims that, if unpaid, could reasonably be expected to become a material Lien upon
any properties of Borrower or any of the Restricted Subsidiaries, provided that neither
Borrower nor any Restricted Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim that is being contested in good faith and by proper proceedings if it has
62
maintained adequate reserves (in the good faith judgment of the management of the Borrower)
with respect thereto in accordance with GAAP and the failure to pay could not reasonably be
expected to result in a Material Adverse Effect.
9.5 Consolidated Corporate Franchises. The Borrower will do, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full
force and effect its existence, corporate rights and authority, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse Effect;
provided, however, that the Borrower and its Subsidiaries may consummate any
transaction permitted under Sections 10.3, 10.4 or 10.5 of the McJunkin
Opco Credit Agreements.
9.6 Compliance with Statutes, Regulations, etc. The Borrower will, and will cause
each Subsidiary to, comply with all applicable laws, rules, regulations and orders applicable to it
or its property, including all governmental approvals or authorizations required to conduct its
business, and to maintain all such governmental approvals or authorizations in full force and
effect, in each case except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
9.7 ERISA. Promptly after the Borrower or any Subsidiary or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following events that, individually or in the
aggregate (including in the aggregate such events previously disclosed or exempt from disclosure
hereunder, to the extent the liability therefor remains outstanding), would be reasonably likely to
have a Material Adverse Effect, the Borrower will deliver to each of the Lenders a certificate of
an Authorized Officer or any other senior officer of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is
required or proposes to take, together with any notices (required, proposed or otherwise) given to
or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participant’s benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against the Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified the Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that the Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
63
9.8 Maintenance of Properties. The Borrower will, and will cause each of the
Restricted Subsidiaries to, keep and maintain all property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted, except to the extent that the
failure to do so could reasonably be expected to have a Material Adverse Effect.
9.9 Transactions with Affiliates. The Borrower will conduct, and cause each of the
Restricted Subsidiaries to conduct, all transactions with any of its Affiliates (other than the
Borrower or the Restricted Subsidiaries) on terms that are substantially as favorable to the
Borrower or such Restricted Subsidiary as it would obtain in a comparable arm’s-length transaction
with a Person that is not an Affiliate, provided that the foregoing restrictions shall not
apply to (a) the payment of customary fees to the Sponsor for management, consulting and financial
services rendered to the Borrower and the Subsidiaries and customary investment banking fees paid
to the Sponsor for services rendered to the Borrower and the Subsidiaries in connection with
divestitures, acquisitions, financings and other transactions, (b) transactions permitted by
Section 10.6 of the McJunkin Opco Credit Agreements or Section 10.4 hereof, (c)
Dividend Transaction Expenses, (d) the issuance of Stock or Stock Equivalents of the Borrower
pursuant to arrangements described in clause (f) of this Section 9.9, (e) loans and other
transactions by the Borrower and the Restricted Subsidiaries to the extent permitted under
Section 10 of the McJunkin Opco Credit Agreements and Section 10.4 hereof, (f)
employment and severance arrangements between the Borrower and the Restricted Subsidiaries and
their respective officers and employees in the ordinary course of business, (g) payments by the
Borrower (and any direct or indirect parent thereof) and the Restricted Subsidiaries pursuant to
the tax sharing agreements among the Borrower (and any such parent) and the Restricted Subsidiaries
on customary terms to the extent attributable to the ownership or operation of the Borrower and the
Restricted Subsidiaries, (h) the payment of customary fees and reasonable out of pocket costs to,
and indemnities provided on behalf of, directors, managers, consultants, officers and employees of
the Borrower and the Restricted Subsidiaries in the ordinary course of business to the extent
attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, (i)
transactions pursuant to permitted agreements in existence on the Closing Date and set forth on
Schedule 9.9 or any amendment thereto to the extent such an amendment is not adverse, taken
as a whole, to the Lenders in any material respect, and (j) customary payments by the Borrower and
any Restricted Subsidiaries to the Sponsor made for any financial advisory, financing, underwriting
or placement services or in respect of other investment banking activities (including in connection
with acquisitions or divestitures), which payments are approved by the majority of the members of
the board of directors or a majority of the disinterested members of the board of directors of the
Borrower (or any direct or indirect parent thereof), in good faith.
9.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting
purposes, cause (a) each of its, and each of its Subsidiaries’, fiscal years to end on December 31
of each year and (b) each of its, and each of its Subsidiaries’, fiscal quarters to end on dates
consistent with such fiscal year-end and the Borrower’s past practice; provided,
however, that the Borrower may, upon written notice to the Administrative Agent, change the
financial reporting convention specified above to any other financial reporting convention
reasonably acceptable to the Administrative Agent, in which case the Borrower and the
Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to
this Agreement that are necessary in order to reflect such change in financial reporting.
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9.11 [Intentionally Omitted].
9.12 [Intentionally Omitted]
9.13
Use of Proceeds. The Borrower will use the proceeds of all Term Loans made
on the Closing Date to effect the Special Equity Dividend.
9.14 [Intentionally Omitted].
9.15 [Intentionally Omitted].
9.16 [Intentionally Omitted].
9.17 Further Assurances. (a) The Borrower will execute any and all further
documents, financing statements, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements and other documents), which may be
required under any applicable law, or which the Collateral Agent or the Required Lenders may
reasonably request, in order to grant, preserve, protect and perfect the validity and priority of
the security interests created or intended to be created by the Security Documents, all at the
expense of the Borrower.
(b) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on
Schedule 9.17(b) as soon as commercially reasonable and by no later than the date set forth in Schedule 9.17(b) with respect to such action or such later date as the Administrative Agent may reasonably agree.
Schedule 9.17(b) as soon as commercially reasonable and by no later than the date set forth in Schedule 9.17(b) with respect to such action or such later date as the Administrative Agent may reasonably agree.
SECTION 10. Negative Covenants
The Borrower (for itself and each of its Restricted Subsidiaries) hereby covenants and agrees
that on the Closing Date and thereafter, until the Commitments have terminated and the Loans,
together with interest, Fees and all other Obligations incurred hereunder, are paid in full:
10.1 Consolidated Total Debt to Consolidated EBITDA Ratio
The Borrower will not permit the Consolidated Total Debt to Consolidated EBITDA Ratio for any
Test Period ending during any period set forth below to be greater than the ratio set forth below
opposite such period:
| Period | Ratio | |||
June 30, 2008 |
4.75:1.00 | |||
September 30, 2008 |
4.75:1.00 | |||
December 31, 2008 |
4.75:1.00 | |||
March 31, 2009 |
4.00:1.00 | |||
June 30, 2009 |
4.00:1.00 | |||
September 30, 2009 |
4.00:1.00 | |||
December 31, 2009 |
4.00:1.00 | |||
65
| Period | Ratio | |||
March 31, 2010 |
3.25:1.00 | |||
June 30, 2010 |
3.25:1.00 | |||
September 30, 2010 |
3.25:1.00 | |||
December 31, 2010 |
3.25:1.00 | |||
March 31, 2011 |
3.00:1.00 | |||
June 30, 2011 |
3.00:1.00 | |||
September 30, 2011 |
3.00:1.00 | |||
December 31, 2011 |
3.00:1.00 | |||
March 31, 2012 |
3.00:1.00 | |||
June 30, 2012 |
3.00:1.00 | |||
September 30, 2012 |
3.00:1.00 | |||
December 31, 2012 |
3.00:1.00 | |||
March 31, 2013 |
3.00:1.00 | |||
June 30, 2013 |
3.00:1.00 | |||
September 30, 2013 |
3.00:1.00 | |||
December 31, 2013 |
3.00:1.00 | |||
10.2 Consolidated EBITDA to Consolidated Interest Expense Ratio.
The Borrower will not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio
for any Test Period ending during any period set forth below to be less than the ratio set forth
below opposite such period:
| Period | Ratio | |||
June 30, 2008 |
2.50:1.00 | |||
September 30, 2008 |
2.50:1.00 | |||
December 31, 2008 |
2.50:1.00 | |||
March 31, 2009 |
2.75:1.00 | |||
June 30, 2009 |
2.75:1.00 | |||
September 30, 2009 |
2.75:1.00 | |||
December 31, 2009 |
2.75:1.00 | |||
March 31, 2010 |
2.75:1.00 | |||
June 30, 2010 |
2.75:1.00 | |||
September 30, 2010 |
2.75:1.00 | |||
December 31, 2010 |
2.75:1.00 | |||
March 31, 2011 |
2.75:1.00 | |||
June 30, 2011 |
2.75:1.00 | |||
September 30, 2011 |
2.75:1.00 | |||
December 31, 2011 |
2.75:1.00 | |||
March 31, 2012 |
3.00:1.00 | |||
June 30, 2012 |
3.00:1.00 | |||
September 30, 2012 |
3.00:1.00 | |||
December 31, 2012 |
3.00:1.00 | |||
March 31, 2013 |
3.00:1.00 | |||
June 30, 2013 |
3.00:1.00 | |||
September 30, 2013 |
3.00:1.00 | |||
December 31, 2013 |
3.00:1.00 | |||
66
10.3 Capital Expenditures:
The Borrower will not, and will not permit any of its Restricted Subsidiaries to, make, or be
committed to make, Capital Expenditures which in the aggregate in any Fiscal Year set forth below
exceed the amount set forth below for such Fiscal Year:
| Fiscal Year | Amount | |||
2008 |
$ | 30,000,000 | ||
2009 |
$ | 30,000,000 | ||
2010 |
$ | 30,000,000 | ||
2011 |
$ | 30,000,000 | ||
2012 |
$ | 30,000,000 | ||
The amount of permitted Capital Expenditures set forth above in respect of any Fiscal Year
commencing with Fiscal Year 2009 shall be increased by 100% of the amount of unused permitted
Capital Expenditures for the immediately preceding Fiscal Year (such
amount, a “carry-forward
amount”) without giving effect to any carry-forward amount that was added in such preceding
Fiscal Year and assuming any such carry-forward amount is utilized first.
10.4 Permitted Activities of Borrower. Borrower shall not (a) incur, directly or
indirectly, any Indebtedness or any other obligation or liability whatsoever other than (i)
Indebtedness and obligations under this Agreement and the other Credit Documents, (ii) Guarantee
Obligations in respect of Indebtedness or other obligations or liabilities of McJunkin Opco or any
Restricted Subsidiary permitted to be incurred pursuant to the terms of the McJunkin Opco Credit
Agreements, and (iii) Indebtedness in respect of unsecured Hedging Agreements; (b) create or suffer
to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the
Liens created under the Security Documents to which it is a party or nonconsensual Liens imposed by
operation of law; and (c) engage in any business or activity or own any assets other than (i) the
Stock and Stock Equivalents of McJunkin Opco and those incidental to its ownership of the Stock and
Stock Equivalents of McJunkin Opco; (ii) additional Investments in McJunkin Opco in an amount not
to exceed the net cash proceeds of any equity contribution to, or equity issuance by, McJunkin Opco
and any amount retained by Borrower pursuant to Section 5.2(h); (iii) activities required
to be taken to consummate any IPO; (iv) any transaction that Borrower is permitted to enter into or
consummate under this Section 10.4, (v) performing its obligations and activities
incidental thereto under the Credit Documents; (vi) Investments constituting Permitted Investments;
(vii) making Borrower Purchases in compliance with Section 3; (viii) making the Special Equity
Dividend; (ix) (A) redeeming in whole or in part any of its Stock or Stock Equivalents for another
class of its Stock or Stock Equivalents or with proceeds from substantially concurrent equity
contributions or issuances of new Stock or Stock Equivalents, provided that such new Stock
or Stock Equivalents contain terms and provisions at least as advantageous to the Lenders in all
respects material to their interests as those contained in the Stock or Stock Equivalents redeemed
thereby; (B) it may (or may make dividends, distributions or any other return of capital to permit
any direct or indirect parent thereof to) repurchase shares of its (or such parent’s) Stock or
Stock Equivalents held by
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officers, directors and employees of the Borrower and its Subsidiaries, so long as such
repurchase is pursuant to, and in accordance with the terms of, management and/or employee stock
plans, stock subscription agreements or shareholder agreements; and (C) making other dividends,
distribution or any other return of capital with the proceeds of dividends, distribution or any
other return of capital received from McJunkin Opco in compliance with the terms of the McJunkin
Opco Loan Documents (it being understood that if the McJunkin Opco Loan Documents are no longer in
effect, then Borrower shall be permitted to make other dividends, distributions or any other return
of capital with the proceeds of dividends, distributions or any other return of capital received
from McJunkin Opco, in each case to the extent such dividend, distribution or other return of
capital would have been permitted to be made by McJunkin Opco under the McJunkin Opco Term Loan
Credit Agreement) or for amounts retained by Borrower pursuant to Section 5.2(h); and (x)
create or acquire any Subsidiary or make or own any Investment in any Person other than McJunkin
Opco.
SECTION 11. Events of Default
Upon the occurrence of any of the following specified events (each an “Event of
Default”):
11.1 Payments. The Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default, and such default shall continue for five or more days, in
the payment when due of any interest or stamping fees on the Loans or any Fees or of any other
amounts owing hereunder or under any other Credit Document; or
11.2 Representations, etc. Any representation, warranty or statement made or deemed
made by Borrower herein or in any Security Document or any certificate, statement, report or other
document delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made or deemed made; or
11.3 Covenants. Borrower or any Restricted Subsidiary shall:
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in Section 9.1(h) or Section 10; or
(b) default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in Section 11.1 or 11.2 or clause
(a) of this Section 11.3) contained in this Agreement, any Security Document or the
Engagement Letter and such default shall continue unremedied for a period of at least thirty
(30) days after receipt of written notice by the Borrower from the Administrative Agent or
the Required Lenders; or
11.4 Default Under Other Agreements (a) The Borrower or any of the Restricted
Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the
Obligations) in excess of $15,000,000 in the aggregate, for the Borrower and such Restricted
Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall occur or
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condition exist (other than, with respect to Indebtedness consisting of any Hedge
Agreements, termination events or equivalent events pursuant to the terms of such Hedge
Agreements), the effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, any such Indebtedness to become due prior to its stated maturity; or (b)
without limiting the provisions of clause (a) above, any such Indebtedness shall be declared to
be due and payable, or required to be prepaid other than by a regularly scheduled required
prepayment or as a mandatory prepayment (and, with respect to Indebtedness consisting of any
Hedge Agreements, other than due to a termination event or equivalent event pursuant to the terms
of such Hedge Agreements), prior to the stated maturity thereof; or
11.5 Bankruptcy, etc. The Borrower or any Specified Subsidiary shall commence a
voluntary case, proceeding or action concerning itself under (a) Title 11 of the United States Code
entitled “Bankruptcy,” or (b) in the case of any Foreign Subsidiary that is a Specified Subsidiary,
any domestic or foreign law relating to bankruptcy, judicial management, insolvency reorganization
or relief of debtors legislation of its jurisdiction of incorporation, in each case as now or
hereafter in effect, or any successor thereto (collectively, the “Bankruptcy Code”); or an
involuntary case, proceeding or action is commenced against the Borrower or any Specified
Subsidiary and the petition is not controverted within 10 days after commencement of the case,
proceeding or action; or an involuntary case, proceeding or action is commenced against the
Borrower or any Specified Subsidiary and the petition is not dismissed within 60 days after
commencement of the case, proceeding or action; or a custodian (as defined in the Bankruptcy Code),
judicial manager, receiver, receiver manager, trustee or similar person is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any Specified Subsidiary; or
the Borrower or any Specified Subsidiary commences any other proceeding or action under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any Specified Subsidiary; or there is commenced against the Borrower or any Specified
Subsidiary any such proceeding or action that remains undismissed for a period of 60 days; or the
Borrower or any Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding or action is entered; or the Borrower or any
Specified Subsidiary suffers any appointment of any custodian receiver, receiver manager, trustee
or the like for it or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Borrower or any Specified Subsidiary
for the purpose of effecting any of the foregoing; or
11.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan
(including the giving of written notice thereof); any Plan shall have an accumulated funding
deficiency (whether or not waived); the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under Section 409,
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502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975
of the Code (including the giving of written notice thereof); (b) there could result from any
event or events set forth in clause (a) of this Section 11.6 the imposition of a lien,
the granting of a security interest, or a liability, or the reasonable likelihood of incurring a
lien, security interest or liability; and (c) such lien, security interest or liability will or
would be reasonably likely to have a Material Adverse Effect; or
11.7 [Intentionally Omitted].
11.8 Pledge Agreement. The Pledge Agreement or any material provision thereof shall
cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as a
result of acts or omissions of the Collateral Agent or any Lender) or Borrower shall deny or
disaffirm in writing its obligations under the Pledge Agreement; or
11.9 Security Agreement. The Security Agreement or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Collateral Agent or any Lender) or Borrower shall deny or
disaffirm in writing any of its obligations under the Security Agreement; or
11.10 [Intentionally Omitted].
11.11 Judgments. One or more judgments or decrees shall be entered against the
Borrower or any of the Restricted Subsidiaries involving a liability of $15,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.12 Change of Control. A Change of Control shall occur;
then, (1) upon the occurrence of any Event of Default described in Section 11.5,
automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or
with the consent of) Required Lenders, upon notice to the Borrower by Administrative Agent, (A)
each of the following shall immediately become due and payable, in each case without presentment,
demand, protest or other requirements of any kind, all of which are hereby expressly waived by
Borrower: (I) the unpaid principal amount of and accrued interest on the Loans, and (II) all other
Obligations; (B) Administrative Agent may cause Collateral Agent to enforce any and all Liens and
security interests created pursuant to Security Documents.
SECTION 12. Investors’ Right to Cure. Notwithstanding anything to the contrary
contained in Section 11.3(a), in the event that the Borrower fails to comply with the
requirement of the covenant set forth in Section 10.1, until the expiration of the tenth
day after the date on which Section 9.1 Financials with respect to the Test Period in which
the covenant set forth in such Section is being measured are required to be delivered pursuant to
Section 9.1, any of the Investors shall have the right to make a direct or indirect equity
investment in the Borrower or any Restricted Subsidiary in cash (the “Cure Right”), and
upon the receipt by such Person of net cash proceeds pursuant to the exercise of the Cure Right
(including through the capital contribution of any such Net Cash proceeds to such person, the
“Cure Amount”), the
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covenant set forth in such Section shall be recalculated, giving effect to a pro forma
increase to Consolidated EBITDA for such Test Period in an amount equal to such net cash proceeds;
provided that such pro forma adjustment to Consolidated EBITDA shall be given solely for
the purpose of determining the existence of a Default or an Event of Default under the covenant set
forth in such Section with respect to any Test Period that includes the fiscal quarter for which
such Cure Right was exercised and not for any other purpose under any Credit Document.
If, after the exercise of the Cure Right and the recalculations pursuant to the preceding
paragraph, the Borrower shall then be in compliance with the requirements of the covenant set forth
in Section 10.1 during such Test Period (including for purposes of Section 7.1),
the Borrower shall be deemed to have satisfied the requirements of such covenant as of the relevant
date of determination with the same effect as though there had been no failure to comply therewith
at such date, and the applicable Default or Event of Default under Section 11.3 that had
occurred shall be deemed cured; provided that (i) in each Test Period there shall be at
least one fiscal quarter in which no Cure Right is exercised and (ii) with respect to any exercise
of the Cure Right, the Cure Amount shall be no greater than the amount required to cause the
Borrower to be in compliance with the covenant set forth in Section 10.1.
In the event that any of the Investors elect to exercise a Cure Right (as defined in the
McJunkin Opco Term Loan Credit Agreement) (such Cure Right, a “McJunkin Opco Cure Right”)
pursuant to the McJunkin Opco Term Loan Credit Agreement and the Borrower is in compliance with the
requirement of covenant set forth in Section 10.1 without giving effect to the Cure Amount
(as defined in the McJunkin Opco Term Loan Credit Agreement) (such Cure Amount, the “McJunkin
Opco Cure Amount”) of such McJunkin Opco Cure Right, then the exercise of such McJunkin Opco
Cure Right shall not be deemed an exercise of a Cure Right under this Agreement.
In the event that any of the Investors elect to exercise both a Cure Right pursuant to this
Section 12.1 and a McJunkin Cure Right pursuant to the McJunkin Opco Term Loan Credit Agreement,
then the McJunkin Cure Amount of such McJunkin Cure Right shall be deemed to be the Cure Amount of
such Cure Right and such deemed Cure Amount shall not breach clause (ii) of the proviso in the
second paragraph of this Section 12.
SECTION 13. The Administrative Agent
13.1 Appointment. (a) Each Lender hereby irrevocably designates and appoints
the Administrative Agent as the agent of such Lender under this Agreement and the other Credit
Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such
capacity, to take such action on its behalf under the provisions of this Agreement and the other
Credit Documents and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Administrative Agent. The
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provisions of this Section 13 are solely for the benefit of the Agents, any sub-agent and
the Lenders and Borrower shall not have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties hereunder, each Agent shall act solely
as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for Borrower or any of its Subsidiaries.
(b) The Administrative Agent and each Lender hereby irrevocably designate and appoint the
Collateral Agent as its agent under this Agreement and the other Credit Documents, and the
Administrative Agent and each Lender irrevocably authorize the Collateral Agent, in such
capacity, (i) to take such action on their behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto and (ii) to enter into any
and all of the Security Documents (including, for the avoidance of doubt, the Intercreditor
Agreement) together with such other documents as shall be necessary to give effect to (x) the
ranking and priority of Indebtedness contemplated by the Intercreditor Agreement and (y) the
Collateral contemplated by the other Security Documents, on its behalf. For the avoidance of
doubt, each Lender agrees to be bound by the terms of the Intercreditor Agreement to the same
extent as if it were a party thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with the Administrative Agent, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the Collateral Agent.
(c) The Syndication Agent, in its capacity as such, shall not have any obligations, duties
or responsibilities under this Agreement but shall be entitled to all benefits of this
Section 13.
13.2 Delegation of Duties. Administrative Agent may perform any and all of its duties
and exercise its rights and powers under this Agreement or under any other Credit Document by or
through any one or more sub-agents appointed by Administrative Agent. Administrative Agent and any
such sub-agent may perform any and all of its duties and exercise its rights and powers by or
through their respective Affiliates. The exculpatory, indemnification and other provisions of this
Section 13.2 and of Section 13.7 shall apply to any of the Affiliates of Administrative Agent and
shall apply to their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent. All of the rights,
benefits, and privileges (including the exculpatory and indemnification provisions) of this Section
13 and Section 14.5 shall apply to any such sub-agent and to the Affiliates of any such sub-agent,
and shall apply to their respective activities as sub-agent as if such sub-agent and Affiliates
were named herein. Notwithstanding anything herein to the contrary, with respect to each sub-agent
appointed by the Administrative Agent, (i) such sub-agent shall be a third party beneficiary under
this Agreement with respect to all such rights, benefits and privileges (including exculpatory
rights and rights to indemnification) and shall have all of the rights and benefits of a third
party beneficiary, including an independent right of action to enforce such rights, benefits and
privileges (including exculpatory rights and rights to
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indemnification) directly, without the consent or joinder of any other Person, against any or
all of the Borrower and the Lenders, (ii) such rights, benefits and privileges (including
exculpatory rights and rights to indemnification) shall not be modified or amended without the
consent of such sub-agent, and (iii) such sub-agent shall only have obligations to Administrative
Agent and not to Borrower, Lender or any other Person and neither Borrower nor any Lender or any
other Person shall have any rights, directly or indirectly, as a third party beneficiary or
otherwise, against such sub-agent.
13.3 General Immunity. (a) No Responsibility for Certain Matters. No Agent
shall be responsible to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or made in any written
or oral statements or in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf of Borrower, or
for the financial condition or business affairs of Borrower, nor shall any Agent be required to
ascertain or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Credit Documents or as to the use of
the proceeds of the Loans or as to the existence or possible existence of any Event of Default or
Default or to make any disclosures with respect to the foregoing other than to the extent required
under this Agreement. Anything contained herein to the contrary notwithstanding, Administrative
Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or
the component amount thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors,
employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under
or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection herewith or any of the
other Credit Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders (or such other Lenders as may be required to give such instructions
under Section 14.1) and, upon receipt of such instructions from Required Lenders (or such other
Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance with such
instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or sent by the proper
Person or Persons and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Borrower and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against any Agent as a result of such Agent acting or (where so instructed)
refraining from acting hereunder or any of the other Credit Documents in accordance with the
instructions of Required Lenders (or such other Lenders as may be required to give such
instructions under Section 14.1)
13.4 Reliance by Agents. The Administrative Agent and the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice,
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consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order
or other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the
Lender specified in the Register with respect to any amount owing hereunder as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have
been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this Agreement or any other
Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as
it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense that may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
13.5 Notice of Default. Neither the Administrative Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a “notice of default”.
In the event that the Administrative Agent receives such a notice, it shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders, provided that unless
and until the Administrative Agent shall have received such directions, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the best interests of the
Lenders (except to the extent that this Agreement requires that such action be taken only with the
approval of the Required Lenders or each of the Lenders, as applicable).
13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor
any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the Administrative Agent or the
Collateral Agent hereinafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Administrative Agent or the Collateral
Agent to any Lender. Each Lender represents to the Administrative Agent and the Collateral Agent
that it has, independently and without reliance upon the Administrative Agent, the Collateral Agent
or any other Lender, and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it will, independently
and without reliance upon the Administrative Agent, the Collateral Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the time, continue to make
its own credit analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Credit Documents, and to make
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such investigation as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by the Administrative
Agent hereunder, neither the Administrative Agent nor the Collateral Agent shall have any duty or
responsibility to provide any Lender with any credit or other information concerning the business,
assets, operations, properties, financial condition, prospects or creditworthiness of the Borrower
that may come into the possession of the Administrative Agent or the Collateral Agent any of their
respective officers, directors, employees, agents, attorneys-in-fact or Affiliate.
13.7 Indemnification. The Lenders agree to indemnify the Administrative Agent and the
Collateral Agent and any sub-agent thereof, each in its capacity as such (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective portions of the Total Credit Exposure in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance
with their respective portions of the Total Credit Exposure in effect immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including legal fees and costs), expenses or disbursements of any kind
whatsoever that may at any time (including at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent or
such sub-agent in any way relating to or arising out of, the Commitments, this Agreement, any of
the other Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Administrative
Agent or the Collateral Agent or such sub-agent under or in connection with any of the foregoing,
provided that no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent’s or the Collateral Agent’s or such
sub-agent’s gross negligence or willful misconduct. The agreements in this Section 13.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
13.8 Agents in their Individual Capacity. The agency hereby created shall in no way
impair or affect any of the rights and powers of, or impose any duties or obligations upon, any
Agent or any sub-agent thereof in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans and the Letters of Credit, each Agent and any sub-agent thereof
shall have the same rights and powers hereunder as any other Lender and may exercise the same as if
it were not performing the duties and functions delegated to it hereunder, and the term “Lender”
shall, unless the context clearly otherwise indicates, include each Agent or any sub-agent thereof
in its individual capacity. Any Agent or any sub-agent thereof and its respective Affiliates may
accept deposits from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with Borrower or any of its Affiliates as if
it were not performing the duties specified herein, and may accept fees and other consideration
from the Borrower for services in connection herewith and otherwise without having to account for
the same to Lenders.
13.9 Successor Agents. The Administrative Agent may resign as Administrative Agent
and the Collateral Agent may resign as Collateral Agent upon 20 days’ prior written notice to the
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Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent or
the Collateral Agent shall resign as Collateral Agent under this Agreement and the other Credit
Documents, then the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent or successor Collateral Agent, as applicable, which successor agent in each
case, shall be approved by the Borrower (which approval shall not be unreasonably withheld) so long
as no Default or Event of Default is continuing, whereupon such successor agent shall succeed to
the rights, powers and duties of the Administrative Agent or the Collateral Agent, as the case may
be, and the term “Administrative Agent” or “Collateral Agent”, as the case may be, shall mean such
successor agent effective upon such appointment and approval, and the former Administrative Agent’s
or Collateral Agent’s rights, powers and duties as Administrative Agent or Collateral Agent, as the
case may be, shall be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent, as the case may be, or any of the parties to this
Agreement or any holders of the Loans. After any retiring Administrative Agent’s or Collateral
Agent’s resignation as Administrative Agent or Collateral Agent, as the case may be, the provisions
of this Section 13 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent under this Agreement and the
other Credit Documents.
13.10 Withholding Tax. To the extent required by any applicable law, the
Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to
any applicable withholding tax. If the Internal Revenue Service or any authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to notify the
Administrative Agent of a change in circumstances which rendered the exemption from, or reduction
of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the
Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts
paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties
and interest, together with all expenses incurred, including legal expenses, allocated staff costs
and any out of pocket expenses.
13.11 REPORTS AND FINANCIAL STATEMENTS; DISCLAIMER BY LENDERS. By signing this
Agreement, each Lender:
(a) is deemed to have requested that the Agents furnish such Lender, promptly after it
becomes available, (i) a copy of all financial statements to be delivered by the Borrower
hereunder, (ii) a copy of any notice of Default or Event of Default received by such Agent
and (iii) a copy of each Report;
(b) expressly agrees and acknowledges that no Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for any information
contained in any Report;
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(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that the Agent or other party performing any audit or examination will inspect
only specific information regarding the Borrower and will rely significantly upon the
Borrower’s books and records, as well as on representations of the Borrower’s personnel;
(d) agrees to keep all Reports confidential in accordance with Section 14.16;
and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold the Agents and any such other Person or Lender preparing a Report
harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may
reach or draw from any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender’s
participation in, or the indemnifying Lender’s purchase of, a loan or loans of the Borrower; and
(ii) to pay and protect, and indemnify, defend, and hold the Agents and any such other Person or
Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses, and other amounts (including reasonable costs of counsel) incurred by the Agents
and any such other Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.
SECTION 14. Miscellaneous
14.1 Amendments and Waivers. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with
the provisions of this Section 14.1. The Required Lenders may, or, with the written
consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into
with Borrower written amendments, supplements or modifications hereto and to the other Credit
Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents
or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this Agreement or the other
Credit Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification shall
directly (i) forgive or reduce any portion of any Loan or extend the final scheduled maturity date
of any Loan or reduce the stated rate (it being understood that only the consent of the Required
Lenders shall be necessary to waive any obligation of the Borrower to pay interest at the “default
rate” or amend Section 2.8(c)), or forgive or reduce any portion, or extend the date for
the payment, of any interest or fee payable hereunder (other than as a result of waiving the
applicability of any post-default increase in interest rates), or extend the final expiration date
of any Lender’s Commitment, or increase the aggregate amount of the Commitments of any Lender, or
amend or modify any provisions of Section 5.3(a) (with respect to the ratable allocation of
any payments only), 2.4 (with respect to the ratable disbursement of funds), 3 and
14.8(a), in each case without the written consent of each Lender directly and adversely
affected thereby, or (ii) amend, modify or waive any provision of this Section 14.1 or
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reduce the percentages specified in the definitions of the term “Required Lenders” or consent
to the assignment or transfer by the Borrower of its rights and obligations under any Credit
Document to which it is a party, in each case without the written consent of each Lender directly
and adversely affected thereby, or (iii) amend, modify or waive any provision of Section 13
without the written consent of the then-current Administrative Agent, or, (iv) release all or
substantially all of the Collateral under the Security Agreement or the Pledge Agreement without
the prior written consent of each Lender, or (v) amend Section 2.9 so as to permit Interest
Period intervals greater than six months without regard to availability to Lenders, without the
written consent of each Lender directly and adversely affected thereby; or (vi) amend, modify or
waive any provisions hereof relating to the Administrative Agent in a manner that directly and
adversely affects it rights and obligations hereunder without the written consent of the
Administrative Agent; or (x) amend, modify or waive any provisions hereof relating to the
Collateral Agent in a manner that directly and adversely affects it rights and obligations
hereunder without the written consent of the Collateral Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the affected Lenders and shall
be binding upon the Borrower, such Lenders, the Administrative Agent and all future holders of the
affected Loans. In the case of any waiver, the Borrower, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the other Credit
Documents, and any Default or Event of Default waived shall be deemed to be cured and not
continuing, it being understood that no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender (it being
understood that any Commitments or Loans held or deemed held by any Defaulting Lender shall be
excluded for a vote of the Lenders hereunder requiring any consent of the Lenders).
Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with
the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add
one or more additional credit facilities to this Agreement and to permit the extensions of credit
from time to time outstanding thereunder and the accrued interest and fees in respect thereof to
share ratably in the benefits of this Agreement and the other Credit Documents with the Term Loans
and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders
holding such credit facilities in any determination of the Required Lenders and other definitions
related to such new Term Loans.
In addition, notwithstanding the foregoing, this Agreement may be amended with the written
consent of the Administrative Agent, the Borrower and the Lenders providing the relevant
Replacement Term Loans (as defined below) to permit the refinancing of all outstanding Term Loans
(“Refinanced Term Loans”) with a replacement term loan tranche (“Replacement Term
Loans”) hereunder; provided that (a) the aggregate principal amount of such Replacement
Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the
Applicable Margin for such Replacement Term Loans shall not be higher than the Applicable Margin
for such Refinanced Term Loans, (c) the weighted average life to maturity of such Replacement Term
Loans shall not be shorter than the weighted average life to maturity of such
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Refinanced Term Loans at the time of such refinancing (except to the extent of nominal
amortization for periods where amortization has been eliminated as a result of prepayment of the
applicable Term Loans) and (d) all other terms applicable to such Replacement Term Loans shall be
substantially identical to, or less favorable to the Lenders providing such Replacement Term Loans
than those applicable to such Refinanced Term Loans, except to the extent necessary to provide for
covenants and other terms applicable to any period after the latest final maturity of the Term
Loans in effect immediately prior to such refinancing.
14.2 Notices. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder or under any other Credit Document shall be in writing
(including by facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the applicable address, facsimile number or electronic mail address, and all notices
and other communications expressly permitted hereunder to be given by telephone shall be made to
the applicable telephone number, as follows:
(a) if to the Borrower or the Administrative Agent, to the address, facsimile number,
electronic mail address or telephone number specified for such Person on Schedule
14.2 or to such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other parties; and
(b) if to any other Lender, to the address, facsimile number, electronic mail address
or telephone number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be designated by such
party in a notice to the Borrower or the Administrative Agent.
All such notices and other communications shall be deemed to be given or made upon the earlier to
occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by
courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail,
three (3) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail,
when delivered; provided that notices and other communications to the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, and 5.1 shall not be effective until received.
14.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
14.4 Survival of Representations and Warranties. All representations and warranties
made hereunder, in the other Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the making of the Loans hereunder.
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14.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the
Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Credit Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable fees, disbursements and other charges of
Latham & Watkins LLP, one local counsel in each relevant local jurisdiction and such additional
counsel to the extent consented to by the Borrower, (b) to pay or reimburse each Lender, and Agent
for all its reasonable and documented costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Credit Documents and any
such other documents, including the reasonable fees, disbursements and other charges of one counsel
to the Administrative Agent, Collateral Agent and the other Agents (unless there is an actual or
perceived conflict of interest in which case each such Person may retain its own counsel), (c) to
pay, indemnify, and hold harmless each Lender, and Agent from, any and all recording and filing
fees and (d) to pay, indemnify, and hold harmless each Lender, and Agent and their respective
directors, officers, employees, trustees, investment advisors and agents from and against any and
all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including reasonable and documented
fees, disbursements and other charges of one primary counsel and one local counsel in each relevant
jurisdiction to such indemnified Persons (unless there is an actual or perceived conflict of
interest or the availability of different claims or defenses in which case each such Person may
retain its own counsel), related to the Dividend Transactions or with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the other Credit Documents
and any such other documents, including, without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any Environmental Law or to any actual or
alleged presence, release or threatened release of Hazardous Materials or any other Environmental
Claims involving or attributable to the operations of the Borrower, any of its Subsidiaries or any
of the Real Estate (all the foregoing in this clause (d), collectively, the “indemnified
liabilities”), provided that the Borrower shall have no obligation hereunder to the
Administrative Agent or any Lender nor any of their Related Parties with respect to indemnified
liabilities to the extent attributable to the bad faith, gross negligence or willful misconduct of,
or material breach of the Credit Documents by, the party to be indemnified or any of its Related
Parties. All amounts payable under this Section 14.5 shall be paid within ten (10) Business Days
of receipt by the Borrower of an invoice relating thereto setting forth such expense in reasonable
detail. No Person indemnified under this Section 14.5 shall be liable for any special, indirect,
consequential or punitive damages relating to this Agreement or any other Credit Document or
arising out of its activities in connection herewith or therewith. The agreements in this Section
14.5 shall survive repayment of the Loans and all other amounts payable hereunder
14.6 Successors and Assigns; Participations and Assignments(a) . (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that (i) the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the Borrower or
without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this Section 14.6. Nothing
in this
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Agreement, expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby, Participants (to
the extent provided in paragraph (c) of this Section 14.6), pledges to the extent
provided in paragraph (d) of this Section 14.6 and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (which consent shall not be unreasonably withheld or
delayed; provided that it being understood that, without limitation,
the Borrower shall have the right to withhold its consent to any assignment
if, in order for such assignment to comply with applicable law, the Borrower
would be required to obtain the consent of, or make any filing or
registration with, any Governmental Authority), provided that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund (unless increased costs would result
therefrom at any time when no Event of Default under Section 11.1 or
Section 11.5 is continuing) or, if an Event of Default under
Section 11.1 or Section 11.5 has occurred and is continuing,
any other assignee;
(B) the Administrative Agent (which consent shall not be unreasonably
withheld or delayed); provided that no consent of the Administrative
Agent shall be required for an assignment to a Lender, an Affiliate of a
Lender, or an Approved Fund, or, in the case of assignments in connection
with the initial syndication of Commitments and Loans only, the Co-Lead
Arrangers.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Affiliate of a
Lender or an Approved Fund or an assignment of the entire remaining amount
of the assigning Lender’s Commitment or Loans, or assignments in connection
with the initial syndication of Commitments and Loans (in amounts, and to
such Persons, as previously agreed between the Borrower and the Co-Lead
Arrangers), the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000, and increments of
$1,000,000 in excess thereof, unless each of the Borrower and the
Administrative Agent otherwise consents (which consents shall not be
unreasonably withheld or delayed), provided that no such
consent of the Borrower shall be required if an Event of Default
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under Section 11.1 or Section 11.5 has occurred and is
continuing; provided, further, that contemporaneous
assignments to a single assignee made by Affiliates of Lenders and related
Approved Funds or by a single assignor made to Affiliates or related
Approved Funds shall be aggregated for purposes of meeting the minimum
assignment amount requirements stated above;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender’s rights and obligations
under this Agreement;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500, provided that only one
such fee shall be payable in the event of simultaneous assignments to or
from two or more Approved Funds;
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire in a form approved by
the Administrative Agent (the “Administrative Questionnaire”);
(E) neither Sponsor nor any Affiliate of Borrower or Sponsor other than
any Sponsor Affiliated Lender or Sponsor Affiliated Institutional Lender may
be a permitted assignee (and Administrative Agent shall not consent to any
such other Person); and
(F) the Assignment and Acceptance with respect to each assignment
involving a Sponsor Affiliated Lender or a Sponsor Affiliated Institutional
Lender shall include the provisions described in the definitions thereof;
and
(G) the Assignment and Acceptance with respect to each Borrower
Purchase and each Sponsor Purchase shall include a representation that
Borrower or Sponsor Affiliated Lender shall comply with the provisions of
Section 3 hereof.
For the purpose of this Section 14.6(b), the term “Approved Fund” means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the ordinary
course and that is administered, advised or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that
administers, advises or manages a Lender.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v)
of this Section 14.6, from and after the effective date specified in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning
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Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease to be
a party hereto but shall continue to be entitled to the benefits of Sections
2.10, 2.11, 5.4 and 14.5). Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
Section 14.6 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this Section 14.6.
(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower shall maintain at the Administrative Agent’s Office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of the
names and addresses of the Lenders, and the Commitments of, and principal amount of
the Loans, each Lender pursuant to the terms hereof from time to time (the
“Register”). Further, the Register shall contain the name and address of
the Administrative Agent and the lending office through which each such Person acts
under this Agreement. The entries in the Register shall be conclusive absent
manifest error, and the Borrower, the Administrative Agent and the Lenders shall
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement. The Register shall
be available for inspection by the Borrower or any Lender (with respect to any entry
relating to such Lender’s Loans) at any reasonable time and from time to time upon
reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section
14.6, and any written consent to such assignment required by paragraph (b) of
this Section 14.6, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.
(c) (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(each, a “Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitments and
the Loans owing to it), provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and
(C) the Borrower, the Administrative Agent, and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender’s rights
and obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain the
sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement or any other Credit Document,
provided that such agreement or instrument may provide
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that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
14.1 under subsections (i) and (iv) that affects such Participant. Subject to
paragraph (c)(ii) of this Section 14.6, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.10, 2.11
and 5.4 to the same extent as if it were a Lender (subject to the
requirements of those Sections) and had acquired its interest by assignment pursuant
to paragraph (b) of this Section 14.6. To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 14.8(b) as
though it were a Lender, provided such Participant agrees to be subject to
Section 14.8(a) as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.10 or 5.4 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale
of the participation to such Participant is made with the Borrower’s prior written
consent (which consent shall not be unreasonably withheld).
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any
time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 14.6 shall not apply to any such
pledge or assignment of a security interest, provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto. In order to facilitate such
pledge or assignment, the Borrower hereby agrees that, upon request of any Lender at any time and
from time to time after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrower’s own expense, a promissory note, substantially in the
form of Exhibit L evidencing the Term Loans, respectively, owing to such Lender.
(e) Subject to Section 14.16, the Borrower authorizes each Lender to disclose to any
Participant, secured creditor of such Lender or assignee (each, a “Transferee”) and any
prospective Transferee any and all financial information in such Lender’s possession concerning
the Borrower and its Affiliates that has been delivered to such Lender by or on behalf of the
Borrower and its Affiliates pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower and its Affiliates in connection with such Lender’s credit
evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement.
14.7 Replacements of Lenders under Certain Circumstances(a) . (a) The Borrower
shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing
pursuant to Section 2.10, 3.5 or 5.4, (b) is affected in the manner described in
Section 2.10(a)(iii) and as a result thereof any of the actions described in such Section
is required to be taken or (c) becomes a Defaulting Lender, with a replacement bank or other
financial institution, provided that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of
such replacement, (iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts (other than any disputed amounts), pursuant to
Section 2.10, 2.11 or 5.4, as
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the case may be) owing to such replaced Lender prior to the date of replacement, (iv) the
replacement bank or institution, if not already a Lender, and the terms and conditions of such
replacement, shall be reasonably satisfactory to the Administrative Agent, (v) the replaced
Lender shall be obligated to make such replacement in accordance with the provisions of
Section 14.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein) and (vi) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other
Lender shall have against the replaced Lender.
(b) If any Lender (such Lender, a “Non-Consenting Lender”) has failed to consent to
a proposed amendment, waiver, discharge or termination which pursuant to the terms of Section
14.1 requires the consent of all of the Lenders affected and with respect to which the
Required Lenders shall have granted their consent, then provided no Event of Default then exists,
the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) to
replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans,
and its Commitments hereunder to one or more assignees reasonably acceptable to the
Administrative Agent, provided that: (a) all Obligations of the Borrower owing to such
Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender
concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by
paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued
and unpaid interest thereon and (c) the replacement Lender shall grant such consent. In
connection with any such assignment, the Borrower, Administrative Agent, such Non-Consenting
Lender and the replacement Lender shall otherwise comply with Section 14.6;
provided, that the Borrower or replacement Lender shall be obligated to pay the
registration and processing fee referred to therein.
14.8 Adjustments; Set-off(a) . (a) If any Lender (a “benefited Lender”)
shall at any time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 11.5, or
otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender’s Loans, or interest thereon, such benefited
Lender shall purchase for cash from the other Lenders a participating interest in such portion of
each such other Lender’s Loan, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded,
and the purchase price and benefits returned, to the extent of such recovery, but without
interest. For the avoidance of doubt, the parties hereto agree that the provisions of this
Section 14.8(a) shall not be construed to apply to (i) any payment made by Borrower pursuant to
and in accordance with Section 3 of this Agreement and (ii) any payment obtained by any
Lender as consideration for the assignment or sale of a participation in any of its Loans or
other Obligations owed to it.
(b) After the occurrence and during the continuance of an Event of Default, in addition to
any rights and remedies of the Lenders provided by law, each Lender shall have the right, without
prior notice to the Borrower, any such notice being expressly waived by the
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Borrower to the extent permitted by applicable law, subject to the consent of the
Administrative Agent (such consent not to be unreasonably withheld) upon any amount becoming due
and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly
to notify the Borrower and the Administrative Agent after any such set-off and application made
by such Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
14.9 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Administrative Agent.
14.10 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.11 Integration. This Agreement and the other Credit Documents represent the
agreement of the Borrower, the Collateral Agent, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings, representations or
warranties by the Borrower, the Administrative Agent, the Collateral Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the other Credit
Documents.
14.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
14.13 Submission to Jurisdiction; Waivers. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of
the courts of the State of New York, the courts of the United States of America for the
Southern District of New York and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
86
action or proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such Person at its address set forth on Schedule 14.2 at
such other address of which the Administrative Agent shall have been notified pursuant to
Section 14.2;
(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 14.13 any
special, exemplary, punitive or consequential damages.
14.14 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor the Collateral Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in connection with
this Agreement or any of the other Credit Documents, and the relationship between
Administrative Agent, the Collateral Agent and Lenders, on one hand, and the Borrower, on
the other hand, in connection herewith or therewith is solely that of debtor and creditor;
and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders or among the
Borrower and the Lenders.
14.15 WAIVERS OF JURY TRIAL. THE BORROWER, EACH AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.16 Confidentiality. The Administrative Agent and each Lender shall hold all
non-public information furnished by or on behalf of the Borrower in connection with such Lender’s
evaluation of whether to become a Lender hereunder or obtained by such Lender or the Administrative
Agent pursuant to the requirements of this Agreement (“Confidential Information”),
confidential in accordance with its customary procedure for handling confidential information of
this nature and (in the case of a Lender that is a bank) in accordance with safe and sound banking
practices and in any event may (i) make disclosure as required or requested by any governmental
agency or representative thereof or pursuant to legal process or to such Lender’s or the
Administrative Agent’s attorneys, professional advisors or independent auditors
87
or Affiliates, provided that unless specifically prohibited by applicable law or court
order, each Lender and the Administrative Agent shall notify the Borrower of any request by any
governmental agency or representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental agency or other routine
examinations of such Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information, and
provided, further, that in no event shall
any Lender or the Administrative Agent be obligated or required to return any materials furnished
by the Borrower or any Subsidiary of the Borrower, (ii) make disclosures of such information
reasonably required by any bona fide or potential assignee, transferee or participant in connection
with the contemplated assignment, transfer or participation by such Lender of any Loans or any
participations therein or by any pledgees referred to in Section 14.16(d) or by direct or indirect
contractual counterparties (or the professional advisors thereto) in Hedge Agreements (provided,
such assignees, transferees, participants, pledgees, counterparties and advisors are advised of and
agree to be bound by provisions that in substance are the equivalent to those in this Section
14.16), (iii) make disclosure of such information reasonably required by any lender or other Person
providing financing to such Lender (provided such lenders or other Persons are advised of the
confidential nature of such information and agree to keep such information confidential on terms
consistent with this Section 14.16), and (iv) make disclosure to any rating agency,
provided that, prior to any disclosure, such rating agency shall undertake in writing to
preserve the confidentiality of any Confidential Information received by it from any of the Agents
or any Lender.
14.17 Direct Website Communications.
(a)
(i) The Borrower may, at its option, provide to the Administrative Agent
any information, documents and other materials that it is obligated to furnish
to the Administrative Agent pursuant to the Credit Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (A) relates to a request for a new, or a conversion of an
existing, borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto), (B) relates to the payment of
any principal or other amount due under the Credit Agreement prior to the scheduled
date therefor, (C) provides notice of any default or event of default under the
Credit Agreement or (D) is required to be delivered to satisfy any condition
precedent to the effectiveness of the Credit Agreement and/or any borrowing or other
extension of credit thereunder (all such non-excluded communications being referred
to herein collectively as “Communications”), by transmitting the
Communications in an electronic/soft medium in a format reasonably acceptable to the
Administrative Agent to lpgloans@lehman.com or such other email address as disclosed
in writing to the Borrower. Nothing in this Section 14.17 shall prejudice
the right of the Borrower, the Administrative Agent or any Lender to give any notice
or other communication pursuant to any Credit Document in any other manner specified
in such Credit Document.
(ii) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above
88
shall constitute effective delivery of the Communications to the Administrative
Agent for purposes of the Credit Documents. Each Lender agrees that notice to it
(as provided in the next sentence) specifying that the Communications have been
posted to the Platform shall constitute effective delivery of the Communications to
such Lender for purposes of the Credit Documents. Each Lender agrees (A) to notify
the Administrative Agent in writing (including by electronic communication) from
time to time of such Lender’s e-mail address to which the foregoing notice may be
sent by electronic transmission and (B) that the foregoing notice may be sent to
such e-mail address.
(b) The Borrower further agrees that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on Intralinks or a substantially similar
electronic transmission system (the “Platform”), so long as the access to such Platform
is limited (i) to the Agents and the Lenders and (ii) remains subject the confidentiality
requirements set forth in Section 14.16.
(c) The Platform is provided “as is” and “as available.” The Agent Parties do not warrant
the accuracy or completeness of the Communications, or the adequacy of the platform and expressly
disclaim liability for errors or omissions in the Communications. No warranty of any kind,
express, implied or statutory, including, without limitation, any warranty of merchantability,
fitness for a particular purpose, non-infringement of third party rights or freedom from viruses
or other code defects, is made by the Agent Parties in connection with the Communications or the
platform. In no event shall the Administrative Agent, the Collateral Agent or any of its
affiliates or any of their respective officers, directors, employees, agents, advisors or
representatives (collectively, “Agent Parties”) have any liability to the Borrower, any
Lender or any other person or entity for damages of any kind, including, without limitation,
direct or indirect, special, incidental or consequential damages, losses or expenses (whether in
tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s
transmission of Communications through the internet, except to the extent the liability of any
Agent Party resulted from such Agent Party’s (or any of its Related Parties) gross negligence,
bad faith or willful misconduct or material breach of the Credit Documents.
(d) The Borrower and each Lender acknowledge that certain of the Lenders may be
“public-side” Lenders (Lenders that do not wish to receive material non-public information with
respect to the Borrower, its Subsidiaries or their securities) and, if documents or notices
required to be delivered pursuant to the Credit Documents or otherwise are being distributed
through the Platform, any document or notice that the Borrower has indicated contains only
publicly available information with respect to the Borrower may be posted on that portion of the
Platform designated for such public-side Lenders. If the Borrower has not indicated whether a
document or notice delivered contains only publicly available information, the Administrative
Agent shall post such document or notice solely on that portion of the Platform designated for
Lenders who wish to receive material nonpublic information with respect to the Borrower, its
Subsidiaries and their securities. Notwithstanding the foregoing, the Borrower shall be under no
obligation under this Section 14.17 (d) to indicate any document or notice as containing only
publicly available information.
89
14.18 USA Patriot Act. Each Lender hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Patriot Act”), it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and other
information that will allow such Lender to identify the Borrower in accordance with the Patriot
Act.
[Signature Pages Follow]
90
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to
be duly executed and delivered as of the date first above written.
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive | |||
MCJUNKIN
RED MAN HOLDING CORPORATION
Credit Agreement
Credit Agreement
| LEHMAN COMMERCIAL PAPER INC., as Administrative
Agent and as Collateral Agent |
||||
| By: | /s/ LAURIE PERPER | |||
| Name: | Laurie Perper | |||
| Title: | Managing Director | |||
MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
| GOLDMAN SACHS CREDIT PARTNERS L.P., as Co-Lead Arranger, Joint Bookrunner and Syndication Agent |
||||
| By: | /s/ BRUCE MENDELSOHN | |||
| Name: | Bruce H. Mendelsohn | |||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
| LEHMAN BROTHERS INC., as Co-Lead Arranger and Joint Bookrunner | ||||
| By: | /s/ LAURIE PERPER | |||
| Name: | Laurie Perper | |||
| Title: | Managing Director | |||
MCJUNKIN RED
MAN HOLDING CORPORATION
Credit Agreement
| LEHMAN BROTHERS COMMERCIAL BANK, as a Lender |
||||
| By: | /s/ DARREN S. LANE | |||
| Name: | Darren S. Lane | |||
| Title: | Operations Officer | |||
MCJUNKIN RED MAN HOLDING CORPORATION
Credit Agreement
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Lender
| By: |
/s/ BRUCE MENDELSOHN
|
Name: BRUCE H. MENDELSOHN
Title: AUTHORIZED SIGNATORY
| By: |
Name:
Title:
MCJUNKIN RED MAN HOLDING CORPORATION
Credit Agreement
SCHEDULE
1.1(C) COMMITMENTS OF LENDERS
| Lender | Commitment Amount | ||||
|
LEHMAN BROTHERS COMMERCIAL BANK
|
$ | 157,500,000 | |||
|
GOLDMAN SACHS CREDIT PARTNERS L.P.
|
$ | 292,500,000 | |||
|
|
Total: $ | 450,000,000 | |||
SCHEDULE
1.1(D) — EXCLUDED SUBSIDIARIES
McJunkin
Receivables Corporation
Red Man Pipe & Supply International, Ltd.
Red Man Pipe & Supply International, Ltd.
SCHEDULE
1.1(E) — COST SAVINGS
Not
Applicable.
SCHEDULE 8.12 SUBSIDIARIES
| Material | |||||||||||
| Subsidiary | |||||||||||
| Name | Owner | Type | (Y/N) | ||||||||
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
McJunkin Red Man Holding Corporation |
corporation | Y | ||||||||
MRM West Virginia Management Company
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
MRM Oklahoma Management LLC
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
limited liability company |
N | ||||||||
McJunkin Appalachian Oilfield Supply Company |
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | Y | ||||||||
McJunkin Nigeria Limited
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
McJunkin Development Corporation
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
McJunkin-Puerto Rico Corporation
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
McJunkin Receivables Corporation
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
McJunkin-West Africa Corporation
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
Milton Oil & Gas Company
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
Greenbrier Petroleum Corporation
|
Milton Oil & Gas Company | corporation | N | ||||||||
Ruffner Realty Company
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | N | ||||||||
Midway-Tristate Corporation
|
McJunkin Appalachian Oilfield Supply Company |
corporation | Y | ||||||||
West Oklahoma PVF Company
|
McJunkin Red Man Corporation (f/k/a McJunkin Corporation) |
corporation | Y | ||||||||
McJunkin de Angola, Lda
|
McJunkin — West Africa Corporation (49%)/McJunkin Development Corporation (51%) | limited liability company |
N | ||||||||
Red Man Pipe & Supply Co.
|
West Oklahoma PVF Company | corporation | Y | ||||||||
Wesco Acquisition Partners, Inc.
|
Red Man Pipe & Supply Co. | corporation | N | ||||||||
Red Man Pipe and Supply Canada, Ltd.
|
Red Man Pipe & Supply Co. | corporation | Y | ||||||||
Midfield Supply ULC
|
Red Man Pipe and Supply Canada, Ltd. | corporation | Y | ||||||||
Midfield Supply USA, Ltd.
|
Midfield Supply ULC | corporation | N | ||||||||
Mega Production Testing Inc.
|
Midfield Supply ULC | corporation | N | ||||||||
Northern Boreal Supply Ltd.
|
Midfield Supply ULC | corporation | N | ||||||||
Red Man Pipe & Supply
International, Ltd.
|
Red Man Pipe & Supply Co. | corporation | N | ||||||||
Hagan Oilfield Supply Ltd.
|
Midfield Supply ULC | corporation | N | ||||||||
1048025 Alberta Ltd.
|
Midfield Supply ULC | corporation | N | ||||||||
1236564 Alberta Ltd.
|
Midfield Supply ULC | corporation | N | ||||||||
SCHEDULE 9.9
— CLOSING DATE AFFILIATE TRANSACTIONS
None.
SCHEDULE 9.17(B)
POST CLOSING ITEMS
| 1. | The Borrower shall deliver to the Collateral Agent within five (5) Business Days after the Closing Date an original share certificate for 100 shares of McJunkin Red Man Corporation issued in favor of McJunkin Red Man Holding Corporation and, to the extent the stock power delivered to the Collateral Agent on the Closing Date does not accurately describe such share certificates, an executed stock power with respect to such share certificate. |
| 2. | Concurrently with the delivery of the share certificate described in paragraph 1 above, the Borrower shall deliver to the Collateral Agent an updated Perfection Certificate and Schedule 1 to the Pledge Agreement to reflect the new certificate number, in form and substance reasonably acceptable to Collateral Agent. |
Exhibit 10.7
TERM LOAN PLEDGE AGREEMENT
TERM LOAN PLEDGE AGREEMENT (this “Agreement”) dated as of May 22, 2008 between McJunkin Red
Man Holding Corporation, a Delaware corporation (the “Pledgor” or “Borrower”), and
Lehman Commercial Paper Inc., as Collateral Agent (in such capacity, the “Collateral
Agent”) under the Credit Agreement (as defined below) for the benefit of the Secured Parties
(as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower is party to the Term Loan Credit Agreement dated as of May 22, 2008 (as
the same may be amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”) among the Borrower, the lending institutions from
time to time party thereto (the “Lenders”), Lehman Commercial Paper Inc., as Administrative
Agent and as Collateral Agent, pursuant to which (1) the Lenders have severally agreed to make
Loans to the Borrower upon the terms and subject to the conditions set forth therein, and (2) one
or more Lenders or affiliates of Lenders may from time to time enter into Hedge Agreements with the
Borrower (the items in clauses (1) and (2) collectively, the “Extensions of Credit”);
WHEREAS, the proceeds of the Extensions of Credit will be used to enable the Borrower to fund
a dividend to the Investors;
WHEREAS, Pledgor acknowledges that it will derive substantial direct and indirect benefit from
the making of the Extensions of Credit;
WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective
Extensions of Credit to the Borrower under the Credit Agreement that the Borrower shall have
executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the
Secured Parties;
WHEREAS, (a) Pledgor is the legal and beneficial owner of the Equity Interests (as defined
below) described in Schedule 1 hereto and issued by the entities named therein (such Equity
Interests hereunder, the “Pledged Shares”), and (b) Pledgor is the legal and beneficial
owner of the Indebtedness (the “Pledged Debt”) described in Schedule 1 hereto and issued by
the entities named therein.
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Collateral Agent, the Syndication Agent, and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Extensions of Credit to the Borrower under the Credit
Agreement and to induce one or more Lenders or affiliates of Lenders to enter into Hedge Agreements
with the Borrower, the Pledgor hereby agrees with the Collateral Agent, for the benefit of the
Secured Parties, as follows:
SECTION 1. Defined Terms.
(a) Unless otherwise defined herein, all capitalized terms used herein (including the preamble
and recitals hereto) and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement or, if not defined therein, in the UCC.
(b) The following terms shall have the following meanings:
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Collateral” shall have the meaning provided in Section 2 hereof.
“Collateral Agent” shall have the meaning assigned to such term in the preamble
hereto.
“Credit Agreement” shall have the meaning assigned to such term in the recitals
hereto.
“Equity Interests” shall mean, collectively, Stock and Stock Equivalents.
“Extensions of Credit” shall have the meaning assigned to such term in the recitals
hereto.
“Lender Counterparty” means each Lender or any Affiliate of a Lender that is a
counterparty to a Hedge Agreement (including any Person that ceases to be a Lender (or any
Affiliate thereof) (a) on the date such Lender becomes a party to the Credit Agreement or (b) as of
the date such Hedge Agreement was entered into.
“Lenders” shall have the meaning assigned to such term in the recitals hereto.
“Obligations” shall mean the collective reference to (i) the due and punctual payment
of (x) the principal of and premium, if any, and interest at the applicable rate provided in the
Credit Agreement (including interest at the contract rate applicable upon default accrued or
accruing after the commencement of any proceeding, under the Bankruptcy Code or any applicable
provision of comparable state or foreign law, whether or not such interest is an allowed claim in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (y) each payment required to be made by Borrower under
the Credit Agreement, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and (z) all other
monetary obligations, including fees, costs, payments for early termination of Hedge Agreements,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any proceeding under the Bankruptcy
Code or any applicable provision of comparable state or foreign law, whether or not such interest
is an allowed claim in such proceeding), of Borrower to any of the Secured Parties under the Credit
Agreement and any other Credit Documents, (ii) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or
pursuant to the Credit Agreement and the other Credit Documents and (iii) the due and punctual
payment and performance of all obligations of the Borrowr under each Hedge Agreement that
(x) is in
effect on the Closing Date with a counterparty that is a Lender or an affiliate of a Lender as of
the Closing Date or (y) is entered into after the Closing Date with any counterparty that is a
Lender or an affiliate of a Lender at the time such Hedge Agreement is entered into.
“Pledged Debt” shall have the meaning assigned to such term in the recitals hereto.
“Pledged Shares” shall have the meaning assigned to such term in the recitals hereto.
“Pledgor” shall have the meaning assigned to such term in the preamble hereto.
“Proceeds” shall mean: (i) all “proceeds” as defined in Article 9 of the UCC and (ii)
whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary, including proceeds of
any indemnity or guarantee payable to Pledgor or the Collateral Agent from time to time with
respect to any of the Collateral.
“Secured Parties” shall mean, collectively, (i) the Lenders, (ii) the Administrative
Agent, (iii) the Collateral Agent, (iv) the Syndication Agent, (v) each Lender Counterparty party
to a Hedge Agreement the obligations under which constitute Obligations, (vi) the beneficiaries of
each indemnification obligation undertaken by the Borrower under the Credit Documents and (vii) any
successors, indorsees, transferees and assigns of each of the foregoing.
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in the
State of New York; provided, however, that, in the event that, by reason of mandatory provisions of
law, any of the attachment, perfection or priority of the Collateral Agent’s and the Secured
Parties’ security interest in any Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of definitions related to such
provisions.
(c) References to “Lenders” in this Agreement shall be deemed to include affiliates of Lenders
that may from time to time enter into Hedge Agreements with the Borrower.
(d) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section references are to Sections of this Agreement unless otherwise specified.
The words “include,” “includes” and “including” shall be deemed to be followed by the phrase
“without limitation.”
(e) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
SECTION 2. Grant of Security. Pledgor hereby transfers, assigns and pledges to the Collateral Agent, for the ratable benefit
of the Secured Parties, and grants to the Collateral Agent, for the benefit of the Secured Parties,
a security interest in and continuing lien on all of Pledgor’s right, title and interest in, to and
under the following, whether now owned or existing or at any time hereafter acquired or existing or
arising (collectively, the “Collateral”):
(a) the Pledged Shares held by Pledgor and the certificates representing such Pledged Shares
and any interest of Pledgor in the entries on the books or records of the issuer of such Pledged
Shares or on the books or records of any financial intermediary pertaining to such Pledged Shares
and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange for any or all of
the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt owed to Pledgor, and all
interest, cash, instruments and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of such Pledged Debt; and
(c) to the extent not covered by clauses (a) and (b) above, respectively, all Proceeds of any
or all of the foregoing Collateral.
SECTION 3. Security for Obligations This Agreement secures the payment of all the
Obligations. Without limiting the generality of the foregoing, this Agreement secures the payment
of all amounts that constitute part of the Obligations and would be owed to the Collateral Agent or
the Secured Parties under the Credit Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving
Pledgor.
SECTION 4. Delivery of the Collateral All original stock certificates or instruments,
if any, representing or evidencing the Collateral shall be promptly delivered to and held by or on
behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to the Collateral Agent. The Collateral Agent
shall have the right, at any time after the occurrence and during the continuance of an Event of
Default and with notice to the relevant Pledgor, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Pledged Shares. Each delivery of
Collateral shall be accompanied by a schedule describing the securities theretofore and then being
pledged hereunder, which shall be attached hereto as part of Schedule 1 and made a part hereof;
provided that the failure to deliver or attach any such schedule hereto shall not affect
the validity of such pledge of such securities; provided, further, that the failure
by the Collateral Agent to attach any schedule so delivered shall not constitute a Default or Event
of Default hereunder or under any other Credit Document . Each schedule so delivered shall
supersede any prior schedules so delivered.
SECTION 5. Representations and Warranties. Pledgor represents and warrants to the Collateral Agent and each other Secured Party as
follows:
(a) Schedule 1 hereto (i) correctly represents as of the Closing Date (A) the issuer, the
certificate number, the Pledgor and the record and beneficial owner, the number and class and the
percentage of the issued and outstanding Equity Interests of such class of all Pledged Shares and
(B) the issuer, the initial principal amount, the Pledgor and holder, date of issuance and maturity
date of all Pledged Debt, and (ii) together with the comparable schedule to each supplement hereto,
accurately and completely describes all Equity Interests, debt securities and
promissory notes
required to be pledged hereunder. Except as set forth on Schedule 1, the Pledged Shares represent
all (or 65% in the case of pledges of Foreign Subsidiaries) of the issued and outstanding Equity
Interests of each class of Equity Interests in the issuer on the Closing Date.
(b) Pledgor is the legal and beneficial owner of the Collateral pledged or assigned by Pledgor
hereunder, free and clear of any Lien, except for the Lien created by this Agreement.
(c) As of the Closing Date, the Pledged Shares pledged by Pledgor hereunder have been duly
authorized and validly issued and, in the case of Pledged Shares issued by a corporation, are fully
paid and non-assessable.
(d) As of the Closing Date, all of the Pledged Debt, to the knowledge of Pledgor only with
respect to Pledged Debt owed by an issuer, has been duly authorized, authenticated or issued, and
delivered, and is the legal, valid and binding obligation of the issuers thereof and is not in
default.
(e) The execution and delivery by Pledgor of this Agreement and the pledge of the Collateral
pledged by Pledgor hereunder pursuant hereto create a legal, valid and enforceable security
interest in such Collateral and, upon the earlier of (i) delivery of such Collateral to the
Collateral Agent in the State of New York or (ii) the filing of all UCC financing statements naming
Pledgor as “debtor” and the Collateral Agent as “secured party” and describing the Collateral in
the filing offices set forth opposite Pledgor’s name on Schedule 5(e) hereto, shall constitute a
fully perfected Lien on and first priority security interest in the Collateral, securing the
payment of the Obligations, in favor of the Collateral Agent for the benefit of the Secured
Parties, except as enforceability thereof may be limited by bankruptcy, insolvency or other similar
laws affecting creditors’ rights generally and subject to general principles of equity.
(f) Pledgor has full power, authority and legal right to pledge all the Collateral pledged by
Pledgor pursuant to this Agreement, and this Agreement constitutes a legal, valid and binding
obligation of Pledgor, enforceable in accordance with its terms, except as enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights
generally and subject to general principles of equity.
SECTION 6. Certification of Limited Liability Company and Limited Partnership
Interests. The Equity Interests in any Person that is organized as a limited liability company
or limited partnership and pledged hereunder shall be represented by a certificate and in the
organizational documents of such Person, the Pledgor shall cause the issuer of such interests
to elect to treat such interests as a “security” within the meaning of Article 8 of the UCC of its
jurisdiction of organization or formation, as applicable, by including in its organizational
documents language substantially similar to the following and, accordingly, such interests shall be
governed by Article 8 of the UCC:
“The Partnership/Company hereby irrevocably elects that all membership interests in the
Partnership/Company shall be securities governed by Article 8 of the Uniform Commercial Code of
[jurisdiction of organization or formation, as applicable]. Each certificate evidencing
partnership/membership interests in the Partnership/Company shall bear the following legend:
“This
certificate evidences an interest in [name of Partnership/LLC] and shall be a security for purposes
of Article 8 of the Uniform Commercial Code.” No change to this provision shall be effective until
all outstanding certificates have been surrendered for cancellation and any new certificates
thereafter issued shall not bear the foregoing legend.”
SECTION 7. Further Assurances. Pledgor agrees that at any time and from time to time,
at the expense of Pledgor, it will promptly execute or otherwise authorize the filing of any and
all further documents, financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements, fixture filings, mortgages,
deeds of trust and other documents), which may be required under any applicable law, or which the
Collateral Agent or the Administrative Agent may reasonably request, in order (x) to perfect and
protect any pledge, assignment or security interest granted or purported to be granted hereby
(including the priority thereof) or (y) to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral.
SECTION 8. Voting Rights; Dividends and Distributions; Etc. (a) So long as no Event
of Default shall have occurred and be continuing:
| (i) | Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not prohibited by the terms of this Agreement or the other Credit Documents. | ||
| (ii) | The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above. |
(b) Subject to paragraph (c) below, Pledgor shall be entitled to receive and retain and use,
free and clear of the Lien created by this Agreement, any and all dividends, distributions,
principal and interest made or paid in respect of the Collateral to the extent permitted by the
Credit Agreement, as applicable; provided, however, that any and all noncash
dividends, interest, principal or other distributions that would constitute Pledged Shares or
Pledged Debt, whether resulting from a subdivision, combination or reclassification of the
outstanding Equity Interests
of the issuer of any Pledged Shares or received in exchange for Pledged Shares or Pledged Debt
or any part thereof, or in redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be,
and shall be forthwith delivered to the Collateral Agent to hold as, Collateral and shall, if
received by Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated
from the other property or funds of Pledgor and be forthwith delivered to the Collateral Agent as
Collateral in the same form as so received (with any necessary indorsement).
(c) Upon written notice to a Pledgor by the Collateral Agent following the occurrence and
during the continuance of an Event of Default,
| (i) | all rights of Pledgor to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 8(a)(i) shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights during the continuance of such Event of Default, provided that, unless otherwise directed by the Required Lenders, the Collateral Agent shall have the right from time to time following the occurrence and during the continuance of an Event of Default to permit the Pledgor to exercise such rights. When no Events of Default are continuing and the Borrower has delivered to the Collateral Agent a certificate to that effect, or after all Events of Default have been cured or waived pursuant to Section 12 or Section 14.1 of the Credit Agreement, as applicable, Pledgor shall have the right to exercise the voting and consensual rights that Pledgor would otherwise be entitled to exercise pursuant to the terms of Section 8(a)(i) (and the obligations of the Collateral Agent under Section 8(a)(ii) shall be reinstated); | ||
| (ii) | all rights of Pledgor to receive the dividends, distributions and principal and interest payments that Pledgor would otherwise be authorized to receive and retain pursuant to Section 8(b) shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to receive and hold as Collateral such dividends, distributions and principal and interest payments during the continuance of such Event of Default. When no Events of Default are continuing and the Borrower has delivered to the Collateral Agent a certificate to that effect, or after all Events of Default have been cured or waived pursuant to Section 12 or Section 14.1 of the Credit Agreement, as applicable, the Collateral Agent shall repay to Pledgor (without interest) all dividends, distributions and principal and interest payments that Pledgor would otherwise be permitted to receive, retain and use pursuant to the terms of Section 8(b); | ||
| (iii) | all dividends, distributions and principal and interest payments that are received by Pledgor contrary to the provisions of Section 8(b) shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of Pledgor and shall forthwith be delivered to the Collateral Agent as Collateral in the same form as so received (with any necessary indorsements); and | ||
| (iv) | in order to permit the Collateral Agent to receive all dividends, distributions and principal and interest payments to which it may be entitled under Section 8(b) above, to exercise the voting and other consensual rights that it may be entitled to exercise pursuant to Section 8(c)(i) above, and to receive all dividends, distributions and principal and interest payments that it may be entitled to under Sections 8(c)(ii) and (c)(iii) above, Pledgor shall from time to time execute and deliver to the |
| Collateral Agent appropriate proxies, dividend payment orders and other instruments as the Collateral Agent may reasonably request in writing. |
SECTION 9. Transfers and Other Liens; Additional Collateral; Etc. Pledgor shall:
(a) not (i) except as permitted by the Credit Agreement sell or otherwise dispose of, or grant
any option or warrant with respect to, any of the Collateral or (ii) create or suffer to exist any
consensual Lien upon or with respect to any of the Collateral, except for the Lien created by this
Agreement, provided that in the event Pledgor sells or otherwise disposes of assets as
permitted by the Credit Agreement, and such assets are or include any of the Collateral, the
Collateral Agent shall release such Collateral to Pledgor free and clear of the Lien created by
this Agreement concurrently with the consummation of such sale; and
(b) defend its and the Collateral Agent’s title or interest in and to all the Collateral (and
in the Proceeds thereof) against any and all Liens (other than the Lien created by this Agreement),
however arising, and any and all Persons whomsoever.
SECTION 10. Collateral Agent Appointed Attorney-in-Fact. Pledgor hereby appoints,
which appointment is irrevocable and coupled with an interest, the Collateral Agent as Pledgor’s
attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor
or otherwise, to take any action and to execute any instrument, in each case after the occurrence
and during the continuance of an Event of Default, that the Collateral Agent may deem reasonably
necessary or advisable to accomplish the purposes of this Agreement, including to receive, indorse
and collect all instruments made payable to Pledgor representing any dividend, distribution or
principal or interest payment in respect of the Collateral or any part thereof and to give full
discharge for the same.
SECTION 11. The Collateral Agent’s Duties. The powers conferred on the Collateral
Agent hereunder are solely to protect its interest and the interests of the Secured Parties in the
Collateral and shall not impose any duty upon the Collateral Agent or any other Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as
to any Collateral, as to ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Shares, whether or not the Collateral Agent or any other Secured
Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to any Collateral. The
Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation
of any Collateral in its possession if such Collateral is accorded treatment substantially equal to
that which the Collateral Agent accords its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all the rights and remedies
of a secured party upon default under the UCC (whether or not the UCC applies to the affected
Collateral) or other applicable law or in equity and also may, with notice to the relevant Grantor,
sell the Collateral or any part thereof in one or more parcels at public or private sale, at any
exchange broker’s board or at any of the Collateral Agent’s offices or elsewhere, for cash, on
credit or for future delivery, at such price or prices and upon such other terms as are
commercially reasonable irrespective of the impact of any such sales on the market price of the
Collateral. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to
do so) to restrict the prospective bidders or purchasers of Collateral to Persons who will
represent and agree that they are purchasing the Collateral for their own account for investment
and not with a view to the distribution or sale thereof, and, upon consummation of any such sale,
the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay and/or appraisal that it now has or may
at any time in the future have under any rule of law or statute now existing or hereafter enacted.
The Collateral Agent or any other Secured Party shall have the right upon any such public sale and,
to the extent permitted by law, upon any such private sale, to purchase all or any part of the
Collateral so sold, and the Collateral Agent or such other Secured Party may pay the purchase price
by crediting the amount thereof against the Obligations. Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days’ notice to Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall constitute reasonable
notification. The Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so adjourned. To the
extent permitted by law, Pledgor hereby waives any claim against the Collateral Agent arising by
reason of the fact that the price at which any Collateral may have been sold at such a private sale
was less than the price that might have been obtained at a public sale, even if the Collateral
Agent accepts the first offer received and does not offer such Collateral to more than one offeree.
(b) The Collateral Agent shall apply the proceeds of any collection or sale of the Collateral
at any time after receipt as follows:
| (i) | first, to the payment of all reasonable and documented costs and expenses incurred by the Collateral Agent in connection with such collection or sale or otherwise in connection with this Agreement, the other Credit Documents or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Credit Document on behalf of Pledgor and any other reasonable and documented costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Credit Document; | ||
| (ii) | second, to the Secured Parties, an amount equal to all Obligations owing to them on the date of any such distribution, and, if such moneys shall be insufficient to pay such amounts in full, then ratably (without priority of |
any one
over any other) to such Secured Parties in proportion to the unpaid
amounts thereof; and
| (iii) | third, any surplus then remaining shall be paid to the Pledgor or its successors or assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. |
(c) Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of
sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of
the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
(d) The Collateral Agent may exercise any and all rights and remedies of Pledgor in respect of
the Collateral.
(e) All payments received by Pledgor in respect of the Collateral after the occurrence and
during the continuance of an Event of Default shall be received in trust for the benefit of the
Collateral Agent, shall be segregated from other property or funds of Pledgor and shall be
forthwith delivered to the Collateral Agent as Collateral in the same form as so received (with any
necessary indorsement).
SECTION 13. Amendments, etc. with Respect to the Obligations; Waiver of Rights.
Pledgor shall remain obligated hereunder notwithstanding that, without any reservation of rights
against Pledgor and without notice to or further assent by Pledgor, (a) any demand for payment of
any of the Obligations made by the Collateral Agent or any other Secured Party may be rescinded by
such party and any of the Obligations continued, (b) the Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by the Collateral
Agent or any other Secured Party, (c) the Credit Agreement, the other
Credit Documents and any other documents executed and delivered in connection therewith and
the Hedge Agreements and any other documents executed and delivered in connection therewith and any
documents entered into with the applicable Administrative Agent or the Collateral Agent or any of
its respective affiliates in connection with treasury, depositary or cash management services or in
connection with any automated clearinghouse transfer of funds may be amended, modified,
supplemented or terminated, in whole or in part, as the applicable Administrative Agent (or the
Required Lenders, as the case may be, or, in the case of any Hedge Agreement or documents entered
into with the applicable Collateral Agent or any of its respective affiliates in connection with
treasury, depositary or cash management services or in connection with any automated clearinghouse
transfer of funds, the party thereto) may deem advisable from time to time, and (d) any collateral
security, guarantee or right of offset at any time held by the Collateral Agent or any other
Secured Party for the payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Collateral Agent nor any other Secured Party shall have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations
or for this Agreement or any property subject thereto. When
making any demand hereunder against
Pledgor, the Collateral Agent or any other Secured Party may, but shall be under no obligation to,
make a similar demand any other person, and any failure by the Collateral Agent or any other
Secured Party to make any such demand or to collect any payments from any other person or any
release of any other person shall not relieve Pledgor in respect of which a demand or collection is
not made or Pledgor not so released of its several obligations or liabilities hereunder, and shall
not impair or affect the rights and remedies, express or implied, or as a matter of law, of the
Collateral Agent or any other Secured Party against Pledgor. For the purposes hereof “demand”
shall include the commencement and continuance of any legal proceedings.
SECTION 14. Continuing Security Interest; Assignments Under the Credit Agreement;
Release. (a) This Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon Pledgor and the successors and assigns thereof,
and shall inure to the benefit of the Collateral Agent and the other Secured Parties and their
respective successors, indorsees, transferees and assigns until all the Obligations (other than any
contingent indemnity obligations not then due) under the Credit Documents shall have been satisfied
by payment in full, and the Commitments shall be terminated, notwithstanding that from time to time
during the term of the Credit Agreement and any Hedge Agreement the Borrower may be free from any
obligations.
(b) [Intentionally Omitted.]
(c) Upon any sale or other transfer by Pledgor of any Collateral that is permitted under the
Credit Agreement or upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 14.1 of the Credit Agreement, the
obligations of Pledgor with respect to such Collateral shall be automatically released and such
Collateral sold free and clear of the Lien and security interests created hereby.
(d) In connection with any termination or release pursuant to the foregoing paragraph (a) or
(c), the Collateral Agent shall execute and deliver to Pledgor or authorize the filing of, at
Pledgor’s expense, all documents that Pledgor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this Section 14 shall
be without recourse to or warranty by the Collateral Agent.
SECTION 15. Reinstatement. Pledgor further agrees that, if any payment made by
Borrower or other Person and applied to the Obligations is at any time annulled, avoided, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the proceeds of Collateral are required to be returned by any Secured
Party to the Borrower, its estate, trustee, receiver or any other party, including Pledgor, under
any bankruptcy law, state, federal or foreign law, common law or equitable cause, then, to the
extent of such payment or repayment, any Lien or other Collateral securing such liability shall be
and remain in full force and effect, as fully as if such payment had never been made or, if prior
thereto the Lien granted hereby or other Collateral securing such liability hereunder shall have
been released or terminated by virtue of such cancellation or surrender), such Lien or other
Collateral shall be reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect any Lien or other Collateral
securing the obligations of Pledgor in respect of the amount of such payment.
SECTION 16. Notices. All notices, requests and demands pursuant hereto shall be made
in accordance with Section 14.2 of the Credit Agreement. All communications and notices hereunder
to Pledgor shall be given to it in care of the Borrower at the Borrower’s address set forth in
Section 14.2 of the Credit Agreement.
SECTION 17. Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by facsimile or other
electronic transmission), and all of said counterparts taken together shall be deemed to constitute
one and the same instrument. A set of the copies of this Agreement signed by all the parties shall
be lodged with the Collateral Agent and the Borrower.
SECTION 18. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 19. Integration. This Agreement together with the other Credit Documents represents the agreement of the
Pledgor with respect to the subject matter hereof and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any other Secured Party relative to the
subject matter hereof not expressly set forth or referred to herein or in the other Credit
Documents.
SECTION 20. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified
except by a written instrument executed by the affected Pledgor and the Collateral Agent in
accordance with Section 14.1 of the Credit Agreement.
(b) Neither the Collateral Agent nor any other Secured Party shall by any act (except by a
written instrument pursuant to Section 20(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event
of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Collateral Agent or any other Secured Party, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Collateral Agent or any other
Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar
to any right or remedy that the Collateral Agent or such other Secured Party would otherwise have
on any future occasion.
(c) The rights, remedies, powers and privileges herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or remedies provided
by law.
SECTION 21. Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
SECTION 22. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of Pledgor and shall inure to the benefit of the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that no Pledgor may
assign, transfer or delegate any of its rights or obligations under this Agreement without the
prior written consent of the Collateral Agent.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 24. Submission to Jurisdiction; Waivers. Each party hereto irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to this
Agreement and the other Credit Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern District of New York
and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or any substantially similar form of mail), postage
prepaid, to such Person at its address referred to in Section 16 or at such other address of which
the Collateral Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right of any other party hereto (or any
Secured Party) to effect service of process in any other manner permitted by law or shall limit the
right of any party hereto (or any Secured Party) to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section 24 any special, exemplary,
punitive or consequential damages.
SECTION 25. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 26. [Intentionally Omitted]
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and
delivered by its duly authorized officer as of the day and year first above written.
| MCJUNKIN RED MAN HOLDING CORPORATION, as Pledgor |
||||||
| By: | /s/ CRAIG KETCHUM | |||||
| Name: Craig Ketchum | ||||||
| Title: Chief Executive Officer and President | ||||||
| Lehman Commercial Paper Inc., as Collateral Agent | ||||||
| By: | /s/ LAURIE PERPER | |||||
| Name: Laurie Perper | ||||||
| Title: Managing Director | ||||||
MCJUNKIN
RED MAN HOLDING CORPORATION
Pledge Agreement
Pledge Agreement
Exhibit 10.8
TERM LOAN SECURITY AGREEMENT
THIS TERM LOAN SECURITY AGREEMENT dated as of May 22, 2008 between McJunkin Red Man Holding
Corporation, a Delaware corporation (the “Grantor” or “Borrower”)and Lehman
Commercial Paper Inc., as Collateral Agent (in such capacity, the “Collateral Agent”) under
the Credit Agreement (as defined below) for the benefit of the Secured Parties (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower is party to the Term Loan Credit Agreement, dated as of May 22, 2008 (as
the same may be amended, restated, supplemented or otherwise modified, refinanced or replaced from
time to time, the “Credit Agreement”), among the Borrower, the lending institutions from
time to time party thereto (the “Lenders”), Lehman Commercial Paper Inc., as Administrative
Agent and as Collateral Agent, pursuant to which (1) the Lenders have severally agreed to make
Loans to the Borrower upon the terms and subject to the conditions set forth therein, and (2) one
or more Lenders or affiliates of Lenders may from time to time enter into Hedge Agreements with the
Borrower (the items in clauses (1) and (2) collectively, the “Extensions of Credit”);
WHEREAS, the proceeds of the Extensions of Credit will be used to enable the Borrower to fund
a dividend to the Investors;
WHEREAS, the Grantor acknowledges that it will derive substantial direct and indirect benefit
from the making of the Extensions of Credit; and
WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective
Extensions of Credit to the Borrower under the Credit Agreement that the Grantor shall have
executed and delivered this Agreement to the Collateral Agent for the ratable benefit of the
Secured Parties;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Collateral Agent, the Syndication Agent, and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Extensions of Credit to the Borrower under the Credit
Agreement and to induce one or more Lenders or affiliates of Lenders to enter into Hedge Agreements
with the Borrower, the Grantor hereby agrees with the Collateral Agent for the benefit of the
Secured Parties, as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, all capitalized terms used herein (including the preamble
and recitals hereto) and not otherwise defined herein shall have the meanings given to them in the
Credit Agreement or, if not defined therein, in the UCC.
(b) The following terms shall have the following meanings:
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Collateral” shall have the meaning provided in Section 2 hereof.
“Collateral Agent” shall have the meaning assigned to such term in the preamble
hereto.
“Collateral Account” shall mean any collateral account established by the Collateral
Agent as provided in Section 5.1 or Section 5.3.
“Collateral Agent” shall have the meaning provided in the preamble hereto.
“Control” shall mean (i) in the case of each Deposit Account, “control,” as such term
is defined in Section 9-104 of the UCC, and (ii) in the case of any Security Entitlement,
“control,” as such term is defined in Section 8-106 of the UCC.
“Control Agreements” shall mean, collectively, Deposit Account Control Agreements and
the Securities Account Control Agreements.
“Copyright License” shall mean any written agreement, now or hereafter in effect,
naming the Grantor as licensor or licensee, granting any right to any third party under any
copyright now or hereafter owned by the Grantor (including all Copyrights) or that the Grantor
otherwise has the right to license, or granting any right to the Grantor under any copyright now or
hereafter owned by any third party, and all rights of the Grantor under any such agreement,
including those listed on Schedule I (as such schedule may be amended or supplemented from time to
time).
“copyrights” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all copyright rights in any work subject to the copyright
laws of the United States, any other country or any group of countries, whether as author,
assignee, transferee or otherwise, and (ii) all registrations and applications for registration of
any such copyright in the United States or any other country, including registrations, recordings,
supplemental registrations and pending applications for registration in the United States Copyright
Office.
“Copyrights” shall mean all copyrights now owned or hereafter acquired by the Grantor,
including those listed on Schedule II (as such schedule may be amended or supplemented from time to
time).
“Credit Agreement” shall have the meaning assigned to such term in the recitals
hereto.
“Deposit Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Deposit Account.
“Deposit Accounts” shall mean, collectively, with respect to each Pledgor, (i) all
“deposit accounts” as such term is defined in Article 9 of the UCC and in any event shall include
all accounts and sub-accounts relating to any of the foregoing accounts and (ii) all cash, funds,
checks, notes and instruments from time to time on deposit in any of the accounts or sub-accounts
described in clause (i) of this definition.
“Equipment” shall mean all “equipment,” as such term is defined in Article 9 of the
UCC, now or hereafter owned by the Grantor or to which the Grantor has rights and, in any event,
shall include all machinery, equipment, computers, furnishings, appliances, fixtures, tools and
vehicles (in each case, regardless of whether characterized as equipment under the UCC) now or
hereafter owned by the Grantor or to which the Grantor has rights and any and all Proceeds,
accessions, additions, substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories installed thereon or
affixed thereto; but excluding equipment to the extent it is subject to a Lien permitted by the
Credit Agreement and the terms of the Indebtedness securing such Lien prohibit assignment of, or
granting of a security interest in, the Grantor’s rights and interests therein (other than to the
extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction
or any other applicable law), provided, that immediately upon the repayment of all
Indebtedness secured by such Lien, the Grantor shall be deemed to have granted a Security Interest
in all the rights and interests with respect to such equipment.
“Extensions of Credit” shall have the meaning assigned to such term in the recitals
hereto.
“General Intangibles” shall mean all “general intangibles” as such term is defined in
Article 9 of the UCC, including “payment intangibles” also as such term is defined in Article 9 of
the UCC, and, in any event, including with respect to the Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which the Grantor is a party or
under which the Grantor has any right, title or interest or to which the Grantor or any property of
the Grantor is subject, as the same may from time to time be amended, supplemented or otherwise
modified, including (a) all rights of the Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (b) all rights of the Grantor to receive proceeds of any
insurance, indemnity, warranty or guarantee with respect thereto, (c) all claims of the Grantor for
damages arising out of any breach of or default thereunder and (d) all rights of the Grantor to
terminate, amend, supplement, modify or exercise rights or options thereunder, to
perform thereunder and to compel performance and otherwise exercise all remedies thereunder,
in each case to the extent the grant by the Grantor of a Security Interest pursuant to this
Agreement in its right, title and interest in any such contract, agreement, instrument or indenture
(i) is not prohibited by such contract, agreement, instrument or indenture without the consent of
any other party thereto, (ii) would not give any other party to any such contract, agreement,
instrument or indenture the right to terminate its obligations thereunder or (iii) is permitted
with consent if all necessary consents to such grant of a Security Interest have been obtained from
the other parties thereto (other than to the extent that any such prohibition referred to in
clauses (i), (ii) and (iii) would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408
or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law) (it being understood that the foregoing shall not be
deemed to obligate the Grantor to obtain such consents), provided that the foregoing
limitation shall not affect, limit, restrict or impair the grant by the Grantor of a Security
Interest pursuant to this Agreement in any Account or any money or other amounts due or to become
due under any such contract, agreement, instrument or indenture.
“Grantor” shall have the meaning assigned to such term in the recitals hereto.
“Intellectual Property” shall mean all of the following now owned or hereafter
acquired by the Grantor: rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws, including the Trade
Secrets, the Copyrights, the Patents, the Trademarks and the Licenses and all rights to sue at law
or in equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom, in each case to the extent the grant by the Grantor of a Security
Interest pursuant to this Agreement in any such rights, priorities and privileges relating to
intellectual property (i) is not prohibited by any contract, agreement or other instrument
governing such rights, priorities and privileges without the consent of any other party thereto,
(ii) would not give any other party to any such contract, agreement or other instrument the right
to terminate its obligations thereunder or (iii) is permitted with consent if all necessary
consents to such grant of a Security Interest have been obtained from the relevant parties (other
than to the extent that any such prohibition referred to in clauses (i), (ii) and (iii) would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other applicable law) (it being
understood that the foregoing shall not be deemed to obligate the Grantor to obtain such consents).
“Investment Property” shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts and Commodity
Accounts of the Grantor (other than as pledged pursuant to the Pledge Agreements), whether now or
hereafter acquired by the Grantor, in each case to the extent the grant by a Grantor of a Security
Interest therein pursuant to this Agreement in its right, title and interest in any such Investment
Property (i) is not prohibited by any
contract, agreement, instrument or indenture governing such Investment Property without the
consent of any other party thereto, (ii) would not give any other party to any such contract,
agreement, instrument or indenture the right to terminate its obligations thereunder or (iii) is
permitted with consent if all necessary consents to such grant of a Security Interest have been
obtained from the other parties thereto (other than to the extent that any such prohibition
referred to in clauses (i), (ii) and (iii) would be rendered ineffective pursuant to Sections
9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law) (it being understood that the foregoing shall not be
deemed to obligate the Grantor to obtain such consents).
“Lender Counterparty” means each Lender or any Affiliate of a Lender that is a
counterparty to a Hedge Agreement (including any Person that ceases to be a Lender (or any
Affiliate thereof) (a) on the date such Lender becomes a party to the Credit Agreement or (b) as of
the date such Hedge Agreement was entered into.
“License” shall mean any Patent License, Trademark License, Copyright License or other
license or sublicense to which the Grantor is a party.
“Obligations” shall mean the collective reference to (i) the due and punctual payment
of (x) the principal of and premium, if any, and interest at the applicable rate provided in the
Credit Agreement (including interest at the contract rate applicable upon default accrued or
accruing after the commencement of any proceeding, under the Bankruptcy Code or any applicable
provision of comparable state or foreign law, whether or not such interest is an allowed claim in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (y) each payment required to be made by Borrower under
the Credit Agreement, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and (z) all other
monetary obligations, including fees, costs, payments for early termination of Hedge Agreements,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any proceeding under the Bankruptcy
Code or any applicable provision of comparable state or foreign law, whether or not such interest
is an allowed claim in such proceeding), of Borrower to any of the Secured Parties under the Credit
Agreement and any other Credit Documents, (ii) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the Credit Agreement
and the other Credit Documents, and (iv) the due and punctual payment and performance of all
obligations of the Borrower under each Hedge Agreement that (x) is in effect on the Closing Date
with a counterparty that is a Lender or an affiliate of a Lender as of the Closing Date or (y) is
entered into after the Closing Date with any counterparty that is a Lender or an affiliate of a
Lender at the time such Hedge Agreement is entered into.
“Patent License” shall mean any written agreement, now or hereafter in effect, naming
the Grantor as licensor or licensee, granting to any third party any right to
make, use or sell any invention on which a patent, now or hereafter owned by the Grantor
(including all Patents) or that the Grantor otherwise has the right to license, is in existence, or
granting to the Grantor any right to make, use or sell any invention on which a patent, now or
hereafter owned by any third party, is in existence, and all rights of the Grantor under any such
agreement, including those listed on Schedule III (as such schedule may be amended or supplemented
from time to time).
“patents” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (a) all letters patent of the United States or the equivalent
thereof in any other country or group of countries, all registrations and recordings thereof, and
all applications for letters patent of the United States or the equivalent thereof in any other
country, including registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals, reexaminations or extensions thereof,
all rights corresponding thereto throughout the world and all inventions and improvements disclosed
or claimed therein, including the right to make, use and/or sell the inventions disclosed or
claimed therein.
“Patents” shall mean all patents now owned or hereafter acquired by the Grantor,
including those listed on Schedule IV (as such schedule may be amended or supplemented from time to
time).
“Proceeds” shall mean all “proceeds” as such term is defined in Article 9 of the UCC
and, in any event, shall include with respect to the Grantor, any consideration received from the
sale, exchange, license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any Collateral and any payment
received from any insurer or other person or entity as a result of the destruction, loss, theft,
damage or other involuntary conversion of whatever nature of any asset or property that constitutes
Collateral, and shall include (a) all cash and negotiable instruments received by or held on behalf
of the Collateral Agent, (b) any claim of the Grantor against any third party for (and the right to
sue and recover for and the rights to damages or profits due or accrued arising out of or in
connection with) (i) past, present or future infringement of any Patent now or hereafter owned by
the Grantor, or licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by the Grantor or licensed under a Trademark
License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter
owned by the Grantor, (iii) past, present or future breach of any License and (iv) past, present or
future infringement of any Copyright now or hereafter owned by the Grantor or licensed under a
Copyright License and (c) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
“Secured Parties” shall mean, collectively, (i) the Lenders, (ii) the Administrative
Agent, (iii) the Collateral Agent, (iv) the Syndication Agent, (v) each Lender Counterparty party
to a Hedge Agreement the obligations under which constitute
Obligations, (vi) the beneficiaries of each indemnification obligation undertaken by the
Borrower under the Credit Agreement or any document executed pursuant thereto and (vii) any
successors, indorsees, transferees and assigns of each of the foregoing.
“Securities Account Control Agreement” shall mean an agreement that is reasonably
satisfactory to the Collateral Agent establishing Control in favor of the Collateral Agent with
respect to any Securities Account.
“Security Interest” shall have the meaning provided in Section 2 hereof.
“Trade Secrets” shall mean all information used or useful arising from the business
including all goodwill, trade secrets, trade secret rights, know-how, customer lists, processes of
production, ideas, confidential business information, techniques, processes, formulas and all other
proprietary information.
“Trademark License” shall mean any written agreement, now or hereafter in effect,
naming the Grantor as licensor or licensee, granting to any third party any right to use any
trademark now or hereafter owned by the Grantor (including any Trademark) or that the Grantor
otherwise has the right to license, or granting to the Grantor any right to use any trademark now
or hereafter owned by any third party, and all rights of the Grantor under any such agreement,
including those listed on Schedule V (as such schedule may be amended or supplemented from time to
time).
“trademarks” shall mean, with respect to any Person, all of the following now owned or
hereafter acquired by such Person: (i) all trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business names, Internet domain names, trade
styles, trade dress, logos, other source or business identifiers, designs and general intangibles
of like nature, now existing or hereafter adopted or acquired, all registrations and recordings
thereof (if any), and all registration and recording applications filed in connection therewith,
including registrations and registration applications in the United States Patent and Trademark
Office or any similar offices in any State of the United States or any other country or any
political subdivision thereof, and all extensions or renewals thereof, (ii) all goodwill associated
therewith or symbolized thereby and (iii) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
“Trademarks” shall mean all trademarks now owned or hereafter acquired by the Grantor,
including those listed on Schedule VI (as such schedule may be amended or supplemented from time to
time); provided that any “intent to use” Trademark applications for which a “Statement of
Use” or “Amendment to Allege Use” has not been filed (but only until such statement is filed) are
excluded from this definition.
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in the
State of New York; provided, however, that, in the event that, by reason of mandatory
provisions of law, any of the attachment, perfection or priority of the
Collateral Agent’s and the Secured Parties’ Security Interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the
term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
(c) The words “hereof”, “herein”, “hereto” and “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, subsection, clause and Schedule references are to this Security
Agreement unless otherwise specified. The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “without limitation.”
(d) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
(e) Where the context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to the Grantor’s Collateral or the relevant part
thereof.
(f) References to “Lenders” in this Agreement shall be deemed to include Affiliates of any
Lender that may from time to time enter into Hedge Agreements with the Borrower.
2. Grant of Security Interest.
(a) The Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, for the ratable benefit of the Secured Parties,
and grants to the Collateral Agent, for the ratable benefit of the Secured Parties a lien on and
continuing security interest in (the “Security Interest”), all of its right, title and
interest in, to and under all of the following property now owned or at any time hereafter acquired
by the Grantor or in which the Grantor now has or at any time in the future may acquire any right,
title or interest (collectively, the “Collateral”), as collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Commercial Tort Claims, if any;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Intellectual Property;
(ix) all Inventory;
(x) all Investment Property;
(xi) all Letters of Credit and Letter-of-Credit Rights;
(xii) all Money;
(xiii) all Supporting Obligations;
(xiv) all Collateral Accounts;
(xv) all books and records pertaining to the Collateral; and
(xvi) to the extent not otherwise included, all Proceeds and products of any and all
of the foregoing.
(b) The Grantor hereby irrevocably authorizes the Collateral Agent and its Affiliates, counsel
and other representatives, at any time and from time to time, to file or record financing
statements, amendments to financing statements and, with notice to the Borrower, other filing or
recording documents or instruments with respect to the Collateral in such form and in such offices
as the Collateral Agent reasonably determines appropriate to perfect the Security Interests of the
Collateral Agent under this Agreement, and such financing statements and amendments may describe
the Collateral covered thereby as “all assets” or “all personal property” or words of similar
effect, whether now owned or hereafter acquired. The Grantor hereby also authorizes the Collateral
Agent and its Affiliates, counsel and other representatives, at any time and from time to time, to
file continuation statements with respect to previously filed financing statements. A photographic
or other reproduction of this Agreement shall be sufficient as a financing statement or other
filing or recording document or instrument for filing or recording in any jurisdiction to the
Collateral Agent.
The Grantor hereby agrees to provide to the Collateral Agent, promptly upon request, any
information reasonably necessary to effectuate the filings or recordings authorized by this Section
2(b).
The Collateral Agent is further authorized to file with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office or any similar office in any
other country) such documents as may be necessary or advisable for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interests granted by the Grantor
hereunder, without the signature of the
Grantor, and naming the Grantor or the Grantors as debtors and the Collateral Agent, as the
case may be, as secured party.
This Agreement secures the payment of all the Obligations. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed to the Collateral Agent or the Secured Parties under the Credit
Documents but for the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Grantor.
The Security Interests are granted as security only and shall not subject the Collateral Agent
or any other Secured Party to, or in any way alter or modify, any obligation or liability of the
Grantor with respect to or arising out of the Collateral.
3. Representations and Warranties.
The Grantor hereby represents and warrants to the Collateral Agent and each other Secured
Party that:
3.1 Title; No Other Liens. Except for (a) the Security Interest granted to the
Collateral Agent for the ratable benefit of the Secured Parties pursuant to this Agreement, (b) the
Liens permitted by the Credit Agreement and (c) any Liens securing Indebtedness which is no longer
outstanding or any Liens with respect to commitments to lend which have been terminated, the
Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with respect to all or any part
of the Collateral that evidences a Lien securing any material Indebtedness is on file or of record
in any public office, except such as (i) have been filed in favor of the Collateral Agent for the
ratable benefit of the Secured Parties pursuant to this Agreement or (ii) are permitted by the
Credit Agreement.
3.2 Perfected First Priority Liens. (a) This Agreement is effective to create in
favor of the Collateral Agent, for its benefit and for the benefit of the Secured Parties, legal,
valid and enforceable Security Interests in the Collateral, subject to the effects of bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and general equitable principles.
(b) Subject to the limitations set forth in clause (c) of this Section 3.2, the Security
Interests granted pursuant to this Agreement (i) will constitute valid and perfected Security
Interests in the Collateral (as to which perfection may be obtained by the filings or other actions
described in clause (A), (B), or (C) of this paragraph in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, as collateral security for the Obligations, upon (A) the
filing of all financing statements, in each case, naming the Grantor as “debtor” and the Collateral
Agent as “secured party” and describing the Collateral in the filing offices specified in Schedule
3.2(b), (B) delivery to Collateral Agent (or its bailee) of all Instruments, Chattel Paper,
Certificated Securities
and Negotiable Documents, in each case, properly endorsed for transfer or in blank, and (C)
completion of the filing and recording of fully executed agreements in the form hereof (or a
supplement hereto) and containing a description of all Collateral constituting Patents and
Trademarks in the United States Patent and Trademark Office (or any successor office) within the
three month period (commencing as of the date hereof) or, with respect to all Collateral
constituting Patents and registered Trademarks acquired after the date hereof, within three months
thereafter, and all Collateral constituting registered Copyrights in the United States Copyright
Office (or a successor office) within the one month period (commencing as of the date hereof) or,
with respect to all Collateral constituting Copyrights acquired after the date hereof, within one
month thereafter pursuant to 35 USC § 261, and 15 USC § 1060, or 17 USC § 205 and the regulations
thereunder, and otherwise as may be required pursuant to the laws of any other necessary
jurisdiction to the extent that a security interest may be perfected by such filings and
recordings, and (ii) are prior to all other Liens on the Collateral other than Liens permitted
pursuant to Section 10.2 of the Credit Agreement.
(c) Notwithstanding anything to the contrary herein, no Grantor shall be required to perfect
the Security Interests granted by this Agreement (including Security Interests in cash, cash
accounts and Investment Property) by any means other than (i) filings pursuant to the UCC of the
relevant state(s), (ii) filings approved by United States government offices with respect to
Intellectual Property or (iii) delivery to the Collateral Agent (or its bailee) to be held in its
possession of all Collateral consisting of Instruments, Certificated Securities or Negotiable
Documents.
(d) It is understood and agreed that the Security Interests in cash and Investment Property
created hereunder shall not prevent the Grantors from using such assets in the ordinary course of
their respective businesses, subject to the provisions of the Control Agreements with respect to
such cash and Investment Property.
4. Covenants.
The Grantor hereby covenants and agrees with the Collateral Agent and the Secured Parties
that, from and after the date of this Agreement until the Obligations under the Credit Documents
are paid in full and the Commitments are terminated:
4.1 Maintenance of Perfected Security Interest; Further Documentation. (a) The
Grantor shall maintain the Security Interest created by this Agreement as a perfected Security
Interest having at least the priority described in Section 3.1 and shall defend such Security
Interest against the claims and demands of all Persons whomsoever, in each case subject to Section
3.2(c).
(b) The Grantor will furnish to the Collateral Agent and the Lenders from time to time
statements and schedules further identifying and describing the assets and property of the Grantor
and such other reports in connection therewith as the Collateral Agent may reasonably request.
(c) Subject to clause (d) below and Section 3.2(c), the Grantor agrees that at any time and
from time to time, at the expense of the Grantor, it will execute any and all further documents,
financing statements, agreements and instruments, and take all such further actions (including the
filing and recording of financing statements and other documents, including all applicable
documents required under Section 3.2(b)(C)), which may be required under any applicable law, or
which the Collateral Agent or the Required Lenders may reasonably request, in order (i) to grant,
preserve, protect and perfect the validity and priority of the Security Interests created or
intended to be created hereby or (ii) to enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral, including the filing of any financing
or continuation statements under the UCC in effect in any jurisdiction with respect to the Security
Interests created hereby and all applicable documents required under Section 3.2(b)(C), all at the
expense of the Grantor.
(d) Notwithstanding anything in this Section 4.1 to the contrary, with respect to any assets
acquired by the Grantor after the date hereof that are required by the Credit Agreement to be
subject to the Lien created hereby, the relevant Grantor after the acquisition thereof shall
promptly take all actions required by the Credit Agreement or this Section 4.1.
4.2 Changes in Locations, Name, etc. The Grantor will furnish to the Collateral
Agent prompt written notice of any change (i) in its legal name, (ii) in its jurisdiction of
organization or location for purposes of the UCC, (iii) in its identity or type of organization
or corporate structure or (iv) in its Federal Taxpayer Identification Number or organizational
identification number. The Grantor agrees promptly to provide the Collateral Agent with
certified organizational documents reflecting any of the changes described in the first sentence
of this paragraph. The Grantor also agrees promptly to notify the Collateral Agent if any
material portion of the Collateral is damaged or destroyed.
4.3 Notices. The Grantor will advise the Collateral Agent and the Lenders promptly,
in reasonable detail, of any Lien of which it has knowledge (other than the Security Interests
created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which
would adversely affect, in any material respect, the ability of the Collateral Agent to exercise
any of its remedies hereunder.
5. Remedial Provisions.
5.1 Certain Matters Relating to Accounts. (a) At any time after the occurrence and
during the continuance of an Event of Default and after giving reasonable notice to the Borrower
and any other relevant Grantor, the Administrative Agent shall have the right, but not the
obligation, to instruct the Collateral Agent to (and upon such instruction, the Collateral Agent
shall) make test verifications of the Accounts in any manner and through any medium that such
Agent reasonably considers advisable, and the Grantor shall furnish all such assistance and
information as such Agent may require in connection with such test verifications. Such Agent
shall have
the absolute right to share any information it gains from such inspection or verification
with any Secured Party.
(b) The Collateral Agent hereby authorizes the Grantor to collect the Grantor’s Accounts and
the Collateral Agent may curtail or terminate said authority at any time after the occurrence and
during the continuance of an Event of Default. If required in writing by the Collateral Agent at
any time after the occurrence and during the continuance of an Event of Default, any payments of
Accounts, when collected by the Grantor, (i) shall be forthwith (and, in any event, within two
Business Days) deposited by the Grantor in the exact form received, duly endorsed by the Grantor to
the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and
control of and on terms and conditions reasonably satisfactory to the Collateral Agent, subject to
withdrawal by the Collateral Agent for the account of the Secured Parties only as provided in
Section 5.5, and (ii) until so turned over, shall be held by the Grantor in trust for the
Collateral Agent and the Secured Parties, segregated from other funds of the Grantor. Each such
deposit of Proceeds of Accounts shall be accompanied by a report identifying in reasonable detail
the nature and source of the payments included in the deposit.
(c) At the Collateral Agent’s request at any time after the occurrence and during the
continuance of an Event of Default, the Grantor shall deliver to the Collateral Agent all original
and other documents evidencing, and relating to, the agreements and transactions which gave rise to
the Accounts, including all original orders, invoices and shipping receipts.
(d) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not
grant any extension of the time of payment of any of the Accounts, compromise, compound or settle
the same for less than the full amount thereof, release, wholly or partly, any person liable for
the payment thereof, or allow any credit or discount whatsoever thereon if the Collateral Agent
shall have instructed the Grantors not to grant or make any such extension, credit, discount,
compromise or settlement under any circumstances during the continuance of such Event of Default.
(e) At the direction of the Collateral Agent, upon the occurrence and during the continuance
of an Event of Default, the Grantor shall grant to the Collateral Agent to the extent assignable,
an irrevocable, non-exclusive, fully paid-up, royalty-free, worldwide license to use, assign,
license or sublicense any of the Intellectual Property now owned or hereafter acquired by the
Grantor. Such license shall include access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or printout thereof.
5.2 Communications with Borrower; Grantors Remain Liable. (a) The Collateral Agent
in its own name or in the name of others may at any time after the occurrence and during the
continuance of an Event of Default, after giving reasonable notice to the relevant Grantor of its
intent to do so, communicate with obligors under the Accounts to verify with them to the
Collateral Agent’s satisfaction the existence,
amount and terms of any Accounts. The Collateral Agent shall have the absolute right to
share any information it gains from such inspection or verification with any Secured Party.
(b) Upon the written request of the Collateral Agent at any time after the occurrence and
during the continuance of an Event of Default, the Grantor shall notify obligors on the Accounts
that the Accounts have been assigned to the Collateral Agent for the ratable benefit of the Secured
Parties and that payments in respect thereof shall be made directly to the Collateral Agent.
(c) Anything herein to the contrary notwithstanding, the Grantor shall remain liable under
each of the Accounts to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto.
Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the
receipt by the Collateral Agent or any Secured Party of any payment relating thereto, nor shall the
Collateral Agent or any Secured Party be obligated in any manner to perform any of the obligations
of the Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party thereunder, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
5.3 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of
the Collateral Agent and the Secured Parties specified in Section 5.1 with respect to payments of
Accounts, if an Event of Default shall occur and be continuing and the Collateral Agent so
requires by notice in writing to the relevant Grantor (it being understood that the exercise of
remedies by the Secured Parties in connection with an Event of Default under Section 11.5 of the
Credit Agreement shall be deemed to constitute a request by the Collateral Agent for the purposes
of this sentence and in such circumstances, no such written notice shall be required), all
Proceeds received by the Grantor consisting of cash, checks and other near-cash items shall be
held by the Grantor in trust for the Collateral Agent and the Secured Parties, segregated from
other funds of the Grantor, and shall, forthwith upon receipt by the Grantor, be turned over to
the Collateral Agent in the exact form received by the Grantor (duly endorsed by the Grantor to
the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder
shall be held by the Collateral Agent in a Collateral Account maintained under its dominion and
control and on terms and conditions reasonably satisfactory to the Collateral Agent. All
Proceeds while held by the Collateral Agent in a Collateral Account (or by the Grantor in trust
for the Collateral Agent and the Secured Parties) shall continue to be held as collateral
security for all the Obligations and shall not constitute payment thereof until applied as
provided in Section 5.4.
5.4 Application of Proceeds. The Collateral Agent shall apply the proceeds of any
collection or sale of the Collateral as well as any Collateral consisting of cash, at any time
after receipt as follows:
(a) first, to the payment of all reasonable and documented costs and expenses incurred by the
Collateral Agent in connection with such collection or sale or otherwise in connection with this
Agreement, the other Credit Documents or any of the Obligations, including all court costs and the
reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by
the Collateral Agent hereunder or under any other Credit Document on behalf of the Grantor and any
other reasonable and documented costs or expenses incurred in connection with the exercise of any
right or remedy hereunder or under any other Credit Document;
(b) second, to the Secured Parties, an amount equal to all Obligations owing to them on the
date of any distribution, and, if such moneys shall be insufficient to pay such amounts in full,
then ratably (without priority of any one over any other) to such Secured Parties in proportion to
the unpaid amounts thereof; and
(c) third, any surplus then remaining shall be paid to the Grantors or their successors or
assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
5.5 Code and Other Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC or any other applicable law and also may with notice to
the relevant Grantor, sell the Collateral or any part thereof in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or office of the Collateral Agent or any
Lender or elsewhere for cash or on credit or for future delivery at such price or prices and upon
such other terms as are commercially reasonable irrespective of the impact of any such sales on
the market price of the Collateral. The Collateral Agent shall be authorized at any such sale
(if it deems it advisable to do so) to restrict the prospective bidders or purchasers of
Collateral to Persons who will represent and agree that they are purchasing the Collateral for
their own account for investment and not with a view to the distribution or sale thereof, and,
upon consummation of any such sale, the Collateral Agent shall have the right to assign, transfer
and deliver to the purchaser or purchasers thereof the Collateral so sold. Each purchaser at any
such sale shall hold the property sold
absolutely free from any claim or right on the part of the Grantor, and the Grantor hereby
waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal that it
now has or may at any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent and any Secured Party shall have the right upon any such
public sale, and, to the extent permitted by law, upon any such private sale, to purchase the
whole or any part of the Collateral so sold, and the Collateral Agent or such Secured Party may,
subject to (x) the satisfaction in full in cash of all payments due pursuant to Section 5.4(a)
hereof and (y) the satisfaction of the Obligations in accordance with the priorities set forth in
Section 5.4 hereof, pay the purchase price by crediting the amount thereof against the
Obligations. The Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days’ notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification. The Collateral
Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. To the extent permitted by law, the
Grantor hereby waives any claim against the Collateral Agent arising by reason of the fact that
the price at which any Collateral may have been sold at such a private sale was less than the
price that might have been obtained at a public sale, even if the Collateral Agent accepts the
first offer received and does not offer such Collateral to more than one offeree. The Grantor
further agrees, at the Collateral Agent’s request, to assemble the Collateral and make it
available to the Collateral Agent, at places which the Collateral Agent shall reasonably select,
whether at the Grantor’s premises or elsewhere. The Collateral Agent shall apply the net
proceeds of any action taken by it pursuant to this Section 5.5 in accordance with the provisions
of Section 5.4.
5.6 Deficiency. The Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its Obligations and
the fees and disbursements of any attorneys employed by the Collateral Agent or any Secured Party
to collect such deficiency.
5.7 Amendments, etc. with Respect to the Obligations; Waiver of Rights. The Grantor
shall remain obligated hereunder notwithstanding that, without any reservation of rights against
the Grantor and without notice to or further assent by the Grantor, (a) any demand for payment of
any of the Obligations made by the Collateral Agent or any other Secured Party may be rescinded
by such party and any of the Obligations continued, (b) the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or released by the
Collateral Agent or any other Secured Party, (c) the Credit Agreement, the other Credit Documents
and any other documents executed and delivered in connection therewith and the Hedge Agreements
and any other documents executed and delivered in
connection therewith and any documents entered into with the applicable Administrative Agent
or the Collateral Agent or any of its respective affiliates in connection with treasury,
depositary or cash management services or in connection with any automated clearinghouse transfer
of funds may be amended, modified, supplemented or terminated, in whole or in part, as the
applicable Administrative Agent (or the Required Lenders, as the case may be, or, in the case of
any Hedge Agreement or documents entered into with the applicable Administrative Agent or any of
its respective affiliates in connection with treasury, depositary or cash management services or
in connection with any automated clearinghouse transfer of funds, the party thereto) may deem
advisable from time to time, and (d) any collateral security, guarantee or right of offset at any
time held by the Collateral Agent or any other Secured Party for the payment of the Obligations
may be sold, exchanged, waived, surrendered or released. Neither the Collateral Agent nor any
other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at
any time held by it as security for the Obligations or for this Agreement or any property subject
thereto. When making any demand hereunder against the Grantor, the Collateral Agent or any other
Secured Party may, but shall be under no obligation to, make a similar demand on any other
person, and any failure by the Collateral Agent or any other Secured Party to make any such
demand or to collect any payments from any other person or any release of any other person shall
not relieve the Grantor in respect of which a demand or collection is not made or the Grantor not
so released of its several obligations or liabilities hereunder, and shall not impair or affect
the rights and remedies, express or implied, or as a matter of law, of the Collateral Agent or
any other Secured Party against the Grantor. For the purposes hereof “demand” shall include the
commencement and continuance of any legal proceedings.
5.8 [Intentionally Omitted.]
6. The Collateral Agent.
6.1 Collateral Agent’s Appointment as Attorneys-in-Fact, etc. (a) The Grantor
hereby appoints, which appointment is irrevocable and coupled with an interest, effective upon
and during the occurrence of an Event of Default, the Collateral Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the
generality of the foregoing, the Grantor hereby gives the Collateral Agent the power and right,
on behalf of the Grantor, either in the Collateral Agent’s name or in the name of the Grantor or
otherwise, without assent by the Grantor, to do any or all of the following, in each case after
and during the occurrence of an Event of Default and after written notice by the Collateral Agent
of its intent to do so:
(i) take possession of and endorse and collect any checks, drafts, notes, acceptances
or other instruments for the payment of moneys due under any Account or with respect to any
other Collateral and file any claim or take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Account or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver, and have recorded,
any and all agreements, instruments, documents and papers as the Collateral Agent may
request to evidence the Collateral Agent’s and the Secured Parties’ Security Interest in
such Intellectual Property and the goodwill and general intangibles of the Grantor relating
thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or threatened against the
Collateral;
(iv) execute, in connection with any sale provided for in Section 5.5, any
endorsements, assignments or other instruments of conveyance or transfer with respect to
the Collateral;
(v) obtain and adjust insurance required to be maintained by the Grantor or paid to
the Collateral Agent pursuant to Section 9.3 of the Credit Agreement;
(vi) direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the Collateral
Agent or as the Collateral Agent shall direct;
(vii) ask or demand for, collect and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of or arising
out of any Collateral;
(viii) sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral;
(ix) commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral;
(x) defend any suit, action or proceeding brought against the Grantor with respect to
any Collateral (with the Grantor’s consent (not to be unreasonably withheld or delayed) to
the extent such action or its resolution could materially
affect the Grantor or any of its affiliates in any manner other than with respect to
its continuing rights in such Collateral);
(xi) settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Collateral Agent may deem
appropriate (with the Grantor’s consent (not to be unreasonably withheld or delayed) to the
extent such action or its resolution could materially affect the Grantor or any of its
affiliates in any manner other than with respect to its continuing rights in such
Collateral);
(xii) assign any Copyright, Patent or Trademark (along with the goodwill of the
business to which any such Copyright, Patent or Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the Collateral Agent
shall in its sole discretion determine; and
(xiii) generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent’s
option and the Grantor’s expense, at any time, or from time to time, all acts and things
that the Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent’s and the Secured Parties’ Security Interests therein
and to effect the intent of this Agreement, all as fully and effectively as the Grantor
might do.
Anything in this Section 6.1(a) to the contrary notwithstanding, the Collateral Agent agrees
that it will not exercise any rights under the power of attorney provided for in this Section
6.1(a) unless an Event of Default shall have occurred and be continuing.
