sv1
As filed with the Securities and Exchange
Commission on March 24, 2011
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
McJUNKIN RED MAN
CORPORATION
(Exact name of registrant as
specified in its charter)
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Delaware
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1311
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55-0229830
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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SEE TABLE OF ADDITIONAL
REGISTRANT GUARANTORS
2 Houston Center
909 Fannin, Suite 3100
Houston, Texas 77010
(877) 294-7574
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Andrew R. Lane
2 Houston Center
909 Fannin, Suite 3100
Houston, Texas 77010
(877) 294-7574
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
Michael A. Levitt, Esq.
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
(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. o
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,
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 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
CALCULATION
OF REGISTRATION FEE
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Title of Each Class
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Proposed Maximum
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Proposed Maximum
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of Securities to be
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Amount to be
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Offering Price
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Aggregate Offering
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Amount of
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Registered
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Registered
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Per Note(1)
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Price
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Registration Fee
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9.50% Senior Secured Notes due December 15, 2016
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(1)
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(1)
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(1)
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(1)
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Guarantees of 9.50% Senior Secured Notes due
December 15, 2016
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(2)
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(2)
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(2)
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(2)
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(1) |
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An indeterminate amount of securities are being registered
hereby to be offered solely for market-making purposes by
specified affiliates of the registrants. Pursuant to
Rule 457(q) under the Securities Act of 1933, as amended,
no filing fee is required. |
(2) |
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No separate filing fee is required pursuant to Rule 457(n)
under the Securities Act. |
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, as amended, 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
ADDITIONAL REGISTRANT GUARANTORS
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State or Other
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Primary Standard
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Jurisdiction of
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Industrial
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I.R.S. Employer
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Exact Name of Registrant Guarantor
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Incorporation or
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Classification Code
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Identification
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as Specified in its Charter(1)
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Organization
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Number
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Number
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GREENBRIER PETROLEUM CORPORATION
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West Virginia
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1311
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55-0566559
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MCJUNKIN NIGERIA LIMITED
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Delaware
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1311
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55-0758030
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MCJUNKIN-PUERTO RICO CORPORATION
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Delaware
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1311
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27-0094172
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MCJUNKIN RED MAN DEVELOPMENT CORPORATION
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Delaware
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1311
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55-0825430
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MCJUNKIN RED MAN HOLDING CORPORATION
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Delaware
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1311
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20-5956993
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MCJUNKIN-WEST AFRICA CORPORATION
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Delaware
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1311
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20-4303835
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MIDWAY-TRISTATE CORPORATION
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New York
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1311
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13-3503059
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MILTON OIL & GAS COMPANY
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West Virginia
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1311
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55-0547779
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MRC MANAGEMENT COMPANY
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Delaware
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1311
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26-1570465
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RUFFNER REALTY COMPANY
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West Virginia
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1311
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55-0547777
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THE SOUTH TEXAS SUPPLY COMPANY, INC.
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Texas
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1311
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74-2804317
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(1) |
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The address for each of the additional registrant guarantors is
c/o McJunkin
Red Man Corporation, 2 Houston Center, 909 Fannin,
Suite 3100, Houston, Texas 77010. |
The
information in this prospectus is not complete and may be
changed. We may not sell these securities or consummate the
exchange offer until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
or exchange these securities and
it is not soliciting an offer to acquire or exchange these
securities in any jurisdiction where the offer, sale or exchange
is not permitted.
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Subject
to Completion, Dated March 24, 2011
Prospectus
McJunkin
Red Man Corporation
$1,050,000,000
9.50% Senior
Secured Notes due December 15, 2016
The
9.50% senior secured notes due December 15, 2016
offered hereby, which we refer to as the notes,
relate to an aggregate of $1,050,000,000 of 9.50% senior
secured notes due December 15, 2016 we originally issued on
December 21, 2009 and February 11, 2010 that are
currently subject to an exchange offer.
We pay interest on
the notes on June 15 and December 15 of each year. We may also
redeem the notes, in whole or in part, at any time on or after
December 15, 2012 at the redemption prices set forth in
this prospectus. In addition, at any time prior to
December 15, 2012, we may redeem some or all of the notes
at a price equal to 100% of the principal amount of the notes
plus a make-whole premium and accrued and unpaid interest to the
redemption date. We may also, at any time prior to
December 15, 2012, redeem up to 35% of the aggregate
principal amount of the notes issued under the indenture
governing the notes with the net proceeds of certain equity
offerings at the redemption price set forth in this prospectus.
The notes are
unconditionally guaranteed, jointly and severally, by all of our
wholly owned domestic subsidiaries (together with any other
restricted subsidiaries that may guarantee the notes from time
to time, the Subsidiary Guarantors) and by McJunkin
Red Man Holding Corporation, our parent company. The notes and
the guarantees by the Subsidiary Guarantors will be secured on a
senior basis (subject to permitted prior liens), together with
any other Priority Lien Obligations (as such term is defined in
Description of Notes Certain
Definitions), equally and ratably by security interests
granted to the collateral trustee in all Notes Priority
Collateral (as such term is defined in Description of
Notes Certain Definitions) from time to time
owned by the Issuer or the Subsidiary Guarantors. The guarantee
of McJunkin Red Man Holding Corporation will not be secured. The
notes and the guarantees by the Subsidiary Guarantors will also
be secured on a junior basis (subject to the lien to secure our
revolving credit facility and other permitted prior liens) by
security interests granted to the collateral trustee in all ABL
Priority Collateral (as such term is defined in
Description of Notes Certain
Definitions) from time to time owned by the Issuer or the
Subsidiary Guarantors.
There is no existing
public market for the notes offered hereby. We do not intend to
list the notes on any securities exchange or seek approval for
quotation through any automated trading system.
You should
consider carefully the Risk Factors beginning on
page 14 of this prospectus.
Neither the
Securities and Exchange Commission, or the SEC, nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus has
been prepared for and will be used by Goldman, Sachs &
Co. in connection with offers and sales of the notes in
market-making transactions. These transactions may occur in the
open market or may be privately negotiated at prices related to
prevailing market prices at the time of sales or at negotiated
prices. Goldman, Sachs & Co. may act as principal or
agent in these transactions. We will not receive any proceeds of
such sales.
Goldman,
Sachs & Co.
The date of this
prospectus
is ,
2011.
You should rely only on the information contained in this
prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. This prospectus does not constitute an offer to sell, or
solicitation of an offer to buy, to any person in any
jurisdiction in which such an offer to sell or solicitation
would be unlawful. You should assume that the information
appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus.
TABLE OF
CONTENTS
McJunkin Red Man Corporation is a Delaware corporation. We are a
wholly owned subsidiary of McJunkin Red Man Holding Corporation,
a Delaware corporation. Our principal executive offices are
located in 2 Houston Center, 909 Fannin, Suite 3100,
Houston, Texas 77010. Our telephone number is
(877) 294-7574.
This prospectus contains registered and unregistered trademarks
and service marks of McJunkin Red Man Corporation and its
affiliates, as well as trademarks and service marks of third
parties. All brand names, trademarks and service marks appearing
in this offering circular are the property of their respective
holders.
PROSPECTUS
SUMMARY
The following summary contains a summary of basic information
contained elsewhere in this prospectus. It does not contain all
the information that may be important to you. For a more
complete understanding, we encourage you to read this entire
prospectus carefully, including the Risk Factors
section and the financial data and related notes. Unless
otherwise indicated or the context otherwise requires, all
references to the Company, McJunkin Red
Man, MRC, we, us, and
our refer to McJunkin Red Man Holding Corporation
and its consolidated subsidiaries, and all references to the
Issuer are to McJunkin Red Man Corporation,
exclusive of its subsidiaries.
Our
Company
We are the largest global distributor of pipe, valves and
fittings (PVF) and related products and services to
the energy industry based on sales and hold the leading position
in our industry across each of the upstream (exploration,
production, and extraction of underground oil and natural gas),
midstream (gathering and transmission of oil and natural gas,
natural gas utilities, and the storage and distribution of oil
and natural gas) and downstream (crude oil refining,
petrochemical processing and general industrials) end markets.
We currently serve our customers through over 400 global service
locations, including over 180 branches, 6 distribution centers
and over 190 pipe yards located in the most active oil and
natural gas regions in North America and over 30 branch
locations throughout Europe, Asia and Australasia.
McJunkin Red Man Holding Corporation was incorporated in
Delaware on November 20, 2006 and McJunkin Red Man
Corporation was incorporated in West Virginia on March 21,
1922 and was reincorporated in Delaware on June 14, 2010.
Our principal executive office is located at 2 Houston Center,
909 Fannin, Suite 3100, Houston, Texas 77010. We also have
corporate offices located at 835 Hillcrest Drive, Charleston,
West Virginia 25311 and 8023 East 63rd Place, Tulsa,
Oklahoma 74133. Our telephone number is
(877) 294-7574.
Our website address is www.mrcpvf.com. Information
contained on our website is expressly not incorporated by
reference into this prospectus.
Our business is segregated into two operating segments, one
consisting of our North American operations and one consisting
of our other international operations. These segments represent
our business of providing PVF and related products and services
to the energy and industrial sectors, across each of the
upstream, midstream and downstream markets.
History
McJunkin Corporation (McJunkin) was founded in 1921
in Charleston, West Virginia and initially served the local oil
and natural gas industry, focusing primarily on the downstream
end market. In 1989, McJunkin broadened its upstream end market
presence by merging its oil and natural gas division with
Appalachian Pipe & Supply Co. to form McJunkin
Appalachian Oilfield Supply Company (McJunkin
Appalachian, which was a subsidiary of McJunkin
Corporation, but has since been merged with and into McJunkin
Red Man Corporation), which focused primarily on upstream oil
and natural gas customers.
In April 2007, we acquired Midway-Tristate Corporation
(Midway), a regional PVF oilfield distributor,
primarily serving the upstream Appalachia and Rockies regions.
This extended our leadership position in Appalachia/Marcellus
shale region, while adding additional branches in the Rockies.
Red Man Pipe & Supply Co. (Red Man) was
founded in 1976 in Tulsa, Oklahoma and began as a distributor to
the upstream end market and subsequently expanded into the
midstream and downstream end markets. In 2005, Red Man acquired
an approximate 51% voting interest in Canadian oilfield
distributor Midfield Supply ULC (Midfield), giving
Red Man a significant presence in the Western Canadian
Sedimentary Basin.
In October 2007, McJunkin and Red Man completed a business
combination transaction to form the combined company, McJunkin
Red Man Corporation. This transformational merger combined
leadership positions in the upstream, midstream and downstream
end markets, while creating a one stop PVF leader
across all end markets
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with full geographic coverage across North America. Red Man has
since been merged with and into McJunkin Red Man Corporation.
On July 31, 2008, we acquired the remaining voting and
equity interest in Midfield. Also, in October 2008, we acquired
LaBarge Pipe & Steel Company (LaBarge).
LaBarge is engaged in the sale and distribution of carbon steel
pipe (predominately large diameter pipe) for use primarily in
the North American midstream energy infrastructure market. The
acquisition of LaBarge expanded our midstream end market
leadership, while adding a new product line in large outside
diameter pipe.
On October 30, 2009, we acquired Transmark Fcx Group B.V.
(Transmark) and as part of the acquisition, we
renamed Transmark as MRC Transmark Group B.V. (MRC
Transmark). MRC Transmark is a leading distributor of
valves and flow control products in Europe, Southeast Asia and
Australasia. Transmark was formed from a series of acquisitions,
the most significant being the acquisition of FCX European and
Australasian distribution business in July 2005. The acquisition
of Transmark provided geographic expansion internationally,
additional downstream diversification and enhanced valve market
leadership.
During 2010, we acquired The South Texas Supply Company, Inc.
(South Texas Supply) and also certain operations and
assets from Dresser Oil Tools, Inc. (Dresser). With
these two acquisitions, we expanded our footprint in the Eagle
Ford and Bakken shale regions, expanding our local presence in
two of the emerging active shale basins in North America.
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Corporate
Structure
The following chart illustrates our simplified organization and
ownership structure:
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The
Goldman Sachs Funds
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, are the
majority owners of PVF Holdings LLC, our indirect parent company.
The Goldman Sachs Funds are managed by the Principal Investment
Area of Goldman Sachs (GS PIA). GS PIA is one of the
worlds largest private equity and mezzanine investors,
having invested approximately $67 billion in over
750 companies globally since 1986, and manages a diverse
global portfolio of companies from the firms New York,
London, Hong Kong, Tokyo, San Francisco and Mumbai offices.
GS PIAs investment philosophy is centered on
(i) investing in world-class companies; (ii) acting as
a patient and supportive long-term investor; and
(iii) partnering with quality managers whose incentives are
aligned with those of GS PIA. GS PIA has extensive equity
investing experience in the energy and industrial distribution
sectors, including upstream exploration and production companies
(Bill Barrett Corporation and Cobalt International Energy,
Inc.), midstream companies (Kinder Morgan, Inc.), downstream
companies (CVR Energy, Inc.), power generation companies (Energy
Future Holdings Corp., Horizon Wind Energy, LLC, Orion Power
Holdings, Inc.), oilfield services companies
(CCS Corporation, Ensco International Inc., Expro
International Group Holdings Ltd., SEACOR Holdings Inc., Sub Sea
International, Inc.) and industrial distributors (Ahlsell
Sverige AB).
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Summary
of the Notes
The summary below describes the principal terms of the notes.
Some of the terms and conditions described below are subject to
important limitations and exceptions. See Description of
Notes for a more detailed description of the terms and
conditions of the notes.
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Issuer |
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McJunkin Red Man Corporation. |
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Securities Offered |
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Up to $1,050,000,000 aggregate principal amount of
9.50% senior secured notes due 2016 that are currently
subject to an exchange offer. |
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Maturity Date |
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The notes will mature on December 15, 2016. |
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Interest Payment Dates |
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Interest on the notes will be payable in cash on June 15 and
December 15 of each year. |
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Guarantees |
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The notes are unconditionally guaranteed, jointly and severally,
by all of our wholly owned domestic subsidiaries (together with
any other restricted subsidiaries that may guarantee the notes
from time to time, the Subsidiary Guarantors) and by
McJunkin Red Man Holding Corporation. McJunkin Red Man Holding
Corporation does not have any material assets other than its
ownership of 100% of the Issuers capital stock. |
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Under the indenture relating to the notes, any wholly-owned
domestic subsidiary (other than immaterial subsidiaries) formed
or acquired on or after the date of the indenture and any
restricted subsidiary that provides a guarantee with respect to
our revolving credit facility or any other indebtedness of the
Issuer or any Subsidiary Guarantor will also be required to
guarantee the notes. See Description of Notes
Certain Covenants Guarantees. |
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Collateral |
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The notes and the guarantees by the Subsidiary Guarantors are
secured on a senior basis (subject to permitted prior liens),
together with any other Priority Lien Obligations (as such term
is defined in Description of Notes Certain
Definitions), equally and ratably by security interests
granted to the collateral trustee in all Notes Priority
Collateral (as such term is defined in Description of
Notes Certain Definitions) from time to time
owned by the Issuer or the Subsidiary Guarantors. The guarantee
of McJunkin Red Man Holding Corporation is not secured. |
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The Notes Priority Collateral generally comprises substantially
all of the Issuers and the Subsidiary Guarantors
tangible and intangible assets, other than specified excluded
assets. The collateral trustee holds the senior liens on the
Notes Priority Collateral in trust for the benefit of the
holders of the notes and the holders of any other Priority Lien
Obligations. See Description of Notes
Security Collateral. |
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The notes and the guarantees by the Subsidiary Guarantors are
also secured on a junior basis (subject to the lien which
secures our revolving credit facility and other permitted prior
liens) by security interests granted to the collateral trustee
in all ABL Priority Collateral (as such term is defined in
Description of Notes Certain
Definitions) from time to time owned by the Issuer or the
Subsidiary Guarantors. |
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The ABL Priority Collateral generally comprises substantially
all of the Issuers and the Subsidiary Guarantors
accounts receivable, inventory, general intangibles and other
assets relating to the foregoing, deposit and securities
accounts (other than the Net Available Cash Account,
as such term is defined in the intercreditor agreement), and
proceeds and products of the foregoing, other than specified
excluded assets. See Description of Notes
Security Collateral. The collateral trustee
holds the junior liens on the ABL Priority Collateral in trust
for the benefit of the holders of the notes and the holders of
any other Priority Lien Obligations. |
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Assets owned by our non-guarantor subsidiaries and by McJunkin
Red Man Holding Corporation are not part of the collateral
securing the notes or our revolving credit facility. See
Description of Notes Security and
Risk Factors Risks Related to the Collateral
and the Guarantees. |
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Ranking |
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The notes and the related guarantees are the Issuers and
the Subsidiary Guarantors senior secured obligations and
McJunkin Red Man Holding Corporations senior unsecured
obligation. The indebtedness evidenced by the notes and
subsidiary guarantees ranks: |
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senior to any debt of the Issuer and the Subsidiary
Guarantors to the extent of the collateral which secures the
notes and guarantees on a senior basis;
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equal with all of the Issuers and the
Subsidiary Guarantors existing and future senior
indebtedness (before giving effect to security interests);
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senior to all of the Issuers and the
Subsidiary Guarantors existing and future subordinated
indebtedness;
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junior in priority to our revolving credit facility
(to the extent of the collateral that secures our revolving
credit facility) and to any other debt incurred after the issue
date that has a priority security interest relative to the notes
in the collateral that secures the revolving credit facility;
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equal in priority to any other indebtedness incurred
before or after the issue date which is secured on an equal
basis with the notes and guarantees, including the outstanding
notes; and
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junior in priority to the existing and future claims
of creditors and holders of preferred stock of our subsidiaries
that do not guarantee the notes.
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As of December 31, 2010: |
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we and the Subsidiary Guarantors had
$286 million outstanding under our revolving credit
facility and outstanding letters of credit of approximately
$5 million (with $360 million of available borrowings
under our revolving credit facility), all of which would rank
senior to the notes to the extent of the collateral securing the
revolving credit facility on a senior basis;
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our non-guarantor subsidiaries had indebtedness of
$46 million and borrowing availability of an additional
$115 million, all of which would rank senior to the notes;
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we and the guarantors had $1.05 billion of
outstanding notes outstanding plus certain outstanding interest
rate swap agreements, all of which would rank pari passu with
the notes;
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we and the guarantors had no subordinated
indebtedness; and
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our parent guarantor had no indebtedness other than
its guarantee of the outstanding notes.
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See Description of Notes Brief Description of
the Notes and the Note Guarantees. |
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Intercreditor Agreement |
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The collateral trustee has entered into an intercreditor
agreement with the Issuer, the Subsidiary Guarantors and The CIT
Group/Business Credit Inc. and Bank of America, N.A., as
co-collateral agents under our revolving credit facility, which
governs the relationship of noteholders and the lenders under
our revolving credit facility with respect to collateral and
certain other matters. See Description of
Notes The Intercreditor Agreement. |
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Collateral Trust Agreement |
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The Issuer and the Subsidiary Guarantors have entered into a
collateral trust agreement with the collateral trustee and the
trustee under the indenture governing the notes. The collateral
trust agreement sets forth the terms on which the collateral
trustee will receive, hold, administer, maintain, enforce and
distribute the proceeds of all liens upon the collateral which
it holds in trust. See Description of Notes
The Collateral Trust Agreement. |
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Sharing of Liens and Collateral |
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The Issuer and the Subsidiary Guarantors may issue additional
senior secured indebtedness under the indenture governing the
notes. The liens securing the notes may also secure, together on
an equal and ratable basis with the notes, other Priority Lien
Debt (as such term is defined in Description of
Notes Certain Definitions) permitted to be
incurred by the Issuer under the indenture governing the notes,
including additional notes of the same class under the indenture
governing the notes. The Issuer and the Subsidiary Guarantors
may also grant additional liens on the collateral securing the
notes on a junior basis to secure Subordinated Lien Debt (as
such term is defined in Description of Notes
Certain Definitions) permitted to be incurred under the
indenture governing the notes. |
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Optional Redemption |
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We may redeem the notes, in whole or in part, at any time on or
after December 15, 2012 at the redemption prices set forth
in this prospectus. In addition, at any time prior to
December 15, 2012, we may redeem some or all of the notes
at a price equal to 100% of the principal amount of the notes
plus a make-whole premium and accrued and unpaid interest to the
redemption date, in each case, as described in this prospectus
under Description of Notes Optional
Redemption. |
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We may also, at any time prior to December 15, 2012, redeem
up to 35% of the aggregate principal amount of the notes issued
under the indenture governing the notes with the net proceeds of
certain equity |
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offerings at the redemption price set forth in this prospectus.
See Description of Notes Optional
Redemption. |
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Offers to Purchase |
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If we sell certain assets without applying the proceeds in a
specified manner, or experience certain change of control
events, each holder of notes may require us to purchase all or a
portion of its notes at the purchase prices set forth in this
prospectus, plus accrued and unpaid interest and special
interest, if any, to the purchase date. See Description of
Notes Repurchase at the Option of Holders. Our
revolving credit facility or other agreements may restrict us
from repurchasing any of the notes, including any purchase we
may be required to make as a result of a change of control or
certain asset sales. See Risk Factors Risks
Related to the Notes We May Not Have the Ability to
Raise the Funds Necessary to Finance the Change of Control Offer
or the Asset Sale Offer Required by the Indenture Governing the
Notes. |
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Covenants |
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The indenture governing the notes contains covenants that impose
significant restrictions on our business. The restrictions that
these covenants place on us and our restricted subsidiaries
include limitations on our ability and the ability of our
restricted subsidiaries to, among other things: |
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incur additional indebtedness;
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issue certain preferred stock or disqualified
capital stock;
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create liens;
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pay dividends or make other restricted payments;
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make certain payments on debt that is subordinated
or secured on a basis junior to the notes;
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|
|
|
make investments;
|
|
|
|
sell assets;
|
|
|
|
create restrictions on the payment of dividends or
other amounts to us from restricted subsidiaries;
|
|
|
|
consolidate, merge, sell or otherwise dispose of all
or substantially all of our assets;
|
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|
|
enter into transactions with our affiliates; and
|
|
|
|
designate our subsidiaries as unrestricted
subsidiaries.
|
|
|
|
These covenants are subject to a number of important exceptions
and qualifications, which are described under Description
of Notes. |
|
Original Issue Discount |
|
The notes were issued with original issue discount for United
States federal income tax purposes. For United States federal
income tax purposes, U.S. Holders will be required to include
the original issue discount in gross income (as ordinary income)
as it accrues on a constant yield basis in advance of the
receipt of the cash payment to which such income is attributable
(regardless of whether such U.S. Holders use the cash or accrual
method of tax accounting). See Certain Material United
States Federal Tax Considerations Stated Interest
and Original Issue Discount. |
8
|
|
|
No Assurance of Active Trading Market |
|
The notes will not be listed on any securities exchange or on
any automated dealer quotation system. We cannot assure you that
an active or liquid trading market for the notes will exist or
be maintained. If an active or liquid trading market for the
notes is not maintained, the market price and liquidity of the
notes may be adversely affected. See Risk
Factors Risks Related to the Notes There
is no Prior Public Market for the Notes, and We Do Not Know if a
Market Will Ever Develop or, if a Market Does Develop, Whether
it Will Be Sustained. |
Risk
Factors
Despite our competitive strengths discussed elsewhere in this
prospectus, investing in our notes involves substantial risk. In
addition, our ability to execute our business strategy is
subject to certain risks. The risks described under the heading
Risk Factors immediately following this summary may
cause us not to realize the full benefits of our strengths or
may cause us to be unable to successfully execute all or part of
our business strategy as well as impact our ability to service
the notes. You should carefully consider all the information in
this prospectus, including matters set forth under the heading
Risk Factors.
9
SUMMARY
HISTORICAL CONSOLIDATED FINANCIAL AND OTHER 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
Corporations basis of accounting in connection with the GS
Acquisition, Predecessors financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successors 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 historical results for the years ended
December 31, 2010, 2009 and 2008 and the 11 months
ended December 31, 2007 are not comparable to
McJunkins historical results for the one month ended
January 30, 2007 and the year ended December 31, 2006.
The summary consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the years ended December 31, 2010, 2009
and 2008, and the summary consolidated financial information
presented below under the caption Balance Sheet Data as of
December 31, 2010 and December 31, 2009, 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 under the
captions Statement of Operations Data and Other Financial Data
for the one month ended January 30, 2007 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, 2008,
December 31, 2007 and January 30, 2007, have been
derived from the consolidated financial statements of McJunkin
Red Man Holding Corporation not included in this prospectus that
have been audited by Ernst & Young LLP, independent
registered public accounting firm. The summary consolidated
financial information presented below under the captions
Statement of Operations Data and Other Financial Data for the
year ended December 31, 2006, and the summary consolidated
financial information presented below under the caption Balance
Sheet Data as of December 31, 2006, has been derived from
the consolidated financial statements of our predecessor,
McJunkin Corporation, not included in this prospectus, that have
been audited by Schneider Downs & Co., Inc.,
independent registered public accounting firm.