(b) If the Grantor fails to perform or comply with any of its agreements contained herein, the
Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.
(c) The expenses of the Collateral Agent incurred in connection with actions undertaken as
provided in this Section 6.1, together with interest thereon at a rate per annum equal to the
highest rate per annum at which interest would then be payable on any category of past due ABR
Loans under the Credit Agreement, from the date of payment by the Collateral Agent to the date
reimbursed by the relevant Grantor, shall be payable by the Grantor to the Collateral Agent on
demand.
(d) The Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the Security Interests
created hereby are released.
6.2 Duty of Collateral Agent. The Collateral Agent’s sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its possession, under Section
9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Collateral
Agent deals with similar property for its own account. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property. Neither the Collateral Agent, any Secured Party nor
any of their respective officers, directors, employees or agents shall be liable for failure to
demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the request of the
Grantor or any other Person or to take any other action whatsoever with regard to the Collateral
or any part thereof. The powers conferred on the Collateral Agent and the Secured Parties
hereunder are solely to protect the Collateral Agent’s and the Secured Parties’ interests in the
Collateral and shall not impose any duty upon the Collateral Agent or any Secured Party to
exercise any such powers. The Collateral Agent and the Secured Parties shall be accountable only
for amounts that they actually receive as a result of the exercise of such powers, and neither
they nor any of their officers, directors, employees or agents shall be responsible to the
Grantor for any act or failure to act hereunder, except for their own gross negligence or willful
misconduct.
6.3 Authority of Collateral Agent. The Grantor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Collateral Agent and the Secured Parties, be
governed by the Credit Agreement, and by such other agreements with respect thereto as may exist
from time to time among them, but, as between the Collateral Agent and the Grantors, the
Collateral Agent shall be conclusively presumed to be acting as agent for the applicable Secured
Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such authority.
6.4 Security Interest Absolute. All rights of the Collateral Agent hereunder, the
Security Interest, and all obligations of the Grantors hereunder shall be absolute and
unconditional.
6.5 Continuing Security Interest; Assignments Under the Credit Agreement; Release.
(a) This Agreement shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Grantor and the successors and assigns thereof and shall inure
to the benefit of the Collateral Agent and the other Secured Parties and their respective
successors, indorsees, transferees and assigns until all Obligations under the Credit Documents
(other than any contingent indemnity obligations not then due) and the obligations of the Grantor
under this Agreement shall have been satisfied by payment in full, the Commitments shall be
terminated and no Letters of Credit shall be outstanding, notwithstanding that from time
to time during the term of the Credit Agreement and any Hedge Agreement the Borrower may be
free from any Obligations.
(b) The Grantor shall automatically be released from its obligations hereunder and the
Security Interest in the Collateral of the Grantor shall be automatically released upon the
consummation of any transaction permitted under the Credit Agreement.
(c) Upon any sale or other transfer by the Grantor of any Collateral that is permitted under
the Credit Agreement or upon the effectiveness of any written consent to the release of the
Security Interest granted hereby in any Collateral pursuant to Section 14.1 of the Credit
Agreement, the Security Interest in such Collateral shall be automatically released and such
Collateral sold free and clear of the Lien and Security Interests created hereby.
(d) In connection with any termination or release pursuant to paragraph (a), (b) or (c), the
Collateral Agent shall execute and deliver to the Grantor, at the Grantor’s expense, all documents
that the Grantor shall reasonably request to evidence such termination or release. Any execution
and delivery of documents pursuant to this Section 6.5 shall be without recourse to or warranty by
the Collateral Agent.
6.6 Reinstatement. The Grantor further agrees that, if any payment made by the
Borrower or other Person and applied to the Obligations is at any time annulled, avoided, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the proceeds of Collateral are required to be returned by any Secured
Party to the Borrower, its estate, trustee, receiver or any other party, including the Grantor,
under any bankruptcy law, state or federal law, common law or equitable cause, then, to the
extent of such payment or repayment, any Lien or other Collateral securing such liability shall
be and remain in full force and effect, as fully as if such payment had never been made or, if
prior thereto the Lien granted hereby or other Collateral securing such liability hereunder shall
have been released or terminated by virtue of such cancellation or surrender), such Lien or other
Collateral shall be reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect any Lien or other Collateral
securing the obligations of the Grantor in respect of the amount of such payment.
7. Collateral Agent As Agent.
(a) Lehman Commercial Paper Inc. has been appointed to act as the Collateral Agent under the
Credit Agreement, by the Lenders under the Credit Agreement and, by their acceptance of the
benefits hereof, the other Secured Parties. The Collateral Agent shall be obligated, and shall
have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising
any rights, and to take or refrain from taking any action (including the release or substitution of
Collateral), solely in accordance with this Agreement and the Credit Agreement, provided
that the Collateral
Agent shall exercise, or refrain from exercising, any remedies provided for in Section 5 in
accordance with the instructions of Required Lenders. In furtherance of the foregoing provisions
of this Section 7(a), each Secured Party, by its acceptance of the benefits hereof, agrees that it
shall have no right individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Secured Party that all rights and remedies hereunder may be exercised
solely by the Collateral Agent for the ratable benefit of the applicable Lenders and Secured
Parties in accordance with the terms of this Section 7(a).
(b) The Collateral Agent shall at all times be the same Person that is the Collateral Agent
under the Credit Agreement. Written notice of resignation by the Collateral Agent pursuant to
Section 13.9 of the Credit Agreement shall also constitute notice of resignation as Collateral
Agent under this Agreement; removal of the Collateral Agent shall also constitute removal under
this Agreement; and appointment of a Collateral Agent pursuant to Section 13.9 of the Credit
Agreement shall also constitute appointment of a successor Collateral Agent under this Agreement.
Upon the acceptance of any appointment as Collateral Agent under Section 13.9 of the Credit
Agreement by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the retiring or removed
Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this
Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, securities and
other items of Collateral held hereunder, together with all records and other documents necessary
or appropriate in connection with the performance of the duties of the successor Collateral Agent
under this Agreement, and (ii) execute and deliver to such successor Collateral Agent or otherwise
authorize the filing of such amendments to financing statements and take such other actions, as may
be necessary or appropriate in connection with the assignment to such successor Collateral Agent of
the Security Interests created hereunder, whereupon such retiring or removed Collateral Agent shall
be discharged from its duties and obligations under this Agreement. After any retiring or removed
Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Collateral Agent hereunder.
(c) The Collateral Agent shall not be deemed to have any duty whatsoever with respect to any
Secured Party that is a counterparty to a Hedge Agreement the obligations under which constitute
Obligations, unless it shall have received written notice in form and substance satisfactory to the
Collateral Agent from a Grantor or any such Secured Party as to the existence and terms of the
applicable Hedge Agreement.
8. Miscellaneous.
8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a
written instrument executed by the affected Grantor and the Collateral Agent in accordance
with Section 14.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands pursuant hereto shall be made in
accordance with Section 14.2 of the Credit Agreement. All communications and notices hereunder
to Grantor shall be given to it in care of the Borrower at the Borrower’s address set forth in
Section 14.2 of the Credit Agreement.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral
Agent nor any Secured Party shall by any act (except by a written instrument pursuant to Section
8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of
the Collateral Agent or any other Secured Party, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent or any other Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Collateral Agent or such other Secured Party would otherwise have on any future
occasion. The rights, remedies, powers and privileges herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or remedies provided
by law.
8.4 Enforcement Expenses; Indemnification. (a) The Grantor agrees to pay any and
all expenses (including all reasonable fees and disbursements of counsel) that may be paid or
incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, the Grantor under this Agreement.
(b) The Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the transactions contemplated by this
Agreement.
(c) The Grantor agrees to pay, and to save the Collateral Agent and the Secured Parties
harmless from, any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and administration of this Agreement to the
extent a Borrower would be required to do so pursuant to Section 12.5 of the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all
other amounts payable under the Credit Agreement and the other Credit Documents.
8.5 Successors and Assigns. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the Collateral Agent except
pursuant to a transaction permitted by the Credit Agreement.
8.6 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by facsimile or other electronic
transmission), and all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Collateral Agent and the Borrower.
8.7 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
8.8 Section Headings. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
8.9 Integration. This Agreement together with the other Credit Documents represents
the agreement of each of the Grantors with respect to the subject matter hereof and there are no
promises, undertakings, representations or warranties by the Collateral Agent or any other
Secured Party relative to the subject matter hereof not expressly set forth or referred to herein
or in the other Credit Documents.
8.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
8.11 Submission To Jurisdiction Waivers. Each party hereto hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to
this Agreement and the other Credit Documents to which it is a party, or for recognition
and enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form
of mail), postage prepaid, to such Person at its address referred to in Section 8.2 or at
such other address of which such Person shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right of any other party hereto (or
any Secured Party) to effect service of process in any other manner permitted by law or
shall limit the right of any party hereto (or any Secured Party) to sue in any other
jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may have to
claim or recover in any legal action or proceeding referred to in this Section 8.11 any
special, exemplary, punitive or consequential damages.
8.12 Acknowledgments. Each party hereto hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Credit Documents to which it is a party;
(b) neither the Collateral Agent nor any other Secured Party has any fiduciary
relationship with or duty to the Grantor arising out of or in connection with this
Agreement or any of the other Credit Documents, and the relationship between the Grantors,
on the one hand, and the Collateral Agent and the other Secured Parties, on the other hand,
in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Lenders and any other
Secured Party or among the Grantors and the Lenders and any other Secured Party.
8.13 [Intentionally Omitted].
8.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9. [Intentionally Omitted.]
[Signature Pages Follow]
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and
delivered as of the date first above written.
| MCJUNKIN RED MAN HOLDING
CORPORATION, as Grantor |
||||
| By: | /s/ CRAIG KETCHUM | |||
| Name: | Craig Ketchum | |||
| Title: | Chief Executive Officer and President | |||
| Lehman Commercial Paper Inc., as Collateral Agent |
||||
| By: | /s/ LAURIE PERPER | |||
| Name: | Laurie Perper | |||
| Title: | Managing Director | |||
MCJUNKIN RED
MAN HOLDING CORPORATION
Security Agreement
Exhibit 10.9
Execution Copy
MIDFIELD SUPPLY ULC,
as Borrower
LOAN AND SECURITY AGREEMENT
Dated as of November 2, 2006
CDN$150,000,000
BANK OF AMERICA, N.A. (acting through its Canada branch),
and
CERTAIN FINANCIAL INSTITUTIONS FROM TIME TO
TIME OR AT ANY TIME NAMED HEREIN AS LENDERS,
TIME OR AT ANY TIME NAMED HEREIN AS LENDERS,
as Lenders
BANK OF AMERICA, N.A. (acting through its Canada branch),
as Agent
TABLE OF CONTENTS
SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION |
1 | |||
1.1 Definitions |
1 | |||
1.2 Accounting Terms |
28 | |||
1.3 Certain Matters of Construction |
28 | |||
1.4 Interest Calculations and Payments |
29 | |||
1.5 Interest Act (Canada) |
29 | |||
1.6 Equivalent Amount |
30 | |||
SECTION 2 CREDIT FACILITIES |
30 | |||
2.1 Revolver Commitment |
30 | |||
2.2 Letter of Credit Facility |
32 | |||
SECTION 3 INTEREST, FEES AND CHARGES |
35 | |||
3.1 Interest |
35 | |||
3.2 Fees |
37 | |||
3.3 Computation of Interest, Fees, Yield Protection |
37 | |||
3.4 Overdraft Loans |
38 | |||
3.5 Illegality |
38 | |||
3.6 Increased Costs |
38 | |||
3.7 Capital Adequacy |
39 | |||
3.8 Mitigation |
39 | |||
3.9 Funding Losses |
40 | |||
3.10 Maximum Interest |
40 | |||
SECTION 4 LOAN ADMINISTRATION |
41 | |||
4.1 Manner of Borrowing and Funding Revolver Loans |
41 | |||
4.2 Defaulting Lender |
42 | |||
4.3 Number and Amount of BA Equivalent Loans; Determination of Rate |
43 | |||
4.4 Effect of Termination |
43 | |||
SECTION 5 PAYMENTS |
43 | |||
5.1 General Payment Provisions |
43 | |||
5.2 Repayment of Revolver Loans |
44 | |||
5.3 Payment of Other Obligations |
44 | |||
5.4 Marshalling; Payments Set Aside |
44 | |||
5.5 Post-Default Allocation of Payments |
44 | |||
5.6 Application of Payments |
45 | |||
5.7 Loan Account; Account Stated |
46 | |||
5.8 Taxes |
46 | |||
SECTION 6 CONDITIONS PRECEDENT |
47 | |||
6.1 Conditions Precedent to Initial Loans |
47 | |||
6.2 Conditions Precedent to All Credit Extensions |
50 | |||
6.3 Limited Waiver of Conditions Precedent |
51 | |||
SECTION 7 COLLATERAL |
51 | |||
7.1 Grant of Security Interest |
51 | |||
7.2 Lien on Deposit Accounts/Dominion Accounts; Cash Collateral |
52 | |||
7.3 Other Collateral |
52 |
- i -
7.4 No Assumption of Liability |
53 | |||
7.5 Further Assurances |
53 | |||
SECTION 8 COLLATERAL ADMINISTRATION |
53 | |||
8.1 Borrowing Base Certificates |
53 | |||
8.2 Administration of Accounts |
53 | |||
8.3 Administration of Inventory |
54 | |||
8.4 Administration of Equipment and Real Estate |
55 | |||
8.5 Administration of Deposit Accounts |
55 | |||
8.6 General Provisions |
56 | |||
8.7 Power of Attorney |
57 | |||
SECTION 9 REPRESENTATIONS AND WARRANTIES |
58 | |||
9.1 General Representations and Warranties |
58 | |||
9.2 Complete Disclosure |
65 | |||
SECTION 10 COVENANTS AND CONTINUING AGREEMENTS |
65 | |||
10.1 Affirmative Covenants |
65 | |||
10.2 Negative Covenants |
70 | |||
10.3 Financial Covenants |
76 | |||
SECTION 11 EVENTS OF DEFAULT; REMEDIES ON DEFAULT |
76 | |||
11.1 Events of Default |
76 | |||
11.2 Remedies upon Default |
78 | |||
11.3 License |
79 | |||
11.4 Setoff |
79 | |||
11.5 Remedies Cumulative; No Waiver |
80 | |||
SECTION 12 AGENT |
80 | |||
12.1 Appointment, Authority and Duties of Agent |
80 | |||
12.2 Agreements Regarding Collateral and Field Examination Reports |
82 | |||
12.3 Reliance By Agent |
82 | |||
12.4 Action Upon Default |
83 | |||
12.5 Ratable Sharing |
83 | |||
12.6 Indemnification of Agent Indemnitees |
83 | |||
12.7 Limitation on Responsibilities of Agent |
84 | |||
12.8 Successor Agent and Co-Agents |
84 | |||
12.9 Due Diligence and Non-Reliance |
86 | |||
12.10 Replacement of Certain Lenders |
86 | |||
12.11 Remittance of Payments and Collections |
86 | |||
12.12 Agent in its Individual Capacity |
87 | |||
12.13 Agent Titles |
87 | |||
12.14 No Third Party Beneficiaries |
88 | |||
SECTION 13 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS |
88 | |||
13.1 Successors and Assigns |
88 | |||
13.2 Participations |
88 | |||
13.3 Assignments |
89 | |||
13.4 Representation of Lenders |
89 | |||
SECTION 14 GUARANTEES |
90 | |||
14.1 The Guarantees |
90 |
- ii -
14.2 Guarantee Absolute |
90 | |||
14.3 Consents, Waivers and Renewals |
91 | |||
14.4 Subrogation |
92 | |||
14.5 Subordination |
92 | |||
14.6 Protection Clause |
92 | |||
14.7 Limitation on Guarantee of Obligations |
92 | |||
14.8 Guarantee of Payment |
94 | |||
SECTION 15 MISCELLANEOUS |
94 | |||
15.1 Consents, Amendments and Waivers |
94 | |||
15.2 Indemnity |
95 | |||
15.3 Notices and Communications |
95 | |||
15.4 Performance of Obligors’ Obligations |
96 | |||
15.5 Credit Inquiries |
96 | |||
15.6 Severability |
96 | |||
15.7 Cumulative Effect; Conflict of Terms |
97 | |||
15.8 Counterparts; Facsimile Signatures |
97 | |||
15.9 Entire Agreement |
97 | |||
15.10 Obligations of Lenders |
97 | |||
15.11 Confidentiality |
97 | |||
15.12 Governing Law; Choice of Forum; Service of Process |
98 | |||
15.13 Waivers by Obligors |
99 | |||
15.14 Survival of Representations and Warranties |
100 | |||
15.15 Fees and Expenses |
100 | |||
15.16 Limitation of Liability |
100 | |||
15.17 Final Agreement |
101 | |||
15.18 Precedence |
101 | |||
15.19 Judgment Currency |
101 |
- iii -
LIST OF EXHIBITS AND SCHEDULES
Exhibit A
|
Revolver Note | |
Exhibit B
|
Intentionally Deleted | |
Exhibit C
|
Assignment and Acceptance | |
Exhibit D
|
Assignment Notice | |
Exhibit E
|
Borrowing Base Certificate | |
Exhibit F
|
Notice of Continuation/Conversion | |
Exhibit G
|
Compliance Certificate | |
Exhibit H
|
Notice of Borrowing | |
Schedule 1.1
|
Commitments of Lenders | |
Schedule 8.5
|
Dominion Accounts | |
Schedule 8.6.1
|
Business Locations | |
Schedule 9.1.4
|
Names and Capital Structure | |
Schedule 9.1.5
|
Former Names and Companies | |
Schedule 9.1.12
|
Patents, Trademarks, Copyrights and Licenses | |
Schedule 9.1.15
|
Environmental Matters | |
Schedule 9.1.16
|
Restrictive Agreements | |
Schedule 9.1.17
|
Litigation | |
Schedule 9.1.19
|
Pension Compliance | |
Schedule 9.1.21
|
Labour Contracts | |
Schedule 9.1.29
|
Real Estate | |
Schedule 10.2.2
|
Existing Liens | |
Schedule 10.2.4
|
Distributions | |
Schedule 10.2.17
|
Existing Affiliate Transactions |
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of November 2, 2006, among MIDFIELD SUPPLY ULC,
an unlimited liability company incorporated under the laws of Alberta (the “Borrower”), Mega
Production Testing Inc., as guarantor, the financial institutions party to this Agreement from
time to time as lenders (collectively, the “Lenders”) and BANK OF AMERICA, N.A. (acting through
its Canada branch), as agent for the Lenders (the “Agent”).
RECITALS:
Borrower has requested that Lenders make available a credit facility, to be used by Borrower
to finance its working capital needs, capital expenditure needs and general corporate purposes and
to refinance its existing debt. Lenders are willing to provide such credit facility on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:
SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions.
As used herein, the following terms have the meanings set forth below:
331562 — 331562 Alberta Ltd.
331562 Debt — (i) the loan, in the principal amount of $2,000,000, currently owing and
made in favour of TSS Tubular & Sales and Service Ltd. by 331562, and (ii) the obligation of TSS
Tubular & Sales and Service Ltd. to pay to 331562 an amount equal to 51% of the net revenues of TSS
Tubular & Sales and Service Ltd. for the period commencing on May 1, 2006 and ending at midnight on
August 31, 2006, which amount shall not exceed the aggregate amount of $900,000 and which payment
shall be made on or before December 31, 2006; and which loan and obligation to pay shall become a
loan and obligation of the Borrower following completion of the Obligor 2006 Amalgamation.
331562 Estoppel Agreement — an estoppel agreement among the Agent, 331562 and the
Borrower dated as of the date hereof on terms and conditions satisfactory to the Agent.
331562 Reserve — an amount equal to all outstanding indebtedness of the Borrower
under the 331562 Debt.
Account — means all of the Borrower’s now owned or hereafter acquired or arising
accounts as defined in the PPSA, including any rights to payment for the sale or lease of goods or
rendition of services, whether or not they have been earned by performance.
Account Debtor — a Person who is obligated under an Account, Chattel Paper or General
Intangible.
- 2 -
Acquisition — any transaction, or any series of related transactions, consummated on
or after the Closing Date, by which an Obligor directly or indirectly (a) acquires debt of another
Person, (b) acquires any ongoing business or all or substantially all of the assets of any Person
engaged in any ongoing business, whether through a purchase of assets, a merger/amalgamation or
otherwise, (c) acquires control of Equity Interests of a Person engaged in an ongoing business
representing more than 50% of the ordinary voting power for the election of directors or other
governing position if the business affairs of such Person are managed by a board of directors or
other governing body or (d) acquires control of more than 50% of the Equity Interests in any
partnership, joint venture, limited liability company, unlimited liability company, business trust
or other Person engaged in an ongoing business that is not managed by a board of directors or other
governing body.
Adjusted EBITDA — for the period then calculated, means, EBITDA plus Bonuses,
to the extent deducted in calculating EBITDA, plus the EPSPs, to the extent deducted in
calculating EBITDA.
Affiliate — with respect to any Person, another Person (a) who directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under common control with such
first Person; (b) who beneficially owns 10% or more of the voting securities or any class of Equity
Interests of such first Person; (c) at least 10% of whose voting securities or any class of Equity
Interests is beneficially owned, directly or indirectly, by such first Person; or (d) who is an
officer, director, partner or managing member of such first Person. “Control” means the possession,
directly or indirectly, of the power to direct or cause direction of the management and policies of
a Person, whether through ownership of Equity Interests, by contract or otherwise.
Agent — Agent in its capacity as agent for the Lenders and in its capacity as
collateral agent for the Secured Parties under the Security Documents, together with any successor
in that capacity appointed pursuant to Section 12.8.
Agent Indemnitees — Agent and its officers, directors, employees, Affiliates, agents,
mandataries and attorneys.
Agent Professionals — attorneys, accountants, appraisers, auditors, business
valuation experts, environmental engineers or consultants, turnaround consultants, and other
professionals and experts retained by Agent.
Agreement — this Loan and Security Agreement and all Exhibits and Schedules thereto.
Allocable
Amount — as defined in Section 14.7.
Anti-Terrorism Laws — any laws relating to terrorism or money laundering, including,
without limitation, the Patriot Act and the Proceeds of Crime Act.
Applicable Law — all laws, rules, regulations and governmental guidelines applicable
to the Person, conduct, transaction, agreement or matter in question, including all applicable
statutory law, common law and equitable principles, and all provisions of constitutions, treaties,
statutes, rules, regulations, orders and decrees of Governmental Authorities.
- 3 -
Applicable Margin — with respect to any Type of Loan, the margin set forth below, as
determined by the Average Daily Availability of the Borrower for the last Fiscal Quarter:
| Average Daily | ||||||||||
| Availability for | ||||||||||
| previous Fiscal | ||||||||||
| Level | Quarter | Prime Rate Loans | BA Equivalent Loans | |||||||
| I | <$30,000,000
|
0.25% | 1.75% | |||||||
| II | ≥$30,000,000 and
<$60,000,000
|
0.0% | 1.50% | |||||||
| III | ≥$60,000,000
|
0.0% | 1.25% | |||||||
Until
the later of (a) May 1, 2007, or (b) the first Business Day of the calendar month
immediately preceding the date of receipt by the Agent of the Borrower’s Compliance Certificate for
the Fiscal Quarter ended March 31, 2007, the margins shall be determined as if Level II were
applicable. Thereafter, the margins shall be subject to increase or decrease upon receipt by Agent,
pursuant to Section 10.1.2, of the financial statements and corresponding Compliance Certificate
for the last Fiscal Quarter, which change shall be effective on the first Business Day of the
calendar month immediately preceding the date of receipt by the Agent of such Compliance
Certificate for such Fiscal Quarter. If Borrower shall fail to deliver a Compliance Certificate by
the date required pursuant to Section 10.1.2, then effective as of the date such Compliance
Certificate becomes delinquent, the Applicable Margin shall be determined as if Level I were
applicable, such automatic adjustment to remain in effect until the first Business Day of the
calendar month immediately preceding receipt by the Agent of the requisite Compliance Certificate.
Asset Disposition — a sale, lease, license, consignment, transfer, alienation or
other disposition of Property of an Obligor, including a disposition of Property in connection
with a sale-leaseback transaction or synthetic lease.
Assignment and Acceptance — an assignment agreement between a Lender and Eligible
Assignee and accepted by Agent, in the form of Exhibit C.
ATB Financial — Alberta Treasury Branches.
ATB
Financial Debt — a fixed asset revolving term loan facility to be made by ATB
Financial in favour of the Borrower and its Subsidiaries, in the aggregate amount of $15,000,000
(the “ATB Principal”), and to be secured by the Borrower’s Real Estate and fixed assets only, the
whole in form and in substance and on terms and conditions satisfactory to the Agent. At all times
after the execution of the ATB Financial Debt, and for so long as any Commitments or Obligations
are outstanding, each Obligor shall not, and shall cause each Subsidiary not to, agree to the
increase of the principal amount of the ATB Financial Debt in excess of the ATB Principal, nor
agree to the increase of any interest rates or any fees, premiums, commissions or other payments
except as provided for in the initial ATB Financial Debt or make any covenants and terms more
restrictive than those provided for in the initial ATB Financial Debt, unless the Agent’s prior
written consent, in its discretion, has been obtained in each such case.
- 4 -
ATB
Intelcreditor Agreement — an Intercreditor Agreement among the Agent, ATB
Financial and the Borrower to be executed concurrently with the execution of the ATB Financial
Debt in form and in substance and on terms and conditions satisfactory to the Agent (such terms
and conditions to include, inter alia, standstill provisions and grant to Agent of a licence to
use
the Equipment in an enforcement scenario).
ATB Principal — as defined in the definition of ATB Financial Debt.
Availability — determined as of any date, the amount that Borrower is entitled to
borrow as Revolver Loans, being the Borrowing Base minus the principal balance of all Revolver
Loans.
Availability Reserve — the sum (without duplication) of (a) the Rent and Charges
Reserve; (b) the LC Reserve; (c) the aggregate amount of liabilities secured by Liens upon
Collateral that are senior to Agent’s Liens (but imposition of any such reserve shall not waive an
Event of Default arising therefrom); (d) the Priority Payable Reserve, (e) the 331562 Reserve, and
(f) such additional reserves, in such amounts and with respect to such matters, as Agent in its
discretion may elect to impose from time to time.
Average Daily Availability — the amount obtained by adding the difference between the
Borrowing Base and the aggregate unpaid balance of the Revolver Loans and Swingline Loans owing by
Borrower to Agent and Lenders at the end of each day during the period in question and by dividing
such sum by the number of days in such period; provided, however, that for purposes of
determining “Average Daily Availability” as such term is used in the definition of “Applicable
Margin” of this Agreement, “Borrowing Base” shall be determined without regard to clause (a) of
the definition of “Borrowing Base”.
BA Equivalent Loan -each set of BA Equivalent Revolver Loans having a common length
and commencement of Interest Period.
BA Equivalent Rate — for the Interest Period of each BA Equivalent Loan, the rate of
interest per annum equal to the annual rates applicable to Canadian Dollar Bankers’ Acceptances
having an identical or comparable term as the proposed BA Equivalent Loan displayed and identified
as such on the display referred to as the “CDOR Page” (or any display substituted therefor) of
Reuter Monitor Money Rates Service as at approximately 10:00 A.M. Eastern time on such day (or, if
such day is not a Business Day, as of 10:00 A.M. Eastern time on the immediately preceding
Business Day), plus five (5) basis points, provided that if such rates do not appear on the CDOR
Page at such time on such date, the rate for such date will be the annual discount rate (rounded
upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 A.M. Eastern time on such day at
which a Canadian chartered bank listed on Schedule 1 of the Bank Act (Canada) as selected by Agent
is then offering to purchase Canadian Dollar Bankers’ Acceptances accepted by it having such
specified term (or a term as closely as possible comparable to such specified term), plus five (5)
basis points.
BA
Equivalent Revolver Loan — a Revolver Loan, in Canadian Dollars, that bears
interest at a rate determined by reference to the BA Equivalent Rate.
Bank — Bank of America, N.A. (acting through its Canada branch) or any successor or assign
thereof.
- 5 -
Bank of America Indemnitees — Bank and all of its present and future officers,
directors, employees, Affiliates, agents, mandataries and attorneys.
Bank Product — any of the following products, services or facilities extended to
Borrower or Canadian Subsidiary by Bank, any Lender or any of its Affiliates: (a) Cash Management
Services; (b) products under Hedging Agreements; (c) commercial credit card and merchant card
services; and (d) leases and other banking products or services as may be requested by Borrower or
Canadian Subsidiary, other than Letters of Credit; provided, however, that for any of the foregoing
to be included as an “Obligation” for purposes of a distribution under Section 5.5.1, the
applicable Secured Party and Obligor must have previously provided written notice to Agent of (i)
the existence of such Bank Product, (ii) the maximum dollar amount of obligations arising
thereunder (“Bank Product Amount”), and (iii) the methodology to be used by such parties in
determining the Bank Product Debt owing from time to time. The Bank Product Amount may be changed
from time to time upon written notice to Agent by the Secured Party and Obligor. No Bank Product
Amount may be established or increased at any time that a Default or Event of Default exists.
Bank
Product Amount — as defined in the definition of Bank Product.
Bank Product Debt — Debt and other obligations of an Obligor relating to Bank
Products.
Bankruptcy Code — Title 11 of the United States Code (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
BIA — The Bankruptcy and Insolvency Act (Canada) (or any successor statute), as amended from
time to time, and includes all regulations thereunder.
Board of Governors — the Board of Governors of the Federal Reserve System.
Bonuses — bonuses payable by the Borrower to its employees in respect of the
Borrower’s then most recently ended Fiscal Year, which bonuses are calculated in accordance with
the Shareholders Agreement (such calculations being so set forth on Schedule 10.2.4); provided,
however, that the Borrower may make a one time bonus payment, for the Fiscal Year 2006, to its
former employees, who are no longer employees as a result of the sale of the Nusco manufacturing
business in June of 2006.
Borrowed Money — with respect to any Obligor, without duplication, its (a) Debt that
(i) arises from the lending of money by any Person to such Obligor, (ii) is evidenced by notes,
drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest or is a
type upon which interest charges are customarily paid (excluding trade payables owing in the
Ordinary Course of Business), or (iv) was issued or assumed as full or partial payment for
Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of credit; and
(d) guaranties of any Debt of the foregoing types owing by another Person.
Borrowing — a group of Loans of one Type that are made on the same day or are
converted into Loans of one Type on the same day.
Borrowing Base — on any date of determination, an amount equal to the lesser of (a)
the aggregate amount of Revolver Commitments, minus the LC Reserve; and (b) the sum of up
to
- 6 -
85% of the Value of Eligible Accounts, plus the lessor of (i) the sum of up to 60% of the
Value of Eligible Inventory, and (ii) $80,000,000, minus the Availability Reserve.
Borrowing Base Certificate — a certificate, in the form of Exhibit E, in form and
substance satisfactory to Agent, by which Borrower certifies calculation of the Borrowing Base.
Business Day — (a) any day excluding Saturday, Sunday and any other day on which banks
are permitted to be closed under the laws of the Province of Ontario or the Province of Quebec.
Capital Adequacy Regulation — any law, rule, regulation, guideline, request or
directive of any central bank or other Governmental Authority, whether or not having the force of
law, regarding capital adequacy of a bank or any Person controlling a bank.
Capital Expenditures — all liabilities incurred, expenditures made or payments due
(whether or not made) by Borrower or Subsidiary for the acquisition of any fixed assets, or any
improvements, replacements, substitutions or additions thereto with a useful life of more than one
year, including the principal portion of Capital Leases.
Capital Lease — any lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Collateral — cash, and any interest or other income earned thereon, that is
delivered to Agent to Cash Collateralize any Obligations.
Cash Collateral Account — a demand deposit, money market or other account established
by Agent at such financial institution as Agent may select in its discretion, which account shall
be subject to Agent’s Liens for the benefit of Secured Parties.
Cash Collateralize — the delivery of cash to Agent, as security for the payment of
Obligations, in an amount equal to (a) with respect to LC Obligations, 105% of the aggregate LC
Obligations, and (b) with respect to any inchoate or contingent Obligations (including Obligations
arising under Bank Products), Agent’s good faith estimate of the amount due or to become due,
including all fees and other amounts relating to such Obligations. “Cash
Collateralization” has a correlative meaning.
Cash Equivalents — (a) marketable obligations issued or unconditionally guaranteed
by, and backed by the full faith and credit of, the Canadian or United States government, maturing
within 12 months of the date of acquisition; (b) certificates of deposit, guaranteed investment
certificates, time deposits and bankers’ acceptances maturing within 12 months of the date of
acquisition, and overnight bank deposits, in each case which are issued by a commercial bank
organized under the laws of Canada or the United States or any province, state or district
thereof, rated A-1 (or better) by S&P or P-1 (or better) by Moody’s at the time of acquisition,
and (unless issued by a Lender) not subject to offset rights; (c) repurchase obligations with a
term of not more than 30 days for underlying investments of the types described in clauses (a) and
(b) entered into with any bank meeting the qualifications specified in clause (b); (d) commercial
paper rated A-1 (or better) by S&P or P-1 (or better) by Moody’s, and maturing within nine months
of the date of acquisition; and (e) shares of any money market fund that has substantially
- 7 -
all of its assets invested continuously in the types of investments referred to above, has net
assets of at least $500,000,000 and has the highest rating obtainable from either Moody’s or S&P.
Cash Management Services — any services provided from time to time by Bank or any of
its Affiliates to Borrower or a Canadian Subsidiary in connection with operating, collections,
payroll, trust, or other depository or disbursement accounts, including automatic clearinghouse,
controlled disbursement, depository, electronic funds transfer, information reporting, lockbox,
stop payment, overdraft and/or wire transfer services.
CCAA — Companies’ Creditors Arrangement Act (Canada), (or any successor statute), as amended
from time to time, and includes all regulations thereunder.
CERCLA — the Comprehensive Environmental Response Compensation and Liability Act (42
U.S.C. § 9601 et seq.), (or any successor statute), as amended from time to time, and includes all
regulations thereunder.
Change of Control — (a) Red Man Pipe & Supply Canada Ltd. ceases to own and control,
beneficially and of record, directly or indirectly, 51% of the voting Equity Interests in
Borrower; (b) a change in the majority of directors of Borrower, unless approved by the then
majority of directors; or (c) all or substantially all of Borrower’s assets are sold or
transferred.
Chattel Paper — as defined in the PPSA.
Civil Code— the Civil Code (Quebec) (or any successor statute), as amended from time to time,
and includes all regulations thereunder.
Claims — all liabilities, obligations, losses, damages, penalties, judgments,
actions, suites, proceedings, awards, costs and expenses of any kind (including remedial response
costs, reasonable attorneys’ fees and Extraordinary Expenses) at any time (including after Full
Payment of the Obligations, resignation or replacement of Agent, or replacement of any Lender)
incurred by or asserted against any Indemnitee in any way relating to (a) any Loan Documents or
transactions relating thereto, (b) any action taken or omitted to be taken by any Indemnitee in
connection with any Loan Documents, (c) the existence, perfection, opposability or enforcement of
any Liens, or realization upon any Collateral, (d) exercise of any rights or remedies under any
Loan Documents or Applicable Law, or (e) failure by any Obligor to perform or observe any terms of
any Loan Document, in each case including all costs and expenses relating to any investigation,
litigation, arbitration or other proceeding (including an Insolvency Proceeding or appellate
proceedings), whether or not the applicable Indemnitee is a party thereto.
Class R Note — unsecured subordinated demand promissory note, classified as the Class
R Note, dated as of June 15, 2005, issued to Red Man Pipe Canada by the Borrower in the amount of
$37,283,833, bearing interest at the rate of 12% per annum (which interest is payable annually in
the month of April).
Closing Date — as defined in Section 6.1.
Closing Date Debt Repayments — The repayment of the existing indebtedness owing to
ATB Financial, HSBC Bank Canada, Royal Bank of Canada and NPS Ventures Ltd., and the partial
repayments of the shareholder loans owing to each of Red Man Pipe Canada and Midfield
- 8 -
Holdings, all as more particularly set forth in a letter of direction executed by the Borrower to
the Agent and dated the date hereof.
Code — the Internal Revenue Code of 1986, as amended from time to time and includes all
regulations thereunder.
Collateral — all Property described in Section 7.1, all Property described in any
Security Documents as security for any Obligations, and all other
Property that now or hereafter
secures (or is intended to secure) any Obligations.
Commitment — for any Lender, the aggregate amount of such Lender’s Revolver
Commitment. “Commitments” means the aggregate amount of all Revolver Commitments.
Commitment Reduction Amount — as defined in Section 2.1.7.
Commitment Reduction Date — as defined in Section 2.1.7.
Commitment Reduction Notice — as defined in Section 2.1.7.
Commitment Termination Date — the earliest to occur of (a) the Revolver Termination
Date; (b) the date on which Borrower terminates the Revolver Commitments pursuant to Section
2.1.4; or (c) the date on which the Revolver Commitments are terminated pursuant to Section 11.2.
Compliance Certificate — a certificate, in the form of Exhibit G, by which Borrower
certifies compliance with Sections 10.2.3 and 10.3 and calculate the applicable Level for the
Applicable Margin.
Contaminant — means any waste, pollutant, hazardous substance, toxic substance,
hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos in any
form or condition, polychlorinated biphenyls (“PCBs”), or any hazardous or toxic constituent of
any such substance or waste.
Contingent Obligation — any obligation of a Person arising from a guarantee, surety,
indemnity or other assurance of payment or performance of any Debt, lease, dividend or other
obligation (“primary obligations”) of another obligor (“primary obligor”) in any manner, whether
directly or indirectly, including any obligation of such Person under any (a) guarantee, surety,
endorsement, co-making or sale with recourse of an obligation of a primary obligor; (b) obligation
to make take-or-pay or similar payments regardless of nonperformance by any other party to an
agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii)
to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure
working capital, equity capital, net worth or solvency of the primary obligor, (iv) to purchase
Property or services for the purpose of assuring the ability of the primary obligor to perform a
primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary
obligation against loss in respect thereof. The amount of any Contingent Obligation shall be
deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum
amount for which such Person may be liable under the instrument evidencing the Contingent
Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with
respect thereto.
- 9 -
CWA — the Clean Water Act (33 U.S.C. §§ 1251 et seq.) (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
Debt — with respect to any Person, without duplication, (a) all items that would be
included as liabilities on a balance sheet in accordance with GAAP, including, without limitation,
Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of
Business; (b) all Contingent Obligations; (c) all reimbursement obligations in connection with
letters of credit issued for the account of such Person; and (d) in the case of Borrower, the
Obligations. The Debt of a Person shall include any recourse Debt of any partnership in which such
Person is a general partner or joint venturer.
Default — an event or condition that, with the lapse of time or giving of notice,
would constitute an Event of Default.
Default Rate — for any Obligation (including, to the extent permitted by law,
interest not paid when due), 2% plus the interest rate otherwise applicable thereto.
Deposit
Account — includes any bank account (with deposit functions) maintained or
held with any financial institution.
Distribution — any declaration or payment of a distribution, interest or dividend on
any Equity Interest (other than payment-in-kind); any distribution, advance or repayment of Debt
to a holder of Equity Interests; or any purchase, redemption, or other acquisition or retirement
for value of any Equity Interest.
Dollars
or Canadian Dollars or “$“ — the lawful currency of Canada.
Dominion Account — a special account established by each Obligor at Bank, over which
Agent has exclusive access and control for withdrawal purposes.
EBITDA — determined on a consolidated basis for Borrower and Subsidiaries, net
income, calculated before interest expense, provision for income taxes, depreciation and
amortization expense, gains or losses arising from the sale of capital assets, gains arising from
the write-up of assets, and any extraordinary gains (in each case, to the extent included in
determining net income).
Eligible Account — an Account owing to an Obligor that arises in the Ordinary Course
of Business from the sale of goods, or rendition of services, is payable in Dollars or U.S. Dollars
and is deemed by Agent, in its discretion, to be an Eligible Account. Without limiting the
foregoing, no Account shall be an Eligible Account if:
(a) it is unpaid for more than 90 days after the original invoice date; provided, however,
that in the case of Accounts owing by the Account Debtor known as Paramount Resources Ltd.,
it is unpaid for more than 120 days after the original invoice date;
(b) 30% or more of the Accounts owing by the Account Debtor are not Eligible Accounts
under clause (a) of this definition or otherwise ineligible hereunder;
- 10 -
(c) when aggregated with other Accounts owing by the Account Debtor, it exceeds 20%
of the aggregate Eligible Accounts (or such higher percentage as Agent may establish for the
Account Debtor from time to time);
(d) it does not conform with a covenant or representation herein;
(e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset,
compensation,
counterclaim,
dispute,
deduction,
discount,
recoupment,
reserve,
defense,
chargeback, contra, credit or allowance (but ineligibility shall be limited to the amount
thereof);
(f) an Insolvency Proceeding has been commenced by or against the Account Debtor; or
the Account Debtor has failed, has suspended or ceased doing business, is liquidating,
dissolving
or winding up its affairs, or is not Solvent or, in the case of an individual, death or
judicial
declaration of incompetency;
(g) the
Account Debtor is organized or has its principal chief executive or registered offices or assets outside the United States or Canada;
(h) it is owing by a Government Authority, unless (i) the Account Debtor is the United States
or any department, agency or instrumentality thereof and the Account has been assigned to Agent in
compliance with the Assignment of Claims Act or (ii) the Account Debtor is the government of
Canada and the Account has been assigned to Agent in compliance with the Financial Administration
Act (Canada);
(i) it is not subject to a duly perfected, opposable and first priority Lien in favour of
Agent, or is subject to any other Lien, or the Agent’s right or ability to obtain direct payment to
the Agent of the proceeds of such Account, is governed by any federal, state or provincial
statutory requirements other than those of the UCC, the PPSA or the Civil Code;
(j) the goods giving rise to it have not been delivered to and accepted by the Account
Debtor, the services giving rise to it have not been accepted by the Account Debtor, or it
otherwise does not represent a final sale;
(k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to
judgment;
(l) its payment has been extended, the Account Debtor has made a partial payment, or it
arises from a sale on a cash-on-delivery basis;
(m) it arises from a sale to an Affiliate, or from a sale on a bill-and-hold, pre-bill,
guaranteed sale, sale or return, sale on approval, consignment, conditional sale or other
repurchase or return basis;
(n) it represents a progress billing or retainage;
(o) it represents an Account belonging to an Account Debtor where an Obligor has suspended
any further sales to such Account Debtor;
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(p) it includes a billing for interest, fees or late charges, but ineligibility shall be
limited to the extent thereof;
(q) with respect to which the Account Debtor is located in any state of the United States or
province of Canada which requires the filing of a Notice of Business Activities Report or
registration or licencing to carry on business or similar report, registration or licencing in
order to permit an Obligor to seek judicial enforcement in such state of the United States or
province of Canada of payment of such Account, unless an Obligor has qualified to do business in
such province or state or has filed a Notice of Business Activities Report or registration or
licencing to carry on business or equivalent report, registration or licencing for the then current
year;
(r) it arises from a retail sale to a Person who is purchasing for personal, family or
household purposes; or
(s) such Account is determined by the Agent in its discretion to be ineligible for any other
reason.
In calculating delinquent portions of Accounts under clauses (a) and (b), credit balances
more than 90 days old will be excluded (provided, however, that, in the case of Paramount
Resources Ltd., credit balances more than 120 days old will be excluded). If any Account at any
time ceases to be an Eligible Account, then such Account shall promptly be excluded from the
calculation of Eligible Accounts.
Eligible Assignee — a Canadian based Affiliate of a Lender each of which is resident
in Canada or is deemed to be resident in Canada for purposes of Part XIII of the ITA; (ii) any
other financial institution approved by Agent and Borrower (which approval by Borrower shall not
be unreasonably withheld or delayed, and shall be deemed given if no objection is made within two
Business Days after notice of the proposed assignment), that is organized under the laws of Canada
or any province, has total assets in excess of $5 billion, extends asset-based lending facilities
in its ordinary course of business, whose becoming an assignee would not constitute a prohibited
transaction under Applicable Law and who is resident in Canada or is deemed to be resident in
Canada for purposes of Part XIII of the ITA; and (iii) during any Event of Default, any Person
acceptable to Agent in its discretion.
Eligible Inventory — Inventory owned by an Obligor that Agent, in its discretion,
deems to be Eligible Inventory. Without limiting the foregoing, no Inventory shall be Eligible
Inventory unless it:
(a) is finished goods, and not raw materials, work-in-process, packaging or shipping
materials, labels, samples, display items, bags, replacement parts, spare parts or
manufacturing
supplies;
(b) is not held on consignment, nor subject to any deposit or downpayment;
(c) is in new and saleable condition and is not damaged, defective, shopworn or
otherwise unfit for sale;
(d) is not slow-moving, obsolete or unmerchantable, and does not constitute returned
or repossessed goods;
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(e) meets all standards imposed by any Governmental Authority, and does not
constitute hazardous materials under any Environmental Law;
(f) conforms with the covenants and representations herein;
(g) is owned by an Obligor and is maintained or stored at a location of an Obligor
subject to paragraphs (i), (j) and (k) of this definition of Eligible Inventory;
(h) is subject to Agent’s duly perfected, opposable and first priority Lien, and no other
Lien;
(i) is not located on leased premises unless the lessor has delivered a Lien Waiver or an
appropriate Rent and Charges Reserve at the Agent’s discretion has been established;
(j) is not in the possession of a warehouseman, processor, repairman, mechanic, shipper,
freight forwarder or other Person, unless such Person has delivered a Lien Waiver;
(k) is
not consigned to any Person, provided, however, that Inventory in Canada or the
continental United States, on consignment by an Obligor to a Person, shall be considered Eligible
Inventory if (i) Obligor has filed a financing statement against such Person in respect of such
Inventory (insuring a first ranking Lien against such Inventory), (ii) Obligor has assigned the
foregoing financing statement to Agent, (iii) such Person has delivered a consignee’s consent
letter in form and substance satisfactory to the Agent, and (iv) the Inventory would otherwise
constitute Eligible Inventory hereunder;
(l) is within the continental United States or Canada and is not in transit except between
locations of an Obligor;
(l) is not subject to any warehouse receipt or negotiable Document;
(m) is not subject to any License or other arrangement that restricts an Obligor’s or Agent’s
right to dispose of such Inventory, unless Agent has received an appropriate Lien Waiver or
consent to sub-license in form and substance satisfactory to Agent; and
(n) such Inventory is not determined by the Agent in its discretion to be ineligible for any
other reason.
If any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly
be excluded from the calculation of Eligible Inventory.
Enforcement Action — any action to enforce any Obligations or Loan Documents or to
realize upon any Collateral (whether by judicial action, self-help, notification of Account
Debtors, exercise of setoff, compensation or recoupment, or otherwise).
Environmental Laws — all Applicable Laws (including all programs, permits,
authorizations, consents, registrations, approvals, ordinances, judgments, injunctions, notices
and guidance promulgated by regulatory agencies or other Governmental Authorities), relating to
public health (but excluding occupational safety and health, to the extent regulated by OSHA) or
- 13 -
the protection or pollution of the environment, including the Environmental Protection Act
(Canada), CERCLA and CWA.
Environmental Notice — a notice (whether written or oral) from any Governmental
Authority or other Person of any possible noncompliance with, investigation of a possible
violation of, litigation relating to, or potential fine or liability under any Environmental Law,
or with respect to any Environmental Release, environmental pollution or hazardous materials,
including any complaint, summons, citation, order, claim, demand or request for correction,
remediation or otherwise.
Environmental Release — means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into
the indoor or outdoor environment or into or out of any Real Estate or other property, including
the movement of Contaminants through or in the air, soil, surface water, groundwater or Real
Estate or other property or a release as defined in CERCLA or under any other Environmental Law.
EPSPs — means The Employee Profit Sharing Plan distributions made in accordance with
the Shareholders Agreement which are, for greater certainty, (a) the EPSP first allocation which is
an amount equal to the interest payable by the Borrower on the Class R Note in each fiscal year
multiplied by the common stock ownership ratio of the number of shares held by Midfield Holdings,
in the Borrower, divided by the number of shares held by Red Man Pipe Canada, in the Borrower,
outstanding during the Fiscal Year, and (b) the EPSP second allocation which is an amount equal to
taxable earnings of the Borrower before deduction of the EPSP second allocation in each Fiscal Year
multiplied by the common stock ownership ratio of the number of shares held by Midfield Holdings,
in the Borrower, divided by the total number of shares of the Borrower outstanding during the
Fiscal Year.
Equipment — as defined in the PPSA, including all tools, machinery, apparatus,
equipment, fittings, furniture, fixtures, motor vehicles and other tangible (corporeal) personal
(movable) Property (other than Inventory), and all parts, accessories and special tools therefor,
and accessions thereto.
Equity Interest — the interest of any (a) shareholder in corporation or company, (b)
partner in a partnership (whether general, limited, special, limited liability or joint venture),
(c) member in a limited liability company or unlimited liability company, or (d) other Person
having any other form of equity security or ownership interest.
Equivalent Amount — on any date, the amount of Dollars into which an amount of U.S.
Dollars may be converted or the amount of U.S. Dollars into which an amount of Dollars may be
converted, in either case, at the Bank’s spot buying rate in Toronto, Canada as at approximately
12:00 p.m. (Eastern time) on such date.
ERISA — the Employee Retirement Income Security Act of 1974 (or any successor
statute), as amended from time to time, and includes all regulations thereunder.
Europump — Europump Systems Inc.
Europump Loan — an unsecured loan, in the aggregate principal amount of $5,500,000,
made in favour of Europump by, and currently owing to, the Borrower.
- 14 -
Event of Default — as defined in Section 11.
Excluded Taxes — with respect to the Agent, any Lender or any other recipient of any
payment to be made by or on account of any obligation of an Obligor hereunder, (a) taxes imposed on
or measured by its overall net income (however denominated), and franchise taxes imposed on it (in
lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the
laws of which such recipient is organized or in which its principal office or domicile is located
and (b) any branch profits taxes imposed by the United States, Canada or any similar tax imposed by
any other jurisdiction in which an Obligor is located.
Extraordinary Expenses — all costs, expenses or advances that Agent may incur during a
Default or Event of Default, or during the pendency of an Insolvency Proceeding of an Obligor,
including those relating to (a) any audit, inspection, repossession, storage, repair, appraisal,
insurance, manufacture, preparation or advertising for sale, sale, collection, or other
preservation of or realization upon any Collateral; (b) any action, arbitration or other proceeding
(whether instituted by or against Agent, any Lender, any Obligor, any representative of creditors
of an Obligor or any other Person) in any way relating to any Collateral (including the validity,
perfection, opposability, priority or avoidability of Agent’s Liens with respect to any
Collateral), Loan Documents or Obligations, including any lender liability or other Claims; (c) the
exercise, protection or enforcement of any rights or remedies of Agent in, or the monitoring of,
any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with
respect to any Collateral; (e) any Enforcement Action; (f) negotiation and documentation of any
modification, waiver, workout, restructuring or forbearance with respect to any Loan Documents or
Obligations; or (g) Protective Advances. Such costs, expenses and advances include transfer fees,
taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal
fees, appraisal fees, brokers’ fees and commissions, auctioneers’ fees and commissions,
accountants’ fees, environmental study fees, wages and salaries paid to employees of any Obligor or
independent contractors in liquidating any Collateral, and travel expenses.
Fee Letter — the fee letter agreement between Agent, Bank and Borrower.
Fiscal Quarter — each period of three months, commencing on the first day of a Fiscal
Year.
Fiscal Year — the fiscal year of Borrower and Subsidiaries for accounting and tax
purposes, ending on October 31st of each year.
Fixed Charge Coverage Ratio — the ratio, determined and calculated on a consolidated
basis for Borrower and Subsidiaries and on a rolling historical twelve month basis, of (a)
Adjusted EBITDA, to (b) Fixed Charges.
Fixed Charges — the sum, when actually paid in the period, of interest expense,
principal payments on Borrowed Money (other than the Revolving Loans and Closing Date Debt
Repayments), income taxes, Capital Expenditures (except those financed with Borrowed Money other
than Revolver Loans), Bonuses and Net Distributions less income taxes, EPSPs or other
Distributions paid by Borrower relating to the one time gain resulting from the sale of the Nusco
manufacturing business in June of 2006, provided, that, the Agent has provided its consent to the
amount of such charges being applied.
- 15 -
Foreign Lender — with respect to the Borrower, any Lender that is organized under the
laws of a jurisdiction other than the laws of Canada.
Foreign Plan — any employee benefit plan, pension plan or arrangement maintained or
contributed to by any Person that is not subject to the laws of Canada, or any employee benefit
plan or arrangement mandated by a government other than Canada for employees of any Person.
FSCO — the Financial Services Commission of Ontario and any Person succeeding to the
functions thereof and includes the Superintendent under such statute and any other Governmental
Authority empowered or created by the PBA.
Full Payment — with respect to any Obligations, (a) the full and indefeasible cash
payment thereof, including any interest, fees and other charges accruing during an Insolvency
Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations
or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby
letter of credit acceptable to Agent in its discretion, in the amount of required Cash Collateral);
and (c) a release of any Claims of Obligors against Agent, Lenders and Issuing Bank arising on or
before the payment date. No Loans shall be deemed to have been paid in full until all Commitments
related to such Loans have expired or been terminated.
GAAP — generally accepted accounting principles and practices in effect at such time
in Canada as recognized by the Canadian Institute of Chartered Accountants which are applicable to
the circumstances.
General
Intangibles — including “Intangibles” as defined in the PPSA and including
choses in action, causes of action, company or other business records, inventions, blueprints,
designs, patents, patent applications, trademarks, trademark applications, trade names, trade
secrets, service marks, goodwill, brand names, copyrights, registrations, licenses, franchises,
customer lists, permits, tax refund claims, computer programs, operational manuals, internet
addresses and domain names, insurance refunds and premium rebates, all rights to indemnification,
and all other intangible and incorporeal Property of any kind.
General Security Agreements — the general security agreements executed by each
Obligor in favour of the Agent dated the date hereof in form and substance satisfactory to the
Agent.
Goods — as defined in the PPSA.
Governmental Approvals — all authorizations, consents, approvals, licenses and
exemptions of, registrations and filings with, and required reports to, all Governmental
Authorities.
Governmental Authority — any federal, provincial, territorial, state, municipal,
foreign or other governmental department, agency, commission, board, bureau, court, tribunal,
instrumentality, political subdivision, or other entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions for or pertaining to any government
or court, and any corporation, Crown corporation or other entity owned or controlled, through
stock or capital in each case whether associated with Canada, the United States, a province,
state, district or territory thereof, or a foreign entity or government.
- 16 -
Guarantee — (i) the guarantee, as set out in Section 14 hereof, and (ii) each
guarantee or surety agreement executed by a Guarantor in favour of Agent.
Guaranteed
Obligations — as defined in Section 14.
Guarantors — Mega Production Testing Inc. and each other Person who guarantees
payment or performance of any Obligations.
Hedging Agreement — an agreement relating to any swap, cap, floor, collar, option,
forward, cross right or obligation, or combination thereof or similar transaction, with respect
to interest rate, foreign exchange, currency, commodity, credit or equity risk.
Indemnified Taxes — all Taxes (including Other Taxes) other than Excluded Taxes.
Indemnitees — Agent Indemnitees, Lender Indemnitees, Issuing Bank Indemnitees and
Bank Indemnitees.
Insolvency Proceeding — (i) The filing by or against an Obligor of a request,
proposal, notice of intent to file a proposal, proceeding, action or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other
relief under the bankruptcy, insolvency, restructuring, liquidation, winding up, corporate or
similar laws of Canada, the United States, any province, state or territory thereof, or any foreign
jurisdiction, now or hereafter in effect; (ii) the making of any general assignment by an Obligor
for the benefit of creditors; (iii) the appointment of a receiver, trustee, monitor, custodian,
liquidator, administrator, interim receiver, monitor or trustee or other official for an Obligor or
for any of the assets of an Obligor, including, without limitation, the appointment of or taking
possession by a “trustee” under the BIA or “custodian, “ as defined in the Bankruptcy Code; (iv)
the institution by or against an Obligor of any other type of insolvency, liquidation, bankruptcy,
winding up or reorganization proceeding (under the laws of Canada, including applicable corporate
statutes, the BIA and the CCAA) or of any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, an Obligor; (v) the
sale, assignment, or transfer of all or any material part of the assets of an Obligor; (vi) the
nonpayment generally by an Obligor of its debts as they become due; or (vii) the cessation of the
business of an Obligor as a going concern;
Instrument — as defined in the PPSA.
Intellectual Property — all intellectual and similar Property of a Person, including
inventions, designs, patents, patent applications, copyrights, trademarks, service marks, trade
names, trade secrets, confidential or proprietary information, customer lists, know-how, software
and databases; all embodiments or fixations thereof and all related documentation, registrations
and franchises; all books and records describing or used in connection with the foregoing; and all
licenses or other rights to use any of the foregoing.
Intellectual Property Claim — any claim or assertion (whether in writing, by suit or
otherwise) that Borrower’s or Subsidiary’s ownership, use, marketing, sale or distribution of any
Inventory, Equipment, Intellectual Property or other Property violates another Person’s
Intellectual Property.
- 17 -
Interest Period — as defined in Section 3.1.3.
Inventory — as defined in the PPSA, including all goods and other corporeal movable
Property intended for sale, lease, display or demonstration; all work in process; and all raw
materials, and other materials and supplies of any kind that are or could be used in connection
with the manufacture, transformation, printing, packing, shipping, advertising, sale, lease or
furnishing of such goods or Property, or otherwise used or consumed in an Obligor’s business or
enterprise, in providing a service or otherwise (but excluding Equipment).
Investment — any acquisition of all or substantially all assets of a Person; any
acquisition of record or beneficial ownership of any Equity Interests of a Person; or any advance
or capital contribution to or other investment in a Person.
Investment
Property — all of an Obligor’s right, title and interest in and to any and
all: (a) securities whether certificated or uncertificated; (b) securities entitlements; (c)
securities accounts; (d) commodity contracts; and (e) commodity accounts.
Issuing Bank — Bank or an Affiliate of Bank.
Issuing Bank Indemnitees — Issuing Bank and its officers, directors, employees,
Affiliates, agents, mandataries and attorneys.
ITA — the Income Tax Act (Canada) (or any successor statute), as amended from time to
time, and includes all regulations thereunder.
LC Application — an application by Borrower to Issuing Bank for issuance of a Letter
of Credit, in form and substance satisfactory to Issuing Bank.
LC Conditions — the following conditions necessary for issuance of a Letter of Credit:
(a) each of the conditions set forth in Section 6; (b) after giving effect to such issuance, total
LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists and, if no
Revolver Loans are outstanding, the LC Obligations do not exceed the Borrowing Base (without giving
effect to the LC Reserve for purposes of this calculation); (c) the expiration date of such Letter
of Credit is (i) no more than 365 days from issuance, in the case of standby Letters of Credit,
(ii) no more than 120 days from issuance, in the case of documentary Letters of Credit, and (iii)
at least 20 Business Days prior to the Revolver Termination Date; (d) the Letter of Credit and
payments thereunder are denominated in Dollars or U.S. Dollars; and (e) the form of the proposed
Letter of Credit is satisfactory to Agent and Issuing Bank in their discretion.
LC Documents — all documents, instruments and agreements (including LC Requests and
LC Applications) delivered by Borrower or any other Person to Issuing Bank or Agent in connection
with issuance, amendment or renewal of, or payment under, any Letter
of Credit.
LC Obligations — the sum (without duplication) of (a) all amounts owing by Borrowers
for any drawings under Letters of Credit; (b) the aggregate undrawn amount of all outstanding
Letters of Credit (which amount shall include, for Letters of Credit denominated in U.S. Dollars,
the Equivalent Amount thereof in Dollars); and (c) all fees and other amounts owing with respect
to Letters of Credit.
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LC Request — a request for issuance of a Letter of Credit, to be provided by Borrower
to Issuing Bank, in form satisfactory to Agent and Issuing Bank.
LC Reserve — the aggregate of all LC Obligations.
Lender Indemnitees — Lenders and their officers, directors, employees, Affiliates,
agents, mandataries and attorneys.
Lenders — as defined in the preamble to this Agreement, including Agent in its
capacity as a provider of Swingline Loans and any other Person who hereafter becomes a “Lender”
pursuant to an Assignment and Acceptance, and their respective successors, and any one of them a
“Lender”.
Letter of Credit — any standby or documentary letter of credit issued by Issuing Bank
in Dollars or U.S. Dollars for the account of Borrower, or any indemnity, guarantee, exposure
transmittal memorandum or similar form of credit support issued by Agent or Issuing Bank for the
benefit of an Obligor (for the account of the Borrower).
Letter of Credit Subline — $10,000,000, or the Equivalent Amount thereof in U.S.
Dollars.
Leverage Ratio — the ratio, determined as of the end of any calendar month, of (a)
Borrowed Money (other than Contingent Obligations of the Obligors) as of the last day of such
calendar month less the Shareholders’ Notes and the Class R Note outstanding, to (b)
Adjusted EBITDA for the rolling historical twelve month period then ending.
License — any license or agreement under which an Obligor is authorized to use
Intellectual Property in connection with any manufacture, marketing, distribution, transformation
or disposition of Collateral, any use of Property or any other conduct of its business.
Licensor — any Person from whom an Obligor obtains the right to use any Intellectual
Property.
Lien — any Person’s interest (choate or inchoate) in Property securing an obligation
owed to, or a claim by, such Person, whether such interest is based on common law, statute or
contract, including liens, assignments, assignments by way of security, security interests,
pledges, hypothecations, statutory trusts, reservations, rights of retention, privileges,
garnishment rights, deemed trusts, exceptions, encroachments, easements, rights-of-way,
servitudes, covenants, conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property.
Lien Waiver — an agreement, in form and substance satisfactory to Agent, by which (a)
for any material Collateral located on leased premises, the lessor waives or subordinates any Lien
it may have on the Collateral, and agrees to permit Agent to enter upon the premises and remove
the Collateral or to use the premises to store or dispose of the Collateral; (b) for any
Collateral held by a warehouseman, processor, shipper or freight forwarder, such Person waives or
subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its
possession relating to the Collateral as agent for Agent, and agrees to deliver the Collateral to
Agent upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person
acknowledges Agent’s Lien, waives or subordinates any Lien it may have on the Collateral, and
agrees to deliver the Collateral to Agent upon request; and (d) for any Collateral subject to a
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Licensor’s
Intellectual Property rights, the Licensor grants to Agent the right,
vis-à-vis such
Licensor, to enforce Agent’s Liens with respect to the Collateral, including the right to dispose
of it with the benefit of the Intellectual Property, whether or not a default exists under any
applicable License.
Loan — a Revolver Loan.
Loan Account — the loan account established by each Lender on its books pursuant to
Section 5.7.
Loan Documents — this Agreement, Other Agreements and Security Documents.
Loan Year — each year of 365 or 366 days, as applicable, commencing on the Closing
Date and on each anniversary of the Closing Date.
Margin Stock — as defined in Regulation U of the Board of Governors.
Material Adverse Effect — the effect of any event or circumstance that, taken alone
or in conjunction with other events or circumstances, (a) has or could be reasonably expected to
have a material adverse effect on the business, operations, Properties, prospects or condition
(financial or otherwise) of any Obligor, on the value of any material Collateral, on the
enforceability of any Loan Documents, or on the validity or priority or opposability of Agent’s
Liens on any Collateral; (b) impairs the ability of any Obligor to perform any obligations under
the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability
of Agent or any Lender to enforce or collect any Obligations or to realize upon any Collateral.
Material Contract — any agreement or arrangement to which Borrower or Subsidiary is
party (other than the Loan Documents) (a) that is deemed to be a material contract under any
securities law applicable to such Obligor, including the Securities Act of 1933, (b) for which
breach, termination, resiliation, nonperformance or failure to renew could reasonably be expected
to have a Material Adverse Effect, or (c) that relates to Subordinated Debt, or Debt in an
aggregate amount of $250,000 or more.
Midfield Holdings — Midfield Holdings (Alberta) Ltd., a Person holding Equity
Interests in the Borrower.
Moody’s — Moody’s Investors Service, Inc., and its successors.
Multiemployer Plan — any employee benefit plan or arrangement described in Section
4001(a)(3) of the ERISA that is maintained or contributed to by any Obligor or Subsidiary.
Net Distributions — the sum, when actually paid in the period, of EPSPs, dividends
and any other such Distributions (excluding Bonuses and interest on the Shareholders’ Notes and
the Class R Note) made by the Borrower (all as more particularly set forth on Schedule 10.2.4)
less Shareholder Reinvestments actually made at the time of such Distributions being made.
Net Proceeds — with respect to an Asset Disposition, proceeds (including, when
received, any deferred or escrowed payments) received by Borrower or Subsidiary in cash from such
disposition, net of (a) reasonable and customary costs and expenses actually incurred in
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connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment
of Debt secured by a Permitted Lien senior to Agent’s Liens on Collateral sold; (c) transfer or
similar taxes; and (d) reserves for indemnities, until such reserves are no longer needed.
Notes — each Revolver Note or other promissory note, as required by any Lender,
executed by Borrower to evidence any Obligations.
Notice of Borrowing — a Notice of Borrowing to be provided by a Senior Officer of
Borrower to request the funding of Borrowing of Revolver Loans, in each case in the form of Exhibit
H.
Notice of Conversion/Continuation — a Notice of Conversion/Continuation to be
provided by a Senior Officer of Borrower to request a conversion or continuation of any Prime Rate
Loans as BA Equivalent Loans, in the form of Exhibit F.
Obligations — all (a) principal of and premium, if any, on the Loans, (b) the LC
Obligations and other liabilities and obligations of Obligors with respect to Letters of Credit,
(c) interest, expenses, fees and other sums payable by Obligors under Loan Documents, (d)
liabilities and obligations of Obligors under any indemnity for Claims, (e) Extraordinary
Expenses, (f) Bank Product Debt, (g) the Guaranteed Obligations, and (h) other Debts, obligations,
covenants, duties and liabilities of any kind owing by Obligors pursuant to the Loan Documents,
whether now existing or hereafter arising, whether evidenced by a note or other writing, whether
or not allowed in any Insolvency Proceeding (including any interest that accrues after the
commencement of any case or proceedings by or against the Borrower under any debtor relief law
(including the BIA and the CCAA)), whether arising from an extension of credit, issuance of a
letter of credit, acceptance, loan, guarantee, covenant, indemnification or otherwise, and whether
direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint
or several.
Obligor — Borrower, Guarantor, or other Person that is liable for payment of any
Obligations or that has granted a Lien in favour of Agent on its assets to secure any Obligations.
Obligor 2006 Amalgamation — the series of amalgamations to be completed on November
1, 2006, in the following order:
| (a) | Firstly, the amalgamation of Jac-Brie Holdings Ltd. with its wholly owned subsidiary, Joe’s Supply Ltd. under the name Joe’s Supply Ltd. (“New Joe’s Supply Ltd.”); | ||
| (b) | Secondly, the amalgamation of 365465 Alberta Ltd. with its wholly owned subsidiary, TSS Tubular Sales & Service Ltd. under the name TSS Tubular Sale & Service Ltd. (“New TSS Tubular Ltd.”); | ||
| (c) | Thirdly, the amalgamation of Nusco Pipe and Supply ULC with its wholly owned subsidiaries, Brittania Industries Inc. and New TSS Tubular Ltd. under the name Nusco Pipe and Supply ULC (“New Nusco ULC”); and |
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| (d) | Fourthly, the amalgamation of Midfield Supply ULC with its wholly owned subsidiaries, Boost Energy Systems Inc., New Joe’s Supply Ltd., and New Nusco ULC under the name Midfield Supply ULC to create the Borrower. |
Ordinary Course of Business — the ordinary course of business of Borrower or
Subsidiary, consistent with past practices and undertaken in good faith.
Organic Documents — with respect to any Person, its charter, certificate or articles
of incorporation, articles of amalgamation, articles of amendment, certificates or articles of
constitution, letters patent, certificates and articles of continuation, bylaws, articles of
organization, limited liability agreement, operating agreement, members agreement, shareholders
agreement, partnership agreement, limited partnership agreement, certificate of partnership,
memoranda of association, certificate of formation, voting trust agreement, or similar agreement or
instrument governing the formation or operation of such Person.
OSHA — the Occupational Safety and Hazard Act of 1970 (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
Other Agreements — each Note; LC Document; Fee Letter; Lien Waiver; ATB Intercreditor
Agreement, Shareholder Subordination Agreements, 331562 Estoppel Agreement, Borrowing Base
Certificate, Compliance Certificate, financial statement or report delivered hereunder; or other
document, instrument or agreement (other than this Agreement or a Security Document) now or
hereafter delivered by an Obligor or other Person to Agent or a Lender in connection with any
transactions relating hereto or any other Loan Document.
Other Taxes — all present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies arising from any payment made hereunder or under any
other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect
to, this Loan and Security Agreement or any other Loan Document.
Overadvance — as defined in Section 2.1.5.
Overadvance Loan — a Prime Rate Revolver Loan made when an Overadvance exists or is
caused by the funding thereof.
Overdraft
Loan — as defined in Section 3.4.
Participant — as defined in Section
13.2.
Patriot Act — the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001)
(or any successor statute), as amended from time to time, and includes all regulations thereunder.
Payment Item — each check, draft or other item of payment payable to Borrower,
including those constituting proceeds of any Collateral.
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PBA — Pensions Benefit Act (Ontario) or similar legislation of any other federal or
provincial jurisdiction (or any successor statute), as amended from
time to time, and includes all
regulations thereunder.
PBGF — the Pension Benefit Guarantee Fund of Ontario or any Governmental Authority of
any other jurisdiction exercising similar functions in respect of any Plan or Foreign Plan of an
Obligor and any Governmental Authority succeeding to the functions thereof.
Pension Event — (a) the whole or partial withdrawal of an Obligor or any of its
Subsidiaries from a Plan or Foreign Plan during a plan year; or (b) the filing of a notice of
interest to terminate in whole or in part a Plan or Foreign Plan or the treatment of a Plan or
Foreign Plan amendment as a termination of partial termination; or (c) the institution of
proceedings by any Governmental Authority to terminate in whole or in part or have a trustee
appointed to administer a Plan or Foreign Plan; or (d) any other event or condition which might
constitute grounds for the termination of, winding up or partial termination of winding up or the
appointment of trustee to administer, any Plan or Foreign Plan.
Permitted Asset Disposition — as long as no Default or Event of Default exists and
all Net Proceeds are remitted to Agent, an Asset Disposition that is (a) a sale of Inventory in
the Ordinary Course of Business; (b) a disposition of Equipment in the Ordinary Course of
Business; (c) a disposition of Inventory that is obsolete, unmerchantable or otherwise unsalable
in the Ordinary Course of Business; (d) termination of lease of a real (immovable) or personal
(movable) Property that is not necessary for the Ordinary Course of Business, could not reasonably
be expected to have a Material Adverse Effect and does not result from an Obligor’s default; or
(e) approved in writing by Agent and Required Lenders.
Permitted Contingent Obligations — Contingent Obligations (a) arising from
endorsements of Payment Items for collection or deposit in the Ordinary Course of Business; (b)
arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date, and any
extension or renewal thereof that does not increase the amount of such Contingent Obligation when
extended or renewed; (d) incurred in the Ordinary Course of Business with respect to surety,
appeal or performance bonds, or other similar obligations; (e) arising from customary
indemnification obligations in favour of purchasers in connection with dispositions of Equipment
permitted hereunder; (f) arising under the Loan Documents; or (g) in an aggregate amount of
$250,000 or less at any time.
Permitted Lien — as defined in Section 10.2.2.
Permitted Purchase Money Debt — Purchase Money Debt of Borrower and Subsidiaries that
is unsecured or secured only by a Purchase Money Lien, as long as the aggregate amount does not
exceed $500,000 at any time and its incurrence does not violate
Section 10.2.3.
Person — any individual, corporation, limited liability company, unlimited liability
company, partnership, limited liability partnership, joint venture, joint stock company, land
trust, business trust, unincorporated organization, Governmental Authority or other entity.
Plan — an employee pension benefit plan or pension plan that is covered by the
Applicable Laws of any jurisdiction in Canada including the PBA and the ITA or subject to minimum
funding standards and that is either (a) maintained or sponsored by Borrower or Subsidiary for
- 23 -
employees or (b) maintained pursuant to a collective bargaining agreement, or other arrangement
under which more than one employer makes contributions and to which Borrower or Subsidiary is
making or accruing an obligation to make contributions or has within the preceding five years made
or accrued such contributions.
PPSA — the Personal Property Security Act (Ontario) (or any successor statute) or similar
legislation (including, without limitation, the Civil Code) of any other jurisdiction, the laws of
which are required by such legislation to be applied in connection with the issue, perfection,
effect of perfection, enforcement, enforceability, opposability, validity or effect of security
interests or other applicable Lien.
Prime Rate — the rate of interest publicly announced from time to time by the Bank as
its reference rate of interest for loans made in Canadian Dollars and designated as its “prime”
rate. The Prime Rate is a rate set by Bank based upon various factors, including Bank’s costs and
desired return, general economic conditions and other factors and is used as a reference point for
pricing some loans. Any change in the prime rate announced by the Bank shall take effect at the
opening of business on the day specified in the public announcement of such change. Each interest
rate based on the Prime Rate hereunder, shall be adjusted simultaneously with any change in the
Prime Rate. In the event that the Bank (including any successor or assignor) does not at any time
publicly announce a prime rate, the “Prime Rate” shall mean the “prime rate” publicly announced by
a Schedule 1 chartered bank in Canada selected by the Bank.
Prime Rate Loan — any Loan that bears interest based on the Prime Rate.
Prime Rate Revolver Loan — a Revolver Loan that bears interest based on the Prime
Rate.
Priority Payable Reserve — reserves established in the good faith credit discretion
of the Agent for amounts secured by any Liens, choate or inchoate, which rank or are capable of
ranking in priority to the Agent’s and/or Lenders’ Liens and/or for amounts which may represent
costs relating to the enforcement of the Agent’s Liens including, without limitation, in the good
faith credit discretion of the Agent, any such amounts due and not paid for vacation pay, amounts
due and not paid under any legislation relating to workers’ compensation or to employment
insurance, all amounts deducted or withheld and not paid and remitted when due under the ITA,
amounts currently or past due and not paid for realty, municipal or similar taxes (to the extent
impacting personal or moveable property) and all amounts currently or past due and not
contributed, remitted or paid to any Plan or under the Canada Pension Plan, the PBA or any similar
legislation.
Pro Rata — with respect to any Lender, a percentage (expressed as a decimal, rounded
to the ninth decimal place) determined (a) while Revolver Commitments are outstanding, by dividing
the amount of such Lender’s Revolver Commitment by the aggregate amount of all Revolver
Commitments; and (b) at any other time, by dividing the amount of such Lender’s Loans and LC
Obligations by the aggregate amount of all outstanding Loans and LC Obligations.
Proceeds
of Crime Act — Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada) (or any successor statute), as amended from time to time, and includes all
regulations thereunder.
- 24 -
Properly Contested — with respect to any obligation of an Obligor, (a) the obligation
is subject to a bona fide dispute regarding amount or the Obligor’s liability to pay; (b) the
obligation is being properly contested in good faith by appropriate proceedings promptly instituted
and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d)
non-payment could not have a Material Adverse Effect, nor result in forfeiture or sale of any
assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to
the satisfaction of Agent; and (f) if the obligation results from entry of a judgment or other
order, such judgment or order is stayed pending appeal or other judicial review.
Property — any interest in any kind of property or asset, whether real (immovable),
personal (movable) or mixed, or tangible (corporeal) or intangible (incorporeal).
Protective Advances — as defined in Section 2.1.6.
Purchase Money Debt — (a) Debt (other than the Obligations) for payment of any of the
purchase price of fixed assets; (b) Debt (other than the Obligations) incurred within 10 days
before or after acquisition of any fixed assets, for the purpose of financing any of the purchase
price thereof; and (c) any renewals, extensions or refinancings (but not increases) thereof, or
constitution of a vendor’s hypothec under the Civil Code.
Purchase Money Lien — a Lien that secures Purchase Money Debt, encumbering only the
fixed assets acquired with such Debt and constituting a Capital Lease or a purchase money security
interest under the PPSA or the UCC, as applicable.
RCRA
— the Resource Conservation and Recovery Act (42 U.S.C.
§§ 6991-6991i) (or any
successor statute), as amended from time to time, and includes all regulations thereunder.
Real Estate — (a) all lands, tenements, hereditaments, real (immovable) Property and
any estate, right, title or interest therein, rights of way, easements, licenses, rights, options
and privileges appurtenant or appertaining thereto, now owned or hereafter acquired, and all
beneficial interest therein and thereto, together with all buildings, erections, structures,
improvements, fixed plant, fixed machinery, fixed equipment and other fixtures now or hereafter
constructed or placed thereon or used in connection therewith, and (b) all leasehold,
sub-leasehold, license, concession, tenancy, occupancy or other such right, title and interest now
or hereafter acquired, together with all buildings, improvements, erections, structures, fixed
plant, fixed machinery, fixed equipment and other fixtures now or hereafter constructed or placed
thereon and all its right, title and interest in and to the agreements relating thereto and all
benefits, powers, covenants and advantages derived therefrom.
Red Man Pipe Canada — Red Man Pipe and Supply Canada Ltd., a Person holding Equity
Interests in the Borrower.
Reimbursement Date — as defined in Section 2.2.2.
Rent and Charges Reserve — the aggregate of (a) all past due rent and other amounts
owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper,
freight forwarder or other Person who possesses any Collateral or could assert a Lien on any
- 25 -
Collateral; and (b) a reserve at least equal to three months rent and other charges that could be
payable to any such Person, unless it has executed a Lien Waiver.
Report — as defined in Section 12.2.3.
Reportable Event — any event set forth in Section 4043(b) of ERISA.
Required Lenders — Lenders (subject to Section 4.2) having Commitments in excess of
50% of the aggregate Commitments.
Reserve Percentage — the reserve percentage (expressed as a decimal, rounded upward
to the nearest 1/8th of 1%) applicable to member banks under regulations issued from time to time
by the Board of Governors for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as “Eurocurrency liabilities”).
Restricted Investment — any Investment by Borrower or Subsidiary, other than (a)
Investments in Subsidiaries to the extent existing on the Closing Date; (b) Cash Equivalents that
are subject to Agent’s Lien and control, pursuant to documentation in form and substance
satisfactory to Agent; and (c) loans and advances permitted under Section 10.2.7.
Restrictive Agreement — an agreement (other than a Loan Document) that conditions or
restricts the right of Borrower, Subsidiary or other Obligor to incur or repay Borrowed Money, to
grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any
agreement evidencing Borrowed Money, or to repay any intercompany
Debt.
Revolver Commitment — for any Lender, its obligation to make Revolver Loans and to
participate in LC Obligations, up to the maximum principal amount shown on Schedule 1.1, or as
specified hereafter in the most recent Assignment and Acceptance to which it is a party. “Revolver
Commitments” means the aggregate amount of such commitments of all Lenders.
Revolver Loan — a loan made pursuant to Section 2.1, and any Swingline Loan,
Overadvance Loan or Protective Advance.
Revolver Note — a promissory note to be executed by Borrower in favour of a Lender,
if required by such Lender, in form and substance satisfactory to Agent, which shall be in the
amount of such Lender’s Revolver Commitment and shall evidence the Revolver Loans made by such
Lender.
Revolver
Termination Date — November 2, 2010.
Royalties — all royalties, fees, expense reimbursement and other amounts payable by
an Obligor under a License.
S&P — Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., and its successors.
Section 427 Security — (a) Agreement as to Powers, (b) Application for Credit and
Promise to Give Bills of Lading, Warehouse Receipts or Security, (c) Special Security in Respect
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of Specified Property and (d) Notice of Intention to Give Security, all as executed by the
Borrower in favour of the Agent in form and substance satisfactory to the Agent.
Secured Parties — Agent, Issuing Bank, Lenders and providers of Bank Products, and
any one of them a “Secured Party”.
Security Documents — the Guarantees, Deposit Account Control Agreements, Section 427
Security, the General Security Agreements and all other documents, instruments and agreements now
or hereafter securing (or given with the intent to secure) any Obligations.
Senior Officer — the chairman of the board, president, chief executive officer,
treasurer or chief financial officer of Borrower or, if the context requires, an Obligor.
Settlement Report — a report delivered by Agent to Lenders summarizing the Revolver
Loans and participations in LC Obligations outstanding as of a given settlement date, allocated to
Lenders on a Pro Rata basis in accordance with their Revolver Commitments.
Shareholder
Reinvestments — the annual loans (required pursuant to the Shareholders
Agreement) to be made to the Borrower by each of the Persons having an Equity Interest in the
Borrower in the amounts calculated and set forth in the Shareholders Agreement and further
detailed in Schedule 10.2.4.
Shareholders
Agreement — the shareholders agreement among the Borrower, Red Man Pipe
& Supply Canada Ltd. and Midfield Holdings dated as of June 15, 2005, as amended by a Shareholders
Amending Agreement among the same parties dated as of December 28, 2005.
Shareholders’ Notes — collectively (a) the unsecured demand promissory note, dated as
of June 15, 2005, issued to Red Man Pipe Canada by the Borrower in the amount of $9,855,750,
bearing interest at 8% per annum (which interest is payable annually in the month of January); (b)
the unsecured demand promissory note dated as of April 25, 2006, issued to Red Man Pipe Canada by
the Borrower in the amount of $14,818,915, bearing interest at 8% per annum (which interest is
payable annually in the month of January); (c) the unsecured demand promissory note dated as of
April 25, 2006, issued to Midfield Holdings by the Borrower in the amount of $31,389,499, bearing
interest at 8% per annum (which interest is payable annually in the month of January); and (d)
shall include all promissory notes issued to any shareholder of, or Person holding an Equity
Interest in, the Borrower during the term of this Agreement.
Shareholder Subordination Agreement — the Subordination Agreements of even date
herewith, between Red Man Pipe Canada and Midfield Holdings, respectively, and Agent, relating to
the Shareholders’ Notes and the Class R Note.
Solvent — as to any Person, such Person (a) owns Property whose fair salable value is
greater than the amount required to pay all of its debts (including contingent, subordinated,
unmatured and unliquidated liabilities); (b) owns Property whose present fair salable value (as
defined below) is greater than the probable total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) of such Person as they become absolute and matured; (c) is
able to pay all of its debts as they mature; (d) has capital that is not unreasonably small for
its business and is sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage; (e) is not “insolvent” within the meaning of Section
- 27 -
101(32) of the Bankruptcy Code and is not an ‘insolvent person’ within the meaning of such term in
the BIA, as applicable;; and (f) has not incurred (by way of assumption or otherwise) any
obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any
conveyance in connection therewith, with actual intent to hinder, delay or defraud either present
or future creditors of such Person or any of its Affiliates. “Fair salable value” means the amount
that could be obtained for assets within a reasonable time, either through collection or through
sale under ordinary selling conditions by a capable and diligent seller to an interested buyer who
is willing (but under no compulsion) to purchase.
Statutory Reserves — the percentage (expressed as a decimal) established by the Board
of Governors as the then stated maximum rate for all reserves (including those imposed by
Regulation D of the Board of Governors, all basic, emergency, supplemental or other marginal
reserve requirements, and any transitional adjustments or other scheduled changes in reserve
requirements) applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities (or any successor category of liabilities under Regulation D).
Subordinated Debt — Debt incurred by an Obligor that is expressly subordinate and
junior in right of payment to Full Payment of all Obligations, and is on terms (including
maturity, interest, fees, repayment, covenants and subordination) satisfactory to Agent.
Subordination Agreement — a subordination agreement, in favour of the Agent and the
Lenders, in form and substance satisfactory to Agent, whereby the holder of Subordinated Debt
subordinates such Debt to the Obligations and disclaims any Liens on the Collateral.
Subsidiary — any Person at least 50% of whose voting securities or Equity Interests
is owned or controlled by another Person (including indirect ownership or control by such Person,
through other Persons, in which such Person directly or indirectly owns or controls 50% of the
voting securities or Equity Interests). Unless the context otherwise clearly requires, references
herein to a “subsidiary” refer to a Subsidiary of the Borrower.
Swingline Loan — any Borrowing of Loans funded with Agent’s funds.
Taxes — any taxes, levies, imposts, duties, fees, assessments, deductions,
withholdings or other charges of whatever nature, including income, receipts, excise, property,
sales, use, transfer, license, payroll, withholding, social security, franchise, intangibles,
stamp or recording taxes imposed by any Governmental Authority, and all interest, penalties and
similar liabilities relating thereto.
Transferee — any actual or potential Eligible Assignee, Participant or other Person
acquiring an interest in any Obligations.
Type — any type of a Loan (i.e. Prime Rate Loan or BA Equivalent Loan) that has the
same interest option and, in the case of BA Equivalent Loans, the same Interest Period.
UCC — the Uniform Commercial Code as in effect in the State of Texas or, when the
laws of any other jurisdiction govern the perfection or enforcement of any Lien, the Uniform
Commercial Code of such jurisdiction.
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Unfunded Pension Liability — at a point in time, the excess of a Plan’s benefit
liabilities, over the current value of that Plan’s assets, determined in accordance with the
assumptions used for funding the Plan pursuant to applicable laws for the applicable plan year and
includes any unfunded liability or solvency deficiency as determined for the purposes of the PBA.
U.S.
Dollars or U.S.$ or United States Dollars — the lawful currency
of the United States of America.
Upstream Payment — a Distribution by a Subsidiary of Borrower to Borrower.
Value — (a) for Inventory, its value determined on the basis of the lower of cost or
market, calculated on a first-in, first out basis or weighted average cost basis; and (b) for an
Account, its face amount, net of any returns, rebates, discounts (calculated on the shortest
terms), credits, allowances or Taxes (including sales, excise or other taxes) that have been or
could be claimed by the Account Debtor or any other Person.
1.2 Accounting Terms.
Under the Loan Documents (except as otherwise specified herein), all accounting terms shall
be interpreted, all accounting determinations shall be made, and all financial statements shall be
prepared, in accordance with GAAP applied on a basis consistent with the most recent audited
financial statements of Borrower delivered to Agent before the Closing Date and using the same
inventory valuation method as used in such financial statements, except for any change required or
permitted by GAAP if Borrower’s chartered accountants concur in such change, the change is
disclosed to Agent, and Section 10.3 is amended in a manner satisfactory to Required Lenders to
take into account the effects of the change.
1.3 Certain Matters of Construction.
The terms “herein,” “hereof,” “hereunder” and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. In the computation of periods of time from a specified date
to a later specified date, “from” means “from and including,” and “to” and “until” each mean “to
but excluding.” The terms “including” and “include” shall mean “including, without limitation” and,
for purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be
applicable to limit any provision. Section titles appear as a matter of convenience only and shall
not affect the interpretation of any Loan Document. All references to (a) laws or statutes include
all related rules, regulations, interpretations, amendments and successor provisions; (b) any
document, instrument or agreement include any amendments, waivers and other modifications,
extensions or renewals (to the extent permitted by the Loan Documents); (c) any section mean,
unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules
mean, unless the context otherwise requires, exhibits and schedules attached hereto, which are
hereby incorporated by reference; (e) any Person include successors and assigns; (f) time of day
mean time of day at Agent’s notice address under Section 15.3.1; or (g) discretion of Agent,
Issuing Bank or any Lender mean the sole and absolute discretion of such Person. All calculations
of Value, fundings of Loans, issuances of Letters of Credit and payments of Obligations shall be in
Dollars and, unless the context otherwise requires, all determinations (including calculations of
Borrowing Base and financial covenants) made from time to time under the Loan Documents shall be
made in light of the
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circumstances existing at such time. Borrowing Base calculations shall be consistent with
historical methods of valuation and calculation, and otherwise satisfactory to Agent (and not
necessarily calculated in accordance with GAAP). Borrower shall have the burden of establishing any
alleged negligence, misconduct or lack of good faith by Agent, Issuing Bank or any Lender under any
Loan Documents. No provision of any Loan Documents shall be construed against any party by reason
of such party having, or being deemed to have, drafted the provision. Whenever the phrase “to the
best of Borrower’s knowledge” or words of similar import
are used in any Loan Documents, it means
actual knowledge of a Senior Officer, or knowledge that a Senior Officer would have obtained if he
or she had engaged in good faith and diligent performance of his or her duties, including
reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the
matter to which such phrase relates. For purposes of any Collateral located in the Province of
Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other purposes
pursuant to which the interpretation or construction of a Loan Document may be subject to the laws
of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province of Quebec,
(q) “personal property” shall be deemed to include “movable property”, (r) “real property” shall be
deemed to include “immovable property”, (s) “tangible property” shall be deemed to include
“corporeal property”, (t) “intangible property” shall be deemed to include “incorporeal property”,
(u) “security interest” and “mortgage” shall be deemed to include a “hypothec”, (v) all references
to filing, registering or recording under the UCC or the PPSA shall be deemed to include
publication under the Civil Code of Quebec, (w) all references to “perfection” of or “perfected”
Liens shall be deemed to include a reference to the “opposability” of such Liens to third parties,
(x) any “right of offset”, “right of setoff” or similar expression shall be deemed to include a
“right of compensation”, (y) “goods” shall be deemed to include “corporeal movable property” other
than chattel paper, documents of title, instruments, money and securities, and (z) an “agent” shall
be deemed to include a “mandatary”.
1.4 Interest Calculations and Payments
Unless otherwise stated (as with the case of the unused line fee and the LC facility fees,
which shall be calculated at an interest per annum based on a year of three hundred and sixty
(360) days), wherever in this Agreement reference is made to a rate of interest “per annum” or a
similar expression is used, such interest will be calculated on the basis of a calendar year of
three hundred and sixty-five (365) days or three hundred and sixty-six (366) days, as the case may
be. Calculations of interest shall be made using the nominal rate method of calculation, and will
not be calculated using the effective rate method of calculation or on any other basis that gives
effect to the principle of deemed reinvestment of interest. All payments of interest to be made
hereunder will be paid both before and after maturity and before and after default and/or
judgment, if any, until payment thereof, and interest will accrue on overdue interest, if any.
1.5
Interest Act (Canada)
For the purposes of this Agreement, whenever interest to be paid hereunder is to be
calculated on the basis of a year of three hundred and sixty (360) days, as in the case of the
unused line fee and the LC facility fees, or any other period of time that is less than a calendar
year, the yearly rate of interest to which the rate determined pursuant to such calculation is
equivalent is the rate so determined multiplied by the actual number of days in the calendar year
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in which the same is to be ascertained and divided by either three hundred and sixty (360) or such
other period of time, as the case may be.
1.6 Equivalent Amount
For the purpose of determining compliance with covenant and default limitations set forth in
the Agreement, amounts expressed in U.S. Dollars shall be measured by aggregating the Equivalent
Amount of the applicable items denominated in U.S. Dollars with the items in Canadian Dollars.
SECTION 2 CREDIT FACILITIES
2.1 Revolver Commitment.
2.1.1 Revolver Loans.
Each Lender agrees, severally on a Pro Rata basis up to its Revolver Commitment, on the terms
set forth herein, to make Revolver Loans to Borrower from time to time through the Commitment
Termination Date. The Revolver Loans may be repaid and reborrowed as provided herein. In no event
shall Lenders have any obligation to honour a request for a Revolver Loan in excess of
Availability.
2.1.2 Revolver Notes.
The Revolver Loans made by each Lender and interest accruing thereon shall be evidenced by
the records of Agent and such Lender. At the request of any Lender, Borrower shall deliver a
Revolver Note to such Lender.
2.1.3 Use of Proceeds.
The proceeds of Revolver Loans shall be used by Borrower solely (a) to satisfy existing Debt;
(b) to pay fees and transaction expenses associated with the closing of this credit facility; (c)
to pay Obligations in accordance with this Agreement; and (d) for working capital and other lawful
general corporate purposes of Borrower, including those set out in the recitals to this Agreement.
2.1.4 Voluntary Termination of Revolver Commitments.
The Revolver Commitments shall terminate on the Revolver Termination Date, unless sooner
terminated in accordance with this Agreement. Upon at least 90 days prior written notice to Agent
at any time after the first Loan Year, Borrower may, at its option, terminate, without premium or
penalty, the Revolver Commitments and this credit facility. Any notice of termination given by
Borrower shall be irrevocable. On the termination date, Borrower shall make Full Payment of all
Obligations.
2.1.5 Overadvances.
If the aggregate Revolver Loans exceed the Borrowing Base (“Overadvance”) or the aggregate
Revolver Commitments at any time, the excess amount shall be payable by Borrower on demand by
Agent, but all such Revolver Loans shall nevertheless constitute Obligations
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secured by the Collateral and entitled to all benefits of the Loan Documents. Unless its authority
has been revoked in writing by Required Lenders, Agent may require Lenders to honour requests for
Overadvance Loans and to forbear from requiring Borrower to cure an Overadvance, (a) when no other
Event of Default is known to Agent, as long as (i) the Overadvance does not continue for more than
30 consecutive days (and no Overadvance may exist for at least five consecutive days thereafter
before further Overadvance Loans are required), and (ii) the Overadvance is not known by Agent to
exceed $10,000,000; and (b) regardless of whether an Event of Default exists, if Agent discovers an
Overadvance not previously known by it to exist, as long as from the date of such discovery the
Overadvance does not continue for more than 30 consecutive days. In no event shall Overadvance
Loans be required that would cause the outstanding Revolver Loans and LC Obligations to exceed the
aggregate Revolver Commitments. Any funding of an Overadvance Loan or sufferance of an Overadvance
shall not constitute a waiver by Agent or Lenders of the Event of Default caused thereby. In no
event shall Borrower or other Obligor be deemed a beneficiary of this Section nor authorized to
enforce any of its terms.
2.1.6
Protective Advances.
Agent shall be authorized, in its discretion, at any time that a Default or Event of Default
exists or any conditions in Section 6 are not satisfied, and without regard to the aggregate
Commitments, to make Prime Rate Revolver Loans (“Protective Advances”) (a) if Agent deems such
Loans necessary or desirable to preserve or protect any Collateral, or to enhance the
collectibility or repayment of Obligations; or (b) to pay any other amounts chargeable to Obligors
under any Loan Documents, including costs, fees and expenses. All Protective Advances shall be
Obligations, secured by the Collateral, and shall be treated for all purposes as Extraordinary
Expenses. Each Lender shall participate in each Protective Advance on a Pro Rata basis. Required
Lenders may at any time revoke Agent’s authorization to make further Protective Advances by written
notice to Agent. Absent such revocation, Agent’s determination that funding of a Protective Advance
is appropriate shall be conclusive.
2.1.7 Decrease in Revolver Commitments.
Notwithstanding anything to the contrary contained in this Agreement, so long as no Default
or Event of Default has occurred and is continuing or would occur as a result thereof, and subject
to the terms and conditions of this Section 2.1.7, Borrower shall have the right (which may be
exercised only once during the term of this Agreement) after the Closing Date and before the end
of the Commitment Termination Date, upon not less than thirty (30) Business Days’ prior written
notice to Agent (such written notice being herein referred to as a “Commitment Reduction
Notice”), to reduce, without premium or penalty, on the date specified in the Commitment
Reduction Notice (the “Commitment Reduction Date”) the amount of the Commitments by an
amount equal to $25,000,000 (the “Commitment Reduction
Amount”); provided, however, that
in no event shall the amount of the Commitments be reduced to an amount less than $125,000,000.
Subject to the preceding sentence, on the Commitment Reduction Date, (i) the Commitments shall be
reduced by the Commitment Reduction Amount and each Lender’s Commitment shall be reduced by such
Lender’s Pro Rata share of the Commitments, and (ii) Borrower shall pay to Agent, in immediately
available funds, for application to the Loans owed to relevant Lenders, the dollar amount
necessary so that after giving effect to Commitment Reduction Amount the outstanding Loans and
Letters of Credit do
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not exceed the Commitments; provided, however, any such reduction is subject to the following
additional conditions being satisfied in form and substance satisfactory to Agent and its counsel:
(a) Borrower shall have delivered to Agent an Amended and Restated Revolver Note, payable to the
order of the relevant Lender, reflecting the reduced Commitment of such Lender, duly executed by
Borrower; and (b) Borrower shall have delivered to Agent an amendment to this Agreement evidencing
this Commitment Reduction Amount, duly executed by Borrower, with Agent being hereby authorized by
each Lender to execute such an amendment on behalf of such Lender.
2.2 Letter of Credit Facility.
2.2.1 Issuance of Letters of Credit.
Issuing Bank agrees to issue Letters of Credit from time to time until 30 days prior to the
Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set
forth herein, including the following:
| (a) | Borrower acknowledges that Issuing Bank’s willingness to issue any Letter of Credit is conditioned upon Issuing Bank’s receipt of a LC Application with respect to the requested Letter of Credit, as well as such other instruments and agreements as Issuing Bank may customarily require for issuance of a letter of credit of similar type and amount. Issuing Bank shall have no obligation to issue any Letter of Credit unless (i) Issuing Bank receives a LC Request and LC Application at least three Business Days prior to the requested date of issuance; and (ii) each LC Condition is satisfied. If Issuing Bank receives written notice from a Lender at least one Business Day before issuance of a Letter of Credit that any LC Condition has not been satisfied, Issuing Bank shall have no obligation to issue the requested Letter of Credit (or any other) until such notice is withdrawn in writing by that Lender or until Required Lenders have waived such condition in accordance with this Agreement. Prior to receipt of any such notice, Issuing Bank shall not be deemed to have knowledge of any failure of LC Conditions. | ||
| (b) | Letters of Credit may be requested by Borrower only (i) to support obligations of Borrower incurred in the Ordinary Course of Business; or (ii) for other purposes as Agent and Lenders may approve from time to time in writing. The renewal or extension of any Letter of Credit shall be treated as the issuance of a new Letter of Credit, except that delivery of a new LC Application shall be required at the discretion of Issuing Bank. | ||
| (c) | Borrower assumes all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary. In connection with issuance of any Letter of Credit, none of Agent, Issuing Bank or any Lender shall be responsible for the existence, character, quality, quantity, condition, packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality, quantity, condition, packing, value or delivery of any goods from that expressed in any Documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any Documents or of any endorsements thereon; the time, place, manner or order in which |
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| shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or Documents; any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods, shipment or delivery; any breach of contract between a shipper or vendor and Borrower; errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of technical terms; the misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the control of Issuing Bank, Agent or any Lender, including any act or omission of a Governmental Authority. The rights and remedies of Issuing Bank under the Loan Documents shall be cumulative. Issuing Bank shall be fully subrogated to the rights and remedies of each beneficiary whose claims against Borrower are discharged with proceeds of any Letter of Credit. | |||
| (d) | In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or LC Documents, Issuing Bank shall be entitled to act, and shall be fully protected in acting, upon any certification, notice or other communication in whatever form believed by Issuing Bank, in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person. Issuing Bank may consult with and employ legal counsel, accountants and other experts to advise it concerning its obligations, rights and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by such experts. Issuing Bank may employ agents and attorneys in connection with any matter relating to Letters of Credit or LC Documents, and shall not be liable for the negligence or misconduct of any such agents or attorneys selected with reasonable care. | ||
| 2.2.2 | Reimbursement; Participations. |
| (a) | If Issuing Bank honours any request for payment under a Letter of Credit, Borrower shall pay to Issuing Bank, on the same day (“Reimbursement Date”), the amount paid by Issuing Bank under such Letter of Credit, together with interest at the interest rate for Prime Rate Revolver Loans from the Reimbursement Date until payment by Borrower. The obligation of Borrower to reimburse Issuing Bank for any payment made under a Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right that Borrower may have at any time against the beneficiary. Whether or not Borrower submits a Notice of Borrowing, Borrower shall be deemed to have requested a Borrowing of Prime Rate Revolver Loans, in an amount necessary to pay all amounts due Issuing Bank on any Reimbursement Date and each Lender agrees to fund its Pro Rata share of such Borrowing whether or not the Commitments have terminated, an Overadvance exists or is created thereby, or the conditions in Section 6 are satisfied. The amount of any request for payment under a Letter of Credit denominated in a currency other than Dollars |
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shall be converted into Dollars at the Agent’s spot buying rate in Toronto at
approximately 12:00 p.m. (Eastern time) on the date of such drawing/request for
payment.
| (b) | Upon issuance of a Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased from Issuing Bank, without recourse or warranty, an undivided Pro Rata interest and participation in all LC Obligations relating to the Letter of Credit. If Issuing Bank makes any payment under a Letter of Credit and Borrower does not reimburse such payment on the Reimbursement Date, Agent shall promptly notify Lenders and each Lender shall promptly (within one Business Day) and unconditionally pay to Agent, for the benefit of Issuing Bank, the Lender’s Pro Rata share of such payment. Upon request by a Lender, Issuing Bank shall furnish copies of any Letters of Credit and LC Documents in its possession at such time. | ||
| (c) | The obligation of each Lender to make payments to Agent for the account of Issuing Bank in connection with Issuing Bank’s payment under a Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, setoff, compensation, qualification or exception whatsoever, and shall be made in accordance with this Agreement under all circumstances, irrespective of any lack of validity or unenforceability of any Loan Documents; any draft, certificate or other document presented under a Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or the existence of any setoff, compensation or defense that any Obligor may have with respect to any Obligations. Issuing Bank does not assume any responsibility for any failure or delay in performance or any breach by Borrower or other Person of any obligations under any LC Documents. Issuing Bank does not make to Lenders any express or implied warranty, representation or guarantee with respect to the Collateral, LC Documents or any Obligor. Issuing Bank shall not be responsible to any Lender for any recitals, statements, information, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of any LC Documents; the validity, genuineness, enforceability, collectibility, value or sufficiency of any Collateral or the perfection of any Lien therein; or the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Obligor. | ||
| (d) | No Issuing Bank Indemnitee shall be liable to any Lender or other Person for any action taken or omitted to be taken in connection with any LC Documents except as a result of its actual gross negligence or wilful misconduct. Issuing Bank shall not have any liability to any Lender if Issuing Bank refrains from any action under any Letter of Credit or LC Documents until it receives written instructions from Required Lenders. |
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2.2.3 Cash Collateral.
If any LC Obligations, whether or not then due or payable, shall for any reason be
outstanding at any time (a) that an Event of Default exists, (b) that Availability is less than
zero, (c) after the Commitment Termination Date, or (d) within 20 Business Days prior to the
Revolver Termination Date, then Borrower shall, at Issuing Bank’s or Agent’s request, Cash
Collateralize all outstanding LC Obligations. If Borrower fails to Cash Collateralize the
outstanding LC Obligations as required herein, Lenders may (and shall upon direction of Agent)
advance, as Revolver Loans, the amount of the Cash Collateral required (whether or not the
Commitments have terminated, an Overadvance exists, or the conditions in Section 6 are
satisfied).
SECTION 3 INTEREST, FEES AND CHARGES
3.1 Interest.
| 3.1.1 | Rates and Payment of Interest. | ||
| (a) | The Obligations shall bear interest (i) if a Prime Rate Loan, at the Prime Rate in effect from time to time, plus the Applicable Margin for Prime Rate Revolver Loans; (ii) if a BA Equivalent Loan, at the BA Equivalent Rate for the applicable Interest Period, plus the Applicable Margin for BA Equivalent Revolver Loans; and (iii) if any other Obligation (including, to the extent permitted by law, interest not paid when due), at the Prime Rate in effect from time to time, plus the Applicable Margin for Prime Rate Revolver Loans. Interest shall accrue from the date the Loan is advanced or the Obligation is incurred or payable, until paid by Borrower. If a Loan is repaid on the same day made, one day’s interest shall accrue. | ||
| (b) | During any Default or Event of Default, if Agent or Required Lenders in their discretion so elect, Obligations shall bear interest at the Default Rate. Borrower acknowledges that the cost and expense to Agent and each Lender due to a Default or an Event of Default are difficult to ascertain and that the Default Rate is a fair and reasonable estimate to compensate Agent and Lenders for such added cost and expense. | ||
| (c) | Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of each month and, for any BA Equivalent Loan, the last day of its Interest Period; and (ii) on the Commitment Termination Date. Interest accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no payment date is specified, shall be due and payable on demand. Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on demand. | ||
| 3.1.2 | Application of BA Equivalent Rate to Outstanding Loans. | ||
| (a) | Borrower may on any Business Day, subject to delivery of a Notice of Conversion/Continuation, elect to convert any portion of the Prime Rate Loans to, or to continue any BA Equivalent Loan at the end of its Interest |
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| Period as, a BA Equivalent Loan. During any Default or Event of Default, Agent may (and shall at the direction of Required Lenders) declare that no Loan may be made, converted or continued as a BA Equivalent Loan. | |||
| (b) | Whenever Borrower desires to convert or continue Loans as BA Equivalent Loans, Borrower shall give Agent a Notice of Conversion/Continuation, no later than 12:00 p.m. (Eastern time) at least three Business Days before the requested conversion or continuation date. Promptly after receiving any such notice, Agent shall notify each Lender thereof. Each Notice of Conversion/Continuation shall be irrevocable, and shall specify the aggregate principal amount of Loans to be converted or continued, the conversion or continuation date (which shall be a Business Day), and the duration of the Interest Period (which shall be deemed to be one month if not specified). If, upon the expiration of any Interest Period in respect of any BA Equivalent Loans, Borrower shall have failed to deliver a Notice of Conversion/Continuation, it shall be deemed to have elected to convert such Loans into Prime Rate Loans. |
3.1.3 Interest Periods.
In connection with the making, conversion or continuation of any BA Equivalent Loans,
Borrower shall select an interest period (“Interest Period”) to apply, which interest period shall
be one, two, three or six months; provided, however, that:
| (a) | the Interest Period shall commence on the date the Loan is made or continued as, or converted into, a BA Equivalent Loan, and shall expire on the numerically corresponding day in the calendar month at its end; | ||
| (b) | if any Interest Period commences on a day for which there is no corresponding day in the calendar month at its end or if such corresponding day falls after the last Business Day of such month, then the Interest Period shall expire on the last Business Day of such month; and if any Interest Period would expire on a day that is not a Business Day, the period shall expire on the next Business Day; and | ||
| (c) | no Interest Period shall extend beyond the Revolver Termination Date. |
3.1.4 Interest Rate Not Ascertainable.
If Agent shall determine that on any date for determining BA Equivalent Rate, adequate and
fair means do not exist for ascertaining such rates on the basis provided herein, then Agent shall
immediately notify Borrower of such determination. Until Agent notifies Borrower that such
circumstance no longer exists, the obligation of Lenders to make further BA Equivalent Loans shall
be suspended, and no further Loans may be converted into or continued as BA Equivalent Loans, as
applicable.
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3.2
Fees.
3.2.1 Unused Line Fee.
Borrower shall pay to Agent, for the Pro Rata benefit of Lenders, a fee equal to the (a) (i)
0.25% (if the outstanding amount of all Borrowings under this Agreement, for the immediately
preceding Fiscal Quarter, are greater than 50% of the Revolver Commitments), or (ii) 0.375% (if
the outstanding amount of all Borrowings under this Agreement, for the immediately preceding
Fiscal Quarter, are equal to or less than 50% of the Revolver Commitments) times (b) the
amount by which the Revolver Commitments exceed the average daily balance of Loans during any
month. Such fee shall be payable in arrears, on the first day of each month and on the Commitment
Termination Date.
The Agent shall pay to each Lender, on or before the third Business Day of each month and on
the Commitment Termination Date, the foregoing unused line fee based on each Lender’s Revolver
Commitment and each Lender’s respective Pro Rata share of the Revolver Loans during the applicable
month.
3.2.2 LC Facility Fees.
Borrower shall pay (a) to Agent, for the Pro Rata benefit of Lenders, a fee equal to the
Applicable Margin in effect for BA Equivalent Revolver Loans times the average daily stated amount
of Letters of Credit (which amount shall include, for Letters of Credit denominated in U.S.
Dollars, the Equivalent Amount thereof in Dollars), which fee shall be payable monthly in arrears,
on the first day of each month; (b) Borrower shall pay to Issuing Bank, for its own account, a
fronting fee equal to 0.125% per annum of the stated amount of each Letter of Credit issued, which
fee shall be payable monthly in arrears, on the first day of each month; and (c) Borrower shall
pay to Issuing Bank, for its own account, all customary charges associated with the issuance,
amending, negotiating, payment, processing, transfer and administration of Letters of Credit,
which charges shall be paid as and when incurred. During an Event of Default, the fee payable
under clause (a) shall be increased by 2% per annum.
3.2.3 Closing Fee.
Borrower shall pay to Agent, for the Pro Rata benefit of the Lenders, a closing fee of
$295,000, which shall be paid concurrently with the funding of the initial Loans hereunder.
3.2.4 Administrative Fees.
In consideration of Agent’s administration of the Loans hereunder, Borrower shall pay to
Agent, for its own account, the fees described in the Fee Letter.
3.3
Computation of Interest, Fees, Yield Protection.
In addition to Section 1.4 hereof or as otherwise set forth herein, interest, as well as fees
and other charges calculated on a per annum basis, shall be computed for the actual days elapsed,
based on a year of 365 or 366 days, as the case may be.
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Each determination by Agent of any interest, fees or interest rate hereunder shall be final,
conclusive and binding for all purposes, absent manifest error. All fees shall be fully earned
when due and shall not be subject to rebate or refund, nor subject to proration except as
specifically provided herein. All fees payable under Section 3.2 and in the Fee Letter are
compensation for services and are not, and shall not be deemed to be, interest or any other charge
for the use, forbearance or detention of money. A certificate, calculated in accordance with the
terms of this Agreement, as to amounts payable by Borrower under Section 3.6, 3.7, 3.9 or 5.8,
submitted to Borrower by Agent or the affected Lender, as applicable, shall be final, conclusive
and binding for all purposes, absent manifest error.
3.4 Overdraft Loans.
In respect of the accounts of an Obligor opened and maintained with the Bank, whenever a
cheque or other item is presented for payment against such account in an amount greater than the
then available balance in such account (an “Overdraft Loan”), such presentation shall be deemed to
constitute a Notice of Borrowing for a Loan on the date of such notice in the amount of such
Overdraft Loan (or the Equivalent Amount thereof), bearing interest by reference to the Prime Rate
Revolving Loan.
3.5 Illegality.
Notwithstanding anything to the contrary herein, if (a) any change in any law or
interpretation thereof by any Governmental Authority makes it unlawful for a Lender to make or
maintain a BA Equivalent Loan or to maintain any Commitment with respect to BA Equivalent Loans or
(b) a Lender determines that the making or continuance of a BA Equivalent Loan has become
impracticable as a result of a circumstance that adversely affects the determination of the BA
Equivalent Rate, then such Lender shall give notice thereof to Agent and Borrower and may (i)
declare that BA Equivalent Loans, as applicable, will not thereafter be made by such Lender,
whereupon any request for a BA Equivalent Loan, from such Lender shall be deemed to be a request
for a Prime Rate Loan, as applicable, unless such Lender’s declaration has been withdrawn (and it
shall be withdrawn promptly upon cessation of the circumstances described in clause (a) or (b)
above); and/or (ii) require that all outstanding BA Equivalent Loans, as applicable, made by such
Lender be converted to Prime Rate Loan, as applicable, immediately, in which event all outstanding
BA Equivalent Loans, as applicable, of such Lender shall be immediately converted to Prime Rate
Loans.
3.6 Increased Costs.
If, by reason of (a) the introduction of or any change (including any change by way of
imposition or increase of Statutory Reserves or other reserve requirements) in any law or
interpretation thereof, or (b) the compliance with any guideline or request from any Governmental
Authority or other Person exercising control over banks or financial institutions generally
(whether or not having the force of law):
| (i) | a Lender shall be subject to any Tax with respect to any BA Equivalent Loan or Letter of Credit or its obligation to make BA Equivalent Loans, issue Letters of Credit or participate in LC Obligations, or a change shall result in the basis of taxation of any payment to a Lender with respect to its BA Equivalent Loans, or its obligation to make BA Equivalent Loans, |
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| issue Letters of Credit or participate in LC Obligations (except for Excluded Taxes); or | |||
| (ii) | any reserve (including any imposed by the Board of Governors or any other Governmental Authority), special deposits or similar requirement against assets of, deposits with or for the account of, or credit extended by, a Lender shall be imposed or deemed applicable, or any other condition affecting a Lender’s BA Equivalent Loans or obligation to make BA Equivalent Loans, issue Letters of Credit or participate in LC Obligations shall be imposed on such Lender; |
and as a result there shall be an increase in the cost to such Lender of agreeing to make or
making, funding or maintaining, BA Equivalent Loans, Letters of Credit or participations in LC
Obligations, or there shall be a reduction in the amount receivable by such Lender, then the
Lender shall promptly notify Borrower and Agent of such event, and Borrower shall, within five
days following demand therefor, pay such Lender the amount of such increased costs or reduced
amounts.
If a Lender determines that, because of circumstances described above or any other
circumstances arising hereafter affecting such Lender or the Lender’s position in any market, BA
Equivalent Rate or the Applicable Margin applicable thereto, as applicable, will not adequately and
fairly reflect the cost to such Lender of funding BA Equivalent Loans, issuing Letters of Credit or
participating in LC Obligations, then (A) the Lender shall promptly notify Borrower and Agent of
such event; (B) such Lender’s obligation to make BA Equivalent Loans, issue Letters of Credit or
participate in LC Obligations shall be immediately suspended, until each condition giving rise to
such suspension no longer exists; and (C) such Lender shall make a Prime Rate Loan as part of any
requested Borrowing of BA Equivalent Loans, as applicable, which Prime Rate Loan shall, for all
purposes, be considered part of such Borrowing.
3.7 Capital Adequacy.
If a Lender determines that any introduction of or any change in a Capital Adequacy
Regulation, any change in the interpretation or administration of a Capital Adequacy Regulation by
a Governmental Authority charged with interpretation or administration thereof, or any compliance
by such Lender or any Person controlling such Lender with a Capital Adequacy Regulation, increases
the amount of capital required or expected to be maintained by such Lender or Person (taking into
consideration its capital adequacy policies and desired return on capital) as a consequence of
such Lender’s Commitments, Loans, participations in LC Obligations or other obligations under the
Loan Documents, then Borrower shall, within five days following demand therefor, pay such Lender
an amount sufficient to compensate for such increase. A Lender’s demand for payment shall set
forth the nature of the occurrence giving rise to such compensation and a calculation of the
amount to be paid. In determining such amount, the Lender may use any reasonable averaging and
attribution method.
3.8 Mitigation.
Each Lender agrees that, upon becoming aware that it is subject to Section 3.5, 3.6, 3.7 or
5.8, it will take reasonable measures to reduce Borrower’s obligations under such Sections,
including funding or maintaining its Commitments or Loans through another office, as long as
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use of such measures would not adversely affect the Lender’s Commitments, Loans, business or
interests, and would not be inconsistent with any internal policy or applicable legal or
regulatory restriction.
3.9 Funding Losses.
If for any reason (other than default by a Lender) (a) any Borrowing of, or conversion to or
continuation of, a BA Equivalent Loan does not occur on the date specified therefor in a Notice of
Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment or
conversion of a BA Equivalent Loan occurs on a day other than the end of its Interest Period, or
(c) Borrower fail to repay a BA Equivalent Loan when required hereunder, then Borrower shall pay to
Agent its customary administrative charge and to each Lender all losses and expenses that it
sustains as a consequence thereof, including any loss or expense arising from liquidation or
redeployment of funds or from fees payable to terminate deposits of matching funds. Lenders shall
not be required to purchase Dollar deposits in any Dollar market (offshore or otherwise) to fund
any BA Equivalent Loan, but the provisions hereof shall be deemed to apply as if each Lender had
purchased such deposits to fund its BA Equivalent Loans.
3.10 Maximum Interest.
In no event shall interest, charges or other amounts that are contracted for, charged or
received by Agent and Lenders pursuant to any Loan Documents and that are deemed interest under
Applicable Law (“interest”) exceed the highest rate permissible under Applicable Law (“maximum
rate”). If, in any month, any interest rate, absent the foregoing limitation, would have exceeded
the maximum rate, then the interest rate for that month shall be the maximum rate and, if in a
future month, that interest rate would otherwise be less than the maximum rate, then the rate
shall remain at the maximum rate until the amount of interest actually paid equals the amount of
interest which would have accrued if it had not been limited by the maximum rate. If, upon Full
Payment of the Obligations, the total amount of interest actually paid under the Loan Documents is
less than the total amount of interest that would, but for this Section, have accrued under the
Loan Documents, then Borrower shall, to the extent permitted by Applicable Law, pay to Agent, for
the account of Lenders, (a) the lesser of (i) the amount of interest that would have been charged
if the maximum rate had been in effect at all times, or (ii) the amount of interest that would
have accrued had the interest rate otherwise set forth in the Loan Documents been in effect, minus
(b) the amount of interest actually paid under the Loan Documents. If a court of competent
jurisdiction determines that Agent or any Lender has received interest in excess of the maximum
amount allowed under Applicable Law, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, Obligations other than interest (regardless of any erroneous
application thereof by Agent or any Lender), and upon Full Payment of the Obligations, any balance
shall be refunded to Borrower. In determining whether any excess interest has been charged or
received by Agent or any Lender, all interest at any time charged or received from Borrower in
connection with the Loan Documents shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the Obligations.