10
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 Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included elsewhere in this prospectus.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
Year
|
|
|
One Month
|
|
|
|
Eleven Months
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
January 30,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
(In millions, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,713.7
|
|
|
$
|
142.5
|
|
|
|
$
|
2,124.9
|
|
|
$
|
5,255.2
|
|
|
$
|
3,661.9
|
|
|
$
|
3,845.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1)
|
|
|
1,394.3
|
|
|
|
114.6
|
|
|
|
|
1,734.6
|
|
|
|
4,217.4
|
|
|
|
3,006.3
|
|
|
|
3,256.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.5
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
319.4
|
|
|
|
27.9
|
|
|
|
|
390.3
|
|
|
|
1,037.8
|
|
|
|
609.1
|
|
|
|
588.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
189.5
|
|
|
|
15.9
|
|
|
|
|
218.5
|
|
|
|
482.1
|
|
|
|
408.6
|
|
|
|
447.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
|
5.4
|
|
|
|
11.3
|
|
|
|
14.5
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
44.4
|
|
|
|
46.6
|
|
|
|
53.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
193.7
|
|
|
|
16.2
|
|
|
|
|
245.8
|
|
|
|
537.8
|
|
|
|
779.6
|
|
|
|
518.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
125.7
|
|
|
|
11.7
|
|
|
|
|
144.5
|
|
|
|
500.0
|
|
|
|
(170.5
|
)
|
|
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
(61.7
|
)
|
|
|
(84.5
|
)
|
|
|
(116.5
|
)
|
|
|
(139.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
8.9
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(5.0
|
)
|
|
|
(0.4
|
)
|
|
|
|
(0.8
|
)
|
|
|
(2.6
|
)
|
|
|
(1.8
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(7.8
|
)
|
|
|
(0.5
|
)
|
|
|
|
(62.5
|
)
|
|
|
(93.3
|
)
|
|
|
(108.1
|
)
|
|
|
(145.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
117.9
|
|
|
|
11.2
|
|
|
|
|
82.0
|
|
|
|
406.7
|
|
|
|
(278.6
|
)
|
|
|
(75.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
|
32.1
|
|
|
|
153.2
|
|
|
|
13.1
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
|
$
|
49.9
|
|
|
$
|
253.5
|
|
|
$
|
(291.7
|
)
|
|
$
|
(51.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
18.4
|
|
|
|
6.6
|
|
|
|
|
110.2
|
|
|
|
(137.4
|
)
|
|
|
505.5
|
|
|
|
112.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(3.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
(1,788.9
|
)
|
|
|
(314.2
|
)
|
|
|
(66.9
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(17.2
|
)
|
|
|
(8.3
|
)
|
|
|
|
1,687.2
|
|
|
|
452.0
|
|
|
|
(393.9
|
)
|
|
|
(97.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
|
129.5
|
|
|
|
26.0
|
|
|
|
|
334.6
|
|
|
|
618.2
|
|
|
|
334.1
|
|
|
|
149.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3.7
|
|
|
$
|
10.1
|
|
|
$
|
12.1
|
|
|
$
|
56.2
|
|
|
$
|
56.2
|
|
Working capital(3)
|
|
|
212.3
|
|
|
|
674.1
|
|
|
|
1,208.0
|
|
|
|
930.2
|
|
|
|
842.6
|
|
Total assets
|
|
|
481.0
|
|
|
|
3,083.8
|
|
|
|
3,919.7
|
|
|
|
3,159.4
|
|
|
|
3,067.4
|
|
Total debt(4)
|
|
|
13.0
|
|
|
|
868.4
|
|
|
|
1,748.6
|
|
|
|
1,452.6
|
|
|
|
1,360.2
|
|
Stockholders equity
|
|
|
258.2
|
|
|
|
1,262.7
|
|
|
|
987.2
|
|
|
|
792.0
|
|
|
|
737.9
|
|
|
|
|
(1) |
|
Cost of sales is exclusive of depreciation and amortization,
which is shown separately. |
|
(2) |
|
We define Adjusted EBITDA as net income plus interest, income
taxes, depreciation and amortization, amortization of
intangibles and other non-recurring and non-cash charges (such
as gains/losses on the early extinguishment of debt, changes in
the fair value of derivative instruments, goodwill impairment
and equity based compensation). Our revolving credit facility
uses a measure substantially similar to Adjusted EBITDA. We
present Adjusted EBITDA because it is an important factor in
determining the interest rate and commitment |
11
|
|
|
|
|
fee we pay under our revolving credit facility. In addition, we
believe it is a useful factor 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 companys 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 Adjusted EBITDA
measures our companys operating performance without regard
to certain non-recurring, non-cash and/or transaction-related
expenses. |
|
|
|
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 out 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 limitation.
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. |
12
|
|
|
|
|
The following table reconciles Adjusted EBITDA with our net
income (loss), as derived from our financial statements (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Year
|
|
|
One Month
|
|
|
Eleven Months
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
January 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Net income (loss)
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
$
|
49.9
|
|
|
$
|
253.5
|
|
|
$
|
(291.7
|
)
|
|
$
|
(51.8
|
)
|
Income taxes
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
32.1
|
|
|
|
153.2
|
|
|
|
13.1
|
|
|
|
(23.4
|
)
|
Interest expense
|
|
|
2.8
|
|
|
|
0.1
|
|
|
|
61.7
|
|
|
|
84.5
|
|
|
|
116.5
|
|
|
|
139.6
|
|
Depreciation and amortization
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
5.4
|
|
|
|
11.3
|
|
|
|
14.5
|
|
|
|
16.6
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
|
|
|
|
21.9
|
|
|
|
44.4
|
|
|
|
46.6
|
|
|
|
53.9
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
|
|
(8.9
|
)
|
|
|
4.9
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.5
|
|
|
|
0.4
|
|
Red Man Pipe & Supply Co. pre-acquisition contribution
|
|
|
|
|
|
|
13.1
|
|
|
|
142.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midway-Tristate pre-acquisition contribution
|
|
|
|
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmark Fcx pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
Other non-recurring and non-cash expenses(a)
|
|
|
4.6
|
|
|
|
0.3
|
|
|
|
18.6
|
|
|
|
65.1
|
|
|
|
50.4
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
129.5
|
|
|
$
|
26.0
|
|
|
$
|
334.6
|
|
|
$
|
618.2
|
|
|
$
|
334.1
|
|
|
$
|
149.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other includes transaction-related expenses, equity based
compensation and other items added back to net income pursuant
to our debt agreements. |
|
|
|
(3) |
|
Working capital is defined as current assets less current
liabilities. |
|
(4) |
|
Includes current portion. |
13
RISK
FACTORS
Before investing in the securities offered hereby, you should
carefully consider the following risk factors as well as the
other information contained in this prospectus. The risks
described below are not the only risks we face. Additional risks
not presently known to us or which we currently consider
immaterial also may adversely affect us and your investment. If
any of these risks or uncertainties actually occurs, our
business, financial condition and operating results could be
materially adversely affected.
Risks
Related to the Notes
Our
Substantial Level of Indebtedness Could Adversely Affect Our
Business, Financial Condition or Results of Operations and
Prevent Us from Fulfilling Our Obligations Under the
Notes.
We have substantial indebtedness. As of December 31, 2010,
we had $1.36 billion of total indebtedness and our
revolving credit facilities would permit additional borrowings
of up to $475 million.
Our substantial indebtedness could have important consequences
to you, including the following:
|
|
|
|
|
it may be more difficult for us to satisfy our obligations with
respect to the notes;
|
|
|
|
our ability to obtain additional financing for working capital,
debt service requirements, general corporate purposes or other
purposes may be impaired;
|
|
|
|
we must use a substantial portion of our cash flow to pay
interest and principal on the notes and our other indebtedness,
which will reduce the funds available to us for other purposes;
|
|
|
|
we may be subject to restrictive financial and operating
covenants in the agreements governing our and our
subsidiaries long term indebtedness;
|
|
|
|
we may be exposed 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;
|
|
|
|
we may be vulnerable to economic downturns and adverse industry
conditions, including a downturn in pricing of the products we
distribute;
|
|
|
|
our ability to capitalize on business opportunities and to react
to pressures and changing market conditions in our industry and
in our customers industries as compared to our competitors
may be compromised due to our high level of indebtedness;
|
|
|
|
our ability to compete with other companies who are not as
highly leveraged may be limited; and
|
|
|
|
our ability to refinance our indebtedness, including the notes,
may be limited.
|
We May
Be Unable to Service Our Indebtedness, Including the
Notes.
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.
In addition, prior to the repayment of the notes, we will be
required to refinance our revolving credit facility. We can give
no assurance that we will be able to refinance any of our debt,
including our revolving credit facility, on commercially
reasonable terms or at all. If we were unable to make payments
or refinance our debt or obtain new financing under these
circumstances, we would have to consider other options, such as
sales of assets, sales of equity
and/or
negotiations with our lenders to restructure the applicable
debt. Our revolving credit facility and the
14
indenture governing the notes may restrict, or market or
business conditions may limit, our ability to avail ourselves of
some or all of these options.
The borrowings under certain of our credit facilities bear
interest at variable rates and other debt we incur could
likewise be variable-rate debt. If market interest rates
increase, variable-rate debt will create higher debt service
requirements, which could adversely affect our cash flow. While
we may enter into agreements limiting our exposure to higher
interest rates, any such agreements may not offer complete
protection from this risk.
Despite
Our Current Indebtedness Level, We and Our Subsidiaries May
Still Be Able to Incur Substantially More Debt, Which Could
Exacerbate the Risks Associated with Our Substantial
Indebtedness.
As of December 31, 2010, we had $311 million of
secured indebtedness outstanding under our and our
subsidiaries revolving credit facilities and up to
$475 million would have been available for borrowing under
our and our subsidiaries revolving credit facilities. The
terms of the indenture governing the notes and our revolving
credit facility permit us to incur substantial additional
indebtedness in the future, including secured indebtedness. If
we incur any additional indebtedness that ranks equal to the
notes, the holders of that debt will be entitled to share
ratably with the holders of the notes in any proceeds
distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other winding up of us. In
particular, the terms of the indenture allow us to incur a
substantial amount of incremental debt which ranks equal to the
notes and is secured by the same collateral as the notes,
including various amounts of debt permitted under the definition
of Permitted Liens in the Description of Notes. See
Description of Notes Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock. If new debt is
added to our or our subsidiaries current debt levels, the
related risks that we now face could intensify.
Our
Debt Instruments, Including the Indenture Governing the Notes
and Our Revolving Credit Facility, Impose Significant Operating
and Financial Restrictions on us. If We Default Under Any of
These Debt Instruments, We May Not Be Able to Make Payments on
the Notes.
The indenture and our revolving credit facility impose
significant operating and financial restrictions on us. These
restrictions limit our ability to, among other things:
|
|
|
|
|
incur additional indebtedness or guarantee obligations;
|
|
|
|
issue certain preferred stock or disqualified capital stock;
|
|
|
|
pay dividends or make certain other restricted payments;
|
|
|
|
make certain payments on debt that is subordinated or secured on
a basis junior to the notes;
|
|
|
|
make investments or acquisitions;
|
|
|
|
create liens or other encumbrances;
|
|
|
|
transfer or sell certain assets or merge or consolidate with
another entity;
|
|
|
|
create restrictions on the payment of dividends or other amounts
to us from restricted subsidiaries;
|
|
|
|
engage in transactions with affiliates; and
|
|
|
|
engage in certain business activities.
|
Any of these restrictions could limit our ability to plan for or
react to market conditions and could otherwise restrict
corporate activities. See Description of Certain
Indebtedness and Description of Notes.
Our ability to comply with these covenants may be affected by
events beyond our control, and an adverse development affecting
our business could require us to seek waivers or amendments of
covenants, alternative or additional sources of financing or
reductions in expenditures. We can give no assurance that such
waivers, amendments or alternative or additional financings
could be obtained or, if obtained, would be on terms acceptable
to us.
15
A breach of any of the covenants or restrictions contained in
any of our existing or future financing agreements could result
in a default or an event of default under those agreements. Such
a default or event of default could allow the lenders under our
financing agreements, if the agreements so provide, to
discontinue lending, to accelerate the related debt as well as
any other debt to which a cross-acceleration or cross-default
provision applies, and to declare all borrowings outstanding
thereunder to be due and payable. In addition, the lenders could
terminate any commitments they had made to supply us with
further funds. If the lenders require immediate repayments, we
may not be able to repay them and also repay the notes in full.
Your
Right to Receive Payments on the Notes is Effectively
Subordinated to the Rights of Lenders Under Our Revolving Credit
Facility to the Extent of the Value of the Collateral Securing
the Revolving Credit Facility on a Senior Lien
Basis.
The notes and the guarantees by our subsidiaries are secured by
(1) a senior lien on substantially all of our and such
guarantors tangible and intangible assets, other than the
collateral securing our revolving credit facility and (2) a
junior lien on our and such guarantors accounts
receivable, inventory and related assets which secure our
revolving credit facility on a senior lien basis, in each case
subject to certain excluded assets and permitted liens. The
lenders under our revolving credit facility and certain other
permitted secured debt will have claims that are prior to the
claims of holders of the notes to the extent of the value of the
assets securing that other indebtedness on a senior basis. In
the event of any distribution or payment of our assets in any
foreclosure, dissolution,
winding-up,
liquidation, reorganization or other bankruptcy proceeding, the
lenders under our revolving credit facility will have a prior
claim to those of our assets that constitute their collateral.
After claims of the lenders under the revolving credit facility
have been satisfied in full, to the extent of the value of the
collateral securing the revolving credit facility on a senior
lien basis, there may be no assets remaining under the revolving
credit facility collateral that may be applied to satisfy the
claims of holders of the notes. As a result, holders of notes
may receive less, ratably, than the lenders under our revolving
credit facility.
As of December 31, 2010, the notes and the related
guarantees were effectively subordinated to $286 million of
secured debt under our revolving credit facility to the extent
of the collateral securing the revolving credit facility on a
senior basis, and up to $360 million was available for
borrowing as additional secured debt under our revolving credit
facility. In addition, the indenture governing the notes allows
us to increase the size of the revolving credit facility, or
refinance or replace the revolving credit facility, and the
notes and guarantees would be effectively subordinated to
amounts borrowed under such increased, refinanced or replacement
revolving credit facility. We expect that this subordination
will continue until the notes are retired, repaid or otherwise
redeemed.
Your
Right to Receive Payment on the Notes Will Be Structurally
Subordinated to the Liabilities of Our Non-Guarantor
Subsidiaries.
Not all of our subsidiaries will be required to guarantee the
notes. For example, our foreign subsidiaries, certain immaterial
subsidiaries and our subsidiaries (other than wholly-owned
domestic subsidiaries) that do not guarantee the revolving
credit facility or any other indebtedness of the Issuer or the
Subsidiary Guarantors will not guarantee the notes. Creditors of
our non-guarantor subsidiaries (including trade creditors) will
generally be entitled to payment from the assets of those
subsidiaries before those assets can be distributed to us. As a
result, the notes will be structurally subordinated to the prior
payment of all of the debts (including trade payables) of our
non-guarantor subsidiaries. In the event of a bankruptcy,
liquidation or reorganization of any of our non-guarantor
subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims
from the assets of those subsidiaries before any assets are made
available for distribution to us.