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SECTION 4 LOAN ADMINISTRATION
4.1 Manner of Borrowing and Funding Revolver Loans.
4.1.1 Notice of Borrowing.
| (a) | Whenever Borrower desires funding of a Borrowing of Revolver Loans, Borrower shall give Agent a Notice of Borrowing. Such notice must be received by Agent no later than 12:00 p.m. (Eastern time) (i) on the Business Day of the requested funding date, in the case of Prime Rate Loans, and (ii) at least three Business Days prior to the requested funding date, in the case of BA Equivalent Loans. Notices received after 12:00 p.m. (Eastern time) shall be deemed received on the next Business Day. Each Notice of Borrowing shall be irrevocable and shall specify (A) the principal amount of the Borrowing, (B) the requested funding date (which must be a Business Day), (C) whether the Borrowing is to be made as Prime Rate Loans or BA Equivalent Loans, and (D) in the case of BA Equivalent Loans, the duration of the applicable Interest Period (which shall be deemed to be one month if not specified). | ||
| (b) | Unless payment is otherwise timely made by Borrower, the becoming due of any Obligations (whether principal, interest, fees or other charges, including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be a request for Prime Rate Loans, on the due date, in the amount of such Obligations. The proceeds of such Loans shall be disbursed as direct payment of the relevant Obligation. | ||
| (c) | If Borrower establishes a controlled disbursement account with Agent or any Affiliate of Agent, then the presentation for payment of any cheque or other item of payment drawn on such account at a time when there are insufficient funds to cover it shall be deemed to be a request for Prime Rate Loans, on the date of such presentation, in the amount of the cheque and items presented for payment. The proceeds of such Revolver Loans may be disbursed directly to the controlled disbursement account or other appropriate account. |
4.1.2 Fundings by Lenders.
Each Lender shall timely honour its Revolver Commitment by funding its Pro Rata share of each
Borrowing of Revolver Loans that is properly requested hereunder. Except for Borrowings to be made
as Swingline Loans, Agent shall endeavour to notify Lenders of each Notice of Borrowing (or deemed
request for a Borrowing) by 12:00 p.m. (Eastern time) on the proposed funding date for Prime Rate
Loans or by 3:00 p.m. (Eastern time) at least three Business Days before any proposed funding of
BA Equivalent Loans. Each Lender shall fund to Agent such Lender’s Pro Rata share of the Borrowing
to the account specified by Agent in immediately available funds not later than 2:00 p.m. (Eastern
time) on the requested funding date, unless Agent’s notice is received after the times provided
above, in which event each Lender shall fund its Pro Rata share by 12:00 p.m. (Eastern time) on
the next Business Day. Subject to its receipt of such amounts from Lenders, Agent shall disburse
the proceeds of the Revolver Loans as directed by Borrower. Unless Agent shall have received (in
sufficient time to
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act) written notice from a Lender that it does not intend to fund its Pro Rata share of a
Borrowing, Agent may assume that such Lender has deposited or promptly will deposit its share with
Agent, and Agent may disburse a corresponding amount to Borrower. If a Lender’s share of any
Borrowing is not in fact received by Agent, then Borrower agrees to repay to Agent on demand the
amount of such share, together with interest thereon from the date disbursed until repaid, at the
rate applicable to such Borrowing.
4.1.3 Swingline Loans; Settlement.
| (a) | Agent may, but shall not be obligated to, advance Swingline Loans to Borrower out of Agent’s own funds, up to an aggregate outstanding amount of $15,000,000, unless the funding is specifically required to be made by all Lenders hereunder. Each Swingline Loan shall constitute a Revolver Loan for all purposes, except that payments thereon shall be made to Agent for its own account. The obligation of Borrower to repay Swingline Loans shall be evidenced by the records of Agent and need not be evidenced by any promissory note. | ||
| (b) | To facilitate administration of the Revolver Loans, Lenders and Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by Borrower) that settlement among them with respect to Revolver Loans (other than Swingline Loans) may take place periodically on a date determined from time to time by Agent, which shall occur at least once every five Business Days. On each settlement date, settlement shall be made with each Lender in accordance with the Settlement Report delivered by Agent to Lenders. Between settlement dates, Agent may in its discretion apply payments on Revolver Loans to Swingline Loans, regardless of any designation by Borrower or any provision herein to the contrary. Each Lender’s obligation to make settlements with Agent is absolute and unconditional, without offset, compensation, counterclaim or other defense, and whether or not the Commitments have terminated, an Overadvance exists, or the conditions in Section 6 are satisfied. |
4.1.4 Notices.
Borrower authorizes Agent and Lenders to extend, convert or continue Loans, effect selections
of interest rates, and transfer funds to or on behalf of Borrower based on telephonic or e-mailed
instructions. Borrower shall confirm each such request by prompt delivery to Agent of a Notice of
Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs in any material
respect from the action taken by Agent or Lenders, the records of Agent and Lenders shall govern.
Neither Agent nor any Lender shall have any liability for any loss suffered by Borrower as a
result of Agent or any Lender acting upon its understanding of telephonic or e-mailed instructions
from a person believed in good faith by Agent or any Lender to be a person authorized to give such
instructions on Borrower’s behalf.
4.2 Defaulting Lender.
If a Lender fails to make any payment to Agent that is required hereunder, Agent may (but
shall not be required to), in its discretion, retain payments that would otherwise be made to
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such defaulting Lender hereunder, apply the payments to such Lender’s defaulted obligations or
readvance the funds to Borrower in accordance with this Agreement. The failure of any Lender to
fund a Loan or to make a payment in respect of a LC Obligation shall not relieve any other Lender
of its obligations hereunder, and no Lender shall be responsible for default by another Lender.
Lenders and Agent agree (which agreement is solely among them, and not for the benefit of or
enforceable by Borrower) that, solely for purposes of determining a defaulting Lender’s right to
vote on matters relating to the Loan Documents and to share in payments, fees and Collateral
proceeds thereunder, a defaulting Lender shall not be deemed to be a “Lender” until all its
defaulted obligations have been cured.
4.3 Number and Amount of BA Equivalent Loans; Determination of Rate.
For ease of administration, all BA Equivalent Revolver Loans having the same length and
beginning date of their Interest Periods shall be aggregated together, and such Loans shall be
allocated among Lenders on a Pro Rata basis. No more than three (3) aggregated BA Equivalent Loans
may be outstanding at any time, and each aggregate BA Equivalent Loan when made, continued or
converted shall be in a minimum amount of $1,000,000, or an increment of $100,000, in excess
thereof. Upon determining BA Equivalent Rate for any Interest Period requested by Borrower, Agent
shall promptly notify Borrower thereof by telephone or electronically and, if requested by
Borrower, shall confirm any telephonic notice in writing.
4.4 Effect of Termination.
On the effective date of any termination of the Commitments, all Obligations shall be
immediately due and payable. All undertakings of the Obligors contained in the Loan Documents
shall survive any termination, and Agent shall retain its Liens in the Collateral and all of its
rights and remedies under the Loan Documents until Full Payment of the Obligations.
Notwithstanding Full Payment of the Obligations, Agent shall not be required to terminate its
Liens in any Collateral unless, with respect to any damages Agent may incur as a result of the
dishonour or return of Payment Items applied to Obligations, Agent receives (a) a written
agreement, executed by the Obligors and any Person whose advances are used in whole or in part to
satisfy the Obligations, indemnifying Agent and Lenders from any such damages; or (b) such Cash
Collateral as Agent, in its discretion, deems necessary to protect against any such damages. The
provisions of Sections 2.2, 3.6, 3.7, 3.9, 5.4, 5.8, 12, 15.2 and this Section, and the obligation
of each Obligor and Lender with respect to each indemnity given by it in any Loan Document, shall
survive Full Payment of the Obligations and any release relating to this credit facility.
SECTION 5 PAYMENTS
5.1 General Payment Provisions.
All payments of Obligations shall be made in Dollars, without offset, compensation,
counterclaim or defense of any kind, free of (and without deduction for) any Taxes, and in
immediately available funds, not later than 12:00 p.m. (Eastern time) on the due date. Any payment
after such time shall be deemed made on the next Business Day. Obligors may, at the time of
payment, specify to Agent the Obligations to which such payment is to be applied, but Agent shall
in all events retain the right to apply such payment in such manner as Agent, subject to the
provisions hereof, may determine to be appropriate. If any payment under the Loan
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Documents shall be stated to be due on a day other than a Business Day, the due date shall be
extended to the next Business Day and such extension of time shall be included in any computation
of interest and fees. Any payment of a BA Equivalent Loan prior to the end of its Interest Period
shall be accompanied by all amounts due under Section 3.9. Any prepayment of Loans shall be applied
first to Prime Rate Loans and then to BA Equivalent Loans.
5.2 Repayment of Revolver Loans.
Revolver Loans shall be due and payable in full on the Revolver Termination Date, unless
payment is sooner required hereunder. Revolver Loans may be prepaid from time to time, without
penalty or premium. Notwithstanding anything herein to the contrary, (i) if an Overadvance exists,
Borrower shall, on the sooner of Agent’s demand or the first Business Day after Borrower has
knowledge thereof, repay the outstanding Revolver Loans in an amount sufficient to reduce the
principal balance of Revolver Loans to the Borrowing Base.
5.3 Payment of Other Obligations.
Obligations other than Loans, including LC Obligations and Extraordinary Expenses, shall be
paid by Obligors as provided in the Loan Documents or, if no payment date is specified, on demand.
5.4 Marshalling; Payments Set Aside.
None of Agent or Lenders shall be under any obligation to marshal any assets in favour of any
Obligor or against any Obligations. If any Obligor makes a payment to Agent or Lenders, or if
Agent or any Lender receives payment from the proceeds of Collateral, exercise of setoff,
compensation or otherwise, and such payment is subsequently invalidated or required to be repaid
to a trustee, receiver or any other Person, then the Obligations originally intended to be
satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been received and any enforcement, setoff or
compensation had not occurred.
5.5
Post-Default Allocation of Payments.
5.5.1 Allocation.
Notwithstanding anything herein to the contrary, during an Event of Default, monies to be
applied to the Obligations, whether arising from payments by Obligors, realization on Collateral,
setoff, compensation or otherwise, shall be allocated as follows:
| (a) | first, to all costs and expenses, including Extraordinary Expenses, owing to Agent; | ||
| (b) | second, to all amounts owing to Agent on Swingline Loans or Protective Advances; | ||
| (c) | third, to all amounts owing to Issuing Bank on LC Obligations; |
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| (d) | fourth, to all Obligations constituting fees owing to Agent and owing to Lenders (on a Pro Rata basis), (excluding amounts relating to Bank Products); | ||
| (e) | fifth, to all Obligations constituting interest owing to Agent and owing to the Lenders (on a Pro Rata basis), (excluding amounts relating to Bank Products); | ||
| (f) | sixth, to provide Cash Collateral for outstanding Letters of Credit; | ||
| (g) | seventh, to all other Obligations owing to Agent, and owing to the Lenders (on a Pro Rata basis), other than Bank Product Debt; | ||
| (h) | eighth, to Bank Product Debt in respect of Bank Products provided by the Agent or an Affiliate of the Agent; and | ||
| (i) | last, to Bank Product Debt in respect of Bank Products provided by any other Lender or an Affiliate of any other Lender. |
Amounts shall be applied to each category of Obligations set forth above until Full Payment
thereof and then to the next category. If amounts are insufficient to satisfy a category, they
shall be applied on a pro rata basis among the Obligations in the category. Amounts distributed
with respect to any Bank Product Debt shall be the lesser of the applicable Bank Product Amount
last reported to Agent or the actual Bank Product Debt as calculated by the methodology reported
to Agent for determining the amount due. Agent shall have no obligation to calculate the amount to
be distributed with respect to any Bank Product Debt, but may rely upon written notice of the
amount (setting forth a reasonably detailed calculation) from the Secured Party. In the absence of
such notice, Agent may assume the amount to be distributed is the Bank Product Amount last
reported to it. The allocations and applications of payments set forth in this Section are solely
to determine the rights and priorities of Agent and Lenders as among themselves, and may be
changed by agreement among them without the consent of any Obligor. This Section is not for the
benefit of or enforceable by any Obligor.
5.5.2 Erroneous Application.
Agent shall not be liable for any application of amounts made by it in good faith and, if any
such application is subsequently determined to have been made in error, the sole recourse of any
Lender or other Person to which such amount should have been made shall be to recover the amount
from the Person that actually received it (and, if such amount was received by any Lender, such
Lender hereby agrees to return it).
5.6 Application of Payments.
Borrower and each applicable Obligor irrevocably waives the right to direct the application of
any payments or Collateral proceeds, and agrees that Agent shall have the continuing, exclusive
right to apply and reapply same against the Obligations, in such manner as Agent deems advisable,
notwithstanding any entry by Agent in its records. If, as a result of Agent’s receipt of Payment
Items or proceeds of Collateral, a credit balance exists, the balance shall not accrue interest in
favour of Borrower and shall be made available to Borrower as long as no Default or Event of
Default exists.
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5.7 Loan Account; Account Stated.
5.7.1 Loan Account.
Agent shall maintain in accordance with its usual and customary practices an account or
accounts (“Loan Account”) evidencing the Debt of Borrower resulting from each Loan or issuance of a
Letter of Credit from time to time. Any failure of Agent to record anything in the Loan Account, or
any error in doing so, shall not limit or otherwise affect the obligation of Borrower to pay any
amount owing hereunder. Agent may maintain a single Loan Account in the name of Borrower.
5.7.2 Entries Binding.
Entries made in the Loan Account shall constitute presumptive evidence of the information
contained therein. If any information contained in the Loan Account is provided to or inspected by
any Person, then such information shall be conclusive and binding on such Person for all purposes
absent manifest error, except to the extent such Person notifies Agent in writing within 30 days
after receipt or inspection that specific information is subject to dispute.
5.8 Taxes.
5.8.1 Payments Free of Taxes.
Any and all payments by or on account of any obligation of Obligors hereunder or under any
other Loan Document shall be made free and clear of and without deduction or withholding for any
Indemnified Taxes, provided that if an Obligor shall be required by applicable law to deduct or
withhold any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions or withholdings (including deductions or
withholdings applicable to additional sums payable under this Section) the Agent or Lenders, as
the case may be, receives an amount equal to the sum it would have received had no such deductions
or withholdings been made; (ii) Obligors shall make such deductions or withholdings; and (iii)
Obligors shall timely pay the full amount deducted or withheld to the relevant Governmental
Authority in accordance with applicable law.
5.8.2 Payment of Other Taxes by Obligors.
Without limiting the provisions of Section 5.8.1, Obligors shall timely pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.
5.8.3 Indemnification by Obligors.
Obligors shall indemnify the Agent and each Lender, within 10 days after demand therefor, for
the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or
attributable to amounts payable under this Section) paid by the Agent or Lender, as the case may
be, and any penalties, interest, additions to tax and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or
liability delivered to an Obligor by a Lender (with a copy to the
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Agent), or by the Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error.
5.8.4 Evidence of Payments.
As soon as practicable after any payment of Indemnified Taxes by an Obligor to a Governmental
Authority, Obligors shall deliver to the Agent, the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the return reporting such
payment or other evidence of such payment reasonably satisfactory to the Agent.
5.8.5 Authorized Foreign Banks.
In addition to the provisions of Section 5.8, in respect of amounts paid or credited by or on
account of an Obligor to or for the benefit of a particular Lender that is an “authorized foreign
bank” for purposes of the ITA, the obligations under this Section 5.8 to pay an additional amount
shall apply where the particular Lender is liable for Tax under Part XIII of the ITA in respect of
such payment, even if such Obligor is not required under the ITA to deduct or withhold an amount in
respect of Taxes on such payment and this Section 5.8 shall apply, mutatis mutandis, as if such
Obligor was required to withhold an amount in respect of such Taxes.
SECTION 6 CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Loans.
In addition to the conditions set forth in Section 6.2, Lenders shall not be required to fund
any requested Loan, issue any Letter of Credit, or otherwise extend credit to Borrower hereunder,
until the date (“Closing Date”) that each of the following conditions has been satisfied:
| (a) | Notes shall have been executed by Borrower and delivered to each Lender that requests issuance of a Note. Each other Loan Document shall have been duly executed and delivered to Agent by each of the signatories thereto, and each Obligor shall be in compliance with all terms thereof. | ||
| (b) | Agent shall have received all PPSA and other Lien searches and other evidence satisfactory to Agent that such Liens are the only Liens upon the Collateral, except Permitted Liens. | ||
| (c) | The Agent shall have received: |
| (i) | acknowledgment copies of proper financing or filing statements, publications or recordations, duly filed on or before the Closing Date under the PPSA of all jurisdictions that the Agent may deem necessary or desirable in order to perfect the Agent’s Lien; and | ||
| (ii) | duly executed “Termination Statements” and such other instruments, in form and substance satisfactory to the Agent, as shall be necessary to terminate and discharge and satisfy all Liens on the Property of the Obligors (except Permitted Liens). |
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| (d) | Agent shall have received (i) the Shareholder Subordination Agreement, and (ii) the 331562 Estoppel Agreement. | ||
| (e) | Agent shall have received duly executed agreements establishing each Dominion Account, in form and substance satisfactory to Agent. | ||
| (f) | Agent shall have received certificates, in form and substance satisfactory to it, from a knowledgeable Senior Officer of each Obligor certifying that, after giving effect to the initial Loans and transactions hereunder, (i) such Obligor is Solvent; (ii) no Default or Event of Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct; and (iv) such Obligor has complied with all agreements and conditions to be satisfied by it under the Loan Documents. | ||
| (g) | Agent shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that attached copies of such Obligor’s Organic Documents are true and complete, and in full force and effect, without amendment except as shown, (ii) that an attached copy of resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that such resolutions are in full force and effect, were duly adopted, have not been amended, modified or revoked, and constitute all resolutions adopted with respect to this credit facility, and (iii) to the title, name and signature of each Person authorized to sign the Loan Documents. Agent may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing. | ||
| (h) | Agent shall have received, in form and substance satisfactory to it, consignee’s consent letters from the Persons who are consignees of Obligor Inventory and the requisite assignment of PPSA filings in favour of the Agent reflecting the Agent’s security in the consigned Inventory of the Obligors. | ||
| (i) | Agent shall have received a written opinion of Fleming LLP as well as any local counsel to Obligors or Agent, in form and substance satisfactory to Agent. | ||
| (j) | Agent shall have received copies of the charter documents of each Obligor, certified as appropriate by the provincial ministry or Secretary of State or another official of such Obligor’s jurisdiction of organization. Agent shall have received compliance certificates, certificates of status, certificates d’attestation and good standing certificates for each Obligor, issued by the appropriate official of such Obligor’s jurisdiction of organization and each jurisdiction where such Obligor’s conduct of business or ownership of Property necessitates qualification. | ||
| (k) | Agent shall have received copies of policies or certificates of insurance and binders of Insurance for the insurance policies carried by Obligors with requisite loss payable endorsements, all in compliance with the Loan Documents and in form and substance satisfactory to the Agent. |
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| (l) | Agent shall have completed its legal due diligence of Obligors, with results satisfactory to Agent. No material adverse change, in the opinion of the Agent, (i) in the financial condition of any Obligor, (ii) in the quality, quantity or value of any Collateral, (iii) in each Obligor’s business prospects or its results from operations, or (iv) in each of the Obligor’s liabilities, shall have occurred since July 31, 2006. | ||
| (m) | Since July 31, 2006, to the Closing Date, there shall have been no material adverse change or material disruption in the financial, banking or capital markets which could reasonably be expected to have a Material Adverse Effect on the Loans. | ||
| (n) | The Revolver Commitments, and the allocation of same among a syndicate of lenders acceptable to the Agent, shall have been arranged and completed. | ||
| (o) | Agent shall have received a Borrowing Base Certificate prepared as of September 30, 2006. Upon giving effect to the initial funding of Loans and issuance of Letters of Credit, and the payment by Borrower of all fees and expenses incurred in connection herewith as well as any payables stretched beyond their customary payment practices, Availability shall be at least $20,000,000. | ||
| (p) | The Borrower shall have paid all fees and expenses of the Agent and Lenders, including as provided in the Fee Letter and hereunder, and all attorney costs and audit costs incurred in connection with any of the Loan Documents and the transactions contemplated thereby to the extent invoiced. | ||
| (q) | The Agent shall have received evidence satisfactory to the Agent that the terms of this Agreement and the other Loan Documents are not in violation of or contrary to the provisions of any other document to which Borrower or any Subsidiary is a party or by which they are bound. | ||
| (r) | There shall exist no action, suit, investigation, litigation, or proceeding pending or threatened in any court or before any arbitrator or governmental authority that in Lenders’ good faith credit discretion (a) could reasonably be expected to have a Material Adverse Effect or impair Obligors’ ability to perform their obligations under the Loan Agreement, or (b) could reasonably be expected to materially and adversely affect the Obligations or the transactions contemplated thereby. | ||
| (s) | Agent shall have reviewed and confirmed their satisfaction with the instruments/debt documents evidencing the Debt of and any other creditors not being paid out and discharged on or prior to the Closing Date. | ||
| (t) | The Agent shall have received evidence satisfactory to it that each Obligor shall have obtained all governmental and third party consents and approvals as Agent may consider necessary or appropriate in connection with this Agreement and the transactions contemplated thereby. |
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| (u) | The Agent shall have received evidence that the Obligor 2006 Amalgamation has occurred, on terms and conditions satisfactory to the Agent. | ||
| (v) | All proceedings taken in connection with the execution of this Agreement, all other Loan Documents and all documents and papers relating thereto shall be satisfactory in form, scope, and substance to the Agent and the Lenders. |
The acceptance by the Borrower of any Loans made or Letters of Credit issued on the Closing
Date shall be deemed to be a representation and warranty made by the Borrower to the effect that
all of the conditions precedent to the making of such Loans or the issuance of such Letters of
Credit have been satisfied, with the same effect as delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Borrower, dated the Closing Date, to such
effect.
Execution and delivery to the Agent by a Lender of a counterpart of this Agreement or by an
Assignment and Acceptance shall be deemed confirmation by such Lender that (i) all conditions
precedent in this Section 6.1 have been fulfilled to the satisfaction of such Lender, (ii) the
decision of such Lender to execute and deliver to the Agent an executed counterpart of this
Agreement was made by such Lender independently and without reliance on the Agent or any other
Lender as to the satisfaction of any condition precedent set forth in this Section 6.1, and (iii)
all documents sent to such Lender for approval, consent, or satisfaction were acceptable to such
Lender.
6.2 Conditions Precedent to All Credit Extensions.
Agent, Issuing Bank and Lenders shall not be required to fund any Loans, arrange for issuance
of any Letters of Credit or grant any other accommodation to or for the benefit of Borrower, unless
the following conditions are satisfied:
| (a) | No Default or Event of Default shall exist at the time of, or result from, such funding, issuance or grant; | ||
| (b) | The representations and warranties of each Obligor in the Loan Documents shall be true and correct on the date of, and upon giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier date); | ||
| (c) | All conditions precedent in any other Loan Document shall be satisfied; | ||
| (d) | No event shall have occurred or circumstance exist that has or could reasonably be expected to have a Material Adverse Effect; and | ||
| (e) | With respect to issuance of a Letter of Credit, the LC Conditions shall be satisfied. |
Each request (or deemed request) by Borrower for funding of a Loan, issuance of a Letter of
Credit or grant of an accommodation shall constitute a representation by Borrower that the
foregoing conditions are satisfied on the date of such request and on the date of such funding,
issuance or grant. As an additional condition to any funding, issuance or grant, Agent shall have
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received such other information, documents, instruments and agreements as it deems appropriate in
connection therewith.
6.3 Limited Waiver of Conditions Precedent.
If Agent, Issuing Bank or Lenders fund any Loans, arrange for issuance of any Letters of
Credit or grant any other accommodation when any conditions precedent are not satisfied (regardless
of whether the lack of satisfaction was known or unknown at the time), it shall not operate as a
waiver of (a) the right of Agent, Issuing Bank and Lenders to insist upon satisfaction of all
conditions precedent with respect to any subsequent funding, issuance or grant; nor (b) any Default
or Event of Default due to such failure of conditions or otherwise.
SECTION 7 COLLATERAL
7.1 Grant of Security Interest.
To secure the prompt payment and performance of all Obligations, each Obligor hereby grants
to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all
personal Property (save and exclusive solely of Equipment) of Obligors, including all of the
following Property, whether now owned or hereafter acquired, and wherever located:
| (a) | all Accounts; | ||
| (b) | all Chattel Paper, including electronic chattel paper; | ||
| (c) | all Deposit Accounts and Dominion Accounts; | ||
| (d) | all General Intangibles, including Intellectual Property; | ||
| (e) | all Goods, including Inventory but excluding Equipment; | ||
| (f) | all Instruments; | ||
| (g) | all Investment Property; | ||
| (h) | all monies, whether or not in the possession or under the control of Agent, a Lender, or a bailee or Affiliate of Agent or a Lender, including any Cash Collateral; | ||
| (i) | all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the foregoing, including proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage or destruction of any Collateral; and | ||
| (j) | all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs and computer records) pertaining to the foregoing. |
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7.2 Lien on Deposit Accounts/Dominion Accounts; Cash Collateral.
7.2.1 Deposit Accounts/Dominion Accounts.
| (a) | To further secure the prompt payment and performance of all Obligations, each Obligor hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all of Obligors’ right, title and interest in and to each Deposit Account and Dominion Account of such Obligor and any deposits or other sums at any time credited to any such Deposit Account and Dominion Account, including any sums in any blocked or lockbox accounts or in any accounts into which such sums are swept. For greater certainty, Obligors hereby agree that, unless otherwise agreed to by Agent, they will not maintain any Deposit Accounts, other than Dominion Accounts with the Bank. | ||
| (b) | Each Obligor authorizes and directs Bank to deliver to Agent, on a daily basis, all balances in the Dominion Accounts maintained by such Obligor with such depository for application to the Obligations then outstanding. Each Obligor irrevocably appoints Agent as such Obligor’s attorney to collect such balances to the extent any such delivery is not so made. |
7.2.2 Cash Collateral.
Any Cash Collateral may be invested, in Agent’s discretion, in Cash Equivalents, but Agent
shall have no duty to do so, regardless of any agreement, understanding or course of dealing with
Borrower, and shall have no responsibility for any investment or loss. Borrower hereby grants to
Agent, for the benefit of Secured Parties, a security interest in all Cash Collateral held from
time to time and all proceeds thereof, as security for the Obligations, whether such Cash
Collateral is held in the Cash Collateral Account or elsewhere. Agent may apply Cash Collateral to
the payment of any Obligations, in such order as Agent may elect, as they become due and payable.
The Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of
Agent. No Borrower or other Person claiming through or on behalf of Borrower shall have any right
to any Cash Collateral, until Full Payment of all Obligations.
7.3 Other Collateral.
7.3.1 Certain After-Acquired Collateral.
Obligors shall promptly notify Agent in writing if, after the Closing Date, any Obligor
obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, documents,
Instruments, Intellectual Property or Investment Property and, upon Agent’s request, shall
promptly execute such documents and take such actions as Agent deems appropriate to effect Agent’s
duly perfected, opposable and first priority Lien upon such Collateral, subject to Permitted
Liens, including obtaining any appropriate possession, control agreement or Lien Waiver. If any
Collateral is in the possession of a third party, at Agent’s request, Obligors shall obtain an
acknowledgment that such third party holds the Collateral for the benefit of Agent.
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7.4 No Assumption of Liability.
The Lien on Collateral granted hereunder is given as security only and shall not subject
Agent or any Lender to, or in any way modify, any obligation or liability of Obligors relating to
any Collateral.
7.5 Further Assurances.
Promptly upon request, Obligors shall deliver such instruments, assignments, title
certificates, or other documents or agreements, and shall take such actions, as Agent deems
appropriate under Applicable Law to evidence or perfect or render opposable its Lien on any
Collateral, or otherwise to give effect to the intent of this Agreement. Each Obligor authorizes
Agent to file any financing statements or other application of publication that indicates the
Collateral as “all present and after acquired personal property” or “the universality of all
present and future movable property” of such Obligor, or words to similar effect, and ratifies any
action taken by Agent before the Closing Date to effect or perfect or render opposable its Lien on
any Collateral.
SECTION 8 COLLATERAL ADMINISTRATION
8.1 Borrowing Base Certificates.
By the twentieth day of each month (or with such other frequency as Agent may require, from
time to time, acting in their sole discretion), Borrower shall deliver to Agent (and Agent shall
promptly deliver same to Lenders) a Borrowing Base Certificate prepared as of the close of business
of the previous month, and at such other times as Agent may request. All calculations of
Availability in any Borrowing Base Certificate shall originally be made by Borrower and certified
by a Senior Officer, provided that Agent may from time to time review and adjust any such
calculation (a) to reflect its reasonable estimate of declines in value of any Collateral, due to
collections received in the Dominion Account or otherwise; and (b) to the extent the calculation is
not made in accordance with this Agreement or does not accurately reflect the Availability Reserve.
8.2 Administration of Accounts.
8.2.1 Records and Schedules of Accounts.
Each Obligor shall keep accurate and complete records of its Accounts, including all payments
and collections thereon, and shall submit to Agent, on such periodic basis as Agent may request, a
sales and collections report, in form satisfactory to Agent. Each Obligor shall also provide to
Agent, on or before the 20th day of each month, a detailed aged trial balance of all
Accounts as of the end of the preceding month, specifying each Account’s Account Debtor name,
amount, invoice date and due date, showing any discount, allowance, credit, authorized return or
dispute, and including such proof of delivery, copies of invoices and invoice registers, copies of
related documents, repayment histories, status reports and other information as Agent may request
(including the addresses for each Account Debtor). If Accounts in an aggregate face amount of
$100,000 or more cease to be Eligible Accounts, Borrower or applicable Obligor shall notify Agent
of such occurrence promptly (and in any event within one Business Day) after Borrower or applicable
Obligor has knowledge thereof.
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8.2.2 Taxes.
If an Account of an Obligor includes a charge for any Taxes, Agent is authorized, in its
discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower
and to charge Borrower therefor; provided, however, that neither Agent nor Lenders shall be liable
for any Taxes that may be due from Obligor or with respect to any Collateral.
8.2.3 Account Verification.
Whether or not a Default or Event of Default exists, Agent shall have the right at any time,
in the name of Agent, any designee of Agent or any Obligor to verify the validity, amount or any
other matter relating to any Accounts of Obligors by mail, telephone or otherwise. Obligors shall
cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification
process.
8.2.4 Maintenance of Dominion Account.
Obligors shall maintain Dominion Accounts pursuant to lockbox or other arrangements
acceptable to Agent with Bank. Obligors shall obtain an agreement (in form and substance
satisfactory to Agent) from Bank, establishing Agent’s control over and Lien in the Dominion
Account, requiring immediate deposit of all remittances received in the Dominion Account, and
waiving offset and compensation rights of such servicer against any funds in the Dominion Account,
except offset or compensation rights for customary administrative charges. Neither Agent nor
Lenders assume any responsibility to Obligors for any Dominion Account, including any claim of
accord and satisfaction or release with respect to any Payment Items accepted by servicer.
8.2.5 Proceeds of Collateral.
Obligors shall request in writing and otherwise take all reasonable steps to ensure that all
payments on Accounts or otherwise relating to Collateral are made directly to a Dominion Account.
If any Obligor or Subsidiary receives cash or Payment Items with respect to any Collateral, it
shall hold same in trust for Agent and promptly (not later than the next Business Day) deposit
same into a Dominion Account.
8.3 Administration of Inventory.
8.3.1 Records and Reports of Inventory.
Each Obligor shall keep accurate and complete records of its Inventory and shall submit to
Agent, on or before the 20th day of each month, or as frequent as the Agent may
request, inventory reports in form satisfactory to Agent. Agent may participate in and observe
each inventory count.
8.3.2 Returns of Inventory.
No Obligor shall return any Inventory to a supplier, vendor or other Person, whether for
cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no
Default, Event of Default or Overadvance exists or would result therefrom; (c) Agent is promptly
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notified if the aggregate Value of all Inventory returned in any month exceeds $100,000; and (d)
any payment received by an Obligor for a return is promptly remitted to Agent for application to
the Obligations.
8.3.3
Acquisition, Sale and Maintenance.
No Obligor shall acquire or accept any Inventory on consignment or approval, and shall take
all steps to assure that all Inventory is produced in accordance with Applicable Law. No Obligor
shall sell any Inventory on consignment (unless the conditions in respect of such Inventory, set
forth in paragraph (i) of the definition of Eligible Inventory, are met to the satisfaction of the
Agent) or approval or any other basis under which the customer may return or require Obligors to
repurchase such Inventory. Obligors shall use, store and maintain all Inventory with reasonable
care and caution, in accordance with applicable standards of any insurance and in conformity with
all Applicable Law, and shall make current rent payments (within applicable grace periods provided
for in leases) at all locations where any Collateral is located.
8.4 Administration of Equipment and Real Estate.
8.4.1 Records and Schedules of Equipment and Real Estate.
Each Obligor shall keep accurate and complete records of its Equipment, including kind,
quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Agent, on such
periodic basis as Agent may request, a current schedule thereof, in form satisfactory to Agent.
Promptly upon request, Obligors shall deliver to Agent evidence of their ownership or interests in
any Real Estate and Equipment.
8.4.2 Dispositions of Equipment.
No Obligor shall sell, lease or otherwise dispose of or alienate any Equipment or Real
Estate, without the prior written consent of Agent, other than (a) a Permitted Asset Disposition,
and (b) Equipment or Real Estate pledged as security for the ATB Financial Debt (as long as the
Net Proceeds of such dispositions are used to acquire replacement Equipment or Real Estate or to
pay or pre-pay amounts owing under the ATB Financial Debt or as otherwise permitted by the ATB
Financial Debt documents).
8.5 Administration of Deposit Accounts.
Schedule 8.5 sets forth all Dominion Accounts maintained by Obligors. Each Obligor shall take
all actions necessary to establish Agent’s control of each such Dominion Account. Each Obligor
shall be the sole account holder of each Dominion Account and shall not allow any other Person
(other than Agent) to have control over a Dominion Account or any Property deposited therein. Each
Obligor shall not open any Deposit Account or Dominion Account without the consent of Agent.
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| 8.6 | General Provisions. |
| 8.6.1 | Location of Collateral. |
All tangible (corporeal) items of Collateral, other than Inventory in transit, shall at all
times be kept by Obligors at the business locations set forth in Schedule 8.6.1, except that
Obligors may (a) make sales or other dispositions of Collateral
in accordance with Section 10.2.6;
and (b) move Collateral to another location in Canada, as applicable, upon 30 Business Days prior
written notice to Agent.
| 8.6.2 | Insurance of Collateral; Condemnation Proceeds. | ||
| (a) | Each Obligor shall maintain insurance with respect to the Collateral, covering casualty, hazard, public liability, theft, malicious mischief, and such other risks, in such amounts, with such endorsements, and with such insurers (rated A+ or better by A.M. Best Rating Guide) as are satisfactory to Agent. All proceeds under each policy shall be payable to Agent. From time to time upon request, Obligors shall deliver to Agent the originals or certified copies of its insurance policies and updated flood plain searches. Unless Agent shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Agent as sole loss payee, first mortgagee or additional insured, as appropriate; (ii) requiring 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever; and (iii) specifying that the interest of Agent shall not be impaired or invalidated by any act or neglect of any Obligor or the owner of the Property, nor by the occupation of the premises for purposes more hazardous than are permitted by the policy. If any Obligor fails to provide and pay for such insurance, Agent may, at its option, but shall not be required to, procure the insurance and charge Obligors therefor. Each Obligor agrees to deliver to Agent, promptly as rendered, copies of all reports made to insurance companies. While no Event of Default exists, Obligors may settle, adjust or compromise any insurance claim, as long as the proceeds are delivered to Agent. If an Event of Default exists, only Agent shall be authorized to settle, adjust and compromise such claims. | ||
| (b) | Any proceeds of insurance (other than proceeds from workers’ compensation or D&O insurance) and any awards arising from condemnation of any Collateral shall be paid to Agent. Any such proceeds or awards that relate to Inventory shall be applied to payment of the Revolver Loans, and then to any other Obligations outstanding. | ||
| 8.6.3 | Protection of Collateral. |
All expenses of protecting, storing, warehousing, insuring, handling, maintaining and
shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale
thereof), and all other payments required to be made by Agent to any Person to realize upon any
Collateral, shall be borne and paid by Obligors. Agent shall not be liable or responsible in any
way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable
care in its custody while Collateral is in Agent’s actual possession), for any diminution in the
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value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other
Person whatsoever, but the same shall be at Obligors’ sole risk.
| 8.6.4 | Defense of Title to Collateral. |
Each Obligor shall at all times defend its title to Collateral and Agent’s Liens therein
against all Persons, claims and demands whatsoever, except Permitted Liens.
| 8.7 | Power of Attorney. |
Each Obligor hereby irrevocably constitutes and appoints Agent (and all Persons designated by
Agent) as such Obligor’s true and lawful attorney (and agent-in-fact) for the purposes provided in
this Section. Agent, or Agent’s designee, may, without notice and in either its or an Obligor’s
name, but at the cost and expense of Obligors:
| (a) | Endorse an Obligor’s name on any Payment Item or other proceeds of Collateral (including proceeds of insurance) that come into Agent’s possession or control; and | ||
| (b) | During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts or to set-up or render opposable any Lien in respect thereof, demand and enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts; (ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times as Agent deems advisable; (iv) take control, in any manner, of any proceeds of Collateral; (v) prepare, file and sign in Obligor’s name to a proof of claim or other document in a bankruptcy of an Account Debtor, or to any notice, assignment or satisfaction of Lien or similar document; (vi) receive, open and dispose of mail addressed to an Obligor, and notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse any Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading, or similar document or agreement relating to any Accounts, Inventory or other Collateral; (viii) use an Obligor’s stationery and sign its name to verifications of Accounts and notices to Account Debtors; (ix) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to any Collateral; (x) make and adjust claims under policies of insurance; (xi) take any action as may be necessary or appropriate to obtain payment under any letter of credit or banker’s acceptance for which an Obligor is a beneficiary; and (xii) take all other actions as Agent deems appropriate to fulfill any Obligor’s obligations under the Loan Documents. |
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SECTION 9 REPRESENTATIONS AND WARRANTIES
| 9.1 | General Representations and Warranties. |
To induce Agent and Lenders to enter into this Agreement and to make available the
Commitments, Loans and Letters of Credit, each Obligor represents and warrants that:
| 9.1.1 | Organization and Qualification. |
Each Obligor and Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization. Each Obligor and Subsidiary is duly qualified,
authorized to do business and in good standing as a foreign corporation in each jurisdiction where
failure to be so qualified could reasonably be expected to have a Material Adverse Effect.
| 9.1.2 | Power and Authority. |
Each Obligor is duly authorized to execute, deliver and perform its Loan Documents. The
execution, delivery and performance of the Loan Documents have been duly authorized by all
necessary action, and do not (a) require any consent or approval of any holders of Equity
Interests of any Obligor, other than those already obtained; (b) contravene the Organic Documents
of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or
(d) result in or require the imposition of any Lien (other than Permitted Liens) on any Property
of any Obligor.
| 9.1.3 | Enforceability. |
Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors’ rights generally.
| 9.1.4 | Capital Structure. |
Schedule 9.1.4 shows, for each Obligor and Subsidiary, its name, its jurisdiction of
organization, its authorized and issued Equity Interests, the holders of its Equity Interests and
all direct or indirect holders of such holders, and all agreements binding on such holders with
respect to their Equity Interests. Each Obligor has good title to its Equity Interests in its
Subsidiaries, subject only to Agent’s Lien, and all such Equity Interests are duly issued, fully
paid and non-assessable. There are no outstanding options to purchase, warrants, subscription
rights, agreements to issue or sell, convertible interests, phantom rights or powers of attorney
relating to any Equity Interests of any Obligor or Subsidiary other than (i) Red Man Pipe Canada’s
call right to purchase the voting Equity Interests of the Borrower held by Midfield Holdings (which
call right may be exercised between May 13th and November 13th of 2008), and
(ii) Midfield Holdings’ options to purchase non-voting Equity Interests of the Borrower.
| 9.1.5 | Corporate Names; Locations. |
During the five years preceding the Closing Date, except as shown on Schedule 9.1.5, no
Obligor or Subsidiary has been known as or used any corporate, fictitious or trade names, has
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been the surviving corporation of a merger, amalgamation or combination, or has acquired any
substantial part of the assets of any Person. The chief executive offices and other places of
business of Obligors and Subsidiaries are shown on Schedule 8.6.1. During the five years preceding
the Closing Date, no Obligor or Subsidiary has had any other office or place of business.
| 9.1.6 | Title to Properties; Priority of Liens. |
Each Obligor and Subsidiary has good and marketable title to (or valid leasehold interests in)
all of its Real Estate, and good title to all of its personal (movable) Property, including all
Property reflected in any financial statements delivered to Agent or Lenders, in each case free of
Liens except Permitted Liens. Each Obligor and Subsidiary has paid and discharged all lawful claims
that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All Liens of
Agent in the Collateral are duly perfected, opposable and first priority Liens, subject only to
Permitted Liens that are expressly allowed to have priority over Agent’s Liens.
| 9.1.7 | Accounts. |
Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect thereto. Borrower warrants, with respect to each
Account at the time it is shown as an Eligible Account in a Borrowing Base Certificate, that:
| (a) | it is genuine and in all respects what it purports to be, and is not evidenced by a judgment; | ||
| (b) | it arises out of a completed, bona fide sale and delivery of goods or rendition of services in the Ordinary Course of Business, and substantially in accordance with any purchase order, contract or other document relating thereto; | ||
| (c) | it is for a sum certain, maturing as stated in the invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Agent on request; | ||
| (d) | it is not subject to any offset, compensation, Lien (other than Agent’s Lien), deduction, defense, dispute, counterclaim or other adverse condition except as arising in the Ordinary Course of Business and disclosed to Agent; and it is absolutely owing by the Account Debtor, without contingency in any respect; | ||
| (e) | no purchase order, agreement, document or Applicable Law restricts assignment of the Account to Agent (regardless of whether, under the UCC, the PPSA or the Civil Code, the restriction is ineffective); | ||
| (f) | no extension, compromise, settlement, modification, credit, deduction or return has been authorized with respect to the Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected on the face of the invoice related thereto and in the reports submitted to Agent hereunder; and |
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| (g) | to the best of Borrower’s knowledge, (i) there are no facts or circumstances that are reasonably likely to impair the enforceability or collectibility of such Account; (ii) the Account Debtor had the capacity to contract when the Account arose, continues to meet the applicable Borrower’s customary credit standards, is Solvent, is not contemplating or subject to an Insolvency Proceeding, and has not failed, or suspended or ceased doing business; and (iii) there are no proceedings or actions threatened or pending against any Account Debtor that could reasonably be expected to have a material adverse effect on the Account Debtor’s financial condition. | ||
| 9.1.8 | Financial Statements. |
The consolidated and consolidating balance sheets, and related statements of income, cash flow
and shareholder’s equity, of Obligors and Subsidiaries that have been and are hereafter delivered
to Agent and Lenders, are prepared in accordance with GAAP, and fairly present the financial
positions and results of operations of Obligors and Subsidiaries at the dates and for the periods
indicated. All projections delivered from time to time to Agent and Lenders have been prepared in
good faith, based on reasonable assumptions in light of the circumstances at such time. Since July
31, 2006 there has been no change in the condition, financial or otherwise, of any Obligor or
Subsidiary that could reasonably be expected to have a Material Adverse Effect. No financial
statement delivered to Agent or Lenders at any time contains any untrue statement of a material
fact, nor fails to disclose any material fact necessary to make such statement not materially
misleading. Each Obligor and Subsidiary is Solvent.
| 9.1.9 | Surety Obligations. |
No Obligor or Subsidiary is obligated as guarantor, surety or indemnitor under any bond or
other contract that assures payment or performance of any obligation of any Person, except as
permitted hereunder.
| 9.1.10 | Taxes. |
Each Obligor and Subsidiary has filed all federal, provincial, territorial, state and local
tax returns and other reports that it is required by law to file, and has paid, or made provision
for the payment of, all Taxes upon it, its income and its Properties that are due and payable,
except to the extent being Properly Contested. The provision for Taxes on the books of each
Obligor and Subsidiary is adequate for all years not closed by applicable statutes, and for its
current Fiscal Year.
| 9.1.11 | Brokers. |
There are no brokerage commissions, finder’s fees or investment banking fees payable in
connection with any transactions contemplated by the Loan Documents.
| 9.1.12 | Intellectual Property. |
Each Obligor and Subsidiary owns or has the lawful right to use all Intellectual Property
necessary for the conduct of its business, without conflict with any rights of others. There is no
pending or, to any Obligor’s knowledge, threatened Intellectual Property Claim with respect to
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any Obligor, any Subsidiary or any of their Property (including any Intellectual Property). Except
as disclosed on Schedule 9.1.12, no Obligor or Subsidiary pays or owes any Royalty or other
compensation to any Person with respect to any Intellectual Property. All Intellectual Property
owned, used or licensed by, or otherwise subject to any interests of, any Obligor or Subsidiary is
shown on Schedule 9.1.12.
| 9.1.13 | Governmental Approvals. |
Each Obligor and Subsidiary has, is in compliance with, and is in good standing with respect
to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its
Properties. All necessary import, export or other licenses, permits or certificates for the import
or handling of any goods or other Collateral have been procured and are in effect, and Obligors and
Subsidiaries have complied with all foreign and domestic laws with respect to the shipment and
importation of any goods or Collateral, except where noncompliance could not reasonably be expected
to have a Material Adverse Effect.
| 9.1.14 | Compliance with Laws. |
Each Obligor and Subsidiary has duly complied, and its Properties and business operations are
in compliance, in all material respects with all Applicable Law, except where noncompliance could
not reasonably be expected to have a Material Adverse Effect. There have been no citations,
notices or orders of material noncompliance issued to any Obligor or Subsidiary under any
Applicable Law.
| 9.1.15 | Compliance with Environmental Laws. |
Except as disclosed on Schedule 9.1.15, no Obligor’s or Subsidiary’s past or present
operations, Real Estate or other Properties are subject to any federal, provincial, territorial,
state or local investigation to determine whether any remedial action is needed to address any
environmental pollution, hazardous material or environmental clean-up. No Obligor or Subsidiary
has received any Environmental Notice. No Obligor or Subsidiary has any contingent liability with
respect to any Environmental Release, environmental pollution or hazardous material on any Real
Estate now or previously owned, leased or operated by it. The representations and warranties
contained in the Environmental Agreement are true and correct on the Closing Date.
| 9.1.16 | Burdensome Contracts. |
No Obligor or Subsidiary is a party or subject to any contract, agreement or charter
restriction that could reasonably be expected to have a Material Adverse Effect. No Obligor or
Subsidiary is party or subject to any Restrictive Agreement, except as shown on Schedule 9.1.16,
none of which prohibit the execution or delivery of any Loan Documents by an Obligor nor the
performance by an Obligor of any obligations thereunder.
| 9.1.17 | Litigation. |
Except as shown on Schedule 9.1.17, there are no actions, suits, proceedings or
investigations pending or, to any Obligor’s knowledge, threatened against any Obligor or
Subsidiary, or any of their businesses, operations, Properties, prospects or conditions, that (a)
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relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be
expected to have a Material Adverse Effect if determined adversely to any Obligor or Subsidiary.
No Obligor or Subsidiary is in default with respect to any order, injunction or judgment of any
Governmental Authority.
| 9.1.18 | No Defaults. |
No event or circumstance has occurred or exists that constitutes a Default or Event of
Default. No Obligor or Subsidiary is in default, and no event or circumstance has occurred or
exists that with the passage of time or giving of notice would constitute a default, under any
Material Contract or in the payment of any Borrowed Money. There is no basis upon which any party
(other than Borrower or Subsidiary) could terminate a Material Contract prior to its scheduled
termination date.
| 9.1.19 | Pension Compliance. |
Except as otherwise disclosed in Schedule 9.1.19:
| (a) | Each Plan is in compliance in all material respects with all applicable laws and the terms of such Plans. Each of the Obligor’s and each of its Subsidiaries’ Plans are duly registered where required by, and are in compliance and good standing in all material respects under, all applicable laws, acts, statutes, regulations, orders, directives and agreements, including, without limitation, the ITA and the PBA, any successor legislation thereto, and other applicable laws of any jurisdiction. Each Obligor has made all required contributions to any Plan when due, and no application for or taking of a funding waiver or an extension of any amortization period has been made with respect to any Plan. | ||
| (b) | There are no pending or, to the best knowledge of Obligors, threatened claims, actions or lawsuits, or action by any Governmental Authority or any Plan administrator or trustee, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or breach of the fiduciary responsibility rules with respect to any Plan or any breach by the Borrower of any other laws, rules, regulations or terms of any Plans or any whole or partial termination or wind up of any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. | ||
| (c) | (i) No Pension Event has occurred during the last 5 years, or is reasonably expected to occur; (ii) no Plan has any Unfunded Pension Liability; and (iii) No Obligor has incurred during the last 5 years, or reasonably expects to incur, any liability under applicable laws with respect to any Plan (other than premiums due and not delinquent). | ||
| (d) | No Lien on any property of an Obligor has arisen in respect of any Plan (except inchoate Liens for premiums and contributions not due and delinquent). |
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| (e) | No Obligor or Subsidiary has any Multiemployer Plan or Foreign Plan. Each Obligor and Subsidiary is in full compliance with the requirements of all Applicable Laws, including ERISA, relating to each Multiemployer Plan and Foreign Plan. No fact or situation exists that could reasonably be expected to result in a Material Adverse Effect in connection with any Multiemployer Plan or Foreign Plan. No Obligor or Subsidiary has any withdrawal liability in connection with a Multiemployer Plan or Foreign Plan. All employer and employee contributions to Foreign Plans, to the extent required by law or the terms of such plans, have been made or accrued in accordance with normal accounting principles. The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance and/or the book reserve established for each Foreign Plan, together with any accrued contributions, are sufficient to provide the accrued benefit obligations of all participants in such plans according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. Each Foreign Plan required to be registered has been registered and is maintained in good standing with all applicable regulatory authorities. | ||
| 9.1.20 | Workers’ Compensation. |
Each Obligor does not have any unpaid workers’ compensation or like obligations except as are
being incurred and paid on a current basis in the Ordinary Course of Business, and there are no
proceedings, claims, actions, orders or investigations of any Governmental Authority relating to
worker’s compensation outstanding, pending or threatened relating to them or any of their
employees or former employees which could reasonably be expected to give rise to a Material
Adverse Effect.
| 9.1.21 | Trade Relations. |
There exists no actual or threatened termination, resiliation, limitation or modification of
any business relationship between any Obligor or Subsidiary and any customer or supplier, or any
group of customers or suppliers, who individually or in the aggregate are material to the business
of any Obligor or Subsidiary. There exists no condition or circumstance that could reasonably be
expected to impair the ability of any Obligor or Subsidiary to conduct its business at any time
hereafter in substantially the same manner as conducted on the Closing Date.
| 9.1.22 | Labour Relations. |
Except as described on Schedule 9.1.21, no Obligor or Subsidiary is party to or bound by any
collective bargaining agreement, management agreement or consulting agreement. There are no
material grievances, disputes or controversies with any union or other organization of any
Obligor’s or Subsidiary’s employees, or, to any Obligor’s knowledge, any asserted or threatened
strikes, work stoppages or demands for collective bargaining.
| 9.1.23 | Payable Practices. |
No Obligor or Subsidiary has made any material change in its historical accounts payable
practices from those in effect on the Closing Date.
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| 9.1.24 | Not a Regulated Entity. |
No Obligor is (a) an “investment company” or a “person directly or indirectly controlled by or
acting on behalf of an investment company” within the meaning of the Investment Company Act of
1940; (b) a “holding company,” a “subsidiary company” of a “holding company,” or an “affiliate” of
either, within the meaning of the Public Utility Holding Company Act of 1935; or (c) subject to
regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or
any other Applicable Law regarding its authority to incur Debt.
| 9.1.25 | Margin Stock. |
No Obligor or Subsidiary is engaged, principally or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No
Loan proceeds or Letters of Credit will be used by Obligors to purchase or carry, or to reduce or
refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose
governed by Regulations T, U or X of the Board of Governors.
| 9.1.26 | Foreign Plan Assets. |
No Obligor is an entity deemed to hold “plan assets” within the meaning of 29 C.F.R.
§2510.3-101 of any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject
to Title I of ERISA or any “plan” (within the meaning of Section 4975 of the Code), and neither
the execution of this Agreement nor the funding of any Loans gives rise to a prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code or under any
other Applicable Laws in respect of Foreign Plans.
| 9.1.27 | Solvency. |
Each Obligor is Solvent prior to and after giving effect to the making of the Revolving Loans
to be made on the Closing Date and the issuance of the Letters of Credit to be issued on the
Closing Date and the execution and delivery of all Loan Documents, and shall remain Solvent during
the term of this Agreement.
| 9.1.28 | Inactive Subsidiaries |
Worldwide Matrix Inc. (i) does not carry on any business whatsoever, (ii) does not own any
Inventory, Accounts or any other personal or moveable property and assets, and (iii) has not
granted a Lien to any Person and no Person otherwise has a Lien against it or its personal and
moveable property and assets.
| 9.1.29 | Real Estate | ||
| (a) | (a) Except as advised in writing to the Agent, no investigation or proceeding
of any Governmental Authority is pending against the Real Estate or against an
Obligor in respect of the Real Estate. No part of the Real Estate has been
condemned, taken or expropriated by any Governmental Authority, federal, state,
provincial, municipal or any other competent authority; |
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| (b) | Except as advised in writing to the Agent, all present uses in respect of the Real Estate may lawfully be continued and all permitted uses are satisfactory for the Obligors’ current and intended purposes; | ||
| (c) | All Obligor owned Real Estate is set forth in Schedule 9.1.29; and | ||
| (d) | No Inventory is located at any leased Premises except as indicated in Schedule 8.6.1. |
| 9.2 | Complete Disclosure. |
No Loan Document contains any untrue statement of a material fact, nor fails to disclose any
material fact necessary to make the statements contained therein not materially misleading. There
is no fact or circumstance that any Obligor has failed to disclose to Agent in writing that could
reasonably be expected to have a Material Adverse Effect.
SECTION 10 COVENANTS AND CONTINUING AGREEMENTS
| 10.1 | Affirmative Covenants. |
For so long as any Commitments or Obligations are outstanding, each Obligor shall, and shall
cause each Subsidiary to:
| 10.1.1 | Inspections; Appraisals. | ||
| (a) | Permit Agent from time to time, subject (except when a Default or Event of Default exists) to reasonable notice and normal business hours, to visit and inspect the Properties of any Obligor or Subsidiary, inspect, audit and make extracts from any Obligor’s or Subsidiary’s books and records, and discuss with its officers, employees, agents, mandataries, advisors and independent accountants such Obligor’s or Subsidiary’s business, financial condition, assets, prospects and results of operations. Lenders may participate in any such visit or inspection, at their own expense. Neither Agent nor any Lender shall have any duty to any Obligor to make any inspection, nor to share any results of any inspection, appraisal or report with any Obligor. To the extent any appraisal or other information is shared by Agent or a Lender with any Obligor, such Obligor acknowledges that it was prepared by Agent and Lenders for their purposes and Obligors shall not be entitled to rely upon it. | ||
| (b) | Reimburse Agent for all charges, costs and expenses of Agent in connection with (i) examinations of any Obligor’s books and records or any other financial or Collateral matters; and (ii) appraisals of Inventory. Subject to the foregoing, Obligors shall pay Agent’s then standard charges, costs and expenses for each day that an employee of Agent or its Affiliates is engaged in any examination activities (the standard per diem, per individual, is US$850 (excluding costs and expenses)). This Section shall not be construed to limit Agent’s right to conduct examinations or to obtain appraisals at any time in its discretion, nor to use third parties for such purposes. |
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| 10.1.2 | Financial and Other Information. |
Keep adequate records and books of account with respect to its business activities, in which
proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish
to Agent and Lenders:
| (a) | as soon as available, and in any event within 120 days after the close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and the related statements of income, cash flow and shareholders’ equity for such Fiscal Year, on consolidated and consolidating bases for Obligors and Subsidiaries, which consolidated statements shall be audited and certified (without qualification as to scope, “going concern” or similar items) by a firm of independent chartered accountants of recognized standing selected by Borrower and acceptable to Agent, and shall set forth in comparative form corresponding figures for the preceding Fiscal Year and other information acceptable to Agent; | ||
| (b) | as soon as available, and in any event within 30 days after the end of each calendar month), (i) unaudited balance sheets as of the end of such month and the related statements of income and cash flow for such month and for the portion of the Fiscal Year then elapsed, on consolidated and consolidating bases for Obligors and Subsidiaries, setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower as prepared in accordance with GAAP and fairly presenting the financial position and results of operations for such month and period, subject to normal year end adjustments and the absence of footnotes, (ii) a reconciliation of the detailed accounts receivable aged trial balance most recently delivered to Agent pursuant to the requirements of Section 8.2.1 to the accounts receivable balance provided in the unaudited balance sheet delivered pursuant to clause (i) above, (iii) a reconciliation of the detailed trade payable listing most recently delivered to Agent pursuant to the requirements of Section 10.1.2(f) to the trade payable balance provided in the unaudited balance sheet delivered pursuant to clause (i) above, and (iv) a reconciliation of the detailed inventory reports most recently delivered to Agent pursuant to the requirements of Section 8.3.1 to the inventory balance provided in the unaudited balance sheet delivered pursuant to clause (i) above; | ||
| (c) | concurrently with delivery of financial statements under clauses (a) and (b) above, or more frequently if requested by Agent while a Default or Event of Default exists, a Compliance Certificate executed by the chief financial officer of Borrower; | ||
| (d) | concurrently with delivery of financial statements under clause (a) above, copies of all management letters and other material reports submitted to Obligors by its accountant in connection with such financial statements; | ||
| (e) | not later than ninety (90) days after the beginning of each Fiscal Year, projections of Obligors’ consolidated balance sheets, results of operations, cash flow and Availability for the next Fiscal Year, month by month; |
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| (f) | on or before the 30th day of each month, or as frequent as the Agent may request, a listing of each Obligor’s trade payables as of the end of the preceding month, specifying the trade creditor and balance due, all in form satisfactory to Agent; | ||
| (g) | promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that any Obligor has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements or prospectuses that any Obligor files with the Securities and Exchange Commission, any provincial securities commission (including the Ontario Securities Commission) or any other Governmental Authority, or any securities exchange; and copies of any press releases or other statements made available by an Obligor to the public concerning material changes to or developments in the business of such Obligor; | ||
| (h) | promptly after the sending or filing thereof, copies of any annual report, valuation, notice on other filing to be filed in connection with each Plan or Foreign Plan, to the FSCO, the Canada Revenue Agency, or otherwise; | ||
| (i) | upon request, or, in the event that such filing reflects a significant change with respect to the matters covered thereby, within five (5) Business Days after the filing thereof with the FSCO or any other Governmental Authority, as applicable, copies of the following: (i) each annual report filed with the FSCO or any other Governmental Authority with respect to each Plan and (ii) a copy of each other filing or notice filed with the FSCO or any other Governmental Authority with respect to each Plan by an Obligor; | ||
| (j) | upon request, copies of each actuarial report for any Plan or Multi-Employer Plan and within five (5) Business Days after receipt thereof by an Obligor copies of any notices of the FSCO’s or any other Governmental Authorities’ intention to terminate a Plan or to have a third party appointed to administer such Plan or determination that a whole or partial termination has occurred in respect of any Plan or that any withdrawal liability exists in respect of any Plan; or (ii) any notice regarding the imposition of withdrawal liability; | ||
| (k) | within fifteen (15) Business Days after the occurrence thereof: (i) any changes in the benefits of any existing Plan which increase the Obligors’ annual costs with respect thereto by an amount in excess of $250,000, or the establishment of any new Plan or the commencement of contributions to any Plan to which the Obligors or any of their Subsidiaries was not previously contributing, in either case if the annual costs with respect thereto are in excess of $250,000, and (ii) any failure by the Obligors or any of their Subsidiaries to make a required instalment or any other required payment in respect of a Pension Plan on or before the due date for such instalment or payment or any other material breach or material default by the Obligors or any of their Subsidiaries under or in respect of any Plan or (iii) the occurrence of any event or condition which might constitute grounds for termination, or winding up of a Plan or which |
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| might give rise to any Lien on any property of the Obligors or any of their Subsidiaries in respect of any Plan; | |||
| (1) | At Agent’s request, a copy of any tax return filed by an Obligor; and | ||
| (m) | such other reports and information (financial or otherwise) as Agent may request from time to time in connection with any Collateral or any Obligor’s, Subsidiary’s or other Obligor’s financial condition or business. | ||
| 10.1.3 | Notices. |
Notify Agent and Lenders in writing, promptly after an Obligor’s obtaining knowledge thereof,
of any of the following that affects an Obligor: (a) the threat or commencement of any action,
suit, proceeding or investigation, whether or not covered by insurance, if an adverse
determination could have a Material Adverse Effect; (b) any pending or threatened labour dispute,
strike or walkout, or the expiration of any material labour contract; (c) any default under or
termination or resiliation of a Material Contract; (d) the existence of any Default or Event of
Default; (e) any judgment in an amount exceeding $100,000; (f) the assertion of any Intellectual
Property Claim, if an adverse resolution could have a Material Adverse Effect; (g) any violation
or asserted violation of any Applicable Law (including ERISA, PBA, ITA, OSHA or any Environmental
Laws), if an adverse resolution could have a Material Adverse Effect; (h) any Environmental
Release by an Obligor or on any Property owned, leased or presently or previously occupied by an
Obligor; or receipt of any Environmental Notice; (i) the discharge of or any withdrawal or
resignation by Obligors’ independent accountants; (j) any opening of a new office or place of
business, at least 30 days prior to such opening; (k) any change in an Obligor’s name,
jurisdiction of organization, or form of organization, trade names under which an Obligor will
sell Inventory or create Accounts, or to which instruments in payment of Accounts may be made
payable, in each case at least thirty (30) days prior thereto (or in the case of trade names other
than legal corporate names, promptly after such change); (1) within ten (10) Business Days after
an Obligor knows or has reason to know, that a Pension Event has occurred in respect of any Plan
and, when known, any action taken or threatened by the PBGF with respect thereto; or (m) any other
event or circumstance which would reasonably be expected to have a Material Adverse Effect.
| 10.1.4 | Landlord and Storage Agreements. |
Upon request, provide Agent with copies of all existing agreements, and promptly after
execution thereof provide Agent with copies of all future agreements, between an Obligor and any
landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which
any Collateral may be kept or that otherwise may possess or handle any Collateral.
| 10.1.5 | Compliance with Laws. |
Comply with all Applicable Laws, including PBA, ERISA, Environmental Laws, OSHA,
Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all
Governmental Approvals necessary to the ownership of its Properties or conduct of its business,
unless failure to comply (other than failure to comply with Anti-Terrorism Laws) or maintain could
not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, if any Environmental Release occurs at or on any Properties of
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Borrower or Subsidiary, it shall act promptly and diligently to investigate and report to Agent
and all appropriate Governmental Authorities the extent of, and to make appropriate remedial
action to eliminate, such Environmental Release, whether or not directed to do so by any
Governmental Authority.
| 10.1.6 | Taxes. |
Pay and discharge all Taxes prior to the date on which they become delinquent or penalties
attach, unless such Taxes are being Properly Contested.
| 10.1.7 | Insurance. |
In addition to the insurance required hereunder with respect to Collateral, maintain
insurance with insurers (rated A+ or better by Best Rating Guide) satisfactory to Agent, (a) with
respect to the Properties and business of Obligors and Subsidiaries of such type (including
product liability, workers’ compensation, larceny, embezzlement, or other criminal
misappropriation insurance), in such amounts, and with such coverages and deductibles as are
customary for companies similarly situated, and (b) business interruption insurance in an amount
consistent with customary practices in Obligors’ industry, with deductibles satisfactory to Agent.
| 10.1.8 | Licenses. |
Keep each License affecting any Collateral (including the manufacture, distribution or
disposition of Inventory) or any other material Property of Obligors and Subsidiaries in full
force and effect; promptly notify Agent of any proposed modification to any such License, or entry
into any new License, in each case at least 30 days prior to its effective date; pay all Royalties
when due; and notify Agent of any default or breach asserted by any Person to have occurred under
any License.
| 10.1.9 | Future Subsidiaries. |
Promptly notify Agent upon any Person becoming a Subsidiary and cause it to guarantee the
Obligations in a manner satisfactory to Agent, and to execute and deliver such documents,
instruments and agreements and to take such other actions as Agent shall require to evidence and
perfect and render opposable a Lien in favour of Agent (for the benefit of Secured Parties) on all
Property of such Person, including delivery of such legal opinions, in form and substance
satisfactory to Agent, as it shall deem appropriate.
| 10.1.10 | Maintenance of Property. | ||
| (a) | Maintain all of its Property necessary and useful in its businesses in the ordinary course in good operating condition and repair, ordinary wear and tear excepted; | ||
| (b) | To perform or cause to be performed all of its covenants and obligations contained in all Leases and keep all such Leases in good standing (unless and until terminated in the ordinary course of business); and |
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| (c) | Promptly notify the Agent of any fire or other casualty or any notice of expropriation, action or proceeding affecting the Real Estate or any part thereof immediately upon obtaining knowledge of the same. | ||
| 10.1.11 | Plans. |
Cause each of its and its Subsidiaries’ Plans to be duly registered and administered in all
respects in material compliance with, as applicable, the PBA, the ITA and all other applicable
laws (including regulations, orders and directives), and the terms of the Plans and any agreements
relating thereto. Each Obligor shall ensure that it and its Subsidiaries: (a) has no Unfunded
Pension Liability in respect of any Plan, including any Plan to be established and administered by
it or them; (b) pay all amounts required to be paid by it or them in respect of such Plan when
due; (c) has no Lien on any of its or their property that arises or exists in respect of any Plan
except as disclosed in Schedule 9.1.19; (d) do not engage in a prohibited transaction or breach
any applicable laws with respect to any Plan that could reasonably be expected to result in a
Material Adverse Effect in respect of such Plan; (e) do not permit to occur or continue any
Pension Event (other than a partial plan termination or the amalgamation of the Plans described in
Schedule 9.1.19, in either case, provided that all representations and warranties in this
Agreement continue to be true and correct in all material respects and the Obligors are and
continue to be in compliance with all covenants and agreements in this Agreement); and (f) do not
enter into any defined benefit Plan during the term of this Agreement.
| 10.1.12 | Lien Waivers |
Obligors shall use commercially reasonable best efforts to obtain Lien Waivers from (a) the
lessors of premises to the Obligors where Obligor Inventory is located, and (b) such other Persons
who are in the possession of Obligor Inventory as warehousemen, within 90 days of the Closing
Date, failing which Agent shall (i) establish Rent and Charges Reserves for each leased location
of an Obligor, and (ii) disallow, as Eligible Inventory, any Inventory at a warehouse location.
For greater certainty, the eligibility criterion in the definition of Eligible Inventory (other
than as provided for in this Section) continue to apply in respect of all locations of Inventory.
| 10.2 | Negative Covenants. |
For so long as any Commitments or Obligations are outstanding, each Obligor shall not, and
shall cause each Subsidiary not to:
| 10.2.1 | Permitted Debt. |
Create, incur, guarantee or suffer to exist any Debt, except:
| (a) | the Obligations; | |
| (b) | ATB Financial Debt, provided same is subject to the ATB Intercreditor Agreement; | |
| (c) | The Shareholders’ Notes and the Class R Note, provided same are subject to the Shareholders Subordination Agreement; |
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| (d) | 331562 Debt, provided same is subject to the 331562 Estoppel Agreement; | ||
| (e) | Permitted Purchase Money Debt; | ||
| (f) | Borrowed Money (other than the Obligations, ATB Financial Debt, the 331562 Debt, the Shareholders’ Notes, the Class R Note and Permitted Purchase Money Debt), but only to the extent outstanding on the Closing Date and satisfactory to the Lenders, and not satisfied with proceeds of the initial Loans; | ||
| (g) | Permitted Contingent Obligations; | ||
| (h) | Debt that is not included in any of the preceding clauses of this Section, is not secured by a Lien and does not exceed $250,000 in the aggregate at any time; and | ||
| (i) | Accounts payable and accrued liabilities arising in the Ordinary Course of Business. | ||
| 10.2.2 | Permitted Liens. |
Create or suffer to exist any Lien upon any of its Property, except the following
(collectively, “Permitted Liens”):
| (a) | Liens in favour of Agent; | ||
| (b) | Purchase Money Liens securing Permitted Purchase Money Debt; | ||
| (c) | Liens for Taxes not yet due or being Properly Contested; | ||
| (d) | statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of Business, but only if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do not materially impair the value or use of the Property or materially impair operation of the business of any Obligor or Subsidiary; | ||
| (e) | Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, bids, leases, contracts (except those relating to Borrowed Money), statutory obligations and other similar obligations, or arising as a result of progress payments under government contracts, as long as such Liens are at all times junior to Agent’s Liens; | ||
| (f) | Liens arising by virtue of a judgment or judicial order against any Obligor or Subsidiary, or any Property of an Obligor or Subsidiary, as long as such Liens are (i) in existence for less than 20 consecutive days or being Properly Contested, and (ii) at all times junior to Agent’s Liens; | ||
| (g) | Liens which constitute easements, rights-of-way, servitudes, easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or encumbrances on Real Estate, that do not secure any |
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| monetary obligation and do not interfere with the Ordinary Course of Business; | |||
| (h) | normal and customary rights of setoff or compensation upon deposits in favour of depository institutions, and Liens of a collecting bank on Payment Items in the course of collection; | ||
| (i) | Liens on Equipment and Real Estate in favour of ATB Financial securing the ATB Financial Debt and as permitted pursuant to the ATB Intercreditor Agreement; | ||
| (j) | Liens on the Collateral in favour of 331562 securing the 331562 Debt and as permitted pursuant to the 331562 Estoppel Agreement; and | ||
| (k) | existing Liens shown on Schedule 10.2.2. | ||
| 10.2.3 | Capital Expenditures. |
Commencing Fiscal Year 2007, make Capital Expenditures in excess of $5,000,000 in the
aggregate by all Obligors during any Fiscal Year; provided, however, that if the amount of Capital
Expenditures permitted to be made in any Fiscal Year exceeds the amount actually made, up to
$250,000 of such excess may be carried forward to the next Fiscal Year; provided, further, that
the one time Capital Expenditure (limited to a maximum aggregate amount of $5,000,000) related to
the purchase of the Lands at, and the building of a new facility on, 502 Fifth St. W., Nisku,
Alberta, is hereby permitted and not subject to this Section.
| 10.2.4 | Payments to Shareholders; Upstream Payments. |
Make any Distributions or any payments to Persons having an Equity Interest in the Borrower,
except Upstream Payments; or create or suffer to exist any encumbrance or restriction on the
ability of a Subsidiary to make any Upstream Payment, except for restrictions under the Loan
Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule 9.1.16;
provided, however, that Borrower may, (i) pay Bonuses and/or pay interest to Persons having an
Equity Interest in the Borrower who are holders of Shareholders’ Notes; provided, however, that no
Default or Event of Default exists at the time of making such payments and no Default or Event of
Default would occur as a consequence of the making of such payments, provided, further, that in the
case of payments of interest on Shareholders’ Notes, that the Persons holding such Shareholders’
Notes have entered into a Shareholder Subordination Agreement, and (ii) during the period, in any
calendar year, commencing April 15th and ending on June 15th of such calendar
year, (A) make annual Net Distributions to the Persons holding an Equity Interest in the Borrower,
and (B) pay interest to Red Man Pipe Canada on the Class R Note; provided, however, that any such
annual Net Distributions and such payment of interest on the Class R Note made by the Borrower to
the Persons holding an Equity Interest in the Borrower may only be made if (a) Borrower delivers a
current Borrowing Base Certificate, five days prior to such annual Net Distribution and such
payment of interest on the Class R Note (and not earlier), and (b) Borrower delivers a Compliance
Certificate, five days prior to such annual Net Distribution and such payment of interest on the
Class R Note (and not earlier), executed by a Senior Officer of the Borrower certifying and setting
forth the following, (I) as at the date of the Compliance Certificate, the Borrower’s Availability
and the Obligors’ compliance with
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Sections 10.2.3,
10.3.1 and 10.3.2; (II) Availability (x) before the making of such annual Net
Distribution and such payment of interest on the Class R Note is, for a trailing thirty (30) day
period, an amount equal to the annual Net Distribution to be made plus the amount of such payment
of interest on the Class R Note to be made plus $20,000,000, and (y) after the making or declaring
of such Net Distribution and making of such payment of interest on the Class R Note, is greater
than $20,000,000, and (III) no Default or Event of Default exists or would occur as a result of the
declaring or making of such annual Net Distribution and such payment of interest on the Class R
Note.
| 10.2.5 | Restricted Investments. |
Make any Restricted Investment.
| 10.2.6 | Disposition of Assets. |
Make any Asset Disposition, except a Permitted Asset Disposition, a disposition of Equipment
under Section 8.4.2, or a transfer of Property by a Subsidiary or Obligor to Borrower.
| 10.2.7 | Advances. |
Make any loans or other advances of money to any Person, except (a) to Europump under the
Europump Loan existing as of the Closing Date, provided that the aggregate principal
amount of such Europump Loan does not exceed $5,500,000, provided further that, to the
extent any payments are made and received by the Borrower or any Obligor under the Europump Loan,
any such payments shall permanently reduce the outstanding aggregate principal amount owing under
the Europump Loan, and provided further that Europump shall not be permitted to borrow
from the Borrower or any other Obligor, and neither the Borrower nor any Obligor shall lend or
advance to Europump, any further sums of money, (b) advances to an officer or employee for salary,
travel expenses, commissions and similar items in the Ordinary Course of Business; (c) prepaid
expenses and extensions of trade credit made in the Ordinary Course of Business; (d) deposits with
financial institutions permitted hereunder; and (e) as long as no Default or Event of Default
exists, intercompany loans by an Obligor to another Obligor.
| 10.2.8 | Restrictions on Payment of Certain Debt. |
Make any payments (whether voluntary or mandatory, or a prepayment, redemption, retirement,
defeasance or acquisition) with respect to any (a) ATB Financial Debt or 331562 Debt, except to
the extent permitted under the ATB Intercreditor Agreement or the 331562 Estoppel Agreement,
respectively, (and a Senior Officer of Borrower shall certify to
Agent, not less than five Business
Days prior to the date of payment, that all conditions under such agreement have been satisfied);
(b) Shareholders’ Notes and the Class R Note, except for the Closing Date Debt Repayments or
except as permitted pursuant to Section 10.2.4; or (c) Borrowed Money (other than the Obligations)
prior to its due date under the agreements evidencing such Debt as in effect on the Closing Date
(or as amended thereafter with the consent of Agent).
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| 10.2.9 | Fundamental Changes. |
Amalgamate, merge, combine or consolidate with any Person, or liquidate, wind up its affairs
or dissolve itself, in each case whether in a single transaction or in a series of related
transactions, except for amalgamations, mergers or consolidations of a wholly-owned Subsidiary
with another wholly-owned Subsidiary or into Borrower (on terms acceptable to the Agent); change
its name or conduct business under any fictitious name; change its tax, charter or other
organizational identification number; or change its form or state of organization.
| 10.2.10 | Subsidiaries. |
Form or acquire any Subsidiary after the Closing Date, except in accordance with Sections
10.1.9 and 10.2.5; or permit any existing Subsidiary to issue any additional Equity Interests.
| 10.2.11 | Organic Documents. |
Without the consent of the Agent, amend, modify or otherwise change any of its Organic
Documents as in effect on the Closing Date.
| 10.2.12 | Tax Consolidation. |
File or consent to the filing of any consolidated income tax return with any Person other
than Obligors and Subsidiaries.
| 10.2.13 | Accounting Changes. |
Make any material change in accounting treatment or reporting practices, except as required
by GAAP and in accordance with Section 1.2; or change its Fiscal Year.
| 10.2.14 | Restrictive Agreements. |
Become a party to any Restrictive Agreement, except (a) a Restrictive Agreement as in effect
on the Closing Date and shown on Schedule 9.1.16; (b) a Restrictive Agreement relating to secured
Debt permitted hereunder, if such restrictions apply only to the collateral for such Debt; and (c)
customary provisions in leases and other contracts restricting assignment thereof.
| 10.2.15 | Conduct of Business. |
Engage in any business, other than its business as conducted on the Closing Date and any
activities incidental thereto.
| 10.2.16 | Affiliate Transactions. |
Enter into or be party to any transaction with an Affiliate, except (a) transactions
contemplated by the Loan Documents; (b) payment of reasonable compensation to officers and
employees for services actually rendered, and loans and advances permitted by Section 10.2.7; (c)
payment of customary directors’ fees and indemnities; (d) transactions solely among Obligors; (e)
transactions with Affiliates that were consummated prior to the Closing Date, as shown on Schedule
10.2.17; and (f) transactions with Affiliates in the Ordinary Course of
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Business, upon commercially fair and reasonable market terms fully disclosed to Agent and no less
favourable than would be obtained in a comparable arm’s-length transaction with a non-Affiliate.
| 10.2.17 | Plans. |
Become party to any Multiemployer Plan, Foreign Plan or defined benefit Plan, other than any
in existence on the Closing Date.
| 10.2.18 | Amendments to Subordinated Debt. |
Amend, supplement or otherwise modify any document, instrument or agreement relating to any
Subordinated Debt, the Shareholders’ Notes or the Class R Note, if such modification (a) increases
the principal balance of such Debt (other than the issuance of new Shareholders’ Notes that are
subject to the terms of a Shareholder Subordination Agreement), or increases any required payment
of principal or interest; (b) accelerates the date on which any instalment of principal or any
interest is due, or adds any additional redemption, put or prepayment provisions; (c) shortens the
final maturity date or otherwise accelerates amortization; (d) increases the interest rate; (e)
increases or adds any fees or charges; (f) modifies any covenant in a manner or adds any
representation, covenant or default that is more onerous or restrictive in any material respect for
Borrower or Subsidiary, or that is otherwise materially adverse to Borrower, any Subsidiary or
Lenders; or (g) results in the Obligations not being fully benefited by the subordination
provisions thereof.
| 10.2.19 | Acquisitions. |
Unless otherwise provided for herein, consummate any Acquisitions without the prior written
consent of the Lenders.
| 10.2.20 | Transactions Affecting Collateral or Obligations. |
Enter into any transaction, of whatever nature or kind, solely or in conjunction with other
transactions, which would be reasonably expected to have a Material Adverse Effect or cause a
Default or an Event of Default.
| 10.2.21 | Sale and Leaseback Transactions |
Directly or indirectly, enter into any arrangement with any Person providing for the Borrower
or any Subsidiary to lease or rent personal property that the Borrower or such Subsidiary has sold
or will sell or otherwise transfer to such Person if the effect of such transaction would result
in the incurrence of Debt by Borrower or any Subsidiary that is not permitted pursuant to Section
10.2.1.
| 10.2.22 | Inactive Subsidiaries |
Unless
otherwise agreed to by the Agent, Worldwide Matrix Inc. shall not
(i) carry on any
business whatsoever, and (ii) own any Inventory, Accounts or any other personal or moveable
property and assets.
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10.2.23 IPSCO Distributor Agreement
Amend or terminate, without the prior written consent of the Agent, the Distributor Agreement
dated December 15, 2005, between NUSCO Supply & Manufacturing ULC and IPSCO Inc.
10.3
Financial Covenants.
For so long as any Commitments or Obligations are outstanding, Borrower shall:
10.3.1 Leverage Ratio.
Maintain a Leverage Ratio not greater than 3.50 to 1.00 at the end of each calendar month.
10.3.2
Fixed Charge Coverage Ratio.
Maintain a Fixed Charge Coverage Ratio of at least 1.15 to 1.00 at the end of each calendar
month.
SECTION 11 EVENTS OF DEFAULT; REMEDIES ON DEFAULT
11.1 Events of Default.
Each of the following shall be an “Event of Default” hereunder, if the same shall occur for
any reason whatsoever, whether voluntary or involuntary, by operation of law or otherwise:
| (a) | Any Obligor fails to pay any Obligations when due (whether at stated maturity, on demand, upon acceleration or otherwise); | ||
| (b) | Any representation, warranty or other written statement of any Obligor made in connection with any Loan Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given; | ||
| (c) | Any Obligor breaches or fail to perform any covenant contained in Section 7.2, 7.3, 7.5, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.1.3(d), 10.1.7 or 10.3; | ||
| (d) | Any Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such breach or failure is not cured within 15 days after a Senior Officer of such Obligor has knowledge thereof or receives notice thereof from Agent, whichever is sooner; provided, however, that such notice and opportunity to cure shall not apply if the breach or failure to perform is not capable of being cured within such period or is a wilful breach by an Obligor; | ||
| (e) | Any Guarantor repudiates, terminates, revokes or attempts to revoke its Guarantee; any Obligor denies or contests the validity or enforceability of any Loan Documents or Obligations, or the perfection, opposability or priority of any Lien granted to Agent; or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Agent and Lenders); |
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| (f) | Any breach or default of an Obligor occurs under any document, instrument or agreement to which it is a party or by which it or any of its Properties is bound, relating to any Debt (other than the Obligations) in excess of $250,000 if the maturity of or any payment with respect to such Debt may be accelerated or demanded due to such breach; | ||
| (g) | Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds, individually or cumulatively with all unsatisfied judgments or orders against all Obligors, $250,000 (net of any insurance coverage therefor acknowledged in writing by the insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a pending appeal or otherwise; | ||
| (h) | Any loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance exceeds $100,000 (excluding any related deductible under insurance policies); | ||
| (i) | Any Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part of its business; any Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement necessary to its business; there is a cessation of any material part of an Obligor’s business or enterprise for a material period of time; any material Collateral or Property of an Obligor is taken or impaired through condemnation; any Obligor agrees to or commences any liquidation, dissolution or winding up of its affairs; or any Obligor ceases to be Solvent; | ||
| (j) | Any Insolvency Proceeding is commenced by any Obligor; an Insolvency Proceeding is commenced against any Obligor and such Obligor consents to the institution of the proceeding against it; the petition commencing the proceeding is not timely controverted by such Obligor; such petition is not dismissed within 30 days after its filing, or an order for relief is entered in the proceeding; a trustee, receiver, monitor or custodian (including an interim trustee or an interim receiver) is appointed to take possession of any substantial Property of or to operate any of the business of any Obligor; or any Obligor makes an offer of settlement, extension or composition to its unsecured creditors generally; | ||
| (k) | A Reportable Event occurs that constitutes grounds for termination by the Pension Benefit Guaranty Corporation of any Multiemployer Plan or appointment of a trustee or receiver for any Multiemployer Plan; any Multiemployer Plan is terminated or any such trustee is requested or appointed; any Obligor is in “default” (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from any withdrawal therefrom; or any event similar to the foregoing occurs or exists with respect to a Foreign Plan; | ||
| (l) | A Pension Event shall occur which, in Agent’s determination, constitutes grounds for the termination under any applicable law, of any Plan or for the appointment by the appropriate Governmental Authority of a trustee for any |
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| Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if an Obligor or any of its Subsidiaries is in default with respect to payments to a Multiemployer Plan or Plan resulting from their complete or partial withdrawal from such Plan and any such event may reasonably be expected to have a Material Adverse Effect or any Lien arises (save for contribution amounts not yet due) in connection with any Plan; | |||
| (m) | Any Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the conduct of such Obligor’s business, or (ii) any provincial, state or federal law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral; | ||
| (n) | Any amendment is made to the Shareholders Agreement without the prior written consent of the Agent; | ||
| (o) | A Change of Control occurs; or | ||
| (p) | Any event occurs or condition exists that has a Material Adverse Effect. |
11.2 Remedies upon Default.
If
an Event of Default described in Section 11.1(j) occurs with respect to any Obligor, then
to the extent permitted by Applicable Law, all Obligations shall become automatically due and
payable and all Commitments shall terminate, without any action by Agent or notice of any kind. In
addition, or if any other Event of Default exists, Agent may in its discretion (and shall upon
written direction of Required Lenders) do any one or more of the following from time to time:
| (a) | declare any Obligations immediately due and payable, whereupon they shall be due and payable without diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Obligors to the fullest extent permitted by law; | ||
| (b) | terminate, reduce or condition any Commitment, or make any adjustment to the Borrowing Base; | ||
| (c) | require Obligors to Cash Collateralize LC Obligations, Bank Product Debt and other Obligations that are contingent or not yet due and payable, and, if Obligors fail promptly to deposit such Cash Collateral, Agent may (and shall upon the direction of Required Lenders) advance the required Cash Collateral as Revolver Loans (whether or not an Overadvance exists or is created thereby, or the conditions in Section 6 are satisfied); and | ||
| (d) | exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including the rights and remedies of a secured party under the UCC, PPSA, Civil Code, BIA or CCAA. Such rights and remedies include the rights to (i) take possession of any Collateral; (ii) require Obligors |
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| to assemble Collateral, at Obligors’ expense, and make it available to Agent at a place designated by Agent; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned or leased by an Obligor, Obligors agree not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by Applicable Law, in lots or in bulk, at such locations, all as Agent, in its discretion, deems advisable. Each Obligor agrees that 10 days notice of any proposed sale or other disposition of Collateral by Agent shall be reasonable. Agent shall have the right to conduct such sales on any Obligor’s premises, without charge, and such sales may be adjourned from time to time in accordance with Applicable Law. Agent shall have the right to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and Agent may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off or compensate the amount of such price against the Obligations. After an Event of Default which is continuing, the Agent is hereby granted a licence to use, without charge, the Obligors’ labels, patents, copyrights, name, trade secrets, trade names, trademarks, and advertising matter, or any similar property, in completing production of, advertising or selling any Collateral, and the Obligors’ rights under all licences and all franchise agreements shall inure to the Agent’s benefit for such purpose. The proceeds of sale shall be applied first to all expenses of sale, including legal fees, and then to the Obligations. The Agent will return any excess to the Borrower and the Borrower shall remain liable for any deficiency. |
11.3 License.
Agent is hereby granted an irrevocable, non-exclusive license or other right to use, license
or sub-license (without payment of royalty or other compensation to any Person) any or all
Intellectual Property of Obligors, computer hardware and software, trade secrets, brochures,
customer lists, promotional and advertising materials, labels, packaging materials and other
Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or
otherwise exercising any rights or remedies with respect to, any Collateral. Each Obligor’s rights
and interests under Intellectual Property shall inure to Agent’s benefit.
11.4 Setoff.
Agent, Lenders and their Affiliates are each authorized by Obligor at any time during an
Event of Default, without notice to Borrower or any other Person, to set off or compensate and to
appropriate and apply any deposits (general or special), funds, claims, obligations, liabilities
or other Debt at any time held or owing by Agent, any Lender or any such Affiliate to or for the
account of any Obligor against any Obligations, whether or not demand for payment of such
Obligation has been made, any Obligations have been declared due and payable, are then due, or are
contingent or unmatured, or the Collateral or any guarantee or other security for the Obligations
is adequate.
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11.5
Remedies Cumulative; No Waiver.
11.5.1 Cumulative Rights.
All covenants, conditions, provisions, warranties, guaranties, indemnities and other
undertakings of Obligors contained in the Loan Documents are cumulative and not in derogation or
substitution of each other. In particular, the rights and remedies of Agent and Lenders are
cumulative, may be exercised at any time and from time to time, concurrently or in any order, and
shall not be exclusive of any other rights or remedies that Agent and Lenders may have, whether
under any agreement, by law, at equity or otherwise.
11.5.2 Waivers.
The failure or delay of Agent or any Lender to require strict performance by Obligors with any
terms of the Loan Documents, or to exercise any rights or remedies with respect to Collateral or
otherwise, shall not operate as a waiver thereof nor as establishment of a course of dealing. All
rights and remedies shall continue in full force and effect until Full Payment of all Obligations.
No modification of any terms of any Loan Documents (including any waiver thereof) shall be
effective, unless such modification is specifically provided in a writing directed to Obligors and
executed by Agent or the requisite Lenders, and such modification shall be applicable only to the
matter specified. No waiver of any Default or Event of Default shall constitute a waiver of any
other Default or Event of Default that may exist at such time, unless expressly stated. If Agent or
any Lender accepts performance by any Obligor under any Loan Documents in a manner other than that
specified therein, or during any Default or Event of Default, or if Agent or any Lender shall delay
or exercise any right or remedy under any Loan Documents, such acceptance, delay or exercise shall
not operate to waive any Default or Event of Default nor to preclude exercise of any other right or
remedy. It is expressly acknowledged by Borrower that any failure to satisfy a financial covenant
on a measurement date shall not be cured or remedied by satisfaction of such covenant on a
subsequent date.
SECTION 12 AGENT
12.1
Appointment; Authority and Duties of Agent.
12.1.1 Appointment and Authority.
Each Lender appoints and designates Bank as Agent hereunder. Agent may, and each Lender
authorizes Agent to, enter into all Loan Documents to which Agent is intended to be a party and
accept all Security Documents, for Agent’s benefit and the Pro Rata benefit of Lenders. Each
Lender agrees that any action taken by Agent or Required Lenders in accordance with the provisions
of the Loan Documents, and the exercise by Agent or Required Lenders of any rights or remedies set
forth therein, together with all other powers reasonably incidental thereto, shall be authorized
and binding upon all Lenders. Without limiting the generality of the foregoing, Agent shall have
the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders
with respect to all payments and collections arising in connection with the Loan Documents; (b)
execute and deliver as Agent each Loan Document, including any intercreditor or subordination
agreement, and accept delivery of each Loan Document from any Obligor or other Person; (c) act as
collateral agent for Secured Parties for purposes of perfecting, rendering opposable, setting up
and administering Liens under the Loan Documents, and for all other
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purposes stated therein; (d) manage, supervise or otherwise deal with Collateral; and (e) exercise
all rights and remedies given to Agent with respect to any Collateral under the Loan Documents,
Applicable Law or otherwise. The duties of Agent shall be ministerial and administrative in
nature, and Agent shall not have a fiduciary relationship with any Lender, Secured Party,
Participant or other Person, by reason of any Loan Document or any transaction relating thereto.
Agent alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible
Accounts or Eligible Inventory, or whether to impose or release any reserve, which determinations
and judgments, if exercised in good faith, shall exonerate Agent from liability to any Lender or
other Person for any error in judgment.
12.1.2 Duties.
Agent shall not have any duties except those expressly set forth in the Loan Documents, nor
be required to initiate or conduct any Enforcement Action except to the extent directed to do so
by Required Lenders while an Event of Default exists. The conferral upon Agent of any right shall
not imply a duty on Agent’s part to exercise such right, unless instructed to do so by Required
Lenders in accordance with this Agreement.
12.1.3 Agent Professionals.
Agent may perform its duties through agents and employees. Agent may consult with and employ
Agent Professionals, and shall be entitled to act upon, and shall be fully protected in any action
taken in good faith reliance upon, any advice given by an Agent Professional. Agent shall not be
responsible for the negligence or misconduct of any agents, mandataries, employees or Agent
Professionals selected by it with reasonable care.
12.1.4 Instructions of Required Lenders.
The rights and remedies conferred upon Agent under the Loan Documents may be exercised without
the necessity of joinder of any other party, unless required by Applicable Law. Agent may request
instructions from Required Lenders with respect to any act (including the failure to act) in
connection with any Loan Documents, and may seek assurances to its satisfaction from Lenders of
their indemnification obligations under Section 12.6 against all Claims that could be incurred by
Agent in connection with any act. Agent shall be entitled to refrain from any act until it has
received such instructions or assurances, and Agent shall not incur liability to any Person by
reason of so refraining. Instructions of Required Lenders shall be binding upon all Lenders, and no
Lender shall have any right of action whatsoever against Agent as a result of Agent acting or
refraining from acting in accordance with the instructions of Required Lenders. Notwithstanding the
foregoing, instructions by and consent of all Lenders shall be required in the circumstances
described in Section 15.1.1, and in no event shall Required Lenders, without the prior written
consent of each Lender, direct Agent to accelerate and demand payment of Loans held by one Lender
without accelerating and demanding payment of all other Loans, nor to terminate the Commitments of
one Lender without terminating the Commitments of all Lenders. In no event shall Agent be required
to take any action that, in its opinion, is contrary to Applicable Law or any Loan Documents or
could subject any Agent Indemnitee to personal liability.
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12.2 Agreements Regarding Collateral and Field Examination Reports.
12.2.1
Lien Releases; Care of Collateral.
Lenders authorize Agent to release any Lien with respect to any Collateral (a) upon Full
Payment of the Obligations, (b) that is the subject of an Asset Disposition which Borrower
certifies in writing to Agent is a Permitted Asset Disposition or a Lien which Borrower certifies
is a Permitted Lien entitled to priority over Agent’s Liens (and Agent may rely conclusively on
any such certificate without further inquiry), (c) that does not constitute a material part of the
Collateral, or (d) with the written consent of all Lenders. Agent shall have no obligation
whatsoever to any Lenders to assure that any Collateral exists or is owned by an Obligor, or is
cared for, protected, insured or encumbered, nor to assure that Agent’s Liens have been properly
created, perfected , rendered opposable or enforced, or are entitled to any particular priority,
nor to exercise any duty of care with respect to any Collateral.
12.2.2 Possession of Collateral.
Agent and Lenders appoint each other Lender as agent for the purpose of perfecting and
rendering opposable Liens (for the benefit of Secured Parties) in any Collateral that, under the
PPSA or other Applicable Law, can be perfected or published by possession or delivery. If any
Lender obtains possession of any such Collateral, it shall notify Agent thereof and, promptly upon
Agent’s request, deliver such Collateral to Agent or otherwise deal with such Collateral in
accordance with Agent’s instructions.
12.2.3 Reports.
Agent shall promptly, upon receipt thereof, forward to each Lender copies of the results of
any field audit or other examination or any appraisal prepared by or on behalf of Agent with
respect to any Obligor or Collateral (“Report”). Each Lender agrees (a) that neither Bank nor
Agent makes any representation or warranty as to the accuracy or completeness of any Report, and
shall not be liable for any information contained in or omitted from any Report; (b) that the
Reports are not intended to be comprehensive audits or examinations, and that Agent or any other
Person performing any audit or examination will inspect only specific information regarding
Obligations or the Collateral and will rely significantly upon Obligors’ books and records as well
as upon representations of Obligors’ officers and employees; and (c) to keep all Reports
confidential and strictly for such Lender’s internal use, and not to distribute any Report (or the
contents thereof) to any Person (except to such Lender’s Participants, attorneys and accountants)
or use any Report in any manner other than administration of the Loans and other Obligations. Each
Lender agrees to indemnify and hold harmless Agent and any other Person preparing a Report from
any action such Lender may take as a result of or any conclusion it may draw from any Report, as
well as any Claims arising in connection with any third parties that obtain all or any part of a
Report through such Lender.
12.3
Reliance By Agent.
Agent shall be entitled to rely, and shall be fully protected in relying, upon any
certification, notice or other communication (including those by telephone, telex, telegram,
telecopy or e-mail) believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person, and upon the advice and statements of Agent Professionals.
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12.4 Action Upon Default.
Agent shall not be deemed to have knowledge of any Default or Event of Default unless it has
received written notice from a Lender or Borrower specifying the occurrence and nature thereof. If
any Lender acquires knowledge of a Default or Event of Default, it shall promptly notify Agent and
the other Lenders thereof in writing. Each Lender agrees that, except as otherwise provided in any
Loan Documents or with the written consent of Agent and Required Lenders, it will not take any
Enforcement Action, accelerate its Obligations, or exercise any right that it might otherwise have
under Applicable Law to credit bid at foreclosure sales, UCC, PPSA, Civil Code sales, sales by a
creditor, judicial sales or other similar dispositions of Collateral. Notwithstanding the
foregoing, however, a Lender may take action to preserve or enforce its rights against an Obligor
where a deadline or limitation period is applicable that would, absent such action, bar enforcement
of Obligations held by such Lender, including the filing of proofs of claim in an Insolvency
Proceeding.
12.5 Ratable Sharing.
If any Lender shall obtain any payment or reduction of any Obligation, whether through
set-off, compensation or otherwise, in excess of its share of such Obligation, determined on a Pro
Rata basis or in accordance with Section 5.5.1, as applicable, such Lender shall forthwith
purchase from Agent, Issuing Bank and the other Lenders such participations in the affected
Obligation as are necessary to cause the purchasing Lender to share the excess payment or
reduction on a Pro Rata basis or in accordance with Section 5.5.1, as applicable. If any of such
payment or reduction is thereafter recovered from the purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but without interest.
12.6 Indemnification of Agent Indemnitees.
12.6.1 Indemnification.
EACH LENDER SHALL INDEMNIFY AND HOLD HARMLESS AGENT INDEMNITEES, TO THE EXTENT NOT REIMBURSED
BY OBLIGORS (BUT WITHOUT LIMITING THE INDEMNIFICATION OBLIGATIONS OF OBLIGORS UNDER ANY LOAN
DOCUMENTS), ON A PRO RATA BASIS, AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST
ANY AGENT INDEMNITEE, EXCEPT CLAIMS RESULTING FROM SUCH AGENT INDEMNITEE’S GROSS NEGLIGENCE OR
WILFUL MISCONDUCT. If Agent is sued by any receiver, trustee in bankruptcy, debtor-in-possession
or other Person for any alleged preference from an Obligor or fraudulent transfer, then any monies
paid by Agent in settlement or satisfaction of such proceeding, together with all interest, costs
and expenses (including attorneys’ fees) incurred in the defense of same, shall be promptly
reimbursed to Agent by Lenders to the extent of each Lender’s Pro Rata share.
12.6.2 Proceedings.
Without limiting the generality of the foregoing, if at any time (whether prior to or after
the Commitment Termination Date) any action, suit, proceeding is brought against any Agent
Indemnitees by an Obligor, or any Person claiming through an Obligor, to recover damages for any
act taken or omitted by Agent in connection with any Obligations, Collateral, Loan Documents or
matters relating thereto, or otherwise to obtain any other relief of any kind on
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account of any transaction relating to any Loan Documents, each Lender agrees to indemnify and hold
harmless Agent Indemnitees with respect thereto and to pay to Agent Indemnitees such Lender’s Pro
Rata share of any amount that any Agent Indemnitee is required to pay under any judgment or other
order entered in such proceeding or by reason of any settlement, including all interest, costs and
expenses (including attorneys’ fees) incurred in defending same. In Agent’s discretion, Agent may
reserve for any such proceeding, and may satisfy any judgment, order or settlement, from proceeds
of Collateral prior to making any distributions of Collateral proceeds to Lenders.
12.7 Limitation on Responsibilities of Agent.
Agent shall not be liable to Lenders for any action taken or omitted to be taken under the
Loan Documents, except for losses directly and solely caused by Agent’s gross negligence or wilful
misconduct. Agent does not assume any responsibility for any failure or delay in performance or
any breach by any Obligor or Lender of any obligations under the Loan Documents. Agent does not
make to Lenders any express or implied warranty, representation or guarantee with respect to any
Obligations, Collateral, Loan Documents or Obligor. No Agent Indemnitee shall be responsible to
Lenders for any recitals, statements, information, representations or warranties contained in any
Loan Documents; the execution, validity, genuineness, effectiveness or enforceability of any Loan
Documents; the genuineness, enforceability, collectibility, value, sufficiency, location or
existence of any Collateral, or the validity, extent, perfection, opposability or priority of any
Lien therein; the validity, enforceability or collectibility of any Obligations; or the assets,
liabilities, financial condition, results of operations, business, creditworthiness or legal
status of any Obligor or Account Debtor. No Agent Indemnitee shall have any obligation to any
Lender to ascertain or inquire into the existence of any Default or Event of Default, the
observance or performance by any Obligor of any terms of the Loan Documents, or the satisfaction
of any conditions precedent contained in any Loan Documents.
12.8 Successor Agent and Co-Agents.
12.8.1
Resignation; Successor Agent.
Subject to the appointment and acceptance of a successor Agent as provided below, Agent may
resign at any time by giving at least 30 days written notice thereof to Lenders and Borrower. Upon
receipt of such notice, Required Lenders shall have the right to appoint a successor Agent which
shall be (a) a Lender or an Affiliate of a Lender; or (b) a commercial bank that is organized under
the laws of Canada or the United States or any state or district thereof (provided that such U.S.
bank is an “authorized foreign bank” as defined in section 2 of the Bank Act (Canada), has a
combined capital surplus of at least $200,000,000 and (provided no Default or Event of Default
exists) is reasonably acceptable to Borrower. If no successor agent is appointed prior to the
effective date of the resignation of Agent, then Agent may appoint a successor agent from among
Lenders. Upon acceptance by a successor Agent of an appointment to serve as Agent hereunder, such
successor Agent shall thereupon succeed to and become vested with all the powers and duties of the
retiring Agent without further act, and the retiring Agent shall be discharged from its duties and
obligations hereunder but shall continue to have the benefits of the indemnification set forth in
Sections 12.6 and 15.2. Notwithstanding any Agent’s resignation, the provisions of this Section 12
shall continue in effect for its benefit with respect
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to any actions taken or omitted to be taken by it while Agent. Any successor by merger,
amalgamation or acquisition of the stock or assets of Bank shall continue to be Agent hereunder
without further act on the part of the parties hereto, unless such successor resigns as provided
above.
12.8.2 Separate Collateral Agent.
It is the intent of the parties that there shall be no violation of any Applicable Law denying
or restricting the right of financial institutions to transact business in any jurisdiction. If
Agent believes that it may be limited in the exercise of any rights or remedies under the Loan
Documents due to any Applicable Law, Agent may appoint an additional Person who is not so limited,
as a separate collateral agent or co-collateral agent. If Agent so appoints a collateral agent or
co-collateral agent, each right and remedy intended to be available to Agent under the Loan
Documents shall also be vested in such separate agent. Every covenant and obligation necessary to
the exercise thereof by such agent or mandatary shall run to and be enforceable by it as well as
Agent. Lenders shall execute and deliver such documents as Agent deems appropriate to vest any
rights or remedies in such agent or mandatary. If any collateral agent or co-collateral agent shall
die or dissolve, become incapable of acting, resign or be removed, then all the rights and remedies
of such agent or mandatary, to the extent permitted by Applicable Law, shall vest in and be
exercised by Agent until appointment of a new agent or mandatary.
12.8.3 Withholding Tax.
| (a) | Subject to paragraph (b) of this Section, each Lender and the Bank represents and warrants to the Agent and the other Lenders and the Borrower that it is either a resident of Canada or is an “authorized foreign bank” as defined in section 2 of the Bank Act (Canada). Each Lender that is an “authorized foreign bank” as defined in section 2 of the Bank Act (Canada) further represents and warrants to the Borrower and the other Lenders and agrees that for purposes of the ITA, it will receive all amounts paid or credited to it under this Agreement in respect of its Canadian banking business; | ||
| (b) | If the Canada Revenue Agency or any other Governmental Authority of Canada or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender such Lender shall indemnify the Agent and the Borrower fully for all amounts paid, directly or indirectly, by the Agent or the Borrower as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including costs of legal counsel); | ||
| (c) | Without prejudice to the survival of any other agreement contained herein, the representations and warranties contained in paragraph (a) of this Section and the agreements and obligations contained in paragraph (b) of this Section shall survive the payment in full of principal, interest, fees and any other amounts payable hereunder, the termination of this Agreement and any other Loan Document and the replacement of the Agent. |
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12.9 Due Diligence and Non-Reliance.
Each Lender acknowledges and agrees that it has, independently and without reliance upon Agent
or any other Lenders, and based upon such documents, information and analyses as it has deemed
appropriate, made its own credit analysis of each Obligor and its own decision to enter into this
Agreement and to fund Loans and participate in LC Obligations bereunder. Each Lender has made such
inquiries concerning the Loan Documents, the Collateral and each Obligor as such Lender feels
necessary. Each Lender further acknowledges and agrees that the other Lenders and Agent have made
no representations or warranties concerning any Obligor, any Collateral or the legality, validity,
sufficiency or enforceability of any Loan Documents or Obligations. Each Lender will, independently
and without reliance upon the other Lenders or Agent, and based upon such financial statements,
documents and information as it deems appropriate at the time, continue to make and rely upon its
own credit decisions in making Loans and participating in LC Obligations, and in taking or
refraining from taking any action under any Loan Documents. Except as expressly provided herein and
except for notices, reports and other information expressly requested by a Lender, Agent shall have
no duty or responsibility to provide any Lender with any notices, reports or certificates furnished
to Agent by any Obligor or any credit or other information concerning the affairs, financial
condition, business or Properties of any Obligor (or any of its Affiliates) which may come into
possession of Agent or any of Agent’s Affiliates.
12.10 Replacement of Certain Lenders.
In the event that any Lender (a) fails to fund its Pro Rata share of any Loan or LC
Obligation hereunder, and such failure is not cured within two Business Days, (b) defaults in
performing any of its obligations under the Loan Documents, or (c) fails to give its consent to
any amendment, waiver or action for which consent of all Lenders was required and Required Lenders
consented, then, in addition to any other rights and remedies that any Person may have, Agent may,
by notice to such Lender within 120 days after such event, require such Lender to assign all of
its rights and obligations under the Loan Documents to Eligible Assignee(s) specified by Agent,
pursuant to appropriate Assignment and Acceptance(s) and within 20 days after Agent’s notice.
Agent is irrevocably appointed as attorney-in-fact to execute any such Assignment and Acceptance
if the Lender fails to execute same. Such Lender shall be entitled to receive, in cash,
concurrently with such assignment, all amounts owed to it under the Loan Documents, including all
principal, interest and fees through the date of assignment (but excluding any prepayment charge).
12.11 Remittance of Payments and Collections.
12.11.1 Remittances Generally.
All payments by any Lender to Agent shall be made by the time and on the day set forth in this
Agreement, in immediately available funds. If no time for payment is specified or if payment is due
on demand by Agent and request for payment is made by Agent by 12:00 p.m. (Eastern time) on a
Business Day, payment shall be made by Lender not later than 2:00 p.m. (Eastern time) on such day,
and if request is made after 12:00 p.m. (Eastern time), then payment shall be made by 12:00 p.m.
(Eastern time) on the next Business Day. Payment by Agent to any Lender shall be made by wire
transfer, in the type of funds received by Agent. Any and all fees and interest paid by the
Borrower to the Agent, for the Pro Rata benefit of the Lenders, on the
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first day of each month, shall be paid by the Agent to the Lenders on or before the third Business
Day of such month. Any such payment shall be subject to Agent’s right of offset or compensation for
any amounts due from such Lender under the Loan Documents.
12.11.2 Failure to Pay.
If any Lender fails to pay any amount when due by it to Agent pursuant to the terms hereof,
such amount shall bear interest from the due date until paid at the rate determined by Agent as
customary in the banking industry for interbank compensation. In no event shall Obligors be
entitled to receive credit for any interest paid by a Lender to Agent.
12.11.3 Recovery of Payments.
If Agent pays any amount to a Lender in the expectation that a related payment will be
received by Agent from an Obligor and such related payment is not received, then Agent may recover
such amount from each Lender that received it. If Agent determines at any time that an amount
received under any Loan Document must be returned to an Obligor or paid to any other Person
pursuant to Applicable Law or otherwise, then, notwithstanding any other term of any Loan
Document, Agent shall not be required to distribute such amount to any Lender. If any amounts
received and applied by Agent to any Obligations are later required to be returned by Agent
pursuant to Applicable Law, Lenders shall pay to Agent, on demand, such Lender’s Pro Rata share of
the amounts required to be returned.
12.12
Agent in its Individual Capacity.
As a Lender, Bank shall have the same rights and remedies under the other Loan Documents as
any other Lender, and the terms “Lenders,” “Required Lenders” or any similar term shall include
Bank in its capacity as a Lender. Each of Bank and its Affiliates may accept deposits from,
maintain deposits or credit balances for, invest in, lend money to, provide Barik Products to, act
as trustee under indentures of, serve as financial or other advisor to, and generally engage in
any kind of business with, Obligors and their Affiliates, as if Bank were any other bank, without
any duty to account therefor (including any fees or other consideration received in connection
therewith) to the other Lenders. In their individual capacity, Bank and its Affiliates may receive
information regarding Obligors, their Affiliates and their Account Debtors (including information
subject to confidentiality obligations), and each Lender agrees that Bank and its Affiliates shall
be under no obligation to provide such information to Lenders, if acquired in such individual
capacity and not as Agent hereunder.
12.13 Agent Titles.
Each Lender, other than Bank, that is designated (on the cover page of this Agreement or
otherwise) by Bank as an “Agent” or “Arranger” or “Manager” of any type shall not have any right,
power, responsibility or duty under any Loan Documents other than those applicable to all Lenders,
and shall in no event be deemed to have any fiduciary relationship with any other Lender.
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12.14 No Third Party Beneficiaries.
This Section 12 is an agreement solely among Lenders and Agent, and does not confer any rights
or benefits upon Borrower or any other Person. As between Borrower and Agent, any action that Agent
may take under any Loan Documents shall be conclusively presumed to have been authorized and
directed by Lenders as herein provided.
SECTION 13 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
13.1 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of Obligors, Agent and Lenders
and their respective successors and assigns, except that (a) no Obligors shall have the right to
assign its rights or delegate its obligations under any Loan Documents, and (b) any assignment by a
Lender must be made in compliance with Section 13.3. Agent may treat the Person which made any Loan
as the owner thereof for all purposes until such Person makes an assignment in accordance with
Section 13.3. Any authorization or consent of a Lender shall be conclusive and binding on any
subsequent transferee or assignee of such Lender.
13.2 Participations.
13.2.1 Permitted Participants; Effect.
Any Lender may, in the ordinary course of its business and in accordance with Applicable Law,
at any time sell to a financial institution (“Participant”) a participating interest in the rights
and obligations of such Lender under any Loan Documents. Despite any sale by a Lender of
participating interests to a Participant, such Lender’s obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other parties hereto for
performance of such obligations, such Lender shall remain the holder of its Loans and Commitments
for all purposes, all amounts payable by Obligors shall be determined as if such Lender had not
sold such participating interests, and Obligors and Agent shall continue to deal solely and
directly with such Lender in connection with the Loan Documents. Each Lender shall be solely
responsible for notifying its Participants of any matters under the Loan Documents, and Agent and
the other Lenders shall not have any obligation or liability to any such Participant. A
Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 5.8 unless Borrower agrees otherwise in writing.
13.2.2 Voting Rights.
Each Lender shall retain the sole right to approve, without the consent of any Participant,
any amendment, waiver or other modification of any Loan Documents other than that which forgives
principal, interest or fees, reduces the stated interest rate or fees payable with respect to any
Loan or Commitment in which such Participant has an interest, postpones the Commitment Termination
Date or any date fixed for any regularly scheduled payment of principal, interest or fees on such
Loan or Commitment, or releases Borrower, Guarantor or substantial portion of the Collateral.
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13.2.3 Benefit of Set-Off.
Obligors agree that each Participant shall have a right of set-off or compensation in respect
of its participating interest to the same extent as if such interest were owing directly to a
Lender, and each Lender shall also retain the right of set-off or compensation with respect to any
participating interests sold by it. By exercising any right of set-off or compensation, a
Participant agrees to share with Lenders all amounts received through its set-off or compensation,
in accordance with Section 12.5 as if such Participant were a Lender.
13.3 Assignments.
13.3.1
Permitted Assignments.
A Lender may assign to any Eligible Assignee, acceptable to Agent acting reasonably (for
greater certainty, any assignment by a Lender to an Affiliate of Lender shall not require such
Agent’s consent), any of its rights and obligations under the Loan Documents, as long as (a) each
assignment is of a constant, and not a varying, percentage of the transferor Lender’s rights and
obligations under the Loan Documents and, in the case of a partial assignment, is in a minimum
principal amount of $10,000,000 (unless otherwise agreed by Agent in its discretion) and integral
multiples of $1,000,000 in excess of that amount; (b) except in the case of an assignment in whole
of a Lender’s rights and obligations, the aggregate amount of the Commitments retained by the
transferor Lender be at least $5,000,000 (unless otherwise agreed by Agent in its discretion); and
(c) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and
recording, an Assignment and Acceptance. Nothing herein shall limit the right of a Lender to pledge
or assign any rights under the Loan Documents to (i) any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of Governors and any
Operating Circular issued by such Federal Reserve Bank, or (ii) counterparties to swap agreements
relating to any Loans; provided, however, that any payment by Obligors to the assigning Lender in
respect of any Obligations assigned as described in this sentence shall satisfy Obligors’
obligations hereunder to the extent of such payment, and no such assignment shall release the
assigning Lender from its obligations hereunder.
13.3.2
Effect; Effective Date.
Upon delivery to Agent of an assignment notice in the form of Exhibit D and a processing fee
of $3,500, such assignment shall become effective as specified in the notice, if it complies with
this Section 13.3. From the effective date of such assignment, the Eligible Assignee shall for all
purposes be a Lender under the Loan Documents, and shall have all rights and obligations of a
Lender thereunder. Upon consummation of an assignment, the transferor Lender, Agent and Borrower
shall make appropriate arrangements for issuance of replacement and/or new Notes, as appropriate.
13.4 Representation of Lenders.
Each Lender represents and warrants to Borrower, Agent and other Lenders that none of the
consideration used by it to fund its Loans or to participate in any other transactions under this
Agreement constitutes for any purpose of ERISA or Section 4975 of the Code assets of any “plan” as
defined in Section 3(3) of ERISA or Section 4975 of the Code and the interests of such Lender in
and under the Loan Documents shall not constitute plan assets under ERISA.
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SECTION 14 GUARANTEES
14.1 The Guarantees
Each Guarantor, as primary obligor and not as a surety merely, hereby unconditionally and
irrevocably, jointly and severally (solidarily), guarantees to the Agent and each of the Lenders
the punctual payment when due in accordance with the terms hereof of all Obligations, of whatever
kind and description, of the Borrower to the Agent and each of the Lenders now or hereafter
existing, whether direct or indirect, absolute or contingent, matured
or unmatured, secured or
unsecured pursuant to or arising out of or under this Agreement (including all interest that
accrues after the commencement of any Insolvency Proceeding by or against the Borrower, whether or
not allowed in such case or proceeding), including, without limitation, all Obligations (all such
obligations so guaranteed are referred to herein as the “Guaranteed Obligations”).
14.2 Guarantee Absolute
Each Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance
with their terms regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Agent and/or Lenders with respect
thereto. The liability of each Guarantor hereunder shall be solidary (joint and several) and
absolute and unconditional irrespective of:
| (a) | Any lack of validity or enforceability of the Obligations or the Guaranteed Obligations or any agreement or instrument relating thereto; | ||
| (b) | Any change in the time, manner or place of the payment of, or in any other term of, all or any of the Obligations or the Guaranteed Obligations, or any amendment or modification of or any consent to departure from this Agreement or any other Loan Document; | ||
| (c) | Any exchange, release, unopposability or nonperfection of any Collateral or any release or amendment to, waiver of, or consent to departure from, or any Guarantee for, all or any part of the Obligations or the Guaranteed Obligations; | ||
| (d) | the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any kind by Agent or any Lender with respect thereto; | ||
| (e) | Any whole or partial termination of this Guarantee as to any other Guarantor; | ||
| (f) | the insolvency of any Obligor; (e) any election by Agent or any Lender to avail itself of an Insolvency Proceeding or any election in an Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code, or otherwise; (f) any borrowing or grant of a Lien by Borrower, as debtor-in- possession; (g) the disallowance of any claims of Agent or any Lender against any Obligor for the repayment of any Obligations under debtor relief laws; or |
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| (g) | Any other circumstance which might otherwise constitute a defence available to, or a discharge of, the Borrower in respect of the Obligations or the Guaranteed Obligations or a Guarantor in respect of this Guarantee or the Guaranteed Obligations. |
This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Obligations or the Guaranteed Obligations are rescinded or must
otherwise be returned by the Agent and/or Lenders upon the bankruptcy or reorganization of any
Guarantor or otherwise under applicable law, all as though such
payment had not been made.
14.3
Consents, Waivers and Renewals
Each Guarantor hereby renounces to the benefits of division and discussion. Each Guarantor
hereby waives promptness, diligence, notice of the acceptance hereof, notice of intent to
accelerate and notice of acceleration and any other notice with respect to any of the Obligations
or the Guaranteed Obligations and this Agreement and any requirement that the Agent and/or Lenders
protect, secure, perfect, render opposable or insure any Agent’s Lien or Lien on any Property
subject thereto or exhaust any right or take any action against the Borrower any Guarantor or any
other Person or any Collateral before proceeding hereunder. Each Guarantor agrees that the Agent
and/or Lenders may at any time and from time to time, either before or after the maturity thereof,
without notice to or further consent of the Borrower or the Guarantor extend the time of payment
of, exchange or surrender any Collateral for, or renew any of the Obligations or the Guaranteed
Obligations, and may also make any agreements with the Borrower, any Guarantor or with any other
party to or Person liable on any of the Obligations, or interested therein, for the extension,
renewal, payment, compromise, discharge, or release thereof, in whole or in part, or for any
modification of the terms thereof or of any agreement between the Agent and/or any Lenders and the
Borrower or any such other party or Person, without in any way impairing or affecting this
Guarantee. Each Guarantor agrees to make payment to the Agent, for the rateable benefit of the
Lenders, of any of the Obligations and the Guaranteed Obligations whether or not the Agent and/or
any Lenders shall have resorted to any collateral security, or shall have proceeded against any
other obligor principally or secondarily obligated with respect to any of the Obligations or the
Guaranteed Obligations. The Agent and/or Lenders shall be free to deal with the Borrower and the
Guarantor as it sees fit.
Agent and Lenders may, in their discretion, pursue such rights and remedies as they deem
appropriate, including realization upon Collateral by judicial foreclosure or non judicial sale or
enforcement, without affecting any rights and remedies under this Section 14. If, in the exercise
of any rights or remedies, Agent or any Lender shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Obligor or any other Person, whether
because of any Applicable Laws pertaining to “election of remedies” or otherwise, Obligors consent
to such action by Agent or such Lender and waive any claim based upon such action, even if the
action may result in loss of any rights of subrogation that any Obligor might otherwise have had
but for such action. Any election of remedies that results in denial or impairment of the right of
Agent or any Lender to seek a deficiency judgment against any Obligor shall not impair any other
Obligor’s obligation to pay the full amount of the Obligations. Each Obligor waives all rights and
defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect to
any security for the Obligations, even though that election
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of remedies destroys such Obligor’s rights of subrogation against any other Person. If Agent bids
at any foreclosure or trustee’s sale or at any private sale, Agent may bid all or a portion of the
Obligations and the amount of such bid need not be paid by Agent but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Agent or any other Person
is the successful bidder, shall be conclusively deemed to be the fair market value of the
Collateral, and the difference between such bid amount and the remaining balance of the
Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this
Section 14, notwithstanding that any present or future law or court decision may have the effect
of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be
entitled but for such bidding at any such sale.
14.4 Subrogation
No Guarantor shall exercise any rights which it may acquire by way of subrogation under this
Agreement, by any payment made hereunder or otherwise, until all the Obligations and the
Guaranteed Obligations shall have been paid in full. If any amount shall be paid to the Borrower
on account of such subrogation rights in violation of the foregoing restriction, such amount shall
be held in trust for the benefit of the Agent (for itself and the other Lenders) and shall
forthwith be paid to the Agent (for itself and the other Lenders) to be credited and applied to
the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement.
14.5 Subordination.
Each Obligor hereby postpones any right of enforcement, remedy and action and subordinates
any claims, including any right of payment, subrogation, contribution and indemnity, that it may
have at any time against any other Obligor, howsoever arising, to the Full Payment of all
Obligations. Any such claims (whether secured or unsecured) and any such remedial rights are
hereby assigned to the Agent (and shall be assigned pursuant to documentation satisfactory to the
Agent), and any such claims owing and paid to an Obligor in contravention of the terms of this
Agreement shall be received and held by any such Obligor in trust for the benefit of the Agent
(for itself and the other Lenders) and the proceeds thereof shall forthwith be paid over to the
Agent (for itself and the other Lenders) to be credited and applied to the Obligations, whether
matured or unmatured, in accordance with the terms of this Agreement.
14.6 Protection Clause
Whenever herein a representation or warranty is expressed by a Guarantor or, subject to
Section 14.1 above, any agreement to do any act or thing is made by a Guarantor, same shall be
deemed to be a representation or warranty as to that Guarantor only and not a representation or
warranty of any matter or circumstance of any other Guarantor and an agreement as to its conduct
and not the conduct of any other Guarantor. Subject to Section 14.1 above, no Guarantor shall be
liable for any obligation of any other Guarantor.
14.7 Limitation on Guarantee of Obligations
| (a) | In any action or proceeding with respect to any Guarantor involving any state or provincial corporate law, or any state or provincial or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of such Guarantor under Section 14.1 hereof |
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| would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 14.1, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Lender, the Agent or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. | |||
| (b) | To the extent that any Guarantor shall make a payment under this Agreement of all or any of the Guaranteed Obligations (a “Guarantor Payment”) which, taking into account all other Guarantor Payments then previously or concurrently made by the Guarantor, exceeds the amount which the Guarantor would otherwise have paid if the Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Guarantor’s “Allocable Amount” (as defined below) (in effect immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of the Guarantor in effect immediately prior to the making of such Guarantor Payment, then, following payment in full in cash of the Obligations and termination of the Commitments, such Guarantor shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, the Guarantor for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. |
| (i) | As of any date of determination, the “Allocable Amount” of any Guarantor shall be equal to the maximum amount of the claim which could then be recovered from such Guarantor under this Agreement without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. | ||
| (ii) | This subsection (b) is intended only to define the relative rights of Guarantor and nothing set forth in this subsection (b) is intended to or shall impair the obligations of Guarantor, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement. | ||
| (iii) | The rights of the parties under this subsection (b) shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of this Agreement and the other Loan Documents. | ||
| (iv) | The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of any Guarantor to which such contribution and indemnification is owing. |
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14.8 Guarantee of Payment
The Guarantor further agrees that this Guarantee constitutes a guaranty of payment when due
and not of collection, and waives any right to require that any resort be had by the Agent or any
Lender to any of the Collateral or other security held for payment of the Guaranteed Obligations or
to any balance of any deposit account or credit on the books of the Agent or any Lender in favour
of any other Guarantor or any other Person or to any other guarantor of all or part of the
Guaranteed Obligations.
SECTION
15 MISCELLANEOUS
15.1 Consents, Amendments and Waivers.
15.1.1 Amendment.
No modification of any Loan Document, including any extension or amendment of a Loan Document
or any waiver of a Default or Event of Default, shall be effective without the prior written
agreement of Agent, with the consent of Required Lenders, and each Obligor party to such Loan
Document; provided, however, that
| (a) | without the prior written consent of Agent, no modification shall be effective with respect to any provision in a Loan Document that relates to any rights, duties or discretion of Agent; | ||
| (b) | without the prior written consent of Issuing Bank, no modification shall be effective with respect to any LC Obligations or Section 2.2; | ||
| (c) | without the prior written consent of each affected Lender, no modification shall be effective that would (i) increase the Commitment of such Lender; or (ii) reduce the amount of, or waive or delay payment of, any principal, interest or fees payable to such Lender; and | ||
| (d) | without the prior written consent of all Lenders (except a defaulting Lender as provided in Section 4.2), no modification shall be effective that would (i) extend the Revolver Termination Date; (ii) alter Section 5.5, 7.1 (except to add Collateral), or 15.1.1; (iii) amend the definitions of Borrowing Base (and the defined terms used in such definition), Pro Rata or Required Lenders; (iv) increase any advance rate, or increase total Commitments; (v) release Collateral with a book value greater than $2,000,000 during any calendar year, except as currently contemplated by the Loan Documents; or (vi) release any Obligor from liability for any Obligations, if such Obligor is Solvent at the time of the release. |
15.1.2 Limitations.
The agreement of Obligors shall not be necessary to the effectiveness of any modification of
a Loan Document that deals solely with the rights and duties of Lenders, Agent and/or Issuing Bank
as among themselves. Only the consent of the parties to the Fee Letter or any agreement relating
to a Bank Product shall be required for any modification of such agreement, and no
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Affiliate of a Lender that is party to a Bank Product agreement shall have any other right to
consent to or participate in any manner in modification of any other Loan Document. The making of
any Loans during the existence of a Default or Event of Default shall not be deemed to constitute
a waiver of such Default or Event of Default, nor to establish a course of dealing. Any waiver or
consent granted by Lenders hereunder shall be effective only if in writing, and then only in the
specific instance and for the specific purpose for which it is given.
15.1.3
Payment for Consents.
Borrower will not, directly or indirectly, pay any remuneration or other thing of value,
whether by way of additional interest, fee or otherwise, to any Lender (in its capacity as a
Lender hereunder) as consideration for agreement by such Lender with any modification of any Loan
Documents, unless such remuneration or value is concurrently paid, on the same terms, on a Pro
Rata basis to all Lenders providing their consent.
15.2 Indemnity.
EACH OBLIGOR SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ARISING FROM THE NEGLIGENCE OF AN
INDEMNITEE. In no event shall any party to a Loan Document have any obligation thereunder to
indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final,
non-appealable judgment by a court of competent jurisdiction to result from the gross negligence
or wilful misconduct of such Indemnitee.
15.3 Notices and Communications.
15.3.1 Notice Address.
Subject to Section 4.1.4, all notices, requests and other communications by or to a party
hereto shall be in writing and shall be given to Borrower, at Borrower’s address shown on the
signature pages hereof, and to any other Person at its address shown on the signature pages hereof
(or, in the case of a Person who becomes a Lender after the Closing Date, at the address shown on
its Assignment and Acceptance), or at such other address as a party may hereafter specify by notice
in accordance with this Section 15.3. Each such notice, request or other communication shall be
effective only (a) if given by facsimile transmission, when transmitted to the applicable facsimile
number, if confirmation of receipt is received; (b) if given by mail, three Business Days after
deposit in the Canada post mail, with first-class postage pre-paid, addressed to the applicable
address; or (c) if given by personal delivery, when duly delivered to the notice
address with receipt acknowledged. Notwithstanding the foregoing, no notice to Agent pursuant
to Section 2.1.4, 2.2, 3.1.2, or 4.1.1 shall be effective until actually received by the individual
to whose attention at Agent such notice is required to be sent. Any written notice, request or
other communication that is not sent in conformity with the foregoing provisions shall nevertheless
be effective on the date actually received by the noticed party. Any notice received by Borrower
shall be deemed received by all Obligors.
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15.3.2 Electronic Communications; Voice Mail.
Electronic mail and internet websites may be used only for routine communications, such as
financial statements, Borrowing Base Certificates and other information required by Section
10.1.2, administrative matters, distribution of Loan Documents for execution, and matters
permitted under Section 4.1.4. Agent and Lenders make no assurances as to the privacy and security
of electronic communications. Electronic and voice mail may not be used as effective notice under
the Loan Documents.
15.3.3 Non-Conforming Communications.
Agent and Lenders may rely upon any notices purportedly given by or on behalf of Borrower even
if such notices were not made in a manner specified herein, were incomplete or were not confirmed,
or if the terms thereof, as understood by the recipient, varied from a later confirmation. Borrower
shall indemnify and hold harmless each Indemnitee from any liabilities, losses, costs and expenses
arising from any telephonic communication purportedly given by or on behalf of Borrower.
15.4 Performance of Obligors’ Obligations.
Agent may, in its discretion at any time and from time to time, at Borrower’s expense, pay
any amount or do any act required of an Obligor under any Loan Documents or otherwise lawfully
requested by Agent to (a) enforce any Loan Documents or collect any Obligations; (b) protect,
insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity,
opposability or priority of Agent’s Liens in any Collateral, including any payment of a judgment,
insurance premium, warehouse charge, finishing or processing charge, or landlord claim, privilege
or priority or any discharge of a Lien. All payments, costs and expenses (including Extraordinary
Expenses) of Agent under this Section shall be reimbursed to Agent by Borrower, on demand, with
interest from the date incurred to the date of payment thereof at the Default Rate applicable to
Prime Rate Revolver Loans. Any payment made or action taken by Agent under this Section shall be
without prejudice to any right to assert an Event of Default or to exercise any other rights or
remedies under the Loan Documents.
15.5 Credit Inquiries.
Each Obligor hereby authorizes Agent and Lenders (but they shall have no obligation) to
respond to usual and customary credit inquiries from third parties concerning any Obligor or
Subsidiary.
15.6 Severability.
Wherever possible, each provision of the Loan Documents shall be interpreted in such manner
as to be valid under Applicable Law. If any provision is found to be invalid under Applicable Law,
it shall be ineffective only to the extent of such invalidity and the remaining provisions of the
Loan Documents shall remain in full force and effect.
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15.7 Cumulative Effect; Conflict of Terms.
The provisions of the Loan Documents are cumulative. The parties acknowledge that the Loan
Documents may use several different limitations, tests or measurements to regulate the same or
similar matters, and they agree that these are cumulative and that each must be performed as
provided. Except as otherwise specifically provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in
direct conflict with any provision in another Loan Document, the provision herein shall govern and
control.
15.8 Counterparts; Facsimile Signatures.
Any Loan Document may be executed in counterparts, each of which taken together shall
constitute one instrument. Loan Documents may be executed and delivered by facsimile, and they
shall have the same force and effect as manually signed originals. Agent may require confirmation
by a manually-signed original, but failure to request or deliver same shall not limit the
effectiveness of any facsimile signature.
15.9 Entire Agreement.
Time is of the essence of the Loan Documents. The Loan Documents embody the entire
understanding of the parties with respect to the subject matter thereof and supersede all prior
understandings regarding the same subject matter.
15.10 Obligations of Lenders.
The obligations of each Lender hereunder are several, and no Lender shall be responsible for
the obligations or Commitments of any other Lender. Amounts payable hereunder to each Lender shall
be a separate and independent debt, and each Lender shall be entitled, to the extent not otherwise
restricted hereunder, to protect and enforce its rights arising out of the Loan Documents. It shall
not be necessary for Agent or any other Lender to be joined as an additional party in any
proceeding for such purposes. Nothing in this Agreement and no action of Agent or Lenders pursuant
to the Loan Documents shall be deemed to constitute Agent and Lenders to be a partnership,
association, joint venture or any other kind of entity, nor to constitute control of any Obligor.
Each Obligor acknowledges and agrees that in connection with all aspects of any transaction
contemplated by the Loan Documents, Obligors, Agent, Issuing Bank and Lenders have an arms-length
business relationship that creates no fiduciary duty on the part of Agent, Issuing Bank or any
Lender, and each Obligor, Agent, Issuing Bank and Lender expressly disclaims any fiduciary
relationship.
15.11 Confidentiality.
During the term of this Agreement and for 12 months thereafter, Agent and Lenders agree to
take reasonable precautions to maintain the confidentiality of any information that Obligors
deliver to Agent and Lenders and identify as confidential at the time of delivery, except that
Agent and any Lender may disclose such information (a) to their respective officers, directors,
employees, Affiliates and agents, including legal counsel, auditors and other professional
advisors; (b) to any party to the Loan Documents from time to time; (c) pursuant to the order of
any court or administrative agency; (d) upon the request of any Governmental
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Authority exercising regulatory authority over Agent or such Lender; (e) which ceases to be
confidential, other than by an act or omission of Agent or any Lender, or which becomes available
to Agent or any Lender on a nonconfidential basis; (f) to the extent reasonably required in
connection with any litigation relating to any Loan Documents or transactions contemplated thereby,
or otherwise as required by Applicable Law; (g) to the extent reasonably required for the exercise
of any rights or remedies under the Loan Documents; (h) to any actual or proposed party to a Bank
Product or to any Transferee, as long as such Person agrees to be bound by the provisions of this
Section; (i) to the National Association of Insurance Commissioners or any similar organization, or
to any nationally recognized rating agency that requires access to information about a Lender’s
portfolio in connection with ratings issued with respect to such Lender; or (j) with the consent of
Obligors. Notwithstanding the foregoing, Agent and Lenders may issue and disseminate to the public
general information describing this credit facility, including the names and addresses of Obligors
and a general description of Obligors’ businesses, and may use Borrower’s names in advertising and
other promotional materials.
15.12 Governing Law; Choice of Forum; Service of Process.
| (a) | THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE IX OF THE UCC OR IN THE PPSA OR CIVIL CODE OF QUEBEC, AS APPLICABLE) OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN. | ||
| (b) | ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE PROVINCE OF ONTARIO, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE OBLIGORS, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS, EACH OF THE OBLIGORS, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST AN OBLIGOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS |
- 99 -
| FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS. | |||
| (c) | EACH OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL OR BY PERSONAL DELIVERY OR TELECOPIER AS PROVIDED IN SECTION 15.3 DIRECTED TO THE ATTENTION OF OBLIGORS AT ITS ADDRESS SET FORTH HEREIN AND SERVICE MADE BY REGISTERED MAIL SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE MAIL POSTAGE PREPAID AND IF MADE OTHERWISE SHALL BE DEEMED TO BE COMPLETED AT THE TIMES PROVIDED IN SECTION 15.3. NOTWITHSTANDING THE FOREGOING, IF THE PARTY EFFECTING SUCH SERVICE OF PROCESS KNOWS OR OUGHT REASONABLY TO KNOW OF ANY DIFFICULTIES WITH THE POSTAL SYSTEM THAT MIGHT AFFECT THE DELIVERY OF MAIL, SUCH SERVICE OF PROCESS MAY NOT BE MAILED BUT MUST BE EFFECTED BY PERSONAL DELIVERY OR BY A TELECOMMUNICATIONS DEVICE CAPABLE OF CREATING A WRITTEN RECORD. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW. |
15.13 Waivers by Obligors.
To the fullest extent permitted by Applicable Law, each Obligor waives (a) the right to trial
by jury (which Agent and each Lender hereby also waives) in any proceeding, claim or counterclaim
of any kind relating in any way to any Loan Documents, Obligations or Collateral;
(b) Presentment, demand, protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any commercial paper, accounts, contract
rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which
an Obligor may in any way be liable, and hereby ratifies anything Agent may do in this regard;
(c) notice prior to taking possession or control of any Collateral; (d) any bond or security that
might be required by a court prior to allowing Agent to exercise any rights or remedies; (e) the
benefit of all valuation, appraisement and exemption laws; (f) any claim against Agent or any
Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive
damages (as opposed to direct or actual damages) in any way relating to any Enforcement
Action, Obligations, Loan Documents or transactions relating thereto; and (g) notice of
acceptance hereof. Each Obligor acknowledges that the foregoing waivers are a material
inducement to Agent and Lenders entering into this Agreement and that Agent and Lenders are
relying upon the foregoing in their dealings with Obligors. Each Obligor has reviewed the
foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial
and other rights following consultation with legal counsel. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
- 100 -
15.14 Survival of Representations and Warranties
All of the Obligors’ representations and warranties contained in this Agreement shall survive
the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation
by the Agent or the Lenders or their respective agents.
15.15 Fees and Expenses
The Borrower agrees to pay to the Agent, for its benefit, on demand, all costs and expenses
that Agent or Bank pays or incurs (but not the allocated costs of Agent’s employees engaged in
day-to-day administration, but including the Agent’s auditors’ fees and costs) in connection with
the negotiation, preparation, syndication, consummation, administration, enforcement, and
termination of this Agreement or any of the other Loan Documents, including, without limitation (a)
Extraordinary Expenses, (b) attorney costs; (c) costs and expenses (including reasonable lawyers’
and paralegals’ fees and disbursements) for any amendment, supplement, waiver, consent, or
subsequent closing in connection with the Loan Documents and the transactions contemplated thereby;
(d) costs and expenses of lien searches; (e) taxes, fees and other charges for filing financing
statements and continuations, and other actions to perfect, protect, and continue the Agent’s Liens
(including costs and expenses paid or incurred by the Agent in connection with the consummation of
Agreement); (f) sums paid or incurred to pay any amount or take any action required of the Borrower
under the Loan Documents that the Borrower fails to pay or take; (g) costs of appraisals,
inspections, and verifications of the Collateral, including travel, lodging, and meals for
inspections of the Collateral and the Obligors’ operations by the Agent plus the Agent’s then
customary charge (U.S.$850 per day per person) for field examinations and audits and the
preparation of reports thereof for each agent or employee of the Agent with respect to each field
examination or audit; (h) costs and expenses of forwarding loan proceeds, collecting cheques and
other items of payment, and establishing and maintaining Payment Accounts, including lock boxes;
(i) costs and expenses of preserving and protecting the Collateral (and to maintain any insurance
required hereunder or to verify Collateral); and (j) costs and expenses (including attorneys’
costs) paid or incurred, by Agent or any Lender, to obtain payment of the Obligations, enforce the
Agent’s Liens, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender
arising out of the transactions contemplated hereby (including preparations for and consultations
concerning any such matters). All legal, accounting and consulting fees shall be charged to
Borrower by Agent’s professionals at their full hourly rates, regardless of any reduced or
alternative fee billing arrangements that Agent, any Lender or any of their Affiliates may have
with such professionals with respect to this or any other transaction. The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs and expenses to be
paid by the Obligors. All of the foregoing costs and expenses shall be charged to the Borrower’s
Loan Account as Revolving Loans as described in Section 5.2 and shall constitute Obligations.
15.16 Limitation of Liability
NO CLAIM MAY BE MADE BY ANY OBLIGOR, ANY LENDER OR OTHER PERSON AGAINST THE AGENT, ANY
LENDER, OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
- 101 -
FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH OBLIGOR AND EACH LENDER HEREBY WAIVE, RELEASE
AND AGREE NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOUR.
15.17 Final Agreement
This Agreement and the other Loan Documents including the Fee Letter are intended by the
Obligors, the Agent and the Lenders to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or written agreements
relating to the subject matter hereof. No modification, rescission, waiver, release, or amendment
of any provision of this Agreement or any other Loan Document shall be made, except by a written
agreement signed by the Obligors and a duly authorized officer of each of the Agent and the
requisite Lenders.
15.18 Precedence
In the event that any provisions of the Loan Documents (other than this Agreement) (the
“Conflicted Agreements”) contradict and are otherwise incapable of being construed in conjunction
with the provisions of this Agreement, the provisions of this Agreement shall take precedence over
those contained in the Conflicted Agreements and, in particular, if any act of an Obligor is
expressly permitted under this Agreement but is prohibited under the Conflicted Agreements, any
such act shall be permitted under this Agreement and shall be deemed to be permitted under the
Conflicted Agreements.
15.19 Judgment Currency.
If for the purpose of obtaining judgment in any court it is necessary to convert an amount due
hereunder in the currency in which it is due (the “ Original Currency’’) into another currency (the
“Second Currency”), the rate of exchange applied shall be that at which, in accordance with normal
banking procedures, the Agent could purchase in the Toronto foreign exchange market, the Original
Currency with the Second Currency on the date two (2) Business Days preceding that on which
judgment is given. Each Obligor agrees that its obligation in respect of any Original Currency due
from it hereunder shall, notwithstanding any judgment or payment in such other currency, be
discharged only to the extent that, on the Business Day following the date the Agent receives
payment of any sum so adjudged to be due hereunder in the Second Currency, the Agent may, in
accordance with normal banking procedures, purchase, in the Toronto foreign exchange market, the
Original Currency with the amount of the Second Currency so paid; and if the amount of the Original
Currency so purchased or could have been so purchased is less than the amount originally due in the
Original Currency, each Obligor agrees as a separate obligation and notwithstanding any such
payment or judgment to indemnify the Agent against such loss. The term “rate of exchange” in this
Section means the spot rate at which the Agent, in accordance with normal practices, is able on the
relevant date to purchase the Original Currency with the Second Currency, and includes any premium
and costs of exchange payable in connection with such purchase.
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[Remainder of page intentionally left blank; signatures begin on following page]
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set
forth above.
| BORROWER: | ||||||
| MIDFIELD SUPPLY ULC | ||||||
| Per: | /s/ Dan Endersby
|
|||||
| Title: President | ||||||
| Address: | 1140, 2nd Street West | |||||
| P.O. Box 940 | ||||||
| Brooks, Alberta T1R 1B8 | ||||||
| Attn: | ||||||
| Facsimile: | ||||||
| GUARANTOR: | ||||||
| MEGA PRODUCTION TESTING INC. | ||||||
| Per: | /s/ Dan Endersby
|
|||||
| Title: President | ||||||
| Address: | P.O. Box 427 | |||||
| Brooks, Alberta T1R 1B4 | ||||||
| with copies to: | ||||||
| 12413 94A Street | ||||||
| Grand Prairie, Alberta T8V 5X7 | ||||||
| Attn: | ||||||
| Facsimile: | ||||||
Loan and Security Agreement
| AGENT AND LENDERS: | ||||||
| BANK OF AMERICA, N.A. (acting through its Canada branch), as Agent |
||||||
| Per: | /s/ L.M. Junior Del Brocco
|
|||||
| Title: Senior Vice President | ||||||
| Address: | Bank of America, N.A. | |||||
| (acting through its Canada branch) | ||||||
| 200 Front Street W., Suite 2700 | ||||||
| Toronto, Ontario M5V 3L2 | ||||||
| Attn: | ||||||
| Facsimile: | ||||||
| With a copy to: | ||||||
| Address: | Bank of America, N.A. | |||||
| TX1-492-22-13 | ||||||
| 901 Main Street, 22nd Floor | ||||||
| Dallas, Texas 75202 | ||||||
| Attn: Loan Administration | ||||||
| Facsimile: (214) 209-4766 | ||||||
Loan and Security Agreement
| BANK OF AMERICA, N.A. (acting through its Canada branch), as a Lender | ||||||
| Per: | /s/ L.M. Junior Pel Brocco
|
|||||
| Title: Senior Vice President | ||||||
| Address: | Bank of America, N.A. (acting | |||||
| through its Canada branch) | ||||||
| 200 Front Street W., Suite 2700 | ||||||
| Toronto, Ontario M5V 3L2 | ||||||
| Attn: | ||||||
| Facsimile: | ||||||
| With a copy to: | ||||||
| Address: | Bank of America, N.A. | |||||
| TX1-492-22-13 | ||||||
| 901 Main Street, 22nd Floor | ||||||
| Dallas, Texas 75202 | ||||||
| Attn: Loan Administration | ||||||
| Facsimile: (214) 209-4766 | ||||||
Loan and Security Agreement
| ALBERTA TREASURY BRANCHES, as a Lender |
||||||
| Per: | /s/ Dwayne Hoopfer
|
|||||
| Title: Senior Corporate Relationship Manager | ||||||
| Per: | /s/ Adrian van Sluys
|
|||||
| Title: Account Manager | ||||||
| Address: | Alberta Treasury Branches | |||||
| 3rd Floor, 239-8th Avenue | ||||||
| Calgary, Alberta T2P 1B9 | ||||||
| Attn: Mr. Hoopfer | ||||||
| Facsimile: (403) 974-5784 | ||||||
Loan and Security Agreement
| JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as a Lender | ||||||
| Per: | /s/ Barry J. Walsh
|
|||||
| Title: Vice President | ||||||
| Address: | 200 Bay Street, Floor 18 | |||||
| Toronto M5J 2J2 Canada | ||||||
| Attn: Barry J. Walsh | ||||||
| Facsimile: (416) 981-2375 | ||||||
| With a Copy to: | ||||||
| Address: | JPMorgan Chase Bank, N.A. | |||||
| TX1-2921 | ||||||
| 2200 Ross Ave., 6th Floor | ||||||
| Dallas, TX 75201 | ||||||
| Attn: Christy West | ||||||
| Facsimile: (214) 965-2594 | ||||||
| ROYAL BANK OF CANADA | ||||||
| (Asset Based Finance), | ||||||
| as a Lender | ||||||
| Per: | /s/ Marcelle Fernandes
|
|||||
| Title: Portfolio Manager | ||||||
| Per: | /s/ Tro DerBedrossian
|
|||||
| Title: Manager, Underwriting | ||||||
| Address: | Royal Bank Asset Based Finance | |||||
| 320 Front Street West, 9th Floor | ||||||
| Toronto, Ontario M5V 3B6 | ||||||
| Attn: Ms. Marcelle Fernandes | ||||||
| Facsimile: (416) 974-0716 | ||||||
Loan and Security Agreement
| HSBC BANK CANADA, as a Lender |
||||||
| Per: | /s/ Wade Schuler
|
|||||
| Title: Senior Account Manager | ||||||
| Address: | HSBC Bank Canada 407-8th Avenue SW |
|||||
| Calgary, Alberta T2P 1E5 | ||||||
| Attn: Mr. Schuler | ||||||
| Facsimile: (403) 693-8556 | ||||||
Loan and Security Agreement
Exhibit 10.9.1
CONSENT AND FIRST AMENDMENT TO
THE LOAN AND SECURITY AGREEMENT
THE LOAN AND SECURITY AGREEMENT
EXECUTED by the parties hereto as of the 26th day of April, 2007,
AMONG:
|
MIDFIELD SUPPLY ULC | |
| (the “Borrower”) | ||
AND:
|
MEGA PRODUCTION TESTING INC. | |
| (the “Guarantor”) | ||
AND:
|
BANK OF AMERICA, N.A. (acting through its Canada branch) | |
| in its capacity as agent for Lenders and in its capacity as collateral agent for Secured Parties under the Security Documents | ||
| (the “Agent”) | ||
AND:
|
THE FINANCIAL INSTITUTIONS PARTY TO THE LOAN AND SECURITY AGREEMENT, as Lenders |
|
| (collectively the “Lenders”) |
WHEREAS Borrower, the other Obligors thereto, Lenders and Agent, in its capacity as agent for
and on behalf of Lenders and in its capacity as collateral agent for Secured Parties under the
Security Documents, entered into a Loan and Security Agreement made as of November 2, 2006 (as the
same has or may be amended, modified, restated, supplemented or replaced from time to time, the
“Loan and Security Agreement”);
AND WHEREAS Borrower has advised Agent and Lenders that an Event of Default has occurred under
Section 11.1(c) of the Loan and Security Agreement as a result of the Covenant Violations (as
hereinafter defined);
AND WHEREAS Borrower has advised Agent that it intends to acquire all of the issued and
outstanding shares of Northern Boreal Supply Ltd., a corporation organized under the laws of
Alberta (“Northern”), pursuant to the terms of a share purchase agreement substantially in the form
attached hereto as Schedule “A”(the “Northern SPA”), by and among, inter alia, Borrower, as
purchaser, Douglas Halwa, Daryl Loney and Don Dashney, collectively as vendors (the “Northern
Vendors”), and Northern, as the company (hereinafter the “Northern Transaction”);
AND WHEREAS Borrower has advised Agent that it intends to acquire all of the issued and
outstanding shares of each of (i) Hagan Oilfield Supply Ltd., a corporation organized under the
laws of Alberta, (ii) 1048025 Alberta Ltd., a corporation organized under the laws of Alberta, and
(iii) 1236564 Alberta Ltd., a corporation organized under the laws of Alberta (collectively, the
“Hagan Companies”), pursuant to the terms of a share purchase agreement substantially in the form
attached hereto as Schedule “B” (the “Hagan SPA”), by and among, inter alia, Borrower, as
purchaser, 1177903 Alberta Ltd., TJ Hagan Contracting Ltd., Scott Ritchie and 993099 Alberta Ltd.,
collectively as vendors (the “Hagan Vendors”), and the Hagan Companies
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
- 2 -
(hereinafter the “Hagan Transaction”; together with the Northern Transaction, collectively the
“Transactions”);
AND WHEREAS, pursuant to Section 10.1.9 of the Loan and Security Agreement, each of Northern
and the Hagan Companies, as a Subsidiary of the Borrower, shall guarantee the Obligations in a
manner satisfactory to Agent, and shall execute and deliver such documents, instruments and
agreements and take such other actions as Agent shall require to evidence and perfect and render
opposable a Lien in favour of Agent (for the benefit of Secured Parties) on all Property of such
Person, including delivery of such legal opinions, in form and substance satisfactory to Agent, as
it shall deem appropriate;
AND WHEREAS Agent and Lenders wish to confirm their consent to the Transactions, the parties
hereto have agreed to amend certain provisions of the Loan and Security Agreement and Agent and
Lenders have agreed to waive the Event of Default existing as a result of the Covenant Violations,
but, in each case, only to the extent and subject to the limitations set forth in this Consent and
First Amendment to the Loan and Security Agreement (hereinafter this “Amendment Agreement”) and
without prejudice to Agent’s, Lenders’ and Secured Parties’ other rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I — INTERPRETATION
| 1.1 | All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan and Security Agreement. |
ARTICLE II — WAIVER TO LOAN AND SECURITY AGREEMENT
| 2.1 | Borrower has advised Agent and Lenders that an Event of Default has occurred under Section 11.1(c) of the Loan and Security Agreement as a result of Borrower’s failure to: |
| (a) | comply with the requirement set forth in Section 10.1.2(a) of the Loan and Security Agreement that Borrower deliver to Agent and Lenders the unqualified audited financial statements of Borrower for the fiscal year ending October 31, 2006 within 120 days of the close of such fiscal year (the “Fiscal Year Violation”); and | ||
| (b) | comply with the requirement set forth in Section 10.1.2(b) of the Loan and Security Agreement that Borrower deliver to Agent and Lenders within 30 days after the end of each calendar month, for the months of November, 2006, December, 2006, January 2007 and February 2007 (the “Violation Period”), monthly financial statements including but not limited to unaudited balance sheets and related statements of income and cash flow (the “Monthly Violation”, and collectively with the Fiscal Year Violation, the “Covenant Violations”) |
| 2.2 | Subject to the terms of this Amendment Agreement, Agent and Lenders hereby waive, as of the First Amendment Effective Date (hereinafter defined), the Event of Default |
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| existing as a result of the Covenant Violations, provided, however, that Borrower shall deliver to Agent and Lenders: (i) the unqualified audited financial statements of Borrower for the fiscal year ending October 31, 2006, and (ii) the monthly unaudited balance sheets and related financial statements (in accordance with Section 10.1.2(b) of the Loan and Security Agreement) for the Violation Period, in each case, on or before the First Amendment Effective Date. |
ARTICLE III — CONSENT
| 3.1 | Further to Borrower’s advice that it anticipates executing the Northern SPA and the Hagan SPA and that each of Northern and the Hagan Companies has, or will, become a Subsidiary of Borrower, notwithstanding the terms of the Loan and Security Agreement or any other Loan Document, to the extent necessary, Agent and Lenders hereby consent to the Transactions. | |
| 3.2 | The consent herein provided, and the satisfaction of the conditions contained in Section 10.1.9 of the Loan and Security Agreement, is conditioned on the execution and delivery, on or before the Consent Effective Date (as hereinafter defined), of the documents, instruments and things listed on Schedule “C” hereto (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent). |
ARTICLE IV — AMENDMENTS
| 4.1 | As of the Consent Effective Date, the following defined terms shall be added to Section 1.1 of the Loan and Security Agreement, in alphabetical order: | |
| “Hagan Debt — the unsecured balance of the purchase price owing by Borrower to 1177903 Alberta Ltd., TJ Hagan Contracting Ltd., 993099 Alberta Ltd. and Scott Ritchie, in the aggregate principal amount of $750,000, payable on or before May 1, 2008, bearing interest thereon at the rate of 6% per annum from April 1, 2007, the whole in respect of the acquisition by Borrower of all the issued and outstanding shares of each of Hagan Oilfield Supply Ltd., 1048025 Alberta Ltd. and 1236564 Alberta Ltd.” | ||
| “Northern Debt — the unsecured balance of the purchase price owing by Borrower to Daryl Loney, Douglas Halwa and Don Dashney, in the aggregate principal amount of $2,500,000, payable on or before February 1, 2008, bearing interest thereon at the rate of 6% per annum from April 1, 2007, the whole in respect of the acquisition by Borrower of all the issued and outstanding shares of Northern Boreal Supply Ltd.” | ||
| 4.2 | As of the Consent Effective Date, the following clauses (j) and (k) are added to Section 10.2.1 of the Loan and Security Agreement |
| “(j) | Hagan Debt, provided same is subject to a Subordination Agreement; and” | ||
| “(k) | Northern Debt, provided same is subject to a Subordination Agreement.” |
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| 4.3 | As of the Consent Effective Date, Section 10.2.8 of the Loan and Security Agreement is amended by adding the following clauses at the conclusion of such Section: | |
| “(d) Hagan Debt, except repayments of an aggregate principal amount not to exceed $750,000, plus interest thereon at the rate of 6% per annum from May 1, 2007, on or before May 1, 2008, provided that no Default or Event of Default exists or would occur as a consequence of any such payment; or | ||
| (e) Northern Debt, except repayments of an aggregate principal amount not to exceed $2,500,000, plus interest thereon at the rate of 6% per annum from April 1, 2007, on or before February 1, 2008, provided that no Default or Event of Default exists or would occur as a consequence of any such payment. |
ARTICLE V — CONDITIONS TO EFFECTIVENESS
| 5.1 | This Amendment Agreement shall become effective upon satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “First Amendment Effective Date”): |
| (a) | Borrower and each Guarantor delivering to Agent five originally executed copies of this Amendment Agreement; | ||
| (b) | delivery to Agent of the financial statements referred to in Section 2.2 hereof; | ||
| (c) | in consideration of Agent and Lenders entering into this Amendment Agreement, Borrower hereby agrees to pay to Agent, on behalf of itself and Lenders, a waiver and amendment fee of $25,000, which fee shall be non-refundable and fully earned when paid and which fee shall be charged as a Borrowing and be added to and form part of the Loans upon completion of the conditions precedent contemplated by paragraphs 5.1(a) and 5.1(b) of this Amendment Agreement; |
| provided that the First Amendment Effective Date occurs by no later than April 26, 2007. | ||
| 5.2 | The consent provided in Sections 3.1 and 3.2 of this Amendment Agreement shall become effective upon satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “Consent Effective Date”): |
| (a) | delivery to Agent of the documents, instruments and other things described in Section 3.2 of this Amendment Agreement; provided that the Consent Effective Date occurs by no later than May 31, 2007 |
ARTICLE VI — REPRESENTATIONS AND WARRANTIES
| 6.1 | Borrower and each Guarantor warrant and represent to Agent and Lenders that the following statements are true, correct and complete: |
| (a) | Authorization, Validity, and Enforceability of this Amendment Agreement. Each of Borrower and each Guarantor has the corporate power and authority to execute |
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| and deliver this Amendment Agreement and to perform the Loan and Security Agreement. Each of Borrower and each Guarantor has taken all necessary corporate action (including, without limitation, obtaining approval of its shareholders if necessary) to authorize its execution and delivery of this Amendment Agreement and the performance of the Loan and Security Agreement. This Amendment Agreement has been duly executed and delivered by the each of Borrower and each Guarantor and this Amendment Agreement and the Loan and Security Agreement constitute the legal, valid and binding obligations of each of Borrower and each Guarantor, enforceable against them in accordance with their respective terms without defence, compensation, setoff or counterclaim. Borrower’s and each Guarantor’s execution and delivery of this Amendment Agreement and the performance by Borrower and each Guarantor of the Loan and Security Agreement do not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of Borrower or any Subsidiaries or Guarantor by reason of the terms of (a) any contract, mortgage, hypothec, Lien, lease, agreement, indenture, or instrument to which any of Borrower or any Guarantor is a party or which is binding on any of them, (b) any requirement of law applicable to Borrower or any Subsidiaries or any Guarantor, or (c) the certificate or articles of incorporation or amalgamation or bylaws of Borrower or any Subsidiaries or any Guarantor. | |||
| (b) | Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against Borrower or any Subsidiaries or any Guarantor of this Amendment Agreement or the Loan Security Agreement except for such as have been obtained or made and filings required in order to perfect and render enforceable the Agent’s Liens. | ||
| (c) | Incorporation of Representations and Warranties From Loan and Security Agreement. The representations and warranties contained in the Loan and Security Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date and on and as of the Consent Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. | ||
| (d) | Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment Agreement that would constitute an Event of Default. | ||
| (e) | Security. All security delivered to or for the benefit of Agent on behalf of Secured Parties pursuant to the Loan and Security Agreement and the other Loan Documents remain in full force and effect and secure all Obligations of Borrower and each Guarantor under the Loan and Security Agreement and the other Loan Documents to which they are a party. |
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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ARTICLE VII — MISCELLANEOUS
| 7.1 | Borrower (i) reaffirms its Obligations under the Loan and Security Agreement and the other Loan Documents to which it is a party, and (ii) agrees that the Loan and Security Agreement and the other Loan Documents to which it is a party remain in full force and effect, except as amended hereby, and are hereby ratified and confirmed. | |
| 7.2 | Each Guarantor (i) consents to and approves the execution and delivery of this Amendment Agreement by the parties hereto, (ii) agrees that this Amendment Agreement does not and shall not limit or diminish in any manner the obligations of each Guarantor under its Guarantee (collectively, the “Guarantees”) and that such obligations would not be limited or diminished in any manner even if such Guarantor had not executed this Amendment Agreement, (iii) agrees that this Amendment Agreement shall not be construed as requiring the consent of a Guarantor in any other circumstance, (iv) reaffirms each of its obligations under the Guarantees and the other Loan Documents to which it is a party, and (v) agrees that the Guarantees and the other Loan Documents to which it is a party remain in full force and effect and are hereby ratified and confirmed. | |
| 7.3 | The waiver contained in Section 2.2 of this Amendment Agreement applies only to the Covenant Violations during the period specified therein, and nothing contained in this Amendment Agreement or any other communication between Agent and/or Lenders and/or Secured Parties and Borrower (or any other Obligor) shall be a waiver of any other present or future violation, Default or Event of Default under the Loan and Security Agreement or any other Loan Document (collectively, “Other Violations”). Similarly, nothing contained in this Amendment Agreement shall directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or Lenders’ or Secured Parties’ right at any time to exercise any right, privilege or remedy in connection with the Loan and Security Agreement or any other Loan Document with respect to any Other Violations (including, without limiting the generality of the foregoing, in respect of the non-conformity to any representation, warranty or covenant contained in any Loan Documents), (ii) except as specifically provided in Article IV hereof, amend or alter any provision of the Loan and Security Agreement or any other Loan Document or any other contract or instrument, or (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or any other Obligor under the Loan Documents or any right, privilege or remedy of Agent or Lenders or Secured Parties under the Loan and Security Agreement or any other Loan Document or any other contract or instrument with respect to Other Violations. Nothing in this Amendment Agreement shall be construed to be a consent by Agent or Lenders or Secured Parties to any Other Violations. | |
| 7.4 | This Amendment Agreement shall be interpreted and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. | |
| 7.5 | This Amendment Agreement may be executed in original and/or facsimile counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. |
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Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Consent and First Amendment
to the Loan and Security Agreement as of the date first above written.
| MIDFIELD SUPPLY ULC, | ||||||
| as Borrower | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Name: | ||||||
| Title: | President | |||||
| MEGA PRODUCTION TESTING INC., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Name: | ||||||
| Title: | President | |||||
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Agent | ||||||
| Per: | /s/ NELSON LAM | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
AGREED AND ACCEPTED by the Lenders:
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Lender | ||||||
| Per: | /s/ NELSON LAM | |||||
| Name: | Nelson
Lam
|
|||||
| Title: | Vice President | |||||
| ALBERTA TREASURY BRANCHES, | ||||||
| as Lender | ||||||
| Per: | /s/ DWAYNE HOOPFER | |||||
| Name: | Dwayne
Hoopfer
|
|||||
| Title: | Relationship Manager, Energy Banking | |||||
| Per: | /s/ GERALD BUHLER | |||||
| Name: | Gerald
Buhler
|
|||||
| Title: | Account Manager | |||||
| ROYAL BANK OF CANADA | ||||||
| (Asset Based Finance), | ||||||
| as Lender | ||||||
| Per: | /s/ DOUG ROBINSON | |||||
| Name: | Doug
Robinson
|
|||||
| Title: | Sr. Portfolio Manager | |||||
| Per: | /s/ MARCELLE FERNANDES | |||||
| Name: | Marcelle
Fernandes
|
|||||
| Title: | Portfolio Manager | |||||
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
| HSBC BANK CANADA, | ||||||
| as Lender | ||||||
| Per: | /s/ WADE SCHULER | |||||
| Name: | Wade
Schuler
|
|||||
| Title: | Senior Account Manager Commercial Financial Services |
|||||
| Per: | /s/ GARTH EVANS | |||||
| Name: | Garth
Evans
|
|||||
| Title: | Assistant Vice President Commercial Financial Services |
|||||
| JPMORGAN CHASE BANK, N.A. | ||||||
| TORONTO BRANCH, | ||||||
| as Lender | ||||||
| Per: | /s/
MICHAEL TAM |
|||||
| Name: | Michael Tam | |||||
| Title: | Senior Vice President | |||||
Consent and First Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
Exhibit 10.9.2
SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
EXECUTED by the parties hereto as of the 17th day of May, 2007,
AMONG:
|
MIDFIELD SUPPLY ULC | |
| (the “Borrower”) | ||
AND:
|
MEGA PRODUCTION TESTING INC. | |
| (the “Guarantor”) | ||
AND:
|
BANK OF AMERICA, N.A. (acting through its Canada branch) | |
| in its capacity as agent for Lenders and in its capacity as collateral agent for Secured Parties under the Security Documents | ||
| (the “Agent”) | ||
AND:
|
THE FINANCIAL INSTITUTIONS PARTY TO THE LOAN AND SECURITY AGREEMENT, as Lenders | |
| (collectively the “Lenders”) |
WHEREAS Borrower, the other Obligors thereto, Lenders and Agent, in its capacity as agent for
and on behalf of Lenders and in its capacity as collateral agent for Secured Parties under the
Security Documents, entered into a Loan and Security Agreement made as of November 2, 2006 (as
amended pursuant to a Consent and First Amendment to the Loan and Security Agreement dated as of
April 26, 2007, and as the same has or may be further amended, modified, restated, supplemented or
replaced from time to time, the “Loan and Security Agreement”);
AND WHEREAS Borrower has advised Agent and Lenders that it intends on imminently closing the
ATB Financial Debt and the Agent and ATB shall enter into the ATB Intercreditor Agreement;
AND WHEREAS the parties hereto have agreed to amend certain provisions of the Loan and
Security Agreement, but only to the extent and subject to the limitations set forth in this Second
Amendment to the Loan and Security Agreement (hereinafter this “Amendment Agreement”) and without
prejudice to Agent’s, Lenders’ and Secured Parties’ other rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I – INTERPRETATION
| 1.1 | All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan and Security Agreement. |
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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ARTICLE II – AMENDMENT
| 2.1 | As of the Amendment Effective Date, paragraph (a) of Section 10.2.8 of the Loan and Security Agreement is hereby deleted and the following substituted therefore: | |
| “(a) ATB Financial Debt except to the extent that no Default or Event of Default shall have occurred and be continuing or arise from any such payment;” |
ARTICLE III – CONDITIONS TO EFFECTIVENESS
| 3.1 | This Amendment Agreement shall become effective upon Borrower and each Guarantor delivering to Agent five originally executed copies of this Amendment Agreement (the date of satisfaction of such condition being referred to herein as the “Second Amendment Effective Date”). |
ARTICLE IV – REPRESENTATIONS AND WARRANTIES
| 4.1 | Borrower and each Guarantor warrant and represent to Agent and Lenders that the following statements are true, correct and complete: |
| (a) | Authorization, Validity, and Enforceability of this Amendment Agreement. Each of Borrower and each Guarantor has the corporate power and authority to execute and deliver this Amendment Agreement and to perform the Loan and Security Agreement. Each of Borrower and each Guarantor has taken all necessary corporate action (including, without limitation, obtaining approval of its shareholders if necessary) to authorize its execution and delivery of this Amendment Agreement and the performance of the Loan and Security Agreement. This Amendment Agreement has been duly executed and delivered by the each of Borrower and each Guarantor and this Amendment Agreement and the Loan and Security Agreement constitute the legal, valid and binding obligations of each of Borrower and each Guarantor, enforceable against them in accordance with their respective terms without defence, compensation, setoff or counterclaim. Borrower’s and each Guarantor’s execution and delivery of this Amendment Agreement and the performance by Borrower and each Guarantor of the Loan and Security Agreement do not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of Borrower or any Subsidiaries or Guarantor by reason of the terms of (a) any contract, mortgage, hypothec, Lien, lease, agreement, indenture, or instrument to which any of Borrower or any Guarantor is a party or which is binding on any of them, (b) any requirement of law applicable to Borrower or any Subsidiaries or any Guarantor, or (c) the certificate or articles of incorporation or amalgamation or bylaws of Borrower or any Subsidiaries or any Guarantor. | ||
| (b) | Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against Borrower or any Subsidiaries or any |
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| Guarantor of this Amendment Agreement or the Loan Security Agreement except for such as have been obtained or made and filings required in order to perfect and render enforceable the Agent’s Liens. | |||
| (c) | Incorporation of Representations and Warranties From Loan and Security Agreement. The representations and warranties contained in the Loan and Security Agreement are and will be true, correct and complete in all material respects on and as of the Second Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. | ||
| (d) | Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment Agreement that would constitute an Event of Default. | ||
| (e) | Security. All security delivered to or for the benefit of Agent on behalf of Secured Parties pursuant to the Loan and Security Agreement and the other Loan Documents remain in full force and effect and secure all Obligations of Borrower and each Guarantor under the Loan and Security Agreement and the other Loan Documents to which they are a party. |
ARTICLE V – MISCELLANEOUS
| 5.1 | Borrower (i) reaffirms its Obligations under the Loan and Security Agreement and the other Loan Documents to which it is a party, and (ii) agrees that the Loan and Security Agreement and the other Loan Documents to which it is a party remain in full force and effect, except as amended hereby, and are hereby ratified and confirmed. | |
| 5.2 | Each Guarantor (i) consents to and approves the execution and delivery of this Amendment Agreement by the parties hereto, (ii) agrees that this Amendment Agreement does not and shall not limit or diminish in any manner the obligations of each Guarantor under its Guarantee (collectively, the “Guarantees”) and that such obligations would not be limited or diminished in any manner even if such Guarantor had not executed this Amendment Agreement, (iii) agrees that this Amendment Agreement shall not be construed as requiring the consent of a Guarantor in any other circumstance, (iv) reaffirms each of its obligations under the Guarantees and the other Loan Documents to which it is a party, and (v) agrees that the Guarantees and the other Loan Documents to which it is a party remain in full force and effect and are hereby ratified and confirmed. | |
| 5.3 | Nothing contained in this Amendment Agreement or any other communication between Agent and/or Lenders and/or Secured Parties and Borrower (or any other Obligor) shall be a waiver of any present or future violation, Default or Event of Default under the Loan and Security Agreement or any other Loan Document (collectively, “Violations”). Similarly, nothing contained in this Amendment Agreement shall directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or Lenders’ or Secured Parties’ right at any time to exercise any right, privilege or remedy in connection with the Loan and Security Agreement or any other Loan Document with |
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| respect to any Violations (including, without limiting the generality of the foregoing, in respect of the non-conformity to any representation, warranty or covenant contained in any Loan Documents), (ii) except as specifically provided in Article II hereof, amend or alter any provision of the Loan and Security Agreement or any other Loan Document or any other contract or instrument, or (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or any other Obligor under the Loan Documents or any right, privilege or remedy of Agent or Lenders or Secured Parties under the Loan and Security Agreement or any other Loan Document or any other contract or instrument with respect to Violations. Nothing in this Amendment Agreement shall be construed to be a consent by Agent or Lenders or Secured Parties to any Violations. | ||
| 5.4 | This Amendment Agreement shall be interpreted and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. | |
| 5.5 | This Amendment Agreement may be executed in original and/or facsimile counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. |
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Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Second Amendment to the
Loan and Security Agreement as of the date first above written.
| MIDFIELD SUPPLY ULC, | ||||||
| as Borrower | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Name: | ||||||
| Title: | President | |||||
| MEGA PRODUCTION TESTING INC., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Name: | ||||||
| Title: | President | |||||
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Agent | ||||||
| Per: | /s/ NELSON LAM | |||||
| Name: | Nelson Lam | |||||
| Title: | Vice President | |||||
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
AGREED AND ACCEPTED by the Lenders:
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Lender | ||||||
| Per: | /s/ NELSON LAM | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| ALBERTA TREASURY BRANCHES, | ||||||
| as Lender | ||||||
| Per: | /s/ DWAYNE HOOPFER | |||||
| Name: | ||||||
| Title: | Relationship Manager | |||||
| Per: | /s/ GERALD BUHLER | |||||
| Name: | ||||||
| Title: | Account Manager | |||||
| ROYAL BANK OF CANADA | ||||||
| (Asset Based Finance), | ||||||
| as Lender | ||||||
| Per: | /s/ DOUG ROBINSON | |||||
| Name: | ||||||
| Title: | Sr. Portfolio Manager | |||||
| Per: | /s/ MARCELLE FERNANDES | |||||
| Name: | ||||||
| Title: | Portfolio Manager | |||||
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
| HSBC BANK CANADA, | ||||||
| as Lender | ||||||
| Per: | /s/ WADE SCHULER | |||||
| Name: | ||||||
| Title: | Senior Account
Manager Commercial Financial Services |
|||||
| Per: | /s/ GARTH EVANS | |||||
| Name: | ||||||
| Title: | Assistant Vice
President Commercial Financial Services |
|||||
| JPMORGAN CHASE BANK, N.A. | ||||||
| TORONTO BRANCH, | ||||||
| as Lender | ||||||
| Per: | /s/ BARRY WALSH | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Second Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
Exhibit 10.9.3
THIRD AMENDMENT, CONSENT AND WAIVER
TO THE LOAN AND SECURITY AGREEMENT
TO THE LOAN AND SECURITY AGREEMENT
EXECUTED by the parties hereto as of the 31st day of October, 2007,
AMONG:
|
MIDFIELD SUPPLY ULC | |
| (the “Borrower”) | ||
AND:
|
MEGA PRODUCTION TESTING INC. | |
| NORTHERN BOREAL SUPPLY LTD. | ||
| HAGAN OILFIELD SUPPLY LTD. | ||
| 1048025 ALBERTA LTD. | ||
| 1236564 ALBERTA LTD. | ||
| (collectively the “Guarantors”, and individually a “Guarantor”) | ||
AND:
|
BANK OF AMERICA, N.A. (acting through its Canada branch) | |
| in its capacity as agent for Lenders and in its capacity as collateral agent for Secured Parties under the Security Documents | ||
| (the “Agent”) | ||
AND: |
THE FINANCIAL INSTITUTIONS PARTY TO THE LOAN AND SECURITY AGREEMENT, as Lenders | |
| (collectively the “Lenders”) |
WHEREAS Borrower, the other Obligors thereto, Lenders and Agent, in its capacity as agent for
and on behalf of Lenders and in its capacity as collateral agent for Secured Parties under the
Security Documents, entered into a Loan and Security Agreement made as of November 2, 2006 (as
amended pursuant to a Consent and First Amendment to the Loan and Security Agreement dated as of
April 26, 2007, a Second Amendment to the Loan and Security Agreement dated as of May 17, 2007, and
as the same has or may be further amended, modified, restated, supplemented or replaced from time
to time, the “Loan and Security Agreement”);
AND WHEREAS Borrower has advised Agent and Lenders that (i) it intends on amalgamating with
its Subsidiary, Northern Boreal Supply Ltd., and continue its existence as Midfield Supply ULC
(hereinafter, “Amalco”), and (ii) its Subsidiaries, Hagan Oilfield Supply Ltd., 1048025 Alberta
Ltd. and 1236564 Alberta Ltd., intend on amalgamating and continuing their existence as Hagan
Oilfield Supply Ltd. (hereinafter the “Hagan Amalco”), the whole pursuant to Section 10.2.9 of the
Loan and Security Agreement (collectively the “Amalgamations”);
AND WHEREAS Borrower has advised Agent and Lenders that it has terminated the Distributor
Agreement dated December 15, 2005, between NUSCO Supply & Manufacturing ULC (now known as Midfield
Supply ULC) and IPSCO Inc. (the “Distributor Agreement”);
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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AND WHEREAS Borrower has advised Agent and Lenders that it into intends to enter into a
distributor agreement with Europump (the “Europump Distributor Agreement”) and intends to enter
into a distributor agreement with Tenaris Global Services (Canada), Inc. (the “Tenaris Distributor
Agreement”);
AND WHEREAS the Borrower has advised Agent and Lenders that it has acquired, or it intends to
acquire (i) the supply business of Europump, namely the supply stores which sell and distribute
oilfield service equipment in Western Canada (the “Europump Acquisition”), the whole substantially
in accordance with the terms of the Asset Purchase Agreement attached hereto as Schedule
“A” (the “Europump APA”), (ii) substantially all of the assets of Traak & Field Enterprises
Ltd. (the “Traak & Field Acquisition”), the whole substantially in accordance with the terms of the
Asset Purchase Agreement attached hereto as Schedule “B” (the “Traak & Field APA”), (iii)
substantially all of the assets of Shur-Run Hotshot Services Ltd. (the “Shur-Run Acquisition”), the
whole substantially in accordance with the terms of the Asset Purchase Agreement attached hereto as
Schedule “C” (the “Shur-Run APA”), and (iv) substantially all of the assets of Mark Energy
Services Ltd. (the “Mark Energy Acquisition”), the whole substantially in accordance with the terms
of the Asset Purchase Agreement attached hereto as Schedule “D” (the “Mark Energy APA”);
(the EuroPump Acquisition, the Traak & Field Acquisition, the Shur-Run Acquisition and the Mark
Energy Acquisition collectively called the “Recent Acquisitions”, and each a “Recent Acquisition”);
AND WHEREAS Borrower has advised Agent and Lenders that Events of Default have occurred under
the Credit Agreement as a result of the Violations (as hereinafter defined);
AND WHEREAS the Borrower has requested that Agent and Lenders consider certain other
amendments to the Loan and Security Agreement;
AND WHEREAS Agent and Lenders wish to confirm their consent to the Amalgamations and the
Recent Acquisitions, the parties hereto have agreed to amend certain provisions of the Loan and
Security Agreement and Agent and Lenders have agreed to waive the Events of Default existing as a
result of the Violations, but, in each case, only to the extent and subject to the limitations set
forth in this Third Amendment, Consent and Waiver to the Loan and Security Agreement (hereinafter
this “Amendment Agreement”) and without prejudice to Agent’s, Lenders’ and Secured Parties’ other
rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I – INTERPRETATION
| 1.1 | All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan and Security Agreement. |
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ARTICLE II – AMENDMENTS
| 2.1 | As of the Amendment Effective Date, the following defined term shall be added to Section 1.1 of the Loan and Security Agreement, in alphabetical order: |
“Permitted Acquisition — any transaction, or any series of related
transactions, consummated on or after the Closing Date, by which an Obligor directly
or indirectly acquires through a purchase of assets any ongoing business or all or
substantially all of the assets of any Person engaged in any ongoing business,
provided, however, that no Default or Event of Default exists or
would result as a consequence of any such Acquisition, provided,
further, that any such ongoing business so acquired is engaged in the same
or a similar business of the applicable Obligor, as conducted by it on the Closing
Date, and any activities incidental thereto, provided, further, that
the aggregate consideration paid for any one such Acquisition does not exceed
$500,000, and provided, further, that the aggregate consideration
paid for all such Acquisitions in any 12-month rolling period does not exceed
$1,000,000.”
| 2.2 | As of the Amendment Effective Date, the defined term “Capital Expenditure” contained in Section 1.1 of the Loan and Security Agreement is deleted and the following substituted therefor: |
“Capital Expenditures — all liabilities incurred, expenditures made or
payments due (whether or not made) by Borrower or Subsidiary for (i) any Permitted
Acquisition, and (ii) for the acquisition of any fixed assets, or any improvements,
replacements, substitutions or additions thereto with a useful life of more than one
year, including the principal portion of Capital Leases; provided, that the
one time expenditures relating to the purchase of assets from Europump relating to
its supply business, from Traak & Field Enterprises Ltd., from Shur-Run Hotshot
Services Ltd. and from Mark Energy Services Ltd. shall be not be included in the
calculation of Capital Expenditures.”
| 2.3 | With effect as of December 31, 2007, the defined term “Fiscal Year” contained in Section 1.1 of the Loan and Security Agreement is deleted and the following substituted therefor: |
“Fiscal Year — the fiscal year of Borrower and Subsidiaries for accounting
and tax purposes, ending on December 31st of each year.”
| 2.4 | As of the Amendment Effective Date, Section 3.4 of the Loan and Security Agreement is hereby deleted and the following substituted therefore: |
“3.4 Overdraft Loans
| In respect of the accounts of an Obligor opened and maintained with the Bank, whenever a cheque or other item is presented for payment against such account in an amount greater than the then available balance in such account (an “Overdraft Loan”), such presentation shall be deemed to constitute a Notice of Borrowing for a Loan on the date of such notice in the amount of such Overdraft Loan (or the Equivalent Amount thereof), |
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| bearing interest by reference to the Prime Rate Revolving Loan. Until such Overdraft Loan shall in fact be repaid by a Prime Rate Revolving Loan, any such Overdraft Loan shall constitute Obligations secured by the Collateral and, upon the making of a Prime Rate Revolving Loan, each Lender shall be required to participate in each such Revolving Loan on a Pro Rata basis and shall settle with the Agent regardless of whether any conditions of Borrowing, under Section 6.2 or otherwise, have otherwise been met.” |
| 2.5 | As of the Amendment Effective Date, Section 10.2.3 of the Loan and Security Agreement is hereby deleted and the following substituted therefor: |
“10.2.3. Capital Expenditures.
| Commencing Fiscal Year 2007, make Capital Expenditures in excess of $5,000,000 in the aggregate by all Obligors during any Fiscal Year; provided, however, that if the amount of Capital Expenditures permitted to be made in any Fiscal Year exceeds the amount actually made, up to $250,000 of such excess may be carried forward to the next Fiscal Year; provided, further, that the one time Capital Expenditure (limited to a maximum aggregate amount of $8,500,000) related to the purchase of the Lands at, and the building of a new facility on, 502 Fifth St. W., Nisku, Alberta, is hereby permitted and not subject to this Section.” |
| 2.6 | As of the Amendment Effective Date (and for greater certainty, after consummation of the Recent Acquisitions), Section 10.2.19 of the Loan and Security Agreement is hereby deleted and the following substituted therefor: |
“10.2.19 Acquisitions.
| Unless otherwise provided for herein, and except for any Permitted Acquisition, consummate any Acquisitions without the prior written consent of the Required Lenders.” | ||
| 2.7 | As of the Amendment Effective Date, Section 10.2.23 of the Loan and Security Agreement is hereby deleted and the following substituted therefor: |
“10.2.23
Distributor Agreements.
| Not enter into a distributor agreement with Europump or with Tenaris Global Services (Canada), Inc., or with any other third party, except on terms and conditions satisfactory to the Agent, and upon execution and delivery to and in favour of the Agent of all such documents and instruments it may reasonably require in respect thereof. Upon the execution and delivery of any such distributor agreement, each Obligor shall not, and shall cause each Subsidiary not to, amend or terminate such distributor agreements, without the prior written consent of the Agent.” |
ARTICLE III – CONSENT TO AMALGAMATIONS
| 3.1 | Further to Borrower’s advice that each of the Amalgamations are set to occur on or prior to November 1, 2007, to the extent necessary, Agent hereby consents to each of the |
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| Amalgamations, and declares itself satisfied pursuant to the terms of Section 10.2.9 of the Loan and Security Agreement. | ||
| 3.2 | The consent provided in Section 3.1 of this Amendment Agreement, and the Agent’s satisfaction with the Amalgamations as provided in Section 10.2.9 of the Loan and Security Agreement, is conditioned on (i) the execution and delivery, on or before November 15, 2007, of the documents, instruments and things listed on Schedule “F” hereto (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent), and (ii) the acknowledgement, agreement and confirmation by each of Amalco and the Hagan Amalco, as applicable, that notwithstanding the completion of the Amalgamations: (a) all Loan Documents executed and delivered by (1) either of the Borrower or Northern Boreal Supply Ltd. with respect to Amalco, and (2) either of Hagan Oilfield Supply Ltd., 1048025 Alberta Ltd. and 1236564 Alberta Ltd. with respect to the Hagan Amalco, in each case, as of the date of the applicable Amalgamation, remain in full force and effect and extend to all debts, liabilities and obligations of the Obligors to the Agent under, pursuant to, or in connection with, the Loan and Security Agreement; (b) it is bound by the terms of such Loan Documents; and (c) the Liens granted in favour of the Agent pursuant to such Loan Documents by each of the Borrower and Northern Boreal Supply Ltd., with respect to Amalco, and by each of Hagan Oilfield Supply Ltd., 1048025 Alberta Ltd. and 1236564 Alberta Ltd., with respect to the Hagan Amalco, continue to extend to all debts, liabilities and obligations of Amalco and/or the Hagan Amalco, as applicable, owing to the Agent under, pursuant to, or arising out of, the Loan Documents. |
ARTICLE IV – WAIVERS TO LOAN AND SECURITY AGREEMENT
| 4.1 | Borrower has advised Agent and Lenders that an Event of Default has occurred under the Loan and Security Agreement as a result of the Capital Expenditures made by the Borrower in excess of $5,000,000 as a consequence of the Capital Expenditures relating to the purchase of the Lands at, and the building of a new facility on, 502 Fifth St. W., Nisku, Alberta, which were made in excess of the $5,000,000 threshold provided by Section 10.2.3 of the Loan and Security Agreement (the “Capital Expenditure Violation”). Subject to the terms of this Amendment Agreement, Agent and Lenders hereby waive, as of the Amendment Effective Date, the Event of Default existing as a result of the Capital Expenditure Violation. | |
| 4.2 | The Borrower has advised Agent and Lenders that an Event of Default has occurred under the Loan and Security Agreement as a result of Borrower having consummated some or all of the Recent Acquisitions prior to the Amendment Effective Date (the “Acquisition Violation”). Subject to the terms of this Amendment Agreement, Agent and Lenders hereby waive, as of the Amendment Effective Date, the Event of Default existing as a result of the Acquisition Violation. | |
| 4.3 | The Borrower has advised Agent and Lenders that an Event of Default has occurred under the Loan and Security Agreement as a result of the termination of the Distributor Agreement (the “Distributor Violation”, together with the Capital Expenditure Violation and the Acquisition Violation, hereinafter collectively the “Violations” and individually |
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| a “Violation”). Subject to the terms of this Amendment Agreement, as of the Amendment Effective Date and notwithstanding the terms of Section 10.2.23 of the Loan and Security Agreement, to the extent necessary, Agent and Lenders hereby consent to the termination of the Distributor Agreement, and Agent and Lenders hereby waive the Event of Default existing as a result of the Distributor Violation. | ||
| 4.4 | The Borrower has advised Agent and Lenders that, effective as of December 31, 2007, it intends on changing its Fiscal Year end from October 31st to December 31st of each year. Subject to the terms of this Amendment Agreement, the parties hereto agree that Borrower shall be in compliance with Section 10.1.2(a) of the Loan and Security Agreement if the financial information described in such Section 10.1.2(a), on the terms therein described, is delivered by Borrower (i) within 120 days of October 31, 2007 for the fiscal year then ended and relating to the twelve (12) month period preceding such date, (ii) within 120 days of December 31, 2008 for the fiscal year then ended and relating to the twelve (12) month period preceding such date, and (iii) within 120 days of any subsequent Fiscal Year, for such Fiscal Year then ended and relating to the applicable twelve (12) month period preceding the end of such Fiscal Year. |
ARTICLE V – CONSENT TO THE RECENT ACQUISITIONS
| 5.1 | Further to Borrower’s advice that it has executed, or anticipates executing, the Europump APA, the Traak & Field APA, the Shur-Run APA and the Mark Energy APA, in each case on or prior to December 15, 2007, notwithstanding the terms of the Loan and Security Agreement or any other Loan Document, to the extent necessary, Agent and Lenders hereby consent to the each of the Acquisitions. | |
| 5.2 | The consent provided in Section 5.1 of this Amendment Agreement is conditioned on the following: |
| (a) | with respect to the Europump Acquisition: (i) such Acquisition is made substantially on the terms of the Europump APA, (ii) the total consideration paid for such Acquisition does not exceed $2,949,899.21 which amount is to be paid in cash and by setting off Accounts owed to the Borrower by Europump, and together with, on an ongoing basis, the annual Profit Participation Payments owing to Europump (with such amounts being applied firstly in reduction of the outstanding amount owed to the Borrower under the Europump Loan) (iii) Borrower shall provide Agent and Lenders, prior to, or concurrently with, the said Acquisition, an officer’s certificate in the form attached hereto as Schedule “E” (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent), the whole in form and substance satisfactory to Agent, and (iii) Borrower shall provide such Lien Waivers as may be required pursuant to the Loan and Security Agreement. | ||
| (b) | with respect to the Traak & Field Acquisition: (i) such Acquisition is made substantially on the terms of the Traak & Field APA, (ii) the total consideration paid for such Acquisition does not exceed $307,100 which is to be paid in cash, (iii) Borrower shall provide Agent and Lenders, prior to, or concurrently with, the |
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
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| said Acquisition, an officer’s certificate in the form attached hereto as Schedule “E” (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent), the whole in form and substance satisfactory to Agent, and (iii) Borrower shall provide such Lien Waivers as may be required pursuant to the Loan and Security Agreement. | |||
| (c) | with respect to the Shur-Run Acquisition: (i) such Acquisition is made substantially on the terms of the Shur-Run APA, (ii) the total consideration paid for such Acquisition does not exceed $60,000 which is to be paid in cash, (iii) Borrower shall provide Agent and Lenders, prior to, or concurrently with, the said Acquisition, an officer’s certificate in the form attached hereto as Schedule “E” (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent), the whole in form and substance satisfactory to Agent, and (iii) Borrower shall provide such Lien Waivers as may be required pursuant to the Loan and Security Agreement. | ||
| (d) | with respect to the Mark Energy Acquisition: (i) such Acquisition is made substantially on the terms of the Mark Energy APA, (ii) the total consideration paid for such Acquisition does not exceed $500,000 which is to be paid in cash up to $200,000 and the balance thereof to be paid in stock, (iii) Borrower shall provide Agent and Lenders, prior to, or concurrently with, the said Acquisition, an officer’s certificate in the form attached hereto as Schedule “E” (together with such other or further opinions, certificates, directions of payment or other documents or things reasonably required by Agent), the whole in form and substance satisfactory to Agent, and (iii) Borrower shall provide such Lien Waivers as may be required pursuant to the Loan and Security Agreement. |
ARTICLE VI – CONDITIONS TO EFFECTIVENESS
| 6.1 | This Amendment Agreement shall become effective upon satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “Amendment Effective Date”): |
| (a) | Borrower and each Guarantor delivering to Agent five originally executed copies of this Amendment Agreement; and | ||
| (b) | Obligors delivering to Agent revised and updated disclosure Schedules to the Loan and Security Agreement reflecting current disclosure in accordance with the terms of the Loan and Security Agreement and after accounting for the consummation of the Amalgamations and the Acquisitions. |
ARTICLE VII – REPRESENTATIONS AND WARRANTIES
| 7.1 | Borrower and each Guarantor warrant and represent to Agent and Lenders that the following statements are true, correct and complete: |
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| (a) | Authorization, Validity, and Enforceability of this Amendment Agreement. Each of Borrower and each Guarantor has the corporate power and authority to execute and deliver this Amendment Agreement and to perform the Loan and Security Agreement. Each of Borrower and each Guarantor has taken all necessary corporate action (including, without limitation, obtaining approval of its shareholders if necessary) to authorize its execution and delivery of this Amendment Agreement and the performance of the Loan and Security Agreement. This Amendment Agreement has been duly executed and delivered by the each of Borrower and each Guarantor and this Amendment Agreement and the Loan and Security Agreement constitute the legal, valid and binding obligations of each of Borrower and each Guarantor, enforceable against them in accordance with their respective terms without defence, compensation, setoff or counterclaim. Borrower’s and each Guarantor’s execution and delivery of this Amendment Agreement and the performance by Borrower and each Guarantor of the Loan and Security Agreement do not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of Borrower or any Subsidiaries or Guarantor by reason of the terms of (a) any contract, mortgage, hypothec, Lien, lease, agreement, indenture, or instrument to which any of Borrower or any Guarantor is a party or which is binding on any of them, (b) any requirement of law applicable to Borrower or any Subsidiaries or any Guarantor, or (c) the certificate or articles of incorporation or amalgamation or bylaws of Borrower or any Subsidiaries or any Guarantor. | ||
| (b) | Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against Borrower or any Subsidiaries or any Guarantor of this Amendment Agreement or the Loan Security Agreement except for such as have been obtained or made and filings required in order to perfect and render enforceable the Agent’s Liens. | ||
| (c) | Incorporation of Representations and Warranties From Loan and Security Agreement. The representations and warranties contained in the Loan and Security Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. | ||
| (d) | Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment Agreement that would constitute an Event of Default. | ||
| (e) | Security. All security delivered to or for the benefit of Agent on behalf of Secured Parties pursuant to the Loan and Security Agreement and the other Loan Documents remain in full force and effect and secure all Obligations of Borrower |
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| and each Guarantor under the Loan and Security Agreement and the other Loan Documents to which they are a party. |
ARTICLE VIII – MISCELLANEOUS
| 8.1 | Borrower (i) reaffirms its Obligations under the Loan and Security Agreement and the other Loan Documents to which it is a party, and (ii) agrees that the Loan and Security Agreement and the other Loan Documents to which it is a party remain in full force and effect, except as amended hereby, and are hereby ratified and confirmed. | |
| 8.2 | Each Guarantor (i) consents to and approves the execution and delivery of this Amendment Agreement by the parties hereto, (ii) agrees that this Amendment Agreement does not and shall not limit or diminish in any manner the obligations of each Guarantor under its Guarantee (collectively, the “Guarantees”) and that such obligations would not be limited or diminished in any manner even if such Guarantor had not executed this Amendment Agreement, (iii) agrees that this Amendment Agreement shall not be construed as requiring the consent of a Guarantor in any other circumstance, (iv) reaffirms each of its obligations under the Guarantees and the other Loan Documents to which it is a party, and (v) agrees that the Guarantees and the other Loan Documents to which it is a party remain in full force and effect and are hereby ratified and confirmed. | |
| 8.3 | Nothing contained in this Amendment Agreement or any other communication between Agent and/or Lenders and/or Secured Parties and Borrower (or any other Obligor) shall be a waiver of any present or future violation, Default or Event of Default under the Loan and Security Agreement or any other Loan Document (collectively, “Violations”). Similarly, nothing contained in this Amendment Agreement shall directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or Lenders’ or Secured Parties’ right at any time to exercise any right, privilege or remedy in connection with the Loan and Security Agreement or any other Loan Document with respect to any Violations (including, without limiting the generality of the foregoing, in respect of the non-conformity to any representation, warranty or covenant contained in any Loan Documents), (ii) except as specifically provided in Article II hereof, amend or alter any provision of the Loan and Security Agreement or any other Loan Document or any other contract or instrument, or (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or any other Obligor under the Loan Documents or any right, privilege or remedy of Agent or Lenders or Secured Parties under the Loan and Security Agreement or any other Loan Document or any other contract or instrument with respect to Violations. Nothing in this Amendment Agreement shall be construed to be a consent by Agent or Lenders or Secured Parties to any Violations. | |
| 8.4 | The waivers contained in Sections 4.1 and 4.1 of this Amendment Agreement apply only to the applicable Violation, and nothing contained in this Amendment Agreement or any other communication between Agent and/or Lenders and/or other Secured Parties and Borrower (or any other Obligor) shall be a waiver of any other present or future violation, Default or Event of Default under the Loan and Security Agreement or any other Loan Document (collectively, “Other Violations”). Similarly, nothing contained in this Amendment Agreement shall directly or indirectly in any way whatsoever either: |
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| (i) impair, prejudice or otherwise adversely affect Agent’s or Lenders’ or other Secured Parties’ right at any time to exercise any right, privilege or remedy in connection with the Loan and Security Agreement or any other Loan Document with respect to any Other Violations (including, without limiting the generality of the foregoing, in respect of the non-conformity to any representation, warranty or covenant contained in any Loan Document), (ii) except as specifically provided herein, amend or alter any provision of the Loan and Security Agreement or any other Loan Document or any other contract or instrument, or (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or any other Obligor under the Loan Documents or any right, privilege or remedy of Agent or Lenders or other Secured Parties under the Loan and Security Agreement or any other Loan Document or any other contract or instrument with respect to Other Violations. Nothing in this Amendment Agreement shall be construed to be a consent by Agent or Lenders or other Secured Parties to any Other Violations. | ||
| 8.5 | This Amendment Agreement shall be interpreted and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. | |
| 8.6 | This Amendment Agreement may be executed in original and/or facsimile counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. |
[Remainder of page intentionally left blank; signatures begin on following page]
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Third Amendment to the Loan
and Security Agreement as of the date first above written.
| MIDFIELD SUPPLY ULC, | ||||||
| as Borrower | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
| MEGA PRODUCTION TESTING INC., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
| NORTHERN BOREAL SUPPLY LTD., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
| HAGAN OILFIELD SUPPLY LTD., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
| 1048025 ALBERTA LTD., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
| 1236564 ALBERTA LTD., | ||||||
| as Guarantor | ||||||
| Per: | /s/ DAN ENDERSBY | |||||
| Title: | President | |||||
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Agent | ||||||
| Per: | /s/ NELSON LAM | |||||
| Title: | Vice President | |||||
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
| AGREED AND ACCEPTED by the Lenders: | ||||||
| BANK OF AMERICA, N.A. | ||||||
| (acting through its Canada branch), | ||||||
| as Lender | ||||||
| Per: | /s/ NELSON LAM | |||||
| Name: | Nelson Lam | |||||
| Title: | Vice President | |||||
| ALBERTA TREASURY BRANCHES, | ||||||
| as Lender | ||||||
| Per: | /s/ DWAYNE HOOPFER | |||||
| Name: | ||||||
| Title: | Director | |||||
| Per: | /s/ GERALD BUHLER | |||||
| Name: | ||||||
| Title: | Associate Director | |||||
| ROYAL BANK OF CANADA | ||||||
| (Asset Based Finance), | ||||||
| as Lender | ||||||
| Per: | /s/ DOUG ROBINSON | |||||
| Name: | ||||||
| Title: | Sr. Portfolio Manager | |||||
| Per: | /s/ MARCELLE FERNANDES | |||||
| Name: | ||||||
| Title: | Portfolio Manager | |||||
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
| HSBC BANK CANADA, | ||||||
| as Lender | ||||||
| Per: | /s/
WADE SCHULER |
|||||
| Name: | Wade Schuler | |||||
| Title: | Senior Account Manager Commercial Financial Services |
|||||
| Per: | /s/
GARTH EVANS |
|||||
| Name: | Garth Evans | |||||
| Title: | Assistant Vice President Commercial Financial Services |
|||||
| JPMORGAN CHASE BANK, N.A. | ||||||
| TORONTO BRANCH, | ||||||
| as Lender | ||||||
| Per: | /s/
BARRY WALSH |
|||||
| Name: | Barry Walsh | |||||
| Title: | Vice President | |||||
Third Amendment to the Loan and Security Agreement — Midfield Supply ULC (2007)
Exhibit 10.9.4
FOURTH
AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
EXECUTED by the parties hereto as of the 28th day of April, 2008,
| AMONG: | MIDFIELD SUPPLY ULC |
|
| (the “Borrower”) | ||
| AND: | MEGA PRODUCTION TESTING INC. HAGAN OILFIELD SUPPLY LTD. |
|
| (collectively the “Guarantors”, and individually a “Guarantor”) | ||
| AND: | BANK OF AMERICA, N.A. (acting through its Canada branch) |
|
| in its capacity as agent for Lenders and in its capacity as collateral agent for
Secured Parties under the Security Documents |
||
| (the “Agent”) | ||
| AND: | THE FINANCIAL INSTITUTIONS PARTY TO THE LOAN AND SECURITY
AGREEMENT, as Lenders |
|
| (collectively the “Lenders”) |
WHEREAS Borrower, the other Obligors thereto, Lenders and Agent, in its capacity as agent for
and on behalf of Lenders and in its capacity as collateral agent for Secured Parties under the
Security Documents, entered into a Loan and Security Agreement made as of November 2, 2006 (as amended
pursuant to a Consent and First Amendment to the Loan and Security Agreement dated as of April 26,
2007, a Second Amendment to the Loan and Security Agreement dated as of May 17, 2007, a Third
Amendment, Consent and Waiver to the Loan and Security Agreement dated as of October 31, 2007, and
as the same has or may be further amended, modified, restated, supplemented or replaced from time
to time, the “Loan and Security Agreement”);
AND WHEREAS the Borrower has requested that Agent and Lenders consider certain amendments to
the Loan and Security Agreement;
AND WHEREAS the parties hereto have agreed to amend certain provisions of the Loan and
Security Agreement but only to the extent and subject to the limitations set forth in this Fourth
Amendment to the Loan and Security Agreement (hereinafter this
“Amendment Agreement”) and without
prejudice to Agent’s, Lenders’ and Secured Parties’ other rights;
NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereby agree as follows:
ARTICLE I — INTERPRETATION
| 1.1 | All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan and Security Agreement. |
Fourth
Amendment to the Loan and Security Agreement - Midfield Supply ULC (2008)
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ARTICLE II — AMENDMENTS
| 2.1 | As of the Amendment Effective Date, the defined term “Fixed Charges” contained in Section 1.1 of the Loan and Security Agreement is deleted and the following substituted therefor: |
| “Fixed Charges — the sum, when actually paid in the period, of interest expense, principal payments on Borrowed Money (other than Revolving Loans and Closing Date Debt Repayments), income taxes (other than income taxes in the amount of $3,448,878 paid by Borrower in June 2007 which, for the purposes of this definition, shall be deemed to have been paid in February 2007), Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans), Bonuses and Net Distributions less, when applicable, the one time payment in the amount of $2,500,000 paid by Borrower in February 2008 relating to the Northern Debt and less, when applicable, the one time payment in the amount of $500,000 paid (or to be paid) by Borrower in July 2008 relating to the Hagan Debt.” |
ARTICLE III — CONDITIONS TO EFFECTIVENESS
| 3.1 | This Amendment Agreement shall become effective upon satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “Amendment Effective Date”): |
| (a) | Borrower and each Guarantor delivering to Agent five originally executed copies of this Amendment Agreement; and |
| (b) | in consideration of the Agent and those Lenders entering into this Amendment Agreement, the Borrower hereby agrees to pay to the Agent, on behalf of itself and such Lenders, an amendment fee in the amount of $5,000 for each of the Lenders so entering into this Amendment Agreement, which fee shall be non-refundable and fully earned when paid and which fee shall be charged as Revolver Loan and be added to and form part of the Loans upon completion of the conditions precedent contemplated by paragraph 3.1(a) of this Amendment Agreement. |
ARTICLE
IV — REPRESENTATIONS AND WARRANTIES
| 4.1 | Borrower and each Guarantor warrant and represent to Agent and Lenders that the following statements are true, correct and complete: |
| (a) | Authorization, Validity, and Enforceability of this Amendment Agreement. Each of Borrower and each Guarantor has the corporate power and authority to execute and deliver this Amendment Agreement and to perform the Loan and Security Agreement. Each of Borrower and each Guarantor has taken all necessary corporate action (including, without limitation, obtaining approval of its shareholders if necessary) to authorize its execution and delivery of this Amendment Agreement and the performance of the Loan and Security Agreement. This Amendment Agreement has been duly executed and delivered by the each of Borrower and each Guarantor and this Amendment Agreement and the Loan and Security Agreement constitute the legal, valid and binding obligations of each of Borrower and each Guarantor, enforceable against them in accordance with their respective terms without defence, compensation, setoff or counterclaim. Borrower’s and each Guarantor’s execution and delivery of this Amendment Agreement and the performance by Borrower and each Guarantor of the Loan and Security Agreement do |
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| not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any Lien upon the property of Borrower or any Subsidiaries or Guarantor by reason of the terms of (a) any contract, mortgage, hypothec, Lien, lease, agreement, indenture, or instrument to which any of Borrower or any Guarantor is a party or which is binding on any of them, (b) any requirement of law applicable to Borrower or any Subsidiaries or any Guarantor, or (c) the certificate or articles of incorporation or amalgamation or bylaws of Borrower or any Subsidiaries or any Guarantor. | |||
| (b) | Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against Borrower or any Subsidiaries or any Guarantor of this Amendment Agreement or the Loan Security Agreement except for such as have been obtained or made and filings required in order to perfect and render enforceable the Agent’s Liens. | ||
| (c) | Incorporation of Representations and Warranties From Loan and Security Agreement. The representations and warranties contained in the Loan and Security Agreement are and will be true, correct and complete in all material respects on and as of the Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. | ||
| (d) | Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment Agreement that would constitute an Event of Default. | ||
| (e) | Security. All security delivered to or for the benefit of Agent on behalf of Secured Parties pursuant to the Loan and Security Agreement and the other Loan Documents remain in full force and effect and secure all Obligations of Borrower and each Guarantor under the Loan and Security Agreement and the other Loan Documents to which they are a party. |
ARTICLE V — MISCELLANEOUS
| 5.1 | Borrower (i) reaffirms its Obligations under the Loan and Security Agreement and the other Loan Documents to which it is a party, and (ii) agrees that the Loan and Security Agreement and the other Loan Documents to which it is a party remain in full force and effect, except as amended hereby, and are hereby ratified and confirmed. |
| 5.2 | Each Guarantor (i) consents to and approves the execution and delivery of this Amendment Agreement by the parties hereto, (ii) agrees that this Amendment Agreement does not and shall not limit or diminish in any manner the obligations of each Guarantor under its Guarantee (collectively, the “Guarantees”) and that such obligations would not be limited or diminished in any manner even if such Guarantor had not executed this Amendment Agreement, (iii) agrees that this Amendment Agreement shall not be construed as requiring the consent of a Guarantor in any other circumstance, (iv) reaffirms each of its obligations under the Guarantees and the other Loan Documents to which it is a party, and (v) agrees that the Guarantees and the other Loan Documents to which it is a party remain in full force and effect and are hereby ratified and confirmed. |
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| 5.3 | Nothing contained in this Amendment Agreement or any other communication between Agent and/or Lenders and/or Secured Parties and Borrower (or any other Obligor) shall be a waiver of any present or future violation, Default or Event of Default under the Loan and Security Agreement or any other Loan Document (collectively, “Violations”). Similarly, nothing contained in this Amendment Agreement shall directly or indirectly in any way whatsoever either: (i) impair, prejudice or otherwise adversely affect Agent’s or Lenders’ or Secured Parties’ right at any time to exercise any right, privilege or remedy in connection with the Loan and Security Agreement or any other Loan Document with respect to any Violations (including, without limiting the generality of the foregoing, in respect of the non-conformity to any representation, warranty or covenant contained in any Loan Documents), (ii) except as specifically provided in Article II hereof, amend or alter any provision of the Loan and Security Agreement or any other Loan Document or any other contract or instrument, or (iii) constitute any course of dealing or other basis for altering any obligation of Borrower or any other Obligor under the Loan Documents or any right, privilege or remedy of Agent or Lenders or Secured Parties under the Loan and Security Agreement or any other Loan Document or any other contract or instrument with respect to Violations. Nothing in this Amendment Agreement shall be construed to be a consent by Agent or Lenders or Secured Parties to any Violations. |
| 5.4 | This Amendment Agreement shall be interpreted and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. |
| 5.5 | This Amendment Agreement may be executed in original and/or facsimile counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. |
[Remainder of page intentionally left blank; signatures begin on following page]
Fourth
Amendment to the Loan and Security Agreement - Midfield Supply ULC (2008)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Third Amendment to the
Loan and Security Agreement as of the date first above written.
| MIDFIELD SUPPLY ULC, as Borrower |
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| Per: /s/ Dan Endersby | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
| MEGA PRODUCTION TESTING INC., as Guarantor |
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| Per: /s/ Dan Endersby | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
| HAGAN OILFIELD SUPPLY LTD., as Guarantor |
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| Per: /s/ Dan Endersby | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
BANK OF AMERICA, N.A. (acting through its Canada Branch), as Agent |
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| Per: /s/ | ||||
| Name: | ||||
| Title: | ||||
Fourth
Amendment to the Loan and Security Agreement — Midfield Supply ULC (2008)
IN WITNESS
WHEREOF, the parties hereto have executed and delivered this Third Amendment to the
Loan and Security Agreement as of the date first above written.
| MIDFIELD SUPPLY ULC, as Borrower |
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| Per: | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
| MEGA PRODUCTION TESTING INC., as Guarantor |
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| Per: | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
| RAGAN OILFIELD SUPPLY LTD., as Guarantor |
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| Per: | ||||
| Name: | Dan Endersby | |||
| Title: | President | |||
| BANK OF AMERICA, N.A. (acting through its Canada branch), as Agent |
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| Per: /s/ Nelson Lam | ||||
| Name: | Nelson Lam | |||
| Title: | Vice resident | |||
Fourth Amendment to the Loan and Security Agreement · Midfield Supply ULC (2008)
AGREED AND ACCEPTED by the following Lenders:
| BANK OF AMERICA, N.A. (acting through its Canada branch), as Lender |
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| Per: /s/ Nelson Lam | ||||
| Name: | Nelson Lam | |||
| Title: | Vice President | |||
| ALBERTA TREASURY BRANCHES, as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| Per: | ||||
| Name: | ||||
| Title: | ||||
| ROYAL BANK OF CANADA (Asset Based Finance), as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| Per: | ||||
| Name: | ||||
| Title: | ||||
| HSBC BANK CANADA, as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
Fourth Amendment to the Loan and Security Agreement — Midfield Supply ULC (2008)
AGREED AND ACCEPTED by the following Lenders:
| BANK OF AMERICA, N.A. (acting through its Canada branch), as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| ALBERTA TREASURY BRANCHES, as Lender |
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| Per: /s/ D.A. (Dwayne) Hoopfer | ||||
| Name: | D.A. (Dwayne) Hoopfer | |||
| Title: | Director Energy Group | |||
| Per: /s/ Gerald Buhler | ||||
| Name: | Gerald Buhler | |||
| Title: | Associate Director Energy Group | |||
| ROYAL BANK OF CANADA (Asset Based Finance), as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| Per: | ||||
| Name: | ||||
| Title: | ||||
| HSBC BANK CANADA, as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
Fourth Amendment to the Loan and Security Agreement — Midfield Supply ULC (2008)
AGREED AND ACCEPTED by the following Lenders:
| BANK OF AMERICA, N.A. (acting through its Canada branch) as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| ALBERTA TREASURY BRANCHES, as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| Per: | ||||
| Name: | ||||
| Title: | ||||
| ROYAL BANK OF CANADA (Asset Based Finance), as Lender |
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| Per: | ||||
| Name: | ||||
| Title: | ||||
| Per: | ||||
| Name: | ||||
| Title: | ||||
| HSBC BANK CANADA, as Lender |
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| Per: /s/ Garth Evans | ||||
| Name: | Garth Evans | |||
| Title: | Assistant Vice President Commercial Financial Services |
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| Per: /s/ Wade Schuler | ||||
| Name: | Wade Schuler | |||
| Title: | Senior Account Manager Commercial Financial Services |
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Fourth Amendment to the Loan and Security Agreement — Midfield Supply ULC (2008)
| JPMORGAN CHASE BANK, N.A. TORONTO BRANCH,6 as Lender |
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| Per: /s/ Barry Walsh | ||||
| Name: | Barry Walsh |
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| Title: | Vice President | |||
Fourth Amendment to the Loan and Security Agreement — Midfield Supply ULC (2008)
Exhibit 10.10
300, 239 8 Ave SW
Calgary, AB T2P 1B9
Phone: 403-974-5131
Fax: 403-974-5784
Calgary, AB T2P 1B9
Phone: 403-974-5131
Fax: 403-974-5784
May 17, 2007
Midfield Supply ULC
1600 101 6th Ave SW
Calgary, Alberta
T2P 3P4
1600 101 6th Ave SW
Calgary, Alberta
T2P 3P4
Attn: Rick Endersby
Dear Sir:
Alberta Treasury Branches has approved and offers financial assistance on the terms and conditions
in the attached Commitment Letter.
You may accept our offer by returning the enclosed duplicate of this letter, signed as indicated
below, by 4:00 p.m. on or before May 31, 2007 or our offer will automatically expire. We reserve
the right to cancel our offer at any time prior to acceptance.
Thank you for your continued business.
Yours truly,
| ALBERTA TREASURY BRANCHES | ||||
By: |
/s/ Dwayne Hoopfer | |||
| Relationship Manager | ||||
By: |
/s/ Gerald Buhler | |||
| Account Manager | ||||
| Encl. | ||||
| Accepted this 17th day of May, 2007 | ||||
| Midfield Supply ULC | ||||
Per: |
/s/ Dan Endersby | |||
| President | ||||
Exhibit 10.10
COMMITMENT
LETTER
LENDER: ALBERTA TREASURY BRANCHES
BORROWER: MIDFIELD SUPPLY ULC
| 1. | AMOUNTS AND TYPES OF FACILITIES (each referred to as a “Facility”) | |
| Facility #1 – Revolving Term Loan Facility – Cdn. $15,000,000 |
| – | Facility #1 is available by way of: |
| – | Prime-based loans in Canadian dollars | ||
| – | Guaranteed Notes in Canadian dollars |
| – | Notwithstanding the amount of Facility #1 (and except as otherwise provided in the Repayment section hereof), advances will be limited to the amount equal to the lesser of: |
| – | the maximum principal amount of Facility #1; and | ||
| – | an amount equal to 50% of the Tangible Asset Value of Tangible Assets then subject to the Security Documents. |
| – | Facility #1 is to be used for the acquisition of Tangible Assets. Each advance shall be supported by an officer’s certificate detailing the Tangible Asset being acquired, and shall not exceed 100% of the cost of the asset being acquired less GST and all appropriate taxes. The initial advance can be used to reimburse Borrower for the cost of Tangible Assets previously acquired by it, subject to the approval of Lender as to the assets, including their acquisition date. |
| 2. | INTEREST RATES AND PREPAYMENT: | |
| Facility #1: |
| – | Pricing applicable to Facility #1 is as follows: |
| – | Prime-based loans: Interest is payable in Canadian dollars at Prime plus the Applicable Facility #1 Margin per 365-day period | ||
| – | Guaranteed Notes: Acceptance fee is payable in Canadian dollars at the Applicable Facility #1 Margin per 365-day period |
| – | The Applicable Facility #1 Margin shall be equal to the percentage rate per annum set out in the following table opposite the applicable ratio for the Borrower at the time of determination: |
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| Ratio of Tangible Asset | ||||
| Value to outstanding Borrowings |
Prime-based loans | Guaranteed Notes | ||
| ≤ 3.00:1 | 0% | 1.50% | ||
| >2.50 but < 3.00:1 | 0.25% | 1.75% | ||
| > 2.00:1 but < 2.50:1 | 0.50% | 2.00% |
| – | The effective date of any change to the Applicable Facility #1 Margin shall be the 1st day of the fiscal quarter immediately following the last day of the period during which the Borrower is required to deliver financial statements hereunder. If financial statements are not delivered as required hereunder, the Applicable Facility #1 Margin shall immediately be the highest rate applicable, until such time as such financial statements are delivered and the ratio determined. If the Applicable Facility #1 Margin changes during the term of any Guaranteed Note, the acceptance fee paid shall be adjusted to reflect the Applicable Facility #1 Margin for the remaining term, and the parties shall forthwith make whatever payments are necessary to reflect such adjustment. | ||
| – | The Applicable Facility #1 Margin shall be subject to a 0.50% increase on and after the Term Date. | ||
| – | Facility #1 may be prepaid in whole or in part at any time (subject to the notice periods provided hereunder) without penalty, except that Guaranteed Notes cannot be prepaid prior to their maturity. |
| 3. | REPAYMENT: | |
| Facility #1: |
| – | Facility #1 is a committed term facility, as detailed herein. | ||
| – | The “Term Date” is initially February 28, 2008, subject to extension as herein provided. | ||
| – | Prior to the Term Date, Facility #1 may revolve in multiples as permitted hereunder, and Borrower may borrow, repay, reborrow and convert between types of Borrowings, up to the amount and subject to the notice periods provided herein. | ||
| – | On the Term Date, any unutilized amount of Facility #1 will be cancelled, and the amount of Facility #1 will be reduced to the aggregate Borrowings outstanding on that date. On and after the Term Date, Facility #1 is non-revolving, and amounts repaid may not be re-borrowed, but Borrower can convert between types of Borrowings subject to the notice periods provided hereunder. All amounts outstanding under Facility #1 are due and payable in full on the date falling one (1) year after the Term Date. | ||
| – | Borrower may request an extension of the Term Date by sending Lender a written request for extension in the form attached as Schedule “C” by no later than 90 days prior to the |
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| then current Term Date, and Lender may in its sole discretion agree to extend the Term Date for a further period of up to 364 days. Lender shall advise Borrower of its decision regarding the extension by no later than 30 days prior to the then current Term Date. |
| 4. | FEES: |
| – | Non-refundable application fee of $45,000 is payable on acceptance of this offer. Lender is hereby authorized to debit Borrower’s current account for any unpaid portion of the fee. | ||
| – | Any amount in excess of established credit facilities may be subject to a fee where Lender in its sole discretion permits excess Borrowings, if any. | ||
| – | For monthly or quarterly reports or statements not received within the stipulated periods (and without limiting Lender’s rights by virtue of such default), Borrower will be subject to a fee of $50 per month (per report or statement) for each late reporting occurrence, which will be deducted from Borrower’s account. | ||
| – | For annual reports or statements not received within the stipulated periods (and without limiting Lender’s rights by virtue of such default), Borrower will be subject to a fee of $250 per month (per report or statement) for each late reporting occurrence, which will be deducted from Borrower’s account. |
| 5. | SECURITY DOCUMENTS: | |
| All Security Documents (whether now held or later delivered) shall secure all Facilities and all other obligations of Borrower to Lender (whether present or future, direct or indirect, contingent or matured). | ||
| The Security Documents required at this time are as follows: |
| (a) | Solicitor prepared debenture from Borrower in the amount of $15,000,000 providing a fixed charge over all present real property and a floating charge over all after-acquired real property; | ||
| (b) | Solicitor prepared security agreement from Borrower providing a security interest over all present and after-acquired equipment of the Borrower, and specifically listing all equipment having a net book value of $250,000 or more; | ||
| (c) | Solicitor prepared inter-creditor agreement (the “Intercreditor Agreement”) with Bank of America, N.A. as agent under the Syndicated Facility; | ||
| (d) | Solicitor prepared subordination agreement from all shareholders of Borrower; and | ||
| (e) | Confirmation of Insurance Coverage on the Tangible Assets with first loss payable to Lender. |
| All Security Documents shall be in form and substance acceptable to Lender and shall be supported by satisfactory legal opinions from Borrower’s counsel. The Security Documents have or are to be registered in Alberta, British Columbia and Saskatchewan, with specific registrations against all real property, and against equipment having a net book value of $250,000 or more. |
| Midfield Supply ULC | May 17, 2007 | |
| Page 4 |
| 6. | REPRESENTATIONS AND WARRANTIES: | |
| Borrower represents and warrants to Lender that: |
| (a) | it is an unlimited liability corporation duly incorporated, validly existing and duly registered or qualified to carry on business in the Province of Alberta and in each other jurisdiction where it carries on any material business; | ||
| (b) | as of the date hereof, the only shareholders of Borrower are Red Man Pipe and Supply Canada Ltd. (“Red Man”) and Midfield Holdings (Alberta) Ltd. (“Midfield Holdings”); | ||
| (c) | the execution, delivery and performance by it of this agreement and each Security Document to which it is a party have been duly authorized by all necessary actions and do not violate its governing documents or any applicable laws or agreements to which it is subject or by which it is bound; | ||
| (d) | if, after the date hereof, any person (a “Guarantor”) provides a guarantee of Borrower’s obligations to Lender, such Guarantor will be a corporation duly incorporated, validly existing and duly registered or qualified to carry on business in the Province of Alberta and in each other jurisdiction where it carries on any material business, and the execution, delivery and performance by such Guarantor of this agreement and each Security Document to which it becomes a party will have been duly authorized by all necessary actions and will not violate its governing documents or any applicable laws or agreements to which it will be subject or by which it will be bound; | ||
| (e) | no Default or Event of Default has occurred; | ||
| (f) | the most recent financial statements of Borrower and, if applicable, any Guarantor, provided to Lender fairly present its financial position as of the date thereof and its results of operations and cash flows for the fiscal period covered thereby, and since the date of such financial statements, there has occurred no material adverse change in its business or financial condition; | ||
| (g) | each Loan Party has good and marketable title to all of its properties and assets, free and clear of any encumbrances, other than Permitted Encumbrances; and | ||
| (h) | each Loan Party is in compliance in all material respects with all applicable laws including, without limitation, all environmental laws, and there is no existing material impairment to its properties and assets as a result of environmental damage, except to the extent disclosed in writing to Lender and acknowledged by Lender. |
| All representations and warranties are deemed to be repeated by Borrower on each request for an advance hereunder. | ||
| 7. | POSITIVE COVENANTS: | |
| Borrower covenants with Lender that so long as it is indebted or otherwise obligated (contingently or otherwise) to Lender, it will do and perform the following covenants: |
| (a) | Borrower will pay to Lender when due all amounts (whether principal, interest or other sums) owing by it to Lender from time to time; |
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| (b) | Borrower will deliver to Lender the Security Documents, in all cases in form and substance satisfactory to Lender and Lender’s solicitor; | ||
| (c) | Borrower will ensure that (i) all Tangible Assets, and (ii) at least 95% of its consolidated assets, are held by Borrower directly or by any Guarantors which have provided security in favour of and to the extent required by Lender; | ||
| (d) | Borrower will, prior to acquiring any Subsidiary or allowing any Subsidiary to have assets of a type or in an amount which would otherwise violate subsection 7(c) above, cause such Subsidiary to provide a guarantee in favour of Lender as well as grant similar Security Documents in favour of Lender as those delivered by Borrower hereunder; | ||
| (e) | Borrower will use the proceeds of loans only for the purposes approved by Lender; | ||
| (f) | each Loan Party will maintain its valid existence as a corporation (and, in the case of Borrower, as an unlimited liability corporation) and except to the extent any failure to do so could not reasonably be expected to have a Material Adverse Effect, will maintain all licenses and authorizations required from regulatory or governmental authorities or agencies to permit it to carry on its business, including, without limitation, any licenses, certificates, permits and consents for the protection of the environment; | ||
| (g) | each Loan Party will maintain appropriate books of account and records relative to the operation of its business and financial condition; | ||
| (h) | each Loan Party will maintain and defend title to all of its property and assets, will maintain, repair and keep in good working order and condition all of its property and assets and will continuously carry on and conduct its business in a proper, efficient and businesslike manner; | ||
| (i) | each Loan Party will maintain appropriate types and amounts of insurance with Lender shown as first loss payee on any property insurance covering any assets on which Lender has security, and promptly advise Lender in writing of any significant loss or damage to its property; | ||
| (j) | each Loan Party will provide evidence of insurance to Lender on all Tangible Assets, and otherwise, on request; | ||
| (k) | each Loan Party will permit Lender, by its officers or authorized representatives at any reasonable time and on reasonable prior notice, to enter its premises and to inspect its plant, machinery, equipment and other real and personal property and their operation, and to examine and copy all of its relevant books of accounts and records; | ||
| (l) | each Loan Party will remit all sums when due to tax and other governmental authorities (including, without limitation, any sums in respect of employees and GST) and will pay when due all other Potential Prior-Ranking Claims, and upon request, will provide Lender with such information and documentation in respect thereof as Lender may reasonably require from time to time; | ||
| (m) | each Loan Party will comply with all applicable laws, including without limitation, environmental laws, except to the extent any failure to do so could not reasonably be expected to have a Material Adverse Effect; |
| Midfield Supply ULC | May 17, 2007 | |
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| (n) | Borrower will promptly advise Lender in writing, giving reasonable details, of: |
| i) | the discovery of any contaminant or any spill, discharge or release of a contaminant into the environment from or upon its property which could reasonably be expected to result in a Material Adverse Effect; | ||
| ii) | the occurrence or existence of any Default or Event of Default; | ||
| iii) | each event which has or is reasonably likely to have a Material Adverse Effect; | ||
| iv) | any amendment to and any breach or default under the Syndicated Facility; | ||
| v) | any change in its shareholders or other holders of its Equity Interests; and | ||
| vi) | any proposed Purchase Money Security Interest, Capital Lease or sale-leaseback transaction involving a Tangible Asset (which for greater certainty, requires Lender’s consent prior to the entering into thereof); and |
| (o) | Borrower undertakes that, upon request from Lender, it will, or will cause a Guarantor to, grant a fixed mortgage and charge to Lender on any or all real property of a Loan Party and a specifically registered security interest on any or all equipment of a Loan Party, in each case as so designated by Lender. Each Loan Party shall promptly provide to Lender all information reasonably requested by Lender to assist it in that regard. Each Loan Party acknowledges that this undertaking constitutes present and continuing security in favour of Lender, and that Lender may file such caveats, security notices, financing statements or other filings in regard thereto at any time and from time to time as Lender may determine. |
| If any such covenant is to be done or performed by a Guarantor, Borrower also covenants with Lender to cause Guarantor to do or perform such covenant. | ||
| 8. | NEGATIVE COVENANTS: | |
| Borrower covenants with Lender that while it is indebted or otherwise obligated (contingently or otherwise) to Lender, it will not do any of the following, without the prior written consent of Lender: |
| (a) | a Loan Party will not create or permit to exist any mortgage, charge, lien, encumbrance or other security interest on any of its present or future assets, other than Permitted Encumbrances; | ||
| (b) | a Loan Party will not create, incur, assume or allow to exist any Indebtedness other than Permitted Indebtedness; | ||
| (c) | a Loan Party will not sell, lease or otherwise dispose of any assets except (i) inventory sold, leased or disposed of in the ordinary course of business, (ii) obsolete equipment which is being replaced with equipment of an equivalent value, and (iii) assets (other than real property) sold, leased or disposed of during a fiscal year having an aggregate fair market value not exceeding $2,500,000 for such fiscal year; |
| Midfield Supply ULC | May 17, 2007 | |
| Page 7 |
| (d) | a Loan Party will not provide financial assistance (by means of a loan, guarantee or otherwise) to any person (other than Lender), other than (i) guarantees granted to support Indebtedness arising under the Syndicated Facility, and (ii) other financial assistance not in excess of $5,500,000 in aggregate at any one time; | ||
| (e) | a Loan Party will not make any Distributions or any payments to persons having an Equity Interest in Borrower (except a Distribution by a Subsidiary to Borrower), and will not create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Distribution to Borrower, except for restrictions under applicable law, provided, however, that Borrower may pay Bonuses to its employees, pay principal and interest to persons having an Equity Interest in Borrower who are holders of Shareholders’ Notes and pay interest to Red Man on Class R Note; but only if no Default or Event of Default exists at the time of making such payment and no Default or Event of Default would occur as a consequence of the making of such payment, and provided further, that in the case of payments of principal or interest on Shareholders’ Notes, that the persons holding such Shareholders’ Notes have entered in to a subordination agreement on terms acceptable to Lender; | ||
| (f) | a Loan Party will not amalgamate, consolidate, or merge with any person other than a Loan Party and then only if no Default or Event of Default is then in existence or would be caused as a result thereof; | ||
| (g) | a Loan Party will not acquire any assets in, or move or allow any of its assets to be moved to, a jurisdiction where Lender has not registered or perfected the Security Documents; | ||
| (h) | a Loan Party will not change the present nature of its business; | ||
| (i) | a Loan Party will not enter into any Hedging Agreement which is not used for risk management in relation to its business or which is not entered into in the ordinary course of its business but is entered into for speculative purposes, or which, in the case of commodity swaps or similar transactions of either a financial or physical nature, have a term exceeding two years; | ||
| (j) | a Loan Party will not allow any pollutant (including any pollutant now on, under or about such land) to be placed, handled, stored, disposed of or released on, under or about any of its lands unless done in the normal course of its business and then only as long as it complies with all applicable laws in placing, handling, storing, transporting, disposing of or otherwise dealing with such pollutants, except to the extent any failure to do so could not reasonably be expected to have a Material Adverse Effect; and | ||
| (k) | Borrower will not utilize Borrowings to finance a hostile takeover. |
| If a Guarantor is not to do an act, Borrower also covenants with Lender not to permit Guarantor to do such act. | ||
| 9. | REPORTING COVENANTS | |
| Borrower will provide to Lender: |
| (a) | within 120 days after the end of each of its fiscal years: |
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| i) | financial statements of Borrower on an audited, consolidated basis prepared by a firm of qualified accountants; | ||
| ii) | a compliance certificate executed by a senior officer of Borrower in the form attached hereto as Schedule “A”; | ||
| iii) | an environmental questionnaire and disclosure statement in the form requested by Lender. |
| (b) | within 60 days following the end of each of its first 3 fiscal quarters: |
| i) | internally produced consolidated financial statements of Borrower for that quarter, and | ||
| ii) | a compliance certificate executed by a senior officer of Borrower in the form attached hereto as Schedule “A”; |
| (c) | within 60 days after the end of each of its fiscal quarters, a list of all real property and a list of all other assets constituting Tangible Assets broken down by category of asset and providing details for any asset having a net book value of $250,000 or more; | ||
| (d) | within 120 days after the end of each of its fiscal year ends, annual consolidated and non-consolidated capital and revenue budgets, projected balance sheet, income statement and cash flow statement from Borrower for the next following fiscal year; and | ||
| (e) | on request, any further information regarding its assets, operations and financial condition that Lender may from time to time reasonably require. |
| 10. | FINANCIAL COVENANTS: | |
| Borrower will at all times comply with the following financial covenants on a consolidated basis: |
| (a) | Borrower must maintain a Leverage Ratio not greater than 3.50:1; | ||
| (b) | Borrower must maintain a Fixed Charge Coverage Ratio of at least 1.15:1; and | ||
| (c) | Borrower must maintain a ratio of Tangible Asset Value to Borrowings outstanding of at least 2.00:1. |
| Each of the above financial ratios shall be maintained at all times and shall be detailed in the compliance certificate required to be delivered hereunder. | ||
| 11. | CONDITIONS PRECEDENT: | |
| No Facilities will be available until the following conditions precedent have been satisfied, unless waived by Lender: |
| (a) | Lender has received all Security Documents and all registrations and filings have been completed in Alberta, British Columbia and Saskatchewan, in all cases in form and substance satisfactory to Lender. Specific charges to be registered against capital assets having a value in excess of $250,000; |
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| (b) | Borrower and Guarantors (if any) have provided all authorizations and all financial statements, appraisals, environmental reports and any other information that Lender may require; | ||
| (c) | Borrower has provided a copy of the Shareholders Agreement and the Class R Note; | ||
| (d) | Lender has received confirmation that the second amendment to the Syndicated Facility has become effective in the form agreed to by the Lender; | ||
| (e) | Lender has received payment of all fees due in respect hereof; | ||
| (f) | Lender is satisfied as to the value of Borrower’s and any Guarantor’s assets and financial condition, and Borrower’s and any Guarantor’s ability to carry on business and repay any amount owed to Lender from time to time; | ||
| (g) | There is no default hereunder or under any Security Document, and all representations and warranties hereunder are true and correct in all material respects as if made on such date; | ||
| (h) | Lender has received an environmental assessment and appraisal report for all real estate projects (both old and new) having a value greater than $500,000; and | ||
| (i) | Advances under Facility #1 are subject to a minimum of $100,000 and will be advanced against an officers certificate detailing the Tangible Asset acquired. |
| It is a condition precedent to each subsequent advance hereunder that, at the time of such advance, all representations and warranties hereunder must be true and correct in all material respects as if made on such date, and there must be no default hereunder or under any Security Document. As noted above, condition precedent (h) applies for each advance hereunder. | ||
| 12. | AUTHORIZATIONS AND SUPPORTING DOCUMENTS | |
| Borrower has delivered or will deliver the following authorizations and supporting documents to Lender on behalf of Borrower and any Guarantor: |
| (a) | Incorporation documents including Certificate of Incorporation/Amalgamation, Articles of Incorporation/Amalgamation (including any amendments) and last Notice of Directors; | ||
| (b) | Business Corporation Agreement; | ||
| (c) | Environmental Questionnaire & Disclosure Statement; | ||
| (d) | Sunlife Group Creditor’s Life Insurance – application or waiver; | ||
| (e) | Credit Information and Alberta Land Titles Office Name Search Consent Form. |
| 13. | DRAWDOWNS, PAYMENTS AND EVIDENCE OF INDEBTEDNESS |
| – | Interest on Prime-based loans is calculated on the daily outstanding principal balance, and is payable on the last day of each month. |
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| – | If Guaranteed Notes are available hereunder, Borrower will issue non-interest bearing promissory notes to Lender in multiples of $100,000, subject to a minimum of $1,000,000, with a minimum term of 30 days and up to 90 day maturity dates. Borrower agrees to be bound by the power of attorney set out in Schedule “B” hereto. On the date of drawdown, Lender shall make an advance to Borrower in an amount equal to the proceeds which would have been realized from a hypothetical sale of those Guaranteed Notes at the Discount Rate, less the acceptance fees payable hereunder. Lender is authorized to hold or negotiate any such promissory notes. Guaranteed Notes shall remain in effect until the maturity of the term selected and notwithstanding anything to the contrary contained herein, may not be repaid prior to their maturity. On the maturity date thereof, Borrower shall pay Lender the face amount of each Guaranteed Note. If Lender does not receive written instructions from Borrower prior to maturity concerning the renewal of the Guaranteed Notes, then the face amount of the Guaranteed Notes shall be automatically deemed to be outstanding as a Prime-based loan under the relevant Facility until written instructions are received from Borrower. | ||
| – | Borrower shall monitor its Borrowings (including the face amount and maturity date of each Guaranteed Note) to ensure that the Borrowings hereunder do not exceed the maximum amount available hereunder. Lender shall have no obligation to make any Borrowing available in excess of amounts available hereunder. | ||
| – | Borrower shall provide notice to Lender prior to requesting an advance or making a repayment or conversion of Borrowings hereunder, as follows: | ||
| For Borrowings: |
| – | under Cdn. $5,000,000 – same day notice | ||
| – | Cdn. $5,000,000 and over – one Business Day prior written notice |
| – | Borrower may cancel the availability of any unused portion of a Facility on five Business Days’ notice. Any such cancellation is irrevocable. | ||
| – | The annual rates of interest or fees to which the rates calculated in accordance with this agreement are equivalent, are the rates so calculated multiplied by the actual number of days in the calendar year in which such calculation is made and divided by 365. | ||
| – | If any amount due hereunder is not paid when due, Borrower shall pay interest on such unpaid amount (including without limitation, interest on interest) if and to the fullest extent permitted by applicable law, at a rate per annum equal to Prime plus 5%. | ||
| – | The branch of Lender (the “Branch of Account”) where Borrower maintains an account and through which the Borrowings will be made available is located at 219 — 2nd Street West, Brooks, Alberta T1R 1B5. Funds under the Credit Facilities will be advanced into and repaid from account no. 752-1090003-24 at the Branch of Account, or such other branch or account as Borrower and Lender may agree upon from time to time. | ||
| – | Lender shall open and maintain at the Branch of Account accounts and records evidencing the Borrowings made available to Borrower by Lender under this agreement. Lender shall record the principal amount of each Borrowing and the payment of principal, interest and fees and all other amounts becoming due to Lender under this agreement. Lender’s accounts and records constitute, in the absence of manifest error, |
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| conclusive evidence of the indebtedness of Borrower to Lender pursuant to this agreement. | |||
| – | Borrower authorizes and directs Lender to automatically debit, by mechanical, electronic or manual means, any bank account of Borrower for all amounts payable by Borrower to Lender pursuant to this agreement. Any amount due on a day other than a Business Day shall be deemed to be due on the Business Day next following such day, and interest shall accrue accordingly. |
| 14. | EVENTS OF DEFAULT: | |
| If any of the events set forth below (an “Event of Default”) occurs and is continuing, Lender may at its option, by notice to Borrower, terminate any or all of the Facilities hereunder and demand immediate payment in full of all or any part of the amounts owed by Borrower thereunder: |
| (a) | if Borrower defaults in paying when due all or any part of the principal amount due hereunder; | ||
| (b) | if Borrower or any Guarantor defaults in paying when due all or any part of its indebtedness or other liability to Lender (other than as provided under section (a) above) and such default continues for 3 business days after notice from Lender; | ||
| (c) | if Borrower or any Guarantor defaults in the observance or performance of any of its covenants or obligations hereunder or in any of the Security Documents (other than as provided under section (a) or (b) above), or in any other document under which Borrower or such Guarantor is obligated to Lender, and in any such cases, the default continues for 15 days after notice from Lender; | ||
| (d) | if any charge or encumbrance on any Tangible Assets of Borrower or any Guarantor becomes enforceable and steps are taken to enforce it; | ||
| (e) | if any charge or encumbrance on any property of Borrower or any Guarantor (other than the Tangible Assets) having a fair market value in excess of $5,000,000 becomes enforceable and steps are taken to enforce it; | ||
| (f) | if Borrower or any Guarantor defaults in any obligation under the Syndicated Facility; | ||
| (g) | if a Remedial Action Notice (as defined in the Intercreditor Agreement) is delivered under the Intercreditor Agreement; | ||
| (h) | if an Activation Notice (as defined in the Blocked Account Agreement) is delivered under the Blocked Account Agreement; | ||
| (i) | if Borrower or any Guarantor defaults in any obligation to any person (other than Lender or under the Syndicated Facility) which involves or may involve a sum exceeding $5,000,000, and the default has not been cured within 5 days of the date Borrower first knew or should have known of the default; | ||
| (j) | if any other creditor of Borrower or any Guarantor takes collection steps against Borrower or such Guarantor or its assets; |
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| (k) | if final judgment or judgments should be entered against Borrower or any Guarantor for the payment of any amount of money exceeding $5,000,000, and the judgment or judgments are not discharged within 20 days after entry; | ||
| (l) | if an order is made, an effective resolution passed, or a petition is filed for the winding up the affairs of Borrower or any Guarantor or if a receiver or liquidator of Borrower or any Guarantor or any part of its assets is appointed; | ||
| (m) | if Borrower or any Guarantor becomes insolvent or makes a general assignment for the benefit of its creditors or an assignment in bankruptcy or files a proposal or notice of intention to file a proposal under the Bankruptcy and Insolvency Act or otherwise acknowledges its insolvency or if a bankruptcy petition is filed or receiving order is made against Borrower or any Guarantor and is not being disputed in good faith; | ||
| (n) | if Borrower or any Guarantor ceases or threatens to cease to carry on its business or makes a bulk sale of its assets; | ||
| (o) | if any of the licences, permits or approvals granted by any government or governmental authority or agency and material to the business of Borrower or any Guarantor is withdrawn, cancelled, suspended or adversely amended; | ||
| (p) | if Red Man and Midfield Holdings cease to be shareholders of Borrower or there is any other change in the ownership or control of Borrower which is not acceptable to Lender, acting reasonably. A change in the ownership or control of Borrower will mean any person acquiring more than 50% of the outstanding shares of Borrower; or | ||
| (q) | if any event or circumstance occurs which has or would reasonably be expected to have a Material Adverse Effect (as determined by Lender in its sole discretion). |
| Failing such immediate payment, Lender may, without further notice, realize under the Security Documents to the extent Lender chooses. | ||
| 15. | MISCELLANEOUS: |
| (a) | All legal and other costs and expenses incurred by Lender in respect of the Facilities, the Security Documents and other related matters will be paid or reimbursed by Borrower on demand by Lender. Lender is authorized to debit Borrower’s current account for any such unpaid legal and other costs and expenses. | ||
| (b) | All Security Documents will be prepared by or under the supervision of Lender’s solicitors, unless Lender otherwise permits. Acceptance of this offer will authorize Lender to instruct Lender’s solicitors to prepare all necessary Security Documents and proceed with related matters. | ||
| (c) | Lender, without restriction, may waive in writing the satisfaction, observance or performance of any of the provisions of this Commitment Letter. The obligations of a Guarantor (if any) will not be diminished, discharged or otherwise affected by or as a result of any such waiver, except to the extent that such waiver relates to an obligation of such Guarantor. Any waiver by Lender of the strict performance of any provision hereof will not be deemed to be a waiver of any subsequent default, and any partial exercise of |
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| any right or remedy by Lender shall not be deemed to affect any other right or remedy to which Lender may be entitled. | |||
| (d) | Borrower shall reimburse Lender for any additional cost or reduction in income arising as a result of (i) the imposition of, or increase in, taxes on payments due to Lender hereunder (other than taxes on the overall net income of Lender), (ii) the imposition of, or increase in, any reserve or other similar requirement, (iii) the imposition of, or change in, any other condition affecting the Facilities imposed by any applicable law or the interpretation thereof. | ||
| (e) | Lender is authorized but not obligated, at any time, to apply any credit balance, whether or not then due, to which Borrower or Guarantor is entitled on any account in any currency at any branch or office of Lender in or towards satisfaction of the obligations of Borrower or such Guarantor due to Lender under this agreement or any guarantee granted in support hereof, as applicable. Lender is authorized to use any such credit balance to buy such other currencies as may be necessary to effect such application. | ||
| (f) | Words importing the singular will include the plural and vice versa, and words importing gender will include the masculine, feminine and neuter, and anything importing or referring to a person will include a body corporate and a partnership and any entity, in each case all as the context and the nature of the parties requires. | ||
| (g) | If any portion of this agreement is held invalid or unenforceable, the remainder of this agreement will not be affected and will be valid and enforceable to the fullest extent permitted by law. In the event of a conflict between the provisions hereof and of any Security Documents, the provisions hereof shall prevail to the extent of the conflict. | ||
| (h) | Where the interest rate for a credit is based on Prime, the applicable rate on any day will depend on the Prime rate in effect on that day. The statement by Lender as to Prime and as to the rate of interest applicable to a credit on any day will be binding and conclusive for all purposes. All interest rates specified are nominal annual rates. The effective annual rate in any case will vary with payment frequency. All interest payable hereunder bears interest as well after as before maturity, default and judgment with interest on overdue interest at the applicable rate payable hereunder. To the extent permitted by law, Borrower waives the provisions of the Judgment Interest Act (Alberta). | ||
| (i) | Any written communication which a party may wish to serve on any other party may be served personally (in the case of a body corporate, on any officer or director thereof) or by leaving the same at or couriering or mailing the same by registered mail to the Branch of Account (for Lender) or to the last known address (for Borrower or any Guarantor), and in the case of mailing will be deemed to have been received two (2) Business Days after mailing except in the case of postal disruption. | ||
| (j) | Unless otherwise specified, references herein to “$” and “dollars” mean Canadian dollars. | ||
| (k) | Lender shall have the right to assign, sell or participate its rights and obligations in the Facilities or in any Borrowing thereunder, in whole or in part, to one or more persons, provided that the consent of Borrower shall be required if no default is then in existence, such consent not to be unreasonably withheld or delayed. |
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| (l) | Borrower shall indemnify Lender against all losses, liabilities, claims, damages or expenses (including without limitation legal expenses on a solicitor and his own client basis) (i) incurred in connection with the entry into, performance or enforcement of this agreement, the use of the Facility proceeds or any breach by Borrower or any Guarantor of the terms hereof or any document related hereto, or (ii) arising out of or in respect of: (A) the release of any hazardous or toxic waste or other substance into the environment from any property of Borrower or any of its Subsidiaries, and (B) the remedial action (if any) taken by Lender in respect of any such release, contamination or pollution. This indemnity will survive the repayment or cancellation of any of the Facilities or any termination of this agreement. | ||
| (m) | For certainty, the permission to create a Permitted Encumbrance shall not be construed as a subordination or postponement, express or implied, of Lender’s Security Documents to such Permitted Encumbrance. | ||
| (n) | Borrower’s information, corporate or personal, may be subject to disclosure without its consent pursuant to provincial, federal, national or international laws as they apply to the product or service Borrower has with Lender or any third party acting on behalf of or contracting with Lender. | ||
| (o) | Time shall be of the essence in all provisions of this agreement. | ||
| (p) | This agreement may be executed in counterpart. | ||
| (q) | This agreement shall be governed by the laws of Alberta. |
| 16. | DEFINITIONS: |
“Adjusted EBITDA”, for the period then calculated, means, EBITDA plus Bonuses, to the extent
deducted in calculating EBITDA, plus the EPSPs, to the extent deducted in calculating EBITDA.