As of December 31, 2010, the notes and the related
guarantees were effectively subordinated to $286 million of
secured debt under our revolving credit facility to the extent
of the collateral securing the revolving credit facility on a
senior basis, and up to $360 million was available for
borrowing as additional secured debt under our revolving credit
facility. In addition, the indenture governing the notes allows
us to increase the size of the revolving credit facility, or
refinance or replace the revolving credit facility, and the
notes and guarantees would be effectively subordinated to
amounts borrowed under such increased, refinanced or replacement
revolving credit facility. We expect that this subordination
will continue until the notes are retired, repaid or otherwise
redeemed.
16
We May
Not Have the Ability to Raise the Funds Necessary to Finance the
Change of Control Offer or the Asset Sale Offer Required by the
Indenture Governing the Notes.
Upon the occurrence of a change of control, as
defined in the indenture governing the notes, we must offer to
buy back the notes at a price equal to 101% of the principal
amount, together with any accrued and unpaid interest, if any,
to the date of the repurchase. Similarly, we must offer to buy
back the notes (or repay other indebtedness in certain
circumstances) at a price equal to 100% of the principal amount
of the notes (or other debt) purchased, together with accrued
and unpaid interest, if any, to the date of repurchase, with the
proceeds of certain asset sales (as defined in the indenture).
Our failure to purchase, or give notice of purchase of, the
notes would be a default under the indenture governing the
notes, which would also trigger a cross default under our
revolving credit facility. See Description of
Notes Repurchase at the Option of
Holders Change of Control.
If a change of control or asset sale occurs that would require
us to repurchase the notes, it is possible that we may not have
sufficient liquidity or assets to make the required repurchase
of notes or to satisfy all obligations under our revolving
credit facility and the indenture governing the notes. A change
of control would also trigger a default under our revolving
credit facility. In order to satisfy our obligations, we could
seek to refinance the indebtedness under our revolving credit
facility and the indenture governing the notes or obtain a
waiver from the lenders or you as a holder of the notes. We can
give no assurance that we would be able to obtain a waiver or
refinance our indebtedness on terms acceptable to us, if at all.
Certain
Restrictive Covenants in the Indenture Governing the Notes Will
Be Suspended if Such Notes Achieve Investment Grade
Ratings.
Most of the restrictive covenants in the indenture governing the
notes will not apply for so long as the notes achieve investment
grade ratings from Moodys Investors Service, Inc. and
Standard & Poors Rating Services, and no default
or event of default has occurred. If these restrictive covenants
cease to apply, we may take actions, such as incurring
additional debt, undergoing a change of control transaction or
making certain dividends or distributions that would otherwise
be prohibited under the indenture. Ratings are given by these
rating agencies based upon analyses that include many subjective
factors. We can give no assurance that the notes will achieve
investment grade ratings, nor that investment grade ratings, if
granted, will reflect all of the factors that would be important
to holders of the notes.
Certain
Affiliates of The Goldman Sachs Group, Inc. Own a Significant
Majority of the Equity of Our Indirect Parent. Conflicts of
Interest May Arise Because Affiliates of the Principal
Stockholder of Our Indirect Parent Have Continuing Agreements
and Business Relationships with Us.
Certain affiliates of The Goldman Sachs Group, Inc. (the
Goldman Sachs Funds), an affiliate of Goldman,
Sachs & Co., are the majority owners of PVF Holdings
LLC, our indirect parent company. The Goldman Sachs Funds will
have the power, subject to certain exceptions, to direct our
affairs and policies. A majority of the voting power of the
Board of Directors of PVF Holdings LLC is held by directors who
have been designated by the Goldman Sachs Funds. Through such
representation on the Board of Directors of PVF Holdings LLC,
the Goldman Sachs Funds will be able to substantially influence
the appointment of management, the entering into of mergers and
sales of substantially all assets and other extraordinary
transactions. Furthermore, an affiliate of the Goldman Sachs
Funds is a joint lead arranger for our revolving credit facility.
The interests of the Goldman Sachs Funds and their respective
affiliates could conflict with your interests. For example, if
we encounter financial difficulties or are unable to pay our
debts as they mature, the interests of the Goldman Sachs Funds
as an equity holder might conflict with your interests as a note
holder. The Goldman Sachs Funds may also have an interest in
pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity
investments, although such transactions might involve risks to
you as a holder of notes. The Goldman Sachs Funds are in the
business of making investments in companies and may directly, or
through affiliates, 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
power as majority owners of PVF Holdings LLC in ways that are
detrimental to you as a holder of
17
notes 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 certificate of incorporation, the
Goldman Sachs Funds have no obligation to offer us corporate
opportunities. See Principal Stockholders,
Certain Relationships and Related Party
Transactions, and Description of Notes.
As a result of these relationships, the interests of the Goldman
Sachs Funds may not coincide with your interests as holders of
notes. So long as the Goldman Sachs Funds continue to own a
significant majority of our equity, 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.
There
is no Prior Public Market for the Notes, and We Do Not Know if a
Market Will Ever Develop or, if a Market Does Develop, Whether
it Will Be Sustained.
We do not intend to apply for the notes to be listed on any
securities exchange or to arrange for quotation of the notes on
any automated dealer quotation systems. The liquidity of any
market for the notes will depend on a number of factors,
including:
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prevailing interest rates;
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our operating performance and financial condition;
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the interest of securities dealers in making a market;
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the number of holders of notes; and
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the market for similar securities.
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The notes were issued to, and we believe the notes are owned by,
a relatively small number of beneficial owners. Goldman,
Sachs & Co., or the Initial Purchaser, was an initial
purchaser of the notes, pursuant to a purchase agreement among
us, the guarantors, Goldman, Sachs & Co. and the other
initial purchasers named therein, dated December 16, 2009.
The Initial Purchaser has advised us that they presently intend
to make a market in the notes as permitted by applicable law.
However, the Initial Purchaser is under no obligation to do so
and may cease its market-making at any time without notice.
Accordingly, the market for the notes may cease to exist.
Because we are an affiliate of the Initial Purchaser, the
Initial Purchaser is required to deliver a current
market-maker prospectus, such as this prospectus,
and otherwise comply with the registration requirements of the
Securities Act in connection with any secondary market sale of
the notes, which may affect its ability to continue
market-making activities. We have agreed to make a
market-maker prospectus generally available to the
Initial Purchaser to permit it to engage in market-making
transactions. However, the registration rights agreements also
provide that we may, for valid business reasons, allow the
market-maker prospectus to cease to be effective and usable for
a period of time set forth in the registration rights agreement.
As a result, the liquidity of the secondary market for the notes
may be materially adversely affected by the unavailability of a
current market-maker prospectus.
Assuming
the Issuance of Notes on February 11, 2010 Constituted a
Qualified Reopening of our 9.50% Senior Secured
Notes due December 15, 2016 for United States Federal
Income Tax Purposes, the Notes Issued in Exchange for Those
Notes Will Be Treated As Issued with the Same Amount of Original
Issue Discount as the Notes Issued in Exchange for the Notes
Issued on December 21, 2009 for United States Federal
Income Tax Purposes.
We issued $1,000,000,000 and $50,000,000 aggregate principal
amount of our 9.50% senior secured notes due
December 15, 2016 on December 21, 2009 and
February 11, 2010, respectively.
The stated principal amount of the notes issued on
December 21, 2009 (the December notes) exceeded
the issue price of the December notes by an amount in excess of
the statutory de minimis amount. Accordingly, the December notes
were issued with original issue discount for United States
federal income tax purposes.
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We have taken the position that the issuance of notes on
February 11, 2010 (the February notes)
constituted a qualified reopening of our
9.50% senior secured notes due December 15, 2016 for
United States federal income tax purposes. Accordingly, we have
treated all of the February notes as having the same issue price
as the December notes and therefore as having been issued with
the same amount of original issue discount as the December notes
for United States federal income tax purposes.
However, the application of the qualified reopening rules is not
entirely clear, and it is possible that the February notes could
be treated as a separate issue from the December notes, with an
issue price determined by the first price at which a substantial
amount of the February notes was sold (other than to bond
houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
In that event, the February notes would have been issued with
original issue discount in an amount different from the amount
of original issue discount on the December notes, the February
notes would not have been fungible with the December notes for
United States federal income tax purposes and the notes received
in exchange for the February notes would not be fungible with
the notes received in exchange for the December notes for United
States federal income tax purposes. See Certain Material
United States Federal Tax Considerations Qualified
Reopening.
For United States federal income tax purposes, U.S. Holders
will be required to include the original issue discount in gross
income (as ordinary income) as it accrues on a constant yield
basis in advance of the receipt of the cash payment to which
such income is attributable (regardless of whether such
U.S. Holders use the cash or accrual method of tax
accounting). See Certain Material United States Federal
Tax Considerations Stated Interest and Original
Issue Discount. Additionally, in the event we enter into
bankruptcy, you may not have a claim for all or a portion of any
unamortized amount of the original issue discount on the notes.
Risks
Related to the Collateral and the Guarantees
The
Value of the Collateral Securing the Notes May Not Be Sufficient
to Satisfy Our Obligations Under the Notes.
No appraisal of the fair market value of the collateral securing
the notes has been made in connection with this offering and the
value of the collateral will depend on market and economic
conditions, the availability of buyers and other factors. We can
give no assurance to you of the value of the collateral or that
the net proceeds received upon a sale of the collateral would be
sufficient to repay all, or would not be substantially less
than, amounts due on the notes following a foreclosure upon the
collateral (and any payments in respect of prior liens) or a
liquidation of our assets or the assets of the guarantors that
may grant these security interests.
In the event of a liquidation or foreclosure, the value of the
collateral securing the notes is subject to fluctuations based
on factors that include general economic conditions, the actual
fair market value of the collateral at such time, the timing and
the manner of the sale and the availability of buyers and
similar factors. The value of the assets pledged as collateral
for the notes also could be impaired in the future as a result
of our failure to implement our business strategy, competition
or other future trends. In addition, courts could limit
recoverability with respect to the collateral if they apply laws
of a jurisdiction other than the State of New York to a
proceeding and deem a portion of the interest claim usurious in
violation of applicable public policy. By its nature, some or
all of the collateral may be illiquid and may have no readily
ascertainable market value. Likewise, we can give no assurance
to you that the collateral will be saleable or, if saleable,
that there will not be substantial delays in its liquidation. A
portion of the collateral includes assets that may only be
usable, and thus retain value, as part of our existing operating
business. Accordingly, any such sale of the collateral separate
from the sale of certain of our operating businesses may not be
feasible or of significant value. To the extent that liens,
rights and easements granted to third parties encumber assets
located on property owned by us or the subsidiary guarantors or
constitute senior, pari passu or subordinate liens on the
collateral, those third parties have or may exercise rights and
remedies with respect to the property subject to such
encumbrances (including rights to require marshalling of assets)
that could adversely affect the value of the collateral located
at a particular site and the ability of the collateral trustee
to realize or foreclose on the collateral at that site.
In addition, the asset sale covenant and the definition of asset
sale in the indenture governing the notes have a number of
significant exceptions pursuant to which we will be able to sell
Notes Priority Collateral (as such term is
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defined in the indenture governing the notes) without being
required to reinvest the proceeds of such sale into assets that
will comprise Notes Priority Collateral or to make an offer to
the holders of the notes to repurchase the notes.
The
Intercreditor Agreement Limits the Ability of Holders of Notes
to Exercise Rights and Remedies with Respect to the ABL Priority
Collateral.
The rights of the holders of the notes with respect to the ABL
Priority Collateral (as such term is defined in the indenture
governing the notes) securing the notes on a junior basis are
substantially limited by the terms of the lien ranking and other
provisions in the intercreditor agreement. Under the terms of
the intercreditor agreement, at any time that any obligations
that have the benefit of senior liens on the ABL Priority
Collateral are outstanding, almost any action that may be taken
in respect of the ABL Priority Collateral, including the rights
to exercise remedies with respect to, release liens on,
challenge the liens on or object to actions taken by the
administrative agent under our revolving credit facility with
respect to, the ABL Priority Collateral, will be at the
direction of the holders of the obligations secured by the
senior liens on the ABL Priority Collateral, and the collateral
trustee, on behalf of noteholders with junior liens on the ABL
Priority Collateral, will not have the ability to control or
direct such actions, even if the rights of noteholders are
adversely affected. The lenders under the revolving credit
facility may cause the collateral agent for such facility to
dispose of, release or foreclose on or take other actions with
respect to, the ABL Priority Collateral with which holders of
the notes may disagree or that may be contrary to the interests
of holders of the notes.
In addition, the intercreditor agreement contains certain
provisions benefiting holders of indebtedness under our
revolving credit facility that prevent the collateral trustee
from objecting to a number of important matters regarding the
ABL Priority Collateral following the filing of a bankruptcy.
After such filing, the value of the ABL Priority Collateral
could materially deteriorate and noteholders would be unable to
raise an objection.
See Description of Notes The Intercreditor
Agreement.