“Blocked Account Agreement” means the blocked accounts agreement dated on or about the date hereof
among the Borrower, the Lender and the agent under the Syndicated Facility, as amended from time to
time.
“Bonuses” means bonuses payable by Borrower to its employees in respect of Borrower’s most recently
ended fiscal year, which bonuses are calculated in accordance with the Shareholders Agreement.
“Borrowed Money” means with respect to any Loan Party, without duplication, its:
| (a) | Indebtedness that: |
| i) | arises from the lending of money by any person to such Loan Party; | ||
| ii) | is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments; | ||
| iii) | accrues interest or is a type upon which interest charges are customarily paid (excluding trade payables owing in the ordinary course of business); or | ||
| iv) | was issued or assumed as full or partial payment for property; |
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| (b) | Capital Leases; | ||
| (c) | reimbursement obligations with respect to letters of credit; and | ||
| (d) | guarantees of any Indebtedness of the foregoing types owing by another person. |
“Borrower” shall mean Midfield Supply ULC, a corporation duly amalgamated pursuant to the laws of
the Province of Alberta.
“Borrowings” means all amounts outstanding under the Facilities, or if the context so requires, all
amounts outstanding under one or more of the Facilities or under one or more borrowing options of
one or more of the Facilities.
“Business Day” means a day, excluding Saturday and Sunday, on which banking institutions are open
for business in the province of Alberta.
“Capital Expenditures” means all liabilities incurred, expenditures made or payments due (whether
or not made) by Borrower or Subsidiary for the acquisition of any fixed assets, or any
improvements, replacements, substitutions or additions thereto with a useful life of more than one
year, including the principal portion of Capital Leases.
“Capital Leases” means any leases that are required to be capitalized for financial reporting
purposes in accordance with GAAP.
“Class R Note” means the unsecured subordinated demand promissory note, classified as the Class R
Note, dated as of June 15, 2005, issued to Red Man by Borrower in the amount of $37,283,833,
bearing interest at the rate of 12% per annum (which interest is payable annually in the month of
April).
“Discount Rate” means, with respect to Guaranteed Notes, the per annum rate of interest which is
the arithmetic average of the rates per 365-day period applicable to Canadian dollar bankers’
acceptances having identical issue and comparable maturity dates as the Guaranteed Notes proposed
to be issued by Borrower displayed and identified as such on the display referred to as the “CDOR
Page” (or any display substituted therefor) of Reuter Monitor Money Rates Service as at
approximately 8:00 a.m. (Calgary time) on such day, or if such day is not a Business Day, then on
the immediately preceding Business Day, or if the rate referred to is not available, then the rate
quoted by the Lender.
“Distribution” means any declaration or payment of a distribution, interest or dividend on any
Equity Interest (other than payment-in-kind); any distribution, advance or repayment of
Indebtedness to a holder of Equity Interests; or any purchase, redemption, or other acquisition or
retirement for value of any Equity Interest.
“EBITDA” as determined on a consolidated basis for Borrower and Subsidiaries, means net income,
calculated before interest expense, provision for income taxes, depreciation and amortization
expense, gains or losses arising from the sale of capital assets, gains arising from the write-up
of assets, and any extraordinary gains (in each case, to the extent included in determining net
income).
“EPSPs” means the Employee Profit Sharing Plan distributions made in accordance with the
Shareholders Agreement which are, for greater certainty:
| (a) | the EPSP first allocation which is an amount equal to the interest payable by Borrower on the Class R Note in each fiscal year multiplied by the common stock ownership ratio of |
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| the number of shares held by Midfield Holdings in Borrower, divided by the number of shares held by Red Man in Borrower, outstanding during the fiscal year, and | |||
| (b) | the EPSP second allocation which is an amount equal to taxable earnings of Borrower before deduction of the EPSP second allocation in each fiscal year multiplied by the common stock ownership ratio of the number of shares held by Midfield Holdings in Borrower, divided by the total number of shares of Borrower outstanding during the fiscal year. |
“Equity Interest” means the interest of any (a) shareholder in a corporation or company, (b)
partner in a partnership (whether general, limited, special, limited liability or joint venture),
(c) member in a limited liability company or unlimited liability corporation, or (d) other person
having any other form of equity security or ownership interest.
“Fixed Charge Coverage Ratio” means the ratio, determined and calculated on a consolidated basis
for Borrower and Subsidiaries and on a rolling historical twelve month basis, of (a) Adjusted
EBITDA, to (b) Fixed Charges.
“Fixed Charges” means the sum, when actually paid in the period, of interest expense, principal
payments on Borrowed Money (other than the Borrowings), income taxes, Capital Expenditures (except
those financed with Borrowed Money other than the Borrowings), Bonuses and Net Distributions.
“Generally Accepted Accounting Principles” or “GAAP” means generally accepted accounting principles
as may be described in the Canadian Institute of Chartered Accountants Handbook and other primary
sources recognized from time to time by the Canadian Institute of Chartered Accountants.
“Guaranteed Notes” means the non-interest bearing promissory notes issued hereunder by Borrower to
Lender under Lender’s guaranteed note program.
“Hedging Agreement” means any swap, hedging, interest rate, currency, foreign exchange or commodity
contract or agreement, or confirmation thereunder, entered into from time to time in connection
with:
| (c) | interest rate swaps, forward rate transactions, interest rate options, cap transactions, floor transactions and similar rate-related transactions; | ||
| (d) | forward rate agreements, foreign exchange forward agreements, cross currency transactions and other similar currency-related transactions; or | ||
| (e) | commodity swaps, hedging transactions and other similar commodity-related transactions (whether physically or financially settled), including without limitation, commodity swaps; |
the purpose of which is to hedge (a) interest rate, (b) currency exchange, and/or (c) commodity
price exposure, as the case may be.
“Indebtedness” means all present and future obligations and indebtedness of a person, whether
direct or indirect, absolute or contingent, including all indebtedness for borrowed money, all
obligations in respect of swap or hedging arrangements and all other liabilities which in
accordance with GAAP would appear on the liability side of a balance sheet (other than items of
capital, retained earnings and surplus or deferred tax reserves).
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“Leverage Ratio” means the ratio, determined as of the end of any calendar month, of (a) Borrowed
Money (other than contingent obligations of the Loan Parties) as of the last day of such calendar
month less the Shareholders’ Notes and the Class R Note outstanding, to (b) Adjusted EBITDA
for the rolling historical twelve month period then ending.
“Loan Parties” means the Borrower and all Guarantors, and “Loan Party” means any of them.
“Material Adverse Effect” means a material adverse effect on:
| (a) | the financial condition of Borrower and any Guarantors on a consolidated basis; or | ||
| (b) | the ability of Borrower to repay amounts owing hereunder. |
“Net Distributions” means the sum, when actually paid in the period, of EPSPs, dividends and any
other such Distributions (excluding Bonuses and interest on the Shareholders’ Notes and the Class R
Note) made by the Borrower less Shareholder Reinvestments actually made at the time of such
Distributions being made.
“Permitted Encumbrances” means, in respect of the Borrower and any Guarantors on a consolidated
basis, the following:
| (a) | liens for taxes, assessments or governmental charges not yet due or delinquent or the validity of which is being contested in good faith; | ||
| (b) | liens arising in connection with workers’ compensation, unemployment insurance, pension, employment or other social benefits laws or regulations which are not yet due or delinquent or the validity of which is being contested in good faith; | ||
| (c) | liens under or pursuant to any judgment rendered or claim filed which are or will be appealed in good faith provided any execution thereof has been stayed; | ||
| (d) | undetermined or inchoate liens and charges incidental to construction or current operations which have not at such time been filed pursuant to law or which relate to obligations not due or delinquent; | ||
| (e) | liens arising by operation of law such as builders’ liens, carriers’ liens, materialmens’ liens and other liens of a similar nature which relate to obligations not due or delinquent; | ||
| (f) | easements, rights-of-way, servitudes or other similar rights in land (including, without in any way limiting the generality of the foregoing, rights-of-way and servitudes for railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light and power and telephone or telegraph or cable television conduits, poles, wires and cables) granted to or reserved or taken by other persons which singularly or in the aggregate do not materially detract from the value of the land concerned or materially impair its use in the operation of the business of Borrower or such Guarantor; | ||
| (g) | security given to a public utility or any municipality or governmental or other public authority when required by such utility or municipality or other authority in connection with the operations of Borrower or such Guarantor, all in the ordinary course of its business which singularly or in the aggregate do not materially impair the operation of its business; |
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| (h) | the reservation in any original grants from the Crown of any land or interests therein and statutory exceptions to title; | ||
| (i) | operating leases of assets other than the Tangible Assets; | ||
| (j) | Capital Lease transactions or sale-leaseback transactions involving an asset other than a Tangible Asset, or, with the prior written consent of Lender, involving a Tangible Asset, where the indebtedness represented by all such transactions does not at any time exceed $100,000 in aggregate; | ||
| (k) | security interests granted or assumed to finance the purchase of any property or asset (a “Purchase Money Security Interest”) other than a Tangible Asset, or, with the prior written consent of Lender, of a Tangible Asset, where: |
| i) | the security interest is granted at the time of or within 60 days after the purchase, | ||
| ii) | the security interest is limited to the property and assets acquired, and | ||
| iii) | the indebtedness represented by all Purchase Money Security Interests does not at any time exceed $100,000 in aggregate; |
| (l) | security interests granted in connection with the Syndicated Facility on properties and assets of the Borrower or such Guarantor other than the Tangible Assets; and | ||
| (m) | security interests or liens (other than those hereinbefore listed) of a specific nature (and excluding for greater certainty floating charges) on properties and assets other than a Tangible Asset having a fair market value not in excess of $100,000 in aggregate. |
“Permitted Indebtedness” means, without duplication:
| (a) | trade payables incurred in the ordinary course of business; | ||
| (b) | any Indebtedness secured by a Permitted Encumbrance; | ||
| (c) | any unsecured advances from affiliates/shareholders (including Red Man and Midfield Holdings) which are postponed in all respects to the Facilities pursuant to a subordination agreement acceptable to Lender; | ||
| (d) | any Indebtedness arising under the Syndicated Facility; | ||
| (e) | any debt created in connection with an acquisition of a business or an asset other than a Tangible Asset, providing the acquisition and the proposed debt have been approved under the Syndicated Facility; and | ||
| (f) | any Indebtedness owing to Lender. |
“Potential Prior-Ranking Claims” means:
| (a) | all amounts owing or required to be paid, where the failure to pay any such amount could give rise to a claim pursuant to any law, statute, regulation or otherwise, which ranks or is |
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| capable of ranking in priority to Lender’s security or otherwise in priority to any claim by Lender for repayment of any amounts owing under this agreement; and | |||
| (b) | all amounts owing under or in connection with a Purchase Money Security Interest, Capital Lease or sale-leaseback transaction involving equipment which is a Tangible Asset. |
“Prime” means the prime lending rate per annum established by Lender from time to time for
commercial loans denominated in Canadian dollars made by Lender in Canada.
“Security Documents” means those security documents listed in the “Security Documents” section of
this Agreement as well as any other security documents now or hereafter delivered by Borrower or a
Guarantor in favour of Lender hereunder.
“Shareholders Agreement” means the shareholders agreement among Borrower, Red Man and Midfield
Holdings dated as of June 15, 2005, as amended by a Shareholders Amending Agreement among the same
parties dated as of December 28, 2005.
“Shareholders Notes” means collectively:
| (a) | the unsecured demand promissory note, dated as of June 15, 2005, issued to Red Man by Borrower in the amount of $9,855,750, bearing interest at 8% per annum (which interest is payable annually in the month of January); | ||
| (b) | the unsecured demand promissory note dated as of April 25, 2006, issued to Red Man by Borrower in the amount of $14,818,915, bearing interest at 8% per annum (which interest is payable annually in the month of January); | ||
| (c) | the unsecured demand promissory note dated as of April 25, 2006, issued to Midfield Holdings by Borrower in the amount of $31,389,499, bearing interest at 8% per annum (which interest is payable annually in the month of January); and | ||
| (d) | all other promissory notes (other than the Class R Note) issued to any shareholder of, or person holding an Equity Interest in, Borrower during the term of this Agreement. |
“Shareholder Reinvestments” means the annual loans (required pursuant to the Shareholders
Agreement) to be made to Borrower by each of the persons having an Equity Interest in Borrower in
the amounts calculated and set forth in the Shareholders Agreement.
“Subsidiaries” means:
| (a) | a person of which another person alone or in conjunction with its other subsidiaries owns an aggregate number of voting shares sufficient to elect a majority of the directors regardless of the manner in which other voting shares are voted; and | ||
| (b) | a partnership of which at least a majority of the outstanding income interests or capital interests are directly or indirectly owned or controlled by such person, |
and includes a person in like relation to a Subsidiary.
| Midfield Supply ULC | May 17, 2007 | |
| Page 20 |
“Syndicated Facility” means the credit facility made available to Borrower by a syndicate of
lenders under a loan and security agreement dated as of November 2, 2006, as amended April 26, 2007
and May ___, 2007, among Borrower, certain financial institutions and Bank of America, N.A.
(acting through its Canada branch) as agent, as amended from time to time.
“Tangible Asset” means all real property and equipment of Borrower and any Guarantors that is
subject to the Security Documents.
“Tangible Asset Value” means as determined by GAAP on a consolidated basis, the net book value of
all real property (unless the value is supported by a drive-by real estate appraisal or a formal
appraisal acceptable to Lender, in which case such value may be used) and equipment constituting
Tangible Assets, less leasehold improvements, Potential Prior-Ranking Claims and other Permitted
Encumbrances.
SCHEDULE “A”
COMPLIANCE CERTIFICATE
To:
|
Alberta Treasury Branches | |
| Corporate Financial Services | ||
| 300, 239 8th Ave SW | ||
| Calgary, AB T2P 1B9 | ||
| Attention: D.A. (Dwayne) Hoopfer |
| I, hereby certify as of the date of this certificate as follows: | |||
| (a) | I am the [insert title] of Midfield Supply ULC (“Borrower”) and I am authorized to provide this certificate to you for and on behalf of Borrower. | ||
| (b) | This certificate applies to the [month/fiscal quarter/fiscal year] ending . | ||
| (c) | I am familiar with and have examined the provisions of the letter agreement (the “Agreement”) dated May 17, 2007 between the Borrower and Alberta Treasury Branches (“Lender”), as lender, and have made reasonable investigations of corporate records and inquiries of other officers and senior personnel of Borrower and any Guarantors. Terms defined in the Agreement have the same meanings when used in this certificate. | ||
| (d) | No event or circumstance has occurred which constitutes or which, with the giving of notice, lapse of time, or both, would constitute a breach of any covenant or other term or condition of the Agreement and there is no reason to believe that during the next fiscal quarter of Borrower, any such event or circumstance will occur. | ||
| OR | |||
| We are or anticipate being in default of the following terms or conditions, and our proposed action to meet compliance is set out below: | |||
| Description of any breaches and proposed action to remedy: | |||
| (e) | Our financial ratios are as follows: |
| i) | the Leverage Ratio is ___:1, being not greater than the required ratio of 3.50:1; | ||
| ii) | the Fixed Charge Coverage Ratio is ___:1, being not less than the required ratio of 1.15:1; | ||
| iii) | the ratio of Tangible Asset Value to outstanding Borrowings is ___:1, being not less than the required ratio of 2:1. |
| (f) | The detailed calculations of the foregoing ratios and covenants are set forth in the addendum annexed hereto and are true and correct in all respects. |
A-2
This certificate is given by the undersigned officer in his/her capacity as an officer of the
Borrower without any personal liability on the part of such officer.
Dated this ___day of ___, 20___.
| MIDFIELD SUPPLY ULC | ||||
Per: |
||||
Name: |
||||
Title: |
||||
SCHEDULE “B”
POWER OF ATTORNEY APPLICABLE TO GUARANTEED NOTES
Borrower hereby appoints Lender, acting by its duly authorized signing officers (the “Attorney”)
for the time being at the Branch of Account, the attorney of Borrower:
| 1. | To sign for and on behalf and in the name of Borrower as drawer, guaranteed notes in the Lender’s standard form for advances in the nature of Guaranteed Note advances (the “Notes”) payable to Lender or its order evidencing Guaranteed Note advances made by Lender to Borrower; and | |
| 2. | To fill in the amount, date and maturity date of such Notes; |
Provided that such acts in each case are to be undertaken by Lender in accordance with instructions
given to Lender by Borrower as provided in this power of attorney.
Instructions to Lender relating to the execution and completion by Lender on behalf of Borrower of
Notes which Borrower wishes to issue to Lender shall be communicated by Borrower to Lender in
writing at the Branch of Account following delivery by Borrower of a notice in respect of a
drawdown or conversion and shall specify the following information:
| 1. | A Canadian Dollar amount, which shall be the aggregate face amount of the Guaranteed Note advances to be made by Lender in respect of a particular drawdown or conversion; | |
| 2. | A specified period of time, which shall be the number of days after the date of such Notes that such Notes are to be payable, and the dates of issue and maturity of such Notes; and | |
| 3. | Payment instructions specifying the account number of Borrower and the financial institution at which the proceeds of such Guaranteed Note advances are to be credited. |
The communication in writing by Borrower to Lender of the instructions referred to above shall
constitute the authorization and instruction of Borrower to Lender to complete and execute Notes in
accordance with such information as set out above. Borrower acknowledges that Lender shall not be
obligated to make any Guaranteed Note advances and therefore complete and execute any Notes
evidencing the same. Lender shall be and is hereby authorized to act on behalf of Borrower upon
and in compliance with instructions communicated to Lender as provided herein if Lender reasonably
believes them to be genuine.
Borrower agrees to indemnify Lender and its directors, officers, employees, affiliates and agents
and to hold it and them harmless from any loss, liability, expense or claim of any kind or nature
whatsoever incurred by any of them as a result of any action or inaction in any way relating to or
arising out of this power of attorney or the acts contemplated hereby; provided that this indemnity
shall not apply to any such loss, liability, expense or claim which results from the gross
negligence or willful misconduct of Lender or any of its directors, officers, employees, affiliates
or agents.
B-2
This power of attorney may be revoked by Borrower at any time upon not less than five (5) Business
Days’ written notice served upon Lender at the Branch of Account provided that (i) it may be
replaced with another power of attorney forthwith and (ii) no such revocation shall reduce, limit
or otherwise affect the obligations of Borrower in respect of any Note executed and completed in
accordance herewith prior to the time at which such revocation becomes effective. This power of
attorney may be terminated by Lender at any time upon not less than five (5) Business Days’ written
notice to Borrower.
Any revocation or termination of this power of attorney shall not affect the rights of Lender and
the obligations of Borrower with respect to the indemnities of Borrower above stated with respect
to all matters arising prior in time to any such revocation or termination.
This power of attorney shall be governed in all respects by the laws of the Province of Alberta and
the laws of Canada applicable therein and each of Borrower and Lender hereby irrevocably attorns to
the non-exclusive jurisdiction of the courts of such jurisdiction in respect of all matters arising
out of this power or attorney.
SCHEDULE “C”
REQUEST FOR EXTENSION
Date:
Alberta Treasury Branches
Corporate Financial Services
300, 239-8th Ave S.W.
Calgary, Alberta T2P 1B9
Corporate Financial Services
300, 239-8th Ave S.W.
Calgary, Alberta T2P 1B9
Attention: D.A. (Dwayne) Hoopfer
Dear Sirs:
We refer to the Commitment Letter dated as of May 17, 2007 between Midfield Supply ULC as Borrower
and Alberta Treasury Branches as lender (the “Letter Agreement”). Capitalized terms used herein
have the same meaning as in the Letter Agreement.
In accordance with Section 3 of the Letter Agreement, we hereby request that the Lender provide an
offer to extend the Term Date for a period of up to 364 days.
We hereby certify that:
| 1. | except as disclosed to the Lender in writing, the representations and warranties contained in the Letter Agreement are true and correct on the date hereof and will be true and correct on the date of extension, as applicable, with the same effect as if such representations and warranties were made on such dates; and | |
| 2. | no event or circumstance has occurred which constitutes or which, with the giving of notice, lapse of time, or both, would constitute a breach of any covenant or other term or condition of the Letter Agreement or any Security Document granted in connection therewith and there is no reason to believe that during the next fiscal quarter of Borrower, any such event or circumstance will occur. |
If you will offer this extension on the existing terms and conditions, please execute the
counterpart of this request for extension and return it to us in accordance with the provisions of
the Letter Agreement.
Yours truly,
MIDFIELD SUPPLY ULC
Per: |
||||
Name: |
||||
Title: |
||||
D-2
The Lender hereby offers to extend the Term Date under the Letter Agreement for a period of three
hundred sixty-four (364) days from the date of your acceptance of this offer. This offer is open
for acceptance until , being the day prior to the current Term Date.
| ALBERTA TREASURY BRANCHES | ||||
Per: |
||||
Name: |
||||
Title: |
||||
Accepted on , ___.
| MIDFIELD SUPPLY ULC | ||||
Per: |
||||
Name: |
||||
Title: |
||||
Exhibit 10.10.1
| ATB Corporate Financial Services | 300,239 — 8th Avenue SW | Calgary, Alberta | T2P 1B9 |
October 10, 2007
Midfield Supply ULC.
1600 101 6th Avenue S.W.
Calgary, Alberta
T2P 3P4
1600 101 6th Avenue S.W.
Calgary, Alberta
T2P 3P4
Attention: Dan Endersby
Dear Sir:
We refer to our Letter Agreement dated May 17, 2007 (the “Original Letter
Agreement”), between Midfield Supply ULC (the “Borrower”) and Alberta Treasury
Branches (the “Lender”), and confirm our agreement to make the amendments described
below, subject to the following terms and conditions. Capitalized terms used herein
without definition shall have the meeting given to them in the Original Letter
Agreement.
1. AMENDMENTS
Lender confirms that section 8(e) of the Original Letter Agreement is hereby
deleted in its entirety and replaced with the following:
“(e) a Loan Party will not make any Distributions or any payments to persons having
an Equity Interest in Borrower (except a Distribution by a Subsidiary to Borrower),
and will not create or suffer to exist any encumbrance or restriction on the
ability of a Subsidiary to make any Distribution to Borrower, except for
restrictions under applicable law, provided, however, that Borrower may pay Bonuses
to its employees, pay dividends to persons having an Equity Interest in Borrower,
pay principal and interest to persons having an Equity Interest in Borrower who are
holders of Shareholders’ Notes and pay interest to Red Man on Class R Note; but
only if no Default or Event of Default exists at the time of making such payment
and no Default or Event of Default would occur as a consequence of the making of
such payment, and provided further, that in the case of payments of dividends or
payments of principal or interest on Shareholders’ Notes, that the persons
receiving such dividends or holding such Shareholders’ Notes have entered into a
subordination agreement on terms acceptable to Lender; ”
2. CONDITIONS PRECEDENT
This amendment to the Original Credit Agreement is conditional upon receipt of: a
duly executed copy of this agreement.
3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
| (a) | the execution, delivery and performance by Borrower of this agreement has been duly authorized by all necessary actions and does not violate Borrower’s governing documents or any applicable laws or agreements to which Borrower is subject or by which Borrower is bound; and |
Page 2
| ATB Corporate Financial Services | 300,239 — 8th Avenue SW | Calgary, Alberta | T2P 1B9 |
| (b) | the obligations of Borrower under the Original Letter Agreement, as amended hereby, and under the Security Documents are legal, valid and binding obligations of Borrower enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors’ rights generally. |
| 4. | MISCELLANEOUS |
| (a) | This amending agreement shall be governed by the laws of the Alberta. | ||
| (b) | This amending agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together constitute one and the same instrument. | ||
| (c) | All terms and provisions of the Original Letter Agreement, except as amended hereby, remain in full force and effect. |
| 5. | ACCEPTANCE |
This offer is open for acceptance until October 19, 2007, after which date it will
be null and void, unless extended in writing by Lender.
Please confirm your acceptance of this amending agreement by signing the attached
copy of this letter in the space provided below and returning it to the undersigned.
Yours truly,
| ALBERTA TREASURY BRANCHES | ||||
| By: | /s/ Gerald Buhler
|
|||
| Authorized Signatory | ||||
We acknowledge and accept the foregoing terms and conditions as of
October, 2007.
| MIDFIELD SUPPLY ULC | ||||
Per: |
/s/ Dan Endersby |
|||
Exhibit 10.11
McJunkin Red Man Corporation
835 Hillcrest Drive
Charleston, WV 25311
835 Hillcrest Drive
Charleston, WV 25311
September 24, 2008
H.B. Wehrle, III
Dear Bernie:
This letter agreement memorializes our mutual understanding that the employment agreement
entered into between you, McJ Holding LLC (currently known as PVF Holdings LLC) and McJunkin
Corporation (currently known as McJunkin Red Man Corporation) on December 4, 2006 (the
“Employment Agreement”) shall be terminated in accordance with this letter agreement.
| 1. | Payment. In consideration of the termination of the Employment Agreement and of the covenants set forth below, you shall be paid a lump sum payment equal to $2,281,396.08 (the “Agreed Amount”). This payment represents the value of all amounts to which you would have become entitled during the remaining term of the Employment Agreement pursuant to Sections 2.1. 2.2 and 2.4 thereof, based on your continued service during such remaining term. The Agreed Amount (subject to all required withholdings) shall be paid to you in a lump sum on October 1, 2008. It is understood and agreed that the Agreed Amount does not include any amounts accrued prior to the date hereof and payable pursuant to the terms of any of the company’s employee benefit plans, any such amounts to be paid in accordance with the terms of such plans and, if applicable, in compliance with Section 409A of the Internal Revenue Code and the regulations issued thereunder. Upon payment of the Agreed Amount, the Employment Agreement shall terminate and be of no further force and effect. |
| 2. | Profits Units. On January 31, 2007, pursuant to the Limited Liability Company Agreement of McJ Holding LLC dated as of December 4, 2006 (the “LLC Agreement”), you were granted Profits Units (as defined in the LLC Agreement). Notwithstanding Section 7.2(a) of the LLC Agreement, in the event of the termination of your service as chairman of the board of directors of PVF Holdings LLC and as a member of the board of directors of McJunkin Red Man Holding Corporation at any time for any reason, zero percent (0%) of your Profits Units shall be subject to forfeiture. |
| 3. | Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships. In consideration of your receipt of the Agreed Amount and other such |
| consideration provided for herein, you agree to be bound by the covenants set forth in Appendix A to this letter agreement. |
If the foregoing terms and conditions are consistent with your understanding, please sign this
letter agreement below and return a copy to me.
| Very truly yours, PVF HOLDINGS LLC |
||||
| /s/ Stephen W. Lake | ||||
| By: Stephen W. Lake | ||||
| Title: Senior Corporate Vice President, General Counsel & Corporate Secretary |
||||
| McJUNKIN RED MAN CORPORATION |
||||
| /s/ Stephen W. Lake | ||||
| By: Stephen W. Lake | ||||
| Title: Senior Corporate Vice President, General Counsel & Corporate Secretary |
||||
| ACCEPTED AND AGREED: | |
| /s/ H.B. Wehrle, III | |
| H.B. Wehrle, III | |
[Signature Page to H.B. Wehrle, III -Letter Agreement]
2
Appendix A
| 1. | Unauthorized Disclosure. You agree and understand that in your positions with PVF Holdings LLC, McJunkin Red Man Holding Corporation (the “Company”) and McJunkin Red Man Corporation, you have been and will be exposed to and have and will receive information relating to the confidential affairs of the Company and its affiliates, including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company and its affiliates and other forms of information considered by the Company and its affiliates to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”). You agree that at all times during your period of service with the Company and its affiliates and thereafter, you shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “Person”) other than in connection with the provision of your services to the Company and its affiliates without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with the provision of your services to the Company and its affiliates, unless required by law to disclose such information, in which case you shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible. Nothing in this Section 1 shall prohibit you from disclosing or using Confidential Information which has become publicly available other than by your disclosure in violation of this Section 1. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon the termination of your service to the Company and its affiliates, you shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to you during the course of your service to the Company and its affiliates, and any copies thereof in your (or capable of being reduced to your) possession; provided, however, that you may retain your full rolodex or similar address and telephone directories. |
| 2. | Non-Competition. By and in consideration of PVF Holdings LLC and McJunkin Red man Corporation entering into this letter agreement and the payments to be made and the benefits to be provided hereunder, you agree that you shall not, from the date hereof until the later of (i) January 31, 2012 or (ii) twenty-four (24) months following the later of the date that you cease to serve as chairman of the board of directors of PVF Holdings LLC or the date that you cease to serve as a member of the board of directors of the Company (the “Restriction Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a |
3
| stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided, that in no event shall ownership of one percent (1%) or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 2, so long as you do not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof. For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in any geographic area in any business which is either (i) in competition with the business of the Company or any of its affiliates or (ii) proposed to be conducted by the Company or any of its affiliates in the company’s business plan as in effect at that time. During the Restriction Period, upon request of the Company, you shall notify the Company of your then-current employment status. |
| 3. | Non-Solicitation of Employees. During the Restriction Period, you shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) for employment any person who is, or within twelve (12) months prior to the date of such solicitation was, an employee of the Company or any of its affiliates. |
| 4. | Interference with Business Relationships. During the Restriction Period (other than in connection with carrying out your responsibilities for the Company and its affiliates), you shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) any customer or client of the Company or its affiliates to terminate its relationship or otherwise cease doing business in whole or in part with the Company or its affiliates, or directly or indirectly interfere with (or assist any Person to interfere with) any material relationship between the Company or its affiliates and any of its or their customers or clients so as to cause harm to the Company or its affiliates. |
| 5. | Extension of Restriction Period. The Restriction Period shall be tolled for any period during which you are in breach of any of Sections 2, 3 or 4 hereof. |
| 6. | Confidentiality of Agreement. Other than with respect to information required to be disclosed by applicable law, the parties hereto agree not to disclose the terms of this letter agreement to any Person; provided you may disclose this letter agreement and/or any of its terms to your immediate family, financial advisors and attorneys, so long as you instruct every such Person to whom you make such disclosure not to disclose the terms of this letter agreement further. |
| 7. | Remedies. You agree that any breach of the terms of this Appendix A would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; you therefore also agree that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by you and/or any and all Persons acting for and/or with you, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from you. You and the Company further agree that |
4
| the provisions of the covenants contained in this Appendix A are reasonable and necessary to protect the businesses of the Company and its affiliates because of the your access to Confidential Information and your material participation in the operation of such businesses. |
5
Exhibit 10.12
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
AMENDED
AND RESTATED EMPLOYMENT AGREEMENT, dated as of September 24, 2008 (this “Amended
Employment Agreement”), between McJunkin Red Man Holding Corporation, a Delaware corporation
(the “Company”), and Craig Ketchum (the “Executive”).
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of July 6, 2007 (the “Stock
Purchase Agreement”), between West Oklahoma PVF Company, a Delaware corporation
(“Buyer”), and Red Man Pipe & Supply Co., an Oklahoma corporation (“Sooner”), the
holders of all outstanding shares of stock of Sooner listed on Schedule 1 thereto and the other
parties thereto, Buyer acquired all of the issued and outstanding capital stock of Sooner (the
transactions contemplated by the Stock Purchase Agreement, the “Stock Purchase”);
WHEREAS, in connection with the Stock Purchase, the Executive received significant
consideration for his Sooner shares and entered into an Employment Agreement with PVF Holdings LLC
and McJunkin Red Man Corporation (“MRM Corporation”) on July 6, 2007 (the “Employment
Agreement”), pursuant to which the Executive served as co-Chief Executive Officer of MRM
Corporation and, subsequently, as sole Chief Executive Officer of MRM Corporation;
WHEREAS, the Executive no longer serves as Chief Executive Officer of MRM Corporation and
currently serves as Chairman of the Board of Directors of the Company; and
WHEREAS, the Employment Agreement is hereby superseded by this Amended Employment Agreement,
which reflects the current terms of the Executive’s employment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
Section 1. Employment
1.1. Term. The Company agrees to employ the Executive, and the Executive agrees to be
employed by the Company, in each case pursuant to this Amended Employment Agreement, for a period
commencing on the Closing Date (as defined in the Stock Purchase Agreement) (such date, the
“Effective Date”) and ending on the earlier of (i) the third (3rd) anniversary of the
Effective Date and (ii) the termination of the Executive’s employment in accordance with Section 3
hereof (the “Term”).
1.2. Duties. During the Term, the Executive shall serve as Chairman of the Board of
Directors of the Company (the “Board”) and an employee of the Company and in such other
positions as an officer or director of the Company and its subsidiaries and affiliates as the
Executive and the Board shall mutually agree from time to time. During the Term, the Executive
shall perform such duties, functions and responsibilities commensurate with the Executive’s
positions as reasonably directed by the Board.
1.3. Exclusivity. During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive shall devote his full time and attention to
the business and affairs of the Company, shall faithfully serve the Company, and shall in all
material respects conform to and comply with the lawful and reasonable directions and instructions
given to him by the Board, consistent with Section 1.2 hereof. During the Term, the Executive
shall use his best efforts to promote and serve the interests of the Company and shall not engage
in any other business activity, whether or not such activity shall be engaged in for pecuniary
profit; provided, however, that it shall not be a violation of this Amended
Employment Agreement for the Executive to (i) serve on the board of directors of the Tulsa Chamber
of Commerce, (ii) maintain the Executive’s current ownership interest in and involvement with
Prideco or (iii) engage in such other activities with the Board’s prior written consent.
Section 2. Compensation.
2.1. Salary. As compensation for the performance of the Executive’s services
hereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of
six hundred ninety thousand dollars ($690,000) payable in accordance with the Company’s standard
payroll policies (the “Base Salary”). The Base Salary will be reviewed annually and may be
adjusted upward by the Board (or a committee thereof) in its discretion, based on competitive data
and the Executive’s performance. No increase in Base Salary shall limit or reduce any other right
or obligation to the Executive under this Amended Employment Agreement and the Base Salary shall
not be reduced at any time (including after any such increase).
2.2. Annual Bonus. Beginning with the fiscal year that commences on January 1, 2008,
for each completed fiscal year during the Term, the Executive shall be eligible to receive
additional cash incentive compensation (the “Annual Bonus”). The target Annual Bonus shall
be 100% of the Base Salary as in effect at the beginning of such fiscal year, with the actual
Annual Bonus to be based upon such individual and/or Company performance criteria established for
such fiscal year by the Board in consultation with the Executive.
2.3. Equity. On the Effective Date, pursuant to the Limited Liability Company
Agreement of McJ Holding LLC dated as of December 4, 2006, as amended or restated from time to time
(the “LLC Agreement”), the Executive was granted 381.3098 Profits Units (as defined in the
LLC Agreement). Notwithstanding Section 7.2(a)(ii) of the LLC Agreement, in the event that the
Executive’s employment with the Company is terminated at any
time for any reason, zero percent (0%) of the Executive’s
Profits Units shall be subject to forfeiture.
2
2.4. Employee Benefits. During the Term, the Executive shall be eligible to
participate in such health and other group insurance and other employee benefit plans and programs
of the Company and its subsidiaries and affiliates as in effect from time to time on the same basis
as senior executives. Notwithstanding the foregoing, during the Term, the annual value
attributable to retirement benefits will include approximately one hundred twenty thousand dollars
($120,000) pursuant to a nonqualified deferred compensation plan and an additional amount pursuant
to an employer-sponsored qualified retirement plan.
2.5. Vacation. During the Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect from time to time.
2.6. Business Expenses. The Company shall pay or reimburse the Executive for all
commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term
in performing his duties under this Amended Employment Agreement upon presentation of documentation
and in accordance with the expense reimbursement policy of the Company as approved by the Board (or
a committee thereof) and in effect from time to time.
Section 3. Employment Termination.
3.1. Termination of Employment. The Company may terminate the Executive’s employment
for any reason during the Term, and the Executive may voluntarily terminate his employment for any
reason during the Term, in each case (other than a termination by the Company for Cause) at any
time upon not less than thirty (30) days’ notice to the other party. Upon the termination of the
Executive’s employment with the Company for any reason, the Executive shall be entitled to any Base
Salary earned but unpaid through the date of termination, any earned but unpaid Annual Bonus for
completed fiscal years, any unreimbursed expenses in accordance with Section 2.6 hereof and, to the
extent not theretofore paid or provided, any other amounts or benefits required to be paid or
provided under any plan, program, policy or practice or other contract or agreement of the Company
and its affiliated companies through the date of termination of employment (collectively, the
“Accrued Amounts”).
3
3.2. Certain Terminations.
(a) Termination by the Company other than for Cause or Disability; Termination by the
Executive for Good Reason. If the Executive’s employment is terminated during the Term (i) by
the Company other than for Cause or Disability or (ii) by the Executive for Good Reason, in
addition to the Accrued Amounts, the Executive shall be entitled to the following payments and
benefits: (x) the continuation of his Base Salary at the rate in effect immediately prior to the
date of termination for a period of twelve (12) months, (y) the continuation on the same terms as
an active senior executive of medical benefits the Executive would otherwise be eligible to receive
as an active senior executive of the Company for twelve (12) months or until such earlier time as
the Executive becomes eligible for medical benefits from a subsequent employer and (z) a pro rata
Annual Bonus for the fiscal year in which the termination occurs (the “Pro Rata Annual Bonus
Payment”), based on the Company’s actual performance through the end of such fiscal year and
the number of days the Executive was employed during such fiscal year (such payments and benefits,
the “Severance Payments”). The Company’s obligation to make the Severance Payments shall
be conditioned upon: (i) the Executive’s continued compliance with his obligations under Section 4
of this Amended Employment Agreement and (ii) the Executive’s execution, delivery and
non-revocation of a valid and enforceable general release of claims (the “Release”) in the
form attached hereto as Exhibit A. In the event that the Executive breaches any of the covenants
set forth in Section 4 of this Amended Employment Agreement, the Executive will immediately return
to the Company any portion of the Severance Payments that have been paid to the Executive pursuant
to this Section 3.2(a). Subject to Section 3.2(d), the Severance Payments (with the exception of
the Pro Rata Annual Bonus Payment) will commence to be paid to the Executive as soon as practicable
following the effectiveness of the Release. The Pro Rata Annual Bonus Payment will be paid at the
time the Company ordinarily pays incentive bonuses to its executives with respect to the fiscal
year in which the termination occurs.
(b) Termination upon Death or Disability. If the Executive’s employment is terminated
due to the Executive’s death or Disability, in addition to the Accrued Amounts, the Executive (or
the Executive’s estate, if applicable) shall be entitled to receive a Pro Rata Annual Bonus Payment
based on the Company’s performance for the full fiscal year in which termination occurs and the
number of days the Executive was employed by the Company during such fiscal year.
(c) Definitions. For purposes of this Section 3.2, the following terms shall have the
following meanings:
(1) “Cause” shall mean the Executive’s (i) continuing failure, for more than ten (10)
days after the Company’s written notice to the Executive thereof, to perform such duties as are
reasonably requested by the Company; (ii) failure to observe material policies generally applicable
to officers or employees of the Company or any of its subsidiaries and affiliates unless such
failure is capable of being cured and is cured within ten (10) days of the Executive receiving
written notice of such failure; (iii) failure to cooperate with any internal investigation of the
Company or any of its subsidiaries and affiliates; (iv) commission of any act of fraud, theft or
financial dishonesty with respect to the Company or any
4
of its subsidiaries and affiliates or indictment or conviction of any felony; (v) material
violation of the provisions of this Amended Employment Agreement unless such violation is capable
of being cured and is cured within ten (10) days of the Executive receiving written notice of such
violation; (vi) chronic absenteeism; or (vii) abuse of alcohol or another controlled substance.
(2) “Disability” shall mean the Executive is entitled to receive long-term disability
benefits under the long-term disability plan of the Company or any of its subsidiaries or
affiliates in which Executive participates, or, if there is no such plan, the Executive’s
inability, due to physical or mental ill health, to perform the essential functions of the
Executive’s job, with or without a reasonable accommodation, for 180 days during any 365 day period
irrespective of whether such days are consecutive.
(3) “Good Reason” shall mean (i) a material and adverse change in the Executive’s
duties or responsibilities; (ii) a reduction in the Executive’s Base Salary or target Annual Bonus;
or (iii) a relocation of the Executive’s principal place of employment by more than fifty (50)
miles.
(d) Section 409A Specified Employee. If the Executive is a “specified employee” for
purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder, to the extent required to comply with Section 409A
of the Code, any Severance Payments required to be made pursuant to Section 3.2(a) which are
subject to Section 409A of the Code shall not commence until one day after the day which is six (6)
months from the date of termination, with the first payment equaling six (6) months of his Base
Salary at the rate in effect immediately prior to the date of termination.
3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due the Executive upon a termination
of his employment under this Amended Employment Agreement.
3.4. Resignation from All Positions. Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be deemed to have resigned, as of
the date of such termination, from all positions he then holds as an officer, director, employee
and member of the Board (and any committee thereof) and the board of directors (and any committee
thereof) of any of the Company’s subsidiaries and affiliates.
3.5. Cooperation. Following the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably cooperate with the Company upon
reasonable request of the Board and to be reasonably available to the Company with respect to
matters arising out of the Executive’s services to the Company and its subsidiaries and affiliates.
The Company shall pay the Executive a reasonable fee for any such services and promptly reimburse
the Executive for expenses reasonably incurred in connection with such matters.
5
Section 4. Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights.
4.1. Unauthorized Disclosure. The Executive agrees and understands that in the
Executive’s positions with Sooner, MRM Corporation and the Company, the Executive has been and will
be exposed to and has and will receive information relating to the confidential affairs of the
Company and its subsidiaries and affiliates, including, without limitation, technical information,
intellectual property, business and marketing plans, strategies, customer information, software,
other information concerning the products, promotions, development, financing, expansion plans,
business policies and practices of the Company and its subsidiaries and affiliates and other forms
of information considered by the Company and its subsidiaries and affiliates to be confidential or
in the nature of trade secrets (including, without limitation, ideas, research and development,
know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information and business and marketing plans and proposals) (collectively, the
“Confidential Information”). The Executive agrees that at all times during the Executive’s
employment with the Company and thereafter, the Executive shall not disclose such Confidential
Information, either directly or indirectly, to any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof (each a “Person”) other than
in connection with the Executive’s employment with the Company without the prior written consent of
the Company and shall not use or attempt to use any such information in any manner other than in
connection with his employment with the Company, unless required by law to disclose such
information, in which case the Executive shall provide the Company with written notice of such
requirement as far in advance of such anticipated disclosure as possible. This confidentiality
covenant has no temporal, geographical or territorial restriction. Upon termination of the
Executive’s employment with the Company, the Executive shall promptly supply to the Company all
property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product
or document which has been produced by, received by or otherwise submitted to the Executive during
the Executive’s employment with the Company, and any copies thereof in his (or capable of being
reduced to his) possession; provided, however, that the Executive may retain his
full rolodex or similar address and telephone directories.
4.2. Non-Competition. By and in consideration of the Company’s entering into this
Amended Employment Agreement and the payments to be made and the benefits to be provided hereunder
and in connection with the Executive’s sale of shares of Sooner pursuant to the Stock Purchase
Agreement, and in further consideration of the Executive’s exposure to the Confidential Information
of the Company and its subsidiaries and affiliates, the Executive agrees that the Executive shall
not, for the period which is the longer of (i) five (5) years following the Effective Date or (ii)
during the Executive’s employment with the Company (whether during the Term or thereafter) and for
a period of twenty-four (24) months thereafter (the “Restriction Period”), directly or
indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership,
management, operation or control of, or be connected in any manner with, including, without
limitation, holding any position as a stockholder, director, officer, consultant, independent
contractor, employee, partner, or investor
6
in, any Restricted Enterprise (as defined below); provided, that in no event shall
ownership of one percent (1%) or less of the outstanding securities of any class of any issuer
whose securities are registered under the Securities Exchange Act of 1934, as amended, standing
alone, be prohibited by this Section 4.2, so long as the Executive does not have, or exercise, any
rights to manage or operate the business of such issuer other than rights as a stockholder thereof.
For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is
actively engaged in any geographic area in any business which is either (i) in competition with the
business of the Company or any of its subsidiaries or affiliates or (ii) proposed to be conducted
by the Company or any of its subsidiaries or affiliates in their respective business plans as in
effect at that time. During the Restriction Period, upon request of the Company, the Executive
shall notify the Company of the Executive’s then-current employment status.
4.3. Non-Solicitation of Employees. During the Restriction Period, the Executive
shall not directly or indirectly contact, induce or solicit (or assist any Person to contact,
induce or solicit) for employment any person who is, or within twelve (12) months prior to the date
of such solicitation was, an employee of the Company or any of its subsidiaries or affiliates.
4.4. Interference with Business Relationships. During the Restriction Period (other
than in connection with carrying out his responsibilities for the Company and its subsidiaries and
affiliates), the Executive shall not directly or indirectly contact, induce or solicit (or assist
any Person to contact, induce or solicit) any customer or client of the Company or its subsidiaries
or affiliates to terminate its relationship or otherwise cease doing business in whole or in part
with the Company or its subsidiaries or affiliates, or directly or indirectly interfere with (or
assist any Person to interfere with) any material relationship between the Company or its
subsidiaries or affiliates and any of its or their customers or clients so as to cause harm to the
Company or its subsidiaries or affiliates.
4.5. Extension of Restriction Period. The Restriction Period shall be tolled for any
period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.
4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any and
all inventions, discoveries, and improvements (whether or not patentable or registrable under
copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,
discovered, reduced to practice, or made by him, either alone or in conjunction with others, during
the Executive’s employment with the Company and related to the business or activities of the
Company and its subsidiaries and affiliates (the “Developments”). Except to the extent any
rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C.
§ 101 et seq. that are owned ab initio by the Company and/or its applicable affiliate, the
Executive assigns all of his right, title and interest in all Developments (including all
intellectual property rights therein) to the Company or its nominee without further compensation,
including all rights or benefits therefor, including without limitation the right to sue and
recover for past and future infringement. The Executive acknowledges that any rights in any
Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq.
are owned upon creation by the Company and/or its
7
applicable affiliate as the Executive’s employer. Whenever requested to do so by the Company,
the Executive shall execute any and all applications, assignments or other instruments which the
Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the
United States or any foreign country or otherwise protect the interests of the Company and its
subsidiaries and affiliates therein. These obligations shall continue beyond the end of the
Executive’s employment with the Company with respect to inventions, discoveries, improvements or
copyrightable works initiated, conceived or made by the Executive while employed by the Company,
and shall be binding upon the Executive’s employers, assigns, executors, administrators and other
legal representatives. In connection with his execution of this Amended Employment Agreement, the
Executive has informed the Company in writing of any interest in any inventions or intellectual
property rights that he holds as of the date hereof as set forth on Exhibit B hereto (the
“Existing Inventions”). Notwithstanding anything to the contrary herein, the Developments
shall not include any Existing Inventions. If the Company is unable for any reason, after
reasonable effort, to obtain the Executive’s signature on any document needed in connection with
the actions described in this Section 4.6, the Executive hereby irrevocably designates and appoints
the Company and its duly authorized officers and agents as the Executive’s agent and attorney in
fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of this Section 4.6 with the same
legal force and effect as if executed by the Executive.
4.7. Confidentiality of Agreement. Other than with respect to information required to
be disclosed by applicable law, the parties hereto agree not to disclose the terms of this Amended
Employment Agreement to any Person; provided that the Executive may disclose this Amended
Employment Agreement and/or any of its terms to the Executive’s immediate family, financial
advisors and attorneys, so long as the Executive instructs every such Person to whom the Executive
makes such disclosure not to disclose the terms of this Amended Employment Agreement further.
4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4
would result in irreparable injury and damage to the Company for which the Company would have no
adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any
threat of breach, the Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any
and all Persons acting for and/or with the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity, including, without
limitation, the obligation of the Executive to return any Severance Payments made by the Company to
the Company. The terms of this Section 4.8 shall not prevent the Company from pursuing any other
available remedies for any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. The Executive and the Company further agree that the
provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the
businesses of the Company and its subsidiaries and affiliates because of the Executive’s access to
Confidential Information and his material participation in the operation of such businesses.
8
Section 5. Representation.
Each of the Executive and the Company represents and warrants that (i) he or it is not subject
to any contract, arrangement, policy or understanding, or to any statute, governmental rule or
regulation, that in any way limits his or its ability to enter into and fully perform his or its
obligations under this Amended Employment Agreement and (ii) he or it is not otherwise unable to
enter into and fully perform his or its obligations under this Amended Employment Agreement.
Section 6. Non-Disparagement.
From and after the Effective Date and following termination of the Executive’s employment with
the Company, the Executive agrees not to make any statement (other than statements made in
connection with carrying out his responsibilities for the Company and its subsidiaries and
affiliates) that is intended to become public, or that should reasonably be expected to become
public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company or any
of its subsidiaries, affiliates, employees, officers, directors or stockholders. The Company and
its subsidiaries and affiliates shall cause their officers and directors not to make any such
statement regarding the Executive.
Section 7. Withholding.
The Company may withhold from any amounts payable under this Amended Employment Agreement such
Federal, state local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. The Executive shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
Section 8. Miscellaneous.
8.1. Indemnification. The Company shall indemnify the Executive to the fullest extent
provided under the Company’s By-Laws. The Company shall also maintain director and officer
liability insurance in such amounts and subject to such limitations as the Board shall, in good
faith, deem appropriate for coverage of directors and officers of the Company.
8.2. Amendments and Waivers. This Amended Employment Agreement and any of the
provisions hereof may be amended, waived (either generally or in a particular instance and either
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that, the observance of any provision of
this Amended Employment Agreement may be waived in writing by the party that will lose the benefit
of such provision as a result of such waiver. The waiver by any party hereto of a breach of any
provision of this Amended Employment Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent breach, except as
otherwise explicitly provided for in such waiver. Except as otherwise expressly provided herein,
no failure on the part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder, or otherwise available in respect
9
hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial
exercise of such right, power or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
8.3. Assignment; No Third-Party Beneficiaries. This Amended Employment Agreement, and
the Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any
purported assignment by the Executive in violation hereof shall be null and void. Nothing in this
Amended Employment Agreement shall confer upon any Person not a party to this Amended Employment
Agreement, or the legal representatives of such Person, any rights or remedies of any nature or
kind whatsoever under or by reason of this Amended Employment Agreement.
8.4. Notices. Unless otherwise provided herein, all notices, requests, demands,
claims and other communications provided for under the terms of this Amended Employment Agreement
shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be
sent by (i) personal delivery (including receipted courier service) or overnight delivery service,
(ii) facsimile during normal business hours, with confirmation of receipt, to the number indicated,
(iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJunkin Red Man Holding Corporation | |||
| 8023 E. 63rd Place | ||||
| Tulsa, OK 74133 | ||||
| Attention: General Counsel | ||||
| Facsimile: 866-815-5063 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Jack Daly | ||||
| Facsimile: 212-357-5505 | ||||
| and | ||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 | ||||
| If to the Executive: | Craig Ketchum, at his principal office at the Company (during the Term), and at all times to his principal residence as reflected in the records of the Company. |
10
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
8.5. Governing Law. This Amended Employment Agreement shall be construed and enforced
in accordance with, and the rights and obligations of the parties hereto shall be governed by, the
laws of the State of New York, without giving effect to the conflicts of law principles thereof.
8.6. Severability. Whenever possible, each provision or portion of any provision of
this Amended Employment Agreement, including those contained in Section 4 hereof, will be
interpreted in such manner as to be effective and valid under applicable law but the invalidity or
unenforceability of any provision or portion of any provision of this Amended Employment Agreement
in any jurisdiction shall not affect the validity or enforceability of the remainder of this
Amended Employment Agreement in that jurisdiction or the validity or enforceability of this Amended
Employment Agreement, including that provision or portion of any provision, in any other
jurisdiction. In addition, should a court or arbitrator determine that any provision or portion of
any provision of this Amended Employment Agreement, including those contained in Section 4 hereof,
is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties
hereto agree that such provision should be interpreted and enforced to the maximum extent which
such court or arbitrator deems reasonable or valid.
8.7. Entire Agreement. From and after the Effective Date, (i) this Amended Employment
Agreement, (ii) the Stock Purchase Agreement and (iii) the LLC Agreement constitute the entire
agreement between the parties hereto, and supersede all prior representations, agreements and
understandings (including any prior course of dealings), both written and oral, between the parties
hereto with respect to the subject matter hereof.
8.8. Counterparts. This Amended Employment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
8.9. Binding Effect. This Amended Employment Agreement shall inure to the benefit of,
and be binding on, the successors of each of the parties, including, without limitation, the
Executive’s heirs and the personal representatives of the Executive’s estate and any successor to
all or substantially all of the business and/or assets of the Company.
8.10. General Interpretive Principles. The name assigned this Amended Employment
Agreement and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this
Amended Employment Agreement are for convenience of reference only and shall not in any way affect
the meaning or interpretation of any of the provisions hereof. Words of inclusion shall not be
construed as terms of limitation herein, so that references to “include,” “includes” and
“including” shall not be limiting and shall be regarded as references to non-exclusive and
non-characterizing illustrations.
11
8.11. Mitigation. Notwithstanding any other provision of this Amended Employment
Agreement, (a) the Executive will have no obligation to mitigate damages for any breach or
termination of this Amended Employment Agreement by the Company, whether by seeking employment or
otherwise and (b) the amount of any payment or benefit due the Executive after the date of such
breach or termination will not be reduced or offset by any payment or benefit that the Executive
may receive from any other source.
8.12 Section 409A Compliance. This Amended Employment Agreement is intended to comply
with Section 409A of the Code (to the extent applicable) and, to the extent it would not adversely
impact the Company, the Company agrees to interpret, apply and administer this Amended Employment
Agreement in the least restrictive manner necessary to comply with such requirements and without
resulting in any diminution in the value of payments or benefits to the Executive.
[signature page follows]
12
IN WITNESS WHEREOF, the parties have executed this Amended Employment Agreement as of the date
first written above.
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | /s/ Stephen W. Lake | |||
| Name: | Stephen W. Lake | |||
| Title: | Senior Corporate Vice President, General Counsel and Corporate Secretary | |||
| |
|||||
| /s/ Craig Ketchum | |||||
| Craig Ketchum | |||||
[Signature Page for Craig Ketchum —Amended and Restated Employment Agreement]
Exhibit A
Release
1. In consideration of the payments and benefits to be made under the Amended and Restated
Employment Agreement, dated as of September 24, 2008 (the “Employment Agreement”), to which
Craig Ketchum (the “Executive”) and McJunkin Red Man Holding Corporation (the
“Company”) (each of the Executive and the Company, a “Party” and collectively, the
“Parties”) are parties, the sufficiency of which the Executive acknowledges, the Executive,
with the intention of binding himself and his heirs, executors, administrators and assigns, does
hereby release, remise, acquit and forever discharge the Company and each of its subsidiaries and
affiliates (the “Company Affiliated Group”), their present and former officers, directors,
executives, shareholders, agents, attorneys, employees and employee benefit plans (and the
fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing
(collectively, the “Company Released Parties”), of and from any and all claims, actions,
causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts,
financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature
in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and
whether now known or unknown, suspected or unsuspected, which the Executive, individually or as a
member of a class, now has, owns or holds, or has at any time heretofore had, owned or held,
arising on or prior to the date hereof, against any Company Released Party that arises out of, or
relates to, the Employment Agreement, the Executive’s employment with the Company or any of its
subsidiaries and affiliates, or any termination of such employment, including claims (i) for
severance or vacation benefits, unpaid wages, salary or incentive payments, (ii) for breach of
contract, wrongful discharge, impairment of economic opportunity, defamation, intentional
infliction of emotional harm or other tort, (iii) for any violation of applicable state and local
labor and employment laws (including, without limitation, all laws concerning unlawful and unfair
labor and employment practices) and (iv) for employment discrimination under any applicable
federal, state or local statute, provision, order or regulation, and including, without limitation,
any claim under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Civil Rights
Act of 1988, the Fair Labor Standards Act, the Americans with Disabilities Act (“ADA”), the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Age
Discrimination in Employment Act (“ADEA”), and any similar or analogous state statute,
excepting only:
| (A) | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| (B) | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| (C) | claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and | ||
| (D) | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
2. The Employee acknowledges and agrees that the release of claims set forth in this Release
is not to be construed in any way as an admission of any liability whatsoever by any Company
Released Party, any such liability being expressly denied.
3. The release of claims set forth in this Release applies to any relief no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.
4. The Executive specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Release is, among other things, a specific waiver of his rights, claims
and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect
of discrimination of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause
of action which by law the Executive is not permitted to waive.
5. As to rights, claims and causes of action arising under the ADEA, the Executive
acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider
whether to execute this Release. If the Executive accepts the terms hereof and executes this
Release, he may thereafter, for a period of seven (7) days following (and not including) the date
of execution, revoke this Release as it relates to the release of claims arising under the ADEA.
If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding
and enforceable against the Executive, on the day next following the day on which the foregoing
seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit
any right to payment of the Severance Payments (as defined in the Employment Agreement), but the
remainder of the Employment Agreement shall continue in full force.
6. Other than as to rights, claims and causes of action arising under the ADEA, the release of
claims set forth in this Release shall be immediately effective upon execution by the Executive.
7. The Executive acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against
any Company Released Party with any governmental agency, court or tribunal.
8. The Executive acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of claims set forth in
this Release, and has been given a sufficient period within which to consider the release of claims
set forth in this Release.
9. The Executive acknowledges that the release of claims set forth in this Release relates
only to claims which exist as of the date of this Release.
10. The Executive acknowledges that the Severance Payments he is receiving in connection with
the release of claims set forth in this Release and his obligations under this Release are in
addition to anything of value to which the Executive is entitled from the Company and any of its
affiliates.
11. Each provision hereof is severable from this Release, and if one or more provisions hereof
are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.
If any provision of this Release is so broad, in scope, or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
12. This Release constitutes the complete agreement of the Parties in respect of the subject
matter hereof and shall supersede all prior agreements between the Parties in respect of the
subject matter hereof except to the extent set forth herein.
13. The failure to enforce at any time any of the provisions of this Release or to require at
any time performance by another party of any of the provisions hereof shall in no way be construed
to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or
the right of any party thereafter to enforce each and every such provision in accordance with the
terms of this Release.
14. This Release may be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same instrument. Signatures
delivered by facsimile shall be deemed effective for all purposes.
15. This Release shall be binding upon any and all successors and assigns of the Executive and
the Company.
16. Except for issues or matters as to which federal law is applicable, this Release shall be
governed by and construed and enforced in accordance with the laws of the State of New York without
giving effect to the conflicts of law principles thereof.
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of .
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| |
|||||
| Craig Ketchum | |||||
Exhibit B
Existing Inventions
[none]
Exhibit 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 4, 2006 (the “Employment Agreement”), by
and among McJ Holding LLC, a Delaware limited liability company (“McJ Holding LLC”),
McJunkin Corporation, a West Virginia corporation (the “Company”), and James Underhill (the
“Executive”).
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of the date hereof (the
“Merger Agreement”), between McJ Holding Corporation, a Delaware corporation (“McJ
Holding Corporation”), Hg Acquisition Corp., a West Virginia corporation and wholly-owned
subsidiary of McJ Holding Corporation (“Hg Acquisition”) and the Company, Hg Acquisition
will merge with and into the Company with the Company continuing as the surviving corporation (the
“Merger”);
WHEREAS, the Executive acknowledges that McJ Holding Corporation would not have entered into
the Merger Agreement unless the Executive executes this Employment Agreement and agrees to be bound
by the covenants contained in Section 4 hereof; and
WHEREAS, the Executive is currently employed as the Company’s Executive Vice President and
Chief Financial Officer and the Company and the Executive desire to continue the Executive’s
employment with the Company on the terms and conditions set forth in this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
Section 1. Employment.
1.1. Term. McJ Holding LLC and the Company agree to employ the Executive, and the
Executive agrees to be employed by McJ Holding LLC and the Company, in each case pursuant to this
Employment Agreement, for a period commencing on the Closing Date (as defined in the Merger
Agreement) (such date, the “Effective Date”) and ending on the earlier of (i) the third
(3rd) anniversary of the Effective Date and (ii) the termination of the Executive’s employment in
accordance with Section 3 hereof (the “Term”).
1.2. Duties. During the Term, the Executive shall serve as the Company’s Executive
Vice President and Chief Financial Officer and such other positions as an officer or director of
the Company and such affiliates of the Company as the Executive and the board of directors of the
Company (the “Board”) shall mutually agree from time to time. In such positions, the
Executive shall perform such duties, functions and responsibilities during the Term commensurate
with the Executive’s positions as reasonably directed by the Chief Executive Officer of the Company
(the “CEO”).
1.3. Exclusivity. During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive shall devote his full time and attention to
the business and affairs of the Company, shall faithfully serve the
Company, and shall in all material respects conform to and comply with the lawful and
reasonable directions and instructions given to him by the CEO, consistent with Section 1.2 hereof.
During the Term, the Executive shall use his best efforts to promote and serve the interests of
the Company and shall not engage in any other business activity, whether or not such activity shall
be engaged in for pecuniary profit; provided, however, that it shall not be a violation of
this Employment Agreement for the Executive to engage in other outside business activities with the
Board’s prior written consent.
Section 2. Compensation.
2.1. Salary. As compensation for the performance of the Executive’s services
hereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of
four hundred fifty thousand dollars ($450,000), payable in accordance with the Company’s standard
payroll policies (the “Base Salary”). The Base Salary will be reviewed annually and may be
adjusted upward by the Board (or a committee thereof) in its discretion, based on competitive data
and the Executive’s performance. No increase in Base Salary shall limit or reduce any other right
or obligation to the Executive under this Employment Agreement and the Base Salary shall not be
reduced at any time (including after any such increase).
2.2. Annual Bonus. For each completed fiscal year occurring during the Term
commencing with the 2007 fiscal year, the Executive shall be eligible to receive additional cash
incentive compensation (the “Annual Bonus”). The target Annual Bonus shall be 100% of the
Executive’s Base Salary as in effect at the beginning of such fiscal year, with the actual Annual
Bonus to be based upon such individual and/or Company performance criteria established for each
such fiscal year by the Board in consultation with the CEO. The Annual Bonus for the calendar year
ending December 31, 2006 shall be determined in accordance with the Company’s existing bonus plan,
consistent with past practice (but excluding any Merger-related expenses and any interest expenses
associated with the additional borrowing incurred in connection with the Merger).
2.3. Equity. On the Effective Date, pursuant to the Limited Liability Company
Agreement of McJ Holding LLC dated as of the date hereof (the “LLC Agreement”), the
Executive will be granted Profits Units (as defined in the LLC Agreement) as set forth therein.
Notwithstanding Section 7.2(a)(ii) of the LLC Agreement, if the Executive terminates his employment
with Good Reason (as defined herein) or the Company terminates the Executive’s employment without
Cause (as defined herein), no Profits Units issued to the Executive shall be subject to forfeiture.
2.4. Employee Benefits. During the Term, the Executive shall be eligible to
participate in such health and other group insurance and other employee benefit plans and programs
of the Company as in effect from time to time on the same basis as other senior executives of the
Company. Notwithstanding the foregoing, during the Term, the annual value attributable to
retirement benefits will be approximately seventy thousand dollars ($70,000), which amount (x) is
in addition to any benefits pursuant to the McJunkin Corporation Profit-Sharing and Savings Plan
and Trust and (y) includes any benefits under the Amended and Restated McJunkin Corporation
Supplemental Executive Savings Plan and Trust (the “SERP”) or any plan that replaces the
SERP.
2
2.5. Vacation. During the Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect from time to time.
2.6. Business Expenses. The Company shall pay or reimburse the Executive for all
commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term
in performing his duties under this Employment Agreement upon presentation of documentation and in
accordance with the expense reimbursement policy of the Company as approved by the Board (or a
committee thereof) and in effect from time to time.
Section 3. Employment Termination.
3.1. Termination of Employment. The Company may terminate the Executive’s employment
for any reason during the Term, and the Executive may voluntarily terminate his employment for any
reason during the Term, in each case (other than a termination by the Company for Cause) at any
time upon not less than thirty (30) days’ notice to the other party. Upon the termination of the
Executive’s employment with the Company for any reason, the Executive shall be entitled to any Base
Salary earned but unpaid through the date of termination, any earned but unpaid Annual Bonus for
completed fiscal years, any unreimbursed expenses in accordance with Section 2.6 hereof and, to the
extent not theretofore paid or provided, any other amounts or benefits required to be paid or
provided under any plan, program, policy or practice or other contract or agreement of the Company
and its affiliated companies through the date of termination of employment (collectively, the
“Accrued Amounts”).
3.2. Certain Terminations.
(a) Termination by the Company other than for Cause or Disability; Termination by the
Executive for Good Reason. If the Executive’s employment is terminated during the Term (i) by
the Company other than for Cause or Disability or (ii) by the Executive for Good Reason, in
addition to the Accrued Amounts the Executive shall be entitled to the following payments and
benefits: (x) the continuation of his Base Salary at the rate in effect immediately prior to the
date of termination for a period of twelve (12) months, (y) the continuation on the same terms as
an active senior executive of medical benefits the Executive would otherwise be eligible to receive
as an active senior executive of the Company for twelve (12) months or until such earlier time as
the Executive becomes eligible for medical benefits from a subsequent employer and (z) a pro rata
Annual Bonus for the fiscal year in which the termination occurs (the “Pro Rata Annual Bonus
Payment”), based on the Company’s actual performance through the end of such fiscal year and
the number of days the Executive was employed during such fiscal year (such payments and benefits,
the “Severance Payments”). The Company’s obligations to make the Severance Payments shall
be conditioned upon: (i) the Executive’s continued compliance with his obligations under Section 4
of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a
valid and enforceable general release of claims (the “Release”) in the form attached hereto
as Exhibit A. In the event that the Executive breaches any of the covenants set forth in Section 4
of this Employment Agreement, the Executive will immediately return to the Company any portion of
the Severance Payments that have been paid to the Executive pursuant to this Section 3.2(a).
Subject to Section 3.2(d), the Severance Payments (with the exception of the Pro Rata Annual Bonus
Payment) will commence to be paid to the Executive as soon as practicable following the
3
effectiveness of the Release. The Pro Rata Annual Bonus Payment will be paid at the time the
Company ordinarily pays incentive bonuses to its executives with respect to the fiscal year in
which the termination occurs.
(b) Termination upon Death or Disability. If the Executive’s employment is terminated
due to the Executive’s death or Disability, in addition to the Accrued Amounts, the Executive (or
the Executive’s estate, if applicable) shall be entitled to receive a pro-rated portion of the
Annual Bonus based on the Company’s performance for the full fiscal year in which termination
occurs and the number of days the Executive was employed by the Company during such fiscal year.
(c) Definitions. For purposes of this Section 3.2, the following terms shall have the
following meanings:
(1) “Cause” shall mean the Executive’s (i) continuing failure, for more than 10 days
after the Company’s written notice to the Executive thereof, to perform such duties as are
reasonably requested by the Company; (ii) failure to observe material policies generally applicable
to officers or employees of the Company unless such failure is capable of being cured and is cured
within 10 days of the Executive receiving written notice of such failure; (iii) failure to
cooperate with any internal investigation of the Company; (iv) commission of any act of fraud,
theft or financial dishonesty with respect to the Company or indictment or conviction of any
felony; (v) material violation of the provisions of this Employment Agreement unless such violation
is capable of being cured and is cured within 10 days of the Executive receiving written notice of
such violation; (vi) chronic absenteeism; or (vii) abuse of alcohol or another controlled
substance.
(2) “Disability” shall mean the Executive is entitled to receive long-term disability
benefits under the long-term disability plan of the Company in which Executive participates, or, if
there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform
the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180
days during any 365 day period irrespective of whether such days are consecutive.
(3) “Good Reason” shall mean (i) a material and adverse change in the Executive’s
duties or responsibilities, (ii) a reduction in the Executive’s Base Salary or target Annual Bonus
or (iii) a relocation of the Executive’s principal place of employment by more than 50 miles.
(d) Section 409A Specified Employee. If the Executive is a “specified employee” for
purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder, to the extent required to comply with Section 409A
of the Code, any Severance Payments required to be made pursuant to Section 3.2(a) which are
subject to Section 409A of the Code shall not commence until one day after the day which is six (6)
months from the date of termination, with the first payment equaling six (6) months of his Base
Salary at the rate in effect immediately prior to the date of termination.
4
3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due the Executive upon a termination
of his employment under this Employment Agreement.
3.4. Resignation from All Positions. Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be deemed to have resigned, as of
the date of such termination, from all positions he then holds as an officer, director, employee
and member of the Board (and any committee thereof) and the board of directors (and any committee
thereof) of any of the Company’s affiliates.
3.5. Cooperation. Following the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably cooperate with the Company upon
reasonable request of the Board and to be reasonably available to the Company with respect to
matters arising out of the Executive’s services to the Company and its subsidiaries. The Company
shall pay the Executive a reasonable fee for any such services and promptly reimburse the Executive
for expenses reasonably incurred in connection with such matters.
| Section 4. | Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights. |
4.1. Unauthorized Disclosure. The Executive agrees and understands that in the
Executive’s position with the Company, the Executive has been and will be exposed to and has and
will receive information relating to the confidential affairs of the Company and its affiliates,
including, without limitation, technical information, intellectual property, business and marketing
plans, strategies, customer information, software, other information concerning the products,
promotions, development, financing, expansion plans, business policies and practices of the Company
and its affiliates and other forms of information considered by the Company and its affiliates to
be confidential or in the nature of trade secrets (including, without limitation, ideas, research
and development, know-how, formulas, technical data, designs, drawings, specifications, customer
and supplier lists, pricing and cost information and business and marketing plans and proposals)
(collectively, the “Confidential Information”). The Executive agrees that at all times
during the Executive’s employment with the Company and thereafter, the Executive shall not disclose
such Confidential Information, either directly or indirectly, to any individual, corporation,
partnership, limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality thereof (each a
“Person”) other than in connection with the Executive’s employment with the Company without
the prior written consent of the Company and shall not use or attempt to use any such information
in any manner other than in connection with his employment with the Company, unless required by law
to disclose such information, in which case the Executive shall provide the Company with written
notice of such requirement as far in advance of such anticipated disclosure as possible. This
confidentiality covenant has no temporal, geographical or territorial restriction. Upon
termination of the Executive’s employment with the Company, the Executive shall promptly supply to
the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists,
correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other
tangible product or document which has been
5
produced by, received by or otherwise submitted to the Executive during the Executive’s
employment with the Company, and any copies thereof in his (or capable of being reduced to his)
possession; provided, however, that the Executive may retain his full rolodex or similar
address and telephone directories.
4.2. Non-Competition. By and in consideration of the Company’s entering into this
Employment Agreement and the payments to be made and the benefits to be provided hereunder and in
further consideration of the Executive’s exposure to the Confidential Information of the Company
and its affiliates, the Executive agrees that the Executive shall not, during the Executive’s
employment with the Company (whether during the Term or thereafter) and for a period of twelve (12)
months thereafter (the “Restriction Period”), directly or indirectly, own, manage, operate,
join, control, be employed by, or participate in the ownership, management, operation or control
of, or be connected in any manner with, including, without limitation, holding any position as a
stockholder, director, officer, consultant, independent contractor, employee, partner, or investor
in, any Restricted Enterprise (as defined below) and in connection with the Executive’s association
directly or indirectly engage in any activity that is similar to any activity that the Executive
was engaged in with the Company during the 12 months preceding the date of termination;
provided, that in no event shall ownership of one percent (1%) or less of the outstanding
securities of any class of any issuer whose securities are registered under the Securities Exchange
Act of 1934, as amended, standing alone, be prohibited by this Section 4.2, so long as the
Executive does not have, or exercise, any rights to manage or operate the business of such issuer
other than rights as a stockholder thereof. For purposes of this paragraph, “Restricted
Enterprise” shall mean (i) any Person that is actively engaged in any geographic area in any
business which materially competes with McJ Holding LLC’s or any of its subsidiaries’ business of
the distribution of industrial pipe, valves and fittings or any other business which is material to
McJ Holding LLC or any of its subsidiaries (a “Material Business”) or (ii) any Person who
within a two (2) year period following termination of the Executive’s employment is reasonably
expected to materially compete with a Material Business or have revenue in excess of $100,000,000
derived from a business that is competitive with a Material Business. During the Restriction
Period, upon request of the Company, the Executive shall notify the Company of the Executive’s
then-current employment status.
4.3. Non-Solicitation of Employees. During the Restriction Period, the Executive
shall not directly or indirectly contact, induce or solicit (or assist any Person to contact,
induce or solicit) for employment any person who is, or within twelve (12) months prior to the date
of such solicitation was, an employee of the Company or any of its affiliates.
4.4. Interference with Business Relationships. During the Restriction Period (other
than in connection with carrying out his responsibilities for the Company and its affiliates), the
Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to
contact, induce or solicit) any customer or client of the Company or its subsidiaries to terminate
its relationship or otherwise cease doing business in whole or in part with the Company or its
subsidiaries, or directly or indirectly interfere with (or assist any Person to interfere with) any
material relationship between the Company or its subsidiaries and any of its or their customers or
clients so as to cause harm to the Company or its affiliates.
6
4.5. Extension of Restriction Period. The Restriction Period shall be tolled for any
period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.
4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any and
all inventions, discoveries, and improvements (whether or not patentable or registrable under
copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,
discovered, reduced to practice, or made by him, either alone or in conjunction with others, during
the Executive’s employment with the Company and related to the business or activities of the
Company and its affiliates (the “Developments”). Except to the extent any rights in any
Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq.
that are owned ab initio by the Company and/or its applicable affiliate, the Executive assigns all
of his right, title and interest in all Developments (including all intellectual property rights
therein) to the Company or its nominee without further compensation, including all rights or
benefits therefor, including without limitation the right to sue and recover for past and future
infringement. The Executive acknowledges that any rights in any Developments constituting a work
made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the
Company and/or its applicable affiliate as the Executive’s employer. Whenever requested to do so
by the Company, the Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or
copyrights of the United States or any foreign country or otherwise protect the interests of the
Company and its affiliates therein. These obligations shall continue beyond the end of the
Executive’s employment with the Company with respect to inventions, discoveries, improvements or
copyrightable works initiated, conceived or made by the Executive while employed by the Company,
and shall be binding upon the Executive’s employers, assigns, executors, administrators and other
legal representatives. In connection with his execution of this Employment Agreement, the
Executive has informed the Company in writing of any interest in any inventions or intellectual
property rights that he holds as of the date hereof as set forth on Exhibit B hereto (the
“Existing Inventions”). Notwithstanding anything to the contrary herein, the Developments
shall not include any Existing Inventions. If the Company is unable for any reason, after
reasonable effort, to obtain the Executive’s signature on any document needed in connection with
the actions described in this Section 4.6, the Executive hereby irrevocably designates and appoints
the Company and its duly authorized officers and agents as the Executive’s agent and attorney in
fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of this Section 4.6 with the same
legal force and effect as if executed by the Executive.
4.7. Confidentiality of Agreement. Other than with respect to information required to
be disclosed by applicable law, the parties hereto agree not to disclose the terms of this
Employment Agreement to any Person; provided the Executive may disclose this Employment
Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and
attorneys, so long as the Executive instructs every such Person to whom the Executive makes such
disclosure not to disclose the terms of this Employment Agreement further.
7
4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4
would result in irreparable injury and damage to the Company for which the Company would have no
adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any
threat of breach, the Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any
and all Persons acting for and/or with the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity, including, without
limitation, the obligation of the Executive to return any Severance Payments made by the Company to
the Company. The terms of this paragraph shall not prevent the Company from pursuing any other
available remedies for any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. The Executive and the Company further agree that the
provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the
businesses of the Company and its affiliates because of the Executive’s access to Confidential
Information and his material participation in the operation of such businesses.
Section 5. Representation.
The Executive and the Company each represents and warrants that (i) he or it is not subject to
any contract, arrangement, policy or understanding, or to any statute, governmental rule or
regulation, that in any way limits his or its ability to enter into and fully perform his or its
obligations under this Employment Agreement and (ii) he or it is not otherwise unable to enter into
and fully perform his or its obligations under this Employment Agreement.
Section 6. Non-Disparagement.
From and after the Effective Date and following termination of the Executive’s employment with
the Company, the Executive agrees not to make any statement (other than statements made in
connection with carrying out his responsibilities for the Company and its affiliates) that is
intended to become public, or that should reasonably be expected to become public, and that
criticizes, ridicules, disparages or is otherwise derogatory of the Company or any of its
subsidiaries, affiliates, employees, officers, directors or stockholders. The Company shall cause
its officers and directors not to make any such statement regarding the Executive.
Section 7. Withholding.
The Company may withhold from any amounts payable under this Employment Agreement such
Federal, state local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. The Executive shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
Section 8. Miscellaneous.
8.1. Indemnification. The Company shall indemnify the Executive to the fullest extent
provided under the Company’s By-Laws. The Company shall also maintain
8
director and officer liability insurance in such amounts and subject to such limitations as
the Board shall, in good faith, deem appropriate for coverage of directors and officers of the
Company.
8.2. Amendments and Waivers. This Employment Agreement and any of the provisions
hereof may be amended, waived (either generally or in a particular instance and either
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that the observance of any provision of
this Employment Agreement may be waived in writing by the party that will lose the benefit of such
provision as a result of such waiver. The waiver by any party hereto of a breach of any provision
of this Employment Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly
provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or
otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or remedy by such party preclude any
other or further exercise thereof or the exercise of any other right, power or remedy.
8.3. Assignment; No Third-Party Beneficiaries. This Employment Agreement, and the
Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any
purported assignment by the Executive in violation hereof shall be null and void. Nothing in this
Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the
legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under
or by reason of this Employment Agreement.
8.4. Notices. Unless otherwise provided herein, all notices, requests, demands,
claims and other communications provided for under the terms of this Employment Agreement shall be
in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by
(i) personal delivery (including receipted courier service) or overnight delivery service, (ii)
facsimile during normal business hours, with confirmation of receipt, to the number indicated,
(iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJunkin Corporation | |||
| 835 Hillcrest Drive | ||||
| Charleston, WV 25311 | ||||
| Attention: General Counsel & Chief Executive Officer | ||||
| Facsimile: 304-348-1557 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Henry Cornell | ||||
| Facsimile: 212-357-5505 |
9
| and | ||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 | ||||
| If to the Executive: | James Underhill, at his principal office | |||
| at the Company (during the Term), and | ||||
| at all times to his principal residence as | ||||
| reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
8.5. Governing Law. This Employment Agreement shall be construed and enforced in
accordance with, and the rights and obligations of the parties hereto shall be governed by, the
laws of the State of New York, without giving effect to the conflicts of law principles thereof.
8.6. Severability. Whenever possible, each provision or portion of any provision of
this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in
such manner as to be effective and valid under applicable law but the invalidity or
unenforceability of any provision or portion of any provision of this Employment Agreement in any
jurisdiction shall not affect the validity or enforceability of the remainder of this Employment
Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement,
including that provision or portion of any provision, in any other jurisdiction. In addition,
should a court or arbitrator determine that any provision or portion of any provision of this
Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid,
either in period of time, geographical area, or otherwise, the parties hereto agree that such
provision should be interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable or valid.
8.7. Entire Agreement. From and after the Effective Date, (i) this Employment
Agreement, (ii) the LLC Agreement and (iii) the letter agreement between the Executive and the
Company, dated July 7, 2006, regarding the Special Retention Bonus and Special Severance Payment,
constitute the entire agreement between the parties hereto, and supersede all prior
representations, agreements and understandings (including any prior course of dealings), both
written and oral, between the parties hereto with respect to the subject matter hereof. In the
event the Closing (as defined in the Merger Agreement) does not occur before the
10
date the Merger Agreement terminates in accordance with its terms, this Employment Agreement
shall terminate, and shall be of no force or effect.
8.8. Counterparts. This Employment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
8.9. Binding Effect. This Employment Agreement shall inure to the benefit of, and be
binding on, the successors of each of the parties, including, without limitation, the Executive’s
heirs and the personal representatives of the Executive’s estate and any successor to all or
substantially all of the business and/or assets of the Company.
8.10. General Interpretive Principles. The name assigned this Employment Agreement
and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment
Agreement are for convenience of reference only and shall not in any way affect the meaning or
interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms
of limitation herein, so that references to “include”, “includes” and “including” shall not be
limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.
8.11. Mitigation. Notwithstanding any other provision of this Employment Agreement,
(a) the Executive will have no obligation to mitigate damages for any breach or termination of this
Employment Agreement by the Company, whether by seeking employment or otherwise and (b) the amount
of any payment or benefit due the Executive after the date of such breach or termination will not
be reduced or offset by any payment or benefit that the Executive may receive from any other
source.
8.12 Section 409A Compliance. This Employment Agreement is intended to comply with
Section 409A of the Code (to the extent applicable) and, to the extent it would not adversely
impact the Company, the Company agrees to interpret, apply and administer this Employment Agreement
in the least restrictive manner necessary to comply with such requirements and without resulting in
any diminution in the value of payments or benefits to the Executive.
11
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ H.B. Wehrle, III | |||
| Name: | H.B. Wehrle, III | |||
| Title: | Chief Executive Officer | |||
| McJ HOLDING LLC |
||||
| By: | /s/ John E. Bowman | |||
| Name: | John E. Bowman | |||
| Title: | Vice President | |||
| /s/ James Underhill | ||||
| James Underhill | ||||
[Employment Agreement with J. Underhill]
Exhibit A
Release
1. In consideration of the payments and benefits to be made under the Employment Agreement,
dated as of December 4, 2006 (the “Employment Agreement”), to which James Underhill (the
“Executive”), McJ Holding LLC (the “LLC”) and McJunkin Corporation (the
“Company”) (each of the Executive, the LLC and the Company, a “Party” and
collectively, the “Parties”) are parties, the sufficiency of which the Executive
acknowledges, the Executive, with the intention of binding himself and his heirs, executors,
administrators and assigns, does hereby release, remise, acquit and forever discharge the Company
and each of its subsidiaries and affiliates (the “Company Affiliated Group”), their present
and former officers, directors, executives, shareholders, agents, attorneys, employees and employee
benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each
of the foregoing (collectively, the “Company Released Parties”), of and from any and all
claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of
money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of
whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent,
unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the
Executive, individually or as a member of a class, now has, owns or holds, or has at any time
heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released
Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with
the Company or any of its subsidiaries and affiliates, or any termination of such employment,
including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive
payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of
applicable state and local labor and employment laws (including, without limitation, all laws
concerning unlawful and unfair labor and employment practices) and (iv) for employment
discrimination under any applicable federal, state or local statute, provision, order or
regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of
1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the
Americans with Disabilities Act (“ADA”), the Executive Retirement Income Security Act of
1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and
any similar or analogous state statute, excepting only:
| (A) | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| (B) | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| (C) | claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and |
| (D) | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
2. The Employee acknowledges and agrees that the release of claims set forth in this Release
is not to be construed in any way as an admission of any liability whatsoever by any Company
Released Party, any such liability being expressly denied.
3. The release of claims set forth in this Release applies to any relief no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.
4. The Executive specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Release is, among other things, a specific waiver of his rights, claims
and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect
of discrimination of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause
of action which by law the Executive is not permitted to waive.
5. As to rights, claims and causes of action arising under the ADEA, the Executive
acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider
whether to execute this Release. If the Executive accepts the terms hereof and executes this
Release, he may thereafter, for a period of seven (7) days following (and not including) the date
of execution, revoke this Release as it relates to the release of claims arising under the ADEA.
If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding
and enforceable against the Executive, on the day next following the day on which the foregoing
seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit
any right to payment of the Severance Payments (as defined in the Employment Agreement), but the
remainder of the Employment Agreement shall continue in full force.
6. Other than as to rights, claims and causes of action arising under the ADEA, the release of
claims set forth in this Release shall be immediately effective upon execution by the Executive.
7. The Executive acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against
any Company Released Party with any governmental agency, court or tribunal.
8. The Executive acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of claims set forth in
this Release, and has been given a sufficient period within which to consider the release of claims
set forth in this Release.
9. The Executive acknowledges that the release of claims set forth in this Release relates
only to claims which exist as of the date of this Release.
10. The Executive acknowledges that the Severance Payments he is receiving in connection with
the release of claims set forth in this Release and his obligations under this Release are in
addition to anything of value to which the Executive is entitled from the Company.
11. Each provision hereof is severable from this Release, and if one or more provisions hereof
are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.
If any provision of this Release is so broad, in scope, or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
12. This Release constitutes the complete agreement of the Parties in respect of the subject
matter hereof and shall supersede all prior agreements between the Parties in respect of the
subject matter hereof except to the extent set forth herein.
13. The failure to enforce at any time any of the provisions of this Release or to require at
any time performance by another party of any of the provisions hereof shall in no way be construed
to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or
the right of any party thereafter to enforce each and every such provision in accordance with the
terms of this Release.
14. This Release may be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same instrument. Signatures
delivered by facsimile shall be deemed effective for all purposes.
15. This Release shall be binding upon any and all successors and assigns of the Executive and
the Company.
16. Except for issues or matters as to which federal law is applicable, this Release shall be
governed by and construed and enforced in accordance with the laws of the State of New York without
giving effect to the conflicts of law principles thereof.
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of .
| MCJUNKIN CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| McJ HOLDING LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Exhibit B
Existing Inventions
[none.]
Exhibit 10.14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 4, 2006 (the “Employment Agreement”), by
and among McJ Holding LLC, a Delaware limited liability company (“McJ Holding LLC”),
McJunkin Corporation, a West Virginia corporation (the “Company”), and David Fox, III (the
“Executive”).
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of the date hereof (the
“Merger Agreement”), between McJ Holding Corporation, a Delaware corporation (“McJ
Holding Corporation”), Hg Acquisition Corp., a West Virginia corporation and wholly-owned
subsidiary of McJ Holding Corporation (“Hg Acquisition”), and the Company, Hg Acquisition
will merge with and into the Company with the Company continuing as the surviving corporation (the
“Merger”);
WHEREAS, pursuant to the Merger Agreement and the McApple Contribution Agreement, dated as of
the date hereof (the “Contribution Agreement”), among McJ Holding LLC, the Company, the
Executive and the other parties thereto, and by reason of the consummation of the transactions
thereunder, the Executive will contribute shares of McJunkin Appalachian Oilfield Supply Company
(“McApple”) and receive Common Units (as defined in the Limited Liability Company Agreement
of McJ Holding LLC, dated as of the date hereof (the “LLC Agreement”)), and other
significant consideration therefor;
WHEREAS, the Executive acknowledges that McJ Holding Corporation would not have entered into
the Merger Agreement unless the Executive executes this Employment Agreement and agrees to be bound
by the covenants contained in Section 4 hereof; and
WHEREAS, the Executive is currently employed by the Company or its subsidiary and the Company
and the Executive desire to continue the Executive’s employment with the Company on the terms and
conditions set forth in this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
Section 1. Employment.
1.1. Term. McJ Holding LLC and the Company agree to employ the Executive, and the
Executive agrees to be employed by McJ Holding LLC and the Company, in each case pursuant to this
Employment Agreement, for a period commencing on the Closing Date (as defined in the Merger
Agreement) (such date, the “Effective Date”) and ending on the earlier of (i) the third
(3rd) anniversary of the Effective Date and (ii) the termination of the Executive’s employment in
accordance with Section 3 hereof (the “Term”).
1.2. Duties. During the Term, the Executive shall serve as the Company’s Executive
Vice President – McJunkin Appalachian and such other positions as an officer or director of the
Company and such affiliates of the Company as the Executive and the board of directors of the
Company (the “Board”) shall mutually agree from time to time. In such positions, the
Executive shall perform such duties, functions and responsibilities during the Term
commensurate with the Executive’s positions as reasonably directed by the Chief Executive
Officer of the Company (the “CEO”).
1.3. Exclusivity. During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive shall devote his full time and attention to
the business and affairs of the Company, shall faithfully serve the Company, and shall in all
material respects conform to and comply with the lawful and reasonable directions and instructions
given to him by the CEO, consistent with Section 1.2 hereof. During the Term, the Executive shall
use his best efforts to promote and serve the interests of the Company and shall not engage in any
other business activity, whether or not such activity shall be engaged in for pecuniary profit;
provided, however, that it shall not be a violation of this Employment Agreement for the Executive
to (i) participate at his current level of activity with respect to service on the boards of Cabell
Huntington Hospital, Guaranty Bank, Hospice of Huntington and Big Green Scholarship Foundation, or
manage his personal investment portfolio, so long as such participation and management does not
interfere with his duties and responsibilities as defined in this Employment Agreement or (ii)
engage in such other activities with the Board’s prior written consent.
Section 2. Compensation.
2.1. Salary. As compensation for the performance of the Executive’s services
hereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of
five hundred seventy-five thousand dollars ($575,000), payable in accordance with the Company’s
standard payroll policies (the “Base Salary”). The Base Salary will be reviewed annually
and may be adjusted upward by the Board (or a committee thereof) in its discretion, based on
competitive data and the Executive’s performance. No increase in Base Salary shall limit or reduce
any other right or obligation to the Executive under this Employment Agreement and the Base Salary
shall not be reduced at any time (including after any such increase).
2.2. Annual Bonus. For each completed fiscal year occurring during the Term
commencing with the 2007 fiscal year, the Executive shall be eligible to receive additional cash
incentive compensation (the “Annual Bonus”). The target Annual Bonus shall be 100% of the
Executive’s Base Salary as in effect at the beginning of such fiscal year, with the actual Annual
Bonus to be based upon such individual and/or Company performance criteria established for each
such fiscal year by the Board in consultation with the CEO. The Annual Bonus for the calendar year
ending December 31, 2006 shall be determined in accordance with McApple’s existing bonus plan,
consistent with past practice (but excluding any Merger-related expenses and any interest expenses
associated with the additional borrowing incurred in connection with the Merger).
2.3. Equity. On the Effective Date, the Executive will be granted Restricted Common
Units subject to Article VII of the LLC Agreement with a corresponding capital account as of the
Effective Time (as defined in the LLC Agreement) of two million five hundred twenty thousand
dollars ($2,520,000) (the “Restricted Common Units”). Notwithstanding Section 7.2(a)(ii)
of the LLC Agreement, if the Executive terminates his employment with Good Reason (as defined
herein) or the Company terminates the Executive’s employment without Cause (as defined herein),
during or subsequent to the Term, no Restricted
2
Common Units issued to the Executive shall be subject to forfeiture and they shall thereby be
fully vested, and the restrictions and conditions applicable to such Restricted Common Units shall
be deemed to have lapsed immediately prior to the occurrence of such event. Notwithstanding
Section 7.2 of the LLC Agreement, in the event of a termination of the Executive’s employment due
to the Executive’s death or Disability, or in the event of a Transaction (as defined in the LLC
Agreement), all Restricted Common Units issued to the Executive shall vest, and the restrictions
and conditions applicable to such Restricted Common Units shall be deemed to have lapsed
immediately prior to the occurrence of any such event. Notwithstanding Section 7.2(a)(i) of the
LLC Agreement, if the Executive’s employment is terminated with Cause, he shall not forfeit those
Restricted Common Units which immediately prior to such termination were not subject to forfeiture;
provided however, that McJ Holding LLC may repurchase those units for Fair Market
Value (as defined in the LLC Agreement). If the Executive disagrees with the amount of the Fair
Market Value as so determined, the Executive can challenge such determination in a writing to McJ
Holding LLC within 30 days of his receipt of such determination, in which case, unless McJ Holding
LLC informs the Executive of its decision in writing to not pursue the repurchase of such units,
the fair market value of such units shall be determined by a third party appraiser reasonably
acceptable to McJ Holding LLC and the Executive, with the cost of such appraisal paid 50% by the
Company and 50% by the Executive. This Section 2.3, and the definitions of Good Reason, Cause and
Disability contained in this Employment Agreement, shall control over any conflicting or
inconsistent provisions of the LLC Agreement and shall survive the expiration of this Employment
Agreement in accordance with its terms, and continue to be legally operative for so long as any
Restricted Common Units are not vested. The Executive shall make a timely and valid election
pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to all the
Restricted Common Units subject to such grant.
2.4. Cash Payment. On the Closing Date (as defined in the Merger Agreement), the
Company shall pay to the Executive two million four hundred eighty thousand dollars ($2,480,000) in
cash.
2.5. Employee Benefits. During the Term, the Executive shall be eligible to
participate in such health and other group insurance and other employee benefit plans and programs
of the Company as in effect from time to time on the same basis as other senior executives of the
Company. Notwithstanding the foregoing, during the Term, the annual value attributable to
retirement benefits will be approximately one hundred thousand dollars ($100,000), which amount (x)
is in addition to any benefits pursuant to the McJunkin Corporation Profit-Sharing and Savings Plan
and Trust and (y) includes any benefits under the Amended and Restated McJunkin Corporation
Supplemental Executive Savings Plan and Trust (the “SERP”) or any plan that replaces the
SERP.
2.6. Vacation. During the Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect from time to time.
2.7. Business Expenses. The Company shall pay or reimburse the Executive for all
commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term
in performing his duties under this Employment Agreement upon
3
presentation of documentation and in accordance with the expense reimbursement policy of the
Company as approved by the Board (or a committee thereof) and in effect from time to time.
Section 3. Employment Termination.
3.1. Termination of Employment. The Company may terminate the Executive’s employment
for any reason during the Term, and the Executive may voluntarily terminate his employment for any
reason during the Term, in each case (other than a termination by the Company for Cause) at any
time upon not less than thirty (30) days’ notice to the other party. Upon the termination of the
Executive’s employment with the Company for any reason, the Executive shall be entitled to any Base
Salary earned but unpaid through the date of termination, any earned but unpaid Annual Bonus for
completed fiscal years, and any unreimbursed expenses in accordance with Section 2.7 hereof and, to
the extent not theretofore paid or provided, any other amounts or benefits required to be paid or
provided under any plan, program, policy or practice or other contract or agreement of the Company
and its affiliated companies through the date of termination of employment (collectively, the
“Accrued Amounts”).
3.2. Certain Terminations.
(a) Termination by the Company Other Than For Cause or Disability, Termination by the
Executive for Good Reason. If the Executive’s employment is terminated during the Term (i) by
the Company other than for Cause or Disability or (ii) by the Executive for Good Reason, in
addition to the Accrued Amounts the Executive shall be entitled to the following payments and
benefits: (x) the continuation of his Base Salary at the rate in effect immediately prior to the
date of termination for a period of twelve (12) months, (y) the continuation on the same terms as
an active senior executive of medical benefits the Executive would otherwise be eligible to receive
as an active senior executive of the Company for twelve (12) months or until such earlier time as
the Executive becomes eligible for medical benefits from a subsequent employer and (z) a pro rata
Annual Bonus for the fiscal year in which the termination occurs (the “Pro Rata Annual Bonus
Payment”), based on the Company’s actual performance through the end of such fiscal year and
the number of days the Executive was employed during such fiscal year (such payments and benefits,
the “Severance Payments”). The Company’s obligations to make the Severance Payments shall
be conditioned upon: (i) the Executive’s continued compliance with his obligations under Section 4
of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a
valid and enforceable general release of claims (the “Release”) in the form attached hereto
as Exhibit A. In the event that the Executive breaches any of the covenants set forth in Section 4
of this Employment Agreement, the Executive will immediately return to the Company any portion of
the Severance Payments that have been paid to the Executive pursuant to this Section 3.2(a).
Subject to Section 3.2(d), the Severance Payments (with the exception of the Pro Rata Annual Bonus
Payment) will commence to be paid to the Executive as soon as practicable following the
effectiveness of the Release. The Pro Rata Annual Bonus Payment will be paid at the time the
Company ordinarily pays incentive bonuses to its executives with respect to the fiscal year in
which the termination occurs.
4
(b) Termination upon Death or Disability. If the Executive’s employment is terminated
due to the Executive’s death or Disability, in addition to the Accrued Amounts, the Executive (or
the Executive’s estate, if applicable) shall be entitled to receive a pro-rated portion of the
Annual Bonus based on the Company’s performance for the full fiscal year in which termination
occurs and the number of days the Executive was employed by the Company during such fiscal year.
(c) Definitions. For purposes of this Section 3.2, the following terms shall have the
following meanings:
(1) “Cause” shall mean the Executive’s (i) continuing failure, for more than 10 days
after the Company’s written notice to the Executive thereof, to perform such duties as are
reasonably requested by the Company; (ii) failure to observe material policies generally applicable
to officers or employees of the Company unless such failure is capable of being cured and is cured
within 10 days of the Executive receiving written notice of such failure; (iii) failure to
cooperate with any internal investigation of the Company; (iv) commission of any act of fraud,
theft or financial dishonesty with respect to the Company or indictment or conviction of any
felony; (v) material violation of the provisions of this Employment Agreement unless such violation
is capable of being cured and is cured within 10 days of the Executive receiving written notice of
such violation; (vi) chronic absenteeism; (vii) abuse of alcohol or another controlled substance;
or (viii) failure to make a valid and timely Section 83(b) election as set forth in Section 2.3
hereof.
(2) “Disability” shall mean the Executive is entitled to receive long-term disability
benefits under the long-term disability plan of the Company in which Executive participates, or, if
there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform
the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180
days during any 365 day period irrespective of whether such days are consecutive.
(3) “Good Reason” shall mean (i) a material and adverse change in the Executive’s
duties or responsibilities, (ii) a reduction in the Executive’s Base Salary or target Annual Bonus
or (iii) a relocation of the Executive’s principal place of employment by more than 50 miles.
(d) Section 409A Specified Employee. If the Executive is a “specified employee” for
purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder, to the extent required to comply with Section 409A of the
Code, any Severance Payments required to be made pursuant to Section 3.2(a) which are subject to
Section 409A of the Code shall not commence until one day after the day which is six (6) months
from the date of termination, with the first payment equaling six (6) months of his Base Salary at
the rate in effect immediately prior to the date of termination.
3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due the Executive upon a termination
of his employment under this Employment Agreement.
5
3.4. Resignation from All Positions. Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be deemed to have resigned, as of
the date of such termination, from all positions he then holds as an officer, director, employee
and member of the Board (and any committee thereof) and the board of directors (and any committee
thereof) of any of the Company’s affiliates.
3.5. Cooperation. Following the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably cooperate with the Company upon
reasonable request of the Board and to be reasonably available to the Company with respect to
matters arising out of the Executive’s services to the Company and its subsidiaries. The Company
shall pay the Executive a reasonable fee for any such services and promptly reimburse the Executive
for expenses reasonably incurred in connection with such matters.
Section 4. Unauthorized Disclosure; Non-Competition; Non-Solicitation;
Interference with Business Relationships; Proprietary Rights.
4.1. Unauthorized Disclosure. The Executive agrees and understands that in the
Executive’s position with the Company, the Executive has been and will be exposed to and has and
will receive information relating to the confidential affairs of the Company and its affiliates,
including, without limitation, technical information, intellectual property, business and marketing
plans, strategies, customer information, software, other information concerning the products,
promotions, development, financing, expansion plans, business policies and practices of the Company
and its affiliates and other forms of information considered by the Company and its affiliates to
be confidential or in the nature of trade secrets (including, without limitation, ideas, research
and development, know-how, formulas, technical data, designs, drawings, specifications, customer
and supplier lists, pricing and cost information and business and marketing plans and proposals)
(collectively, the “Confidential Information”). The Executive agrees that at all times
during the Executive’s employment with the Company and thereafter, the Executive shall not disclose
such Confidential Information, either directly or indirectly, to any individual, corporation,
partnership, limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality thereof (each a
“Person”) other than in connection with the Executive’s employment with the Company without
the prior written consent of the Company and shall not use or attempt to use any such information
in any manner other than in connection with his employment with the Company, unless required by law
to disclose such information, in which case the Executive shall provide the Company with written
notice of such requirement as far in advance of such anticipated disclosure as possible. This
confidentiality covenant has no temporal, geographical or territorial restriction. Upon
termination of the Executive’s employment with the Company, the Executive shall promptly supply to
the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists,
correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other
tangible product or document which has been produced by, received by or otherwise submitted to the
Executive during the Executive’s employment with the Company, and any copies thereof in his (or
capable of being reduced to his) possession; provided, however, that the Executive may retain his
full rolodex or similar address and telephone directories.
6
4.2. Non-Competition. By and in consideration of the Company’s entering into this
Employment Agreement and the payments to be made and the benefits to be provided hereunder and in
connection with the Executive’s contribution of shares of McApple pursuant to the McApple Agreement
(as defined in the Merger Agreement), and in further consideration of the Executive’s exposure to
the Confidential Information of the Company and its affiliates, the Executive agrees that the
Executive shall not, for the period which is the longer of (i) five (5) years following the
Effective Date or (ii) during the Executive’s employment with the Company (whether during the Term
or thereafter) and for a period of twenty-four (24) months thereafter (the “Restriction
Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or
participate in the ownership, management, operation or control of, or be connected in any manner
with, including, without limitation, holding any position as a stockholder, director, officer,
consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise
(as defined below); provided, that in no event shall ownership of one percent (1%) or less
of the outstanding securities of any class of any issuer whose securities are registered under the
Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 4.2, so
long as the Executive does not have, or exercise, any rights to manage or operate the business of
such issuer other than rights as a stockholder thereof. For purposes of this paragraph,
“Restricted Enterprise” shall mean any Person that is actively engaged in any geographic
area in any business which is either (i) in competition with the business of McJ Holding LLC or any
of its subsidiaries or (ii) proposed to be conducted by McJ Holding LLC or any of its subsidiaries
in the Company’s business plan as in effect at that time. During the Restriction Period, upon
request of the Company, the Executive shall notify the Company of the Executive’s then-current
employment status.
4.3. Non-Solicitation of Employees. During the Restriction Period, the Executive
shall not directly or indirectly contact, induce or solicit (or assist any Person to contact,
induce or solicit) for employment any person who is, or within twelve (12) months prior to the date
of such solicitation was, an employee of the Company or any of its affiliates.
4.4. Interference with Business Relationships. During the Restriction Period (other
than in connection with carrying out his responsibilities for the Company and its affiliates), the
Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to
contact, induce or solicit) any customer or client of the Company or its subsidiaries to terminate
its relationship or otherwise cease doing business in whole or in part with the Company or its
subsidiaries, or directly or indirectly interfere with (or assist any Person to interfere with) any
material relationship between the Company or its subsidiaries and any of its or their customers or
clients so as to cause harm to the Company or its affiliates.
4.5. Extension of Restriction Period. The Restriction Period shall be tolled for any
period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.
4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any and
all inventions, discoveries, and improvements (whether or not patentable or registrable under
copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,
discovered, reduced to practice, or made by him, either alone or in conjunction with others, during
the Executive’s employment with the Company and related to
7
the business or activities of the Company and its affiliates (the “Developments”).
Except to the extent any rights in any Developments constitute a work made for hire under the U.S.
Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by the Company and/or its
applicable affiliate, the Executive assigns all of his right, title and interest in all
Developments (including all intellectual property rights therein) to the Company or its nominee
without further compensation, including all rights or benefits therefor, including without
limitation the right to sue and recover for past and future infringement. The Executive
acknowledges that any rights in any Developments constituting a work made for hire under the U.S.
Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company and/or its applicable
affiliate as the Executive’s employer. Whenever requested to do so by the Company, the Executive
shall execute any and all applications, assignments or other instruments which the Company shall
deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or
any foreign country or otherwise protect the interests of the Company and its affiliates therein.
These obligations shall continue beyond the end of the Executive’s employment with the Company with
respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or
made by the Executive while employed by the Company, and shall be binding upon the Executive’s
employers, assigns, executors, administrators and other legal representatives. In connection with
his execution of this Employment Agreement, the Executive has informed the Company in writing of
any interest in any inventions or intellectual property rights that he holds as of the date hereof.
If the Company is unable for any reason, after reasonable effort, to obtain the Executive’s
signature on any document needed in connection with the actions described in this Section 4.6, the
Executive hereby irrevocably designates and appoints the Company and its duly authorized officers
and agents as the Executive’s agent and attorney in fact to act for and on the Executive’s behalf
to execute, verify and file any such documents and to do all other lawfully permitted acts to
further the purposes of this Section 4.6 with the same legal force and effect as if executed by the
Executive.
4.7. Confidentiality of Agreement. Other than with respect to information required to
be disclosed by applicable law, the parties hereto agree not to disclose the terms of this
Employment Agreement to any Person; provided the Executive may disclose this Employment
Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and
attorneys, so long as the Executive instructs every such Person to whom the Executive makes such
disclosure agrees not to disclose the terms of this Employment Agreement further.
4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4
would result in irreparable injury and damage to the Company for which the Company would have no
adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any
threat of breach, the Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any
and all Persons acting for and/or with the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity, including, without
limitation, the obligation of the Executive to return any Severance Payments made by the Company to
the Company. The terms of this paragraph shall not prevent the Company from pursuing any other
available remedies for any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. The Executive and the Company further agree that the
provisions of the
8
covenants contained in this Section 4 are reasonable and necessary to protect the businesses
of the Company and its affiliates because of the Executive’s access to Confidential Information and
his material participation in the operation of such businesses.
Section 5. Representation.
The Executive and the Company each represents and warrants that (i) he or it is not subject to
any contract, arrangement, policy or understanding, or to any statute, governmental rule or
regulation, that in any way limits his or its ability to enter into and fully perform his or its
obligations under this Employment Agreement and (ii) he or it is not otherwise unable to enter into
and fully perform his or its obligations under this Employment Agreement.
Section 6. Non-Disparagement.
From and after the Effective Date and following termination of the Executive’s employment with
the Company, the Executive agrees not to make any statement (other than statements made in
connection with carrying out his responsibilities for the Company and its affiliates) that is
intended to become public, or that should reasonably be expected to become public, and that
criticizes, ridicules, disparages or is otherwise derogatory of the Company or any of its
subsidiaries, affiliates, employees, officers, directors or stockholders. The Company shall cause
its officers and directors not to make any such statement regarding the Executive.
Section 7. Withholding.
The Company may withhold from any amounts payable under this Employment Agreement such
Federal, state local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. The Executive shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
Section 8. Miscellaneous.
8.1. Indemnification. The Company shall indemnify the Executive to the fullest extent
provided under the Company’s By-Laws. The Company shall also maintain director and officer
liability insurance in such amounts and subject to such limitations as the Board shall, in good
faith, deem appropriate for coverage of directors and officers of the Company.
8.2. Amendments and Waivers. This Employment Agreement and any of the provisions
hereof may be amended, waived (either generally or in a particular instance and either
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that the observance of any provision of
this Employment Agreement may be waived in writing by the party that will lose the benefit of such
provision as a result of such waiver. The waiver by any party hereto of a breach of any provision
of this Employment Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly
provided for in such waiver. Except as otherwise expressly provided herein,
9
no failure on the part of any party to exercise, and no delay in exercising, any right, power
or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as
a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such
party preclude any other or further exercise thereof or the exercise of any other right, power or
remedy.
8.3. Assignment; No Third-Party Beneficiaries. This Employment Agreement, and the
Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any
purported assignment by the Executive in violation hereof shall be null and void. Nothing in this
Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the
legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under
or by reason of this Employment Agreement.
8.4. Notices. Unless otherwise provided herein, all notices, requests, demands,
claims and other communications provided for under the terms of this Employment Agreement shall be
in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by
(i) personal delivery (including receipted courier service) or overnight delivery service, (ii)
facsimile during normal business hours, with confirmation of receipt, to the number indicated,
(iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJunkin Corporation | |||
| 835 Hillcrest Drive | ||||
| Charleston, WV 25311 | ||||
| Attention: General Counsel & Chief Executive Officer | ||||
| Facsimile: 304-348-1557 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Henry Cornell | ||||
| Facsimile: 212-357-5505 | ||||
and |
||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 | ||||
| If to the Executive: | David Fox, III, at his principal office at the Company (during the Term), and at all times to his principal residence as reflected in the records of the Company. |
10
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
8.5. Governing Law. This Employment Agreement shall be construed and enforced in
accordance with, and the rights and obligations of the parties hereto shall be governed by, the
laws of the State of New York, without giving effect to the conflicts of law principles thereof.
8.6. Severability. Whenever possible, each provision or portion of any provision of
this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in
such manner as to be effective and valid under applicable law but the invalidity or
unenforceability of any provision or portion of any provision of this Employment Agreement in any
jurisdiction shall not affect the validity or enforceability of the remainder of this Employment
Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement,
including that provision or portion of any provision, in any other jurisdiction. In addition,
should a court or arbitrator determine that any provision or portion of any provision of this
Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid,
either in period of time, geographical area, or otherwise, the parties hereto agree that such
provision should be interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable or valid.
8.7. Entire Agreement. From and after the Effective Date, (i) this Employment
Agreement, (ii) the Contribution Agreement and (iii) the LLC Agreement constitute the entire
agreement between the parties hereto, and supersede all prior representations, agreements and
understandings (including any prior course of dealings), both written and oral, between the parties
hereto with respect to the subject matter hereof. In the event the Closing (as defined in the
Merger Agreement) does not occur before the date the Merger Agreement terminates in accordance with
its terms, this Employment Agreement shall terminate, and shall be of no force or effect.
8.8. Counterparts. This Employment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
8.9. Binding Effect. This Employment Agreement shall inure to the benefit of, and be
binding on, the successors and assigns of each of the parties, including, without limitation, the
Executive’s heirs and the personal representatives of the Executive’s estate and any successor to
all or substantially all of the business and/or assets of the Company.
8.10. General Interpretive Principles. The name assigned this Employment Agreement
and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment
Agreement are for convenience of reference only and shall not in any way affect the meaning or
interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms
of limitation herein, so that references to “include”, “includes”
11
and “including” shall not be limiting and shall be regarded as references to non-exclusive and
non-characterizing illustrations.
8.11. No Mitigation. Notwithstanding any other provision of this Employment
Agreement, (a) the Executive will have no obligation to mitigate damages for any breach or
termination of this Employment Agreement by the Company, whether by seeking employment or otherwise
and (b) the amount of any payment or benefit due the Executive after the date of such breach or
termination will not be reduced or offset by any payment or benefit that the Executive may receive
from any other source.
8.12. Section 409A Compliance. This Employment Agreement is intended to comply with
Section 409A of the Code (to the extent applicable) and, to the extent it would not adversely
impact the Company, the Company agrees to interpret, apply and administer this Employment Agreement
in the least restrictive manner necessary to comply with such requirements and without resulting in
any diminution in the value of payment or benefits to the Executive.
12
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ H.B. Wehrle, III | |||
| Name: | H.B. Wehrle, III | |||
| Title: | Chief Executive Officer | |||
| McJ HOLDING LLC |
||||
| By: | /s/ John E. Bowman | |||
| Name: | John E. Bowman | |||
| Title: | Vice President | |||
| /s/ David Fox III | ||||
| David Fox, III | ||||
[Employment Agreement with D. Fox, III]
Exhibit A
Release
1. In consideration of the payments and benefits to be made under the Employment Agreement,
dated as of December 4, 2006 (the “Employment Agreement”), to which David Fox, III (the
“Executive”), McJ Holding LLC (the “LLC”) and McJunkin Corporation (the
“Company”) (each of the Executive, the LLC and the Company, a “Party” and
collectively, the “Parties”) are parties, the sufficiency of which the Executive
acknowledges, the Executive, with the intention of binding himself and his heirs, executors,
administrators and assigns, does hereby release, remise, acquit and forever discharge the Company
and each of its subsidiaries and affiliates (the “Company Affiliated Group”), their present
and former officers, directors, executives, shareholders, agents, attorneys, employees and employee
benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each
of the foregoing (collectively, the “Company Released Parties”), of and from any and all
claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of
money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of
whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent,
unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the
Executive, individually or as a member of a class, now has, owns or holds, or has at any time
heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released
Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with
the Company or any of its subsidiaries and affiliates, or any termination of such employment,
including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive
payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of
applicable state and local labor and employment laws (including, without limitation, all laws
concerning unlawful and unfair labor and employment practices) and (iv) for employment
discrimination under any applicable federal, state or local statute, provision, order or
regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of
1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the
Americans with Disabilities Act (“ADA”), the Executive Retirement Income Security Act of
1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and
any similar or analogous state statute, excepting only:
| (A) | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| (B) | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| (C) | claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and |
| (D) | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
2. The Employee acknowledges and agrees that the release of claims set forth in this Release
is not to be construed in any way as an admission of any liability whatsoever by any Company
Released Party, any such liability being expressly denied.
3. The release of claims set forth in this Release applies to any relief no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.
4. The Executive specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Release is, among other things, a specific waiver of his rights, claims
and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect
of discrimination of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause
of action which by law the Executive is not permitted to waive.
5. As to rights, claims and causes of action arising under the ADEA, the Executive
acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider
whether to execute this Release. If the Executive accepts the terms hereof and executes this
Release, he may thereafter, for a period of seven (7) days following (and not including) the date
of execution, revoke this Release as it relates to the release of claims arising under the ADEA.
If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding
and enforceable against the Executive, on the day next following the day on which the foregoing
seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit
any right to payment of the Severance Payments (as defined in the Employment Agreement), but the
remainder of the Employment Agreement shall continue in full force.
6. Other than as to rights, claims and causes of action arising under the ADEA, the release of
claims set forth in this Release shall be immediately effective upon execution by the Executive.
7. The Executive acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against
any Company Released Party with any governmental agency, court or tribunal.
8. The Executive acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of claims set forth in
this Release, and has been given a sufficient period within which to consider the release of claims
set forth in this Release.
9. The Executive acknowledges that the release of claims set forth in this Release relates
only to claims which exist as of the date of this Release.
10. The Executive acknowledges that the Severance Payments he is receiving in connection with
the release of claims set forth in this Release and his obligations under this Release are in
addition to anything of value to which the Executive is entitled from the Company.
11. Each provision hereof is severable from this Release, and if one or more provisions hereof
are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.
If any provision of this Release is so broad, in scope, or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
12. This Release constitutes the complete agreement of the Parties in respect of the subject
matter hereof and shall supersede all prior agreements between the Parties in respect of the
subject matter hereof except to the extent set forth herein.
13. The failure to enforce at any time any of the provisions of this Release or to require at
any time performance by another party of any of the provisions hereof shall in no way be construed
to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or
the right of any party thereafter to enforce each and every such provision in accordance with the
terms of this Release.
14. This Release may be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same instrument. Signatures
delivered by facsimile shall be deemed effective for all purposes.
15. This Release shall be binding upon any and all successors and assigns of the Executive and
the Company.
16. Except for issues or matters as to which federal law is applicable, this Release shall be
governed by and construed and enforced in accordance with the laws of the State of New York without
giving effect to the conflicts of law principles thereof.
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of .
| MCJUNKIN CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| McJ HOLDING LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| David Fox, III | ||||
Exhibit 10.15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 31, 2007 (the “Employment Agreement”), by
and among McJ Holding LLC, a Delaware limited liability company (“McJ Holding LLC”),
McJunkin Corporation, a West Virginia corporation (the “Company”), and Dee Paige (the
“Executive”). The name of McJ Holding LLC shall be changed to PVF Holding LLC prior to the
Effective Date (as defined below).
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of July 6, 2007 (the “Stock
Purchase Agreement”), between West Oklahoma PVF Company, a Delaware corporation
(“Buyer”), and Red Man Pipe & Supply Co., an Oklahoma corporation (“Sooner”), and
the holders of all outstanding shares of stock of Sooner listed on Schedule 1 thereto, Buyer will
acquire all of the issued and outstanding capital stock of Sooner;
WHEREAS, the Executive acknowledges that Buyer would not have entered into the Stock Purchase
Agreement unless the Executive executes this Employment Agreement and agrees to be bound by the
covenants contained in Section 4 hereof; and
WHEREAS, the Executive is currently employed by Sooner and the Company desires to employ the
Executive on the terms and conditions set forth in this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
Section 1. Employment.
1.1. Term. McJ Holding LLC and the Company agree to employ the Executive, and the
Executive agrees to be employed by McJ Holding LLC and the Company, in each case pursuant to this
Employment Agreement, for a period commencing on the Closing Date (as defined in the Stock Purchase
Agreement) (such date, the “Effective Date”) and ending on the earlier of (i) the third
(3rd) anniversary of the Effective Date and (ii) the termination of the Executive’s employment in
accordance with Section 3 hereof (the “Term”).
1.2. Duties. During the Term, the Executive shall serve as the Company’s Executive
Vice President — International & Corporate Development and such other positions as an officer or
director of the Company and such affiliates of the Company as the Executive and the board of
directors of the Company (the “Board”) shall mutually agree from time to time. In such
positions, the Executive shall perform such duties, functions and responsibilities during the Term
commensurate with the Executive’s positions as reasonably directed by the Co-Chief Executive
Officers of the Company, or at such time as there is one Chief Executive Officer, the Chief
Executive Officer (the Co-Chief Executive Officers or Chief Executive Officer, as applicable, the
“CEO”).
1.3. Exclusivity. During the Term, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive shall devote his full time and attention to the
business and affairs of the Company, shall faithfully serve the Company, and shall in all material
respects conform to and comply with the lawful and
reasonable directions and instructions given to him by the CEO, consistent with Section 1.2
hereof. During the Term, the Executive shall use his best efforts to promote and serve the
interests of the Company and shall not engage in any other business activity, whether or not such
activity shall be engaged in for pecuniary profit; provided, however, that it shall not be
a violation of this Employment Agreement for the Executive to engage in other outside business
activities with the Board’s prior written consent.
Section 2. Compensation.
2.1. Salary. Subject to the last two sentences of this Section 2.1, as compensation
for the performance of the Executive’s services hereunder, until November 1, 2007 the Company shall
pay to the Executive the same base salary as he was being paid immediately before the Effective
Date, and during the Term, beginning November 1, 2007, the Company shall pay to the Executive a
salary at an annual rate of three hundred thirty-eight thousand seven hundred fifty dollars
($338,750), in each case payable in accordance with the Company’s standard payroll policies (the
“Base Salary”). The Base Salary will be reviewed annually and may be adjusted upward by
the Board (or a committee thereof) in its discretion, based on competitive data and the Executive’s
performance. Subject to the last two sentences of this Section 2.1, no increase in Base Salary
shall limit or reduce any other right or obligation to the Executive under this Employment
Agreement and the Base Salary shall not be reduced at any time (including after any such increase).
Prior to the beginning of each full calendar year during the Term, the Company shall determine the
amount of retirement plan contributions payable to or on behalf of the Executive for such year. To
the extent that amount exceeds $22,500, the Base Salary shall be reduced by half of such excess.
To the extent that amount is less than $22,500, the Base Salary shall be increased by half of such
difference.
2.2. Annual Bonus. Beginning with the fiscal year that commences on January 1, 2008,
for each completed fiscal year during the Term the Executive shall be eligible to receive
additional cash incentive compensation (the “Annual Bonus”). The target Annual Bonus shall
be 100% of the Executive’s Base Salary as in effect at the beginning of such fiscal year (after
taking into effect any increase or decrease made pursuant to Section 2.1), with the actual Annual
Bonus to be based upon such individual and/or Company performance criteria established for each
such fiscal year by the Board in consultation with the CEO. The Annual Bonus for the calendar year
ending December 31, 2007 shall be determined in accordance with the existing bonus plan of Sooner,
consistent with past practice.
2.3. Equity. On the Effective Date, pursuant to the Limited Liability Company
Agreement of McJ Holding LLC dated as of December 4, 2006, as amended or restated from time to time
(the “LLC Agreement”), the Executive will be granted 597.3853 Profits Units (as defined in
the LLC Agreement). Notwithstanding Section 7.2(a)(ii) of the LLC Agreement, if the Executive
terminates his employment with Good Reason (as defined herein) or the Company terminates the
Executive’s employment without Cause (as defined herein), no Profits Units issued to the Executive
shall be subject to forfeiture.
2.4. Employee Benefits. During the Term, the Executive shall be eligible to
participate in such health and other group insurance and other employee benefit plans
2
and programs of the Company as in effect from time to time on the same basis as other senior
executives of the Company.
2.5. Vacation. During the Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect from time to time.
2.6. Business Expenses. The Company shall pay or reimburse the Executive for all
commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term
in performing his duties under this Employment Agreement upon presentation of documentation and in
accordance with the expense reimbursement policy of the Company as approved by the Board (or a
committee thereof) and in effect from time to time.
Section 3. Employment Termination.
3.1. Termination of Employment. The Company may terminate the Executive’s employment
for any reason during the Term, and the Executive may voluntarily terminate his employment for any
reason during the Term, in each case (other than a termination by the Company for Cause) at any
time upon not less than thirty (30) days’ notice to the other party. Upon the termination of the
Executive’s employment with the Company for any reason, the Executive shall be entitled to any Base
Salary earned but unpaid through the date of termination, any earned but unpaid Annual Bonus for
completed fiscal years, any unreimbursed expenses in accordance with Section 2.6 hereof and, to the
extent not theretofore paid or provided, any other amounts or benefits required to be paid or
provided under any plan, program, policy or practice or other contract or agreement of the Company
and its affiliated companies through the date of termination of employment (collectively, the
“Accrued Amounts”).
3.2. Certain Terminations.
(a) Termination by the Company other than for Cause or Disability; Termination by the
Executive for Good Reason. If the Executive’s employment is terminated during the Term (i) by
the Company other than for Cause or Disability or (ii) by the Executive for Good Reason, in
addition to the Accrued Amounts the Executive shall be entitled to the following payments and
benefits: (x) the continuation of his Base Salary at the rate in effect immediately prior to the
date of termination for a period of twelve (12) months, (y) the continuation on the same terms as
an active senior executive of medical benefits the Executive would otherwise be eligible to receive
as an active senior executive of the Company for twelve (12) months or until such earlier time as
the Executive becomes eligible for medical benefits from a subsequent employer and (z) a pro rata
Annual Bonus for the fiscal year in which the termination occurs (the “Pro Rata Annual Bonus
Payment”), based on the Company’s actual performance through the end of such fiscal year and
the number of days the Executive was employed during such fiscal year (such payments and benefits,
the “Severance Payments”). The Company’s obligations to make the Severance Payments shall
be conditioned upon: (i) the Executive’s continued compliance with his obligations under Section 4
of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a
valid and enforceable general release of claims (the “Release”) in the form attached hereto
as Exhibit A. In the event that the Executive breaches any of the covenants set forth in Section 4
of this Employment Agreement, the Executive will immediately return to the Company any portion of
3
the Severance Payments that have been paid to the Executive pursuant to this Section 3.2(a).
Subject to Section 3.2(d), the Severance Payments (with the exception of the Pro Rata Annual Bonus
Payment) will commence to be paid to the Executive as soon as practicable following the
effectiveness of the Release. The Pro Rata Annual Bonus Payment will be paid at the time the
Company ordinarily pays incentive bonuses to its executives with respect to the fiscal year in
which the termination occurs.
(b) Termination upon Death or Disability. If the Executive’s employment is terminated
due to the Executive’s death or Disability, in addition to the Accrued Amounts, the Executive (or
the Executive’s estate, if applicable) shall be entitled to receive a pro-rated portion of the
Annual Bonus based on the Company’s performance for the full fiscal year in which termination
occurs and the number of days the Executive was employed by the Company during such fiscal year.
(c) Definitions. For purposes of this Section 3.2, the following terms shall have the
following meanings:
(1) “Cause” shall mean the Executive’s (i) continuing failure, for more than 10 days
after the Company’s written notice to the Executive thereof, to perform such duties as are
reasonably requested by the Company; (ii) failure to observe material policies generally applicable
to officers or employees of the Company unless such failure is capable of being cured and is cured
within 10 days of the Executive receiving written notice of such failure; (iii) failure to
cooperate with any internal investigation of the Company; (iv) commission of any act of fraud,
theft or financial dishonesty with respect to the Company or indictment or conviction of any
felony; (v) material violation of the provisions of this Employment Agreement unless such violation
is capable of being cured and is cured within 10 days of the Executive receiving written notice of
such violation; (vi) chronic absenteeism; or (vii) abuse of alcohol or another controlled
substance.
(2) “Disability” shall mean the Executive is entitled to receive long-term disability
benefits under the long-term disability plan of the Company in which Executive participates, or, if
there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform
the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180
days during any 365 day period irrespective of whether such days are consecutive.
(3) “Good Reason” shall mean (i) a material and adverse change in the Executive’s
duties or responsibilities, (ii) a reduction in the Executive’s Base Salary or target Annual Bonus
or (iii) a relocation of the Executive’s principal place of employment by more than 50 miles.
(d) Section 409A Specified Employee. If the Executive is a “specified employee” for
purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder, to the extent required to comply with Section 409A
of the Code, any Severance Payments required to be made pursuant to Section 3.2(a) which are
subject to Section 409A of the Code shall not commence until one day after the day which is six (6)
months from the date of termination, with the first payment
4
equaling six (6) months of his Base Salary at the rate in effect immediately prior to the date
of termination.
3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due the Executive upon a termination
of his employment under this Employment Agreement.
3.4. Resignation from All Positions. Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be deemed to have resigned, as of
the date of such termination, from all positions he then holds as an officer, director, employee
and member of the Board (and any committee thereof) and the board of directors (and any committee
thereof) of any of the Company’s affiliates.
3.5. Cooperation. Following the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably cooperate with the Company upon
reasonable request of the Board and to be reasonably available to the Company with respect to
matters arising out of the Executive’s services to the Company and its subsidiaries. The Company
shall pay the Executive a reasonable fee for any such services and promptly reimburse the Executive
for expenses reasonably incurred in connection with such matters.
Section 4. Unauthorized Disclosure; Non-Competition; Non-Solicitation;
Interference with Business Relationships; Proprietary Rights.
4.1. Unauthorized Disclosure. The Executive agrees and understands that in the
Executive’s position with Sooner and the Company, the Executive has been and will be exposed to and
has and will receive information relating to the confidential affairs of the Company and its
affiliates, including, without limitation, technical information, intellectual property, business
and marketing plans, strategies, customer information, software, other information concerning the
products, promotions, development, financing, expansion plans, business policies and practices of
the Company and its affiliates and other forms of information considered by the Company and its
affiliates to be confidential or in the nature of trade secrets (including, without limitation,
ideas, research and development, know-how, formulas, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and business and
marketing plans and proposals) (collectively, the “Confidential Information”). The
Executive agrees that at all times during the Executive’s employment with the Company and
thereafter, the Executive shall not disclose such Confidential Information, either directly or
indirectly, to any individual, corporation, partnership, limited liability company, association,
trust or other entity or organization, including a government or political subdivision or an agency
or instrumentality thereof (each a “Person”) other than in connection with the Executive’s
employment with the Company without the prior written consent of the Company and shall not use or
attempt to use any such information in any manner other than in connection with his employment with
the Company, unless required by law to disclose such information, in which case the Executive shall
provide the Company with written notice of such requirement as far in advance of such anticipated
disclosure as possible. This confidentiality covenant has no temporal, geographical or territorial
restriction. Upon termination of the Executive’s employment with the Company, the Executive shall
promptly supply to the Company all
5
property, keys, notes, memoranda, writings, lists, files, reports, customer lists,
correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other
tangible product or document which has been produced by, received by or otherwise submitted to the
Executive during the Executive’s employment with the Company, and any copies thereof in his (or
capable of being reduced to his) possession; provided, however, that the Executive may
retain his full rolodex or similar address and telephone directories.
4.2. Non-Competition. By and in consideration of the Company’s entering into this
Employment Agreement and the payments to be made and the benefits to be provided hereunder, and in
further consideration of the Executive’s exposure to the Confidential Information of the Company
and its affiliates, the Executive agrees that the Executive shall not, during the Executive’s
employment with the Company (whether during the Term or thereafter) and for a period of twelve (12)
months thereafter (the “Restriction Period”), directly or indirectly, own, manage, operate,
join, control, be employed by, or participate in the ownership, management, operation or control
of, or be connected in any manner with, including, without limitation, holding any position as a
stockholder, director, officer, consultant, independent contractor, employee, partner, or investor
in, any Restricted Enterprise (as defined below) and in connection with the Executive’s association
directly or indirectly engage in any activity that is similar to any activity that the Executive
was engaged in with the Company during the 12 months preceding the date of termination;
provided, that in no event shall ownership of one percent (1%) or less of the outstanding
securities of any class of any issuer whose securities are registered under the Securities Exchange
Act of 1934, as amended, standing alone, be prohibited by this Section 4.2, so long as the
Executive does not have, or exercise, any rights to manage or operate the business of such issuer
other than rights as a stockholder thereof. For purposes of this paragraph, “Restricted
Enterprise” shall mean (i) any Person that is actively engaged in any geographic area in any
business which materially competes with McJ Holding LLC’s or any of its subsidiaries’ business of
the distribution of industrial pipe, valves and fittings or any other business which is material to
McJ Holding LLC or any of its subsidiaries (a “Material Business”) or (ii) any Person who
within a two (2) year period following termination of the Executive’s employment is reasonably
expected to materially compete with a Material Business or have revenue in excess of $100,000,000
derived from a business that is competitive with a Material Business. During the Restriction
Period, upon request of the Company, the Executive shall notify the Company of the Executive’s
then-current employment status.
4.3. Non-Solicitation of Employees. During the Restriction Period, the Executive
shall not directly or indirectly contact, induce or solicit (or assist any Person to contact,
induce or solicit) for employment any person who is, or within twelve (12) months prior to the date
of such solicitation was, an employee of the Company or any of its affiliates.
4.4. Interference with Business Relationships. During the Restriction Period (other
than in connection with carrying out his responsibilities for the Company and its affiliates), the
Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to
contact, induce or solicit) any customer or client of the Company or its subsidiaries to terminate
its relationship or otherwise cease doing business in whole or in part with the Company or its
subsidiaries, or directly or indirectly interfere with (or assist any Person to
6
interfere with) any material relationship between the Company or its subsidiaries and any of
its or their customers or clients so as to cause harm to the Company or its affiliates.
4.5. Extension of Restriction Period. The Restriction Period shall be tolled for any
period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.
4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any and
all inventions, discoveries, and improvements (whether or not patentable or registrable under
copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,
discovered, reduced to practice, or made by him, either alone or in conjunction with others, during
the Executive’s employment with the Company and related to the business or activities of the
Company and its affiliates (the “Developments”). Except to the extent any rights in any
Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq.
that are owned ab initio by the Company and/or its applicable affiliate, the Executive assigns all
of his right, title and interest in all Developments (including all intellectual property rights
therein) to the Company or its nominee without further compensation, including all rights or
benefits therefor, including without limitation the right to sue and recover for past and future
infringement. The Executive acknowledges that any rights in any Developments constituting a work
made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the
Company and/or its applicable affiliate as the Executive’s employer. Whenever requested to do so
by the Company, the Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or
copyrights of the United States or any foreign country or otherwise protect the interests of the
Company and its affiliates therein. These obligations shall continue beyond the end of the
Executive’s employment with the Company with respect to inventions, discoveries, improvements or
copyrightable works initiated, conceived or made by the Executive while employed by the Company,
and shall be binding upon the Executive’s employers, assigns, executors, administrators and other
legal representatives. In connection with his execution of this Employment Agreement, the
Executive has informed the Company in writing of any interest in any inventions or intellectual
property rights that he holds as of the date hereof as set forth on Exhibit B hereto (the
“Existing Inventions”). Notwithstanding anything to the contrary herein, the Developments
shall not include any Existing Inventions. If the Company is unable for any reason, after
reasonable effort, to obtain the Executive’s signature on any document needed in connection with
the actions described in this Section 4.6, the Executive hereby irrevocably designates and appoints
the Company and its duly authorized officers and agents as the Executive’s agent and attorney in
fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of this Section 4.6 with the same
legal force and effect as if executed by the Executive.
4.7. Confidentiality of Agreement. Other than with respect to information required to
be disclosed by applicable law, the parties hereto agree not to disclose the terms of this
Employment Agreement to any Person; provided the Executive may disclose this Employment
Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and
attorneys, so long as the Executive instructs every such Person to whom
7
the Executive makes such disclosure not to disclose the terms of this Employment Agreement
further.
4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4
would result in irreparable injury and damage to the Company for which the Company would have no
adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any
threat of breach, the Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any
and all Persons acting for and/or with the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity, including, without
limitation, the obligation of the Executive to return any Severance Payments made by the Company to
the Company. The terms of this paragraph shall not prevent the Company from pursuing any other
available remedies for any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. The Executive and the Company further agree that the
provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the
businesses of the Company and its affiliates because of the Executive’s access to Confidential
Information and his material participation in the operation of such businesses.
Section 5. Representation.
The Executive and the Company each represents and warrants that (i) he or it is not subject to
any contract, arrangement, policy or understanding, or to any statute, governmental rule or
regulation, that in any way limits his or its ability to enter into and fully perform his or its
obligations under this Employment Agreement and (ii) he or it is not otherwise unable to enter into
and fully perform his or its obligations under this Employment Agreement.
Section 6. Non-Disparagement.
From and after the Effective Date and following termination of the Executive’s employment with
the Company, the Executive agrees not to make any statement (other than statements made in
connection with carrying out his responsibilities for the Company and its affiliates) that is
intended to become public, or that should reasonably be expected to become public, and that
criticizes, ridicules, disparages or is otherwise derogatory of the Company or any of its
subsidiaries, affiliates, employees, officers, directors or stockholders. The Company shall cause
its officers and directors not to make any such statement regarding the Executive.
Section 7. Withholding.
The Company may withhold from any amounts payable under this Employment Agreement such
Federal, state local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. The Executive shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
Section 8. Miscellaneous.
8
8.1. Indemnification. The Company shall indemnify the Executive to the fullest extent
provided under the Company’s By-Laws. The Company shall also maintain director and officer
liability insurance in such amounts and subject to such limitations as the Board shall, in good
faith, deem appropriate for coverage of directors and officers of the Company.
8.2. Amendments and Waivers. This Employment Agreement and any of the provisions
hereof may be amended, waived (either generally or in a particular instance and either
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that, the observance of any provision of
this Employment Agreement may be waived in writing by the party that will lose the benefit of such
provision as a result of such waiver. The waiver by any party hereto of a breach of any provision
of this Employment Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly
provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or
otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or remedy by such party preclude any
other or further exercise thereof or the exercise of any other right, power or remedy.
8.3. Assignment; No Third-Party Beneficiaries. This Employment Agreement, and the
Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any
purported assignment by the Executive in violation hereof shall be null and void. Nothing in this
Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the
legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under
or by reason of this Employment Agreement.
8.4. Notices. Unless otherwise provided herein, all notices, requests, demands,
claims and other communications provided for under the terms of this Employment Agreement shall be
in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by
(i) personal delivery (including receipted courier service) or overnight delivery service, (ii)
facsimile during normal business hours, with confirmation of receipt, to the number indicated,
(iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJ Holding LLC | |||
| 835 Hillcrest Drive | ||||
| Charleston, WV 25311 | ||||
| Attention: General Counsel | ||||
| Facsimile: 304-348-1557 | ||||
| and | ||||
| 8023 East 63rd Place, Suite 800 |
9
| Tulsa, Oklahoma 74133 | ||||
| Attention: General Counsel | ||||
| Facsimile: 918-461-5375 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Jack Daly | ||||
| Facsimile: 212-357-5505 | ||||
| and | ||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 | ||||
| If to the Executive: | Dee Paige, at his principal office | |||
| at the Company (during the Term), and | ||||
| at all times to his principal residence as | ||||
| reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
8.5. Governing Law. This Employment Agreement shall be construed and enforced in
accordance with, and the rights and obligations of the parties hereto shall be governed by, the
laws of the State of New York, without giving effect to the conflicts of law principles thereof.
8.6. Severability. Whenever possible, each provision or portion of any provision of
this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in
such manner as to be effective and valid under applicable law but the invalidity or
unenforceability of any provision or portion of any provision of this Employment Agreement in any
jurisdiction shall not affect the validity or enforceability of the remainder of this Employment
Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement,
including that provision or portion of any provision, in any other jurisdiction. In addition,
should a court or arbitrator determine that any provision or portion of any provision of this
Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid,
either in period of time, geographical area, or otherwise, the parties hereto agree that such
provision should be interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable or valid.
10
8.7. Entire Agreement. From and after the Effective Date this Employment Agreement
and the LLC Agreement constitute the entire agreement between the parties hereto, and supersede all
prior representations, agreements and understandings (including any prior course of dealings), both
written and oral, between the parties hereto with respect to the subject matter hereof. In the
event the Closing (as defined in the Stock Purchase Agreement) does not occur before the date the
Stock Purchase Agreement terminates in accordance with its terms, this Employment Agreement shall
terminate, and shall be of no force or effect.
8.8. Counterparts. This Employment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
8.9. Binding Effect. This Employment Agreement shall inure to the benefit of, and be
binding on, the successors of each of the parties, including, without limitation, the Executive’s
heirs and the personal representatives of the Executive’s estate and any successor to all or
substantially all of the business and/or assets of the Company.
8.10. General Interpretive Principles. The name assigned this Employment Agreement
and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment
Agreement are for convenience of reference only and shall not in any way affect the meaning or
interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms
of limitation herein, so that references to “include,” “includes” and “including” shall not be
limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.
8.11. Mitigation. Notwithstanding any other provision of this Employment Agreement,
(a) the Executive will have no obligation to mitigate damages for any breach or termination of this
Employment Agreement by the Company, whether by seeking employment or otherwise and (b) the amount
of any payment or benefit due the Executive after the date of such breach or termination will not
be reduced or offset by any payment or benefit that the Executive may receive from any other
source.
8.12 Section 409A Compliance. This Employment Agreement is intended to comply with
Section 409A of the Code (to the extent applicable) and, to the extent it would not adversely
impact the Company, the Company agrees to interpret, apply and administer this Employment Agreement
in the least restrictive manner necessary to comply with such requirements and without resulting in
any diminution in the value of payments or benefits to the Executive.
11
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.
| MCJUNKIN CORPORATION |
|||||
| By: | /s/ H.B. Wehrle III | ||||
| Name: H.B. Wehrle III | |||||
| Title: President and CEO | |||||
| McJ HOLDING LLC |
|||||
| By: | /s/ H.B. Wehrle III | ||||
| Name: H.B. Wehrle III | |||||
| Title: President and CEO | |||||
| /s/ Dee Paige | |||||
| Dee Paige | |||||
[Employment Agreement with Dee Paige]
Exhibit A
Release
1. In consideration of the payments and benefits to be made under the Employment Agreement,
dated as of October 31, 2007 (the “Employment Agreement”), to which Dee Paige (the
“Executive”), McJ Holding LLC (the “LLC”) and McJunkin Corporation (the
“Company”) (each of the Executive, the LLC and the Company, a “Party” and
collectively, the “Parties”) are parties, the sufficiency of which the Executive
acknowledges, the Executive, with the intention of binding himself and his heirs, executors,
administrators and assigns, does hereby release, remise, acquit and forever discharge the Company
and each of its subsidiaries and affiliates (the “Company Affiliated Group”), their present
and former officers, directors, executives, shareholders, agents, attorneys, employees and employee
benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each
of the foregoing (collectively, the “Company Released Parties”), of and from any and all
claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of
money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of
whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent,
unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the
Executive, individually or as a member of a class, now has, owns or holds, or has at any time
heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released
Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with
the Company or any of its subsidiaries and affiliates, or any termination of such employment,
including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive
payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of
applicable state and local labor and employment laws (including, without limitation, all laws
concerning unlawful and unfair labor and employment practices) and (iv) for employment
discrimination under any applicable federal, state or local statute, provision, order or
regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of
1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the
Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and
any similar or analogous state statute, excepting only:
| (A) | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| (B) | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| (C) | claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and |
| (D) | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
2. The Employee acknowledges and agrees that the release of claims set forth in this Release
is not to be construed in any way as an admission of any liability whatsoever by any Company
Released Party, any such liability being expressly denied.
3. The release of claims set forth in this Release applies to any relief no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.
4. The Executive specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Release is, among other things, a specific waiver of his rights, claims
and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect
of discrimination of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause
of action which by law the Executive is not permitted to waive.
5. As to rights, claims and causes of action arising under the ADEA, the Executive
acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider
whether to execute this Release. If the Executive accepts the terms hereof and executes this
Release, he may thereafter, for a period of seven (7) days following (and not including) the date
of execution, revoke this Release as it relates to the release of claims arising under the ADEA.
If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding
and enforceable against the Executive, on the day next following the day on which the foregoing
seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit
any right to payment of the Severance Payments (as defined in the Employment Agreement), but the
remainder of the Employment Agreement shall continue in full force.
6. Other than as to rights, claims and causes of action arising under the ADEA, the release of
claims set forth in this Release shall be immediately effective upon execution by the Executive.
7. The Executive acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against
any Company Released Party with any governmental agency, court or tribunal.
8. The Executive acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of claims set forth in
this Release, and has been given a sufficient period within which to consider the release of claims
set forth in this Release.
9. The Executive acknowledges that the release of claims set forth in this Release relates
only to claims which exist as of the date of this Release.
10. The Executive acknowledges that the Severance Payments he is receiving in connection with
the release of claims set forth in this Release and his obligations under this Release are in
addition to anything of value to which the Executive is entitled from the Company.
11. Each provision hereof is severable from this Release, and if one or more provisions hereof
are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.
If any provision of this Release is so broad, in scope, or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
12. This Release constitutes the complete agreement of the Parties in respect of the subject
matter hereof and shall supersede all prior agreements between the Parties in respect of the
subject matter hereof except to the extent set forth herein.
13. The failure to enforce at any time any of the provisions of this Release or to require at
any time performance by another party of any of the provisions hereof shall in no way be construed
to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or
the right of any party thereafter to enforce each and every such provision in accordance with the
terms of this Release.
14. This Release may be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same instrument. Signatures
delivered by facsimile shall be deemed effective for all purposes.
15. This Release shall be binding upon any and all successors and assigns of the Executive and
the Company.
16. Except for issues or matters as to which federal law is applicable, this Release shall be
governed by and construed and enforced in accordance with the laws of the State of New York without
giving effect to the conflicts of law principles thereof.
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of ____________________.
| MCJUNKIN CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| McJ HOLDING LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Dee Paige | ||||
Exhibit B
Existing Inventions
[none]
Exhibit 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 4, 2006 (the “Employment Agreement”), by
and among McJ Holding LLC, a Delaware limited liability company (“McJ Holding LLC”),
McJunkin Corporation, a West Virginia corporation (the “Company”), and Stephen D. Wehrle
(the “Executive”).
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of the date hereof (the
“Merger Agreement”), between McJ Holding Corporation, a Delaware corporation (“McJ
Holding Corporation”), Hg Acquisition Corp., a West Virginia corporation and wholly-owned
subsidiary of McJ Holding Corporation (“Hg Acquisition”) and the Company, Hg Acquisition
will merge with and into the Company with the Company continuing as the surviving corporation (the
“Merger”);
WHEREAS, pursuant to the (i) Merger Agreement, (ii) McJunkin Contribution Agreement, dated as
of the date hereof, among McJ Holding LLC, the Company, the Executive and the other Major
Shareholders (as defined in the Merger Agreement) (the “McJ Contribution Agreement”) and
(iii) McApple Contribution Agreement, dated as of the date hereof, among McJ Holding LLC, the
Company, the Executive and the other shareholders of McJunkin Appalachian Oilfield Supply Company
(“McApple”) named on Exhibit A thereto (the “McApple Contribution Agreement”), and
by reason of the consummation of the transactions thereunder, the Executive will sell shares of the
Company and McApple and receive significant consideration therefor;
WHEREAS, the Executive acknowledges that McJ Holding Corporation would not have entered into
the Merger Agreement unless the Executive executes this Employment Agreement and agrees to be bound
by the covenants contained in Section 4 hereof; and
WHEREAS, the Executive is currently employed as the Company’s Executive Vice President of
Sales and the Company and the Executive desire to continue the Executive’s employment with the
Company on the terms and conditions set forth in this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
Section 1. Employment.
1.1. Term. McJ Holding LLC and the Company agree to employ the Executive, and the
Executive agrees to be employed by McJ Holding LLC and the Company, in each case pursuant to this
Employment Agreement, for a period commencing on the Closing Date (as defined in the Merger
Agreement) (such date, the “Effective Date”) and ending on the earlier of (i) the third
(3rd) anniversary of the Effective Date and (ii) the termination of the Executive’s employment in
accordance with Section 3 hereof (the “Term”).
1.2. Duties. During the Term, the Executive shall serve as the Company’s Executive
Vice President of Sales and such other positions as an officer or director
of the Company and such affiliates of the Company as the Executive and the board of directors
of the Company (the “Board”) shall mutually agree from time to time. In such positions,
the Executive shall perform such duties, functions and responsibilities during the Term
commensurate with the Executive’s positions as reasonably directed by the Chief Executive Officer
of the Company (the “CEO”).
1.3. Exclusivity. During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive shall devote his full time and attention to
the business and affairs of the Company, shall faithfully serve the Company, and shall in all
material respects conform to and comply with the lawful and reasonable directions and instructions
given to him by the CEO, consistent with Section 1.2 hereof. During the Term, the Executive shall
use his best efforts to promote and serve the interests of the Company and shall not engage in any
other business activity, whether or not such activity shall be engaged in for pecuniary profit;
provided, however, that it shall not be a violation of this Employment Agreement for the
Executive to (i) serve on the boards of directors of Thomas Health Systems, West Virginia Hospital
Association and Chemical Alliance Zone or (ii) engage in such other activities with the Board’s
prior written consent.
Section 2. Compensation.
2.1. Salary. As compensation for the performance of the Executive’s services
hereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of
five hundred eighty thousand dollars ($580,000), payable in accordance with the Company’s standard
payroll policies (the “Base Salary”). The Base Salary will be reviewed annually and may be
adjusted upward by the Board (or a committee thereof) in its discretion, based on competitive data
and the Executive’s performance. No increase in Base Salary shall limit or reduce any other right
or obligation to the Executive under this Employment Agreement and the Base Salary shall not be
reduced at any time (including after any such increase).
2.2. Annual Bonus. For each completed fiscal year occurring during the Term
commencing with the 2007 fiscal year, the Executive shall be eligible to receive additional cash
incentive compensation (the “Annual Bonus”). The target Annual Bonus shall be 100% of the
Executive’s Base Salary as in effect at the beginning of such fiscal year, with the actual Annual
Bonus to be based upon such individual and/or Company performance criteria established for each
such fiscal year by the Board in consultation with the CEO. The Annual Bonus for the calendar year
ending December 31, 2006 shall be determined in accordance with the Company’s existing bonus plan,
consistent with past practice (but excluding any Merger-related expenses and any interest expenses
associated with the additional borrowing incurred in connection with the Merger).
2.3. Equity. On the Effective Date, pursuant to the Limited Liability Company
Agreement of McJ Holding LLC dated as of the date hereof (the “LLC Agreement”), the
Executive will be granted Profits Units (as defined in the LLC Agreement) as set forth therein.
Notwithstanding Section 7.2(a)(ii) of the LLC Agreement, in the event that the Executive’s
employment with the Company is terminated for any reason other than by the Company for Cause (as
defined herein), a percentage of the Profits Units issued to the Executive shall be forfeited
according to the following schedule:
2
| Percentage of the | ||||
| Executive's Profits Units | ||||
| If the Termination Occurs | to be Forfeited | |||
Before the fourth anniversary of the
grant of the Executive’s Profits Units
|
100 | % | ||
On or after the fourth anniversary,
but before the fifth anniversary, of
the grant of the Executive’s Profits
Units
|
50 | % | ||
On or after the fifth anniversary of
the grant of the Executive’s Profits
Units
|
0 | % | ||
2.4. Employee Benefits. During the Term, the Executive shall be eligible to
participate in such health and other group insurance and other employee benefit plans and programs
of the Company as in effect from time to time on the same basis as other senior executives of the
Company. Notwithstanding the foregoing, during the Term, the annual value attributable to
retirement benefits will be approximately ninety thousand dollars ($90,000), which amount includes
any benefits pursuant to the McJunkin Corporation Profit-Sharing and Savings Plan and Trust. The
Executive acknowledges and agrees that, without limiting the Executive’s entitlement under the
previous sentence, upon the request of the Company, the Executive shall consent to the
discontinuance, effective as of the Effective Date, of benefits and accruals under (i) the Amended
and Restated McJunkin Corporation Supplemental Executive Savings Plan and Trust, (ii) non-qualified
deferred compensation arrangements between the Company and the Executive and (iii) split-dollar
life insurance arrangements between the Company and the Executive (including the Split Dollar Life
Insurance Agreement between the Executive and the Company, dated as of July 20, 1999, the Demand
Note by the Executive in favor of the Company, effective January 1, 2004, and the collateral
assignment under which the Executive assigned the life insurance policy as collateral to the
Company).
2.5. Vacation. During the Term, the Executive shall be entitled to paid vacation in
accordance with the Company’s vacation policy as in effect from time to time.
2.6. Business Expenses. The Company shall pay or reimburse the Executive for all
commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term
in performing his duties under this Employment Agreement upon presentation of documentation and in
accordance with the expense reimbursement policy of the Company as approved by the Board (or a
committee thereof) and in effect from time to time.
Section 3. Employment Termination.
3.1. Termination of Employment. The Company may terminate the Executive’s employment
for any reason during the Term, and the Executive may voluntarily terminate his employment for any
reason during the Term, in each case (other than a termination by the Company for Cause) at any
time upon not less than thirty (30) days’ notice to the other
3
party. Upon the termination of the Executive’s employment with the Company for any reason,
the Executive shall be entitled to any Base Salary earned but unpaid through the date of
termination, any earned but unpaid Annual Bonus for completed fiscal years, any unreimbursed
expenses in accordance with Section 2.6 hereof and, to the extent not theretofore paid or provided,
any other amounts or benefits required to be paid or provided under any plan, program, policy or
practice or other contract or agreement of the Company and its affiliated companies through the
date of termination of employment (collectively, the “Accrued Amounts”).
3.2. Certain Terminations.
(a) Termination by the Company other than for Cause or Disability; Termination by the
Executive for Good Reason. If the Executive’s employment is terminated during the Term (i) by
the Company other than for Cause or Disability or (ii) by the Executive for Good Reason, in
addition to the Accrued Amounts the Executive shall be entitled to the following payments and
benefits: (x) the continuation of his Base Salary at the rate in effect immediately prior to the
date of termination for a period of twelve (12) months, (y) the continuation on the same terms as
an active senior executive of medical benefits the Executive would otherwise be eligible to receive
as an active senior executive of the Company for twelve (12) months or until such earlier time as
the Executive becomes eligible for medical benefits from a subsequent employer and (z) a pro rata
Annual Bonus for the fiscal year in which the termination occurs (the “Pro Rata Annual Bonus
Payment”), based on the Company’s actual performance through the end of such fiscal year and
the number of days the Executive was employed during such fiscal year (such payments and benefits,
the “Severance Payments”). The Company’s obligations to make the Severance Payments shall
be conditioned upon: (i) the Executive’s continued compliance with his obligations under Section 4
of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a
valid and enforceable general release of claims (the “Release”) in the form attached hereto
as Exhibit A. In the event that the Executive breaches any of the covenants set forth in Section 4
of this Employment Agreement, the Executive will immediately return to the Company any portion of
the Severance Payments that have been paid to the Executive pursuant to this Section 3.2(a).
Subject to Section 3.2(d), the Severance Payments (with the exception of the Pro Rata Annual Bonus
Payment) will commence to be paid to the Executive as soon as practicable following the
effectiveness of the Release. The Pro Rata Annual Bonus Payment will be paid at the time the
Company ordinarily pays incentive bonuses to its executives with respect to the fiscal year in
which the termination occurs.
(b) Termination upon Death or Disability. If the Executive’s employment is terminated
due to the Executive’s death or Disability, in addition to the Accrued Amounts, the Executive (or
the Executive’s estate, if applicable) shall be entitled to receive a pro-rated portion of the
Annual Bonus based on the Company’s performance for the full fiscal year in which termination
occurs and the number of days the Executive was employed by the Company during such fiscal year.
(c) Definitions. For purposes of this Section 3.2, the following terms shall have the
following meanings:
(1) “Cause” shall mean the Executive’s (i) continuing
4
failure, for more than 10 days after the Company’s written notice to the Executive thereof, to
perform such duties as are reasonably requested by the Company; (ii) failure to observe material
policies generally applicable to officers or employees of the Company unless such failure is
capable of being cured and is cured within 10 days of the Executive receiving written notice of
such failure; (iii) failure to cooperate with any internal investigation of the Company; (iv)
commission of any act of fraud, theft or financial dishonesty with respect to the Company or
indictment or conviction of any felony; (v) material violation of the provisions of this Employment
Agreement unless such violation is capable of being cured and is cured within 10 days of the
Executive receiving written notice of such violation; (vi) chronic absenteeism; or (vii) abuse of
alcohol or another controlled substance.
(2) “Disability” shall mean the Executive is entitled to receive long-term disability
benefits under the long-term disability plan of the Company in which Executive participates, or, if
there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform
the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180
days during any 365 day period irrespective of whether such days are consecutive.
(3) “Good Reason” shall mean (i) a material and adverse change in the Executive’s
duties or responsibilities, (ii) a reduction in the Executive’s Base Salary or target Annual Bonus
or (iii) a relocation of the Executive’s principal place of employment by more than 50 miles.
(d) Section 409A Specified Employee. If the Executive is a “specified employee” for
purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations thereunder, to the extent required to comply with Section 409A
of the Code, any Severance Payments required to be made pursuant to Section 3.2(a) which are
subject to Section 409A of the Code shall not commence until one day after the day which is six (6)
months from the date of termination, with the first payment equaling six (6) months of his Base
Salary at the rate in effect immediately prior to the date of termination.
3.3. Exclusive Remedy. The foregoing payments upon termination of the Executive’s
employment shall constitute the exclusive severance payments due the Executive upon a termination
of his employment under this Employment Agreement.
3.4. Resignation from All Positions. Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be deemed to have resigned, as of
the date of such termination, from all positions he then holds as an officer, director, employee
and member of the Board (and any committee thereof) and the board of directors (and any committee
thereof) of any of the Company’s affiliates.
3.5. Cooperation. Following the termination of the Executive’s employment with the
Company for any reason, the Executive agrees to reasonably cooperate with the Company upon
reasonable request of the Board and to be reasonably available to the Company with respect to
matters arising out of the Executive’s services to the Company and its subsidiaries. The Company
shall pay the Executive a reasonable fee for any such services and
5
promptly reimburse the Executive for expenses reasonably incurred in connection with such
matters.
Section 4.
|
Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights. |
4.1. Unauthorized Disclosure. The Executive agrees and understands that in the
Executive’s position with the Company, the Executive has been and will be exposed to and has and
will receive information relating to the confidential affairs of the Company and its affiliates,
including, without limitation, technical information, intellectual property, business and marketing
plans, strategies, customer information, software, other information concerning the products,
promotions, development, financing, expansion plans, business policies and practices of the Company
and its affiliates and other forms of information considered by the Company and its affiliates to
be confidential or in the nature of trade secrets (including, without limitation, ideas, research
and development, know-how, formulas, technical data, designs, drawings, specifications, customer
and supplier lists, pricing and cost information and business and marketing plans and proposals)
(collectively, the “Confidential Information”). The Executive agrees that at all times
during the Executive’s employment with the Company and thereafter, the Executive shall not disclose
such Confidential Information, either directly or indirectly, to any individual, corporation,
partnership, limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality thereof (each a
“Person”) other than in connection with the Executive’s employment with the Company without
the prior written consent of the Company and shall not use or attempt to use any such information
in any manner other than in connection with his employment with the Company, unless required by law
to disclose such information, in which case the Executive shall provide the Company with written
notice of such requirement as far in advance of such anticipated disclosure as possible. This
confidentiality covenant has no temporal, geographical or territorial restriction. Upon
termination of the Executive’s employment with the Company, the Executive shall promptly supply to
the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists,
correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other
tangible product or document which has been produced by, received by or otherwise submitted to the
Executive during the Executive’s employment with the Company, and any copies thereof in his (or
capable of being reduced to his) possession; provided, however, that the Executive may
retain his full rolodex or similar address and telephone directories.
4.2. Non-Competition. By and in consideration of the Company’s entering into this
Employment Agreement and the payments to be made and the benefits to be provided hereunder and in
connection with the Executive’s sale of shares of the Company and McApple pursuant to the Merger
Agreement, and in further consideration of the Executive’s exposure to the Confidential Information
of the Company and its affiliates, the Executive agrees that the Executive shall not, for the
period which is the longer of (i) five (5) years following the Effective Date or (ii) during the
Executive’s employment with the Company (whether during the Term or thereafter) and for a period of
twenty-four (24) months thereafter (the “Restriction Period”), directly or indirectly, own,
manage, operate, join, control, be employed by, or participate in the ownership, management,
operation or control of, or be connected in any
6
manner with, including, without limitation, holding any position as a stockholder, director,
officer, consultant, independent contractor, employee, partner, or investor in, any Restricted
Enterprise (as defined below); provided, that in no event shall ownership of one percent
(1%) or less of the outstanding securities of any class of any issuer whose securities are
registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by
this Section 4.2, so long as the Executive does not have, or exercise, any rights to manage or
operate the business of such issuer other than rights as a stockholder thereof. For purposes of
this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in
any geographic area in any business which is either (i) in competition with the business of
McJunkin Holding LLC or any of its subsidiaries or (ii) proposed to be conducted by McJunkin
Holding LLC or any of its subsidiaries in the Company’s business plan as in effect at that time.
During the Restriction Period, upon request of the Company, the Executive shall notify the Company
of the Executive’s then-current employment status.
4.3. Non-Solicitation of Employees. During the Restriction Period, the Executive
shall not directly or indirectly contact, induce or solicit (or assist any Person to contact,
induce or solicit) for employment any person who is, or within twelve (12) months prior to the date
of such solicitation was, an employee of the Company or any of its affiliates.
4.4. Interference with Business Relationships. During the Restriction Period (other
than in connection with carrying out his responsibilities for the Company and its affiliates), the
Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to
contact, induce or solicit) any customer or client of the Company or its subsidiaries to terminate
its relationship or otherwise cease doing business in whole or in part with the Company or its
subsidiaries, or directly or indirectly interfere with (or assist any Person to interfere with) any
material relationship between the Company or its subsidiaries and any of its or their customers or
clients so as to cause harm to the Company or its affiliates.
4.5. Extension of Restriction Period. The Restriction Period shall be tolled for any
period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.
4.6. Proprietary Rights. The Executive shall disclose promptly to the Company any and
all inventions, discoveries, and improvements (whether or not patentable or registrable under
copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived,
discovered, reduced to practice, or made by him, either alone or in conjunction with others, during
the Executive’s employment with the Company and related to the business or activities of the
Company and its affiliates (the “Developments”). Except to the extent any rights in any
Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq.
that are owned ab initio by the Company and/or its applicable affiliate, the Executive assigns all
of his right, title and interest in all Developments (including all intellectual property rights
therein) to the Company or its nominee without further compensation, including all rights or
benefits therefor, including without limitation the right to sue and recover for past and future
infringement. The Executive acknowledges that any rights in any Developments constituting a work
made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the
Company and/or its applicable affiliate as the Executive’s
7
employer. Whenever requested to do so by the Company, the Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem necessary to apply for
and obtain trademarks, patents or copyrights of the United States or any foreign country or
otherwise protect the interests of the Company and its affiliates therein. These obligations shall
continue beyond the end of the Executive’s employment with the Company with respect to inventions,
discoveries, improvements or copyrightable works initiated, conceived or made by the Executive
while employed by the Company, and shall be binding upon the Executive’s employers, assigns,
executors, administrators and other legal representatives. In connection with his execution of
this Employment Agreement, the Executive has informed the Company in writing of any interest in any
inventions or intellectual property rights that he holds as of the date hereof as set forth on
Exhibit B hereto (the “Existing Inventions”). Notwithstanding anything to the contrary
herein, the Developments shall not include any Existing Inventions. If the Company is unable for
any reason, after reasonable effort, to obtain the Executive’s signature on any document needed in
connection with the actions described in this Section 4.6, the Executive hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents as the Executive’s
agent and attorney in fact to act for and on the Executive’s behalf to execute, verify and file any
such documents and to do all other lawfully permitted acts to further the purposes of this Section
4.6 with the same legal force and effect as if executed by the Executive.
4.7. Confidentiality of Agreement. Other than with respect to information required to
be disclosed by applicable law, the parties hereto agree not to disclose the terms of this
Employment Agreement to any Person; provided the Executive may disclose this Employment
Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and
attorneys, so long as the Executive instructs every such Person to whom the Executive makes such
disclosure not to disclose the terms of this Employment Agreement further.
4.8. Remedies. The Executive agrees that any breach of the terms of this Section 4
would result in irreparable injury and damage to the Company for which the Company would have no
adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any
threat of breach, the Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any
and all Persons acting for and/or with the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity, including, without
limitation, the obligation of the Executive to return any Severance Payments made by the Company to
the Company. The terms of this paragraph shall not prevent the Company from pursuing any other
available remedies for any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. The Executive and the Company further agree that the
provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the
businesses of the Company and its affiliates because of the Executive’s access to Confidential
Information and his material participation in the operation of such businesses.
Section 5. Representation.
8
The Executive and the Company each represents and warrants that (i) he or it is not subject to
any contract, arrangement, policy or understanding, or to any statute, governmental rule or
regulation, that in any way limits his or its ability to enter into and fully perform his or its
obligations under this Employment Agreement and (ii) he or it is not otherwise unable to enter into
and fully perform his or its obligations under this Employment Agreement.
Section 6. Non-Disparagement.
From and after the Effective Date and following termination of the Executive’s employment with
the Company, the Executive agrees not to make any statement (other than statements made in
connection with carrying out his responsibilities for the Company and its affiliates) that is
intended to become public, or that should reasonably be expected to become public, and that
criticizes, ridicules, disparages or is otherwise derogatory of the Company or any of its
subsidiaries, affiliates, employees, officers, directors or stockholders. The Company shall cause
its officers and directors not to make any such statement regarding the Executive.
Section 7. Withholding.
The Company may withhold from any amounts payable under this Employment Agreement such
Federal, state local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. The Executive shall be solely responsible for the payment of all
taxes relating to the payment or provision of any amounts or benefits hereunder.
Section 8. Miscellaneous.
8.1. Indemnification. The Company shall indemnify the Executive to the fullest extent
provided under the Company’s By-Laws. The Company shall also maintain director and officer
liability insurance in such amounts and subject to such limitations as the Board shall, in good
faith, deem appropriate for coverage of directors and officers of the Company.
8.2. Amendments and Waivers. This Employment Agreement and any of the provisions
hereof may be amended, waived (either generally or in a particular instance and either
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that the observance of any provision of
this Employment Agreement may be waived in writing by the party that will lose the benefit of such
provision as a result of such waiver. The waiver by any party hereto of a breach of any provision
of this Employment Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly
provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or
otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or remedy by such party preclude any
other or further exercise thereof or the exercise of any other right, power or remedy.
9
8.3. Assignment; No Third-Party Beneficiaries. This Employment Agreement, and the
Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any
purported assignment by the Executive in violation hereof shall be null and void. Nothing in this
Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the
legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under
or by reason of this Employment Agreement.
8.4. Notices. Unless otherwise provided herein, all notices, requests, demands,
claims and other communications provided for under the terms of this Employment Agreement shall be
in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by
(i) personal delivery (including receipted courier service) or overnight delivery service, (ii)
facsimile during normal business hours, with confirmation of receipt, to the number indicated,
(iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJunkin Corporation | |||
| 835 Hillcrest Drive | ||||
| Charleston, WV 25311 | ||||
| Attention: General Counsel & Chief Executive Officer | ||||
| Facsimile: 304-348-1557 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Henry Cornell | ||||
| Facsimile: 212-357-5505 | ||||
| and | ||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 | ||||
| If to the Executive: | Stephen D. Wehrle, at his principal office | |||
| at the Company (during the Term), and | ||||
| at all times to his principal residence as | ||||
| reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
10
8.5. Governing Law. This Employment Agreement shall be construed and enforced in
accordance with, and the rights and obligations of the parties hereto shall be governed by, the
laws of the State of New York, without giving effect to the conflicts of law principles thereof.
8.6. Severability. Whenever possible, each provision or portion of any provision of
this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in
such manner as to be effective and valid under applicable law but the invalidity or
unenforceability of any provision or portion of any provision of this Employment Agreement in any
jurisdiction shall not affect the validity or enforceability of the remainder of this Employment
Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement,
including that provision or portion of any provision, in any other jurisdiction. In addition,
should a court or arbitrator determine that any provision or portion of any provision of this
Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid,
either in period of time, geographical area, or otherwise, the parties hereto agree that such
provision should be interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable or valid.
8.7. Entire Agreement. From and after the Effective Date, (i) this Employment
Agreement, (ii) the Merger Agreement, (iii) the McJ Contribution Agreement, (iv) the McApple
Contribution Agreement and (v) the LLC Agreement constitute the entire agreement between the
parties hereto, and supersede all prior representations, agreements and understandings (including
any prior course of dealings), both written and oral, between the parties hereto with respect to
the subject matter hereof. In the event the Closing (as defined in the Merger Agreement) does not
occur before the date the Merger Agreement terminates in accordance with its terms, this Employment
Agreement shall terminate, and shall be of no force or effect.
8.8. Counterparts. This Employment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
8.9. Binding Effect. This Employment Agreement shall inure to the benefit of, and be
binding on, the successors of each of the parties, including, without limitation, the Executive’s
heirs and the personal representatives of the Executive’s estate and any successor to all or
substantially all of the business and/or assets of the Company.
8.10. General Interpretive Principles. The name assigned this Employment Agreement
and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment
Agreement are for convenience of reference only and shall not in any way affect the meaning or
interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms
of limitation herein, so that references to “include”, “includes” and “including” shall not be
limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.
11
8.11. Mitigation. Notwithstanding any other provision of this Employment Agreement,
(a) the Executive will have no obligation to mitigate damages for any breach or termination of this
Employment Agreement by the Company, whether by seeking employment or otherwise and (b) the amount
of any payment or benefit due the Executive after the date of such breach or termination will not
be reduced or offset by any payment or benefit that the Executive may receive from any other
source.
8.12 Section 409A Compliance. This Employment Agreement is intended to comply with
Section 409A of the Code (to the extent applicable) and, to the extent it would not adversely
impact the Company, the Company agrees to interpret, apply and administer this Employment Agreement
in the least restrictive manner necessary to comply with such requirements and without resulting in
any diminution in the value of payments or benefits to the Executive.
12
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.
| MCJUNKIN CORPORATION |
||||
| By: | /s/ H.B. Wehrle, III | |||
| Name: | H.B. Wehrle, III | |||
| Title: | Chief Executive Officer | |||
| McJ HOLDING LLC |
||||
| By: | /s/ Christine Vollertsen | |||
| Name: | Christine Vollertsen | |||
| Title: | Vice President | |||
| /s/ Stephen D. Wehrle | ||||
| Stephen D. Wehrle | ||||
[Employment Agreement with S. Wehrle]
Exhibit A
Release
1. In consideration of the payments and benefits to be made under the Employment Agreement,
dated as of December 4, 2006 (the “Employment Agreement”), to which Stephen D. Wehrle (the
“Executive”), McJ Holding LLC (the “LLC”) and McJunkin Corporation (the
“Company”) (each of the Executive, the LLC and the Company, a “Party” and
collectively, the “Parties”) are parties, the sufficiency of which the Executive
acknowledges, the Executive, with the intention of binding himself and his heirs, executors,
administrators and assigns, does hereby release, remise, acquit and forever discharge the Company
and each of its subsidiaries and affiliates (the “Company Affiliated Group”), their present
and former officers, directors, executives, shareholders, agents, attorneys, employees and employee
benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each
of the foregoing (collectively, the “Company Released Parties”), of and from any and all
claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of
money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of
whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent,
unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the
Executive, individually or as a member of a class, now has, owns or holds, or has at any time
heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released
Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with
the Company or any of its subsidiaries and affiliates, or any termination of such employment,
including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive
payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity,
defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of
applicable state and local labor and employment laws (including, without limitation, all laws
concerning unlawful and unfair labor and employment practices) and (iv) for employment
discrimination under any applicable federal, state or local statute, provision, order or
regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of
1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the
Americans with Disabilities Act (“ADA”), the Executive Retirement Income Security Act of
1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and
any similar or analogous state statute, excepting only:
| (A) | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| (B) | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| (C) | claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and |
| (D) | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
2. The Employee acknowledges and agrees that the release of claims set forth in this Release
is not to be construed in any way as an admission of any liability whatsoever by any Company
Released Party, any such liability being expressly denied.
3. The release of claims set forth in this Release applies to any relief no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.
4. The Executive specifically acknowledges that his acceptance of the terms of the release of
claims set forth in this Release is, among other things, a specific waiver of his rights, claims
and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect
of discrimination of any kind; provided, however, that nothing herein shall be
deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause
of action which by law the Executive is not permitted to waive.
5. As to rights, claims and causes of action arising under the ADEA, the Executive
acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider
whether to execute this Release. If the Executive accepts the terms hereof and executes this
Release, he may thereafter, for a period of seven (7) days following (and not including) the date
of execution, revoke this Release as it relates to the release of claims arising under the ADEA.
If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding
and enforceable against the Executive, on the day next following the day on which the foregoing
seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit
any right to payment of the Severance Payments (as defined in the Employment Agreement), but the
remainder of the Employment Agreement shall continue in full force.
6. Other than as to rights, claims and causes of action arising under the ADEA, the release of
claims set forth in this Release shall be immediately effective upon execution by the Executive.
7. The Executive acknowledges and agrees that he has not, with respect to any transaction or
state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against
any Company Released Party with any governmental agency, court or tribunal.
8. The Executive acknowledges that he has been advised to seek, and has had the opportunity to
seek, the advice and assistance of an attorney with regard to the release of claims set forth in
this Release, and has been given a sufficient period within which to consider the release of claims
set forth in this Release.
9. The Executive acknowledges that the release of claims set forth in this Release relates
only to claims which exist as of the date of this Release.
10. The Executive acknowledges that the Severance Payments he is receiving in connection with
the release of claims set forth in this Release and his obligations under this Release are in
addition to anything of value to which the Executive is entitled from the Company.
11. Each provision hereof is severable from this Release, and if one or more provisions hereof
are declared invalid, the remaining provisions shall nevertheless remain in full force and effect.
If any provision of this Release is so broad, in scope, or duration or otherwise, as to be
unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
12. This Release constitutes the complete agreement of the Parties in respect of the subject
matter hereof and shall supersede all prior agreements between the Parties in respect of the
subject matter hereof except to the extent set forth herein.
13. The failure to enforce at any time any of the provisions of this Release or to require at
any time performance by another party of any of the provisions hereof shall in no way be construed
to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or
the right of any party thereafter to enforce each and every such provision in accordance with the
terms of this Release.
14. This Release may be executed in several counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same instrument. Signatures
delivered by facsimile shall be deemed effective for all purposes.
15. This Release shall be binding upon any and all successors and assigns of the Executive and
the Company.
16. Except for issues or matters as to which federal law is applicable, this Release shall be
governed by and construed and enforced in accordance with the laws of the State of New York without
giving effect to the conflicts of law principles thereof.
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of .
| MCJUNKIN CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| McJ HOLDING LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
|
Stephen D. Wehrle |
||||
Exhibit B
Existing Inventions
[none]
Exhibit 10.17
MCJ HOLDING CORPORATION
2007 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Affiliates in recruiting and retaining
key employees, directors and consultants of outstanding ability and to motivate such key employees,
directors and consultants to exert their best efforts on behalf of the Company and its Affiliates
by providing incentives through the granting of Options. The Company expects that it will benefit
from the added interest which such key employees, directors or consultants will have in the welfare
of the Company as a result of their proprietary interest in the Company’s success.
2. Definitions
The following capitalized terms used in the Plan or in an Option agreement have the respective
meanings set forth in this Section:
| (a) | Affiliate: With respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. | ||
| (b) | Board: The Board of Directors of the Company. | ||
| (c) | Cause: With respect to a Participant’s termination of Employment, (a) if the Participant is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Participant’s (i) continuing failure, for more than 10 days after the Company’s written notice to the Participant thereof, to perform such duties as are reasonably requested by the Company; (ii) failure to observe material policies generally applicable to officers or employees of the Company unless such failure is capable of being cured and is cured within 10 days of the Participant receiving written notice of such failure; (iii) failure to cooperate with any internal investigation of the Company; (iv) commission of any act of fraud, theft or financial dishonesty with respect to the Company or indictment or conviction of any felony; (v) chronic absenteeism; or (vi) abuse of alcohol or another controlled substance. | ||
| (d) | Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. | ||
| (e) | Committee: The Board or such committee of the Board as may be designated from time to time to administer the Plan. | ||
| (f) | Company: McJ Holding Corporation, a Delaware corporation, and any successor thereto by merger, consolidation or otherwise. |
| (g) | Company Group: Collectively, the Company, its subsidiaries and its or their respective successors and assigns. | ||
| (h) | Disability: (a) if the Participant is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Participant is unable to perform his duties or obligations to the Company by reason of physical or mental incapacity for a period of one hundred twenty (120) consecutive calendar days or a total period of two hundred ten (210) calendar days in any three hundred sixty (360) calendar day period. | ||
| (i) | Effective Date: March 27, 2007. | ||
| (j) | Employment: The term “Employment” as used herein shall be deemed to refer to (i) a Participant’s employment if the Participant is an employee of the Company Group, (ii) a Participant’s services as a consultant, if the Participant is a consultant to the Company Group and (iii) a Participant’s services as a non-employee director, if the Participant is a non-employee member of the Board. | ||
| (k) | Fair Market Value: On a given date, (i) if there should be a public market for the Shares on such date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the composite tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on any national securities exchange, the arithmetic mean of the per-Share closing bid price and per-Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted) (the “Nasdaq”), or, if no sale of Shares shall have been reported on the composite tape of any national securities exchange or quoted on the Nasdaq on such date, the arithmetic mean of the per-Share closing bid price and per-Share closing asked price on the immediately preceding date on which sales of the Shares have been so reported or quoted, and (ii) if there is not a public market for the Shares on such date, the value established by the Committee in good faith, which in the context of a Transaction shall be the price paid per Share. | ||
| (l) | McJ Holding LLC: McJ Holding LLC, a Delaware limited liability company. | ||
| (m) | McJ Holding LLC Agreement: The limited liability company agreement of McJ Holding LLC, dated as of December 4, 2006. | ||
| (n) | McJunkin: McJunkin Corporation, a West Virginia corporation and wholly owned subsidiary of the Company. | ||
| (o) | Option: A stock option granted pursuant to Section 6 of the Plan. |
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| (p) | Option Price: The purchase price per Share of an Option, as determined pursuant to Section 6(a) of the Plan. | ||
| (q) | Participant: An employee, director or consultant who is selected by the Committee to participate in the Plan. | ||
| (r) | Person: Any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government, or any agency or political subdivisions thereof. | ||
| (s) | Plan: This McJ Holding Corporation 2007 Stock Option Plan. | ||
| (t) | Shares: Shares of common stock of the Company and any other securities into which such shares of common stock are changed or for which such shares of common stock are exchanged. | ||
| (u) | Stockholders Agreement: The Management Stockholders Agreement dated as of March 27, 2007 (as amended and restated from time to time) by and among the Company, McJ Holding LLC and such other Persons who are or become parties thereto. | ||
| (v) | Transaction: (i) Any event which results in the GSCP Members (as defined in the McJ Holding LLC Agreement) and its or their Affiliates ceasing to directly or indirectly beneficially own, in the aggregate, at least 35% of the equity interests of McJunkin that they beneficially owned directly or indirectly as of the Effective Time (as defined in the McJ Holding LLC Agreement); or (ii) in a single transaction or a series of related transactions, the occurrence of the following event: a majority of the outstanding voting power of McJ Holding LLC, the Company or McJunkin, or substantially all of the assets of McJunkin, shall have been acquired or otherwise become beneficially owned, directly or indirectly, by any Person (other than any Member (as defined in the McJ Holding LLC Agreement) as of December 4, 2006 or any of its or their Affiliates, or the McJ Holding LLC or any of its Affiliates) or any two or more Persons (other than any Member as of December 4, 2006 or any of its or their Affiliates, or McJ Holding LLC or any of its Affiliates) acting as a partnership, limited partnership, syndicate or other group, entity or association acting in concert for the purpose of voting, acquiring, holding or disposing of the voting power of the McJ Holding LLC, the Company, or McJunkin; it being understood that, for this purpose, the acquisition or beneficial ownership of voting securities by the public shall not be an acquisition or constitute beneficial ownership by any Person or Persons acting in concert. For purposes of this definition, neither McJ Holding LLC nor any Person controlled by McJ Holding LLC shall deemed to be an Affiliate of any Member. |
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3. Shares Subject to the Plan
The total number of Shares which may be issued under the Plan is 4,715.4509, subject to
adjustment pursuant to Section 7 hereof. The Shares may consist, in whole or in part, of unissued
Shares or treasury Shares. The issuance of Shares upon the exercise of an Option or in
consideration of the cancellation or termination of an Option shall reduce the total number of
Shares available under the Plan, as applicable. Shares which are subject to Options which
terminate or lapse without the payment of consideration may again be the subject of Options granted
under the Plan.
4. Administration
The Plan shall be administered by the Committee. Subject to the express limitations of the
Plan, the Committee shall have authority in its discretion to determine the employees, consultants
or directors of the Company and its Affiliates to whom, and the time or times at which, Options may
be granted, the number of Shares subject to each Option, the Option Price of an Option, the time or
times at which an Option will become vested and any other conditions of an Option. Options may, in
the discretion of the Committee, be granted under the Plan in assumption of, or in substitution
for, outstanding awards previously granted by the Company or its Affiliates or by a company
acquired by the Company or with which the Company combines. The number of Shares underlying such
substitute awards shall be counted against the aggregate number of Shares available for Options
under the Plan. The Committee is authorized to interpret the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may amend the terms of
any Option agreement, provided that no such amendment shall be made without the consent of a
Participant, if such action would diminish any of the rights of such Participant under such Option
agreement. The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent the Committee deems necessary or
desirable. Any decision of the Committee in the interpretation and administration of the Plan,
except as otherwise provided herein, shall lie within its sole and absolute discretion and shall be
final, conclusive and binding on all parties concerned (including, without limitation, Participants
and their beneficiaries or successors). The Committee shall have the full power and authority to
establish the terms and conditions of any Option consistent with the provisions of the Plan and to
waive any such terms and conditions at any time (including, without limitation, accelerating or
waiving any vesting conditions). The Committee shall require Participants to make arrangements
which are satisfactory to it to pay any amounts it may determine are required to be withheld for
federal, state, local or other taxes in connection with an Option.
5. Limitations
No Option may be granted under the Plan after the tenth anniversary of the Effective Date, but
Options theretofore granted may extend beyond that date.
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6. Terms and Conditions of Options
Options granted under the Plan shall be non-qualified stock options and shall be subject to
the foregoing and the following terms and conditions and to such other terms and conditions, not
inconsistent therewith, as the Committee shall determine and set forth in the applicable Option
agreement:
| (a) | Option Price. The Option Price shall be determined by the Committee, provided that the Option Price may not be less than the Fair Market Value of a Share on the date the Option is granted. | ||
| (b) | Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. | ||
| (c) | Exercise of Options. Except as otherwise provided in the Plan or in an Option agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of this Section 6 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, the date payment is received by the Company pursuant to the following sentence. The Option Price for the Shares as to which an Option is exercised and any applicable withholding taxes shall be paid to the Company in full at the time of exercise at the election of the Participant, in cash or by check or wire transfer, or by such other means as are permitted by the Committee. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, has paid in full for such Shares, satisfied any applicable withholding requirements and, if applicable, has satisfied any other conditions imposed by the Committee or pursuant to the Plan or the applicable Option agreement. | ||
| (d) | Unless the Committee determines otherwise, exercise of an Option shall be conditioned upon the execution by the Participant of the Stockholders Agreement, if such agreement remains in effect at the time of such exercise. |
7. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the following provisions
shall apply to all Options granted under the Plan:
| (a) | Generally. In the event of any extraordinary cash or Share dividend, or Share split, reverse split, reorganization, reclassification, recapitalization, repurchase, issuance of warrants, rights or debentures, merger, consolidation, spin-off, split-up, combination or exchange of Shares or |
5
other corporate exchange, or any distribution to shareholders of Shares or
any transaction similar to the foregoing, the Committee, without liability
to any person, shall take such equitable actions as are appropriate in its
reasonable judgment to preserve the economic rights of the Participant,
whether by adjusting the terms of the Option or such other means as the
Committee shall determine.
| (b) | Transaction. The Committee may provide in the applicable Option agreement or otherwise that, in the event of a Transaction, (i) any outstanding Options then held by Participants which are unexercisable or otherwise unvested shall automatically be deemed exercisable or otherwise vested upon the consummation of such Transaction, and (ii) the Committee may either (A) cancel all Options and make payment in connection with such cancellation equal to the excess, if any, of the Fair Market Value of the Shares subject to such Options over the aggregate Option Price of such Options or (B) provide for the issuance of substitute options or other awards that will preserve, as nearly as practicable, the economic terms of Options previously granted hereunder, in each case as determined by the Committee in good faith. |
8. No Right to Employment or Options
The granting of an Option under the Plan shall impose no obligation on the Company or any
Affiliate of the Company to continue the Employment of a Participant and shall not lessen or affect
the Company’s or such Affiliate’s right to terminate the Employment of such Participant. No
Participant or other Person shall have any claim to be granted any Option, and there is no
obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options.
The terms and conditions of Options and the Committee’s determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether or not such
Participants are similarly situated).
9. Successors and Assigns
The rights and obligations under the Plan shall be binding on and inure to all predecessors,
successors and assigns of the Company and any Participant, including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the Participant’s creditors.
10. Nontransferability of Options
Unless otherwise determined by the Committee, an Option shall not be transferable or
assignable by the Participant otherwise than by will or by the laws of descent and distribution.
An Option exercisable after the death of a Participant may be exercised by the legatees, personal
representatives or distributees of the Participant.
6
11. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made without the consent of a Participant, if such action would diminish
any of the rights of such Participant under any Option theretofore granted to such Participant
under the Plan; provided, however, that the Committee may amend the Plan in such manner as it deems
necessary to permit the granting of Options meeting the requirements of the Code or other
applicable laws.
12. Compliance with Law
No Option shall be granted under the Plan, and no Shares shall be issued and delivered upon
exercise of an Option, unless and until the Company and/or the Participant shall have complied with
all applicable federal or state registration, listing and/or qualification requirements and all
other applicable requirements of law or of any regulatory agencies having jurisdiction.
The Committee in its discretion may, as a condition to the exercise of any Option, require
each Participant (a) to represent in writing that the Shares received upon exercise of an Option
are being acquired for investment and not with a view to distribution and (b) to make such other
representations and warranties as are deemed reasonably appropriate by the Committee. Stock
certificates representing Shares acquired upon the exercise of any Option that have not been
registered under the Securities Act of 1933, as amended, shall, if required by the Committee, bear
the legends as may be required by the Stockholders Agreement or by the Option agreement evidencing
a particular Option. Without in any way limiting the provisions set forth above, no Participant
shall make any disposition of all or any portion of Shares acquired or to be acquired pursuant to
an Option, except in compliance with all applicable federal and state securities laws and the
provisions of the Stockholders Agreement.
13. International Participants
With respect to Options which may be subject to the laws of jurisdictions outside the United
States of America, the Committee may, in its sole discretion, amend the terms of the Plan or
Options with respect to such Participants in order to conform such terms with the requirements of
such local law.
14. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of the State of New
York, without regard to conflicts of laws.
15. Effectiveness of the Plan
The Plan shall be effective as of the Effective Date.
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Exhibit 10.17.1
MCJUNKIN RED MAN HOLDING CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (the “Agreement”), is made effective as of [ , 200___] (the “Date of
Grant”), between McJunkin Red Man Holding Corporation, a Delaware corporation (the “Company”), PVF
Holdings LLC, a Delaware limited liability company (“PVF Holdings LLC”) (solely for purposes of
Section 15 hereof), and [ ] (the “Participant”).
R E C I T A L S:
WHEREAS, the Company has adopted the McJ Holding Corporation 2007 Stock Option Plan (the
“Plan”), which Plan is incorporated herein by reference and made a part of this Agreement.
Capitalized terms not otherwise defined herein shall have the meanings given thereto in the Plan;
and
WHEREAS, the Committee has determined that it would be in the best interests of the Company
and its shareholders to grant an Option to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the Participant’s services and of the mutual covenants
hereinafter set forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the right and
option (the “Option”) to purchase, on the terms and conditions hereinafter set forth, all or any
part of an aggregate of [ ] Shares, subject to adjustment as set forth in the Plan. The
Option Price shall be $[ ], which the Company and the Participant agree is not less than
the Fair Market Value of the Shares as of the date hereof.
2. Vesting; Period of Exercise.
(a) Subject to the earlier termination or cancellation of the Option as set forth herein, the
Option shall vest and become exercisable as follows:
(i) Prior to the third (3rd) anniversary of the Date of Grant, no portion of the
Option shall vest or be exercisable;
(ii) On and after the third (3rd) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one-third (1/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary;
(iii) On and after the fourth (4th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of two-thirds (2/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary; and
(iv) On and after the fifth (5th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one hundred percent of the Shares
originally subject to the Option provided, that the Participant’s Employment with the Company has
not terminated as of such anniversary.
(v) Notwithstanding the foregoing, in the event of (x) the Participant’s death or Disability
or (y) the occurrence of a Transaction, the Option shall, to the extent not then vested,
automatically become fully vested and exercisable.
The portion of the Option which has become vested and exercisable as described herein is
hereinafter referred to as the “Vested Portion.”
(b) If the Participant’s Employment is terminated by the Company for Cause, the Option shall,
whether or not vested, be automatically canceled without payment of consideration therefor.
(c) If the Participant’s Employment with the Company terminates for any reason other than (x)
Cause or (y) the Participant’s death or Disability, the Option shall, to the extent not previously
vested, be automatically canceled by the Company without payment of consideration therefor, and the
Vested Portion of the Option shall remain exercisable for the period set forth in Section 2(d).
(d) Subject to the provisions of the Plan and this Agreement, the Participant may exercise all
or any part of the Vested Portion of the Option at any time prior to the earliest to occur of (i)
the ten-year anniversary of the Date of Grant and (ii) 90 days following the date of the
Participant’s termination of Employment (other than a termination of Employment due to the
Participant’s death or Disability).
(e) Notwithstanding the foregoing, upon termination of Employment due to the Participant’s
death or Disability, the Participant may exercise all or any part of the Vested Portion of the
Option at any time prior to the earliest to occur of (i) the ten-year anniversary of the Date of
Grant and (ii) twenty-four months following such termination of Employment.
3. Method of Exercise.
(a) The Vested Portion of the Option may be exercised by delivering to the Company at its
principal office written notice of intent so to exercise. Such notice shall specify the number of
Shares for which the Option is being exercised (the “Purchased Shares”) and shall be accompanied by
payment in full of the Option Price in cash or by check or wire transfer; provided,
however, that with the written consent of the Committee (which consent may be withheld for
any or no reason), payment of such aggregate exercise price may instead be made, in whole or in
part, by (A) the delivery to the Company of a certificate or certificates representing Shares
having a Fair Market Value on the date of exercise equal to the aggregate exercise price, duly
endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim
or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value
thereof on the date of such exercise), or (B) by a reduction in
2
the number of Purchased Shares to be issued upon such exercise having a Fair Market Value on
the date of exercise equal to the aggregate exercise price in respect of the Purchased Shares,
provided that the Company is not then prohibited from purchasing or acquiring such Shares. The
Participant shall not have any rights to dividends or other rights of a stockholder with respect to
Shares subject to the Option until the Participant has given written notice of exercise of the
Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed
by the Committee or pursuant to the Plan or this Agreement.
(b) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the
Option may not be exercised prior to the completion of any registration or qualification of the
Option or the Shares under applicable state and federal securities or other laws, or under any
ruling or regulation of any governmental body or national securities exchange (collectively, the
“Legal Requirements”) that the Committee shall in its sole discretion determine to be necessary or
advisable, unless an exemption to such registration or qualification is available and satisfied.
The Committee may establish additional procedures as it deems necessary or desirable in connection
with the exercise of the Option or the issuance of any Shares upon such exercise to comply with any
Legal Requirements. Such procedures may include but are not limited to the establishment of
limited periods during which the Option may be exercised or that following receipt of the notice of
exercise and prior to the completion of the exercise, the Participant will be required to affirm
the exercise of the Option following receipt of any disclosure deemed necessary or desirable by the
Committee.
(c) Upon the Company’s determination that the Option has been validly exercised as to any of
the Shares, the Company shall issue certificates in the Participant’s name for such Shares. Such
certificates will be held by the Company on behalf of the Participant until such time as the Shares
represented by such certificates are transferred as permitted by the Stockholders Agreement.
(d) In the event of the Participant’s death or Disability, the Option shall remain exercisable
by the Participant’s executor or administrator, or the person or persons to whom the Participant’s
rights under this Agreement shall pass by will or by the laws of descent and distribution as the
case may be, for the period set forth in Section 2(e) (and the term “Participant” shall be deemed
to include such heir or legatee). Any such heir or legatee of the Participant shall take rights
herein granted subject to the terms and conditions hereof.
(e) In consideration of the grant of this Option, the Participant agrees that, as a condition
to the exercise of any option to purchase Shares (whether this Option or any other option), the
Participant shall, with respect to such Shares, have become a party to the Stockholders Agreement.
4. No Right to Continued Employment. The granting of the Option evidenced hereby and
this Agreement shall impose no obligation on the Company or any Affiliate to continue the
Employment of the Participant and shall not lessen or affect the Company’s or its Affiliates’ right
to terminate the Employment of such Participant.
5. Legend on Certificates. The certificates representing the Shares purchased by
exercise of the Option shall be subject to such stop transfer orders and other restrictions as the
3
Committee may deem advisable under the Plan or the rules, regulations, and other requirements
of the Securities and Exchange Commission, any stock exchange upon which such Shares are listed,
and any applicable federal or state laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
6. Transferability. Unless otherwise determined by the Committee, the Option may not
be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Affiliate; provided, that the designation of a
beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been furnished with written
notice thereof and a copy of such evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant’s lifetime, the Option is exercisable only by the
Participant.
7. Withholding. The Participant shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to withhold, any
applicable withholding taxes in respect of the Option, its exercise or any payment or transfer
under, or with respect to, the Option and to take such other action as may be necessary in the
opinion of the Committee to satisfy all obligations for the payment of such withholding taxes. The
Participant shall be solely responsible for the payment of all taxes relating to the payment or
provision of any amounts or benefits hereunder.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of
the Option, the Participant will make or enter into such written representations, warranties and
agreements as the Committee may reasonably request in order to comply with applicable securities
laws or with this Agreement.
9. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Company. This Agreement shall inure to the benefit of the
Participant’s legal representatives. All obligations imposed upon the Participant and all rights
granted to the Company under this Agreement shall be binding upon the Participant’s heirs,
executors, administrators and successors.
10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Board. Any determination made hereunder shall be final,
binding and conclusive on the Participant, the Participant’s heirs, executors, administrators and
successors, and the Company and its subsidiaries for all purposes.
11. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the Company and to the
Participant at the address appearing in the personnel records of the Company for the Participant
4
or to either party hereto at such other address as either party may hereafter designate in
writing to the other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
12. Choice of Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without regard to principles of conflicts of laws.
13. Option Subject to Plan. By entering into this Agreement, the Participant agrees
and acknowledges that the Participant has received and read a copy of the Plan. The Option is
subject to the Plan. The terms and provisions of the Plan, as it may be amended from time to time,
are hereby incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan, as applicable, will govern and prevail.
14. Accredited Investor Status Representation of Participant. Please check the box
next to any of the following statements that apply:
| o | Your individual net worth, or joint net worth with your spouse, as of the date hereof, exceeds $1,000,000; | ||
| o | You had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year; or | ||
| o | None of the statements above apply. |
15. Adoption of Stockholders Agreement. The parties hereto agree that, upon the grant
of the Option hereunder, the Participant shall be made a party to the Management Stockholders
Agreement among PVF LLC (formerly known as McJ Holding LLC), the Company, and the other parties
thereto (the “Stockholders Agreement”) as an “Executive” (as defined in the Stockholders Agreement)
with the rights and obligations of holders of “Stock” (as defined in the Stockholders Agreement)
and the Participant hereby agrees to become a party to the Stockholders Agreement and to be bound
by, and subject to, all of the representations, covenants, terms and conditions of the Stockholders
Agreement that are applicable to an Executive with such rights and obligations. Execution and
delivery of this Agreement by the Participant shall also constitute execution and delivery by the
Participant of the Stockholders Agreement, without further action of any party. A copy of the
Stockholders Agreement is attached hereto as Exhibit A. In addition to the representations
and warranties in the Stockholders Agreement that Participant makes as an Executive, the
Participant represents and warrants to the Company that (a) the Participant has carefully reviewed
the Stockholders Agreement and has also reviewed all other documents the Participant deems
necessary or desirable in order for the Participant to become a party to the Stockholders Agreement
(by executing this Agreement); (b) the Participant has been granted the opportunity to ask
questions of, and receive answers from, representatives of the Company concerning the Stockholders
Agreement and the terms and conditions thereof that the Participant deems necessary; and (c) this
Agreement (and by executing this Agreement, the Stockholders Agreement) has been duly executed and
delivered by Participant and constitutes a valid and binding agreement of
5
Participant enforceable against the Participant in accordance with its terms and the terms of
the Stockholders Agreement.
16. Signature in Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the Date
of Grant.
| MCJUNKIN RED MAN HOLDING
CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PVF HOLDINGS LLC (for purposes of Section 15
only) |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PARTICIPANT |
||||
| By: | ||||
| Name: | ||||
EXHIBIT A
Stockholders Agreement
8
Exhibit 10.18
MCJ HOLDING CORPORATION
2007 RESTRICTED STOCK PLAN
1. Purpose. The purpose of the McJ Holding Corporation 2007 Restricted Stock Plan is
to aid the Company and its Affiliates in recruiting and retaining key employees, directors and
consultants of outstanding ability and to motivate such key employees, directors and consultants to
exert their best efforts on behalf of the Company and its Affiliates by providing incentives
through the granting of Restricted Stock. The Company expects that it will benefit from the added
interest which such key employees, directors or consultants will have in the welfare of the Company
as a result of their proprietary interest in the Company’s success.
2. Definitions. The following capitalized terms used in the Plan or in an Agreement
have the respective meanings set forth in this Section.
| a. | Affiliate: With respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. | ||
| b. | Agreement: The written agreement setting forth the terms and conditions of Restricted Stock. | ||
| c. | Board: The Board of Directors of the Company. | ||
| d. | Cause: With respect to the Grantee’s termination of employment, (a) if the Grantee is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Grantee’s (i) continuing failure, for more than 10 days after the Company’s written notice to the Grantee thereof, to perform such duties as are reasonably requested by the Company; (ii) failure to observe material policies generally applicable to officers or employees of the Company unless such failure is capable of being cured and is cured within 10 days of the Grantee receiving written notice of such failure; (iii) failure to cooperate with any internal investigation of the Company; (iv) commission of any act of fraud, theft or financial dishonesty with respect to the Company or indictment or conviction of any felony; (v) chronic absenteeism; or (vi) abuse of alcohol or another controlled substance. | ||
| e. | Committee: The Board or such committee of the Board as may be designated from time to time to administer the Plan. | ||
| f. | Company: McJ Holding Corporation, a Delaware corporation, and any successor thereto by merger, consolidation or otherwise. | ||
| g. | Disability: (a) if the Grantee is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Grantee is unable to perform his duties or obligations to the Company by reason of physical or mental incapacity for a |
| period of one hundred twenty (120) consecutive calendar days or a total period of two hundred ten (210) calendar days in any three hundred sixty (360) calendar day period. |
| h. | Effective Date: March 27, 2007. | ||
| i. | Grantee: An employee, director or consultant who is selected by the Committee to participate in the Plan. | ||
| j. | LLC Agreement: The Limited Liability Company Agreement of McJ Holding LLC, dated as of December 4, 2006 (as amended and restated from time to time). | ||
| k. | McJ Holding LLC: McJ Holding LLC, a Delaware limited liability company and parent of the Company. | ||
| l. | McJunkin: McJunkin Corporation, a West Virginia corporation and wholly owned subsidiary of the Company. | ||
| m. | Person: Any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government, or any agency or political subdivisions thereof. | ||
| n. | Plan: This McJunkin Corporation 2007 Restricted Stock Plan. | ||
| o. | Restricted Stock: Restricted common stock of the Company, granted on the terms and conditions as set forth in an Agreement. | ||
| p. | Shares: Shares of common stock of the Company and any other securities into which such shares of common stock are changed or for which such shares of common stock are exchanged. | ||
| q. | Stockholders Agreement: The Management Stockholders Agreement dated as of March 27, 2007 (as amended and restated from time to time) by and among the Company, McJ Holding LLC and such other Persons who are or become parties thereto. | ||
| r. | Transaction: (i) Any event which results in the GSCP Members (as defined in the LLC Agreement) and its or their Affiliates ceasing to directly or indirectly beneficially own, in the aggregate, at least 35% of the equity interests of McJunkin that they beneficially owned directly or indirectly as of the Effective Time (as defined in the LLC Agreement); or (ii) in a single transaction or a series of related transactions, the occurrence of the following event: a majority of the outstanding voting power of McJ Holding LLC, the Company or McJunkin, or substantially all of the assets of McJunkin, shall have been acquired or otherwise become beneficially owned, directly or indirectly, by any Person (other than any Member (as defined in the LLC Agreement) as of December 4, 2006 or any of its or their Affiliates, or the McJ Holding LLC or any of its Affiliates) or any two or more Persons (other than any Member as of December 4, 2006 or any of its or |
-2-
| their Affiliates, or McJ Holding LLC or any of its Affiliates) acting as a partnership, limited partnership, syndicate or other group, entity or association acting in concert for the purpose of voting, acquiring, holding or disposing of the voting power of the McJ Holding LLC, the Company, or McJunkin; it being understood that, for this purpose, the acquisition or beneficial ownership of voting securities by the public shall not be an acquisition or constitute beneficial ownership by any Person or Persons acting in concert. For purposes of this definition, neither McJ Holding LLC nor any Person controlled by McJ Holding LLC shall deemed to be an Affiliate of any Member. |
3. Administration. The Plan shall be administered by the Committee. Subject to the
express limitations of the Plan, the Committee shall have authority in its discretion to determine
the employees, consultants or directors of the Company and its Affiliates to whom, and the time or
times at which, Restricted Stock may be granted, the time or times at which such Restricted Stock
will become vested and any other conditions of such Restricted Stock.
4. Shares Subject to the Plan. The total number of shares of Restricted Stock which
may be issued under the Plan is 500. The shares of Restricted Stock may consist, in whole or in
part, of unissued Shares or treasury Shares. The issuance of shares of Restricted Stock shall
reduce the total number of shares of Restricted Stock available under the Plan. Shares which are
subject to Restricted Stock which terminate or lapse without the payment of consideration may again
be the subject of Restricted Stock granted under the Plan. In the event of any extraordinary cash
or Share dividend, or Share split, reverse split, reorganization, reclassification,
recapitalization, repurchase, issuance of warrants, rights or debentures, merger, consolidation,
spin-off, split-up, combination or exchange of Shares or other corporate exchange, or any
distribution to shareholders of Shares or any transaction similar to the foregoing, the Committee,
without liability to any person, shall take such equitable actions as are appropriate in its
reasonable judgment to preserve the economic rights of the Participant by such means as the
Committee shall determine.
5. Terms and Conditions of Restricted Stock. Restricted Stock granted under the Plan
shall subject to the foregoing and the following terms and conditions and to such other terms and
conditions as the Committee shall determine and set forth in the applicable Agreement.
6. No Right to Continued Employment. Nothing in this Plan or in an Agreement shall
interfere with or limit in any way the right of the Company or its subsidiaries to terminate the
Grantee’s employment, nor confer upon the Grantee any right to continuance of employment by the
Company or any of its subsidiaries or continuance of service as a Board member.
7. Withholding of Taxes. Prior to the delivery to the Grantee (or the Grantee’s
estate, if applicable) of evidence of book-entry shares with respect to shares of Restricted Stock
in respect of which all restrictions have lapsed, the Grantee (or the Grantee’s estate) shall be
required to pay to the Company or any Affiliate, and the Company shall have the right and is hereby
authorized to withhold, any applicable withholding taxes in respect of such Restricted Stock, or
any payment or transfer under, or with respect to, such Restricted Stock, and to take such other
action as may be necessary in the opinion of the Committee to satisfy all obligations
-3-
for the payment of such withholding taxes. The Grantee shall be solely responsible for the
payment of all taxes relating to the payment or provision of any amounts or benefits hereunder.
8. Choice of Law. The Plan shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws.
9. Effectiveness of the Plan. The Plan shall be effective as of the Effective Date.
-4-
Exhibit 10.18.1
MCJUNKIN RED MAN HOLDING CORPORATION
RESTRICTED STOCK AWARD AGREEMENT
THIS RESTRICTED STOCK AWARD AGREEMENT (this “Agreement”), made as of [
, 200___] (the “Grant Date”), between McJunkin Red Man Holding Corporation,
a Delaware corporation (the “Company”), PVF Holdings LLC, a Delaware limited
liability company (solely for purposes of Section 20 hereof) (“PVF LLC”), and
[ ] (the “Grantee”).
WHEREAS, the Company has adopted the McJ Holding Corporation 2007 Restricted Stock Plan
(the “Plan”), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the meanings given
thereto in the Plan; and
WHEREAS, the Committee has determined to grant to the Grantee such award of restricted
common stock of the Company as provided herein (the “Restricted Stock”).
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Restricted Stock.
The Company hereby grants to the Grantee an award of [ ] shares of Restricted
Stock (the “Award”). The shares of Restricted Stock granted pursuant to the Award
shall be issued in the form of book-entry shares in the name of the Grantee as soon as
reasonably practicable after the Grant Date and shall be subject to the execution and return
of this Agreement by the Grantee (or the Grantee’s estate, if applicable) to the Company as
provided in Section 8 hereof.
2. Restrictions on Transfer.
The shares of Restricted Stock issued under this Agreement may not be sold, transferred,
assigned or otherwise disposed of, may not be pledged or otherwise hypothecated, and shall be
subject to the terms of the Stockholders Agreement.
3. Lapse of Restrictions Generally.
Except as provided in Sections 4 and 5 hereof, 25% of the number of shares of Restricted
Stock issued hereunder shall vest, and the restrictions with respect to such Restricted Stock
shall lapse, on each of the second (2nd), third (3rd), fourth
(4th) and fifth (5th) anniversaries of the date of grant, subject to
the Grantee’s continued employment.
4. Accelerated Vesting.
In the event of a Transaction, or upon the termination of the Grantee’s employment due
to the Grantee’s death or Disability, at any time on or after the Grant
Date, all shares of
Restricted Stock which have not become vested in accordance with Section 3 hereof shall vest,
and the restrictions and conditions applicable to such Restricted Stock shall be deemed to
have lapsed immediately prior to the occurrence such event.
5. Forfeiture of Restricted Stock.
Any and all shares of Restricted Stock (whether or not vested) shall be forfeited and
shall revert to the Company upon the termination by the Company or any of its subsidiaries of
the Grantee’s employment for Cause. Any and all shares of restricted stock which have not
vested pursuant to Sections 3 or 4 hereof shall be forfeited and shall revert to the Company
upon the termination of the Grantee’s employment with the Company for any reason other than
by the Company or any of its subsidiaries for Cause.
6. Delivery of Restricted Stock.
Evidence of book-entry shares with respect to shares of Restricted Stock in respect of
which the restrictions have lapsed pursuant to Section 3 or 4 hereof shall be delivered to
the Grantee as soon as practicable following the date on which the restrictions on such
Restricted Stock have lapsed, free of all restrictions hereunder. Any certificates for
shares of Restricted Stock shall be held by the Company on behalf of the Grantee until such
time as the shares represented by such certificates are transferred as permitted by the
Stockholders Agreement.
7. Stockholders Agreement.
In consideration of the Award, the Grantee agrees that the Grantee shall become a party
to the Stockholders Agreement.
8. Execution of Agreements.
The shares of Restricted Stock granted to the Grantee pursuant to the Award shall be
subject to the Grantee’s execution and return of (i) this Agreement and (ii) the Stockholders
Agreement.
9. No Right to Continued Employment.
Nothing in this Agreement shall interfere with or limit in any way the right of the
Company or its subsidiaries to terminate the Grantee’s employment, nor confer upon the
Grantee any right to continuance of employment by the Company or any of its subsidiaries or
continuance of service as a Board member.
10. Withholding of Taxes.
Prior to the delivery to the Grantee (or the Grantee’s estate, if applicable) of evidence of
book-entry shares with respect to shares of Restricted Stock in respect of which all
-2-
restrictions
have lapsed, the Grantee (or the Grantee’s estate) shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to withhold, any
applicable withholding taxes in respect of such Restricted Stock, or any payment or transfer under,
or with respect to, such Restricted Stock, and to take such other action as may be necessary in the
opinion of the Committee to satisfy all obligations for the payment of such withholding taxes. The
Grantee shall be solely responsible for the payment of all taxes relating to the payment or
provision of any amounts or benefits hereunder.
11. Modification of Agreement.
This Agreement may be modified, amended, suspended or terminated, and any terms or
conditions may be waived, but only by a written instrument executed by the parties hereto.
12. Severability.
Should any provision of this Agreement be held by a court of competent jurisdiction to
be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall
not be affected by such holding and shall continue in full force in accordance with their
terms.
13. Governing Law.
The validity, interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of New York, without giving effect to the conflicts of laws
principles thereof.
14. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon any successor to the
Company. This Agreement shall inure to the benefit of the Grantee’s legal representatives.
All obligations imposed upon the Grantee and all rights granted to the Company under this
Agreement shall be binding upon the Grantee’s heirs, executors, administrators and
successors.
15. No Liability.
No member of the Board shall be liable for any action or determination made in good
faith with respect to this Award or this Agreement.
16. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in any way
relate to, the interpretation, construction or application of this Agreement shall be
determined by the Board. Any determination made hereunder shall be final, binding and
-3-
conclusive on the Grantee, the Grantee’s heirs, executors, administrators and successors, and
the Company and its subsidiaries for all purposes.
17. Entire Agreement.
This Agreement and the terms and conditions of the Stockholders Agreement constitute the
entire understanding between the Grantee and the Company and its subsidiaries with respect to
the Award, and supersede all other agreements, whether written or oral, with respect to the
Award.
18. Headings.
The headings of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement.
19. Accredited Investor Status Representation of Grantee.
Please check the box next to any of the following statements that apply:
o
|
Your individual net worth, or joint net worth with your spouse, as of the date hereof, exceeds $1,000,000; | |
o
|
You had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year; or | |
o
|
None of the statements above apply. |
20. Adoption of Stockholders Agreement.
The parties hereto agree that, upon the grant of the Restricted Stock hereunder, the
Grantee shall be made a party to the Management Stockholders Agreement among PVF LLC
(formerly known as McJ Holding LLC), the Company, and the other parties thereto (the
“Stockholders Agreement”), as an “Executive” (as defined in the Stockholders
Agreement) with the rights and obligations of holders of “Stock” (as defined in the
Stockholders Agreement) and the Grantee hereby agrees to become a party to the Stockholders
Agreement and to be bound by, and subject to, all of the representations, covenants, terms
and conditions of the Stockholders Agreement that are applicable to an Executive with such
rights and obligations. Execution and delivery of this Agreement by the Grantee shall also
constitute execution and delivery by the Grantee of the Stockholders Agreement, without
further action of any party. A copy of the Stockholders Agreement is attached hereto as
Exhibit A. In addition to the representations and warranties in the
Stockholders Agreement that Grantee makes as an Executive, the Grantee represents and
warrants to the Company that (a) the Grantee has carefully reviewed the Stockholders
Agreement and has also reviewed all other documents the Grantee deems necessary or
-4-
desirable
in order for the Grantee to become a party to the Stockholders Agreement (by executing this
Agreement); (b) the Grantee has been granted the opportunity to ask questions of, and receive
answers from, representatives of the Company concerning the Stockholders Agreement and the
terms and conditions thereof that the Grantee deems necessary; and (c) this Agreement (and by
executing this Agreement, the Stockholders Agreement) has been duly executed and delivered by
Grantee and constitutes a valid and binding agreement of Grantee enforceable against the
Grantee in accordance with its terms and the terms of the Stockholders Agreement.
21. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts, each of which
shall constitute an original, but all of which taken together shall constitute one and the
same agreement.
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the
Grant Date.
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PVF HOLDINGS LLC (for purposes of Section 20 only) |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| GRANTEE |
||||
| By: | ||||
| Name: | ||||
EXHIBIT A
Stockholders Agreement
-7-
Exhibit 10.19
MCJUNKIN RED MAN HOLDING CORPORATION
2007 STOCK OPTION PLAN
(CANADA)
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Affiliates in recruiting and retaining
key employees, directors and consultants, resident in Canada, of outstanding ability and to
motivate such key employees, directors and consultants to exert their best efforts on behalf of the
Company and its Affiliates by providing incentives through the granting of Options. The Company
expects that it will benefit from the added interest which such key employees, directors or
consultants will have in the welfare of the Company as a result of their proprietary interest in
the Company’s success. This Plan is a sub-plan of the U.S. Option Plan.
2. Definitions
The following capitalized terms used in the Plan or in an Option agreement have the respective
meanings set forth in this Section:
| (a) | Affiliate: With respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. | ||
| (b) | Board: The Board of Directors of the Company. | ||
| (c) | Cause: With respect to a Participant’s termination of Employment, (a) if the Participant is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Participant’s (i) continuing failure, for more than 10 days after the Company’s written notice to the Participant thereof, to perform such duties as are reasonably requested by the Company; (ii) failure to observe material policies generally applicable to officers or employees of the Company unless such failure is capable of being cured and is cured within 10 days of the Participant receiving written notice of such failure; (iii) failure to cooperate with any internal investigation of the Company; (iv) commission of any act of fraud, theft or financial dishonesty with respect to the Company or indictment or conviction of any felony; (v) chronic absenteeism; or (vi) abuse of alcohol or another controlled substance. For the purpose of the definition of “Cause,” a reference to “Company” shall mean the Company or its applicable Affiliate that is the employer of the applicable Participant. | ||
| (d) | Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. |
| (e) | Committee: The Board or such committee of the Board as may be designated from time to time to administer the Plan. | ||
| (f) | Company: McJunkin Red Man Holding Corporation (formerly known as McJ Holding Corporation), a Delaware corporation, and any successor thereto by merger, consolidation or otherwise. | ||
| (g) | Company Group: Collectively, the Company, its subsidiaries and its or their respective successors and assigns. | ||
| (h) | Disability: (a) if the Participant is at the time of termination a party to an employment or retention agreement that defines such term, the meaning given therein, and (b) in all other cases, the Participant is unable to perform his duties or obligations to the Company by reason of physical or mental incapacity for a period of one hundred twenty (120) consecutive calendar days or a total period of two hundred ten (210) calendar days in any three hundred sixty (360) calendar day period. | ||
| (i) | Effective Date: December 21, 2007. | ||
| (j) | Employment: The term “Employment” as used herein shall be deemed to refer to (i) a Participant’s employment if the Participant is an employee of the Company Group, (ii) a Participant’s services as a consultant, if the Participant is a consultant to the Company Group and (iii) a Participant’s services as a non-employee director, if the Participant is a non-employee member of the Board. | ||
| (k) | Fair Market Value: On a given date, (i) if there should be a public market for the Shares on such date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the composite tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on any national securities exchange, the arithmetic mean of the per-Share closing bid price and per-Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted) (the “Nasdaq”), or, if no sale of Shares shall have been reported on the composite tape of any national securities exchange or quoted on the Nasdaq on such date, the arithmetic mean of the per-Share closing bid price and per-Share closing asked price on the immediately preceding date on which sales of the Shares have been so reported or quoted, and (ii) if there is not a public market for the Shares on such date, the value established by the Committee in good faith, which in the context of a Transaction shall be the price paid per Share. | ||
| (l) | McJunkin Red Man: McJunkin Red Man Corporation, a West Virginia corporation and wholly owned subsidiary of the Company. |
2
| (m) | Option: A stock option granted pursuant to Section 6 of the Plan. | ||
| (n) | Option Price: The purchase price per Share of an Option, as determined pursuant to Section 6(a) of the Plan. | ||
| (o) | Participant: An employee, director or consultant who is selected by the Committee to participate in the Plan. | ||
| (p) | Person: Any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government, or any agency or political subdivisions thereof. | ||
| (q) | Plan: This McJunkin Red Man Holding Corporation 2007 Stock Option Plan (Canada). | ||
| (r) | PVF Holdings LLC: PVF Holdings LLC, a Delaware limited liability company. | ||
| (s) | PVF Holdings LLC Agreement: The amended and restated limited liability company agreement of PVF Holdings LLC, amended as of December 18, 2007, as further amended or restated from time to time. | ||
| (t) | Shares: Shares of common stock of the Company and any other securities into which such shares of common stock are changed or for which such shares of common stock are exchanged. | ||
| (u) | Stockholders Agreement: The Management Stockholders Agreement dated as of March 27, 2007 (as amended and restated from time to time) by and among the Company, PVF Holding LLC and such other Persons who are or become parties thereto. | ||
| (v) | Transaction: (i) Any event which results in the GSCP Members (as defined in the PVF Holdings LLC Agreement) and its or their Affiliates ceasing to directly or indirectly beneficially own, in the aggregate, at least 35% of the equity interests of McJunkin Red Man that they beneficially owned directly or indirectly as of the Effective Time (as defined in the PVF Holdings LLC Agreement); or (ii) in a single transaction or a series of related transactions, the occurrence of the following event: a majority of the outstanding voting power of PVF Holdings LLC, the Company or McJunkin Red Man, or substantially all of the assets of McJunkin Red Man, shall have been acquired or otherwise become beneficially owned, directly or indirectly, by any Person (other than any Member (as defined in PVF Holdings LLC Agreement) or any of its or their Affiliates, or the PVF Holdings LLC or any of its Affiliates) or any two or more Persons (other than any Member or any of its or their Affiliates, or PVF Holdings LLC or any of its Affiliates) acting as a partnership, limited partnership, syndicate or other group, entity or association acting in concert for the |
3
| purpose of voting, acquiring, holding or disposing of the voting power of PVF Holdings LLC, the Company, or McJunkin Red Man; it being understood that, for this purpose, the acquisition or beneficial ownership of voting securities by the public shall not be an acquisition or constitute beneficial ownership by any Person or Persons acting in concert. For purposes of this definition, neither PVF Holdings LLC nor any Person controlled by PVF Holdings LLC shall deemed to be an Affiliate of any Member. | |||
| (w) | U.S. Option Plan: The McJ Holding Corporation 2007 Stock Option Plan, effective as of March 27, 2007, of which this Plan is a sub-plan. |
3. Shares Subject to the Plan
The total number of Shares which may be issued under the U.S. Option Plan and this Plan is
4,715.4509, subject to adjustment pursuant to Section 7 hereof. The Shares may consist, in whole
or in part, of unissued Shares or treasury Shares. The issuance of Shares upon the exercise of an
Option or in consideration of the cancellation or termination of an Option shall reduce the total
number of Shares available under the Plan, as applicable. Shares which are subject to Options
which terminate or lapse without the payment of consideration may again be the subject of Options
granted under the Plan.
4. Administration
The Plan shall be administered by the Committee. Subject to the express limitations of the
Plan, the Committee shall have authority in its discretion to determine the employees, consultants
or directors of the Company and its Affiliates to whom, and the time or times at which, Options may
be granted, the number of Shares subject to each Option, the Option Price of an Option, the time or
times at which an Option will become vested and any other conditions of an Option. Options may, in
the discretion of the Committee, be granted under the Plan in assumption of, or in substitution
for, outstanding awards previously granted by the Company or its Affiliates or by a company
acquired by the Company or with which the Company combines. The number of Shares underlying such
substitute awards shall be counted against the aggregate number of Shares available for Options
under the Plan. The Committee is authorized to interpret the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may amend the terms of
any Option agreement, provided that no such amendment shall be made without the consent of a
Participant, if such action would diminish any of the rights of such Participant under such Option
agreement. The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent the Committee deems necessary or
desirable. Any decision of the Committee in the interpretation and administration of the Plan,
except as otherwise provided herein, shall lie within its sole and absolute discretion and shall be
final, conclusive and binding on all parties concerned (including, without limitation, Participants
and their beneficiaries or successors). The Committee shall have the full power and authority to
establish the terms and conditions of any Option consistent with the provisions of the Plan and to
waive any such terms and conditions at any time (including, without limitation, accelerating or
waiving
4
any vesting conditions). The Committee shall require Participants to make arrangements which
are satisfactory to it to pay any amounts it may determine are required to be withheld for federal,
state, local or other taxes in connection with an Option.
5. Limitations
No Option may be granted under the Plan after March 27, 2017, but Options theretofore granted
may extend beyond that date.
6. Terms and Conditions of Options
Options granted under the Plan shall be non-qualified stock options and shall be subject to
the foregoing and the following terms and conditions and to such other terms and conditions, not
inconsistent therewith, as the Committee shall determine and set forth in the applicable Option
agreement:
| (a) | Option Price. The Option Price shall be determined by the Committee, provided that the Option Price may not be less than the Fair Market Value of a Share on the date the Option is granted. | ||
| (b) | Exercisability. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. | ||
| (c) | Exercise of Options. Except as otherwise provided in the Plan or in an Option agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of this Section 6 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, the date payment is received by the Company pursuant to the following sentence. The Option Price for the Shares as to which an Option is exercised and any applicable withholding taxes shall be paid to the Company in full at the time of exercise at the election of the Participant, in cash or by check or wire transfer, or by such other means as are permitted by the Committee. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, has paid in full for such Shares, satisfied any applicable withholding requirements and, if applicable, has satisfied any other conditions imposed by the Committee or pursuant to the Plan or the applicable Option agreement. | ||
| (d) | Unless the Committee determines otherwise, exercise of an Option shall be conditioned upon the execution by the Participant of the Stockholders Agreement, if such agreement remains in effect at the time of such exercise. |
5
7. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the following provisions
shall apply to all Options granted under the Plan:
| (a) | Generally. In the event of any extraordinary cash or Share dividend, or Share split, reverse split, reorganization, reclassification, recapitalization, repurchase, issuance of warrants, rights or debentures, merger, consolidation, spin-off, split-up, combination or exchange of Shares or other corporate exchange, or any distribution to shareholders of Shares or any transaction similar to the foregoing, the Committee, without liability to any person, shall take such equitable actions as are appropriate in its reasonable judgment to preserve the economic rights of the Participant, whether by adjusting the terms of the Option or such other means as the Committee shall determine. | ||
| (b) | Transaction. The Committee may provide in the applicable Option agreement or otherwise that, in the event of a Transaction, (i) any outstanding Options then held by Participants which are unexercisable or otherwise unvested shall automatically be deemed exercisable or otherwise vested upon the consummation of such Transaction, and (ii) the Committee may either (A) cancel all Options and make payment in connection with such cancellation equal to the excess, if any, of the Fair Market Value of the Shares subject to such Options over the aggregate Option Price of such Options or (B) provide for the issuance of substitute options or other awards that will preserve, as nearly as practicable, the economic terms of Options previously granted hereunder, in each case as determined by the Committee in good faith. |
8. No Right to Employment or Options
The granting of an Option under the Plan shall impose no obligation on the Company or any
Affiliate of the Company to continue the Employment of a Participant and shall not lessen or affect
the Company’s or such Affiliate’s right to terminate the Employment of such Participant. No
Participant or other Person shall have any claim to be granted any Option, and there is no
obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options.
The terms and conditions of Options and the Committee’s determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether or not such
Participants are similarly situated).
9. Successors and Assigns
Subject to applicable law, the rights and obligations under the Plan shall be binding on and
inure to all predecessors, successors and assigns of the Company and any Participant, including,
without limitation, the estate of such Participant and the executor, administrator or trustee of
such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s
creditors.
6
10. Nontransferability of Options
Unless otherwise determined by the Committee and subject to applicable law, an Option shall
not be transferable or assignable by the Participant otherwise than by will or by the laws of
descent and distribution. Subject to applicable law, an Option exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or distributees of the
Participant.
11. Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made without the consent of a Participant, if such action would diminish
any of the rights of such Participant under any Option theretofore granted to such Participant
under the Plan; provided, however, that the Committee may amend the Plan in such manner as it deems
necessary to permit the granting of Options meeting the requirements of the Code or other
applicable laws.
12. Compliance with Law
No Option shall be granted under the Plan, and no Shares shall be issued and delivered upon
exercise of an Option, unless and until the Company and/or the Participant shall have complied with
all applicable federal or state registration, listing and/or qualification requirements and all
other applicable requirements of law or of any regulatory agencies having jurisdiction.
The Committee in its discretion may, as a condition to the exercise of any Option, require
each Participant (a) to represent in writing that the Shares received upon exercise of an Option
are being acquired for investment and not with a view to distribution and (b) to make such other
representations and warranties as are deemed reasonably appropriate by the Committee. Stock
certificates representing Shares acquired upon the exercise of any Option that have not been
registered under the United States Securities Act of 1933, as amended, shall, if required by the
Committee, bear the legends as may be required by the Stockholders Agreement or by the Option
agreement evidencing a particular Option. Without in any way limiting the provisions set forth
above, no Participant shall make any disposition of all or any portion of Shares acquired or to be
acquired pursuant to an Option, except in compliance with all applicable Canadian and United States
federal, provincial and state securities laws and the provisions of the Stockholders Agreement.
13. International Participants
With respect to Options which may be subject to the laws of jurisdictions outside the United
States of America, the Committee may, in its sole discretion, amend the terms of the Plan or
Options with respect to such Participants in order to conform such terms with the requirements of
such local law.
7
14. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of the State of New
York, without regard to conflicts of laws.
15. Effectiveness of the Plan
The Plan shall be effective as of the Effective Date.
8
Exhibit 10.19.1
MCJUNKIN RED MAN HOLDING CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT
(CANADA)
THIS AGREEMENT (the “Agreement”), is made effective as of [ , 200___] (the “Date of
Grant”), between McJunkin Red Man Holding Corporation, a Delaware corporation (the “Company”), PVF
Holdings LLC, a Delaware limited liability company (“PVF Holdings LLC”) (solely for purposes of
Section 15 hereof) and [ ] (the “Participant”).
R E C I T A L S:
WHEREAS, the Company has adopted the McJunkin Red Man Holding Corporation 2007 Stock Option
Plan (Canada) (the “Plan”), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the meanings given thereto in
the Plan; and
WHEREAS, the Committee has determined that it would be in the best interests of the Company
and its shareholders to grant an Option to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the Participant’s services and of the mutual covenants
hereinafter set forth, and in consideration of the Participant’s entering into the Non-Competition
Agreement (as defined herein), the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the right and
option (the “Option”) to purchase, on the terms and conditions hereinafter set forth, all or any
part of an aggregate of [ ] Shares, subject to adjustment as set forth in the Plan. The
Option Price shall be US$
[ ], which the Company and the Participant agree is not less than
the Fair Market Value of the Shares as of the date hereof.
2. Vesting; Period of Exercise.
(a) Subject to the earlier termination or cancellation of the Option as set forth herein, the
Option shall vest and become exercisable as follows:
(i) Prior to the third (3rd) anniversary of the Date of Grant, no portion of the
Option shall vest or be exercisable;
(ii) On and after the third (3rd) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one-third (1/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary;
(iii) On and after the fourth (4th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of two-thirds (2/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company
has not terminated as of such anniversary; and
(iv) On and after the fifth (5th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one hundred percent of the Shares
originally subject to the Option provided, that the Participant’s Employment with the Company has
not terminated as of such anniversary.
(v) Notwithstanding the foregoing, in the event of (x) the Participant’s death or Disability
or (y) the occurrence of a Transaction, the Option shall, to the extent not then vested,
automatically become fully vested and exercisable.
The portion of the Option which has become vested and exercisable as described herein is
hereinafter referred to as the “Vested Portion.” For clarity, the Participant must be actively at
work on the anniversary of the Date of the Grant, and this does not include any period of time
during which the Participant’s Employment with the Company has being terminated and the Participant
is receiving notice of termination pay or severance pay.
(b) If the Participant’s Employment is terminated by the Company for Cause, the Option shall,
whether or not vested, be automatically canceled without payment of consideration therefor.
(c) If the Participant’s Employment with the Company terminates for any reason other than (x)
Cause or (y) the Participant’s death or Disability, the Option shall, to the extent not previously
vested, be automatically cancelled by the Company without payment of consideration therefor as of
the last day of active work of the Participant, not including any period for which the Participant
is receiving notice of termination pay or severance, and the Vested Portion of the Option shall
remain exercisable for the period set forth in Section 2(d).
(d) Subject to the provisions of the Plan and this Agreement, the Participant may exercise all
or any part of the Vested Portion of the Option at any time prior to the earliest to occur of (i)
the ten-year anniversary of the Date of Grant and (ii) 90 days following the date upon which the
Participant receives notice of the termination of the Participant’s Employment (other than a
termination of Employment due to the Participant’s death or Disability).
(e) Notwithstanding the foregoing, upon termination of Employment due to the Participant’s
death or Disability, the Participant may exercise all or any part of the Vested Portion of the
Option at any time prior to the earliest to occur of (i) the ten-year anniversary of the Date of
Grant and (ii) twenty-four months following such termination of Employment.
3. Method of Exercise.
(a) The Vested Portion of the Option may be exercised by delivering to the Company at its
principal office written notice of intent so to exercise. Such notice shall specify the number of
Shares for which the Option is being exercised (the “Purchased Shares”) and shall be accompanied by
payment in full of the Option Price in cash or by check or wire transfer. The Participant shall
not have any rights to dividends or other rights of a stockholder with respect to
2
Shares subject to the Option until the Participant has given written notice of exercise of the
Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed
by the Committee or pursuant to the Plan or this Agreement.
(b) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the
Option may not be exercised prior to the completion of any registration or qualification of the
Option or the Shares under applicable Canadian and United States provincial, state and federal
securities or other laws, or under any ruling or regulation of any governmental body or national
securities exchange (collectively, the “Legal Requirements”) that the Committee shall in its sole
discretion determine to be necessary or advisable, unless an exemption to such registration or
qualification is available and satisfied. The Committee may establish additional procedures as it
deems necessary or desirable in connection with the exercise of the Option or the issuance of any
Shares upon such exercise to comply with any Legal Requirements. Such procedures may include but
are not limited to the establishment of limited periods during which the Option may be exercised or
that following receipt of the notice of exercise and prior to the completion of the exercise, the
Participant will be required to affirm the exercise of the Option following receipt of any
disclosure deemed necessary or desirable by the Committee.
(c) Upon the Company’s determination that the Option has been validly exercised as to any of
the Shares, the Company shall issue certificates in the Participant’s name for such Shares. Such
certificates will be held by the Company on behalf of the Participant until such time as the Shares
represented by such certificates are transferred as permitted by the Stockholders Agreement.
(d) In the event of the Participant’s death or Disability, the Option shall remain exercisable
by the Participant’s executor or administrator, or, subject to applicable laws, the person or
persons to whom the Participant’s rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, for the period set forth in Section 2(e) (and the term
“Participant” shall be deemed to include such heir or legatee). Any such heir or legatee of the
Participant shall take rights herein granted subject to the terms and conditions hereof.
(e) In consideration of the grant of this Option, the Participant agrees that, as a condition
to the exercise of any option to purchase Shares (whether this Option or any other option), the
Participant shall, with respect to such Shares, have become a party to the Stockholders Agreement.
4. No Right to Continued Employment. The granting of the Option evidenced hereby and
this Agreement shall impose no obligation on the Company or any Affiliate to continue the
Employment of the Participant and shall not lessen or affect the Company’s or its Affiliates’ right
to terminate the Employment of such Participant.
5. Legend on Certificates. The certificates representing the Shares purchased by
exercise of the Option shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other requirements of
the Securities and Exchange Commission or other securities regulator or authority, any stock
3
exchange upon which such Shares are listed, and any applicable Canadian or United States
federal, provincial or state laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
6. Transferability. Unless otherwise determined by the Committee, the Option may not
be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution in compliance with
applicable law, and any such purported assignment, alienation, pledge, attachment, sale, transfer
or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided, that
the designation of a beneficiary shall not constitute an assignment, alienation, pledge,
attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or
legatees of the Participant shall be effective to bind the Company unless the Committee shall have
been furnished with written notice thereof and a copy of such evidence as the Committee may deem
necessary to establish the validity of the transfer, compliance with applicable law and the
acceptance by the transferee or transferees of the terms and conditions hereof. During the
Participant’s lifetime, the Option is exercisable only by the Participant.
7. Withholding. The Participant shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to withhold, any
applicable withholding taxes in respect of the Option, its exercise or any payment or transfer
under, or with respect to, the Option and to take such other action as may be necessary in the
opinion of the Committee to satisfy all obligations for the payment of such withholding taxes. The
Participant shall be solely responsible for the payment of all taxes relating to the payment or
provision of any amounts or benefits hereunder.
8. Securities Laws. In connection with the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written representations,
warranties and agreements as the Committee may reasonably request in order to comply with
applicable securities laws or with this Agreement.
9. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Company. Subject to compliance with applicable law, this
Agreement shall inure to the benefit of and shall be binding upon the Participant’s heirs,
executors, administrators and successors.
10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Board. Any determination made hereunder shall be final,
binding and conclusive on the Participant, the Participant’s heirs, executors, administrators and
successors, and the Company and its subsidiaries for all purposes.
11. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the Company and to the
Participant at the address appearing in the personnel records of the Company for the Participant or
to either party hereto at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.
4
12. Choice of Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without regard to principles of conflicts of laws.
13. Option Subject to Plan. By entering into this Agreement, the Participant agrees
and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders
Agreement. The Option is subject to the Plan. The terms and provisions of the Plan, as it may be
amended from time to time, are hereby incorporated herein by reference. In the event of a conflict
between any term or provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan, as applicable, will govern and prevail.
14. Non-Competition and Non-Solicitation. The Option shall not be granted unless and
until the Participant executes the Non-Competition and Non-Solicitation Agreement attached hereto
as Exhibit A (the “Non-Competition Agreement”). If the Participant fails to execute the
Non-Competition Agreement, this Agreement shall be null and void ab initio and no Option shall be
deemed granted hereunder.
15. Adoption of Stockholders Agreement. The parties hereto agree that, upon the grant
of the Option hereunder, the Participant shall be made a party to the Stockholders Agreement as an
“Executive” (as defined in the Stockholders Agreement) with the rights and obligations of holders
of “Stock” (as defined in the Stockholders Agreement) and the Participant hereby agrees to become a
party to the Stockholders Agreement and to be bound by, and subject to, all of the representations,
covenants, terms and conditions of the Stockholders Agreement that are applicable to an Executive
with such rights and obligations. Execution and delivery of this Agreement by the Participant
shall also constitute execution and delivery by the Participant of the Stockholders Agreement,
without further action of any party. A copy of the Stockholders Agreement is attached hereto as
Exhibit B. In addition to the representations and warranties in the Stockholders Agreement
that Participant makes as an Executive, the Participant represents and warrants to the Company that
(a) the Participant has carefully reviewed the Stockholders Agreement and has also reviewed all
other documents the Participant deems necessary or desirable in order for the Participant to become
a party to the Stockholders Agreement (by executing this Agreement); (b) the Participant has been
granted the opportunity to ask questions of, and receive answers from, representatives of the
Company concerning the Stockholders Agreement and the terms and conditions thereof that the
Participant deems necessary; and (c) this Agreement (and by executing this Agreement, the
Stockholders Agreement) has been duly executed and delivered by Participant and constitutes a valid
and binding agreement of Participant enforceable against the Participant in accordance with its
terms and the terms of the Stockholders Agreement.
16. Canadian Securities Representations of Participant. The Participant represents
and warrants to the Company as follows: (a) the Participant is an employee, executive officer,
director or consultant of a related entity of the Company, and for this purpose, the terms
“executive officer,” “director,” “consultant” and “related entity” shall have the meaning ascribed
thereto in National Instrument 45-106 of the Canadian Securities Regulators as set forth in
Exhibit C to this Agreement; and (b) the entering into of this Agreement and the
acquisition of the Option hereunder is voluntary.