The
Rights of the Holders of Notes to the ABL Priority Collateral
Are Subject to Any Exceptions, Defects, Encumbrances, Liens and
Other Imperfections That Are Accepted by the Lenders Under Our
Revolving Credit Facility and Rights of the Holders of the Notes
to the Notes Priority Collateral Are Similarly Subject to Any
Exceptions, Defects, Encumbrances, Liens and Other Imperfections
Permitted by the Indenture.
The ABL Priority Collateral is subject to any and all
exceptions, defects, encumbrances, liens and other imperfections
as may be accepted by the lenders under our revolving credit
facility and other creditors that have the benefit of first
priority liens on the collateral from time to time, whether on
or after the date the notes and guarantees are issued. The
indenture for the notes and the related security documents also
permit the collateral for the notes to be subject to specified
exceptions, defects, encumbrances, liens and other
imperfections, generally referred to as Permitted
Liens.
The existence of any such exceptions, defects, encumbrances,
liens and other imperfections could adversely affect the value
of the collateral securing the notes as well as the ability of
the collateral agent to realize or foreclose on such collateral.
The initial purchasers of the outstanding notes did not analyze
the effect of such exceptions, defects, encumbrances, liens and
imperfections, and the existence thereof could adversely affect
the value of the collateral securing the notes as well as the
ability of the collateral agent to realize or foreclose on such
collateral.
The
Collateral Securing the Notes May Be Diluted Under Certain
Circumstances.
The loan agreement governing our revolving credit facility and
the indenture governing the notes will permit us to issue
additional senior secured indebtedness, including additional
notes, subject to our compliance with the restrictive covenants
in the indenture governing the notes and the loan agreement
governing our revolving credit facility at the time we issue
such additional senior secured indebtedness.
Any additional notes issued under the indenture governing the
notes would be guaranteed by the same guarantors and would have
the same security interests, with the same priority, as
currently secure the notes. As a result, the collateral securing
the notes (and the outstanding notes) would be shared by any
additional notes the
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Issuer may issue under the indenture, and an issuance of such
additional notes would dilute the value of the collateral
compared to the aggregate principal amount of notes issued.
In addition, the indenture and our other security documents
permit us and certain of our subsidiaries to incur additional
priority lien debt and subordinated lien debt up to respective
maximum priority lien and subordinated lien debt threshold
amounts by issuing additional debt securities under one or more
new indentures or by borrowing additional amounts under new
credit facilities. Any additional priority lien debt or
subordinated lien debt secured by the collateral would dilute
the value of the rights of the holders of notes to the
collateral.
The
Rights of Holders of Notes in the Collateral May Be Adversely
Affected by the Failure to Perfect Security Interests in the
Collateral (or Record Mortgages) and Other Issues Generally
Associated with the Realization of Security Interests in the
Collateral.
Applicable law requires that a security interest in certain
tangible and intangible assets can only be properly perfected
and its priority retained through certain actions undertaken by
the secured party. The senior liens in all Notes Priority
Collateral from time to time owned by the Issuer or the
guarantors
and/or the
junior liens in all ABL Priority Collateral from time to time
owned by the Issuer or the guarantors may not be perfected with
respect to the notes and the note guarantees if the grantor of
such liens (or, if applicable, the collateral trustee) has not
taken the actions necessary to perfect any of those liens upon
or prior to the issuance of the notes. For example, the
collateral trustee for the notes will not have the benefit of
control agreements to perfect its security interest in deposit
accounts or securities accounts of the Issuer or the Subsidiary
Guarantors, except that we have agreed to use our commercially
reasonable efforts to maintain a specified deposit account at
PNC Bank (or any replacement of such account) subject to an
account control agreement. The inability or failure of any party
to take all actions necessary to create properly perfected
security interests in the collateral may result in the loss of
the priority of the security interest for the benefit of the
noteholders to which they would have been entitled as a result
of such non-perfection.
In addition, applicable law requires that certain property and
rights acquired after the grant of a general security interest
can only be perfected at the time such property and rights are
acquired and identified. The Issuer and the guarantors will have
limited obligations to perfect the security interest of the
holders of notes in specified collateral. Moreover, if owned
real property is acquired by us or our guarantor subsidiaries in
the future, a lien to secure the notes with such real property
would only be created and perfected by a mortgage, deed of trust
or similar instrument entered into after such acquisition. We
can give no assurance to you that the collateral trustee for the
notes or the administrative agent under our revolving credit
facility will monitor, or that the Issuer or the guarantors will
inform such collateral trustee or administrative agent of, the
future acquisition of property and rights that constitute
collateral, and that the necessary action will be taken to
properly perfect the security interest in such after-acquired
collateral. The collateral trustee for the notes has no
obligation to monitor the acquisition of additional property or
rights that constitute collateral or the perfection of any
security interest and will have no responsibility for any
resulting loss of the security interest in the collateral or the
priority of the security interest in favor of the notes and the
note guarantees against third parties.
The security interest of the collateral trustee will be subject
to practical challenges generally associated with the
realization of security interests in the collateral. For
example, the collateral trustee may need to obtain the consent
of a third party to obtain or enforce a security interest in an
asset. We can give no assurance to you that the collateral
trustee will be able to obtain any such consent or that the
consents of any third parties will be given when required to
facilitate a foreclosure on such assets. As a result, the
collateral trustee may not have the ability to foreclose upon
those assets and the value of the collateral may significantly
decrease.
The
Collateral for the Notes Will Not Include Certain Excluded
Assets.
The collateral for the notes will not include Excluded
Assets. These Excluded Assets include, among other things,
all of the shares or other securities issued by us or our
subsidiaries. Accordingly, the collateral trustee for the notes
would not be able to foreclose on the shares or other securities
issued by us or our subsidiaries as a remedy after an event of
default. One parcel of real estate that we currently own, but is
a non-core asset, with a net book value of approximately
$1 million as of December 31, 2010, will not be
collateral for the notes. The guarantee of the
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notes provided by McJunkin Red Man Holding Corporation will be
unsecured. See Description of Notes Certain
Definitions Excluded Assets.
Because
Each Guarantors Liability Under Its Guarantee May Be
Reduced to Zero, Voided or Released Under Certain Circumstances,
You May Not Receive any Payments from Some or All of the
Guarantors.
The notes have the benefit of the guarantees of the guarantors.
However, the guarantees by the guarantors are limited to the
maximum amount that the guarantors are permitted to guarantee
under applicable law. As a result, a guarantors liability
under its guarantee could be reduced to zero, depending upon the
amount of other obligations of such guarantor. Furthermore,
under the circumstances discussed more fully below, a court
under federal or state fraudulent conveyance and transfer
statutes could void the obligations under a guarantee or further
subordinate it to all other obligations of the guarantor. In
addition, the notes will lose the benefit of a particular
guarantee if it is released under certain circumstances
described under Description of Notes.
Federal
and State Laws Allow Courts, Under Specific Circumstances, to
Void Guarantees and Grants of Security and Require Holders of
the Notes to Return Payments Received from
Guarantors.
The issuers creditors and the creditors of the guarantors
could challenge the note guarantees as fraudulent transfers or
on other grounds. Under U.S. federal bankruptcy law and
comparable provisions of state fraudulent transfer laws, the
delivery of any note guarantee and the grant of security by the
applicable guarantor could be found to be a fraudulent transfer
and declared void, or subordinated to all indebtedness and other
liabilities of such guarantor, if a court determined that the
applicable guarantor, at the time it incurred the indebtedness
evidenced by its note guarantee (1) delivered such note
guarantee with the intent to hinder, delay or defraud its
existing or future creditors or (2) received less than
reasonably equivalent value or did not receive fair
consideration for the delivery of such note guarantee and any
one of the following three conditions apply:
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the applicable guarantor was insolvent or was rendered insolvent
as a result of such transaction;
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the applicable guarantor was engaged in a business or
transaction, or was about to engage in a business or
transaction, for which its remaining assets constituted
unreasonably small capital to carry on its business; or
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the applicable guarantor intended to incur, or believed that it
would incur, debt beyond its ability to pay such debt as it
matured.
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A court likely would find that a guarantor did not receive
equivalent value or fair consideration for its note guarantee
unless it benefited directly or indirectly from the issuance of
the notes. If a court declares the issuance of the notes, any
note guarantee or the related security agreements to be void, or
if any note guarantee must be limited or voided in accordance
with its terms, any claim holders may make against us or the
guarantors for amounts payable on the notes or, in the case of
the security agreements, a claim with respect to the related
collateral, would, with respect to amounts claimed against the
applicable guarantor, be unenforceable to the extent of any such
limitation or voidance. Sufficient funds to repay the notes may
not be available from other sources, including the remaining
guarantors, if any. Moreover, the court could order holders to
return any payments previously made by the applicable guarantor
to a fund for the benefit of our creditors if such payment is
made to an insider within a one year period prior to the a
bankruptcy filing or within 90 days for any outside party
and such payment would give the creditors more than such
creditors would have received in a distribution under
Title 11 of the U.S. Bankruptcy Code. In addition, the
loss of a guarantee (other than in accordance with the terms of
the indenture) will constitute a default under the indenture,
which default could cause all notes to become immediately due
and payable. If the liens were voided, holders of the notes
would not have the benefits of being a secured creditor against
the applicable guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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if the present fair saleable value of its assets was less than
the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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On the basis of historical financial information, recent
operating history and other factors, we believe that, after
giving effect to the offering of the outstanding notes and the
application of the proceeds therefrom, we were not insolvent,
did not have unreasonably small capital for the business in
which we are engaged and did not incur debts beyond our ability
to pay such debts as they mature. However, we can give no
assurance as to what standard a court would apply in making
these determinations or, regardless of the standard, that a
court would not limit or void any of the note guarantees.
In addition, although each guarantee will contain a provision
intended to limit that guarantors liability to the maximum
amount that it could incur without causing the incurrence of
obligations under its guarantee to be a fraudulent transfer,
this provision may not be effective to protect those guarantees
from being voided under fraudulent transfer law, or may reduce
that guarantors obligation to an amount that effectively
makes its guarantee worthless.
In the event that any of the guarantees are voided, the notes
will become structurally subordinated to any debt, leases or any
other liabilities at that guarantor.
Finally, as a court of equity, the bankruptcy court may
subordinate the claims in respect of the notes to other claims
against us under the principle of equitable subordination, if
the court determines that: (i) the holder of the notes is
engaged in some type of inequitable conduct; (ii) such
inequitable conduct resulted in injury to our other creditors or
conferred an unfair advantage upon the holder of the notes; and
(iii) equitable subordination is not inconsistent with the
provisions of the U.S. Bankruptcy Code.
The
Collateral Is Subject to Casualty Risks.
The indenture governing the notes, the loan agreement governing
our revolving credit facility and the security documents require
the Issuer and the guarantors to maintain adequate insurance or
otherwise insure against risks to the extent customary with
companies in the same or similar business operating in the same
or similar locations. There are, however, certain losses,
including losses resulting from terrorist acts, which may be
either uninsurable or not economically insurable, in whole or in
part. As a result, we can give no assurance that the insurance
proceeds will compensate us fully for our losses. If there is a
total or partial loss of any of the collateral securing the
notes, we can give no assurance that any insurance proceeds
received by us will be sufficient to satisfy all the secured
obligations, including the notes.
In the event of a total or partial loss to any of the mortgaged
facilities, certain items of equipment and inventory may not be
easily replaced. Accordingly, even though there may be insurance
coverage, the extended period needed to manufacture replacement
units or inventory could cause significant delays.
Any
Future Note Guarantees or Additional Liens on Collateral Could
Also Be Avoided by a Trustee in Bankruptcy.
The indenture governing the notes provides that certain of our
future subsidiaries will guarantee the notes and secure their
note guarantees with liens on their assets. The indenture
governing the note also requires the Issuer and the Subsidiary
Guarantors to grant liens on certain assets that they acquire.
Any future note guarantee or additional lien in favor of the
collateral trustee for the benefit of the holders of the notes
might be avoidable by the grantor (as
debtor-in-possession)
or by its trustee in bankruptcy or other third parties if
certain events or circumstances exist or occur. For instance, if
the entity granting the future note guarantee or additional lien
were insolvent at the time of the grant and if such grant was
made within 90 days before that entity commenced a
bankruptcy proceeding (or one year before commencement of a
bankruptcy proceeding if the creditor that benefited from the
note guarantee or lien is an insider under the
U.S. Bankruptcy Code), and the granting of the future note
guarantee or additional lien enabled the holders to receive more
than they would if the grantor were liquidated under
chapter 7 of the U.S. Bankruptcy Code, then such note
guarantee or lien could be avoided as a preferential transfer.
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The
Value of the Collateral Securing the Notes May Not Be Sufficient
to Secure Post-Petition Interest. Should the Issuers
Obligations Under the Notes Equal or Exceed the Fair Market
Value of the Collateral Securing the Notes, Holders of Notes may
be Deemed to Have an Unsecured Claim.