5
17. Accredited Investor Status Representation of Participant. Please check the box
next to any of the following statements that apply:
o
|
Your individual net worth, or joint net worth with your spouse, as of the date hereof, exceeds US$1,000,000; | |
o
|
You had individual income in excess of US$200,000 in each of the two most recent years, or joint income with your spouse in excess of US$300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year; or | |
o
|
None of the statements above apply. |
18. Signature in Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the Date
of Grant.
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PVF HOLDINGS LLC (for purposes of Section 15 only) |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PARTICIPANT |
||||
| By: | ||||
| Name: | ||||
EXHIBIT A
Non-Competition Agreement
8
EXHIBIT B
Stockholders Agreement
9
EXHIBIT C
Certain Definitions
| (a) | “consultant” means, for an issuer, a person, other than an employee, executive officer, or director of the issuer or of a related entity of the issuer, that: |
| (i) | is engaged to provide services to the issuer or a related entity of the issuer, other than services provided in relation to a distribution; | ||
| (ii) | provides the services under a written contract with the issuer or a related entity of the issuer; and | ||
| (iii) | spends or will spend a significant amount of time and attention on the affairs and business of the issuer or a related entity of the issuer and includes, for an individual consultant, a corporation of which the individual consultant is an employee or shareholder, and a partnership of which the individual consultant is an employee or partner; |
| (b) | “control” means, with respect to one person in relation to another, where the first person, directly or indirectly, has the power to direct the management and policies of the second person by virtue of: |
| (i) | ownership of or direction over voting securities in the second person; | ||
| (ii) | a written agreement or indenture; | ||
| (iii) | being the general partner or controlling the general partner of the second person; or | ||
| (iv) | being a trustee of the second person; |
| (c) | “director” means: |
| (v) | a member of the board of directors of a company or an individual who performs similar functions for a company; and | ||
| (vi) | with respect to a person that is not a company, an individual who performs functions similar to those of a director of a company; |
| (d) | “executive officer” means, for an issuer, an individual who is: |
| (vii) | a chair, vice-chair or president; | ||
| (viii) | a vice-president in charge of a principal business unit, division or function including sales, finance or production; |
| (ix) | an officer of the issuer or any of its subsidiaries and who performs a policy-making function in respect of the issuer; or | ||
| (x) | performing a policy-making function in respect of the issuer; |
| (e) | “related entity” means, for an issuer, a person that controls or is controlled by the issuer or that is controlled by the same person that controls the issuer. |
11
Exhibit 10.19.2
MCJUNKIN RED MAN HOLDING CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT
(CANADA)
THIS AGREEMENT (the “Agreement”), is made effective as of [ , 200___] (the “Date of
Grant”), between McJunkin Red Man Holding Corporation, a Delaware corporation (the “Company”), and
[ ] (the “Participant”).
R E C I T A L S:
WHEREAS, the Company has adopted the McJunkin Red Man Holding Corporation 2007 Stock Option
Plan (Canada) (the “Plan”), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the meanings given thereto in
the Plan; and
WHEREAS, the Committee has determined that it would be in the best interests of the Company
and its shareholders to grant an Option to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the Participant’s services and of the mutual covenants
hereinafter set forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the right and
option (the “Option”) to purchase, on the terms and conditions hereinafter set forth, all or any
part of an aggregate of [ ] Shares, subject to adjustment as set forth in the Plan. The
Option Price shall be US$ [ ], which the Company and the Participant agree is not less than
the Fair Market Value of the Shares as of the date hereof.
2. Vesting; Period of Exercise.
(a) Subject to the earlier termination or cancellation of the Option as set forth herein, the
Option shall vest and become exercisable as follows:
(i) Prior to the third (3rd) anniversary of the Date of Grant, no portion of the
Option shall vest or be exercisable;
(ii) On and after the third (3rd) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one-third (1/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary;
(iii) On and after the fourth (4th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of two-thirds (2/3) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company
has not terminated as of such anniversary; and
(iv) On and after the fifth (5th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one hundred percent of the Shares
originally subject to the Option provided, that the Participant’s Employment with the Company has
not terminated as of such anniversary.
(v) Notwithstanding the foregoing, in the event of (x) the Participant’s death or Disability
or (y) the occurrence of a Transaction, the Option shall, to the extent not then vested,
automatically become fully vested and exercisable.
The portion of the Option which has become vested and exercisable as described herein is
hereinafter referred to as the “Vested Portion.” For clarity, the Participant must be actively at
work on the anniversary of the Date of the Grant, and this does not include any period of time
during which the Participant’s Employment with the Company has being terminated and the Participant
is receiving notice of termination pay or severance pay.
(b) If the Participant’s Employment is terminated by the Company for Cause, the Option shall,
whether or not vested, be automatically canceled without payment of consideration therefor.
(c) If the Participant’s Employment with the Company terminates for any reason other than (x)
Cause or (y) the Participant’s death or Disability, the Option shall, to the extent not previously
vested, be automatically cancelled by the Company without payment of consideration therefor as of
the last day of active work of the Participant, not including any period for which the Participant
is receiving notice of termination pay or severance, and the Vested Portion of the Option shall
remain exercisable for the period set forth in Section 2(d).
(d) Subject to the provisions of the Plan and this Agreement, the Participant may exercise all
or any part of the Vested Portion of the Option at any time prior to the earliest to occur of (i)
the ten-year anniversary of the Date of Grant and (ii) 90 days following the date upon which the
Participant receives notice of the termination of the Participant’s Employment (other than a
termination of Employment due to the Participant’s death or Disability).
(e) Notwithstanding the foregoing, upon termination of Employment due to the Participant’s
death or Disability, the Participant may exercise all or any part of the Vested Portion of the
Option at any time prior to the earliest to occur of (i) the ten-year anniversary of the Date of
Grant and (ii) twenty-four months following such termination of Employment.
3. Method of Exercise.
(a) The Vested Portion of the Option may be exercised by delivering to the Company at its
principal office written notice of intent so to exercise. Such notice shall specify the number of
Shares for which the Option is being exercised (the “Purchased Shares”) and shall be accompanied by
payment in full of the Option Price in cash or by check or wire transfer. The Participant shall
not have any rights to dividends or other rights of a stockholder with respect to
Shares subject to the Option until the Participant has given written notice of exercise of the
Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed
by the Committee or pursuant to the Plan or this Agreement.
2
(b) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the
Option may not be exercised prior to the completion of any registration or qualification of the
Option or the Shares under applicable Canadian and United States provincial, state and federal
securities or other laws, or under any ruling or regulation of any governmental body or national
securities exchange (collectively, the “Legal Requirements”) that the Committee shall in its sole
discretion determine to be necessary or advisable, unless an exemption to such registration or
qualification is available and satisfied. The Committee may establish additional procedures as it
deems necessary or desirable in connection with the exercise of the Option or the issuance of any
Shares upon such exercise to comply with any Legal Requirements. Such procedures may include but
are not limited to the establishment of limited periods during which the Option may be exercised or
that following receipt of the notice of exercise and prior to the completion of the exercise, the
Participant will be required to affirm the exercise of the Option following receipt of any
disclosure deemed necessary or desirable by the Committee.
(c) Upon the Company’s determination that the Option has been validly exercised as to any of
the Shares, the Company shall issue certificates in the Participant’s name for such Shares. Such
certificates will be held by the Company on behalf of the Participant until such time as the Shares
represented by such certificates are transferred as permitted by the Stockholders Agreement.
(d) In the event of the Participant’s death or Disability, the Option shall remain exercisable
by the Participant’s executor or administrator, or, subject to applicable laws, the person or
persons to whom the Participant’s rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, for the period set forth in Section 2(e) (and the term
“Participant” shall be deemed to include such heir or legatee). Any such heir or legatee of the
Participant shall take rights herein granted subject to the terms and conditions hereof.
(e) In consideration of the grant of this Option, the Participant agrees that, as a condition
to the exercise of any option to purchase Shares (whether this Option or any other option), the
Participant shall, with respect to such Shares, have become a party to the Stockholders Agreement.
4. No Right to Continued Employment. The granting of the Option evidenced hereby and
this Agreement shall impose no obligation on the Company or any Affiliate to continue the
Employment of the Participant and shall not lessen or affect the Company’s or its Affiliates’ right
to terminate the Employment of such Participant.
5. Legend on Certificates. The certificates representing the Shares purchased by
exercise of the Option shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other requirements of
the Securities and Exchange Commission or other securities regulator or authority, any stock
exchange upon which such Shares are listed, and any applicable Canadian or United States
federal, provincial or state laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
3
6. Transferability. Unless otherwise determined by the Committee, the Option may not
be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution in compliance with
applicable law, and any such purported assignment, alienation, pledge, attachment, sale, transfer
or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided, that
the designation of a beneficiary shall not constitute an assignment, alienation, pledge,
attachment, sale, transfer or encumbrance. No such permitted transfer of the Option to heirs or
legatees of the Participant shall be effective to bind the Company unless the Committee shall have
been furnished with written notice thereof and a copy of such evidence as the Committee may deem
necessary to establish the validity of the transfer, compliance with applicable law and the
acceptance by the transferee or transferees of the terms and conditions hereof. During the
Participant’s lifetime, the Option is exercisable only by the Participant.
7. Withholding. The Participant shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to withhold, any
applicable withholding taxes in respect of the Option, its exercise or any payment or transfer
under, or with respect to, the Option and to take such other action as may be necessary in the
opinion of the Committee to satisfy all obligations for the payment of such withholding taxes. The
Participant shall be solely responsible for the payment of all taxes relating to the payment or
provision of any amounts or benefits hereunder.
8. Securities Laws. In connection with the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written representations,
warranties and agreements as the Committee may reasonably request in order to comply with
applicable securities laws or with this Agreement.
9. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Company. Subject to compliance with applicable law, this
Agreement shall inure to the benefit of and shall be binding upon the Participant’s heirs,
executors, administrators and successors.
10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Board. Any determination made hereunder shall be final,
binding and conclusive on the Participant, the Participant’s heirs, executors, administrators and
successors, and the Company and its subsidiaries for all purposes.
11. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the Company and to the
Participant at the address appearing in the personnel records of the Company for the Participant or
to either party hereto at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.
12. Choice of Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without regard to principles of conflicts of laws.
4
13. Option Subject to Plan. By entering into this Agreement, the Participant agrees
and acknowledges that the Participant has received and read a copy of the Plan and the Stockholders
Agreement. The Option is subject to the Plan. The terms and provisions of the Plan, as it may be
amended from time to time, are hereby incorporated herein by reference. In the event of a conflict
between any term or provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan, as applicable, will govern and prevail.
14. Adoption of Stockholders Agreement. The parties hereto agree that, upon the grant
of the Option hereunder, the Participant shall be made a party to the Stockholders Agreement as an
“Executive” (as defined in the Stockholders Agreement) with the rights and obligations of holders
of “Stock” (as defined in the Stockholders Agreement) and the Participant hereby agrees to become a
party to the Stockholders Agreement and to be bound by, and subject to, all of the representations,
covenants, terms and conditions of the Stockholders Agreement that are applicable to an Executive
with such rights and obligations. Execution and delivery of this Agreement by the Participant
shall also constitute execution and delivery by the Participant of the Stockholders Agreement,
without further action of any party. A copy of the Stockholders Agreement is attached hereto as
Exhibit A. In addition to the representations and warranties in the Stockholders Agreement
that Participant makes as an Executive, the Participant represents and warrants to the Company that
(a) the Participant has carefully reviewed the Stockholders Agreement and has also reviewed all
other documents the Participant deems necessary or desirable in order for the Participant to become
a party to the Stockholders Agreement (by executing this Agreement); (b) the Participant has been
granted the opportunity to ask questions of, and receive answers from, representatives of the
Company concerning the Stockholders Agreement and the terms and conditions thereof that the
Participant deems necessary; and (c) this Agreement (and by executing this Agreement, the
Stockholders Agreement) has been duly executed and delivered by Participant and constitutes a valid
and binding agreement of Participant enforceable against the Participant in accordance with its
terms and the terms of the Stockholders Agreement.
15. Canadian Securities Representations of Participant. The Participant represents
and warrants to the Company as follows: (a) the Participant is an employee, executive officer,
director or consultant of a related entity of the Company, and for this purpose, the terms
“executive officer,” “director,” “consultant” and “related entity” shall have the meaning ascribed
thereto in National Instrument 45-106 of the Canadian Securities Regulators as set forth in
Exhibit B to this Agreement; and (b) the entering into of this Agreement and the
acquisition of the Option hereunder is voluntary.
16. Accredited Investor Status Representation of Participant. Please check the box
next to any of the following statements that apply:
5
| o | Your individual net worth, or joint net worth with your spouse, as of the date hereof, exceeds US$1,000,000; | ||
| o | You had individual income in excess of US$200,000 in each of the two most recent years, or joint income with your spouse in excess of US$300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year; or | ||
| o | None of the statements above apply. |
17. Signature in Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the Date
of Grant.
| MCJUNKIN RED MAN HOLDING
CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PARTICIPANT |
||||
| By: | ||||
| Name: | ||||
EXHIBIT A
Stockholders Agreement
8
EXHIBIT B
Certain Definitions
| (a) | “consultant” means, for an issuer, a person, other than an employee, executive officer, or director of the issuer or of a related entity of the issuer, that: |
| (i) | is engaged to provide services to the issuer or a related entity of the issuer, other than services provided in relation to a distribution; | ||
| (ii) | provides the services under a written contract with the issuer or a related entity of the issuer; and | ||
| (iii) | spends or will spend a significant amount of time and attention on the affairs and business of the issuer or a related entity of the issuer and includes, for an individual consultant, a corporation of which the individual consultant is an employee or shareholder, and a partnership of which the individual consultant is an employee or partner; |
| (b) | “control” means, with respect to one person in relation to another, where the first person, directly or indirectly, has the power to direct the management and policies of the second person by virtue of: |
| (i) | ownership of or direction over voting securities in the second person; | ||
| (ii) | a written agreement or indenture; | ||
| (iii) | being the general partner or controlling the general partner of the second person; or | ||
| (iv) | being a trustee of the second person; |
| (c) | “director” means: |
| (v) | a member of the board of directors of a company or an individual who performs similar functions for a company; and | ||
| (vi) | with respect to a person that is not a company, an individual who performs functions similar to those of a director of a company; |
| (d) | “executive officer” means, for an issuer, an individual who is: |
| (vii) | a chair, vice-chair or president; | ||
| (viii) | a vice-president in charge of a principal business unit, division or function including sales, finance or production; |
| (ix) | an officer of the issuer or any of its subsidiaries and who performs a policy-making function in respect of the issuer; or | ||
| (x) | performing a policy-making function in respect of the issuer; |
| (e) | “related entity” means, for an issuer, a person that controls or is controlled by the issuer or that is controlled by the same person that controls the issuer. |
10
Exhibit 10.20
MCJUNKIN RED MAN CORPORATION
DEFERRED COMPENSATION PLAN
(Effective as of December 31, 2007)
(Effective as of December 31, 2007)
ARTICLE I
Purpose
Purpose
The purpose of the Deferred Compensation Plan of McJunkin Red Man Corporation (the
“Company”) is to provide a select group of the Company’s management and highly compensated
employees (within the meaning of Section 201(2) of ERISA) the opportunity to defer receipt of cash
compensation, including bonuses, to which they may become entitled as employees of the Company,
under terms advantageous to both such employees and the Company, for the periods provided in the
Plan. It is intended that the Plan shall be considered an unfunded plan. The Plan is intended to
comply with Section 409A of the Code and the regulations and guidance issued thereunder.
ARTICLE II
Definitions
Definitions
For purposes of the Plan, the following terms shall have the following meanings:
2.1. “Account” shall have the meaning given to such term in Section 4.1.
2.2. “Administrator” shall mean the person or committee who shall be responsible for
administering and interpreting the Plan pursuant to Section 6.1.
2.3. “Annual Bonus Award” shall mean the annual cash bonus compensation payable by the
Company to a Participant but before reduction for amounts deferred pursuant to the Plan.
2.4. “Base Salary” shall mean a Participant’s regular base salary payable by the
Company to the Participant, but before reduction for amounts deferred pursuant to the Plan.
2.5. “Beneficiary” shall mean the person or persons designated from time to time in a
writing delivered to the Administrator by a Participant to receive payments under the Plan after
the death of such Participant or, in the absence of any such designation or in the event that such
designated person or persons shall predecease such Participant, the Participant’s estate. A
Participant shall designate a Beneficiary on his initial Deferral Election Form in the form of
Exhibit A and thereafter may change his Beneficiary designation by filing with the Administrator an
Election Form in the form of Exhibit C.
2.6. “Board” shall mean the Board of Directors of the Company.
2.7. “Change in Control” shall mean, in a single transaction or a series of related
transactions, the occurrence of the following event: a majority of the outstanding voting power
of PVF Holdings LLC, McJunkin Red Man Holding Corporation or the Company, or substantially all
of the assets of the Company, shall have been acquired or otherwise become beneficially owned,
directly or indirectly, by any Person (other than any Member (as defined in the PVF Holdings LLC
Agreement) or any of its or their affiliates, or PVF Holdings LLC or any of its affiliates) or any
two or more Persons (other than any Member or any of its or their affiliates, or PVF Holdings LLC
or any of its affiliates) acting as a partnership, limited partnership, syndicate or other group,
entity or association acting in concert for the purpose of voting, acquiring, holding or disposing
of the voting power of PVF Holdings LLC, McJunkin Red Man Holding Corporation or the Company; it
being understood that, for this purpose, the acquisition or beneficial ownership of voting
securities by the public shall not be an acquisition or constitute beneficial ownership by any
Person or Persons acting in concert.
2.8. “Code” shall mean the Internal Revenue Code of 1986, as amended.
2.9. “Committee” shall mean the Compensation Committee of the Board, or if there is no
such Committee, the Board.
2.10. “Company Contribution” shall have the meaning given to such term in Section 3.1.
2.11. “Deferral Election” shall have the meaning given to such term in Section 3.2.
2.12. “Deferred Amount” shall mean as of any date (i) the Participant’s Elective
Deferral Amount, plus all gains or losses attributable thereto as of such date which have been
credited to the Account of such Participant, as provided herein, plus (ii) the Company
Contributions to a Participant’s Account, plus all gains or losses attributable thereto as of such
date which have been credited to the Account of such Participant, as provided herein, less (iii)
any distributions made from the Account of such Participant.
2.13. The “Effective Date” of the Plan shall be December 31, 2007.
2.14. “Election Date” shall have the meaning given to such term in Section 3.4.
2.15. “Election Form” shall mean an election form substantially in the form attached
hereto as Exhibit A (Elective Deferral Form), Exhibit B (Investment Choice Election Form) or
Exhibit C (Election Change Form).
2.16. “Elective Deferral Amount” shall have the meaning given to such term in Section
3.2.
2.17. “Eligible Employee” shall mean any of the employees set forth on Schedule A
attached hereto, as it may be amended by the Board from time to time.
2.18. “Employment Agreement” shall mean a written employment agreement, if any,
between the Company (and/or any of its affiliates) and the Participant.
2.19. “ERISA” shall mean the United States Employee Retirement Income Security Act of
1974, as amended
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2.20. “Investment Choices” shall have the meaning given to such term in
Section 4.2(b).
2.21. “LLC Interest” shall have the meaning given to such term in Section 4.2(b)(ii).
2.22. “McJunkin Red Man Holding Corporation” shall mean McJunkin Red Man Holding
Corporation, a Delaware corporation and direct parent of the Company.
2.23. “Participant” shall mean any Eligible Employee who receives a Company
Contribution pursuant to Section 3.1 and/or makes a Deferral Election pursuant to Section 3.2.
2.24. “Permanent Disability” shall mean, with respect to a Participant, that the
Administrator shall have found, upon the basis of medical evidence satisfactory to it, that the
Participant (A) is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve months, or (B) is, by reason of
any medically determinable physical or mental impairment which can be expected to result in death
or can be expected to last for a continuous period of not less than twelve months, receiving income
replacement benefits for a period of not less than three months under the applicable disability
plan or plans of the Company (or successor plan or plans thereto).
2.25. “Person” shall mean any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture, estate, trust,
association, organization, governmental entity or agency or other entity of any kind or nature.
2.26. “Plan” shall mean the “McJunkin Red Man Corporation Deferred Compensation Plan”
established hereunder.
2.27. “Prime Rate” shall mean the prime rate of interest per annum publicly announced
from time to time by The Wall Street Journal; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
2.28. “Profit Sharing Plan” shall mean the McJunkin Corporation Profit-Sharing and
Savings Plan and Trust, or the Red Man Pipe & Supply Company Retirement Savings Plan, as
applicable, or any successor plan thereto, as they may be amended from time to time.
2.29. “PVF Holdings LLC” shall mean PVF Holdings LLC, a Delaware limited liability
company and indirect parent of the Company.
2.30. “PVF Holdings LLC Agreement” shall mean the Amended and Restated Limited
Liability Company Agreement of PVF Holdings LLC, dated as of October 31, 2007 (as amended and
restated from time to time).
2.31. “Separation from Service” shall mean the Participant dies, retires or otherwise
has a termination of employment with the Company which constitutes a “separation from service” for
purposes of Section 409A of the Code.
3
2.32. “Vested Balance” shall mean the portion of a Participant’s Account which is
vested in accordance with Section 4.3.
ARTICLE III
Deferral of Awards
Deferral of Awards
3.1. Company Contributions. As of the last day of each calendar year, commencing with
December 31, 2007, and provided the Participant is employed by the Company on the last day of such
year, the Company shall credit to the Account of each Participant the difference between the amount
set forth next to such Participant’s name on Schedule A attached hereto, as it may be amended from
time to time by the Committee, and the amount, if any, the Company contributes or will contribute
to such Participant for such calendar year as a discretionary matching contribution pursuant to the
401(k) provisions of the Profit Sharing Plan (such net amount, the “Company Contribution”).
3.2. Elective Participant Contributions. For each calendar year commencing on the
Effective Date, each Participant may elect (a “Deferral Election”) to have the payment of a
specified percentage or specified dollar amount of Base Salary and Annual Bonus Award for such
calendar year deferred pursuant to the Plan (such amount, the “Elective Deferral Amount”);
provided, however, that the first Deferral Election shall apply only to
compensation paid for services performed after the Deferral Election is made. Each Deferral
Election shall be made on an Election Form as set forth on Exhibit A, as it may be amended from
time to time by the Committee, and shall specify the percentage or dollar amount of Base Salary and
Annual Bonus Award to be deferred. Such Election Form shall also specify a Beneficiary
designation. Participants must make a separate Deferral Election in respect of Base Salary and
Annual Bonus Award on or before the applicable Election Date as specified in Section 3.4. If a
Participant does not timely complete an Election Form as set forth on Exhibit C for a calendar
year, the Deferral Election most recently completed shall remain in effect.
3.3. Irrevocable Election. Each Deferral Election with respect to a calendar year,
once made, shall be irrevocable.
3.4. Base Salary and Annual Bonus Award Election Date. The Deferral Election for each
calendar year shall be made on a date (the “Election Date”) no later than December 31 of
the calendar year immediately prior to the calendar year during which the Base Salary and Annual
Bonus Award elected to be deferred are earned (for example, the election for the Base Salary and
Annual Bonus Award attributable to 2009 performance must be made no later than December 31, 2008);
provided, however, that in the case of an employee who becomes an Eligible Employee
for the first time after the Effective Date, the “Election Date” shall be thirty days after such
employee receives notice that he or she has become an Eligible Employee, and the Deferral Election
shall apply only to Base Salary and Annual Bonus Awards to be earned by the Participant in the
calendar year immediately following the Election Date.
4
ARTICLE IV
Treatment of Deferred Amounts
Treatment of Deferred Amounts
4.1. Memorandum Account. The Company shall establish on its books a memorandum
account (the “Account”) for each Participant. The Company contribution shall be credited
as of the time set forth in Section 3.1. For each calendar year, as promptly as practicable (but
in no event more than thirty (30) days) following the date on which any Base Salary and Annual
Bonus Award in respect of a Deferral Election would otherwise be payable to a Participant, the
amount so deferred shall be credited to such Participant’s Account. The Committee shall be
responsible for maintaining the Accounts with subaccounts for Company Contributions and Elective
Deferral Amounts.
4.2. Investment of Deferred Compensation.
(a) A Participant’s Deferred Amount shall be deemed to be invested as set forth in Section
4.2(b). Participants’ Accounts shall be adjusted annually if deemed invested in the manner
provided in Section 4.2(b)(ii) and quarterly if deemed invested in the manner provided in Section
4.2(b)(i), in either case to reflect the performance of the Investment Choices of each Participant
as reflected on the Election Form set forth on Exhibit B. Participants may elect (but not more
often than annually in the month of December) to change the manner in which their Accounts are
invested between the Investment Choices (both as to future amounts and as to then existing Deferred
Amounts) by completing the Election Form as set forth on Exhibit C and submitting it to the
Administrator or his or her designated representative. Any such change will become effective on
the immediately succeeding January 1.
(b) If a Participant’s Account balance as of the beginning of a calendar year is less than
$100,000, then such balance shall be credited quarterly by an amount equal to (x) the amount of
such balance at the beginning of such year, multiplied by (y) the Prime Rate plus 1%. If a
Participant’s Account balance as of the beginning of a calendar year is $100,000 or greater, the
Participant may elect between the following choices (the “Investment Choices”) pursuant to
the Election Form set forth on Exhibit B:
| (i) | The Participant may elect to have the balance in his or her Account credited quarterly by an amount equal to (x) the amount of such balance at the beginning of such quarter, multiplied by (y) the Prime Rate on the last day of such quarter divided by four plus 0.25%; or | ||
| (ii) | The Participant may elect to have the balance of his or her Account deemed converted into a number of common units of PVF Holdings LLC determined by dividing the portion of the Account not already so converted by the value of one common unit determined as of the immediately succeeding December 31 (each, an “LLC Interest”). For example, if a Participant’s Account balance attributable to Company Contributions is $100,000 on December 31 of a calendar year and the Participant elects on such day the Investment Choice described in this Section 4.2(b)(ii), on the next succeeding December 31, the Participant’s Account will be credited with a number of LLC Interests equal to |
5
| $100,000 divided by the value of one LLC Interest on such succeeding December 31. Similarly, if the Participant makes the same election with respect to Elective Deferral Amounts to be credited during the immediately succeeding year, the Participant’s Account will be credited on the succeeding December 31 with a number of LLC Interests determined by dividing the entire amount of such Elective Deferral Amounts for such year by the value of one LLC Interest on such December 31. |
For the avoidance of doubt, a Participant whose Account balance as of the beginning of a calendar
year is $100,000 or greater must choose either 4.2(b)(i) or 4.2(b)(ii) (and not a combination of
the foregoing) for his or her entire account balance, and if no such election is made, the
Participant’s Account shall be invested as described in Section 4.2(b)(i).
4.3. Vesting.
(a) All Participants who are Participants on the Effective Date shall be fully vested and have
a one hundred percent (100%) vested interest in their entire Account.
(b) All Participants at all times shall have an immediate one hundred percent (100%) vested
interest in the portion of their Account which is attributable to Elective Deferral Amounts.
(c) Subject to Section 4.3(d), a Participant who was not a Participant on the Effective Date
shall have a vested interest in the portion of his or her Account according to such schedule (which
may include immediate vesting) as shall be determined by the Administrator at the time of admission
as a Participant.
(d) Upon termination of a Participant’s employment, the portion of his or her Account which
has not vested in accordance with Section 4.3(c) shall be forfeited in its entirety for no
consideration.
4.4. Assets. The Plan and the crediting of Accounts hereunder shall not constitute a
trust and shall be merely for the purpose of recording an unsecured contractual obligation of the
Company.
4.5. Reports. Until the aggregate of all Deferred Amounts in a Participant’s Account
shall have been paid in full, the Company will furnish to the Participant a report, on an annual
basis, setting forth the amount of his or her Account, the value of the subaccounts and the vested
percentage of the Company Contributions.
ARTICLE V
Payment of Deferred Amounts
Payment of Deferred Amounts
5.1. Form of Payment. All payments of Deferred Amounts under the Plan shall be made
in cash.
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5.2. Payment of Deferred Amount.
(a) Upon termination of a Participant’s employment that qualifies as a Separation from Service
(other than due to the Participant’s death or Permanent Disability), the Vested Balance of a
Participant’s Account shall be determined as of the date of such separation from service. For this
purpose, with respect to a Participant’s Account for which the Investment Choice set forth in
Section 4.2(b)(ii) has been made, the value of the Vested Balance shall be based on the value of an
LLC Interest on the immediately preceding December 31.
(b) The Vested Balance of a Participant’s Account, plus interest at the Applicable Federal
Rate in effect on the date that the Vested Balance is determined, shall be paid to the Participant
in three (3) annual installments commencing on the January 1 of the second calendar year following
the calendar year in which the Separation from Service occurs. Each payment shall include interest
accrued through the applicable payment date.
5.3. Effect of Death or Permanent Disability. Notwithstanding any other provision of
the Plan to the contrary, upon a Participant’s death or Permanent Disability, the full amount of
such Participant’s Account, vested and unvested, shall be his or her Vested Balance and shall be
paid within thirty (30) days to the Participant’s Beneficiary in the case of death, or to the
Participant in the case of Permanent Disability. For this purpose, with respect to a Participant’s
Account for which the Investment Choice set forth in Section 4.2(b)(ii) has been made, the amount
of the Vested Balance shall be based on the value of an LLC Interest on the immediately preceding
December 31.
5.4. Effect of a Change in Control of the Company. Notwithstanding any other
provision of the Plan to the contrary, upon a Change in Control of the Company, the full amount of
such Participant’s Account, vested and unvested, shall be his or her Vested Balance and shall be
distributed within thirty (30) days following the date of consummation of the Change of Control.
For this purpose, with respect to a Participant’s Account for which the Investment Choice set forth
in Section 4.2(b)(ii) has been made, the amount of the Vested Balance shall be based on the value
of an LLC Interest or the value of the assets of PVF Holdings LLC as determined in connection with
the Change in Control.
5.5. Six-Month Delay. Notwithstanding anything to the contrary contained herein, if
the Participant is a “specified employee” for purposes of Section 409A of the Code and the
regulations thereunder, to the extent required to comply with Section 409A of the Code, any
distribution hereunder which is subject to Section 409A of the Code shall not commence until one
day after the day which is six (6) months from the date of termination, with the first payment
equaling the amount of distribution that would have been paid had Section 409A of the Code not
applied.
ARTICLE VI
Administration
Administration
6.1. Eligibility. Participants are limited to certain of the Company’s management and
highly compensated employees.
7
6.2. Administrator. The Administrator of the Plan shall be comprised of the
Committee, except as otherwise determined by the Board. The Administrator shall have full
authority to construe and interpret the terms and provisions of the Plan, to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan and to perform all
acts, including the delegation of its administrative responsibilities, as it shall, from time to
time, deem advisable, and to otherwise supervise the administration of the Plan. The Administrator
may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any
election hereunder, in the manner and to the extent it shall deem necessary to carry the Plan into
effect. Any decision, interpretation or other action made or taken in good faith by or at the
direction of the Administrator in connection with the Plan shall be within the absolute discretion
of the Administrator and shall be final, binding and conclusive on the Company and all Participants
and their respective heirs, executors, administrators, successors and assigns. A Participant who
is also the Administrator, a member of a committee that is the Administrator or a person to whom
the Administrator has delegated responsibility pursuant to this Section 6.2 shall not participate
in any decision involving a request made by him or her or relating in any way to his or her rights,
duties, and obligations as a Participant (unless such decision relates to all Participants
generally and in a similar manner).
6.3. Liability. No member of the Board, nor the Administrator or an employee or agent
of the Company or any of its affiliates, shall be liable for any act or action hereunder, whether
of omission or commission, by any other member or employee or by any agent to whom duties in
connection with the administration of the Plan have been delegated or, except in circumstances
involving his or her bad faith, gross negligence or fraud, for anything done or omitted to be done
by himself. The Company or the Administrator may consult with legal counsel, who may be counsel
for the Company or other counsel, with respect to its obligations or duties hereunder, or with
respect to any action or proceeding or any question of law, and shall not be liable with respect to
any action taken or omitted by it in good faith pursuant to the advice of such counsel.
ARTICLE VII
Unsecured Creditor
Unsecured Creditor
Notwithstanding the establishment of the grantor trust, each Participant and Beneficiary shall
have only the rights of a general, unsecured creditor of the Company.
ARTICLE VIII
Miscellaneous
Miscellaneous
8.1. Amendment or Termination. Notwithstanding any other provision of the Plan, the
Company by action of the Board may at any time, and from time to time, amend, in whole or in part,
any or all of the provisions of the Plan, or suspend or terminate it entirely; provided,
however, that any such amendment, suspension or termination may not, without a
Participant’s prior, written consent, adversely affect any Deferred Amount credited to his or her
Account prior to such amendment, suspension or termination. The preceding sentence shall not be
construed to prohibit the Company from changing or eliminating any or all of the then available
Investment Choices provided that if all Investment Choices are eliminated, any remaining Deferred
Amounts shall be credited with a money market rate of interest as determined by the Administrator
from
8
time to time. The Plan shall remain in effect until terminated pursuant to this Section 8.1.
Upon termination of the Plan, all deferrals under the Plan shall cease, Participants shall be fully
vested in their Accounts and Participants shall be paid the Vested Balance (determined as of the
date of such termination) pursuant to their Payment Elections then effect. For this purpose, with
respect to a Participant’s Account for which the Investment Choice set forth in Section 4.2(b)(ii)
has been made, the amount of the Vested Balance shall be based on the value of an LLC Interest on
the immediately preceding December 31.
8.2. Expenses. The Company will bear all expenses incurred in administering the Plan
and no part thereof shall be charged against any Participant’s Account or any amounts distributable
hereunder.
8.3. Withholding. The Company shall withhold from Participants’ compensation, or from
amounts payable hereunder, any federal, state or local taxes required by law to be so withheld.
8.4. No Obligation. Neither the Plan nor any elections hereunder shall create any
obligation of the Company to establish or continue any other programs, plans or policies of any
kind. Neither the Plan nor any election made pursuant to the Plan shall give any Participant or
other employee the right to receive benefits not specifically provided for by the Plan, nor any
right with respect to continuance of employment by the Company, nor shall there be a limitation in
any way on the right of the Company to terminate an employee’s employment with the Company at any
time.
8.5. No Assignment. Except by will or the laws of descent and distribution, no right
or interest in any Account or Deferred Amount under the Plan may be assigned, transferred, pledged
or hypothecated, and no right or interest of any Participant in any Account hereunder or to any
Deferred Amount shall be subject to any lien, pledge, encumbrance, charge, garnishment, execution,
alienation, obligation or liability of such Participant, whether voluntary or involuntary,
including, but not limited to, any liability that is for alimony or other payments for the support
of a spouse or former spouse, or for any other relative of a Participant.
8.6. Facility of Payment. Any amounts payable hereunder to any person who is under
legal disability or who, in the judgment of the Administrator, is unable to manage his or her
financial affairs, may be paid to the legal representative of such person or may be applied for the
benefit of such person in any manner that the Company may select. Any such payment shall be deemed
to be payment for such person’s Account and shall be a complete discharge of all liability of the
Company with respect to the amount so paid.
8.7. Applicable Law. The Plan and the obligations of the Company hereunder shall be
subject to all applicable federal and state laws, rules and regulations and to such approvals by
any governmental or regulatory agency as may from time to time be required.
8.8. Governing Law. The Plan and actions taken in connection herewith shall be
governed and construed in accordance with the laws of the State of New York (regardless of the law
that might otherwise govern under applicable New York principles of conflict of laws). Any
9
provision of the Plan prohibited by the law of any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining
provisions hereof.
8.9. Savings Clause. The Plan is intended to be administered, operated and construed
in compliance with Section 409A of the Code and any regulations and guidance thereunder.
Notwithstanding this or any other provision of the Plan to the contrary, the Company may amend the
Plan in any manner, or take any other action, that it determines, in its sole discretion, is
necessary, appropriate or advisable to cause the Plan to comply with Section 409A and any
regulations and guidance issued thereunder, including, without limitation, amendments or other
actions that reduce the accruals of Participants hereunder or otherwise impair the rights of
Participants hereunder. Any such action, once taken, shall be deemed to be effective from the
earliest date necessary to avoid a violation of Section 409A and shall be final, binding and
conclusive on all Participants and other individuals having or claiming any right or interest under
the Plan.
8.10. Construction. Wherever any words are used herein in the singular form they
shall be construed as though they were also used in the plural form in all cases where they would
so apply. The titles to sections of the Plan are intended solely as a convenience and shall not be
used as an aid in construction of any provisions hereof.
8.11. Effective Date. The Plan shall be effective as of the Effective Date.
10
Exhibit 10.21
Execution Version
INDEMNITY AGREEMENT
This Agreement is made and entered into as of this 4th day of December, 2006 by and
among McJ Holding Corporation, a Delaware corporation (“Parent”), Hg Acquisition Corp., a
West Virginia corporation (“Merger Sub”), McJunkin Corporation, a West Virginia corporation
(the “Company”) and the persons listed on Annex 1 attached hereto (each such person
an “Indemnifying Shareholder” and together the “Indemnifying Shareholders”).
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the
Merger Agreement (as defined below).
WHEREAS, concurrently with the execution of this Agreement, Parent, Merger Sub and the
Company, are entering into an Agreement and Plan of Merger, dated as of the date hereof (as
amended, restated or supplemented from time to time, the “Merger Agreement”), pursuant to
which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and
into the Company (the “Merger”);
WHEREAS, pursuant to Section 6.13 of the Merger Agreement, the Surviving Corporation has
agreed to use commercially reasonable efforts to sell the Non-Core Assets following consummation of
the Merger;
WHEREAS, the Company has agreed to make payments to certain employees of the Company or its
Subsidiaries as a result of the signing of the Merger Agreement, the agreements and documents
referenced therein, and the transactions contemplated thereby; and
WHEREAS, each of the Indemnifying Shareholders agrees to provide the indemnity as set forth
below.
NOW THEREFORE, in consideration for and to induce the Surviving Corporation to enter into and
perform the covenants set forth in Section 6.13 of the Merger Agreement, the parties hereby agree
that:
| 1. | Indemnification. From and after the Effective Time, the Indemnifying Shareholders shall, jointly and severally, defend, indemnify and hold harmless Parent, Merger Sub, the Company, and their respective shareholders, members, partners, officers, directors, employees, attorneys, accountants, Affiliates, agents, other advisors and successors (each an “Indemnified Party” and together the “Indemnified Parties”) (i) from and against any and all costs, charges, fees, expenses, losses, liabilities, obligations, claims, fines, penalties or interest paid or payable with respect thereto (including, without limitation, attorneys’, accountants’, consultants’ and appraisers’ fees and amounts paid or payable with respect to any investigation or remediation in connection with any Hazardous Substances at, on, under or migrating to or from any property being sold) (“Costs”) incurred by any such Indemnified Parties in connection with, arising out of, or relating in any way to any Non-Core Asset listed on Part B of Annex G of the Merger Agreement, including, without limitation, the holding and disposition thereof and distribution of the Net Proceeds with respect thereto, as provided in Section 6.13 of the Merger Agreement to the extent the Costs for such Non-Core Asset exceed the Net |
1
| Proceeds with respect to such Non-Core Asset and (ii) for any amounts paid or payable by the Company or any of its Subsidiaries to any of its or their officers, directors or employees in excess of $965,000 in the aggregate in the nature of any “change in control”, closing or signing bonus or similar payment as a result of the signing of the Merger Agreement, the agreements and documents referenced therein, or the transactions contemplated thereby (but excluding any severance payments made as a result of a termination of employment occurring after the Closing), other than the payments to the employees and in the amounts set forth on Schedule I to this Agreement. In addition, from and after the Effective Time, the Indemnifying Shareholders shall, jointly and severally, defend, indemnify and hold harmless the Indemnified Parties from and against payments by the Company or any of its Subsidiaries to the employees in the amounts set forth on Schedule I to this Agreement net of any tax benefit to the Company and its Subsidiaries as result of such payment less the amounts contributed by the Major Stockholders and M. Chilton Mueller after the date hereof and prior to the Effective Time. Notwithstanding anything herein to the contrary, from and after the Effective Time, the Indemnifying Shareholders shall, jointly and severally, defend, indemnify and hold harmless the Indemnified Parties from and against any liability of the Company and each of its Subsidiaries for any failure to properly withhold any amounts required to be deducted and withheld by the Company or any of its Subsidiaries and paid to the applicable taxing authorities under the Code or any applicable state, local or foreign Tax law with respect to any “change in control”, closing or signing bonus or similar payment (including, without limitation, payments to the employees and in the amounts set forth on Schedule 1 to this Agreement) made by the Company or any of its Subsidiaries as a result of the signing of the Merger Agreement, the agreements and documents referenced therein, or the transactions contemplated thereby, provided that the indemnity provided in this sentence shall not apply to any withholding obligations that arise after the Effective Time. |
| 2. | Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: |
If to Parent or Merger Sub:
c/o GS Capital Partners V Fund, L.P.
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Henry Cornell
Fax: (212) 357-5505
85 Broad Street, 10th Floor
New York, NY 10004
Attention: Henry Cornell
Fax: (212) 357-5505
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, NY 10004
One New York Plaza
New York, NY 10004
2
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
Fax: (212) 859-4000
If to the Indemnifying Shareholders or the Company:
McJunkin Corporation
835 Hillcrest Drive
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
835 Hillcrest Drive
Charleston, WV 25311
Attention: H.B. Wehrle III
Fax: (304) 348-1557
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attention: Benjamin F. Stapleton III
125 Broad Street
New York, NY 10004
Attention: Benjamin F. Stapleton III
Fax: (212) 558-3588
or to such other persons or addresses as may be designated in writing by the party to receive such
notice as provided above. Any notice, request, instruction or other document given as provided
above shall be deemed given to the receiving party upon actual receipt, if delivered personally;
three business days after deposit in the mail, if sent by registered or certified mail; upon
confirmation of successful transmission if sent by facsimile (provided that if given by
facsimile such notice, request, instruction or other document shall be followed up within one
business day by dispatch pursuant to one of the other methods described herein); or on the next
business day after deposit with an overnight courier, if sent by an overnight courier.
| 3. | Interpretation, Construction. |
| a. | The headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section or Annex, such reference shall be to a Section or Annex, of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” | ||
| b. | The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. |
| 4. | Entire Agreement; Binding Effect; Assignment. This Agreement constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to |
3
| the subject matter hereof and thereof. This Agreement shall be binding upon, inure to the benefit of and be enforceable only by the parties hereto and their respective successors and permitted assigns. No party may assign its rights or obligations under this Agreement to any other person or entity without the prior written consent of the other parties and any purported assignment without such consent is void. |
| 5. | Modification or Amendment; Waiver. This Agreement may only be amended, modified, supplemented or waived with the written approval of each party hereto. No failure or delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof or of any other or future exercise of any such right, power or privilege. |
| 6. | Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. |
| 7. | Governing Law and Venue; Waiver of Jury Trial; Specific Performance. |
| a. | THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the personal jurisdiction of the courts of the State of Delaware located in the County of New Castle and the Federal courts of the United States of America located in the County of New Castle solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Delaware State or Federal court located in the County of New Castle. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and, to the extent permitted by law, over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 2 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. | ||
| b. | EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND |
4
| UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7. | |||
| c. | The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in Delaware State or Federal court in the County of New Castle, this being in addition to any other remedy to which such party is entitled at law or in equity. |
| 8. | Further Assurances. At any time or from time to time after the date hereof, the parties hereto agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the provisions of this Agreement and to otherwise carry out the intent of the parties hereunder. |
| 9. | Expenses. Except as otherwise provided in the Merger Agreement, each party hereto shall pay its own expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by this Agreement, including all fees and expenses of agents, representatives, counsel and accountants. |
| 10. | Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. |
5
[signature pages follow]
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
| McJ HOLDING CORPORATION | ||||||
| By: | /s/ Christine Vollersten | |||||
| Title: Vice President | ||||||
| Hg ACQUISITION CORP. | ||||||
| By: | /s/ Christine Vollersten | |||||
| Title: Vice President | ||||||
| MCJUNKIN CORPORATION | ||||||
| By: | /s/ H.B. Wehrle III | |||||
| Title: President and Chief Executive Officer | ||||||
[Indemnity Agreement Signature Page]
| H.B. WEHRLE III | ||||||
| By: | /s/ H.B. Wehrle III | |||||
| KATHERINE SCHILLING WEHRLE | ||||||
| By: | /s/ H.B. Wehrle III | |||||
| HELEN LYNNE WEHRLE-ZANDE | ||||||
| By: | /s/ H.B. Wehrle III | |||||
| STEPHEN D. WEHRLE | ||||||
| By: | /s/ Stephen D. Wehrle | |||||
| ELIZABETH M. WEHRLE | ||||||
| By: | /s/ H.B. Wehrle III | |||||
| H.B. WEHRLE JR. | ||||||
| By: | /s/ H.B. Wehrle Jr. | |||||
[Indemnity Agreement Signature Page]
Annex 1
Indemnifying Shareholders
H. B. Wehrle, III
Katherine Schilling Wehrle
Helen Lynne Wehrle-Zande
Stephen D. Wehrle
Eizabeth M. Wehrle
H.B. Wehrle, Jr.
Katherine Schilling Wehrle
Helen Lynne Wehrle-Zande
Stephen D. Wehrle
Eizabeth M. Wehrle
H.B. Wehrle, Jr.
Exhibit 10.22
MANAGEMENT STOCKHOLDERS AGREEMENT
by and among
McJ HOLDING LLC
McJ HOLDING CORPORATION
and
THE EXECUTIVES NAMED HEREIN
Dated as of March 27, 2007
TABLE OF CONTENTS
| Page | ||||
Section 1. Certain Definitions |
2 | |||
Section 2. Methodology for Calculations |
6 | |||
Section 3. Restrictions on Transfers of Stock by Stockholders |
6 | |||
Section 4. Drag-Along Rights |
6 | |||
Section 5. Certain Rights upon Termination of Employment |
8 | |||
Section 6. Legend |
9 | |||
Section 7. Representations and Warranties; Acknowledgements |
9 | |||
Section 8. Duration of Agreement |
10 | |||
Section 9. Further Assurances |
10 | |||
Section 10. Amendment and Waiver |
10 | |||
Section 11. Entire Agreement |
10 | |||
Section 12. Successors and Assigns |
10 | |||
Section 13. Severability |
11 | |||
Section 14. Remedies |
11 | |||
Section 15. Notices |
11 | |||
Section 16. Governing Law; Waiver of Jury Trial |
12 | |||
Section 17.
Possession of Certificates; Power of Attorney |
12 | |||
Section 18. Descriptive Headings |
13 | |||
Section 19. Construction |
13 | |||
Section 20. Survival of Representations and Warranties |
13 | |||
Section 21. Counterparts |
14 | |||
Section 22. Future Stockholders |
14 |
i
MANAGEMENT STOCKHOLDERS AGREEMENT
THIS MANAGEMENT STOCKHOLDERS AGREEMENT (this “Agreement”) is made as of March 27, 2007
by and among McJ HOLDING CORPORATION, a Delaware corporation (the “Company”), McJ HOLDING
LLC, a Delaware limited liability company (“Holdco”), and each of the Persons listed on the
signature page hereto (each an “Executive” and together, the “Executives”).
W I T N E S S E T H :
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of December 4, 2006, as
amended (the “Merger Agreement”), by and among the Company, Hg Acquisition Corp., a West
Virginia corporation and a wholly owned subsidiary of Holdco (“Merger Sub”), and Holdco, on
the date hereof, Merger Sub merged with and into McJunkin Corporation, a West Virginia corporation
(“McJ”), with McJ remaining as the surviving corporation (the “Merger”);
WHEREAS, Holdco owns all of the shares of common stock of the Company and the Company owns all
of the shares of common stock of McJ;
WHEREAS, the Company has adopted the McJ Holding Corporation 2007 Stock Option Plan (the
“Option Plan”), and has granted or will grant options to purchase Common Stock of the
Company (the “Plan Options”) to certain Executives thereunder;
WHEREAS, the Company has adopted the McJ Holding Corporation 2007 Restricted Stock Plan (the
“Restricted Stock Plan”) has granted or will grant shares of restricted Common Stock of the
Company to certain Executives thereunder; and
WHEREAS, Holdco, the Executives and the Company desire to enter into an agreement establishing
and setting forth their agreement with respect to certain rights and obligations associated with
ownership of Stock of the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
Section 1. Certain Definitions. As used herein, the following terms shall have the
following meanings:
“Affiliate” means (i) with respect to any Person, any other Person controlling,
controlled by or under common control with such Person, where “control” means the possession,
directly or indirectly of the power to direct the management and policies of a Person, whether
through the ownership of voting securities, contract or otherwise; provided,
however, that, for purposes hereof, neither the Company nor any Person controlled by the
Company shall be deemed to be an Affiliate of any Stockholder.
“Agreement” has the meaning set forth in the Preamble.
2
“Board” means the Board of Directors of the Company. “Business Day” shall mean
a day other than a Saturday, Sunday, federal or New York State holiday or other day on which
commercial banks in New York are authorized or required by law to close.
“Call Option” has the meaning set forth in Section 5(a).
“Call Option Notice” has the meaning set forth in Section 5(b).
“Call Option Price” has the meaning set forth in Section 5(c)
“Call Option Stock” has the meaning set forth in Section 5(a).
“Cause” means, with respect to an Executive’s termination of Employment, (a) if the
Executive is at the time of termination a party to an employment or retention agreement that
defines such term, the meaning given therein, and (b) in all other cases, the Executive’s (i)
continuing failure, for more than 10 days after the Company’s notice to the Executive thereof, to
perform such duties as are reasonably requested by the Company; (ii) failure to observe material
policies generally applicable to officers or employees of the Company unless such failure is
capable of being cured and is cured within 10 days of the Executive receiving notice of such
failure; (iii) failure to cooperate with any internal investigation of the Company; (iv) commission
of any act of fraud, theft or financial dishonesty with respect to the Company or indictment or
conviction of any felony; (v) chronic absenteeism; or (vi) abuse of alcohol or another controlled
substance.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” means the common stock, par value $0.01 per share, of the Company and
any and all securities of any kind whatsoever of the Company which may be issued after the date
hereof in respect of, or in exchange for, such shares of common stock of the Company pursuant to a
merger, consolidation, stock split, stock dividend or recapitalization of the Company or otherwise.
“Common Stock Equivalents” means all option, warrants and other securities convertible
into, or exchangeable or exercisable for (at any time or upon the occurrence of any event or
contingency and without regard to any vesting or other conditions to which such securities may be
subject), shares of Common Stock or other equity securities of the Company (including, without
limitation, any note or debt security convertible into or exchangeable for Common Stock or other
equity securities of the Company).
“Company” has the meaning set forth in the Preamble.
“Director” means a member of the Board.
“Drag-Along Notice” has the meaning set forth in Section 4(b).
“Drag-Along Sale” has the meaning set forth in Section 4(a).
“Drag-Along Transferee” has the meaning set forth in Section 4(a).
3
“Employment” means (i) an Executive’s employment if the Executive is an employee of
the Company or any of its Affiliates, (ii) an Executive’s services as a consultant, if the
Executive is a consultant to the Company or any of its Affiliates and (iii) an Executive’s services
as a non-employee director, if the Executive is a non-employee member of the Board.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Executive” has the meaning set forth in the Preamble.
“Executive Stockholder” means any Executive and any other Person to whom an Executive
Transfers Stock.
“Exit Event” means a bona fide arm’s-length transaction or series of transactions
(other than a Qualified IPO):
| (a) | involving the sale, transfer or other disposition by Holdco to one or more Persons that are not, immediately prior to such sale, transfer or other disposition, Affiliates of Holdco, of all or substantially all of the outstanding Common Stock of the Company beneficially owned by Holdco as of the date of such transaction; or | ||
| (b) | involving the sale, transfer or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to one or more Persons that are not, immediately prior to such sale, transfer or other disposition, Affiliates of Holdco. |
“Fair Market Value” means, on a given date, (i) if there should be a public market
for shares of Common Stock on such date, the arithmetic mean of the high and low prices of the
shares of Common Stock as reported on such date on the composite tape of the principal national
securities exchange on which such shares are listed or admitted to trading, or, if such shares are
not listed or admitted on any national securities exchange, the arithmetic mean of the per-share
closing bid price and per-share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or such market in which such prices
are regularly quoted) (the “Nasdaq”), or, if no sale of shares of Common Stock shall have been
reported on the composite tape of any national securities exchange or quoted on the Nasdaq on such
date, the arithmetic mean of the per-share closing bid price and per-share closing asked price on
the immediately preceding date on which sales of the shares of Common Stock have been so reported
or quoted, and (ii) if there is not a public market for the shares of Common Stock on such date,
the value established by the Board in good faith.
“Family Member” means with respect to any Executive, a spouse, lineal ancestor, lineal
descendent or legally adopted child, of such Executive.
“Group” means two or more Persons who agree to act together for the purpose of
acquiring, holding, voting or disposing of Stock.
“Holdco” has the meaning set forth in the Preamble.
4
“Merger” has the meaning set forth in the Recitals.
“Merger Agreement” has the meaning set forth in the Recitals.
“Option Plan” has the meaning set forth in the Recitals.
“Option Stock” means Common Stock received upon the exercise of Common Stock
Equivalents (including, without limitation, Plan Options).
“Permitted Executive Transferee” has the meaning set forth in Section 5(a).
“Permitted Transfer” means any Transfer of Stock by an Executive Stockholder upon the
death of an individual Executive Stockholder, pursuant to the terms of any trust or will of the
deceased individual Executive Stockholder or by the laws of intestate succession.
“Person” means any individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivisions thereof.
“Plan Options” has the meaning set forth in the Recitals.
“Qualified IPO” means the first underwritten public offering of the Common Stock or
the common stock of a successor corporation or a Subsidiary of the Company to the general public
through a registration statement filed with the Securities and Exchange Commission that covers
(together with prior effective registrations) (i) not less than 25% of the then outstanding shares
of Common Stock or common stock of such successor corporation or such Subsidiary of the Company on
a fully diluted basis or (ii) shares of the Company or such successor corporation or such
Subsidiary of the Company that will be traded on any of the New York Stock Exchange, the American
Stock Exchange or the National Association of Securities Dealers Automated Quotation System after
the close of any such general public offering.
“Restricted Stock” has the meaning set forth in the Recitals.
“Restricted Stock Plan” has the meaning set forth in the Recitals.
“Securities Act” means the Securities Act of 1933, as amended.
“Stock” means (i) any shares of Common Stock (including Restricted Stock) and (ii) any
Common Stock Equivalents, in each case whether owned on the date hereof or acquired hereafter.
“Stockholders” means the Executive Stockholders, Holdco and any other subsequent
holder of Stock who is bound by the terms of this Agreement.
“Subsidiary” means, with respect to any Person, (i) any corporation, limited liability
company, limited or general partnership or other entity of which shares of capital stock or other
ownership interests having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such corporation, limited liability company, limited
5
or general
partnership or other entity are at the time directly or indirectly owned or controlled by such
Person, or (ii) the management of which is otherwise controlled, directly or indirectly, through
one or more intermediaries by such Person.
“Transfer” or “Transferring” means, as the case may be, (i) to directly or
indirectly transfer, sell, assign, distribute, pledge, encumber, hypothecate or otherwise dispose
of, either voluntarily or involuntarily, including by gift, by way of a merger (forward or reverse)
or similar transaction, by operation of law or otherwise or (ii) any direct or indirect transfer,
sale assignment, distribution, pledge, encumbrance, hypothecation or other disposition, either
voluntarily or involuntarily, including by gift, by way of merger (forward or reverse) or similar
transaction, by operation of law or otherwise.
“Voting Shares” means, at any time, any securities of the Company the holders of which
are then generally entitled to vote in the election of Directors.
Section 2. Methodology for Calculations. For all purposes of this Agreement, the
proposed Transfer or the Transfer of a Common Stock Equivalent shall be treated as the proposed
Transfer or the Transfer of the shares of Common Stock receivable upon the conversion, exchange or
exercise of such Common Stock Equivalent. Except as otherwise expressly provided in this
Agreement, for purposes of calculating (a) the amount of outstanding Common Stock as of any date
and (b) the amount of Common Stock owned by a Person hereunder (and the percentage of the
outstanding Common Stock owned by a Person), no Common Stock Equivalents shall be treated as having
been converted, exchanged or exercised for the underlying Common Stock.
Section 3. Restrictions on Transfers of Stock by Stockholders.
(a) Subject to the remaining subsections of this Section 3, no Executive Stockholder shall
Transfer any Stock other than pursuant to (i) a Permitted Transfer, or (ii) Section 4 or Section 5
(to the extent applicable to such Transfer).
(b) Anything to the contrary contained in this Agreement notwithstanding, any Person to whom
an Executive Stockholder Transfers Stock and who is not a Stockholder at the time of Transfer
shall, upon consummation of, and as a condition to, such Transfer, execute and deliver to the
Company (which the Company shall then deliver to all other Stockholders) an agreement pursuant to
which such transferee agrees to be bound by the terms of this Agreement and such transferee shall
thereafter be deemed to be an Executive Stockholder hereunder, the same rights and obligations as
the transferor of such Stock.
(c) Any Transfer or attempted Transfer of Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Stock as the owner of such Stock for any purpose.
Section 4. Drag-Along Rights.
6
(a) Prior to a Qualified IPO, if Holdco, whether alone or in concert with any other
Stockholder, proposes to (i) Transfer Stock to any Person who is not an Affiliate of Holdco, or
(ii) effect an Exit Event (any such Transfer or Exit Event referred to in (i) or (ii) above, a
“Drag-Along Sale”, and the transferee with respect to a Drag-Along Sale, the
“Drag-Along Transferee”), then Holdco may elect to require each (but not fewer than each)
Executive Stockholder to Transfer Stock (as calculated below) as a part of such Drag-Along Sale to
such Drag-Along Transferee at the same price per share (and, in the case of Common Stock
Equivalents, such price per share subject to reduction for the amount per share of the exercise or
purchase price (if any) of such Common Stock Equivalent) to be paid to, and upon the same terms and
conditions as, Holdco, all of which shall be set forth in the Drag-Along Notice (as defined below).
Each Executive Stockholder may be required to sell that number of shares of Stock as shall equal
the product of (x) a fraction, the numerator of which is the number of shares of Stock proposed to
be Transferred by Holdco and the denominator of which is the aggregate number of shares of Stock
owned as of the date of the Drag-Along Notice by Holdco and (y) the number of shares of Stock owned
by such Executive Stockholder as of the date of the Drag-Along Notice.
(b) The rights set forth in Section 4(a) shall be exercised by giving written notice (the
“Drag-Along Notice”) to each Executive Stockholder (with a copy to the Company) at least
fifteen (15) business days prior to the proposed closing date of such Drag-Along Sale, which notice
shall identify the Drag-Along Transferee, the amount and type of Stock being Transferred, the
purchase price therefor, and a summary of the other material terms and conditions of the proposed
Drag-Along Sale and the proposed closing date thereof.
(c) All Transfers of Stock to the Drag-Along Transferee pursuant to this Section 4 shall be
consummated contemporaneously at the offices of the Company on the later of (i) the proposed
closing date set forth in the Drag-Along Notice or (ii) the fifth Business Day following the
expiration or termination of all waiting periods under anti-trust or competition laws applicable to
such Transfers, or at such other time and/or place as the parties to such Transfers may
collectively agree. The delivery of certificates or other instruments evidencing such Stock duly
endorsed for transfer shall be made on such date against payment of the purchase price for such
Stock in the form specified in the Drag-Along Notice.
(d) Any Exit Event may be structured as an auction and may be initiated by the delivery to the
Company and the Drag-Along Transferees of a written notice that Holdco has elected to initiate an
auction sale procedure. Holdco and its Affiliates shall be entitled to take all steps reasonably
necessary to carry out an auction of the Company, including, without limitation, selecting an
investment bank, providing confidential information (pursuant to confidentiality agreements),
selecting the winning bidder and negotiating the requisite documentation. The Company and each
Drag-Along Transferee shall provide assistance with respect to these actions as reasonably
requested by Holdco and its Affiliates.
(e) Each Executive Stockholder will (i) take all such actions, including, without limitation,
voting all of its shares of Stock in favor of such proposed Drag-Along Sale and waiving any
appraisal, dissenter or similar rights under applicable law (in each case if applicable to such
Drag-Along Sale), as may be reasonably requested by Holdco to carry out the
7
purposes of this
Section 4, and (ii) execute all documents containing such terms and conditions, including
representations and warranties solely with respect to (x) matters of title to the Executive
Stockholders securities and (y) the due authorization (or capacity) and due and valid execution and
delivery by such Executive Stockholder of documentation in respect of such Transfer, as those
executed by Holdco, and shall execute and deliver such other instruments and agreements as may be
reasonably requested by Holdco; provided, however, that such representations and
warranties shall be made by the Executive Stockholders severally and not jointly and may be subject
to knowledge qualifiers where applicable.
(f) Any transaction costs, including transfer taxes and legal, accounting and investment
banking fees incurred by the Company and Holdco and its Affiliates in connection with an Exit Event
shall, unless the applicable purchaser refuses, be borne by the Company in the event of a merger,
consolidation or sale of assets and shall otherwise be borne by the Stockholders on a pro rata
basis based on the consideration received by each Stockholder in such Exit Event.
Section 5. Certain Rights upon Termination of Employment.
(a) If at any time an Executive’s Employment with the Company shall be terminated, the
Company shall have the right, but not the obligation, to purchase all or any portion of the
Restricted Stock and/or Option Stock owned by that Executive and any transferee who obtained
Restricted Stock and/or Option Stock as a direct or indirect result of a Permitted Transfer by that
Executive (a “Permitted Executive Transferee”) (the “Call Option”, and such Stock
(not including unexercised Common Stock Equivalents to the extent cancelled upon such termination)
subject to the Call Option, the “Call Option Stock”) at the Call Option Price.
(b) If the Company desires to exercise its Call Option, it shall deliver written notice
thereof (which shall include its valuation of the Fair Market Value of the Call Option Stock) (a
“Call Option Notice”) to the Executive and any Permitted Executive Transferees no later
than one hundred and eighty one (181) days following the later of (x) termination of the
Executive’s Employment and (y) receipt of Option Stock in connection with a post-termination
exercise. The Executive and any Permitted Executive Transferees shall deliver to the Company
certificates representing the shares of Call Option Stock, free and clear of all claims, liens, or
encumbrances, together with blank stock powers, duly executed with all signature guarantees at a
closing at the principal office of the Company on the tenth day after the Fair Market Value of the
Call Option Stock has been determined, or at such other place and time and in such manner as may be
mutually agreed to by Executive and the Company. Subject to the next sentence, the proceeds from
the purchase of the Call Option Stock pursuant to the Call Option shall be paid in immediately
available funds by wire transfer, which shall be delivered to the Executive and any Permitted
Executive Transferees at the closing of such purchase. Notwithstanding the foregoing, if the
Company is not permitted by any loan or debt agreement to which the Company or any of its
Subsidiaries may be a party, or by which any of them may be bound, or the provisions of any
applicable law to purchase the Call Option Stock as provided above in cash, the Company may
pay for the Call Option Stock with a note payable in a maximum of five (5) equal consecutive
annual installments commencing on the first anniversary of the closing of the Call Option purchase
and bearing interest at the prime rate in effect on the date of transfer.
8
(c) The “Call Option Price” means (i) in the event such termination of Employment of an
Executive is by the Company for Cause, the lesser of (x) the Fair Market Value of the Call Option
Stock on the date of repurchase and (y) the price paid for the Call Option Stock by such Executive,
or (ii) in the event of any other termination of Employment of an Executive, the Fair Market Value
of the Call Option Stock on the date of repurchase.
Section 6. Legend. Each Executive Stockholder and the Company shall take all such
action necessary (including exchanging with the Company certificates representing shares of Stock
issued prior to the date hereof) to cause each certificate representing outstanding shares of Stock
owned by an Executive Stockholder to bear a legend containing the following words:
| “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT.” | ||
| “IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER AND VOTING SET FORTH IN THE MANAGEMENT STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 2007 BY THE COMPANY AND THE PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE COMPANY.” |
The requirement that the above securities legend be placed upon certificates evidencing shares
of Stock shall cease and terminate upon the earliest of the following events: (i) when such shares
are transferred in a public offering, (ii) when such shares are transferred pursuant to Rule 144,
as such Rule may be amended (or any successor provision thereto), under the Securities Act or
(iii) when such shares are transferred in any other transaction if the seller delivers to the
Company an opinion of its or his counsel, which counsel and opinion shall be reasonably
satisfactory to the Company, or a “no-action” letter from the staff of the Securities and Exchange
Commission, in either case to the effect that such legend is no longer necessary in order to
protect the Company against a violation by it of the Securities Act upon any sale or other
disposition of such shares without registration thereunder. Upon the consummation of any event
requiring the removal of a legend hereunder, the Company, upon the surrender of certificates
containing such legend, shall, at its own expense, deliver to the holder of any such shares as to
which the requirement for such legend shall have terminated, one or more new certificates
evidencing such shares not bearing such legend.
Section 7. Representations and Warranties; Acknowledgements. Each party hereto
represents and warrants to the other parties hereto as follows:
(a) It or he has full power and authority to execute, deliver and perform its or his
obligations under this Agreement.
9
(b) This Agreement has been duly and validly authorized, executed and delivered by it or him,
and constitutes a valid and binding obligation of it or him, enforceable against it or him in
accordance with its terms except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors’ rights generally (whether considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of this Agreement by it or him does not (x)
violate, conflict with, or constitute a breach of or default under its organizational documents, if
any, or any material agreement to which it or he is a party or by which it or he is bound or (y)
violate any law, regulation, order, writ, judgment, injunction or decree applicable to it or him.
(d) No consent or approval of, or filing with, any governmental or regulatory body is required
to be obtained or made by it or him in connection with the execution and delivery hereof.
Section 8. Duration of Agreement. The rights and obligations of a Stockholder under
this Agreement shall terminate at such time as such Stockholder no longer owns any shares of Stock.
Section 9. Further Assurances. Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments, and documents as any other party hereto reasonably may
request in order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Section 10. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be effective unless such
modification, amendment or waiver is approved in writing by Stockholders holding a majority of the
then outstanding Common Stock; provided, that, notwithstanding the foregoing, any
modification, amendment or waiver of any provision of this Agreement that materially and adversely
effects any Stockholder shall not be effective against such Stockholder without such Stockholders’
written approval. No waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar). No failure or delay on
the part of any party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof or of any other or future exercise of any such right power or privilege.
Section 11. Entire Agreement. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
Section 12. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the Company and its
successors and assigns and each Stockholder and their respective successors, assigns, heirs and
10
personal representatives, so long as they hold Stock. Each Stockholder shall have the right to
assign all or part of its or his rights and obligations under this Agreement only to a transferee
pursuant to a Permitted Transfer; provided, however, that Holdco may transfer and
assign, all or part of, its rights and obligations under this Agreement to one or more of its
Affiliates without the consent of the Company or any other Stockholder. Upon any such assignment,
such assignee shall have and be able to exercise and enforce all rights of the assigning
Stockholder which are assigned to it and, to the extent such rights are assigned, any reference to
the assigning Stockholder shall be treated as a reference to the assignee.
Section 13. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
Section 14. Remedies. Each Stockholder shall be entitled to enforce its or his rights
under this Agreement specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights existing in its or his favor. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that each party may in its or his sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement. All remedies, either under this Agreement, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
Section 15. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by
reputable overnight courier service (charges prepaid) to the Company at the address set forth below
and to any other Stockholder at the address indicated on the signature pages hereto and to any
subsequent holder of Stock subject to this Agreement at such address as indicated by the Company’s
records, or at such address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. Notices will be deemed to have been given
hereunder when received. The Company’s address is:
McJ Holding Corporation
c/o GS Capital Partners V Fund, L.P.
85 Broad Street, 10th Floor
New York, New York 10004
Attention: Henry Cornell
Fax: (212) 357-5505
c/o GS Capital Partners V Fund, L.P.
85 Broad Street, 10th Floor
New York, New York 10004
Attention: Henry Cornell
Fax: (212) 357-5505
with a copy to:
11
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
One New York Plaza
New York, New York 10004
Attention: Robert C. Schwenkel, Esq.
Fax: (212) 859-4000
If to the Executives, to his or her principal residence as reflected in the records of the Company.
Section 16. Governing Law; Waiver of Jury Trial. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Delaware, without reference
to the conflict of laws principles thereof. The parties hereby irrevocably submit to the personal
jurisdiction of the courts of the State of Delaware located in the County of New Castle and the
Federal courts of the United States of America located in the County of New Castle solely in
respect of the interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions contemplated hereby,
and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable in said courts or
that the venue thereof may not be appropriate or that this Agreement or any such document may not
be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a Delaware State or
Federal court located in the County of New Castle. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and, to the extent permitted by law, over
the subject matter of such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 15 or in such other manner as
may be permitted by law shall be valid and sufficient service thereof. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and
all rights to trial by jury in connection with any litigation arising out of or relating to this
Agreement or the transactions contemplated hereby.
Section 17. Possession of Certificates; Power of Attorney.
(a) In order to provide for the safekeeping of the certificates representing the shares of
Stock issued to the Executive Stockholders and to facilitate the enforcement of the terms and
conditions hereof, (i) certificates representing shares of Stock shall be held by the Company on
behalf of the Executive Stockholder in accordance with the terms of the Option Plan and Restricted
Stock Plan (and any award agreements thereunder), and (ii) to the extent a certificate representing
shares of Stock is issued and delivered to an Executive Stockholder, at any time upon the request
of the Company (A) the Executive Stockholder shall redeliver to the Company, and the Company shall
retain physical possession of, all certificates representing shares of Stock held by such Executive
Stockholder pursuant hereto and (B) the Executive Stockholder
shall deliver to the Company an undated stock power, duly executed in blank, for
12
each such
certificate. Each Executive Stockholder shall be relieved of any obligation otherwise imposed by
this Agreement to deliver certificates representing shares of Stock if the same are in the custody
of the Company.
(b) The Executive Stockholder hereby irrevocably appoints the Company as the Executive
Stockholder’s true and lawful agent and attorney-in-fact, with full powers of substitution, to act
in the Executive Stockholder’s name, place and stead, to do or refrain from doing all such acts and
things, and to execute and deliver all such documents, as the Company shall deem necessary or
appropriate in connection with a public offering of securities of the Company or a sale pursuant to
Section 4 hereof, including, without in any way limiting the generality of the foregoing, in the
case of a sale pursuant to Section 4 hereof, to execute and deliver on behalf of the Executive
Stockholder a purchase and sale agreement and any other agreements and documents that the Company
deems necessary in connection with any such sale, and in the case of a public offering, to execute
and deliver on behalf of the Executive Stockholder an underwriting agreement, a “hold back”
agreement, a custody agreement, and any other agreements and documents that the Company deems
necessary in connection with any such public offering, and in the case of any sale pursuant to
Section 4 hereof and any public offering, to receive on behalf of the Executive Stockholder the
proceeds of the sale or public offering of the Executive Stockholder’s shares, to hold back from
any such proceeds any amount that the Company deems necessary to reserve against the Executive
Stockholder’s share of any expenses of sale and sale obligations. The Executive Stockholder hereby
ratifies and confirms all that the Company shall do or cause to be done by virtue of its
appointment as the Executive Stockholder’s agent and attorney-in-fact. In acting for the Executive
Stockholder pursuant to the appointment set forth in this Section 17(b), the Company shall not be
responsible to the Executive Stockholder for any loss or damage the Executive Stockholder may
suffer by reason of the performance by the Company of its duties under this Agreement, except for
loss or damage arising from willful violation of law or gross negligence by the Company in the
performance of its duties hereunder. The appointment of the Company shall be deemed coupled with
an interest and as such shall be irrevocable and shall survive the death, incompetency, mental
illness or insanity of the Executive Stockholder, and any person dealing with the Company may
conclusively and absolutely rely, without inquiry, upon any act of the Company as the act of the
Executive Stockholder in all matters referred to in this Section 17(b).
Section 18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
Section 19. Construction. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed to modify, limit or
restrict in any manner the construction of the general statement to which it relates. The language
used in this Agreement shall be deemed to be the language chosen by the parties hereto to express
their mutual intent, and no rule of strict construction shall be applied against any party.
Section 20. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the consummation of
13
the transactions contemplated hereby regardless of any investigation made by, or on behalf of, any
Stockholder.
Section 21. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall constitute one and the
same agreement.
Section 22. Future Stockholders. The parties hereto hereby agree that any person who
is granted the right to acquire Stock from the Company subsequent to the date hereof may become a
signatory to this Agreement by executing a written instrument setting forth that the person agrees
to be bound by the terms and conditions of this Agreement and this Agreement will be deemed to be
amended to include such person as a Stockholder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
14
IN WITNESS WHEREOF, the parties hereto have executed this
Management Stockholders Agreement as of the day and year first
above written.
McJ HOLDING CORPORATION
| By: | /s/ J.F. Underhill |
Name: J.F. Underhill
Title: CFO
McJ HOLDING LLC
| By: | /s/ J.F. Underhill |
Name: J.F. Underhill
Title: CFO
Executives:
Exhibit 10.22.1
AMENDMENT NO. 1
TO THE
MANAGEMENT STOCKHOLDERS AGREEMENT
TO THE
MANAGEMENT STOCKHOLDERS AGREEMENT
This Amendment No. 1 (this “Amendment”) to the Management Stockholders Agreement by
and among PVF Holdings LLC (formerly known as McJ Holding LLC), a Delaware limited liability
company (the “McJ Holding LLC”), McJunkin Red Man Holding Corporation (formerly known as
McJ Holding Corporation), a Delaware corporation (the “Company”), and the other parties
thereto, dated as of March 27, 2007 (the “Agreement”) is effective as of December 21, 2007.
WHEREAS, pursuant to Section 10 of the Agreement, except as otherwise provided therein, no
modification, amendment or waiver of any provision of the Agreement shall be effective unless such
modification, amendment or waiver is approved in writing by Stockholders (as defined in the
Agreement) holding a majority of the then outstanding common stock of the Company, par value $0.01
per share (the “Common Stock”); and
WHEREAS, the Stockholder of a majority of the outstanding Common Stock consented to the
adoption and approval of this Amendment as of the date hereof.
1. Amendments.
1.1. The definition of “Cause” in Section 1 of the Agreement is hereby amended to add the
following to the end of the definition:
For the purpose of the definition of “Cause,” a reference to “Company” shall
mean the Company or its applicable Affiliate that is the employer of the
applicable Executive.
1.2. Section 5(a) of the Agreement is hereby amended to add the following after the first
instance of the word “Company” in such subsection:
(or an applicable Affiliate that employs the Executive)
2. Governing Law. This Amendment shall be governed by and construed in accordance with the
laws of the state of Delaware.
Exhibit 10.22.2
AMENDMENT NO. 2
TO THE
MANAGEMENT STOCKHOLDERS AGREEMENT
This Amendment No. 2 (this “Amendment”) to the Management Stockholders Agreement by
and among PVF Holdings LLC (formerly known as McJ Holding LLC), a Delaware limited liability
company (the “McJ Holding LLC”), McJunkin Red Man Holding Corporation (formerly known as
McJ Holding Corporation), a Delaware corporation (the “Company”), and the other parties
thereto, dated as of March 27, 2007 and amended on December 21, 2007 (as amended, the
“Agreement”) is effective as of December 26, 2007.
WHEREAS, pursuant to Section 10 of the Agreement, except as otherwise provided therein, no
modification, amendment or waiver of any provision of the Agreement shall be effective unless such
modification, amendment or waiver is approved in writing by Stockholders (as defined in the
Agreement) holding a majority of the then outstanding common stock of the Company, par value $0.01
per share (the “Common Stock”); and
WHEREAS, the Stockholders holding of a majority of the outstanding Common Stock consent to the
adoption and approval of this Amendment as of the date hereof.
1. Amendment.
1.1. The definition of “Affiliate” in Section 1 of the Agreement is hereby amended to add the
following to the end of the definition:
and (ii) Red Man Distributors LLC.
2. Governing Law. This Amendment shall be governed by and construed in accordance with the
laws of the state of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Amendment, effective as of the date
first above written.
| PVF HOLDINGS LLC |
||||
| By: | /s/ J.F. UNDERHILL | |||
| Name: J.F. Underhill | ||||
| Title: CFO | ||||
Exhibit 10.23
Execution Version
PHANTOM SHARES SURRENDER AGREEMENT, RELEASE AND WAIVER
THIS PHANTOM SHARE SURRENDER AGREEMENT, RELEASE AND WAIVER (this “Agreement”) is made as of
October 30, 2007 by and between Red Man Pipe & Supply Co., an Oklahoma corporation (“Red Man”), McJ
Holding LLC, a Delaware limited liability company (the “Company”) and Jeffrey Lang (the
“Employee”), in connection with the closing of the transactions contemplated by the Stock Purchase
Agreement, dated as of July 6, 2007 (the “Purchase Agreement”), between West Oklahoma PVF Company,
a Delaware corporation (“Buyer”), Red Man, the Company, and the holders of all outstanding shares
of stock of the Company who are signatories thereto (the “Shareholders”). Capitalized terms not
otherwise defined herein shall have the same meaning as in the Purchase Agreement.
PRELIMINARY STATEMENT
The Employee has been awarded phantom shares related to Red Man (the “Phantom Shares”)
pursuant to the Red Man Pipe & Supply Co. Phantom Stock Plan (the “Plan”). The Employee desires to
surrender all the Phantom Shares in exchange for the cash consideration set forth below.
NOW THEREFORE, in consideration of the premises, the mutual agreements and covenants
contained herein and other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, and intending to be legally bound hereby, the parties hereto hereby
covenant and agree as follows:
ARTICLE I
SURRENDER OF PHANTOM SHARES
Section 1.1 Surrender of Phantom Shares. Effective as of the Closing, the Employee hereby
irrevocably relinquishes, waives, disclaims and surrenders any and all rights, title and interest
he may have with respect to all the Phantom Shares and any other options, warrants or other rights
to acquire shares of capital stock of or equity interests in Red Man or similar securities or
contractual obligations the value of which is derived from the value of an equity interest in Red
Man (collectively, “Derivative Securities”), whether vested or unvested, and, except as provided
herein, the Employee acknowledges that Red Man shall not have any further liability whatsoever
after the Closing to the Employee with respect to the Phantom Shares or any such Derivative
Securities or pursuant to the Plan.
Section 1.2 Phantom Share Surrender Payments.
(a) The Company agrees to pay the Employee the following payments (the “Surrender
Payments”), less any withholding that the Company may be required to make, provided
that the Employee remains continuously employed with the Company or its Affiliates
until the relevant payment date:
(i) On January 1, 2008, $175,000.00, plus interest for the period from
November 1, 2007 until the payment date, calculated at a rate equal to
4.88%, which is 120% of the short-term applicable Federal rate
(determined under Section 1274(d) of the Internal Revenue Code and the
regulations thereunder), compounded semi-annually, as published by the
Internal Revenue Service for November 2007 (the “Applicable Rate”).
(ii) On October 31, 2008, $175,000.00, plus interest for the period from
November 1, 2007 until the payment date, calculated at the Applicable Rate.
(iii) On January 1, 2009, $175,000.00, plus interest for the period from
November 1, 2007 until the payment date, calculated at the Applicable Rate.
(b) Notwithstanding the foregoing, in the event that the Employee’s
employment is terminated prior to the payment of all of the Surrender Payments
and such termination is due to (i) a termination by the Company without Cause,
(ii) a termination by the Employee due to Good Reason or (iii) the Employee’s
death, any then unpaid Surrender Payments shall be immediately paid in full to
the Employee; provided, however, that in no event shall the Surrender Payments
be made prior to January 1, 2008.
(i) “Cause” shall mean the Employee’s (A) continuing failure, for more than
10 days after the Company’s written notice to the Employee thereof, to
perform such duties as are reasonably requested by the Company; (B) failure
to observe material policies generally applicable to officers or employees
of the Company unless such failure is capable of being cured and is cured
within 10 days of the Employee receiving written notice of such failure; (C)
failure to cooperate with any internal investigation of the Company; (D)
commission of any act of fraud, theft or financial dishonesty with respect
to the Company or indictment or conviction of any felony; (E) material
violation of the provisions of the Employment Agreement between the Company
and the Employee dated as of the Closing Date unless such violation is
capable of being cured and is cured within 10 days of the Employee receiving
written notice of such violation; (F) chronic absenteeism; or (G) abuse of
alcohol or another controlled substance.
(ii) “Good Reason” shall mean (A) a material and adverse change in the
Employee’s duties or responsibilities, (B) a reduction in the Employee’s
base salary or target annual bonus or (C) a relocation of the Employee’s
principal place of employment by more than 50 miles.
(c) If the Employee is a “specified employee” for purposes of Section 409A of
the United States Internal Revenue Code of 1986, as amended (the “Code”), and
the regulations thereunder, to the extent required to comply with Section 409A of
the Code, any payments required to be made pursuant to Section 1.2(b) which are
subject to Section 409A of the Code shall not commence until one day after the
day which is 6 months from the date of termination of employment.
-2-
(d) In the event that the Employee’s employment is terminated prior to the payment
of all of the Surrender Payments and such payments are not accelerated pursuant to
Section 1.2(b), then the Employee shall forfeit any then unpaid Surrender Payments
(the “Forfeited Payments”) and the Forfeited Payments shall be paid to the
Shareholders within 30 days of the termination of Employee’s employment in
accordance with their respective Cash Proceeds Percentages as set forth on Exhibit
B of the Purchase Agreement. The parties agree that the Shareholders are intended
third party beneficiaries of this Section 1.2(d) and are entitled to enforce this
section as if a party thereto.
Section 1.3 Representations and Warranties of Employee. The Employee hereby represents,
warrants and acknowledges that as of the Closing the Employee will surrender the Phantom Shares
free and clear of all liens or other encumbrances, except those liens that may arise as a result
of (a) any actions taken by or on behalf of the Company and its Affiliates or (b) applicable
securities laws.
Section 1.4 Condition to Surrender. The surrender of the Phantom Shares and payment of the
related surrender payment under this Agreement is contingent on (i) the occurrence of the Closing
and (ii) approval of this Agreement by 75% of the shareholders of the Company in accordance with
Section 280G(b)(5) of the Code. If the Purchase Agreement is terminated or if the requisite
shareholder approval is not obtained, this Agreement will be void and of no effect.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Acknowledgement. The Employee, on behalf of himself and on behalf of his spouse
and all his heirs, predecessors, successors, assigns, representatives or agents (including,
without limitation, any trust of which the Employee is the trustee or which is for the benefit of
the Employee or a member of his family), to the fullest extent applicable law permits, hereby
acknowledges that the payments made pursuant to this Agreement are in full satisfaction of any and
all rights the Employee may have under the Phantom Shares.
Section 2.2 Additional Deliveries. The Employee, upon request, will execute and deliver any
additional documents deemed by Red Man or the Company to be reasonably necessary or desirable to
complete the surrender of the Phantom Shares contemplated hereby.
Section 2.3 Parties in Interest. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and Buyer, the successors and assigns of Red Man, the Company and
Buyer and the heirs and legal representatives of the Employee. Except for the Shareholders’
potential right to payments pursuant to Section 1.2(d), nothing in this Agreement is intended to
confer upon any other person any rights or remedies of any nature whatsoever under or by reason of
this Agreement except as expressly set forth herein.
Section 2.4 Amendment and Waivers. This Agreement and any of the provisions hereof may be
amended, waived (either generally or in a particular instance and either
-3-
retroactively or prospectively), modified or supplemented, in whole or in part, only by written
agreement signed by the parties hereto; provided, that, the observance of any provision of
this Agreement may be waived in writing by the party that will lose the benefit of such provision
as a result of such waiver. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of such breach or as
a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such
waiver. Except as otherwise expressly provided herein, no failure on the part of any party to
exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available
in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Section 2.5 Notices. Unless otherwise provided herein, all notices, requests, demands, claims
and other communications provided for under the terms of this Agreement shall be in writing. Any
notice, request, demand, claim or other communication hereunder shall be sent by (i) personal
delivery (including receipted courier service) or overnight delivery service, (ii) facsimile during
normal business hours, with confirmation of receipt, to the number indicated, (iii) reputable
commercial overnight delivery service courier or (iv) registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth below:
| If to the Company: | McJ Holding LLC | |||
| 835 Hillcrest Drive Charleston, WV 25311 Attention: General Counsel |
||||
| Facsimile: 304-348-1557 | ||||
| and | ||||
| 8023 East 63rd Place, Suite 800 | ||||
| Tulsa, Oklahoma 74133 | ||||
| Attention: General Counsel | ||||
| Facsimile: 918-461-5375 | ||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||
| 85 Broad Street | ||||
| New York, NY 10004 | ||||
| Attention: Jack Daly | ||||
| Facsimile: 212-357-5505 | ||||
| and | ||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||
| One New York Plaza | ||||
| New York, NY 10004 | ||||
| Attention: Robert C. Schwenkel, Esq. | ||||
| Facsimile: 212-859-4000 |
-4-
| If to the Employee: | Jeffrey Lang, during his employment | |||
| at his principal office at the Company, and | ||||
| at all times to his principal residence as | ||||
| reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
Section 2.6 General Interpretive Principles. The name assigned this Agreement and headings of
the sections, paragraphs, subparagraphs, clauses, and subclauses of this Agreement are for
convenience of reference only and shall not in any way affect the meaning or interpretation of any
of the provisions hereof. Words of inclusion shall not be construed as terms of limitation herein,
so that references to “include,” “includes” and “including” shall not be limiting and shall be
regarded as references to non-exclusive and non-characterizing illustrations.
Section 2.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
Section 2.8 Severability. Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law but the invalidity or unenforceability of any provision or portion of any provision of this
Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of
this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including
that provision or portion of any provision, in any other jurisdiction.
Section 2.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts shall together constitute one and
the same instrument.
Section 2.10 Entire Agreement. From and after the date first written above, this Agreement
constitutes the entire agreement between the parties hereto, and supersedes all prior
representations, agreements and understandings (including any prior course of dealings), both
written and oral, between the parties hereto with respect to the subject matter hereof.
Section 2.11 Section 409A Compliance. This Agreement is intended to comply with Section 409A
of the Code (to the extent applicable) and, to the extent it would not adversely impact the
Company, the Company agrees to interpret, apply and administer this Agreement in the least
restrictive manner necessary to comply with such requirements and without resulting in any
diminution in the value of payments or benefits to Employee.
[SIGNATURE PAGE FOLLOWS]
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
written above.
| RED MAN PIPE & SUPPLY COMPANY | ||||||
| By: | /s/ Craig Ketchum | |||||
| Name: CRAIG KETCHUM | ||||||
| Title: PRESIDENT & CEO | ||||||
| MCJ HOLDING LLC | ||||||
| By: | /s/ Tom Graff | |||||
| Name: | ||||||
| Title: | ||||||
| EMPLOYEE | ||||||
| By: | /s/ Jeffrey Lang | |||||
| Jeffrey Lang | ||||||
Exhibit 10.24
Execution Verson
PHANTOM SHARES SURRENDER AGREEMENT, RELEASE AND WAIVER
THIS PHANTOM SHARE SURRENDER AGREEMENT, RELEASE AND WAIVER (this “Agreement”) is made as of
October 30, 2007 by and between Red Man Pipe & Supply Co., an Oklahoma corporation (“Red Man”),
McJ Holding LLC, a Delaware limited liability company (the “Company”) and Dee Paige (the
“Employee”), in connection with the closing of the transactions contemplated by the Stock Purchase
Agreement, dated as of July 6, 2007 (the “Purchase Agreement”), between West Oklahoma PVF Company,
a Delaware corporation (“Buyer”), Red Man, the Company, and the holders of all outstanding shares
of stock of the Company who are signatories thereto (the “Shareholders”). Capitalized terms not
otherwise defined herein shall have the same meaning as in the Purchase Agreement.
PRELIMINARY STATEMENT
The Employee has been awarded phantom shares related to Red Man (the “Phantom Shares”)
pursuant to the Red Man Pipe & Supply Co. Phantom Stock Plan (the “Plan”) and the Grant of Phantom
Shares dated as of April 15, 2003 (the “Award Agreement”). The Employee desires to surrender all
the Phantom Shares in exchange for the cash consideration set forth below.
NOW THEREFORE, in consideration of the premises, the mutual agreements and covenants
contained herein and other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, and intending to be legally bound hereby, the parties hereto hereby
covenant and agree as follows:
ARTICLE I
SURRENDER OF PHANTOM SHARES
Section 1.1 Surrender of Phantom Shares. Effective as of the Closing, the Employee hereby
irrevocably relinquishes, waives, disclaims and surrenders any and all rights, title and interest
he may have with respect to all the Phantom Shares and any other options, warrants or other rights
to acquire shares of capital stock of or equity interests in Red Man or similar securities or
contractual obligations the value of which is derived from the value of an equity interest in Red
Man (collectively, “Derivative Securities”), whether vested or unvested, and, except as provided
herein, the Employee acknowledges that Red Man shall not have any further liability whatsoever
after the Closing to the Employee with respect to the Phantom Shares or any such Derivative
Securities or pursuant to the Plan or any Award Agreement.
Section 1.2 Phantom Share Surrender Payments.
(a) The Company agrees to pay the Employee the following payments (the “Surrender
Payments”), less any withholding that the Company may be required to make, provided
that the Employee remains continuously employed with the Company or its Affiliates
until the relevant payment date:
(i) On January 1, 2008, $433,333.33, plus interest for the period from
November 1, 2007 until the payment date, calculated at a rate equal to
4.88%, which is 120% of the short-term applicable Federal rate (determined under Section
1274(d) of the Internal Revenue Code and the regulations thereunder), compounded
semi-annually, as published by the Internal Revenue Service for November 2007 (the
“Applicable Rate”).
(ii) On October 31, 2008, $433,333.33, plus interest for the period from November 1, 2007
until the payment date, calculated at the Applicable Rate.
(iii) On October 31, 2009, $433.333.33, plus interest for the period from November 1,
2007 until the payment date, calculated at the Applicable Rate.
(b) Notwithstanding the foregoing, in the event that the Employee’s
employment is terminated prior to the payment of all of the Surrender Payments
and such termination is due to (i) a termination by the Company without Cause,
(ii) a termination by the Employee due to Good Reason or (iii) the Employee’s
death, any then unpaid Surrender Payments shall be immediately paid in full to
the Employee; provided, however, that in no event shall the Surrender Payments
be made prior to January 1, 2008.
(i) “Cause” shall mean the Employee’s (A) continuing failure, for more than 10 days after
the Company’s written notice to the Employee thereof, to perform such duties as are
reasonably requested by the Company; (B) failure to observe material policies generally
applicable to officers or employees of the Company unless such failure is capable of
being cured and is cured within 10 days of the Employee receiving written notice of such
failure; (C) failure to cooperate with any internal investigation of the Company; (D)
commission of any act of fraud, theft or financial dishonesty with respect to the Company
or indictment or conviction of any felony; (E) material violation of the provisions of
the Employment Agreement between the Company and the Employee dated as of the Closing
Date unless such violation is capable of being cured and is cured within 10 days of the
Employee receiving written notice of such violation; (F) chronic absenteeism; or (G)
abuse of alcohol or another controlled substance.
(ii) “Good Reason” shall mean (A) a material and adverse change in the Employee’s duties
or responsibilities, (B) a reduction in the Employee’s base salary or target annual bonus
or (C) a relocation of the Employee’s principal place of employment by more than 50
miles.
(c) If the Employee is a “specified employee” for purposes of Section 409A of
the United States Internal Revenue Code of 1986, as amended (the “Code”), and
the regulations thereunder, to the extent required to comply with Section 409A of
the Code, any payments required to be made pursuant to Section 1.2(b) which are
-2-
subject to Section 409A of the Code shall not commence until one day after the day
which is 6 months from the date of termination of employment.
(d) In the event that the Employee’s employment is terminated prior to the payment
of all of the Surrender Payments and such payments are not accelerated pursuant to
Section 1.2(b), then the Employee shall forfeit any then unpaid Surrender Payments
(the “Forfeited Payments”) and the Forfeited Payments shall be paid to the
Shareholders within 30 days of the termination of Employee’s employment in
accordance with their respective Cash Proceeds Percentages as set forth on Exhibit
B of the Purchase Agreement. The parties agree that the Shareholders are intended
third party beneficiaries of this Section 1.2(d) and are entitled to enforce this
section as if a party thereto.
Section 1.3 Representations and Warranties of Employee. The Employee hereby represents,
warrants and acknowledges that as of the Closing the Employee will surrender the Phantom Shares
free and clear of all liens or other encumbrances, except those liens that may arise as a result of
(a) any actions taken by or on behalf of the Company and its Affiliates or (b) applicable
securities laws.
Section 1.4 Conditions to Surrender. The surrender of the Phantom Shares and payment of the
related surrender payment under this Agreement is contingent on (i) the occurrence of the Closing
and (ii) approval of this Agreement by 75% of the shareholders of the Company in accordance with
Section 280G(b)(5) of the Code. If the Purchase Agreement is terminated or if the requisite
shareholder approval is not obtained, this Agreement will be void and of no effect.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Acknowledgement. The Employee, on behalf of himself and on behalf of his spouse
and all his heirs, predecessors, successors, assigns, representatives or agents (including,
without limitation, any trust of which the Employee is the trustee or which is for the benefit of
the Employee or a member of his family), to the fullest extent applicable law permits, hereby
acknowledges that the payments made pursuant to this Agreement are in full satisfaction of any and
all rights the Employee may have under the Phantom Shares.
Section 2.2 Additional Deliveries. The Employee, upon request, will execute and deliver any
additional documents deemed by Red Man or the Company to be reasonably necessary or desirable to
complete the surrender of the Phantom Shares contemplated hereby.
Section 2.3 Parties in Interest. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and Buyer, the successors and assigns of Red Man, the Company and
Buyer and the heirs and legal representatives of the Employee. Except for the Shareholders’
potential right to payments pursuant to Section 1.2(d), nothing in this Agreement is intended to
confer upon any other person any rights or remedies of any nature whatsoever under or by reason of
this Agreement except as expressly set forth herein.
-3-
Section 2.4 Amendment and Waivers. This Agreement and any of the provisions hereof may be
amended, waived (either generally or in a particular instance and either retroactively or
prospectively), modified or supplemented, in whole or in part, only by written agreement signed by
the parties hereto; provided, that, the observance of any provision of this Agreement may be waived
in writing by the party that will lose the benefit of such provision as a result of such waiver.
The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a further or continuing waiver of such breach or as a waiver of any other or
subsequent breach, except as otherwise explicitly provided for in such waiver. Except as otherwise
expressly provided herein, no failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law
or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such
right, power or remedy by such party preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
Section 2.5 Notices. Unless otherwise provided herein, all notices, requests, demands, claims
and other communications provided for under the terms of this Agreement shall be in writing. Any
notice, request, demand, claim or other communication hereunder shall be sent by (i) personal
delivery (including receipted courier service) or overnight delivery service, (ii) facsimile
during normal business hours, with confirmation of receipt, to the number indicated, (iii)
reputable commercial overnight delivery service courier or (iv) registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended recipient as set forth
below:
| If to the Company: | McJ Holding LLC | |||||
| 835 Hillcrest Drive | ||||||
| Charleston, WV 25311 | ||||||
| Attention: General Counsel | ||||||
| Facsimile: 304-348-1557 | ||||||
| and | ||||||
| 8023 East 63rd Place, Suite 800 | ||||||
| Tulsa, Oklahoma 74133 | ||||||
| Attention: General Counsel | ||||||
| Facsimile: 918-461-5375 | ||||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||||
| 85 Broad Street | ||||||
| New York, NY 10004 | ||||||
| Attention: Jack Daly | ||||||
| Facsimile: 212-357-5505 | ||||||
| and | ||||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||||
| One New York Plaza | ||||||
| New York, NY 10004 |
-4-
| Attention: Robert C. Schwenkel, Esq. | ||||||
| Facsimile: 212-859-4000 | ||||||
| If to the Employee: | Dee Paige, during his employment | |||||
| at his principal office at the Company, and | ||||||
| at all times to his principal residence as | ||||||
| reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
Section 2.6 General Interpretive Principles. The name assigned this Agreement and headings of
the sections, paragraphs, subparagraphs, clauses, and subclauses of this Agreement are for
convenience of reference only and shall not in any way affect the meaning or interpretation of any
of the provisions hereof. Words of inclusion shall not be construed as terms of limitation herein,
so that references to “include,” “includes” and “including” shall not be limiting and shall be
regarded as references to non-exclusive and non-characterizing illustrations.
Section 2.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
Section 2.8 Severability. Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law but the invalidity or unenforceability of any provision or portion of any provision of this
Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of
this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including
that provision or portion of any provision, in any other jurisdiction.
Section 2.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts shall together constitute one and
the same instrument.
Section 2.10 Entire Agreement. From and after the date first written above, this Agreement
constitutes the entire agreement between the parties hereto, and supersedes all prior
representations, agreements and understandings (including any prior course of dealings), both
written and oral, between the parties hereto with respect to the subject matter hereof.
-5-
Section 2.11 Section 409A Compliance. This Agreement is intended to comply with Section 409A
of the Code (to the extent applicable) and, to the extent it would not adversely impact the
Company, the Company agrees to interpret, apply and administer this Agreement in the least
restrictive manner necessary to comply with such requirements and without resulting in any
diminution in the value of payments or benefits to Employee.
[SIGNATURE PAGE FOLLOWS]
-6-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
written above.
| RED MAN PIPE & SUPPLY COMPANY | ||||||||
| By: | /s/ Craig Ketchum | |||||||
| Name: CRAIG KETCHUM | ||||||||
| Title: PRESIDENT & CEO | ||||||||
| MCJ HOLDING LLC | ||||||||
| By: /s/ Tom Graff | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| EMPLOYEE | ||||||||
| /s/ Dee Paige | ||||||||
| Dee Paige | ||||||||
Exhibit
10.27
Execution Copy
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
RED MAN DISTRIBUTORS LLC
Table of Contents
| Page | ||||
| ARTICLE I |
||||
| FORMATION OF THE COMPANY |
||||
Section 1.1 |
Formation | 1 | ||
Section 1.2 |
Company Name | 1 | ||
Section 1.3 |
The Articles, etc. | 1 | ||
Section 1.4 |
Term of Company | 1 | ||
Section 1.5 |
Registered Agent and Office | 2 | ||
Section 1.6 |
Principal Place of Business | 2 | ||
Section 1.7 |
Qualification in Other Jurisdictions | 2 | ||
Section 1.8 |
Fiscal Year | 2 | ||
| ARTICLE II |
||||
| PURPOSE AND POWERS OF THE COMPANY |
||||
Section 2.1 |
Purpose | 2 | ||
Section 2.2 |
Powers of the Company | 2 | ||
Section 2.3 |
Certain Tax Matters | 2 | ||
| ARTICLE III |
||||
| MANAGEMENT |
||||
Section 3.1 |
Board | 3 | ||
Section 3.2 |
Directors as Agents | 4 | ||
Section 3.3 |
Officers | 4 | ||
Section 3.4 |
Affiliate Transactions | 5 | ||
| ARTICLE IV |
||||
| MEMBERS AND INTERESTS GENERALLY |
||||
Section 4.1 |
Powers of Members | 5 | ||
Section 4.2 |
Interests Generally | 5 | ||
Section 4.3 |
Meetings of Members | 6 | ||
Section 4.4 |
Business Transactions of a Member with the Company | 7 | ||
Section 4.5 |
No Cessation of Membership upon Bankruptcy | 7 | ||
Section 4.6 |
Confidentiality | 7 | ||
Section 4.7 |
Other Business for MRM | 7 | ||
i
Table of Contents
(continued)
(continued)
| Page | ||||
Section 4.8 |
Preemptive Rights. | 8 | ||
| ARTICLE V |
||||
| REPRESENTATIONS, WARRANTIES AND COVENANTS |
||||
Section 5.1 |
Investment Representations, Warranties and Covenants of Members | 9 | ||
Section 5.2 |
Covenant Not to Compete | 10 | ||
Section 5.3 |
Independent Accountants | 10 | ||
| ARTICLE VI | 10 | |||
| CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS |
||||
Section 6.1 |
Capital Accounts | 10 | ||
Section 6.2 |
Adjustments | 10 | ||
Section 6.3 |
Additional Capital Contributions | 11 | ||
Section 6.4 |
Negative Capital Accounts | 11 | ||
| ARTICLE VII |
||||
| ALLOCATIONS |
||||
Section 7.1 |
Book Allocations of Income and Loss | 11 | ||
Section 7.2 |
Special Book Allocations | 11 | ||
Section 7.3 |
Tax Allocations | 12 | ||
| ARTICLE VIII |
||||
| DISTRIBUTIONS |
||||
Section 8.1 |
Distributions Generally | 12 | ||
Section 8.2 |
Distributions In Kind | 12 | ||
Section 8.3 |
No Withdrawal of Capital | 12 | ||
Section 8.4 |
Withholding | 12 | ||
Section 8.5 |
Restricted Distributions | 13 | ||
Section 8.6 |
Tax Distributions | 13 | ||
| ARTICLE IX |
||||
| BOOKS AND RECORDS |
||||
Section 9.1 |
Books, Records and Financial Statements | 14 | ||
ii
Table of Contents
(continued)
(continued)
| Page | ||||
Section 9.2 |
Filings of Returns and Other Writings; Tax Matters Partner | 14 | ||
Section 9.3 |
Accounting Method | 15 | ||
| ARTICLE X |
||||
| LIABILITY, EXCULPATION AND INDEMNIFICATION |
||||
Section 10.1 |
Liability | 15 | ||
Section 10.2 |
Exculpation | 15 | ||
Section 10.3 |
Fiduciary Duty | 15 | ||
Section 10.4 |
Indemnification | 15 | ||
Section 10.5 |
Expenses | 16 | ||
Section 10.6 |
Severability | 16 | ||
| ARTICLE XI |
||||
| TRANSFERS OF INTERESTS |
||||
Section 11.1 |
Restrictions on Transfers of Interests by Members | 17 | ||
Section 11.2 |
Overriding Provisions | 17 | ||
Section 11.3 |
Successors and Assigns | 17 | ||
Section 11.4 |
Substitute Members | 18 | ||
Section 11.5 |
Release of Liability | 18 | ||
Section 11.6 |
MRM Call Right | 18 | ||
| ARTICLE XII |
||||
| DISSOLUTION, LIQUIDATION AND TERMINATION |
||||
Section 12.1 |
Dissolving Events | 19 | ||
Section 12.2 |
Dissolution and Winding-Up | 19 | ||
Section 12.3 |
Distributions in Cash or in Kind | 19 | ||
Section 12.4 |
Termination | 20 | ||
Section 12.5 |
Claims of the Members | 20 | ||
| ARTICLE XIII |
||||
| MISCELLANEOUS |
||||
Section 13.1 |
Notices | 20 | ||
Section 13.2 |
Interpretation, Construction | 20 | ||
Section 13.3 |
Entire Agreement | 21 | ||
Section 13.4 |
Counterparts | 21 | ||
iii
Table of Contents
(continued)
(continued)
| Page | ||||
Section 13.5 |
Governing Law; Waiver of Jury Trial | 21 | ||
Section 13.6 |
Specific Performance | 22 | ||
Section 13.7 |
Invalidity of Provision | 22 | ||
Section 13.8 |
Further Actions | 22 | ||
Section 13.9 |
Legend | 23 | ||
Section 13.10 |
Expenses | 23 | ||
Section 13.11 |
Amendment and Waiver | 23 | ||
Section 13.12 |
Severability | 24 | ||
Section 13.13 |
No Third Party Beneficiaries | 24 | ||
Section 13.14 |
Survival of Representations and Warranties | 24 | ||
Section 13.15 |
Conflicting Agreements | 24 | ||
Section 13.16 |
Each Interest in the Company is a Security | 24 | ||
Section 13.17 |
Additional Credit Agreement Obligations | 24 | ||
| ARTICLE XIV |
||||
| DEFINED TERMS |
||||
Section 14.1 |
Definitions | 25 | ||
Schedule A |
Members | |||
iv
AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT OF
RED MAN DISTRIBUTORS LLC
AGREEMENT OF
RED MAN DISTRIBUTORS LLC
This Amended and Restated Limited Liability Company Operating Agreement of Red Man
Distributors LLC (the “Company”), is dated as of September 18, 2008, between Craig Ketchum,
Kevin Ketchum, Brian Ketchum and Kent Ketchum (each, a “Ketchum Member” and, collectively,
the “Ketchum Members”), McJunkin Red Man Corporation, a West Virginia corporation
(“MRM”), and the Company. The Ketchum Members and MRM each may be referred to individually
as a “Member,” or collectively as the “Members.” Any capitalized term used herein without
definition shall have the meaning set forth in Article XIV.
WITNESSETH:
WHEREAS, on November 1, 2007 the Members entered into an agreement establishing and setting
forth their agreement with respect to certain rights and obligations associated with their
interests in the Company (the “Original Agreement”).
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations
hereinafter set forth, the parties hereto hereby agree to amend and restate the Original Agreement
as follows:
ARTICLE I
FORMATION OF THE COMPANY
Section 1.1 Formation. The Company was formed by the filing of Articles of
Organization with the Secretary of the State of Oklahoma on November 1, 2007.
Section 1.2 Company Name. The name of the Company is “Red Man Distributors LLC”. The
business of the Company may be conducted under such other names as the Board may from time to time
designate, provided that the Company complies with all relevant state laws relating to the
use of fictitious and assumed names.
Section 1.3 The Articles, etc. Each Director is hereby authorized to execute,
deliver, file and record all such other certificates and documents, including amendments to or
restatements of the Articles, and to do such other acts as may be appropriate to comply with all
requirements for the formation, continuation and operation of a limited liability company, the
ownership of property, and the conduct of business under the laws of the State of Oklahoma and any
other jurisdiction in which the Company may own property or conduct business.
Section 1.4 Term of Company. The term of the Company commenced on the date of the
initial filing of the Articles with the Secretary of State of the State of Oklahoma. The Company
may be terminated in accordance with the terms and provisions hereof, and shall continue unless and
until dissolved as provided in Article XII. The existence of the Company as
a separate legal entity shall continue until the cancellation of the Articles as provided in
the Oklahoma Act.
Section 1.5 Registered Agent and Office. The Company’s registered agent and office in
the State of Oklahoma is Kevin Ketchum, 8023 E. 63rd Place, Suite 800, Tulsa, Oklahoma
74133. The Board may designate another registered agent and/or registered office from time to time
in accordance with the then applicable provisions of the Oklahoma Act and any other applicable
laws.
Section 1.6 Principal Place of Business. The principal place of business of the
Company is located at 8023 East 63rd Place, Suite 600, Tulsa, Oklahoma 74133. The
location of the Company’s principal place of business may be changed by the Board from time to time
in accordance with the then applicable provisions of the Oklahoma Act and any other applicable
laws.
Section 1.7 Qualification in Other Jurisdictions. Any authorized person of the
Company shall execute, deliver and file any certificates (and any amendments and/or restatements
thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company
may wish to conduct business.
Section 1.8 Fiscal Year. The fiscal year of the Company for financial accounting
purposes shall end on December 31.
ARTICLE II
PURPOSE AND POWERS OF THE COMPANY
Section 2.1 Purpose. The purposes of the Company are, and the nature of the business
to be conducted and promoted by the Company is, engaging in any lawful act or activity for which
limited liability companies may be formed under the Oklahoma Act and engaging in all acts or
activities as the Company deems necessary, advisable or incidental to the furtherance of the
foregoing.
Section 2.2 Powers of the Company. The Company shall have the power and authority to
take any and all actions that are necessary, appropriate, advisable, convenient or incidental to or
for the furtherance of the purposes set forth in Section 2.1; provided that without the
consent of MRM, the Company shall not have the power or authority to take any action that would
result in any Member of the Company having (a) “unrelated business taxable income” (as that term is
defined in Section 512(a) of the Code) or (b) income which is “effectively connected with the
conduct of a trade or business within the United States” (within the meaning of the Code).
Section 2.3 Certain Tax Matters. The Company shall not elect, and the Board shall not
permit the Company to elect, to be treated as an association taxable as a corporation for U.S.
federal, state or local income tax purposes under Treasury Regulations section 301.7701-3 or under
any corresponding provision of state or local law. The Company and the Board shall not
2
permit the registration or listing of the Interests on an “established securities market,” as
such term is used in Treasury Regulations section 1.7704-1.
ARTICLE III
MANAGEMENT
Section 3.1 Board.
(a) Generally. The business and affairs of the Company shall be managed by or under
the direction of a Board of Directors (the “Board”) consisting of such number of natural
persons (each a “Director”) as shall be established in accordance with this Section 3.1.
Directors need not be Members. Subject to the provisions of this Article IV, the Board shall have
full, exclusive and complete discretion to manage and control the business and affairs of the
Company, including to delegate to agents, officers and employees of the Company, and to make all
decisions affecting the business and affairs of the Company and to take all such actions as it
deems necessary or appropriate to accomplish the purposes of the Company as set forth herein,
including, without limitation, to exercise all of the powers of the Company set forth in Section
2.2 of this Agreement.
(b) Board Composition.
(i) The Board shall be comprised of five (5) Directors.
(ii) Subject to Section 3.1(c), (A) Ketchum Members holding greater than 50% of the number of
Units held by all Ketchum Members shall have the right to designate three (3) Directors (the
persons from time to time designated by the Ketchum Members in accordance with the foregoing being
referred to herein as the “Ketchum Directors”), and (B) MRM shall have the right to
designate two (2) Directors (the persons from time to time designated by MRM in accordance with the
foregoing being referred to herein as the “MRM Directors”). As of the date hereof, (i) the
Ketchum Directors shall be Craig Ketchum, Kent Ketchum, and Brian Ketchum, and (ii) the MRM
Directors shall initially be Stephen W. Lake and Dee Paige.
(iii) Each person named as a Director herein or subsequently appointed as a Director is hereby
designated as a “manager” (within the meaning of the Oklahoma Act) of the Company. Except as
otherwise provided herein, and notwithstanding the first sentence of Section 2019 of the Oklahoma
Act, no single Director shall have the authority to bind the Company, and the Board shall have the
power to act only collectively in accordance with the provisions and in the manner specified
herein.
(c) Board Vacancies; Resignation; Removal.
(i) Subject to Section 3.1(c)(ii), each Director shall hold his office until his death or
until his successor shall have been duly elected and qualified in accordance with this Section 3.1.
If any Ketchum Director shall cease for any reason to serve as a Director (including for Director
Cause pursuant to Section 3.1(c)(ii)), the vacancy resulting thereby shall be filled by another
person designated by Ketchum Members holding greater than 50% of the number of
3
Units held by all Ketchum Members. If any MRM Director shall cease for any reason to serve as
a Director (including for Director Cause pursuant to Section 3.1(c)(ii)), the vacancy resulting
thereby shall be filled by another person designated by MRM.
(ii) (A) The removal from the Board of any Ketchum Director shall be only at the written
request of Ketchum Members holding greater than 50% of the number of Units held by all Ketchum
Members, and (B) the removal from the Board of any MRM Director shall be only at the written
request of MRM. Upon receipt of any such written request, the Board and the Members shall promptly
take all such action necessary or desirable to cause the removal of such Director from office.
Notwithstanding the foregoing, any Ketchum Director may be removed for Director Cause by MRM, and
any MRM Director may be removed for Director Cause by Ketchum Members holding greater than 50% of
the number of Units held by all Ketchum Members. Upon removal from the Board, such Director shall
cease to be a “manager” (within the meaning of the Oklahoma Act).
(d) Meetings of the Board. The Board shall meet at least once every quarter, at such
time as determined by the Board to discuss the business of the Company. The Board may hold
meetings either within or without the State of Oklahoma. The Company and the Board shall give all
Directors at least two days’ prior notice of all meetings of the Board. Special meetings of the
Board may be called by any Director.
(e) Quorum and Acts of the Board. At all meetings of the Board, a quorum shall
consist of all Directors. Except as set forth in Section 3.4, all actions of the Board shall
require the affirmative vote of at least a majority of the votes held by all Directors (whether or
not present at the meeting) and each Director shall be entitled to one vote on each matter that
comes before the Board. Any action that may be taken at a meeting of the Board may also be taken
by written consent of Directors holding the minimum number of the votes of Directors necessary to
authorize or take such action.
(f) Telephonic Board Meetings. The Company shall take or cause to be taken all
necessary actions to allow any Director to attend telephonically any meeting of the Board or any
committee thereof.
(g) Expenses. The Company shall pay the reasonable out-of-pocket expenses incurred by
each Director in connection with performing his duties as a Director, including, without
limitation, the reasonable out-of-pocket expenses incurred by such person for attending meetings of
the Board or meetings of any board of directors or other similar managing body of any Subsidiary of
the Company.
Section 3.2 Directors as Agents. The Directors, to the extent of their powers set
forth in this Agreement, are agents of the Company for the purpose of the Company’s business, and
the actions of the Directors taken in accordance with such powers shall bind the Company.
Section 3.3 Officers. The Board shall appoint an individual or individuals to serve
as the Company’s Chairman, Chief Executive Officer, President and Vice President(s) and may, from
time to time as it deems advisable, appoint additional officers of the Company (together
4
with the Chairman, Chief Executive Officer, President and Vice President(s), the
“Officers”) and assign such officers titles (including, without limitation, Vice President,
Secretary and Treasurer). Unless the Board decides otherwise, if the title is one commonly used
for officers of a business corporation formed under the Oklahoma General Corporation Act, the
assignment of such title shall constitute the delegation to such person of the authorities and
duties that are normally associated with that office. Any delegation pursuant to this Section 3.3
may be revoked at any time by the Board. Any Officer may be removed with or without cause by the
Board, except as otherwise provided in any services or employment agreement between such Officer
and the Company.
Section 3.4 Affiliate Transactions. Notwithstanding anything to the contrary in this
Agreement, each of the Members shall not, and shall not permit any of their Affiliates to, directly
or indirectly (or agree to or delegate any Person to), without the prior written consent of MRM and
Ketchum Members holding a majority of the Common Units held by all Ketchum Members, (a) enter into
any transactions (except as expressly contemplated by this Agreement or the Services Agreement)
with the Company, or any Subsidiary of the Company, or (b) acquire any securities of the Company.
ARTICLE IV
MEMBERS AND INTERESTS GENERALLY
Section 4.1 Powers of Members. The Members shall have the power to exercise any and
all rights or powers granted to the Members pursuant to the Oklahoma Act and the express terms of
this Agreement. The approval or consent of the Members shall not be required in order to authorize
the taking of any action by the Company unless and then only to the extent that (a) this Agreement
shall expressly provide therefor, (b) such approval or consent shall be required by non-waivable
provisions of the Oklahoma Act or (c) the Board shall have determined in its sole discretion that
obtaining such approval or consent would be appropriate or desirable. The Members, as such, shall
have no power to bind the Company.
Section 4.2 Interests Generally. As of the date hereof, the Company has one
authorized class of Interests: Common Units. Subject to the terms of this Agreement, additional
classes of Interests denominated in the form of Units may be authorized from time to time by the
Board without obtaining the consent of any Member or class of Members. Except as otherwise
provided in this Agreement, Units in a particular class may be issued from time to time, at such
prices and on such terms as the Board may determine, without obtaining the consent of any Member or
class of Members. The holders of Common Units will have voting rights with respect to their Common
Units as provided in Section 4.3(d) and shall have the rights with respect to profits and losses of
the Company and distributions from the Company as are set forth herein. The number of Common Units
of each Member as of any given time shall be set forth on Schedule A, as it may be updated from
time to time in accordance with this Agreement.
5
Section 4.3 Meetings of Members.
(a) Meetings; Notice of Meetings. Meetings of the Members may be called by the Board
or any Member from time to time. Notice of any such meeting shall be given to all Members entitled
to vote at such meeting not less than two nor more than 60 days prior to the date of such meeting
and shall state the location, date and hour of the meeting and, in the case of a special meeting,
the nature of the business to be transacted. Meetings shall be held at the location (within or
without the State of Oklahoma) at the date and hour set forth in the notice of the meeting.
(b) Waiver of Notice. No notice of any meeting of Members need be given to any Member
who submits a signed waiver of notice, whether before or after the meeting. Neither the business
to be transacted at, nor the purpose of, any meeting of the Members need be specified in a written
waiver of notice. The attendance of any Member at a meeting of Members shall constitute a waiver
of notice of such meeting, except when the Member attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
(c) Quorum. Except as otherwise required by applicable law or by this Agreement, the
presence in person or by proxy of the holders of record of all of the Common Units, shall
constitute a quorum for the transaction of business at such meeting.
(d) Voting. If the Board has fixed a record date, every holder of record of Common
Units shall be entitled to vote at a meeting of Members or to consent in writing in lieu of a
meeting of Members as of such date and shall be entitled to one vote for each Common Unit
outstanding in such Member’s name at the close of business on such record date. If no record date
has been so fixed, then every holder of record of such Common Units entitled to vote at a meeting
of Members or to consent in writing in lieu of a meeting of Members shall be entitled to one vote
for each such Unit outstanding in such Member’s name at the close of business on the day next
preceding the day on which notice of the meeting is given or the first consent in respect of the
applicable action is executed and delivered to the Company, or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held.
(e) Proxies. Each Member may authorize any Person to act for such Member by proxy on
all matters in which a Member is entitled to participate, including waiving notice of any meeting,
or voting or participating at a meeting. Every proxy must be signed by the Member or such Member’s
attorney-in-fact. No proxy shall be valid after the expiration of three years from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of
the Member executing it unless otherwise provided in such proxy, provided that such right
to revocation shall not invalidate or otherwise affect actions taken under such proxy prior to such
revocation.
(f) Organization. Each meeting of Members shall be conducted by such Person as the
Board may designate.
6
(g) Action Without a Meeting. Unless otherwise provided in this Agreement, any action
which may be taken at any meeting of the Members may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so taken, shall be
signed by Members holding not less than the minimum number of Common Units necessary to authorize
or take such action at a meeting at which a quorum was present.