In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding against the Issuer or the
guarantors, holders of the notes will be entitled to
post-petition interest under the U.S. Bankruptcy Code only
if the value of their security interest in the collateral is
greater than their pre-bankruptcy claim. Note holders may be
deemed to have an unsecured claim if the Issuers
obligations under the notes equal or exceed the fair market
value of the collateral securing the notes. Note holders that
have a security interest in the collateral with a value equal to
or less than their pre-bankruptcy claim will not be entitled to
post-petition interest under the U.S. Bankruptcy Code. The
bankruptcy trustee, the
debtor-in-possession
or competing creditors could possibly assert that the fair
market value of the collateral with respect to the notes on the
date of the bankruptcy filing was less than the then-current
principal amount of the notes. Upon a finding by a bankruptcy
court that the notes are under-collateralized, the claims in the
bankruptcy proceeding with respect to the notes would be
bifurcated between a secured claim and an unsecured claim, and
the unsecured claim would not be entitled to the benefits of
security in the collateral. Other consequences of a finding of
under-collateralization would be, among other things, a lack of
entitlement on the part of note holders to receive post-petition
interest and a lack of entitlement on the part of the unsecured
portion of the notes to receive other adequate
protection under U.S. federal bankruptcy laws. In
addition, if any payments of post-petition interest were made at
the time of such a finding of under-collateralization, such
payments could be re-characterized by the bankruptcy court as a
reduction of the principal amount of the secured claim with
respect to notes. No appraisal of the fair market value of the
collateral securing the notes has been prepared in connection
with this offering and, therefore, the value of the collateral
trustees interest in the collateral may not equal or
exceed the principal amount of the notes. We can give no
assurance that there will be sufficient collateral to satisfy
our and the Subsidiary Guarantors obligations under the
notes.
U.S.
Federal Bankruptcy Laws May Significantly Impair the Ability of
Note Holders to Realize Value from the Collateral.
The right of the collateral trustee to repossess and dispose of
the collateral securing the notes upon the occurrence of an
event of default under the indenture governing the notes is
likely to be significantly impaired by U.S. federal
bankruptcy law if bankruptcy proceedings were to be commenced by
or against the Issuer or any guarantor prior to or possibly even
after the collateral trustee has repossessed and disposed of the
collateral. Under the U.S. Bankruptcy Code, a secured
creditor is prohibited from repossessing its security from a
debtor in a bankruptcy proceeding, or from disposing of security
repossessed from such debtor, without the approval of the
bankruptcy court. Moreover, the U.S. Bankruptcy Code
permits the debtor to continue to retain and to use the
collateral, and the proceeds, products, rents or profits of the
collateral, even after the debtor is in default under the
applicable debt instruments, provided that the secured creditor
is given adequate protection. The meaning of the
term adequate protection may vary according to
circumstances, but it is intended in general to protect the
value of the secured creditors interest in the collateral
and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion
determines, for any diminution in the value of the collateral as
a result of the stay of repossession or disposition or any use
of the collateral by the debtor during the pendency of the
bankruptcy proceeding. Generally, adequate protection payments,
in the form of interest or otherwise, are not required to be
paid by a debtor to a secured creditor unless the bankruptcy
court determines that the value of the secured creditors
interest in the collateral is declining during the pendency of
the bankruptcy case. In addition, the bankruptcy court may
determine not to provide cash payments as adequate protection to
the holders of the notes if, among other possible reasons, the
bankruptcy court determines that the fair market value of the
collateral with respect to the notes on the date of the
bankruptcy filing was less than the then-current principal
amount of the notes. In view of the broad discretionary powers
of a bankruptcy court, the imposition of the stay, and the lack
of a precise definition of the term adequate
protection, we cannot predict (1) how long payments
on the notes could be delayed following commencement of a
bankruptcy proceeding, (2) whether or when the collateral
trustee would repossess or dispose of the collateral or
(3) whether or to what extent note holders would be
compensated for any delay in payment of loss of value of the
collateral through the requirements of adequate
protection. Furthermore, in the event the bankruptcy court
determines that the value of the collateral is not sufficient to
repay all amounts due
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on the notes, holders would have undersecured
claims. U.S. federal bankruptcy laws do not permit
the payment or accrual of interest, costs and attorneys
fees for undersecured claims during the
debtors bankruptcy proceeding.
In the
Event of a Bankruptcy Proceeding, Holders of the Notes may not
be Entitled to Recover the Principal Amount of the Notes to the
Extent of any Unamortized Original Issue Discount.
In the event of a bankruptcy proceeding, the bankruptcy court
could decide that holders of the notes are only entitled to
recover the amortized portion of the original issue discount on
the notes. Accordingly, to the extent the original issue
discount on the notes has not been amortized, holders of the
notes may not be entitled to recover the full principal amount
of the notes.
Risks
Related to Our Business
Decreased
Capital and Other 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
and other expenditures in the oil and natural gas industry,
including capital and other expenditures in connection with
exploration, drilling, production, gathering, transportation,
refining and processing operations. Demand for the products we
distribute and services we provide is particularly sensitive to
the level of exploration, development and production activity
of, and the corresponding capital and other 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 and other expenditures. If our
customers 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 during much of 2008 were at levels higher
than historical long term averages, and worldwide oil and
natural gas drilling and exploration activity during much of
2008 was also at very high levels. Oil and natural gas prices
decreased during the second half of 2008 and during 2009. This
sustained decline in oil and natural gas prices has resulted,
and may continue to result, in decreased capital expenditures in
the oil and natural gas industry, and has had an adverse effect
on our business, results of operations and financial condition.
A further sustained decrease in capital expenditures in the oil
and natural gas industry could 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 natural gas prices, including:
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the level of domestic and worldwide oil and natural gas
production and inventories;
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the level of drilling activity and the availability of
attractive oil and natural 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;
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the discovery rate of new oil and natural gas reserves and the
expected cost of developing new reserves;
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the actual cost of finding and producing oil and natural gas;
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depletion rates;
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domestic and worldwide refinery overcapacity or undercapacity
and utilization rates;
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the availability of transportation infrastructure and refining
capacity;
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increases in the cost of the products that we provide to the oil
and natural gas industry, which may result from increases in the
cost of raw materials such as steel;
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shifts in end-customer preferences toward fuel efficiency and
the use of natural gas;
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the economic
and/or
political attractiveness of alternative fuels, such as coal,
hydrocarbon, wind, solar energy and biomass-based fuels;
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increases in oil and natural gas prices
and/or
historically high oil and natural gas prices, which could lower
demand for oil and natural gas products;
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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;
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interest rates and the cost of capital;
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national government policies, including government policies
which could nationalize or expropriate oil and natural gas
exploration, production, refining or transportation assets;
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the ability of the Organization of Petroleum Exporting Countries
(OPEC) to set and maintain production levels and
prices for oil;
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the impact of armed hostilities, or the threat or perception of
armed hostilities;
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pricing and other actions taken by competitors that impact the
market;
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environmental regulation;
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technological advances;
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global weather conditions and natural disasters;
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an increase in the value of the U.S. dollar relative to
foreign currencies; and
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tax policies.
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Oil and natural gas prices have been and are expected to remain
volatile. This volatility has historically caused oil and
natural 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 natural 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 the products
we distribute 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 the products we distribute 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. The global economic downturn has
adversely affected our business, results of operations and
financial condition, and continued adverse economic conditions
could have a material adverse effect on our business, results of
operations and financial condition.
We May
Be Unable to Compete Successfully with Other Companies in Our
Industry.
We sell 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,
26
results of operations and financial condition could be
materially and adversely affected to the extent that our
competitors are successful in reducing our customers
purchases of products and services from us. Competition could
also cause us to lower our prices which could reduce our margins
and profitability.
Demand
for the Products We Distribute Could Decrease if the
Manufacturers of Those Products Were to Sell a Substantial
Amount of Goods Directly to End Users in the Markets We
Serve.
Historically, users of PVF and related products have purchased
certain amounts of 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 From 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 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 products
or services from us or a 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 39% of our
total purchases during the year ended December 31, 2010
were from our ten largest suppliers. Although we believe there
are numerous manufacturers with the capacity to supply the
products we distribute, 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.
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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 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. 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 or Cash Flow.
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 and cash flow. 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. 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 or cash flow.
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 the
products we distribute, 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.
We Do
Not Have Long-Term Contracts or Agreements with Many of Our
Customers and the Contracts and Agreements That We Do Have
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 MRO 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 ten largest customers
represented approximately half of our sales for the year ended
December 31, 2010. The products that we may sell to any
particular customer depend in large part on the size of that
customers 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
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substantial decrease in a significant customers 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 Acquisition of Transmark Fcx
Group B.V. in October 2009, and This Acquisition May Not Yield
All of Its Intended Benefits.
We are currently continuing the process of integrating the
business operated by Transmark Fcx Group B.V., now known as MRC
Transmark Group B.V. (MRC Transmark) with our
business. If we cannot successfully integrate this business, we
may not achieve the expected synergies and benefits we hope to
obtain from the acquisition. The difficulty of combining the
companies presents challenges to our management, including:
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operating a significantly larger combined company with
operations in more geographic areas and with more business lines;
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integrating personnel with diverse backgrounds and
organizational cultures;
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coordinating sales and marketing functions;
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retaining key employees, customers or suppliers;
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integrating the information systems;
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preserving the collaboration, distribution, marketing, promotion
and other important relationships; and
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consolidating other corporate and administrative functions.
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If the risks associated with this acquisition 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 our
company and Transmark, taken together, if this acquisition 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; assumption of undisclosed or unknown liabilities; 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. For example, we
incurred $17.4 million in fees and expenses during 2009
related to our acquisition of Transmark.
In addition, even when acquisitions are completed, integration
of acquired entities can involve significant difficulties, such
as:
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failure to achieve cost savings or other financial or operating
objectives with respect to an acquisition;
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strain on the operational and managerial controls and procedures
of our business, and the need to modify systems or to add
management resources;
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difficulties in the integration and retention of customers or
personnel and the integration and effective deployment of
operations or technologies;
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amortization of acquired assets, which would reduce future
reported earnings;
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possible adverse short-term effects on our cash flows or
operating results;
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diversion of managements attention from the ongoing
operations of our business;
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failure to obtain and retain key personnel of an acquired
business; and
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assumption of known or unknown material liabilities or
regulatory non-compliance issues.
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Failure to manage these acquisition growth risks could have a
material adverse effect on our business, results of operations
and financial condition.
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 and
Negatively Impact the Demand for Our Products.
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, or exposure to, hazardous substances and wastes,
the responsibility to investigate and clean up 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. 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
U.S. federal Superfund law or its foreign equivalent, 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
imposed without regard to fault or to the legality of the
activities giving rise to the
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contamination. Although we are not aware of any active
litigation against us under the U.S. federal Superfund law
or its state or foreign 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.
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.
In particular, legislation and regulations limiting emissions of
greenhouse gases (GHGs), including carbon dioxide
associated with the burning of fossil fuels, are at various
stages of consideration and implementation, at the
international, national, regional and state levels. In 2005, the
Kyoto Protocol to the 1992 United Nations Framework Convention
on Climate Change, which established a binding set of emission
targets for GHGs, became binding on the countries that ratified
it. Certain states have adopted or are considering legislation
or regulation imposing overall caps on GHG emissions from
certain facility categories or mandating the increased use of
electricity from renewable energy sources. Similar legislation
has been proposed at the federal level. In addition, the
U.S. Environmental Protection Agency (the EPA)
has begun to implement regulations that would require permits
for and reductions in greenhouse gas emissions for certain
categories of facilities, the first of which became effective in
January 2010. The EPA also intends to set GHG emissions
standards for power plants in May 2012 and for refineries in
November 2012. These laws and regulations could negatively
impact the market for the products we distribute and,
consequently, our business.
In addition, the federal government and certain state
governments are considering enhancing the regulation of
hydraulic fracturing, a practice involving the injection of
certain substances into rock formations to stimulate production
of hydrocarbons, particularly natural gas, from shale basin
regions. Any increased federal or state regulation of hydraulic
fracturing could reduce the demand for our products in these
regions.
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, the products we
distribute, employees and other matters, including potential
claims by individuals alleging exposure to hazardous materials
as a result of the products we distribute or our 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. The
products we distribute 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 the products we distribute
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 we currently have
reserved or anticipate incurring for such matters. Even a
partially uninsured claim, if successful and of significant
size, could have a
31
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 the products we distribute are used in potentially
hazardous applications that can result in personal injury,
product liability and environmental claims. A catastrophic
occurrence at a location where the products we distribute 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 940
claims as of December 31, 2010 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. Each claim
involves allegations of exposure to asbestos-containing
materials by a single individual, his or her spouse
and/or
family members. 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
claims will have a material impact on us. However, the potential
liability associated with asbestos claims is subject to many
uncertainties, including negative trends with respect to
settlement payments, dismissal rates and the types of medical
conditions alleged in pending or future claims, negative
developments in the claims 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, while we anticipate that additional
claims will be filed against us in the future, we are unable to
predict with any certainty the number, timing and magnitude of
such future claims. Therefore, we can give no assurance that
pending or future asbestos litigation will not ultimately have a
material adverse effect on our business, results of operations
and financial condition. See Managements 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 marketing personnel. Particularly, we rely on our sales and
marketing teams to create innovative ways to generate demand for
the products we distribute. 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
32
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 affected under such
circumstances.
Interruptions
in the Proper Functioning of Our Information Systems 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.
However, our information systems are 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.
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:
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fund our operations;
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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
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respond to potential strategic opportunities, such as
investments, acquisitions and international expansion.
|
We can give no assurance 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 or Natural Disasters 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 are susceptible to hurricanes
and other adverse weather conditions or natural disasters, such
as earthquakes. Such events can disrupt our operations, result
in damage to our properties and
33
negatively affect the local economies in which we operate.
Additionally, we may experience communication disruptions with
our customers, vendors and employees. These events 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 such events.
We cannot predict whether or to what extent damage caused by
such events will affect our operations or the economies in
regions where we operate. These adverse 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 such events.