Section 4.4 Business Transactions of a Member with the Company. A Member may lend
money to, borrow money from, act as surety or endorser for, guarantee or assume one or more
specific obligations of, provide collateral for, or transact any other business with the Company or
any of its Subsidiaries, provided that any such transaction shall require the approval of
the Board.
Section 4.5 No Cessation of Membership upon Bankruptcy. A Person shall not cease to
be a Member of the Company upon the happening, with respect to such Person, of any assignment for
the benefit of creditors, filing of a voluntary petition in bankruptcy, seeking the appointment of
a trustee, receiver or liquidator or other similar event.
Section 4.6 Confidentiality. Without the prior written consent of the Board, except
(a) to the extent required by law, rule, regulation or court order, (b) for disclosure made by a
Member to any Person who is an officer, director, employee or agent of such Member or counsel to,
accountants of, consultants to or other advisors for, such Member, and (c) for disclosure to the
shareholders, limited partners, partners or members of a Member and their respective advisors;
provided any disclosure pursuant to this clause (c) is generally consistent with the scope
and nature of disclosure made by a Member to such Persons in respect of such Member’s other
investments, no Member shall disclose any trade secrets, customer lists, drawings, designs,
information regarding product development, marketing plans, sales plans, management organization
information (including data and other information relating to members of the Board or management),
operating policies or manuals, business plans, financial records, packaging design or other
financial, commercial, business or technical information relating to the Company or any of its
Subsidiaries or information designated as confidential or proprietary that the Company or any of
its Subsidiaries may receive belonging to suppliers, customers or others who do business with the
Company or any of its Subsidiaries (collectively, “Confidential Information”) to any third
Person unless such Confidential Information has been previously disclosed to the public by the
Company or any of its Subsidiaries or is in the public domain (other than by reason of such
Member’s breach of this Section 4.6).
Section 4.7 Other Business for MRM. The Company and each of the Members agrees and
acknowledges that MRM or any of its Affiliates, or any of its or their respective partners,
officers, members, shareholders, subsidiaries, directors, employees, agents, consultants, or legal
or other advisors may at any time possess or acquire knowledge of a potential transaction or matter
which may be a Competitive Opportunity and may exploit a Competitive Opportunity or engage in, or
hold interests in, one or more businesses that may compete with a business of the Company or any of
its Subsidiaries. The Company and the Ketchum Members agree and acknowledge that neither the
Company nor any of its Subsidiaries shall have an interest in such Competitive Opportunity, or
expectation that such Competitive Opportunity be offered to it, any such interest or expectation
being hereby renounced so that MRM and its respective Affiliates,
7
and its and their respective partners, officers, members, shareholders, subsidiaries,
directors, employees, agents, consultants, or legal or other advisors (i) shall have no duty to
communicate or present such Competitive Opportunity to the Company or any of its Subsidiaries, (ii)
shall have the right to hold any such Competitive Opportunity for their own account, or to
recommend, assign or otherwise transfer such Competitive Opportunity to Persons other than the
Company or any of its Subsidiaries and (iii) shall not be liable to the Company or any of its
Subsidiaries or their respective members or shareholders by reason of the fact that they pursue or
acquire such Competitive Opportunity for themselves, direct, sell, assign or otherwise transfer
such Competitive Opportunity to another Person, do not communicate information regarding such
Competitive Opportunity to the Company or any of its Subsidiaries, or engage in, or hold any
interest in, any business that competes with any business of the Company or any of its
Subsidiaries.
Section 4.8 Preemptive Rights.
(a) Subject to the terms and conditions of this Section 4.8, if the Company or any of its
Subsidiaries proposes to issue or sell any Units or other securities of the Company or any of its
Subsidiaries (“Additional Securities”) to any Person, the Company shall first offer a
portion of such Additional Securities to MRM, as set forth in this Section 4.8. MRM shall be
entitled to apportion the right of first offer hereby granted to it among itself and its Affiliates
in such proportions as it deems appropriate.
(b) The Company shall provide written notice (the “Participation Notice”) to MRM of
the material terms of the proposed issuance of Additional Securities, including (i) its or its
Subsidiaries’ bona fide intention to offer such Additional Securities, (ii) the number of such
Additional Securities to be offered, and (iii) the price and terms, if any, upon which it proposes
to offer such Additional Securities.
(c) By notification to the Company within twenty (20) days after the Participation Notice is
given, MRM may elect to purchase or otherwise acquire, at the price and on the terms specified in
the Participation Notice, up to that portion of such Additional Securities which equals the
proportion that the Units or other securities issued and held by MRM (directly or indirectly) bears
to the total Units or other securities of the Company or its Subsidiaries then outstanding (the
“Preemption Right”). If MRM fails to exercise its Preemption Right in whole or in part
within twenty (20) days of receipt of the Participation Notice, the Additional Securities in
respect of which the Preemption Right is not exercised may be offered by the Company or any of its
Subsidiaries to any other Person on terms no less favorable to the Company or its Subsidiaries than
those offered to MRM.
(d) Notwithstanding anything to the contrary contained in this Agreement, in no event shall
the Company or any of its Subsidiaries issue or sell any Additional Securities if such issuance
would cause the Company to be decertified under the certification requirements of any State or
Federal minority supplier development council (or similar certifications).
8
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.1 Investment Representations, Warranties and Covenants of Members.
(a) Investment Intention and Restrictions on Disposition. Each Member represents and
warrants that such Member is acquiring the Interests solely for such Member’s own account for
investment and not with a view to resale in connection with any distribution thereof.
(b) Securities Laws Matters. Each Member acknowledges receipt of advice from the
Company that (i) the Interests have not been registered under the Securities Act or qualified under
any state securities or “blue sky” laws; (ii) it is not anticipated that there will be any public
market for the Interests; (iii) the Interests must be held indefinitely and such Member must
continue to bear the economic risk of the investment in the Interests unless the Interests are
subsequently registered under the Securities Act and such state laws or an exemption from
registration is available; (iv) Rule 144 is not presently available with respect to sales of any
securities of the Company and the Company has made no covenant to make Rule 144 available and Rule
144 is not anticipated to be available in the foreseeable future; (v) when and if the Interests may
be disposed of without registration in reliance upon Rule 144, such disposition can be made only in
limited amounts and in accordance with the terms and conditions of such Rule and the provisions of
this Agreement; (vi) if the exemption afforded by Rule 144 is not available, public sale of the
Interests without registration will require the availability of an exemption under the Securities
Act; (vii) restrictive legends shall be placed on any certificate representing the Interests; and
(viii) a notation shall be made in the appropriate records of the Company indicating that the
Interests are subject to restrictions on transfer and, if the Company should in the future engage
the services of a transfer agent, appropriate stop-transfer instructions will be issued to such
transfer agent with respect to the Interests.
(c) Ability to Bear Risk. Each Member represents and warrants that (i) such Member’s
financial situation is such that such Member can afford to bear the economic risk of holding the
Interests for an indefinite period and (ii) such Member can afford to suffer the complete loss of
such Member’s investment in the Interests.
(d) Access to Information; Sophistication; Lack of Reliance. Each Member represents
and warrants that (i) such Member is familiar with the business and financial condition,
properties, operations and prospects of the Company and that such Member has been granted the
opportunity to ask questions of, and receive answers from, representatives of the Company
concerning the Company and the terms and conditions of the purchase of the Interests and to obtain
any additional information that such Member deems necessary; (ii) such Member’s knowledge and
experience in financial and business matters is such that such Member is capable of evaluating the
merits and risk of the investment in the Interests; and (iii) such Member has carefully reviewed
the terms and provisions of this Agreement and has evaluated the restrictions and obligations
contained therein. In furtherance of the foregoing, each Member represents and warrants that (i)
no representation or warranty, express or implied, whether written or oral, as to the financial
condition, results of operations, prospects, properties or business of the Company or
9
as to the desirability or value of an investment in the Company has been made to such Member
by or on behalf of the Company; (ii) such Member has relied upon such Member’s own independent
appraisal and investigation, and the advice of such Member’s own counsel, tax advisors and other
advisors, regarding the risks of an investment in the Company; and (iii) such Member will continue
to bear sole responsibility for making its own independent evaluation and monitoring of the risks
of its investment in the Company.
(e) Accredited Investor. Each Member represents and warrants that such Member is an
“accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act and, in connection with the execution of this Agreement, agrees to deliver such
certificates to that effect as the Board may request.
Section 5.2 Covenant Not to Compete. Other than the distribution of oil country
tubular goods in North America, the Company shall not, anywhere in the world, directly or
indirectly, engage or otherwise participate, whether as an agent, director, officer, shareholder,
partner, joint venturer, investor, consultant, advisor, or otherwise, in any business in which, at
the time the Company first engages or participates in such business, MRM or any of its Affiliates
is then engaged.
Section 5.3 Independent Accountants. Notwithstanding anything to the contrary in this
Agreement, the Company shall not, and neither the Company nor the Board shall permit any of the
Company’s Subsidiaries or Officers to, directly or indirectly (or agree to or delegate any Person
to), replace the Company’s independent accountants with an accounting firm that is not a
nationally-recognized independent accounting firm.
ARTICLE VI
CAPITAL ACCOUNTS; CAPITAL CONTRIBUTIONS
Section 6.1 Capital Accounts. A separate capital account (a “Capital
Account”) shall be established and maintained for each Member. The initial balance in each
Member’s Capital Account shall be set forth in Schedule A.
Section 6.2 Adjustments. The balance in each Member’s Capital Account shall be
adjusted by (i) increasing such balance by such Member’s (A) allocable share of items of income and
gain (allocated in accordance with Section 7.1) and (B) the amount of cash and the Fair Market
Value of any property (as of the date of the contribution thereof and net of any liabilities
encumbering such property) contributed to the Company by such Member, and (ii) decreasing such
balance by (A) the amount of cash and the Fair Market Value of any property (as of the date of the
distribution thereof and net of any liabilities encumbering such property) distributed to such
Member and (B) such Member’s allocable share of items of loss and deduction (allocated in
accordance with Section 7.1). Each Member’s Capital Account shall be further adjusted with respect
to any special allocations pursuant to Section 7.2. The provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Treasury Regulations section
1.704-1(b) and section 1.704-2 and shall be interpreted and applied in a manner consistent with
such Treasury Regulations.
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Section 6.3 Additional Capital Contributions. Except as provided in this Section 6.3,
no Member shall be required to make any additional Capital Contribution to the Company in respect
of the Interests then owned by such Member (including, without limitation, with respect to any
amount owed by the Company pursuant to Article XI). A Member may make further Capital
Contributions to the Company, but only with the written consent of the Board. The provisions of
this Section 6.3 are intended solely to benefit the Members and, to the fullest extent permitted by
applicable law, shall not be construed as conferring any benefit upon any creditor of the Company
(and no such creditor shall be a third party beneficiary of this Agreement), and, to the maximum
extent permitted by law, no Member shall have any duty or obligation to any creditor of the Company
to make any additional Capital Contributions or to cause the Board to consent to the making of
additional Capital Contributions.
Section 6.4 Negative Capital Accounts. No Member shall be required to make up a
negative balance in its Capital Account.
ARTICLE VII
ALLOCATIONS
Section 7.1 Book Allocations of Income and Loss. Except as provided in Section 7.2,
each item of income, gain, loss and deduction of the Company shall be allocated among the Capital
Accounts as of the end of the applicable Accounting Period in a manner that as closely as possible
gives effect to the provisions of Article VIII and the other relevant provisions of this Agreement.
Section 7.2 Special Book Allocations.
(a) Qualified Income Offset. If any Member unexpectedly receives any adjustment,
allocation or distribution described in Treasury Regulations section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) and such adjustment, allocation or distribution causes or increases a deficit in such
Member’s Capital Account (a “Deficit”), items of gross income and gain for such Accounting
Period and each subsequent Accounting Period shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the
Deficit of such Member as quickly as possible; provided that an allocation pursuant to this
Section 7.2(a) shall be made only if and to the extent that such Member would have a Deficit after
all other allocations provided for in this Article VII have been tentatively made as if this
Section 7.2(a) were not in this Agreement. This Section 7.2(a) is intended to comply with the
qualified income offset provision of Treasury Regulations section 1.704-1(b)(2)(ii)(d) and shall be
interpreted in a manner consistent therewith.
(b) Restorative Allocations. Any special allocations of items of income or gain
pursuant to this Section 7.2 shall be taken into account in computing subsequent allocations
pursuant to this Agreement, so that the net amount for any item so allocated and all other items
allocated to each Member pursuant to this Agreement shall be equal, to the extent possible, to the
net amount that would have been allocated to each Member pursuant to the provisions of this
Agreement if such special allocations had not occurred.
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(c) Allocation Adjustments. Notwithstanding anything to the contrary herein, the
Board is authorized to allocate items of income, gain, loss and expense and to otherwise modify the
distributions and allocations provisions, to reflect any admission of new Members, or distributions
of property, as determined by the Board in its sole discretion.
Section 7.3 Tax Allocations. The income, gains, losses, credits and deductions
recognized by the Company shall be allocated among the Members, for U.S. federal, state and local
income tax purposes, to the extent permitted under the Code and the Treasury Regulations, in the
same manner that each such item is allocated to the Members’ Capital Accounts. Notwithstanding the
foregoing, the Board shall have the power to make such allocations for U.S. federal, state and
local income tax purposes so long as such allocations have substantial economic effect, or are
otherwise in accordance with the Members’ Interests, in each case within the meaning of the Code
and the Treasury Regulations. In accordance with section 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any property contributed
to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as
to take account of any variation between the adjusted basis of such property to the Company for
U.S. federal income tax purposes and its fair market value at the time of contribution.
ARTICLE VIII
DISTRIBUTIONS
Section 8.1 Distributions Generally. In the sole discretion of the Board, the Company
may from time to time distribute its available cash to the Members on a pro rata basis in
proportion to the number of Common Units outstanding at the time of such distribution.
Section 8.2 Distributions In Kind. In the event of a distribution of Company
property, such property shall for all purposes of this Agreement be deemed to have been sold at its
Fair Market Value and the proceeds of such sale shall be deemed to have been distributed to the
Members.
Section 8.3 No Withdrawal of Capital. Except as otherwise expressly provided in
Section 12.10 or Article XII, no Member shall have the right to withdraw capital from the Company
or to receive any distribution or return of such Member’s Capital Contributions.
Section 8.4 Withholding.
(a) Each Member shall, to the fullest extent permitted by applicable law, indemnify and hold
harmless each Person who is or who is deemed to be the responsible withholding agent for U.S.
federal, state or local income tax purposes against all claims, liabilities and expenses of
whatever nature (other than any claims, liabilities and expenses in the nature of penalties and
accrued interest thereon that result from such Person’s fraud, willful misfeasance, bad faith or
gross negligence) relating to such Person’s obligation to withhold and to pay over, or otherwise
pay, any withholding or other taxes payable by the Company or as a result of such Member’s
participation in the Company.
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(b) Notwithstanding any other provision of this Article VIII, (i) each Member hereby
authorizes the Company to withhold and to pay over, or otherwise pay, any withholding or other
taxes payable by the Company or any of its Affiliates with respect to such Member or as a result of
such Member’s participation in the Company and (ii) if and to the extent that the Company shall be
required to withhold or pay any such taxes (including any amounts withheld from amounts payable to
the Company to the extent attributable, in the judgment of the Members, to such Member’s Interest),
such Member shall be deemed for all purposes of this Agreement to have received a payment from the
Company as of the time such withholding or tax is required to be paid, which payment shall be
deemed to be a distribution with respect to such Member’s Interest to the extent that the Member
(or any successor to such Member’s Interest) is then entitled to receive a distribution. To the
extent that the aggregate of such payments to a Member for any period exceeds the distributions to
which such Member is entitled for such period, such Member shall make a prompt payment to the
Company of such amount.
(c) If the Company makes a distribution in kind and such distribution is subject to
withholding or other taxes payable by the Company on behalf of any Member, such Member shall make a
prompt payment to the Company of the amount of such withholding or other taxes by wire transfer.
Section 8.5 Restricted Distributions. Notwithstanding any provision to the contrary
contained in this Agreement, the Company shall not make a distribution to any Member on account of
its Interest if such distribution would violate Sections 2030 or 2040 of the Oklahoma Act or other
applicable law.
Section 8.6 Tax Distributions. In the event that the Members are otherwise allocated
taxable income from the Company, the Company may make distributions to the Members to the extent of
available cash (as determined by the Board in its discretion) in an amount equal to such income
multiplied by a reasonable tax rate determined by the Board; it being understood that, if the
Members are allocated material taxable income without corresponding cash distributions sufficient
to pay the resulting tax liabilities, it is the Company’s intention to make the tax distributions
referred to herein, provided that the Board in its sole discretion shall determine whether
any such tax distributions will be made. Any distributions made to a Member pursuant to this
Section 8.6 shall reduce the amount otherwise distributable to such Member pursuant to the other
provisions of this Agreement, so that to the maximum extent possible, the total amount of
distributions received by each Member pursuant to this Agreement at any time is the same as such
Member would have received if no distribution had been made pursuant to this Section 8.6. To the
extent the cumulative sum of tax distributions made to a Member under this Section 8.6 has not been
applied pursuant to the preceding sentence to reduce other amounts distributable to such Member,
such Member shall contribute to the Company the remaining amounts necessary to give full effect to
the preceding sentence on the date of the final liquidating distribution made by the Company
pursuant to Section 12.2.
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ARTICLE IX
BOOKS AND RECORDS
Section 9.1 Books, Records and Financial Statements. At all times during the
continuance of the Company, the Company shall maintain, at its principal place of business, in
addition to information required to be maintained under the Oklahoma Act, separate books of account
for the Company that shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received and all income derived in connection with the operation
of the Company’s business in accordance with generally accepted accounting principles consistently
applied, and, to the extent inconsistent therewith, in accordance with this Agreement. Such books
of account, together with a copy of this Agreement and the Articles, shall at all times be
maintained at the principal place of business of the Company and shall be open to inspection and
examination at reasonable times by each Member and its duly authorized representative for any
purpose reasonably related to such Member’s Interest.
Section 9.2 Filings of Returns and Other Writings; Tax Matters Partner.
(a) The Company shall timely file all Company tax returns and shall timely file all other
writings required by any governmental authority having jurisdiction to require such filing. Within
ninety (90) days after the end of each taxable year (or as soon as reasonably practicable
thereafter), the Company shall send to each Person that was a Member at any time during such year
copies of Schedule K-1, “Partner’s Share of Income, Credits, Deductions, Etc.”, or any successor
schedule or form, with respect to such Person, together with such additional information as may be
necessary for such Person to file his, her or its United States federal income tax returns.
(b) MRM shall be the tax matters partner of the Company, within the meaning of section 6231 of
the Code (the “Tax Matters Partner”). Each Member hereby consents to such designation and
agrees that upon the request of the Tax Matters Partner, such Member will execute, certify,
acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as
may be necessary or appropriate to evidence such consent. The Tax Matters Partner shall, in its
sole discretion, determine whether to make or revoke any tax election available to the Company
pursuant to the Code.
(c) Promptly following the written request of the Tax Matters Partner, the Company shall, to
the fullest extent permitted by applicable law, reimburse and indemnify the Tax Matters Partner for
all reasonable expenses, including reasonable legal and accounting fees, claims, liabilities,
losses and damages incurred by the Tax Matters Partner in connection with any administrative or
judicial proceeding with respect to the tax liability of the Members, except to the extent arising
from the bad faith, gross negligence, willful violation of law, fraud or breach of this Agreement
by such Tax Matters Partner.
(d) The provisions of this Section 9.2 shall survive the termination of the Company or the
termination of any Member’s Interest and shall remain binding on the Members for as long a
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period of time as is necessary to resolve with the Internal Revenue Service any and all
matters regarding the U.S. federal income taxation of the Company or the Members.
Section 9.3 Accounting Method. For both financial and tax reporting purposes, the
books and records of the Company shall be kept on the accrual method of accounting applied in a
consistent manner and shall reflect all Company transactions and be appropriate and adequate for
the Company’s business.
ARTICLE X
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 10.1 Liability. Except as otherwise provided by the Oklahoma Act or other
applicable law, the debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no
Covered Person shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Covered Person.
Section 10.2 Exculpation. Except as otherwise provided by the Oklahoma Act or other
applicable law, no Covered Person shall be liable to the Company or any other Covered Person for
any loss, damage or claim incurred by reason of any act or omission of such Covered Person in good
faith on behalf of the Company and in a manner believed to be within the scope of authority
conferred on such Covered Person by this Agreement, provided that nothing contained herein
shall limit or eliminate the liability of a Director for (i) any breach of the Director’s duty of
loyalty to the Company or its Members, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (iii) any transaction from which the
Director derived an improper personal benefit.
Section 10.3 Fiduciary Duty. Any duties (including fiduciary duties) of a Covered
Person to the Company or to any other Covered Person that would otherwise apply at law or in equity
are hereby eliminated to the fullest extent permitted under the Oklahoma Act and any other
applicable law, provided that (i) the foregoing shall not eliminate the obligation of each
Covered Person to act in compliance with the express terms of this Agreement and (ii) the foregoing
shall not be deemed to eliminate the duty of loyalty or the obligation of good faith and fair
dealing. Notwithstanding anything to the contrary contained in this Agreement, each of the Members
hereby acknowledges and agrees that each Director, in determining whether or not to vote in support
of or against any particular decision for which the Board’s consent is required, may act in and
consider the best interest of the Member or Members who designated such Director and shall not be
required to act in or consider the best interests of the Company, any Subsidiary of the Company or
any other Members.
Section 10.4 Indemnification. To the fullest extent permitted by applicable law, a
Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim
incurred by such Covered Person by reason of any act or omission performed or omitted by such
Covered Person in good faith on behalf of the Company and in a manner believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except that
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(a) no Covered Person shall be entitled to be indemnified in the case of action or failure to
act by the Covered Person which constitutes willful misconduct or recklessness, and (b) nothing in
this Section 10.4 shall limit or eliminate the liability of a Director for (i) for any breach of
the Director’s duty of loyalty to the Company or its Members, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or (iii) any
transaction from which the Director derived an improper personal benefit; provided, that
any indemnity under this Section 10.4 shall be provided out of and to the extent of Company assets
only, and no Covered Person shall have any personal liability on account thereof.
Section 10.5 Expenses. To the fullest extent permitted by applicable law, expenses
(including, without limitation, reasonable attorneys’ fees, disbursements, fines and amounts paid
in settlement) incurred by a Covered Person in defending any claim, demand, action, suit or
proceeding relating to or arising out of their performance of their duties on behalf of the Company
shall, from time to time, be advanced by the Company prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of
the Covered Person to repay such amount if it shall ultimately be determined by a court of
competent jurisdiction that the Covered Person is not entitled to be indemnified as authorized in
this Section 10.1.
Section 10.6 Severability. To the fullest extent permitted by applicable law, if any
portion of this Article shall be invalidated on any ground by any court of competent jurisdiction,
then the Company shall nevertheless indemnify each Covered Person and may indemnify each employee
or agent of the Company as to costs, charges and expenses (including reasonable attorneys’ fees),
judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action by or in the right of
the Company, to the fullest extent permitted by any applicable portion of this Article that shall
not have been invalidated.
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ARTICLE XI
TRANSFERS OF INTERESTS
Section 11.1 Restrictions on Transfers of Interests by Members. The Ketchum Members
shall not Transfer any Units at any time to any Person, directly or indirectly without the prior
written consent of MRM; provided that MRM shall not unreasonably withhold or delay its
consent of a Permitted Transfer by any Ketchum Member. MRM shall not Transfer any Units at any
time, directly or indirectly, without the prior written consent of Ketchum Members holding greater
than 50% of the number of Units held by all Ketchum Members; provided that MRM may Transfer
all or any part of its Units at any time to any Affiliate of MRM or in connection with a Transfer
of interests or equity in PVF Holdings LLC, or any of its Subsidiaries, in each case without the
prior written consent of Ketchum Members holding greater than 50% of the number of Units held by
all Ketchum Members.
Section 11.2 Overriding Provisions. Notwithstanding anything to the contrary in this
Agreement:
(a) Any Transfer in violation of this Article XI shall be null and void ab initio, and the
provisions of Section 11.2(e) shall not apply to any such Transfers. The approval of any Transfer
in any one or more instances shall not limit or waive the requirement for such approval in any
other or future instance.
(b) All Transfers permitted under this Article XI are subject to this Section 11.2 and
Sections 11.3 and 11.4.
(c) In addition to meeting all of the other requirements of this Agreement, no Transfer by a
Member pursuant to the terms of this Article XI shall be effected that could result in any risk
that the Company would be treated as a publicly traded partnership or otherwise be taxable as an
association for U.S. federal income tax purposes.
(d) The Company shall promptly amend Schedule A to reflect any Transfers of Interests pursuant
to and permitted in accordance with this Article XI.
(e) The Company shall, from the effective date of any permitted assignment of an Interest (or
part thereof), thereafter pay all further distributions on account of such Interest (or part
thereof) to the assignee of such Interest (or part thereof), provided that such assignee
shall have no right or powers as a Member unless such assignee complies with Section 11.4.
Section 11.3 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the Company and its
successors and assigns and each Member and his, her and its respective successors, permitted
assigns, heirs and personal representatives, so long as they hold Units. Each Member shall have
the right to assign all or part of its or his rights and obligations under this Agreement only to a
transferee pursuant to a Transfer of Units in compliance with the terms of this Agreement. Upon
any such assignment, such assignee shall have and be able to exercise and enforce all rights of
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the assigning Member which are assigned to it and, to the extent such rights are assigned, any
reference to the assigning Member shall be treated as a reference to the assignee.
Section 11.4 Substitute Members. In the event any Member Transfers its Interest in
compliance with the other provisions of this Article XI, the transferee thereof shall have the
right to become a substitute Member, but only upon satisfaction of the following:
(a) execution of such instruments as the Board deems reasonably necessary or desirable to
effect such substitution; and
(b) the parties hereto hereby agree that any person who acquires any Units from the Company on
or after the date hereof shall become, prior to such acquisition, a signatory to this Agreement by
executing a written instrument setting forth that the person agrees to be bound by the terms and
conditions of this Agreement and this Agreement will be deemed to be amended to include such person
as a Member. Upon the execution of the instrument of assumption by such transferee and, such
transferee shall enjoy all of the rights and shall be subject to all of the restrictions and
obligations of the transferor of such transferee.
Section 11.5 Release of Liability. In the event any Member shall Transfer such
Member’s entire Interest in compliance with the provisions of this Agreement, without retaining any
interest therein, directly or indirectly, then the selling Member shall, to the fullest extent
permitted by applicable law, be relieved of any further liability arising hereunder for events
occurring from and after the date of such Transfer, provided, however, that no such
Transfer shall relieve any Member of its obligations pursuant to Section 3.6 hereof and such
obligations shall survive any termination of such Member’s membership in the Company.
Section 11.6 MRM Call Right.
(a) MRM shall have the right, but not the obligation, at any time after the date hereof, to
purchase, for cash, in one or more transactions, all (but not less than all) of the Common Units
held by the Ketchum Members (the “Equity Call Option” and such Common Units subject to the
Equity Call Option, the “Call Equity Securities”) at the Equity Call Purchase Price.
(b) If MRM desires to exercise the Equity Call Option, it shall deliver written notice thereof
(a “Call Notice”) to the Ketchum Members, which notice shall set forth the number of and
identify the Call Equity Securities of the Ketchum Members MRM desires to purchase, the Equity Call
Purchase Price for each such Call Equity Security, and the proposed closing date of the
transaction.
(c) All sales of Call Equity Securities to MRM pursuant to this Section 11.6 shall be
consummated at the offices of the Company at such time specified in the Call Notice, or at such
other time and/or place as MRM may otherwise agree. The delivery of certificates, if applicable,
or other instruments reasonably requested by MRM evidencing such Call Equity Securities and
transfer duly endorsed for transfer shall be made on such date against payment of the purchase
price for such Call Equity Securities.
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ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 12.1 Dissolving Events. The Company shall be dissolved and its affairs wound
up in the manner hereinafter provided upon the first to occur of any of the following events:
(a) the Board shall vote or agree in writing to dissolve the Company;
(b) any event which under applicable law would cause the dissolution of the Company,
provided that, unless required by applicable law, the Company shall not be wound up as a
result of any such event and the business of the Company shall continue.
Notwithstanding the foregoing, the death, retirement, resignation, expulsion, bankruptcy or
dissolution of any Member or the occurrence of any other event that terminates the continued
membership of any Member in the Company under the Oklahoma Act shall not, in and of itself, cause
the dissolution of the Company. In such event, the remaining Member(s) shall continue the business
of the Company without dissolution.
Section 12.2 Dissolution and Winding-Up. Upon the dissolution of the Company, the
assets of the Company shall be liquidated or distributed under the direction of and to the extent
determined by the Board and the business of the Company shall be wound up. Within a reasonable
time after the effective date of dissolution of the Company, the Company’s assets shall be
distributed in the following manner and order:
First, to creditors in satisfaction of indebtedness (other than any loans or advances
that may have been made by any of the Members to the Company), whether by payment or the making of
reasonable provision for payment, and the expenses of liquidation, whether by payment or the making
of reasonable provision for payment, including the establishment of reasonable reserves (which may
be funded by a liquidating trust) determined by the Board or the liquidating trustee, as the case
may be, to be reasonably necessary for the payment of the Company’s expenses, liabilities and other
obligations (whether fixed, conditional, unmatured or contingent);
Second, to the payment of loans or advances that may have been made by any of the
Members to the Company; and
Third, to the Members in accordance with their respective Capital Accounts.
provided that no payment or distribution in any of the foregoing categories shall be made
until all payments in each prior category shall have been made in full, and provided,
further, that if the payments due to be made in any of the foregoing categories exceed the
remaining assets available for such purpose, such payments shall be made to the Persons entitled to
receive the same pro rata in accordance with the respective amounts due to them.
Section 12.3 Distributions in Cash or in Kind. Upon the dissolution of the Company,
the Board shall use all commercially reasonable efforts to liquidate all of the Company’s assets
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in an orderly manner and apply the proceeds of such liquidation as set forth in Section 12.2,
provided that if in the good faith judgment of the Board, a Company asset should not be
liquidated, the Board shall cause the Company to allocate, on the basis of the Fair Market Value of
any Company assets not sold or otherwise disposed of, any unrealized gain or loss based on such
value to the Members’ Capital Accounts as though the assets in question had been sold on the date
of distribution and, after giving effect to any such adjustment, distribute such assets in
accordance with Section 12.2 as if such Fair Market Value had been received in cash, subject to the
priorities set forth in Section 12.2, and provided, further, that the Board shall
in good faith attempt to liquidate sufficient Company assets to satisfy in cash (or make reasonable
provision for) the debts and liabilities referred to in Section 12.2.
Section 12.4 Termination. The Company shall terminate when the winding up of the
Company’s affairs has been completed, all of the assets of the Company have been distributed and
the Articles have been canceled, all in accordance with the Oklahoma Act.
Section 12.5 Claims of the Members. The Members and former Members shall look solely
to the Company’s assets for the return of their Capital Contributions, and if the assets of the
Company remaining after payment of or due provision for all debts, liabilities and obligations of
the Company are insufficient to return such Capital Contributions, the Members and former Members
shall have no recourse against the Company or any other Member.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile to the Company at the address set
forth below and to any Member at the address indicated on the signature pages hereto and to any
subsequent holder of Units subject to this Agreement at such address as indicated by the Company’s
records, or at such address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. Any notice, request, instruction or other
document given as provided above shall be deemed given to the receiving party upon actual receipt,
if delivered personally; three (3) business days after deposit in the mail, if sent by registered
or certified mail; upon confirmation of successful transmission if sent by facsimile
(provided that if given by facsimile such notice, request, instruction or other document
shall be followed up within one (1) business day by dispatch pursuant to one of the other methods
described herein); or on the next business day after deposit with an overnight courier, if sent by
an overnight courier. The Company’s address is:
Two Memorial Place 8023 East 63rd Place
Suite 600
Tulsa, Oklahoma 74133
Fax: (918) 461-5375
Suite 600
Tulsa, Oklahoma 74133
Fax: (918) 461-5375
Section 13.2 Interpretation, Construction.
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(a) The table of contents and headings herein are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section, Article or Schedule,
such reference shall be to a Section, Article or Schedule of this Agreement unless otherwise
indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement,
they shall be deemed to be followed by the words “without limitation.”
(b) The parties have participated jointly in negotiating and drafting this Agreement. In the
event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
Section 13.3 Entire Agreement. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and warranties both written
and oral, including, without limitation, the Original Agreement and any other limited liability
company operating agreements, among the parties, with respect to the subject matter hereof. EACH
PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
AGREEMENT, THE PARTIES HERETO DO NOT MAKE ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY
DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING AS TO THE ACCURACY
OR COMPLETENESS OF ANY OTHER INFORMATION, MADE BY, OR MADE AVAILABLE BY, ITSELF OR ANY OF ITS
REPRESENTATIVES, WITH RESPECT TO, OR IN CONNECTION WITH, THE NEGOTIATION, EXECUTION OR DELIVERY OF
THIS AGREEMENT, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER’S
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE
FOREGOING.
Section 13.4 Counterparts. This Agreement may be executed in separate counterparts
(including by facsimile), all of which taken together shall constitute one and the same agreement.
Section 13.5 Governing Law; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF OKLAHOMA WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the personal
jurisdiction of the courts of the State of Oklahoma located in the County of Tulsa and the Federal
courts of the United States of America located in the County of Tulsa solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
21
not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such a Oklahoma State or
Federal court located in the County of Tulsa. The parties hereby consent to and grant any such
court jurisdiction over the person of such parties and, to the extent permitted by law, over the
subject matter of such dispute and agree that mailing of process or other papers in connection with
any such action or proceeding in the manner provided in Section 13.1 or in such other manner as may
be permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; (ii)
EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (iii) EACH PARTY MAKES
THIS WAIVER VOLUNTARILY; AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.5(b).
Section 13.6 Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in Oklahoma State or Federal court
located in the County of Tulsa, this being in addition to any other remedy to which such party is
entitled at law or in equity.
Section 13.7 Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity or enforceability of this
Agreement, including that provision, in any other jurisdiction.
Section 13.8 Further Actions. Each Member shall execute and deliver such other
certificates, agreements and documents, and take such other actions, as may reasonably be requested
by the Company in connection with the continuation of the Company and the achievement of its
purposes, including, without limitation, (a) any documents that the Company deems necessary or
appropriate to continue the Company as a limited liability company in all jurisdictions in which
the Company or its Subsidiaries conduct or plan to conduct business and (b) all such agreements,
certificates, tax statements and other documents as may be required to be filed in respect of the
Company.
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Section 13.9 Legend. In the sole discretion of the Board, the issued and outstanding
Units may be represented by certificates. Each Member and the Company shall take all such action
necessary to cause any certificate representing outstanding Units owned by each Member to bear a
legend containing the following words:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND
SUCH LAWS.”
“IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND VOTING SET FORTH IN THE AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT OF THE COMPANY DATED AS OF SEPTEMBER 18, 2008
AS AMENDED AND IN EFFECT FROM TIME TO TIME, A COPY OF WHICH IS ON FILE IN THE OFFICE
OF THE COMPANY.”
The requirement that the above securities legend be placed upon certificates evidencing Units
shall cease and terminate upon the earliest of the following events: (i) when such Units are
transferred in a public offering; (ii) when such Units are transferred pursuant to Rule 144
promulgated under the Securities Act (“Rule 144”), as such Rule may be amended (or
successor provision thereto); or (iii) when such Units are transferred in any other transaction if,
in each such case, the seller delivers to the Company an opinion of his, her or its counsel, which
counsel and opinion shall be reasonably satisfactory to the Company, or a “no-action” letter from
the staff of the Securities and Exchange Commission, in either case to the effect that such legend
is no longer necessary in order to protect the Company against a violation by it of the Securities
Act upon any sale or other disposition of such Units without registration thereunder. Upon the
consummation of any event requiring the removal of a legend hereunder, the Company, upon the
surrender of certificates containing such legend, shall, at its own expense, deliver to the holder
of any such Units as to which the requirement for such legend shall have terminated, one or more
new certificates evidencing such Units not bearing such legend.
Section 13.10 Expenses. Each party hereto shall pay its own expenses incurred in
connection with the preparation, execution, and performance of this Agreement and the transactions
contemplated by this Agreement, including all fees and expenses of agents, representatives, counsel
and accountants.
Section 13.11 Amendment and Waiver. Except as otherwise expressly provided in this
Agreement, any provisions of this Agreement may be amended, modified, supplemented or waived with
the written approval of Ketchum Members holding greater than 50% of the number Units held by all
Ketchum Members and MRM. No waiver of any of the provisions of this Agreement shall be deemed to
or shall constitute a waiver of any other provision hereof (whether or not similar). No failure or
delay on the part of any party in exercising any right, power or
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privilege hereunder shall operate as a waiver thereof or of any other or future exercise of
any such right, power or privilege.
Section 13.12 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof. If any provision of this Agreement, or the
application thereof to any person or any circumstance, is invalid or unenforceable, (a) a suitable
and equitable provision shall be substituted therefor in order to carry out, so far as may be valid
and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other persons or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
Section 13.13 No Third Party Beneficiaries. Except for Covered Persons with respect
to Article XI, this Agreement is not intended to confer upon any Person, except for the parties
hereto, any rights or remedies hereunder.
Section 13.14 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement or made in writing by any party in connection herewith shall
survive the execution and delivery of this Agreement regardless of any investigation made by, or on
behalf of, any Member.
Section 13.15 Conflicting Agreements. Each Member represents and warrants that such
Member has not granted and is not a party to any proxy, voting trust or other agreement which
conflicts with any provision of this Agreement, and no holder of any Units shall grant any proxy or
become party to any voting trust or other agreement which conflicts with any provision of this
Agreement.
Section 13.16 Each Interest in the Company is a Security. It is expressly
acknowledged and agreed that (a) each interest in the Company is a security governed by Article 8
of the OKUCC and the Uniform Commercial Code of any other relevant jurisdiction and (b) this
Agreement establishes the terms of the interests in the Company. The issuer’s jurisdiction (within
the meaning of Section 8-110 of the OKUCC) of the Company shall be the State of Oklahoma.
Section 13.17 Additional Credit Agreement Obligations.
(a) RMD will not create, incur or suffer to exist any Lien (other than tax Liens) upon any of
its Accounts (as defined in the Uniform Commercial Code as from time to time in effect in the State
of New York).
(b) (i) Each of the Company and MRM hereby acknowledges that the Company’s Accounts owing to
MRM or any of its subsidiaries (the “Intercompany Accounts”) have been pledged as
collateral for MRM’s obligations under its primary revolving credit facility (the “Credit
Facility”), and (ii) each of the Company and MRM hereby agrees that, upon the
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occurrence and during the continuance of an Event of Default (as defined in the Credit
Facility) and following notice to MRM by the collateral agent under the Credit Facility of its
intent to exercise such right, the collateral agent under the Credit Facility shall be subrogated
to the rights of MRM with respect to the Intercompany Accounts.
ARTICLE XIV
DEFINED TERMS
Section 14.1 Definitions.
“Accounting Period” means, for the first Accounting Period, the period commencing on
the date hereof and ending on the next Adjustment Date. All succeeding Accounting Periods shall
commence on the day after an Adjustment Date and end on the next Adjustment Date.
“Additional Securities” has the meaning set forth in Section 4.8(a).
“Adjustment Date” means the last day of each fiscal year of the Company or any other
date determined by the Board, in its sole discretion, as appropriate for an interim closing of the
Company’s books.
“Affiliate” means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person, where “control” means the possession,
directly or indirectly, of the power to direct the management and policies of a Person, whether
through the ownership of voting securities, contract or otherwise; provided,
however, that, for purposes hereof, neither the Company nor any Person controlled by the
Company shall be deemed to be an Affiliate of any Member.
“Agreement” means this Amended and Restated Limited Liability Company Operating
Agreement of the Company, as this agreement may be amended, modified, supplemented or restated from
time to time after the date hereof.
“Articles” means the Articles of Organization of the Company and any and all
amendments thereto and restatements thereof filed on behalf of the Company with the office of the
Secretary of State of the State of Oklahoma pursuant to the Oklahoma Act.
“Board” has the meaning set forth in Section 3.1.
“Call Equity Securities” has the meaning set forth in Section 11.6(a).
“Call Notice” has the meaning set forth in Section 11.6(b).
“Call Period” has the meaning set forth in Section 11.6(b).
“Capital Account” has the meaning set forth in Section 6.1.
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“Capital Contribution” means, for any Member, the total amount of cash and the Fair
Market Value of any property contributed to the Company by such Member.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Units” mean a class of Interests in the Company, as described in Section 4.2.
“Company” has the meaning set forth in the Preamble.
“Competitive Opportunity” means an investment or business opportunity or prospective
economic or competitive advantage in which the Company or any of its Subsidiaries could have an
interest or expectancy.
“Confidential Information” has the meaning set forth in Section 4.6.
“Covered Person” means a current or former Member or Director, an Affiliate of a
current or former Member or Director, any officer, director, shareholder, partner, member,
employee, representative or agent of a current or former Member or Director or any of their
respective Affiliates, or any current or former officer, employee or agent of the Company or any of
its Subsidiaries.
“Credit Facility” has the meaning set forth in Section 13.17(b)(i).
“Deficit” has the meaning set forth in Section 7.2(a)
“Director” has the meaning set forth in Section 3.1(a).
“Director Cause” means, with respect to a Director’s removal from the Board, the
Director’s (i) continuing failure, for more than 10 days after the Company’s written notice to the
Director thereof, to perform such duties as a Director as are reasonably requested by the Company;
(ii) failure to observe material policies generally applicable to Directors unless such failure is
capable of being cured and is cured within 10 days of the Director receiving written notice of such
failure; (iii) failure to cooperate with any internal investigation of the Company or any of its
Subsidiaries; (iv) commission of any act of fraud, theft or financial dishonesty with respect to
the Company or any of its Subsidiaries or indictment or conviction of any felony; (v) chronic
absenteeism; or (vi) abuse of alcohol or another controlled substance.
“Equity Call Option” has the meaning set forth in Section 11.6(a).
“Equity Call Purchase Price” means the Fair Market Value of the Call Equity
Securities, determined as of date of the Call Notice by the Company.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
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“Fair Market Value” means, as of any date,
(a) for purposes of determining the value of any property owned by, contributed to
or distributed by the Company, (i) in the case of publicly traded securities, the
average of their last sales prices on the applicable trading exchange or quotation
system on each trading day during the five trading-day period ending on such date and
(ii) in the case of any other property, the fair market value of such property, as
determined in good faith by the Board, or
(b) for purposes of determining the value of any Member’s Interest in connection
with Section 11.6 (MRM Call Right), the fair market value of such Interest as reflected
in an appraisal report prepared, following delivery of a Call Notice by MRM to the
Ketchum Members, by an independent valuation consultant or appraiser of recognized
national standing, reasonably satisfactory to the Board and MRM and assuming for the
purpose of such determination that the Company is wholly owned by MRM.
“Family Member” means, for any Ketchum Member who is an individual, a spouse, lineal
ancestor, lineal descendant, legally adopted child, or brother or sister of such Ketchum Member.
“Intercompany Accounts” has the meaning set forth in Section 13.17(b)(i).
“Interest” means a limited liability interest in the Company, which represents the
interest of each Member in and to the profits and losses of the Company and such Member’s right to
receive distributions of the Company’s assets, as set forth in this Agreement.
“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment,
lien (statutory or other) or similar encumbrance (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease in the nature
thereof).
“Member” means, initially, the Ketchum Members and MRM and includes any Person
admitted as an additional or substitute Member of the Company pursuant to this Agreement.
“MRM” has the meaning set forth in the recitals.
“Officers” has the meaning set forth in Section 3.3.
“Oklahoma Act” means the Oklahoma Limited Liability Company Act, Okla. Stat.
tit. 18, §2000, et seq., as amended from time to time.
“OKUCC” means the Uniform Commercial Code in effect in the state of Oklahoma.
“Original Agreement” has the meaning set forth in the recitals.
“Participation Notice” has the meaning set forth in Section 4.8(b).
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“Permitted Transfer” means any Transfer of Units by a Ketchum Member (i) if such
Ketchum Member is an individual, to a Family Member of such Ketchum Member, or to a trust or other
entity whose sole and exclusive beneficiaries are such Ketchum Member, and/or Family Members of
such Ketchum Member, or (ii) upon the death of an individual Ketchum Member, pursuant to the terms
of any trust or will of the deceased individual Ketchum Member, or by the laws of intestate
succession.
“Person” means any individual, corporation (including not-for-profit), general or
limited partnership, limited liability company, joint venture, estate, trust, association,
organization, governmental entity or agency or other entity of any kind or nature.
“Preemption Right” has the meaning set forth in Section 4.8(c).
“Rule 144” has the meaning set forth in Section 14.9.
“Securities Act” means the Securities Act of 1933 as amended from time to time.
“Services Agreement” means that certain Amended and Restated Services Agreement, dated
as of the date hereof, between MRM and the Company.
“Subsidiary” means any direct or indirect subsidiary of the Company on the date hereof
and any direct or indirect subsidiary of the Company organized or acquired after the date hereof.
“Tax Matters Partner” has the meaning set forth in Section 9.2(b).
“Transfer” means, as the case may be, (i) to directly or indirectly transfer, sell,
assign, distribute, pledge, encumber, hypothecate or otherwise dispose of, either voluntarily or
involuntarily, including by gift, by way of a merger (forward or reverse) or similar transaction,
by operation of law or otherwise or (ii) any direct or indirect transfer, sale assignment,
distribution, pledge, encumbrance, hypothecation or other disposition, either voluntarily or
involuntarily, including by gift, by way of merger (forward or reverse) or similar transaction, by
operation of law or otherwise.
“Treasury Regulations” means the Regulations of the Treasury Department of the United
States issued pursuant to the Code.
“Units” means any class of Interests provided for herein.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the
date first above written.
| KETCHUM MEMBERS: |
||||
| /s/ Craig Ketchum | ||||
| Craig Ketchum | ||||
| /s/ Kent Ketchum | ||||
| Kent Ketchum | ||||
| /s/ Kevin Ketchum | ||||
| Kevin Ketchum | ||||
| /s/ Brian Ketchum | ||||
| Brian Ketchum | ||||
| MRM:
McJUNKIN RED MAN CORPORATION |
||||
| By: | /s/ JF Underhill | |||
| Name: | JF Underhill | |||
| Title: | Executive VP & CFO | |||
| COMPANY: RED MAN DISTRIBUTORS LLC |
||||
| By: | /s/ Craig Ketchum | |||
| Name: | Craig Ketchum | |||
| Title: | Chairman & CEO | |||
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Exhibit 10.28
Execution Copy
AMENDED
AND RESTATED SERVICES AGREEMENT
THIS AMENDED AND RESTATED SERVICES AGREEMENT (“Agreement”) is entered into as of
September 18, 2008 (the “Effective Date”), by and between Red Man Distributors LLC, an
Oklahoma limited liability company (“RMD”) and McJunkin Red Man Corporation, a West
Virginia corporation (“MRM”). MRM and RMD are referred to collectively as the
“Parties” and individually as a “Party”.
RECITALS
WHEREAS, pursuant to that certain services agreement effective as of December 1, 2007, RMD
engaged MRM to provide certain services in connection with the business of RMD, and MRM accepted
such engagement under the terms and conditions set forth therein (the “Original Services
Agreement”).
NOW, THEREFORE, for and in consideration of the foregoing, and the mutual promises and
agreements set forth herein, the sufficiency of which is hereby acknowledged, the parties agree to
amend and restate the Original Agreement in its entirety as follows:
| 1. | Engagement. |
| A. | RMD hereby engages and retains MRM as an independent contractor. MRM hereby accepts said engagement and retention under the terms and conditions contained herein. | ||
| B. | During the term of this Agreement, upon the request of RMD, MRM agrees to provide general corporate and administrative services to RMD, including services relating to accounting, treasury, legal and tax departments, and miscellaneous office and administrative services, including management information systems, computer network and telecommunications services, insurance administration and risk management (the “Services”). | ||
| C. | MRM hereby grants to RMD a non-exclusive, non-transferable, royalty-free, limited right and license to use the “Red Man” name solely as part of the trade name and corporate name “Red Man Distributors LLC” in connection with operating the business of RMD (the “License”). The License shall automatically terminate on each six month anniversary of the date of this Agreement unless prior to each such six month anniversary, MRM delivers written notice to RMD extending the License for the subsequent six month period. RMD agrees that MRM shall have the right to review RMD’s use of the “Red Man” name in order to ensure that such use meets the quality control standards of MRM. RMD shall cooperate with MRM to correct any such use that fails to meet MRM’s quality control standards. RMD agrees that MRM may at any time (at its sole discretion), revoke and terminate the License and License Fee (as defined below). |
| 2. | Compensation for Services. |
| A. | RMD shall make the following payments to MRM: |
| (i) | If RMD requests MRM to provide the Services, RMD shall pay MRM an annual services fee of $725,000, payable not more frequently than quarterly in arrears within thirty (30) days following the end of each quarter (the “Services Fee”) representing the allocable portion of MRM’s overhead costs and other expenses associated with the provision of the Services, including personnel and compensation thereof, building and equipment usage, working capital management, and general administration, each to the extent provided as of the date of this Services Agreement. For the avoidance of doubt, the Services Fee does not include the direct, out-of-pocket costs incurred by MRM on behalf of RMD in connection with the performance of the Services, which will be passed through to RMD at cost (“Third Party Expenses”). All Third Party Expenses shall be paid not more frequently than quarterly in arrears within thirty (30) days following the end of each quarter; and | ||
| (ii) | RMD shall pay MRM a license fee, payable not more frequently than quarterly in arrears within thirty (30) days following the end of each quarter, equal to 0.215% of RMD’s gross monthly revenue for the relevant month, for the License (the “License Fee”). |
| B. | MRM shall pay RMD a monthly commission, payable not more frequently than quarterly in arrears within thirty (30) days following the end of each quarter, equal to 1.4% of RMD’s gross monthly revenue for the relevant month from sales of products by RMD that are sourced from MRM (the “Commission”). | ||
| C. | Payments of the Services Fee, Commission, License Fee and Third Party Expenses shall be made by check payable to the recipient or by wire transfer of the relevant amount to a bank account previously designated by the recipient. | ||
| D. | MRM will maintain reasonably complete and detailed books and records in accordance with MRM’s standard business practices with respect to its provision of the Services to RMD pursuant to this Agreement, including records supporting the Services Fee. MRM will give RMD and its duly authorized representatives, agents, and attorneys reasonable access to all such books and records during MRM’s regular business hours after reasonable advance notice. | ||
| E. | The Parties shall review the Services Fee, Commission and License Fee at least annually, and subject to the mutual agreement of the Parties, such amounts may be adjusted to reflect the then current value of the Services, License and Commission, as applicable. |
| 3. | Term. Unless this Agreement is terminated in accordance with Section 4 below, this Agreement shall become effective on the Effective Date and shall remain in effect until the 15th anniversary of the Effective Date; provided that the term of this Agreement shall be automatically extended for successive 15 year terms unless either MRM or RMD provides |
2
| written notice to the other party at least six months prior to then end of any such 15 year period. |
| 4. | Termination. |
| A. | Termination by MRM. |
| (i) | Termination for Cause. In the event that RMD fails to pay MRM any amounts due under this Agreement, and RMD continues to fail to make such payment for thirty (30) days after RMD’s receipt of MRM’s written notice of termination for cause, MRM may terminate this Agreement, in whole or in part, by written notice to RMD specifying a date for termination. If RMD materially breaches any provision of this Agreement, and (a) such breach is incapable of cure, or (b) with respect to any such breaches capable of cure, RMD does not cure such breach within thirty (30) days after written notice of material breach, MRM may terminate this Agreement, including, without limitation, the License, upon written notice to RMD. | ||
| (ii) | Termination for Insolvency of RMD. This Agreement, including, without limitation, the License, shall automatically terminate if RMD: (a) files for bankruptcy; (b) becomes or is declared insolvent; (c) is the subject of any proceedings related to its liquidation, insolvency or the appointment of a receiver or similar officer, which proceedings are not dismissed within sixty (60) days after their commencement; (d) makes an assignment for the benefit of all or substantially all of its creditors or (e) enters into an agreement for the composition, extension, or readjustment of substantially all of RMD’s obligations. |
| B. | Termination by RMD. |
| (i) | Termination For Cause. If MRM materially breaches any provision of this Agreement and (a) such breach is incapable of cure, or (b) with respect to any such breaches capable of cure, MRM does not cure such breach within thirty (30) days after written notice of material breach, RMD may terminate this Agreement upon written notice to MRM. | ||
| (ii) | Termination for Insolvency of MRM. This Agreement, including, without limitation, the License, shall automatically terminate if MRM: (a) files for bankruptcy; (b) becomes or is declared insolvent; (c) is the subject of any proceedings related to its liquidation, insolvency or the appointment of a receiver or similar officer, which proceedings are not dismissed within sixty (60) days after their commencement; (d) makes an assignment for the benefit of all or substantially all of its creditors or (e) enters into an agreement for the composition, extension, or readjustment of substantially all of MRM’s obligations. |
3
| C. | Effect of Termination. The expiration or termination of this Agreement pursuant to the terms of this Section 4 or otherwise shall not relieve any of the Parties of any obligations accruing prior to such termination, and any such termination shall be without prejudice to the rights of either Party against the other conferred on it by this Agreement. In the event of the termination of this Agreement pursuant to this Section 4, both Parties shall retain all rights existing at law or equity. |
| 5. | Additional Credit Agreement Obligations. |
| A. | Negative Pledge. RMD will not create, incur or suffer to exist any Lien (other than tax Liens) upon any of its Accounts (as defined in the Uniform Commercial Code as from time to time in effect in the State of New York). | ||
| B. | Reporting. RMD will furnish to MRM, within 15 days of the end of each calendar month, or more frequently as MRM may reasonably request to permit MRM to comply with its obligations under its primary revolving credit facility (the “Credit Facility”), (i) an Accounts Receivable Certificate substantially in the form of Exhibit A hereto, together with supporting information in connection therewith as of the end of such month, (ii) a Collateral Report, substantially in the form of Exhibit B hereto, setting forth (a) a detailed aging of RMD’s Accounts reconciled to the Accounts Receivable Certificate delivered as of such date, (b) calculations prepared by RMD to assist MRM with its determination of Eligible Accounts and Eligible Inventory (as those terms are defined in the Credit Facility) and (c) a schedule and aging of RMD’s accounts payable presented at the vendor level, and (iii) other information or documents MRM may reasonably request to satisfy the reporting obligations under the Credit Facility. | ||
| C. | Subrogation. (i) Each of RMD and MRM hereby acknowledges that RMD’s Accounts owing to MRM or any of its subsidiaries (the “Intercompany Accounts”) have been pledged as collateral for MRM’s obligations under its Credit Facility, and (ii) each of RMD and MRM hereby agrees that, upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Facility) and following notice to MRM by the collateral agent under the Credit Facility of its intent to exercise such right, the collateral agent under the Credit Facility shall be subrogated to the rights of MRM with respect to the Intercompany Accounts. |
| 6. | Limitation on Liabilities. |
| A. | Limitations. Notwithstanding any provision of this Agreement to the contrary (except for Section 6.B) or as otherwise required by applicable Law, neither Party shall be liable to other Party or its respective officers, employees, agents, members, partners, Affiliates, contractor or subcontractors, for any incidental, indirect, punitive, exemplary, consequential or special damages, including damages for loss of profits, loss of revenue, loss of savings, or losses by reason of cost of capital connected with or arising or resulting from any performance or lack of performance under this Agreement, even if such damages were foreseeable or a Party was advised of the |
4
| possibility of such damages, and regardless of whether a claim is based on contract, warranty, tort (including negligence or strict liability), violations of any applicable deceptive trade practices act, or any other legal or equitable principle. |
| B. | Exclusions. The limitations of liability set forth in Section 6.A are not applicable to: (a) to any liability caused by or arising from (i) gross negligence, willful misconduct, or fraud of a Party or any of its directors, officers, employees, agents or other representatives in connection with the performance of this Agreement or (ii) any bodily injury or physical damage to tangible property where such injury or damage results from the gross negligence or willful misconduct of a Party or any of its directors, officers, employees, agents or other representatives, except to the extent due to the negligence or willful misconduct of the other Party or its directors, officers or employees. |
| 7. | Covenant Not to Compete. Other than the distribution of oil country tubular goods in North America, RMD shall not, anywhere in the world, directly or indirectly, engage or otherwise participate, whether as an agent, director, officer, shareholder, partner, joint venturer, investor, consultant, advisor, or otherwise, in any business in which, at the time RMD first engages or participates in such business, MRM or any of its Affiliates is then engaged. | |
| 8. | Conduct of Business. During the term of this Agreement, at all times when conducting the business of RMD, RMD shall and RMD shall cause its employees, directors and officers to, hold themselves out as employees, directors or officers, as applicable, of RMD, and not hold themselves out as employees, directors, officers, consultants, advisors or otherwise of MRM or any of its Affiliates (other than RMD). | |
| 9. | Notice. Any notice required or permitted to be given under this Agreement shall be given in writing and shall be effective from the date sent by registered or certified mail, by hand, facsimile or overnight courier to the addresses set forth below: |
| To RMD: | Red Man Distributors LLC 450 Gears Road Suite 300 Houston, TX 77067 Attention: Kent Ketchum Fax: (281) 872-4708 |
|||
| To MRM: | McJunkin Red Man Corporation 8023 East 63rd Street Suite 800 Tulsa, Oklahoma 74133 Attention: Stephen W. Lake Fax: (918) 461-5375 |
|||
| with a copy (which shall not constitute notice) to: | ||||
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| McJunkin Red Man Corporation 8023 East 63rd Street Suite 800 Tulsa, Oklahoma 74133 Attention: Craig Ketchum Fax: (918) 461-5375 |
| 10. | Governing Law. This Agreement is deemed to have been made and entered into in the State of Oklahoma, and the law governing this Agreement and the transactions contemplated hereby shall be that of the State of Oklahoma as in effect from time to time (without giving effect to its conflict of law principles). The law of the State of Oklahoma shall apply to any and all matters arising from or related to this Agreement. The Parties agree that any legal proceeding based upon the provisions of this Agreement or breach thereof shall be brought exclusively in any federal or state court located in the State of Oklahoma located in the County of Tulsa, to the exclusion of all other courts and tribunals, except for matters for which such courts do not exercise jurisdiction. The Parties hereby irrevocably and unconditionally consent and agree to be subject to the jurisdiction of the aforesaid courts in such proceedings. Each Party hereby irrevocably and unconditionally waives any objection to the above courts based on lack of personal jurisdiction or inconvenient forum. Each of the Parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any Party hereto. | |
| 11. | Waiver. Any failure on the part of any Party hereto to comply with any of its obligations, agreements or conditions hereunder may only be waived in writing by the Party to whom such compliance is owed. Any such waiver by any Party shall not be considered as a waiver of any subsequent failure to comply with any such obligation, agreement or condition or any other hereunder. Any forbearance or delay on the part of either Party in notifying the other Party of such Party’s failure to comply with any of its obligations, agreements or conditions hereunder, shall not be construed as a waiver of the non-breaching Party’s right to enforce such obligations, agreements or conditions for such failure to comply or any other failure to comply. | |
| 12. | Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. | |
| 13. | Headings. The descriptive headings of the provisions of this Agreement are formulated and used for convenience only and shall not be deemed to affect the meaning and construction of any such provision. | |
| 14. | Binding Effect. The terms and conditions of this Agreement shall be binding upon, and shall inure to the benefit of, the Parties hereto and their respective permitted successors and assigns. |
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| 15. | Assignment. Neither this Agreement nor the rights or obligations of MRM or RMD hereunder are assignable in whole or in part by either party without the prior written consent of the other; provided, however, that MRM may assign its rights or delegate its obligations under this Agreement in whole or in part to any Affiliate which has the resources, capabilities and personnel necessary to fulfill MRM’s obligations under this Agreement without the consent of RMD; provided further, however, that MRM shall guarantee the performance of this Agreement by any such Affiliate. |
| 16. | Independent Contractor. Each Party is an independent contractor engaged in the operation of its own respective business, and nothing in this Agreement shall be construed to create a partnership, agency, joint venture, pooling, franchise or employer-employee relationship between the Parties or between any Party and the other Party’s employees. Neither Party shall be responsible for the compensation, payroll-related taxes, workers’ compensation, accident or health insurance or other benefits of employees of the other Party. Neither Party has the power or authority to act for, represent, or bind the other Party (or any of the other Party’s Affiliates) in any manner. | |
| 17. | Force Majeure. Continued performance of the Services, or any of them, may be suspended immediately to the extent caused by any event or condition beyond the reasonable control of the party suspending such performance including acts of God, fire, labor or trade disturbance, war, civil commotion, compliance in good faith with any Law, unavailability of materials or other event or condition whether similar or dissimilar to the foregoing (a “Force Majeure Event”). MRM shall give prompt notice to RMD of the occurrence, nature and anticipated duration of a Force Majeure Event giving rise to any suspension of the Services, and the parties shall cooperate with each other to find alternative means and methods for the provision of the suspended Service. | |
| 18. | Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or equity. | |
| 19. | Amendment. This Agreement may not be amended except by an instrument in writing signed by a duly authorized officer or representative of each of the Parties hereto. | |
| 20. | Definitions. As used in this Agreement, the following terms when used herein with initial capital letters, shall have the respective meanings as defined below: |
| A. | “Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, contract or otherwise. |
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| B. | “Law” means all statutes, regulations, directives, ordinances, orders, rulings, agency or court interpretations, or other action of any governmental authority in any jurisdiction in the world, whether currently in force or enacted during the Term. | ||
| C. | “Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment, lien (statutory or other) or similar encumbrance (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). |
| D. | “Person” means an individual, partnership, limited liability company, corporation, joint stock company, trust (including a business trust), unincorporated association, joint venture, firm, enterprise or other entity. |
| 21. | Entire Agreement. This Agreement constitutes the entire agreement between the Parties regarding the subject matter of this Agreement, and supersedes all other prior agreements, understandings and negotiations, both written and oral, including, without limitation, the Original Services Agreement and the Limited Liability Company Operating Agreement of RMD, among the Parties with respect to the subject matter of this Agreement. |
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IN WITNESS WHEREOF, RMD and MRM have caused this Agreement to be executed as of the date
above first written.
| RED MAN DISTRIBUTORS LLC |
||||
| By: | /s/ Craig Ketchum | |||
| Name: | Craig Ketchum | |||
| Title: | Chairman & CEO | |||
| MCJUNKIN RED MAN CORPORATION |
||||
| By: | /s/ J.F. Underhill | |||
| Name: | J.F. Underhill | |||
| Title: | Executive VP & CFO | |||
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Exhibit A
Accounts Receivable Report
Accounts Receivable Report
10
Exhibit B
Collateral Report
Collateral Report
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Exhibit 10.29
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 10, 2008 (this “Agreement”), by McJunkin
Red Man Holding Corporation, a Delaware corporation (the “Company”), and Andrew Lane (the
“Executive”).
WHEREAS, the Company desires to employ the Executive as Chief Executive Officer and to utilize
his management services as indicated herein, and the Executive has agreed to provide such
management services to the Company; and
WHEREAS, the Executive desires to accept the Company’s offer of employment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid
consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows:
| 1. | Employment |
| 1.1. | Term. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company pursuant to this Agreement, for a period commencing on September 10, 2008 (such date, the “Effective Date”) and ending on the earlier of (i) the fifth (5th) anniversary of the Effective Date and (ii) the termination of the Executive’s employment in accordance with Section 3 hereof (the “Term”); provided, however, that on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, the Term shall automatically be extended for one (1) year unless ninety (90) days’ written notice of non-renewal is given by the Executive or the Company to the other party. | ||
| 1.2. | Duties. During the Term, the Executive shall serve as Chief Executive Officer of the Company and in such other positions as an officer or director of the Company or its affiliates as the Executive and the Board of Directors of the Company (the “Board”) shall mutually agree from time to time. In addition, the Executive shall serve as a member of the Board during the Term. The Executive shall perform such duties, functions and responsibilities commensurate with the Executive’s positions as reasonably directed by the Board. | ||
| 1.3. | Exclusivity. During the Term, the Executive shall devote his full time and attention to the business and affairs of the Company, shall faithfully serve the Company, and shall in all material respects conform to and comply with the lawful and reasonable directions and instructions given to him by the Board, consistent with Section 1.2 hereof. During the Term, the Executive shall use his best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may sit on the boards of other companies with the consent of the Board, which shall not be unreasonably withheld. |
| 2. | Compensation |
| 2.1. | Salary. As compensation for the performance of the Executive’s services hereunder, during the Term, the Company shall pay to the Executive a salary at an annual rate of seven hundred thousand dollars ($700,000) payable in accordance with the Company’s standard payroll policies (the “Base Salary”). The Base Salary shall be reviewed annually and may be adjusted upward by the Board (or a committee thereof) in its discretion, based on competitive data and the Executive’s performance. No increase in Base Salary shall limit or reduce any other right or obligation to the Executive under this Agreement and the Base Salary shall not be reduced at any time (including after any such increase). | ||
| 2.2. | Annual Bonus. Beginning with the fiscal year that commences on January 1, 2009, for each completed fiscal year during the Term, the Executive shall be eligible to receive additional cash incentive compensation pursuant to the annual bonus plan of the Company in effect at such time (the “Annual Bonus”). The target Annual Bonus shall be 100% of the Executive’s Base Salary as in effect at the beginning of such fiscal year with the actual Annual Bonus to be based upon such individual and/or Company performance criteria established for each such fiscal year by the Board in consultation with the Executive. The Executive shall be eligible to receive a pro-rata Annual bonus for fiscal year 2008 based on a target bonus of 100% of Base Salary and the Company performance criteria established for 2008. | ||
| 2.3. | Equity |
| a) | Stock Purchase. The Executive shall acquire $3 million of the Company’s common stock (“Common Stock”) within thirty (30) days of the commencement of employment. Such purchase will be at the fair market value of the Common Stock on the date of purchase (such Common Stock so acquired, the “Purchased Equity”) and will be pursuant to a subscription agreement provided by the Company containing customary representations and other terms. The Executive shall execute and become a party to the Stockholders Agreement in the form attached hereto (the “Stockholders Agreement”). The Stockholders Agreement will apply to all shares of the Common Stock held by the Executive, including Purchased Equity and shares obtained through the exercise of the Options (as defined below). | ||
| b) | Stock Options. The Executive shall be granted options in respect of $31 million of Common Stock. All such stock options (the “Options”) shall be governed by the terms of the McJ Stock Option Plan and shall become vested over time in equal installments on the second (2nd), third (3rd), fourth (4th) and fifth (5th) anniversaries of the date of grant, conditioned on continued employment through each applicable vesting date and subject to the accelerated vesting as provided below in the event of certain |
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| terminations of employment or the occurrence of a Change in Control (as defined herein). |
| 2.4. | Employee Benefits. During the Term, the Executive shall be eligible to participate in such health and other group insurance and other employee benefit plans and programs of the Company and its affiliates as in effect from time to time on the same basis as other senior executives of the Company. | ||
| 2.5. | Vacation. During the Term, the Executive shall be entitled to paid vacation in accordance with the Company’s vacation policy as in effect from time to time. | ||
| 2.6. | Business Expenses. The Company shall pay or reimburse the Executive for all commercially reasonable business out-of-pocket expenses that the Executive incurs during the Term in performing his duties under this Agreement upon presentation of documentation and in accordance with the expense reimbursement policy of the Company as approved by the Board (or a committee thereof) and in effect from time to time. |
| 3. | Termination of Employment |
| 3.1. | Generally. The Company may terminate the Executive’s employment for any reason during the Term, and the Executive may voluntarily terminate his employment for any reason during the Term, in each case (other than a termination by the Company for Cause (as defined herein)) at any time upon not less than thirty (30) days’ notice to the other party. Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall be entitled to any Base Salary earned but unpaid through the date of termination, any earned but unpaid Annual Bonus for completed fiscal years, any unreimbursed expenses in accordance with Section 2.6 hereof and, to the extent not theretofore paid or provided, any other amounts or benefits required to be paid or provided under any plan, program, policy or practice or other contract or agreement of the Company and its affiliates through the date of termination of employment (collectively, the “Accrued Amounts”). | ||
| 3.2. | Certain Terminations |
| a) | Termination by the Company other than for Cause or Disability; Termination by the Executive for Good Reason. If the Executive’s employment is terminated during the Term by the Company other than for Cause or Disability, or by the Executive for Good Reason (as defined herein), the Executive shall be entitled to: (i) the Accrued Amounts, (ii) a pro-rata bonus for the fiscal year of termination, based on actual performance through the end of the applicable fiscal year and the number of days that have elapsed in the fiscal year through the date of termination (a “Pro-Rata Bonus”), (iii) payment of an amount equal to the sum of 1/12 of Base Salary and 1/12 of the target Annual Bonus each month for eighteen (18) months following termination (the “Severance Payments”) |
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| and (iv) continuation of medical benefits on the same terms as active senior executives for eighteen (18) months following termination (“Medical Continuation”). In addition, a portion of the Options granted pursuant to Section 2.3(b) that are unvested at the time of such termination will become vested, as follows: if termination occurs during the first two (2) years of employment, a pro-rata portion of 1/4 of the shares subject to the Options will vest, such pro-rata portion to be determined based on the number of months worked since the date of grant divided by twenty four (24), and if termination occurs during the third (3rd), fourth (4th) or fifth (5th) years of employment, a pro-rata portion of 1/4 of the shares subject to the Options will vest, such pro-rata portion to be determined based on the number of months worked since the previous vesting date divided by twelve (12) (“Pro-Rata Option Vesting”). Receipt of the Severance Payments, Medical Continuation and Pro-Rata Option Vesting shall be conditioned on: (i) the Executive’s continued compliance with his obligations under Section 5 of this Agreement and (ii) the Executive’s execution, delivery and non-revocation of a valid and enforceable general release of claims (the “Release”) in the form attached hereto as Exhibit A. In the event that the Executive breaches any of the covenants set forth in Section 5 of this Agreement, the Executive shall immediately return to the Company any portion of the Severance Payments that have been paid to the Executive pursuant to this Section 3.2(a) and any shares or other amounts received in respect of the Options that became vested pursuant to this Section 3.2(a), and the Medical Continuation shall immediately terminate. Subject to Section 3.2(c), the Company will commence payment of the Severance Payments as soon as practicable following the effectiveness of the Release. The Pro-Rata Bonus will be paid at the time the Company ordinarily pays incentive bonuses to its executives with respect to the fiscal year in which the termination occurs. |
| b) | Termination upon Death or Disability. If the Executive’s employment is terminated due to the Executive’s death or Disability, the Executive (or the Executive’s estate, if applicable) will receive (i) the Accrued Amounts, (ii) a Pro-Rata Bonus and (iii) Pro-Rata Option Vesting. | ||
| c) | Section 409A Specified Employee. Notwithstanding anything to the contrary contained herein, if the Executive is a “specified employee” for purposes of Section 409A of the Internal Revenue Code (the “Code”) and regulations and other interpretive guidance issued thereunder (“Section 409A”), the Company shall not commence payment of the Severance Payments to the Executive until one (1) day after the day which is six (6) months after the Executive’s termination date (the “Delay Period”), with the first (1st) payment equaling the total of all payment that would have been paid during the Delay Period but for the application of Section 409A to such payments. For purposes of this Agreement, the Executive’s employment with the Company shall be considered to have terminated when the Executive incurs a “separation from service” with the Company |
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| within the meaning of Section 409A(a)(2)(A)(i) of the Code, and applicable administrative guidance issued thereunder. |
| d) | Exclusive Remedy. The foregoing payments upon termination of the Executive’s employment shall constitute the exclusive severance payments due the Executive upon a termination of his employment under this Agreement. The Executive acknowledges that the Medical Continuation is in full satisfaction of the Company’s obligation under COBRA. |
| 3.3. | Resignation from All Positions. Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall be deemed to have resigned, as of the date of such termination, from all positions he then holds as an officer, director, employee and member of the Board (and any committee thereof) and the board of directors (and any committee thereof) of any of the Company’s affiliates. |
| 3.4. | Cooperation. Following the termination of the Executive’s employment with the Company for any reason, the Executive agrees to reasonably cooperate with the Company upon reasonable request of the Board and to be reasonably available to the Company with respect to matters arising out of the Executive’s services to the Company and its subsidiaries and affiliates. The Company shall pay the Executive a reasonable fee for any such services and promptly reimburse the Executive for expenses reasonably incurred in connection with such matters. |
| 4. | Section 280G. If (i) the aggregate of all amounts and benefits due to the Executive under this Agreement and under any other arrangement with the Company would, if received by the Executive in full and valued under Section 280G of the Code, constitute “parachute payments” as defined in and under Section 280G of the Code (collectively, “280G Benefits”), and if (ii) such aggregate would, if reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant to Section 4999 of the Code, be less than the amount the Executive would receive, after all taxes, if the Executive received aggregate 280G Benefits equal (as valued under Section 280G of the Code) to only three (3) times the Executive’s “base amount” as defined in and under Section 280G of the Code, less $1.00, then (iii) such 280G Benefits shall (to the extent that the reduction of such 280G Benefits can achieve the intended result) be reduced or eliminated to the extent necessary so that the aggregate 280G Benefits received by the Executive will not constitute parachute payments. The determinations with respect to this Section 4 shall be made by an independent auditor (the “Auditor”) paid by the Company. The Auditor shall be the Company’s regular independent auditor unless the Executive reasonably objects to the use of that firm, in which event the Auditor will be a nationally recognized United States public accounting firm chosen by the parties. |
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| 5. | Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights |
| 5.1. | Unauthorized Disclosure. The Executive agrees and understands that in the Executive’s position with the Company, the Executive will be exposed to and will receive information relating to the confidential affairs of the Company and its affiliates, including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company and its affiliates and other forms of information considered by the Company and its affiliates to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”). The Executive agrees that at all times during the Executive’s employment with the Company and thereafter, the Executive shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “Person”) other than in connection with the Executive’s employment with the Company without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with his employment with the Company, unless required by law to disclose such information, in which case the Executive shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive’s employment with the Company, the Executive shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during the Executive’s employment with the Company, and any copies thereof in his (or capable of being reduced to his) possession; provided, however, that the Executive may retain his full rolodex or similar address and telephone directories. |
| 5.2. | Non-Competition. By and in consideration of the Company entering into this Agreement and the payments made and the benefits provided hereunder, and in further consideration of the Executive’s exposure to the Confidential Information of the Company and its affiliates, the Executive agrees that the Executive shall not, during the Executive’s employment with the Company and for eighteen (18) months thereafter (the “Restriction Period”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any |
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| Restricted Enterprise (as defined below); provided, that in no event shall ownership of one percent (1%) or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 5.2, so long as the Executive does not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof. For purposes of this paragraph, “Restricted Enterprise” shall mean any Person that is actively engaged in any geographic area in any business which is either (i) in competition with the business of the Company or any of its subsidiaries or affiliates or (ii) proposed to be conducted by the Company or any of its subsidiaries or affiliates in their respective business plans as in effect at that time. During the Restriction Period, upon request of the Company, the Executive shall notify the Company of the Executive’s then-current employment status. |
| 5.3. | Non-Solicitation of Employees. During the Restriction Period, the Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) for employment any person who is, or within twelve (12) months prior to the date of such solicitation was, an employee of the Company or any of its subsidiaries or affiliates. | ||
| 5.4. | Interference with Business Relationships. During the Restriction Period (other than in connection with carrying out his responsibilities for the Company and its affiliates), the Executive shall not directly or indirectly contact, induce or solicit (or assist any Person to contact, induce or solicit) any customer or client of the Company or its subsidiaries or affiliates to terminate its relationship or otherwise cease doing business in whole or in part with the Company or its subsidiaries or affiliates, or directly or indirectly interfere with (or assist any Person to interfere with) any material relationship between the Company or its subsidiaries or affiliates and any of its or their customers or clients so as to cause harm to the Company or its affiliates. | ||
| 5.5. | Extension of Restriction Period. The Restriction Period shall be tolled for any period during which the Executive is in breach of any of Sections 5.2, 5.3 or 5.4 hereof. | ||
| 5.6. | Proprietary Rights. The Executive shall disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by him, either alone or in conjunction with others, during the Executive’s employment with the Company and related to the business or activities of the Company and its affiliates (the “Developments”). Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by the Company and/or its applicable affiliate, the Executive assigns all of his right, title and interest in all Developments (including all intellectual property rights therein) to the Company or its nominee without further compensation, including all rights or benefits |
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| therefor, including without limitation the right to sue and recover for past and future infringement. The Executive acknowledges that any rights in any Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company and/or its applicable affiliate as the Executive’s employer. Whenever requested to do so by the Company, the Executive shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect the interests of the Company and its affiliates therein. These obligations shall continue beyond the end of the Executive’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Executive while employed by the Company, and shall be binding upon the Executive’s employers, assigns, executors, administrators and other legal representatives. In connection with his execution of this Agreement, the Executive has informed the Company in writing of any interest in any inventions or intellectual property rights that he holds as of the date hereof as set forth on Exhibit B hereto (the “Existing Inventions”). Notwithstanding anything to the contrary herein, the Developments shall not include any Existing Inventions. If the Company is unable for any reason, after reasonable effort, to obtain the Executive’s signature on any document needed in connection with the actions described in this Section 5.6, the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section 5.6 with the same legal force and effect as if executed by the Executive. |
| 5.7. | Confidentiality of Agreement. Other than with respect to information required to be disclosed by applicable law, the parties hereto agree not to disclose the terms of this Agreement to any Person; provided the Executive may disclose this Agreement and/or any of its terms to the Executive’s immediate family, financial advisors and attorneys, so long as the Executive instructs every such Person to whom the Executive makes such disclosure not to disclose the terms of this Agreement further. | ||
| 5.8. | Remedies. The Executive agrees that any breach of the terms of this Section 5 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all Persons acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity, including, without limitation, the obligation of the Executive to return any Severance Payments made by the Company to the Company. The terms of this Section 5.8 shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without |
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| limitation, the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants contained in this Section 5 are reasonable and necessary to protect the businesses of the Company and its affiliates because of the Executive’s access to Confidential Information and his material participation in the operation of such businesses. |
| 6. | Representation. The Executive and the Company each represents and warrants that (i) he or it is not subject to any contract, arrangement, policy or understanding, or to any statute, governmental rule or regulation, that in any way limits his or its ability to enter into and fully perform his or its obligations under this Agreement and (ii) he or it is not otherwise unable to enter into and fully perform his or its obligations under this Agreement. | |
| 7. | Non-Disparagement. From and after the Effective Date and following termination of the Executive’s employment with the Company, the Executive agrees not to make any statement (other than statements made in connection with carrying out his responsibilities for the Company and its subsidiaries and affiliates) that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company or any of its subsidiaries, affiliates, employees, officers, directors or stockholders. The Company and its affiliates shall cause their officers and directors not to make any such statement regarding the Executive. | |
| 8. | Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. The Executive shall be solely responsible for the payment of all taxes relating to the payment or provision of any amounts or benefits hereunder. | |
| 9. | Definitions. For purposes of this Agreement, the following terms shall have the following meanings: |
| 9.1. | “Cause” shall mean the Executive’s (i) continuing failure, for more than ten (10) days after the Company’s written notice to the Executive thereof, to perform such duties as are reasonably requested by the Company; (ii) failure to observe material policies generally applicable to officers or employees of the Company unless such failure is capable of being cured and is cured within ten (10) days of the Executive receiving written notice of such failure; (iii) failure to cooperate with any internal investigation of the Company or any of its affiliates; (iv) commission of any act of fraud, theft or financial dishonesty with respect to the Company or any of its affiliates or indictment or conviction of any felony; or (v) material violation of the provisions of this Agreement unless such violation is capable of being cured and is cured within ten (10) days of the Executive receiving written notice of such violation. |
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| 9.2. | “Change in Control” shall mean: |
| a) | An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (for purposes of this Section 9.2, as the term “person” is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of (i) the then-outstanding shares of common stock, par value $.01 per share, of the Company and any other securities into which such shares are changed or for which such shares are exchanged (“Shares”) or (ii) the combined voting power of the Company’s then-outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Shares or Voting Securities in a Non-Control Acquisition (as hereinafter defined) shall not constitute a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined); or | ||
| b) | The consummation of: |
| (i) | A merger, consolidation or reorganization (x) with or into the Company or (y) in which securities of the Company are issued (a “Merger”), unless such Merger is a “Non-Control Transaction.” A “Non-Control Transaction” shall mean a Merger in which: |
| (i) | the shareholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least a majority of the combined voting power of the outstanding voting securities of (1) the corporation resulting from such Merger (the “Surviving Corporation”), if there is no Person that Beneficially Owns, directly or indirectly, fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation (a “Parent Corporation”), or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; | ||
| (ii) | the individuals who were members of the Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (1) the Surviving |
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| Corporation, if there is no Parent Corporation, or (2) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and |
| (iii) | no Person other than (1) the Company or another corporation that is a party to the agreement of Merger, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of fifty percent (50%) or more of the then outstanding Shares or Voting Securities, has Beneficial Ownership, directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation. |
| c) | A complete liquidation or dissolution of the Company; or | ||
| d) | The sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any Person (other than (x) a transfer to a Related Entity or (y) the distribution to the Company’s shareholders of the stock of a Related Entity or any other assets). |
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely
because any Person (the “Subject Person”) acquired Beneficial Ownership of more than
the permitted amount of the then outstanding Shares or Voting Securities as a result of the
acquisition of Shares or Voting Securities by the Company which, by reducing the number of
Shares or Voting Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons; provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the acquisition of Shares or Voting
Securities by the Company and, after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Shares or Voting Securities and such
Beneficial Ownership increases the percentage of the then outstanding Shares or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
| 9.3. | “Disability” shall mean the Executive is entitled to receive long-term disability benefits under the long-term disability plan of the Company or its affiliates in which Executive participates, or, if there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180 days during any 365 day period irrespective of whether such days are consecutive. |
11
| 9.4. | “Good Reason” shall mean (i) a material and adverse change in the Executive’s duties or responsibilities; (ii) a reduction in the Executive’s Base Salary or target Annual Bonus; (iii) a relocation of the Executive’s principal place of employment by more than fifty (50) miles; or (iv) breach by the Company of any material provision of this Agreement; provided, that the Executive must give notice of termination for Good Reason within sixty (60) days of the occurrence of the first event giving rise to Good Reason. |
| 10. | Miscellaneous. |
| 10.1. | Indemnification. The Company shall indemnify the Executive to the fullest extent provided under the Company’s By-Laws. The Company shall also maintain director and officer liability insurance in such amounts and subject to such limitations as the Board shall, in good faith, deem appropriate for coverage of directors and officers of the Company. | ||
| 10.2. | Amendments and Waivers. This Agreement and any of the provisions hereof may be amended, waived (either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement signed by the parties hereto; provided, that, the observance of any provision of this Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. | ||
| 10.3. | Assignment; No Third-Party Beneficiaries. This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any purported assignment by the Executive in violation hereof shall be null and void. Nothing in this Agreement shall confer upon any Person not a party to this Agreement, or the legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement. | ||
| 10.4. | Notices. Unless otherwise provided herein, all notices, requests, demands, claims and other communications provided for under the terms of this Agreement shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by (i) personal delivery (including receipted courier service) or overnight delivery service, (ii) facsimile during normal business hours, with confirmation of receipt, to the number indicated, (iii) reputable commercial overnight delivery service courier or (iv) registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set |
12
| forth below: |
| If to the Company: | McJunkin Red Man Holding Corporation | |||||
| 835 Hillcrest Drive | ||||||
| Charleston, WV 25311 | ||||||
| Attention: General Counsel | ||||||
| Facsimile: 304-348-1557 | ||||||
| with a copy to: | GS Capital Partners V Fund, L.P. | |||||
| 85 Broad Street | ||||||
| New York, NY 10004 | ||||||
| Attention: Jack Daly | ||||||
| Facsimile: 212-357-5505 | ||||||
| and | ||||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||||
| One New York Plaza | ||||||
| New York, NY 10004 | ||||||
| Attention: Robert C. Schwenkel, Esq. | ||||||
| Facsimile: 212-859-4000 | ||||||
| If to the Executive: | Andrew Lane, at his principal office at the Company (during the Term), and at all times to his principal residence as reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been given
when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
| 10.5. | Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties hereto shall be governed by, the laws of the State of New York, without giving effect to the conflicts of law principles thereof. | ||
| 10.6. | Severability. Whenever possible, each provision or portion of any provision of this Agreement, including those contained in Section 4 hereof, will be interpreted in such manner as to be effective and valid under applicable law but the invalidity or unenforceability of any provision or portion of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision or portion of any provision, in any other jurisdiction. In addition, should a court or arbitrator determine that any provision or portion of any provision of this Agreement, including those contained in |
13
| Section 5 hereof, is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid. |
| 10.7. | Entire Agreement. From and after the Effective Date this Agreement shall constitute the entire agreement between the parties hereto, and supersede all prior representations, agreements and understandings (including any prior course of dealings), both written and oral, between the parties hereto with respect to the subject matter hereof. | ||
| 10.8. | Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. | ||
| 10.9. | Binding Effect. This Agreement shall inure to the benefit of, and be binding on, the successors of each of the parties, including, without limitation, the Executive’s heirs and the personal representatives of the Executive’s estate and any successor to all or substantially all of the business and/or assets of the Company. | ||
| 10.10. | General Interpretive Principles. The name assigned this Agreement and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms of limitation herein, so that references to “include,” “includes” and “including” shall not be limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations. | ||
| 10.11. | Mitigation. Notwithstanding any other provision of this Agreement, (i) the Executive will have no obligation to mitigate damages for any breach or termination of this Agreement by the Company, whether by seeking employment or otherwise and (ii) the amount of any payment or benefit due the Executive after the date of such breach or termination will not be reduced or offset by any payment or benefit that the Executive may receive from any other source. | ||
| 10.12. | Section 409A Compliance. This Agreement is intended to comply with Section 409A (to the extent applicable) and, to the extent it would not adversely impact the Company, the Company agrees to interpret, apply and administer this Agreement in the least restrictive manner necessary to comply with such requirements and without resulting in any diminution in the value of payments or benefits to the Executive. |
14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.
| MCJUNKIN RED MAN HOLDING CORPORATION |
|||||
| By: | /s/ Stephen W. Lake | ||||
| Name: Stephen W. Lake | |||||
| Title: Senior Vice-President, General Counsel & Corporate Secretary |
|||||
| EXECUTIVE |
|||||
| /s/ Andrew Lane | |||||
| Andrew Lane | |||||
Exhibit A
Release
| 1. | In consideration of the payments and benefits to be made under the Employment Agreement, dated as of September 10, 2008 (the “Employment Agreement”), to which Andrew Lane (the “Executive”) and McJunkin Red Man Holding Corporation (the “Company”) (each of the Executive and the Company, a “Party” and collectively, the “Parties”) are parties, the sufficiency of which the Executive acknowledges, the Executive, with the intention of binding himself and his heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge the Company and each of its subsidiaries and affiliates (the “Company Affiliated Group”), their present and former officers, directors, executives, shareholders, agents, attorneys, employees and employee benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the “Company Released Parties”), of and from any and all claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the Executive, individually or as a member of a class, now has, owns or holds, or has at any time heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with the Company or any of its subsidiaries and affiliates, or any termination of such employment, including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning unlawful and unfair labor and employment practices) and (iv) for employment discrimination under any applicable federal, state or local statute, provision, order or regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Age Discrimination in Employment Act (“ADEA”), and any similar or analogous state statute, excepting only: |
| 1.1. | rights of the Executive arising under, or preserved by, this Release or Sections 2.3 and 3 of the Employment Agreement; | ||
| 1.2. | the right of the Executive to receive COBRA continuation coverage in accordance with applicable law; | ||
| 1.3. | claims for benefits under any health, disability, retirement, life insurance or other, |
| similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group; and |
| 1.4. | rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force. |
| 2. | The Employee acknowledges and agrees that the release of claims set forth in this Release is not to be construed in any way as an admission of any liability whatsoever by any Company Released Party, any such liability being expressly denied. |
| 3. | The release of claims set forth in this Release applies to any relief no matter how called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses. |
| 4. | The Executive specifically acknowledges that his acceptance of the terms of the release of claims set forth in this Release is, among other things, a specific waiver of his rights, claims and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind; provided, however, that nothing herein shall be deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause of action which by law the Executive is not permitted to waive. |
| 5. | As to rights, claims and causes of action arising under the ADEA, the Executive acknowledges that he has been given but not utilized a period of twenty-one (21) days to consider whether to execute this Release. If the Executive accepts the terms hereof and executes this Release, he may thereafter, for a period of seven (7) days following (and not including) the date of execution, revoke this Release as it relates to the release of claims arising under the ADEA. If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding and enforceable against the Executive, on the day next following the day on which the foregoing seven (7) day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit any right to payment of the Severance Payments (as defined in the Employment Agreement), but the remainder of the Employment Agreement shall continue in full force. |
| 6. | Other than as to rights, claims and causes of action arising under the ADEA, the release of claims set forth in this Release shall be immediately effective upon execution by the Executive. |
| 7. | The Executive acknowledges and agrees that he has not, with respect to any transaction or state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against any Company Released Party with any governmental agency, court or tribunal. |
| 8. | The Executive acknowledges that he has been advised to seek, and has had the |
| opportunity to seek, the advice and assistance of an attorney with regard to the release of claims set forth in this Release, and has been given a sufficient period within which to consider the release of claims set forth in this Release. |
| 9. | The Executive acknowledges that the release of claims set forth in this Release relates only to claims which exist as of the date of this Release. |
| 10. | The Executive acknowledges that the Severance Payments he is receiving in connection with the release of claims set forth in this Release and his obligations under this Release are in addition to anything of value to which the Executive is entitled from the Company and any of its affiliates. |
| 11. | Each provision hereof is severable from this Release, and if one or more provisions hereof are declared invalid, the remaining provisions shall nevertheless remain in full force and effect. If any provision of this Release is so broad, in scope, or duration or otherwise, as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. |
| 12. | This Release constitutes the complete agreement of the Parties in respect of the subject matter hereof and shall supersede all prior agreements between the Parties in respect of the subject matter hereof except to the extent set forth herein. |
| 13. | The failure to enforce at any time any of the provisions of this Release or to require at any time performance by another party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or the right of any party thereafter to enforce each and every such provision in accordance with the terms of this Release. |
| 14. | This Release may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Signatures delivered by facsimile shall be deemed effective for all purposes. |
| 15. | This Release shall be binding upon any and all successors and assigns of the Executive and the Company. |
| 16. | Except for issues or matters as to which federal law is applicable, this Release shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflicts of law principles thereof. |
[signature page follows]
IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all
as of .
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| EXECUTIVE |
|||||
| Andrew Lane | |||||
Exhibit B
Existing Inventions
[none]
EXHIBIT 10.30
MCJUNKIN RED MAN HOLDING CORPORATION
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this “Agreement”) dated as of September 10, 2008 by and among
McJunkin Red Man Holding Corporation, a Delaware corporation (the “Company”), Andrew Lane
(the “Subscriber”) and, for purposes of Section 7 only, PVF Holdings LLC (“PVF”).
RECITALS
WHEREAS, on September 10, 2008, the Company and the Subscriber entered into an employment
agreement whereby, subject to the terms set forth therein, the Company agreed to employ the
Subscriber as Chief Executive Officer of the Company; and
WHEREAS, in exchange for the Cash Consideration (as defined below), the Subscriber desires to
purchase from the Company, and the Company desires to issue to the Subscriber, the Purchased Shares
(as defined below).
NOW THEREFORE, in consideration of the mutual promises herein made, and in consideration of
the representations, warranties, and covenants herein contained, the Company and the Subscriber
hereby agree as set forth below.
Section 1. Agreement to Sell and Purchase Securities. Subject to the terms and
provisions set forth in this Agreement, (a) Subscriber agrees to purchase 340.4379 shares of common
stock, par value $0.01 per share, of the Company (the “Common Stock”), at a purchase price
of $8,812.18 per share, for an aggregate purchase price of $3,000,000 (the “Cash
Consideration”) and (b) in consideration for the Cash Consideration, the Company agrees to
issue, sell and deliver to the Subscriber 340.4379 shares of Common Stock (the “Purchased
Shares”).
Section 2. Closing. The delivery of the Purchased Shares to the Subscriber shall take
place at a closing (the “Closing”) on September 12, 2008 or at such other date as the
Company and the Subscriber may agree in writing. The Subscriber shall deliver the Cash
Consideration to the Company by wire transfer of immediately available funds or by such other form
of payment acceptable to the Company so that at the Closing, the Company can deliver the Purchased
Shares against receipt of cleared funds. The time and date upon which the Closing occurs is herein
called the “Closing Date.”
Section 3. Acceptance. This Agreement is subject to the acceptance of the Company.
The Company reserves the right to accept or reject the subscription of Purchased Shares or any
portion thereof. Upon such acceptance, this Agreement shall become a binding agreement between the
Company, the Subscriber, and for purposes of Section 7 only, PVF.
Section 4. Representations and Warranties of the Subscriber. The Subscriber
represents, warrants and agrees that:
(a) The Subscriber has all requisite power and authority to execute and deliver this Agreement
and any and all instruments necessary or appropriate in order to effectuate fully the terms and
conditions of this Agreement and to perform and consummate his obligations hereunder. This
Agreement has been duly and validly executed and delivered by the Subscriber and constitutes a
valid and legally binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms and conditions, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights
generally or by general principles of equity.
(b) The execution, delivery and performance of this Agreement by the Subscriber does not (i)
violate, conflict with, or constitute a breach of or default under any agreement to which the
Subscriber is a party or which he is bound or (y) violate any law, regulation, order, writ,
judgment, injunction or decree applicable to the Subscriber. No consent or approval of, or filing
with, any governmental or regulatory body is required to be obtained or made by the Subscriber in
connection with the execution and delivery of this Agreement.
(c) The Subscriber is acquiring the Purchased Shares for his own account, for investment and
not with a view to the sale or distribution thereof, nor with any present intention of distributing
or selling the same. The Purchased Shares have not been registered under the U.S. Securities Act
of 1933, as amended (the “Securities Act”), and, consequently, the materials relating to
the offer have not been subject to review and comment by the staff of the Securities and Exchange
Commission or any other governmental authority. Furthermore, there is not now and there may never
be any public market for the Purchased Shares. Rule 144 promulgated under the Securities Act is
not presently available with respect to the sale of any Purchased Shares.
(d) The Subscriber is an “accredited investor,” as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act and, in connection with the execution of this
Agreement, the Subscriber agrees to deliver such certificates to that effect as the board of
directors of the Company may request.
(e) The Subscriber has had an opportunity to ask questions and receive answers concerning the
terms and conditions of the offering of the Purchased Shares and has had full access to such other
information concerning the Company as he has requested. The Subscriber’s knowledge and experience
in financial and business matters is such that he is capable of evaluating the merits and risk of
the investment in the Purchased Shares. The Subscriber has carefully reviewed the terms and
provisions of this Agreement and has evaluated the restrictions and obligations contained herein.
In furtherance of the foregoing, the Subscriber represents and warrants that (i) no representation
or warranty, express or implied, whether written or oral, as to the financial condition, results of
operations, prospects, properties or business of the Company or as to the desirability or value of
an investment in the Company has been made to the Subscriber by or on behalf of the Company, (ii)
the Subscriber has relied upon his own independent appraisal and investigation, and the advice of
his own counsel, tax advisors
and other advisors, regarding the risks of an investment in the Company and (iii) the
2
Subscriber will continue to bear sole responsibility for making his own independent evaluation and
monitoring of the risks of his investment in the Company.
(f) The Subscriber’s financial situation is such that the Subscriber can afford to bear the
economic risk of holding the Purchased Shares for an indefinite period and the Subscriber can
afford to suffer the complete loss of his investment in the Purchased Shares.
(g) The Subscriber is not subscribing for the Purchased Shares as a result of or subsequent to
any advertisement, article, notice or other communication published in any newspapers, magazine or
similar media or broadcast over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person or entity not previously known to the Subscriber in
connection with investments in securities generally.
(h) The Subscriber understands and acknowledges that (i) he is being issued the Purchased
Shares as part of a written compensatory contract pursuant to Rule 701 of the Securities Act for
services to the Company and its affiliates, and (ii) he or she would not be issued the Purchased
Shares if he or she were not an employee of the Company or one of its affiliates.
(i) The Subscriber hereby acknowledges that any investment gain attributable to ownership of
the Purchased Shares will not be taken into consideration for any compensation purpose.
Section 5. Survival. All of the representations, warranties and agreements of the
Subscriber set forth herein shall survive the execution and delivery of this Agreement.
Section 6. Subscriber’s Employment. Nothing in this Agreement shall confer upon the
Subscriber any right to continue in the employ of the Company or any of its affiliates or interfere
in any way with the right of the Company or any of its affiliates, as the case may be, in their
sole discretion, to terminate the Subscriber’s employment or to increase or decrease the
Subscriber’s compensation at any time.
Section 7. Stockholders Agreement
(a) The Subscriber hereby agrees to become a party to the Management Stockholders Agreement by
and among PVF Holdings LLC, the Company and the Executives parties thereto, dated as of March 27,
2007, as amended, attached hereto as Exhibit A (the “Stockholders Agreement”).
Except as otherwise expressly set forth in this Section 7, the Subscriber hereby agrees to be bound
by, and subject to, all of the representations, warranties, covenants, terms and conditions set
forth in the Stockholders Agreement that are applicable to an Executive (as defined in the
Stockholders Agreement). Execution and delivery of this Agreement by the Subscriber
shall also constitute execution and delivery by him of the Stockholders Agreement, without
further action of any party.
3
(b) The Company, PVF and the Subscriber hereby agree that effective upon the consummation of a
Qualified IPO (as defined in the Stockholders Agreement) of the Company, the Subscriber shall no
longer be a party to the Stockholders Agreement and the Stockholders Agreement shall automatically
terminate, without further action of any party, with respect to the Subscriber and the Purchased
Shares; provided that no such termination shall relieve any party thereto (including the
Subscriber) of any liability or damages to any other party thereto resulting from a breach of the
Stockholders Agreement prior to such termination.
Section 8. Governing Law; Waiver of Jury Trial. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Delaware, without reference
to the conflict of laws principles thereof. The parties hereby irrevocably submit to the personal
jurisdiction of the courts of the State of Delaware located in the County of New Castle and the
Federal courts of the United States of America located in the County of New Castle solely in
respect of the interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions contemplated hereby,
and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable in said courts or
that the venue thereof may not be appropriate or that this Agreement or any such document may not
be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a Delaware State or
Federal court located in the County of New Castle. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and, to the extent permitted by law, over
the subject matter of such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in this Agreement or in such other manner
as may be permitted by law shall be valid and sufficient service thereof. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and
all rights to trial by jury in connection with any litigation arising out of or relating to this
Agreement or the transactions contemplated hereby.
Section 9. Assignment; Binding Effect; Third Party Beneficiaries. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the
Subscriber (whether by operation of law or otherwise) without the prior written consent of the
Company. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and assigns. Each of the
Company’s affiliates is a third party beneficiary under this Agreement. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement (other than as set forth in
the immediately preceding sentence), express or implied, is intended to confer on any person other
than the parties
hereto or their respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this Agreement.
4
Section 10. Entire Agreement. This Agreement and the Stockholders Agreement
constitute the entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings (oral and written) among the parties with respect
thereto.
Section 11. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or otherwise affecting the validity or enforceability of any of
the terms or provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
Section 12. Revocability. This Agreement may not be withdrawn or revoked by the
Subscriber in whole or in part without the prior written consent of the Company.
Section 13. Notices. All notices, requests, demands, claims and other communications
provided for under the terms of this Agreement shall be in writing. Any notice, request, demand,
claim or other communication hereunder shall be sent by (i) personal delivery (including receipted
courier service) or overnight delivery service, (ii) facsimile during normal business hours, with
confirmation of receipt, to the number indicated, (iii) reputable commercial overnight delivery
service courier or (iv) registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below:
| If to the Company: | McJunkin Red Man Holding Corporation 835 Hillcrest Drive Charleston, WV 25311 Attention: General Counsel Facsimile: 304-348-1557 |
|||||
| with a copy to: | GS Capital Partners 85 Broad Street New York, NY 10004 Attention: Jack Daly Facsimile: 212-357-5505 |
|||||
| and | ||||||
| Fried, Frank, Harris, Shriver & Jacobson LLP | ||||||
| One New York Plaza | ||||||
| New York, NY 10004 | ||||||
| Attention: Robert C. Schwenkel, Esq. | ||||||
| Facsimile: 212-859-4000 |
5
| If to the Subscriber: | Andrew Lane, at his principal office at the Company (during the term of his employment with the Company), and at all times to his principal residence as reflected in the records of the Company. |
All such notices, requests, consents and other communications shall be deemed to have been
given when received. Either party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the
other parties hereto notice in the manner then set forth.
6
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written.
| SUBSCRIBER |
||||
| /s/ Andrew Lane | ||||
|
Andrew Lane |
||||
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | /s/ Stephen W. Lake | |||
| Name: | Stephen W. Lake | |||
| Title: | Sr. Vice President, General Counsel & Corporate Secretary | |||
| For purposes of Section 7 only: PVF HOLDINGS LLC |
||||
| By: | /s/ Stephen W. Lake | |||
| Name: | Stephen W. Lake | |||
| Title: | Sr. Vice President, General Counsel & Corporate Secretary | |||
[Signature Page to Subscription Agreement]
EXHIBIT
10.31
MCJUNKIN RED MAN HOLDING CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (this “Agreement”), is made effective as of September 10, 2008 (the
“Date of Grant”), between McJunkin Red Man Holding Corporation, a Delaware corporation (the
“Company”), PVF Holdings LLC, a Delaware limited liability company (“PVF Holdings
LLC”) (solely for purposes of Section 15 hereof), and Andrew Lane (the “Participant”).
RECITALS:
WHEREAS, the Company has adopted the McJ Holding Corporation 2007 Stock Option Plan (the
“Plan”), which Plan is incorporated herein by reference and made a part of this Agreement.
Capitalized terms not otherwise defined herein shall have the meanings given thereto in the Plan;
and
WHEREAS, the Committee has determined that it would be in the best interests of the Company
and its shareholders to grant an Option to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the services to be provided by the Participant to the
Company pursuant to the Employment Agreement entered into by the Company and the Executive on
September 10, 2008 (the “Employment Agreement”), and of the mutual covenants hereinafter
set forth, the parties agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the right and
option (the “Option”) to purchase, on the terms and conditions hereinafter set forth, all
or any part of an aggregate of 3,517.8582 Shares, subject to adjustment as set forth in the Plan.
The Option Price shall be $8,812.18, which the Company and the Participant agree is not less than
the Fair Market Value of the Shares as of the date hereof.
2. Vesting; Period of Exercise.
(a) Subject to the earlier termination or cancellation of the Option as set forth herein, the
Option shall vest and become exercisable as follows:
(i) Prior to the second (2nd) anniversary of the Date of Grant, no portion of the
Option shall vest or be exercisable;
(ii) On and after the second (2nd) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one-fourth (1/4) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary;
(iii) On and after the third (3rd) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of one-half (1/2) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company
has not terminated as of such anniversary;
(iv) On and after the fourth (4th) anniversary of the Date of Grant, the Option
shall vest and be exercisable with respect to an aggregate of three-fourths (3/4) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary; and
(v) On and after the fifth (5th) anniversary of the Date of Grant, the Option shall
vest and be exercisable with respect to an aggregate of one hundred percent (100%) of the Shares
originally subject to the Option, provided that the Participant’s Employment with the Company has
not terminated as of such anniversary.
(vi) Notwithstanding the foregoing, in the event that the Participant’s Employment is
terminated (A) by the Company other than for Cause or Disability (as each is defined in the
Employment Agreement), (B) by the Executive for Good Reason (as defined in the Employment
Agreement) or (C) by reason of the Executive’s death or Disability, the Option shall, to the extent
not then vested, become vested as follows: if termination occurs during the first two (2) years of
employment, a pro-rata portion of 1/4 of the Shares subject to the Option will vest, such pro-rata
portion to be determined based on the number of months worked since the date of grant divided by
twenty four (24), and if termination occurs during the third (3rd), fourth (4th) or fifth (5th)
years of employment, a pro-rata portion of 1/4 of the Shares subject to the Option will vest, such
pro-rata portion to be determined based on the number of months worked since the previous vesting
date divided by twelve (12).
(vii) Notwithstanding the foregoing, in the event of the occurrence of a Change in Control (as
defined in the Employment Agreement), the Option shall, to the extent not then vested,
automatically become fully vested and exercisable.
The portion of the Option which has become vested and exercisable as described herein is
hereinafter referred to as the “Vested Portion.”
(b) If the Participant’s Employment is terminated by the Company for Cause, the Option shall,
whether or not vested, be automatically canceled without payment of consideration therefor.
(c) If the Participant’s Employment with the Company terminates for any reason other than (A)
by the Company for Cause or Disability, or (B) by reason of the Participant’s death or Disability,
the Option shall, to the extent not previously vested, be automatically canceled by the Company
without payment of consideration therefor, and the Vested Portion of the Option shall remain
exercisable until the earliest to occur of (A) the ten (10) year anniversary of the Date of Grant
and (B) ninety (90) days following the date of the Participant’s termination of Employment.
(d) If the Participant’s Employment with the Company is terminated due to the Participant’s
death or Disability, the Participant may exercise all or any part of the Vested Portion of the
Option at any time prior to the earliest to occur of (A) the ten (10) year
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anniversary of the Date of Grant and (B) twenty-four (24) months following such termination of
Employment.
3. Method of Exercise.
(a) The Vested Portion of the Option may be exercised by delivering to the Company at its
principal office written notice of intent so to exercise. Such notice shall specify the number of
Shares for which the Option is being exercised (the “Purchased Shares”) and shall be
accompanied by payment in full of the Option Price in cash or by check or wire transfer;
provided, however, that with the written consent of the Committee (which consent
may be withheld for any or no reason), payment of such aggregate exercise price may instead be
made, in whole or in part, by (A) the delivery to the Company of a certificate or certificates
representing Shares having a Fair Market Value on the date of exercise equal to the aggregate
exercise price, duly endorsed or accompanied by a duly executed stock power, which delivery
effectively transfers to the Company good and valid title to such shares, free and clear of any
pledge, commitment, lien, claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value thereof on the date of such exercise), or (B) by a reduction in the
number of Purchased Shares to be issued upon such exercise having a Fair Market Value on the date
of exercise equal to the aggregate exercise price in respect of the Purchased Shares, provided that
the Company is not then prohibited from purchasing or acquiring such Shares. The Participant shall
not have any rights to dividends or other rights of a stockholder with respect to Shares subject to
the Option until the Participant has given written notice of exercise of the Option, paid in full
for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee or
pursuant to the Plan or this Agreement.
(b) Notwithstanding any other provision of the Plan or this Agreement to the contrary, the
Option may not be exercised prior to the completion of any registration or qualification of the
Option or the Shares under applicable state and federal securities or other laws, or under any
ruling or regulation of any governmental body or national securities exchange (collectively, the
“Legal Requirements”) that the Committee shall in its sole discretion determine to be
necessary or advisable, unless an exemption to such registration or qualification is available and
satisfied. The Committee may establish additional procedures as it deems necessary or desirable in
connection with the exercise of the Option or the issuance of any Shares upon such exercise to
comply with any Legal Requirements. Such procedures may include but are not limited to the
establishment of limited periods during which the Option may be exercised or that following receipt
of the notice of exercise and prior to the completion of the exercise, the Participant will be
required to affirm the exercise of the Option following receipt of any disclosure deemed necessary
or desirable by the Committee.
(c) Upon the Company’s determination that the Option has been validly exercised as to any of
the Shares, the Company shall issue certificates in the Participant’s name for such Shares. Such
certificates will be held by the Company on behalf of the Participant until such time as the Shares
represented by such certificates are transferred as permitted by the Stockholders Agreement.
(d) In the event of the Participant’s death or Disability, the Option shall remain exercisable
by the Participant’s executor or administrator, or the person or persons to
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whom the Participant’s rights under this Agreement shall pass by will or by the laws of
descent and distribution as the case may be, for the period set forth in Section 2(d) (and the term
“Participant” shall be deemed to include such heir or legatee). Any such heir or legatee
of the Participant shall take rights herein granted subject to the terms and conditions hereof.
(e) In consideration of the grant of this Option, the Participant agrees that, as a condition
to the exercise of any option to purchase Shares (whether this Option or any other option), the
Participant shall, with respect to such Shares, have become a party to the Stockholders Agreement.
4. No Right to Continued Employment. The granting of the Option evidenced hereby and
this Agreement shall impose no obligation on the Company or any Affiliate to continue the
Employment of the Participant and shall not lessen or affect the Company’s or its Affiliates’ right
to terminate the Employment of such Participant.
5. Legend on Certificates. The certificates representing the Shares purchased by
exercise of the Option shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange upon which such Shares are listed, and
any applicable federal or state laws, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
6. Transferability. Unless otherwise determined by the Committee, the Option may not
be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the
Participant otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Affiliate; provided, that the designation of a
beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. No such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been furnished with written
notice thereof and a copy of such evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof. During the Participant’s lifetime, the Option is exercisable only by the
Participant.
7. Withholding. The Participant shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to withhold, any
applicable withholding taxes in respect of the Option, its exercise or any payment or transfer
under, or with respect to, the Option and to take such other action as may be necessary in the
opinion of the Committee to satisfy all obligations for the payment of such withholding taxes. The
Participant shall be solely responsible for the payment of all taxes relating to the payment or
provision of any amounts or benefits hereunder.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the exercise of
the Option, the Participant will make or enter into such written representations, warranties and
agreements as the Committee may reasonably request in order to comply with applicable securities
laws or with this Agreement.
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9. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Company. This Agreement shall inure to the benefit of the
Participant’s legal representatives. All obligations imposed upon the Participant and all rights
granted to the Company under this Agreement shall be binding upon the Participant’s heirs,
executors, administrators and successors.
10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as
a result of, or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Board. Any determination made hereunder shall be final,
binding and conclusive on the Participant, the Participant’s heirs, executors, administrators and
successors, and the Company and its subsidiaries for all purposes.
11. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the Company and to the
Participant at the address appearing in the personnel records of the Company for the Participant or
to either party hereto at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.
12. Choice of Law. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without regard to principles of conflicts of laws.
13. Option Subject to Plan. By entering into this Agreement, the Participant agrees
and acknowledges that the Participant has received and read a copy of the Plan. The Option is
subject to the Plan. The terms and provisions of the Plan, as it may be amended from time to time,
are hereby incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan, as applicable, will govern and prevail.
14. Accredited Investor Status Representation of Participant. Please check the box
next to any of the following statements that apply:
| o | Your individual net worth, or joint net worth with your spouse, as of the date hereof, exceeds $1,000,000; | ||
| o | You had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of those years, and have a reasonable expectation of reaching the same income level in the current year; or | ||
| o | None of the statements above apply. |
15. Adoption of Stockholders Agreement.
(a) The parties hereto agree that, upon the grant of the Option hereunder, the Participant
shall be made a party to the Management Stockholders Agreement among PVF LLC (formerly known as McJ
Holding LLC), the Company, and the other parties thereto (the “Stockholders Agreement”) as
an “Executive” (as defined in the Stockholders Agreement) with the rights and obligations of
holders of “Stock” (as defined in the Stockholders Agreement) and
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the Participant hereby agrees to become a party to the Stockholders Agreement and to be bound
by, and subject to, all of the representations, covenants, terms and conditions of the Stockholders
Agreement that are applicable to an Executive with such rights and obligations. Execution and
delivery of this Agreement by the Participant shall also constitute execution and delivery by the
Participant of the Stockholders Agreement, without further action of any party. A copy of the
Stockholders Agreement is attached hereto as Exhibit A. In addition to the representations
and warranties in the Stockholders Agreement that Participant makes as an Executive, the
Participant represents and warrants to the Company that (A) the Participant has carefully reviewed
the Stockholders Agreement and has also reviewed all other documents the Participant deems
necessary or desirable in order for the Participant to become a party to the Stockholders Agreement
(by executing this Agreement), (B) the Participant has been granted the opportunity to ask
questions of, and receive answers from, representatives of the Company concerning the Stockholders
Agreement and the terms and conditions thereof that the Participant deems necessary and (C) this
Agreement (and by executing this Agreement, the Stockholders Agreement) has been duly executed and
delivered by Participant and constitutes a valid and binding agreement of Participant enforceable
against the Participant in accordance with its terms and the terms of the Stockholders Agreement.
(b) The Company, PVF Holdings LLC and the Participant hereby agree that effective upon the
consummation of a Qualified IPO (as defined in the Stockholders Agreement) of the Company, the
Participant shall no longer be a party to the Stockholders Agreement and the Stockholders Agreement
shall automatically terminate, without further action of any party, with respect to the Option
granted to the Participant hereunder and any shares received by the Participant upon the exercise
of the Option; provided that no such termination shall relieve any party thereto (including the
Participant) of any liability or damages to any other party thereto resulting from a breach of the
Stockholders Agreement prior to such termination.
16. Signature in Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the Date
of Grant.
| MCJUNKIN RED MAN HOLDING CORPORATION |
||||
| By: | /s/ Stephen W. Lake | |||
| Name: | Stephen W. Lake | |||
| Title: | Senior Vice President, General Counsel and Corporate Secretary | |||
| PVF HOLDINGS LLC (for purposes of Section 15 only) |
||||
| By: | /s/ Stephen W. Lake | |||
| Name: | Stephen W. Lake | |||
| Title: | Senior Vice President, General Counsel and Corporate Secretary | |||
| PARTICIPANT |
||||
| By: | /s/ Andrew Lane | |||
| Name: | Andrew Lane | |||
EXHIBIT A
Stockholders Agreement
Exhibit 16
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
100 F Street, N.E.
Washington, D.C. 20549
Ladies and Gentlemen,
We agree with the statements of McJunkin Red Man Holding Corporation in its registration statement
on Form S-l on page 174 in response to Item 304 of Regulation S-K.
/s/
SCHNEIDER DOWNS & CO., INC.
Columbus, Ohio
September 26, 2008
September 26, 2008
Exhibit 21.1
LIST OF SUBSIDIARIES OF MCJUNKIN RED MAN HOLDING CORPORATION
The following is a list of all our subsidiaries and their jurisdictions of incorporation or
organization.
| Entity | Jurisdiction | |
Greenbrier Development Drilling Partners 19761
|
West Virginia | |
Greenbrier Petroleum Corporation
|
West Virginia | |
Hagan Oilfield Supply Ltd.
|
Canada | |
LBPS
Holding Company
|
Delaware | |
McJunkin — Nigeria Limited
|
Delaware | |
McJunkin — Puerto Rico Corporation
|
Delaware | |
McJunkin — West Africa Corporation
|
Delaware | |
McJunkin de Angola, LDA
|
Angola | |
McJunkin
Nigeria Limited2 |
Nigeria | |
McJunkin Receivables Corporation*
|
Delaware | |
McJunkin Red Man Canada Ltd.
|
Alberta, Canada | |
McJunkin Red Man Corporation
|
West Virginia | |
McJunkin Red Man Development Corporation
|
Delaware | |
McJunkin Venezuela* |
Venezuela | |
Mega Production Testing Inc.3
|
Alberta, Canada | |
Midfield
Holdings (Alberta) Ltd.
|
Alberta, Canada | |
Midfield Supply ULC
|
Alberta, Canada | |
Midway-Tristate Corporation*
|
New York | |
Milton Oil & Gas Company
|
West Virginia | |
MRM Oklahoma Management LLC**
|
Delaware | |
MRM West Virginia Management Company**
|
West Virginia | |
PrimeEnergy, Corp.4
|
Connecticut | |
Red Man Distributors LLC5
|
Oklahoma | |
Red Man Pipe & Supply Co.
|
Oklahoma | |
Red Man Pipe & Supply International Limited
|
Jamaica | |
Ruffner Realty Company
|
West Virginia | |
Wesco Acquisition Partners, Inc.
|
Texas | |
West Oklahoma PVF Company
|
Delaware | |
Worldwide Matrix, Inc.6
|
Alberta, Canada |
| * | Inactive | |
| ** | Management companies (organization not yet complete) |
| 1 | Our company indirectly owns 33% of this entity. | |
| 2 | Our company indirectly owns 49% of this entity. | |
| 3 | Our company indirectly owns 51% of this entity. | |
| 4 | Our company indirectly owns 20.38% of this entity. | |
| 5 | Our company indirectly owns 49% of this entity. | |
| 6 | Our company indirectly owns 37.5% of this entity. |
Exhibit 23.1
Consent of
Independent Registered Public Accounting Firm
We consent to the reference to our firm under the captions
“Prospectus Summary — Summary Consolidated Financial
Information”, “Selected Historical Financial Consolidated
Data”, and “Experts”, and to the use of our report dated
August 15, 2008, in the Registration Statement
(Form S-1)
and related Prospectus of McJunkin Red Man Holding Corporation
for the registration of $750,000,000 of its shares of common stock.
/s/ Ernst &
Young LLP
Charleston, West Virginia
September 26, 2008
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-l of our reports dated
January 13, 2007 relating to the consolidated financial
statements and consolidated financial statement schedule
of McJunkin Corporation and subsidiaries as of December 31, 2006 and 2005 and for the years then
ended appearing in the Preliminary Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings “Prospectus Summary — Summary Consolidated
Financial Information”, “Selected Historical Financial Consolidated Data”, and “Experts” in such Preliminary Prospectus.
/s/ Schneider Downs & Co., Inc.
Columbus, Ohio
September 26, 2008
September 26, 2008
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Amendment No. 1 to Form S-1 of McJunkin Red Man Holding
Corporation of our report dated February 15, 2008 relating to the financial statements of Red Man
Pipe and Supply Company, which appears in such Registration Statement. We also consent to the
reference to us under the heading “Experts” in such Registration Statement.
/s/ PricewaterhouseCoopers
LLP
Tulsa, OK
September 26, 2008
September 26, 2008