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 December 31, 2010, we had $1.4 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 acquisitions
we have made over the past several years. In accordance with the
purchase accounting method, the excess of the cost of an
acquisition over the fair value of identifiable tangible and
intangible assets is assigned to goodwill. The amortization
expense associated with our identifiable 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 identifiable 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 where 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 net income even though there
would be no impact on our underlying cash flow. For example, we
recorded a non-cash impairment charge in the amount of
$310 million during the year ended December 31, 2009.
This charge was based on the results of our annual goodwill
impairment test which indicated that the book value of our
equity exceeded fair value by this amount.
We
Face Risks Associated with Conducting Business in Markets
Outside of North America.
We currently conduct substantial business in countries outside
of North America, principally as a result of our recent
acquisition of Transmark. In addition, we are evaluating the
possibility of establishing distribution networks in certain
other foreign countries, particularly in Europe, Asia, the
Middle East and South America. Our business, results of
operations and financial condition could be materially and
adversely affected by economic, legal, political and regulatory
developments in the 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
including export compliance and anti-bribery practices, 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.
34
We May
be Unable to Comply with United States and International Laws
and Regulations Required to do Business in Foreign
Countries.
Doing business on a worldwide basis requires us to comply with
the laws and regulations of the U.S. government and various
international jurisdictions. These regulations place
restrictions on our operations, trade practices, partners and
investment decisions. In particular, our international
operations are subject to U.S. and foreign anti-corruption
laws and regulations, such as the Foreign Corrupt Practices Act
(FCPA), and economic sanction programs, including
those administered by the U.S. Treasury Departments
Office of Foreign Assets Control (OFAC). As a result
of doing business in foreign countries, we are exposed to a
heightened risk of violating anti-corruption laws and sanctions
regulations.
The FCPA prohibits us from providing anything of value to
foreign officials for the purposes of obtaining or retaining
business or securing any improper business advantage. It also
requires us to keep books and records that accurately and fairly
reflect the Companys transactions. As part of our
business, we may deal with state-owned business enterprises, the
employees of which are considered foreign officials for purposes
of the FCPA. In addition, the United Kingdom Bribery Act (the
Bribery Act) has been enacted, although the date of
implementation has not yet been determined. The provisions of
the Bribery Act extend beyond bribery of foreign public
officials and are more onerous than the FCPA in a number of
other respects, including jurisdiction, non-exemption of
facilitation payments and penalties. Some of the international
locations in which we operate lack a developed legal system and
have higher than normal levels of corruption. Our continued
expansion outside the U.S., including in developing countries,
and our development of new partnerships and joint venture
relationships worldwide, could increase the risk of FCPA, OFAC
or Bribery Act violations in the future.
Economic sanctions programs restrict our business dealings with
certain sanctioned countries. In addition, because we act as a
distributor, we face the risk that our customers might further
distribute our products to an ultimate end-user in a sanctioned
country, which might subject us to an investigation concerning
compliance with the OFAC or other sanctions regulations.
Violations of anti-corruption laws and sanctions regulations are
punishable by civil penalties, including fines, denial of export
privileges, injunctions, asset seizures, debarment from
government contracts and revocations or restrictions of
licenses, as well as criminal fines and imprisonment. We have
established policies and procedures designed to assist our
compliance with applicable U.S. and international laws and
regulations, including the forthcoming Bribery Act, and have
trained our employees to comply with such laws and regulations.
However, there can be no assurance that all of our employees,
consultants, agents or partners will not take actions in
violation of our policies and these laws, and that our policies
and procedures will effectively prevent us from violating these
regulations in every transaction in which we may engage. In
particular, we may be held liable for the actions taken by our
local, strategic or joint venture partners outside of the United
States, even though our partners are not subject to the FCPA.
Such a violation, even if prohibited by our policies, could have
a material adverse effect on our reputation, business, financial
condition and results of operations. In addition, various state
and municipal governments, universities and other investors
maintain prohibitions or restrictions on investments in
companies that do business with sanctioned countries, which
could adversely affect the market for the notes or our other
securities.
The
Requirements of Being a Publicly Reporting Company in Connection
with the Offer, Including Compliance with the Reporting
Requirements of the Exchange Act and Certain of 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 publicly reporting company, we will be subject to the
reporting requirements of the Securities Exchange Act of 1934,
or the Exchange Act, and certain requirements imposed by the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, after
consummation of this offering. These requirements may place a
strain on our management, systems and resources. The Exchange
Act will 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 and
will require management to report on the effectiveness of those
controls. Due to our limited operating history,
35
our disclosure controls and procedures and internal controls may
not meet all of the standards applicable to 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. We cannot be assured
that the oversight methods will be effective. Managements
attention may be diverted from other business concerns, which
could have a material adverse effect on our business, financial
condition and results of operations.
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. 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 After
Consummation of the Offer Related to the Notes.
Following consummation of this offering, we will be required to
evaluate our internal controls systems in order to allow
management to report on, and our independent auditors to audit,
our internal control over financial reporting. We will be
required to perform 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 beginning with
our second annual report which we file after consummation of
this offering (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 SEC and Public Company Accounting Oversight Board
(PCAOB) rules and regulations that remain
unremediated. As a publicly reporting 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.
Following this offering, 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 affect our access to the capital
markets. In addition, if we fail to remedy any material
weakness, our financial statements may be inaccurate and we may
face restricted access to the capital markets.
The
Securities and Exchange Commission Moving Forward to a Single
Set of International Accounting Standards Could Materially
Impact Our Results of Operations.
The SEC continues to move forward with a convergence to a single
set of international accounting standards (such as International
Financial Reporting Standards (IFRS)) and associated
changes in regulatory accounting may negatively impact the way
we record revenues, expenses, assets and liabilities. Currently,
under IFRS, the LIFO method of valuing inventory is not
permitted. If we had ceased valuing our inventory under the LIFO
method at December 31, 2010, we would have been required to
make tax payments approximating $122 million over the
subsequent four years.
36
The
Financial Statements Presented in this Prospectus May Not
Provide an Accurate Indication of What Our Future Results of
Operations Are Likely to Be.
Given our recent history of consummating numerous acquisitions,
our financial statements may not represent an accurate picture
of what our future performance will be. We acquired the
remaining 15% majority voting interest in McJunkin Appalachian
in January 2007, we acquired Midway-Tristate Corporation in
April 2007, we entered into a business combination with Red Man
in October 2007 (effectively doubling our size) (the Red
Man Transaction), we acquired the remaining approximately
49% noncontrolling interest in Midfield in July 2008, we
acquired LaBarge in October 2008 and we acquired Transmark in
October 2009. Our limited combined operating history may make it
difficult to forecast our future operating results and financial
condition. In particular, because of the significance of the Red
Man Transaction, the financial statements for periods prior to
that transaction are not comparable with those after the
transaction.
37
RATIO OF
EARNINGS TO FIXED CHARGES
The following table presents our ratio of earnings to fixed
charges for the period indicated. For purposes of computing the
ratio of earnings to fixed charges, earnings consist of income
before income taxes and change in accounting principle, net of
taxes, plus fixed charges, exclusive of capitalized interest.
Fixed charges consist of interest expense, capitalized interest
and a portion of operating rental expense that management
believes is representative of the interest component of rental
expense.
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Predecessor
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Successor
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One Month
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Eleven Months
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Year Ended
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Ended
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Ended
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December 31,
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January 30,
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December 31,
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Year Ended December 31,
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2006
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2007
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2007
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2008
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2009*
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2010*
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Ratio of earnings to fixed charges
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38.2
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x
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107.7
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x
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2.3
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x
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5.8
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x
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* |
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Earnings were insufficient to cover fixed charges by
$279 million and $75 million for the years ended
December 31, 2009 and 2010, respectively. |
38
USE OF
PROCEEDS
This prospectus is delivered in connection with the sale of
notes by Goldman, Sachs & Co. in market-making
transactions. We will not receive any of the proceeds from such
transactions.
39
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2010. This table should
be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this
prospectus.
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As of
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December 31,
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2010
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Actual
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(Dollars in millions)
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Cash and cash equivalents
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$
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56
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Total Debt (including current portion):
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Revolving credit facility(1)
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$
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286
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Midfield revolving credit facility(2)
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2
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Midfield term loan facility
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14
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Transmark revolving credit facility(3)
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23
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Transmark factoring facility
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7
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Outstanding notes
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1,028
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Total debt
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1,360
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Total equity
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738
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Total capitalization
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$
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2,098
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(1) |
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As of December 31, 2010, we had availability of
$360 million under our revolving credit facility. |
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(2) |
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As of December 31, 2010, we had availability of
$69 million under the Midfield revolving credit facility. |
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(3) |
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As of December 31, 2010, there was $46 million of
availability under the revolving portion of Transmarks
primary credit facility. |
40
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OTHER 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 Corporation and its subsidiaries on and after
January 31, 2007. As a result of the change in McJunkin
Corporations basis of accounting in connection with the GS
Acquisition, Predecessors financial statement data for the
one month ended January 30, 2007 and earlier periods is not
comparable to Successors financial data for the eleven
months ended December 31, 2007 and subsequent periods.
McJunkin Red Man Corporation acquired Transmark on
October 30, 2009. Operating results for the year ended
December 31, 2009 include the results of McJunkin Red Man
Corporation for the full period and the results of Transmark for
the two months after the business combination on
October 30, 2009.
McJunkin Corporation completed a business combination
transaction with Red Man Pipe & Supply Co. (Red
Man, which has since been merged with and into McJunkin
Red Man Corporation) 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
Corporation for the full period and the results of Red Man for
the two months after the business combination on
October 31, 2007. Accordingly, McJunkin Red Man
Corporations results for the 11 months ended
December 31, 2007 are not comparable to McJunkins
results for the years ended December 31, 2006 and 2005.
The selected consolidated financial information presented below
under the captions Statement of Income Data and Other Financial
Data for the years ended December 31, 2010, 2009 and 2008,
and the selected consolidated financial information presented
below under the caption Balance Sheet Data as of
December 31, 2010 and December 31, 2009, 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 under the
captions Statement of Income Data and Other Financial Data for
one month ended January 30, 2007 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, 2008, December 31, 2007
and January 30, 2007 have been derived from the
consolidated financial statements of McJunkin Red Man Holding
Corporation not included in this prospectus that have been
audited by Ernst & Young LLP, independent registered
public accounting firm. The selected consolidated financial
information presented below under the captions Statement of
Income Data and Other Financial Data for the year ended
December 31, 2006, and the selected consolidated financial
information presented below under the caption Balance Sheet Data
as of December 31, 2006, has been derived from the
consolidated financial statements of our predecessor McJunkin
Corporation, not included in this prospectus, that have been
audited by Schneider Downs & Co., Inc., independent
registered public accounting firm.
41
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Predecessor
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Successor
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Year Ended
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One Month Ended
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Eleven Months Ended
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December 31,
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January 30,
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December 31,
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Year Ended December 31,
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2006
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2007
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2007
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2008
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2009
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2010
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(In millions, except per share information)
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Statement of Income Data:
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Sales
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$
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1,713.7
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$
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142.5
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$
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2,124.9
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$
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5,255.2
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$
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3,661.9
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$
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3,845.5
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Cost of sales(1)
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1,394.3
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|
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114.6
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1,734.6
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4,217.4
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3,006.3
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3,256.6
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Inventory write-down
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46.5
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0.4
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Selling, general and administrative expenses
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|
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189.5
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|
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15.9
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|
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|
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218.5
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|
|
|
482.1
|
|
|
|
408.6
|
|
|
|
447.7
|
|
Depreciation and amortization
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
|
5.4
|
|
|
|
11.3
|
|
|
|
14.5
|
|
|
|
16.6
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
44.4
|
|
|
|
46.6
|
|
|
|
53.9
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
193.7
|
|
|
|
16.2
|
|
|
|
|
245.8
|
|
|
|
537.8
|
|
|
|
779.6
|
|
|
|
518.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
125.7
|
|
|
|
11.7
|
|
|
|
|
144.5
|
|
|
|
500.0
|
|
|
|
(170.5
|
)
|
|
|
70.3
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
(61.7
|
)
|
|
|
(84.5
|
)
|
|
|
(116.5
|
)
|
|
|
(139.6
|
)
|
Net gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
8.9
|
|
|
|
(4.9
|
)
|
Other, net
|
|
|
(5.0
|
)
|
|
|
(0.4
|
)
|
|
|
|
(0.8
|
)
|
|
|
(2.6
|
)
|
|
|
(1.8
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(7.8
|
)
|
|
|
(0.5
|
)
|
|
|
|
(62.5
|
)
|
|
|
(93.3
|
)
|
|
|
(108.1
|
)
|
|
|
(145.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
117.9
|
|
|
|
11.2
|
|
|
|
|
82.0
|
|
|
|
406.7
|
|
|
|
(278.6
|
)
|
|
|
(75.2
|
)
|
Income taxes
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
|
32.1
|
|
|
|
153.2
|
|
|
|
13.1
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
|
$
|
49.9
|
|
|
$
|
253.5
|
|
|
$
|
(291.7
|
)
|
|
$
|
(51.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
$
|
0.72
|
|
|
$
|
1.63
|
|
|
$
|
(1.84
|
)
|
|
$
|
(0.31
|
)
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
0.72
|
|
|
$
|
1.63
|
|
|
$
|
(1.84
|
)
|
|
$
|
(0.31
|
)
|
Dividends per common share
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3.05
|
|
|
$
|
0.02
|
|
|
$
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted, Class A
|
|
$
|
3,972.08
|
|
|
$
|
376.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted, Class B
|
|
$
|
4,012.28
|
|
|
$
|
376.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
40.00
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B
|
|
$
|
80.00
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3.7
|
|
|
$
|
2.0
|
|
|
|
$
|
10.1
|
|
|
$
|
12.1
|
|
|
$
|
56.2
|
|
|
$
|
56.2
|
|
Working capital(2)
|
|
|
212.3
|
|
|
|
211.1
|
|
|
|
|
674.1
|
|
|
|
1,208.0
|
|
|
|
930.2
|
|
|
|
842.6
|
|
Total assets
|
|
|
481.0
|
|
|
|
474.2
|
|
|
|
|
3,083.8
|
|
|
|
3,919.7
|
|
|
|
3,159.4
|
|
|
|
3,067.4
|
|
Total debt(3)
|
|
|
13.0
|
|
|
|
4.8
|
|
|
|
|
868.4
|
|
|
|
1,748.6
|
|
|
|
1,452.6
|
|
|
|
1,360.2
|
|
Stockholders equity
|
|
|
258.2
|
|
|
|
245.2
|
|
|
|
|
1,262.7
|
|
|
|
987.2
|
|
|
|
792.0
|
|
|
|
737.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
$
|
129.5
|
|
|
$
|
26.0
|
|
|
|
$
|
334.6
|
|
|
$
|
618.2
|
|
|
$
|
334.1
|
|
|
$
|
149.6
|
|
Net cash provided by (used in) operations
|
|
|
18.4
|
|
|
|
6.6
|
|
|
|
|
110.2
|
|
|
|
(137.4
|
)
|
|
|
505.5
|
|
|
|
112.5
|
|
Net cash (used in) investing activities
|
|
|
(3.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
(1,788.9
|
)
|
|
|
(314.2
|
)
|
|
|
(66.9
|
)
|
|
|
(16.2
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(17.2
|
)
|
|
|
(8.3
|
)
|
|
|
|
1,687.2
|
|
|
|
452.0
|
|
|
|
(393.9
|
)
|
|
|
(97.9
|
)
|
|
|
|
(1) |
|
Cost of sales is exclusive of depreciation and amortization,
which is shown separately. |
|
(2) |
|
Working capital is defined as current assets less current
liabilities. |
|
(3) |
|
Includes current portion. |
42
|
|
|
(4) |
|
The following table reconciles Adjusted EBITDA with our net
income (loss), as derived from our financial statements (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Year
|
|
|
One Month
|
|
|
Eleven Months
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
January 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Net income (loss)
|
|
$
|
69.6
|
|
|
$
|
6.6
|
|
|
$
|
49.9
|
|
|
$
|
253.5
|
|
|
$
|
(291.7
|
)
|
|
$
|
(51.8
|
)
|
Income taxes
|
|
|
48.3
|
|
|
|
4.6
|
|
|
|
32.1
|
|
|
|
153.2
|
|
|
|
13.1
|
|
|
|
(23.4
|
)
|
Interest expense
|
|
|
2.8
|
|
|
|
0.1
|
|
|
|
61.7
|
|
|
|
84.5
|
|
|
|
116.5
|
|
|
|
139.6
|
|
Depreciation and amortization
|
|
|
3.9
|
|
|
|
0.3
|
|
|
|
5.4
|
|
|
|
11.3
|
|
|
|
14.5
|
|
|
|
16.6
|
|
Amortization of intangibles
|
|
|
0.3
|
|
|
|
|
|
|
|
21.9
|
|
|
|
44.4
|
|
|
|
46.6
|
|
|
|
53.9
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
|
|
(8.9
|
)
|
|
|
4.9
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.5
|
|
|
|
0.4
|
|
Red Man Pipe & Supply Co. pre-acquisition contribution
|
|
|
|
|
|
|
13.1
|
|
|
|
142.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midway-Tristate pre-acquisition contribution
|
|
|
|
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmark Fcx pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
Other non-recurring and non-cash expenses(a)
|
|
|
4.6
|
|
|
|
0.3
|
|
|
|
18.6
|
|
|
|
65.1
|
|
|
|
50.4
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
129.5
|
|
|
$
|
26.0
|
|
|
$
|
334.6
|
|
|
$
|
618.2
|
|
|
$
|
334.1
|
|
|
$
|
149.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Other includes transaction-related expenses, equity based
compensation and other items added back to net income pursuant
to our debt agreements. |
43
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations 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
and elsewhere in this prospectus. All references throughout this
section (and elsewhere in this report) to amounts available for
borrowing under various credit facilities refer to amounts
actually available for borrowing after giving effect to any
borrowing base limitations imposed by the facility.
Overview
We are the largest global distributor of pipe, valves and
fittings (PVF) and related products and services to
the energy industry based on sales and hold the leading position
in our industry across each of the upstream (exploration,
production and extraction of underground oil and natural gas),
midstream (gathering and transmission of oil and natural gas,
natural gas utilities and the storage and distribution of oil
and natural gas) and downstream (crude oil refining,
petrochemical processing and general industrials) end markets.
We currently operate approximately 220 branches, including over
180 branches located in the most active oil and natural gas
regions in North America and over 30 branches throughout Europe,
Asia and Australasia. In North America, we operate six major
distribution centers, five in the United States and one in
western Canada. Internationally, we operate distribution centers
in several locations throughout Europe, Asia and Australasia. We
also serve our customers through more than ten valve actuation
and other service locations and more than 190 pipe yards. We
offer a wide array of PVF and oilfield supplies encompassing a
complete line of products, from our global network of suppliers,
to our more than 10,000 active customers. We are diversified,
both by geography and end market. We seek to provide
best-in-class
service to our customers by satisfying the most complex,
multi-site needs of many of the largest companies in the energy
and industrial sectors as their primary PVF supplier. We believe
the critical role we play in our customers supply chain,
together with our extensive product offering, broad global
presence, customer-linked scalable information systems and
efficient distribution capabilities, serve to solidify our
long-standing customer relationships and drive our growth. As a
result, we have an average relationship of over 20 years
with our top ten customers and our sales in 2010 were nearly
twice that of our nearest competitor.
We have benefited historically from several growth trends within
the energy industry, including high levels of expansion and
maintenance expenditures by our customers. Although these trends
have been offset in the last two years due to adverse economic
conditions, we believe that longer-term growth in PVF spending
within the energy industry will continue. The long-term growth
in spending has been driven by several factors, including
underinvestment in North American energy infrastructure,
production and capacity constraints and market expectations of
future improvements in the oil, natural gas, refined products
and petrochemical markets. In addition, the products we
distribute are often used in extreme operating environments,
leading to the need for a regular replacement cycle. As a
result, approximately two-thirds of our sales in 2010 were
attributable to multi-year maintenance, repair and operations
(MRO) contracts. We consider MRO contracts to be
normal, repetitive business that deals primarily with the
regular maintenance, repair or operational work to existing
energy infrastructure. Project activities including facility
expansions or new construction projects are more commonly
associated with a customers capital expenditures budget
and can be sensitive to global oil and natural gas prices and
general economic conditions. We mitigate our exposure to price
volatility by limiting the length of any price-protected
contracts. As pricing rebounds, we believe that we will have the
ability to pass price increases on to the marketplace.
Key
Drivers of Our Business
Our revenues are predominantly derived from the sale of PVF and
other oilfield service supplies to the energy industry in North
America, Europe, Asia and Australasia. Our business is therefore
dependent upon both the current conditions and future prospects
in the energy industry and, in particular, maintenance and
expansionary operating, capital and other expenditures by our
customers in the upstream, midstream and downstream end markets
of the industry. Long-term growth in spending has been, and we
believe will continue to be, driven by several factors,
44
including underinvestment in global energy infrastructure,
production and capacity constraints, and anticipated strength in
the oil, natural gas, refined products and petrochemical
markets. Though oil and natural gas prices are currently below
the record levels set in 2008, oil and, to a lesser extent,
natural gas prices, have remained elevated relative to their
historical levels and we believe will continue to drive capital
and other expenditures by our customers. The outlook for future
oil, natural gas, refined products and petrochemical spending
for PVF is influenced by numerous factors, including the
following:
|
|
|
|
|
Oil and Natural Gas Commodity Prices. Sales of
PVF and related products to the oil and natural gas industry
constitute a significant portion of our sales. As a result, we
depend upon the oil and natural gas industry and its ability and
willingness to make capital and other expenditures to explore
for, produce and process oil and natural gas and refined
products. Oil and natural gas prices, both current and
projected, impact other drivers of our business, including rig
counts, drilling and completion spending, additions and
maintenance to pipeline mileage and refinery utilization.
|
|
|
|
Steel Prices, Availability and Supply and
Demand. Fluctuations in steel prices can lead to
volatility in the pricing of the products we distribute,
especially carbon steel tubular products, which can influence
the buying patterns of our customers. A majority of the products
we distribute contain various types of steel, and the worldwide
supply and demand for these products, or other steel products
that we do not supply, impacts the pricing and availability of
our products and, ultimately, our sales and operating
profitability.
|
|
|
|
Economic Conditions. The demand for the
products we distribute is dependent on the general economy, the
energy and industrials sectors and other factors. Changes in the
general economy or in the energy and industrials sectors
(domestically or internationally) can cause demand for the
products we distribute to materially change. For instance, the
recent economic downturn decreased demand for the products we
distribute, resulting in lower sales volumes, and a prolonged
economic downturn could have a material impact on our business.
|
|
|
|
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 an adverse effect on
the demand for the products we distribute 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 the products we distribute.
Reduced prices, in turn, would likely reduce our profitability.
Conversely, decreased customer and manufacturer inventory levels
may ultimately lead to increased demand for our products and
would likely result in increased sales volumes and overall
profitability.
|
Outlook
During 2010, the industry has seen oil prices stabilize, while
natural gas prices have weakened. U.S. drilling activity
has increased, primarily in the shale basin regions, and oil
drilling now represents over 40% of the total rig count, its
highest level since 1988. In the United States, we have seen the
activity increase across the major shale regions, such as the
Marcellus, Eagle Ford and Bakken, and have shipped approximately
23% more tons of energy carbon steel tubular products during
2010 as compared to 2009. Major capital projects in the
downstream market continue to be delayed and our major customers
are working from relatively conservative budgets, so we
anticipate that there will be a time lag before we see a
significant increase in our downstream activity.
Our upstream end market performance increased slightly in 2010
as compared to 2009, with an increase in drilling activities in
the major shale regions, in particular the Eagle Ford and Bakken
shale regions. In the U.S., the average total rig count was up
42% in 2010 as compared to 2009. However, lower natural gas
prices have begun to impact certain shale regions, such as
Haynesville and Barnett, and rig counts in those areas have
begun to decline. In the Gulf of Mexico, the United States
government initiated a moratorium on deepwater drilling, which
applied to any deepwater floating facilities with drilling
activities, which was scheduled to last through November 2010.
The moratorium on deepwater drilling was lifted in October 2010,
but there remains uncertainty on the timing of approval for
permits under the new rules and we do not anticipate a recovery
in deepwater drilling until the third to
45
fourth quarter of 2011. In Canada, the average total rig count
was up 59% in 2010 as compared to 2009, although lower natural
gas prices are starting to impact the rig count in Canada as
well. We have seen an increase in maintenance, repair and
operations (MRO), particularly in the Canadian heavy
oil, and tar sands regions, which has mitigated the downturn in
project oriented work elsewhere in Canada.
With natural gas prices weakening and oil drilling increasing,
we have strengthened our position within the large oil and
natural gas liquids regions in North America. During 2010, we
acquired The South Texas Supply Company, Inc. (South Texas
Supply) and operations and assets from Dresser Oil Tools,
Inc. (Dresser) as part of our strategic focus to
increase our presence and commitment to our customers in the
active shale regions across North America. South Texas Supply is
located in a high activity area of the emerging Eagle Ford shale
development and the Dresser assets are located in the Bakken
shale development. Both of these formations have heavy
concentrations of oil and natural gas liquids and are seeing
significant increases in drilling activity. In addition to these
acquisitions, we recently have opened new facilities in
Horseheads, New York, supporting the activity in the northern
Marcellus Shale and in Shreveport, Louisiana and Center, Texas,
supporting the activity in the Haynesville Shale.
Our midstream end market performance was relatively stable in
2010 compared to 2009. Our revenues from our natural gas
utilities customers were impacted by the colder than average
winter weather in early 2010, along with a decrease in pipe
pricing for carbon steel and polyethylene pipe. Looking into
2011, we expect the natural gas utility companies to increase
their focus on their pipeline integrity. Our sequential
gathering and transmission pipeline revenues were up during
2010, as a result of the increase in drilling activity,
primarily in the shale basins, and the need for additional
pipeline infrastructure.
Our downstream and other industrials end market performance is
beginning to experience a slow recovery. Refineries are
recognizing slightly improved margins on gasoline and
distillates, which normally drive consistent maintenance
programs from the MRO portion of this market. The downstream
market participants still appear to be very cautious in adding
additional major capital spending in refining, based on the
current oversupply of capacity in the United States markets. Our
maintenance and small capital projects activity to the chemical
and general industrials end markets has increased in 2010 and
continues to improve along with the general economy. We have
seen a slowing of downstream capital and operating expenditures
in Europe during the last half of 2010, which has impacted both
MRO and small project work. Australasian activity remains steady
and significant capital outlays have been announced for the
liquefied natural gas (LNG) green field development
in this area.
We witnessed global steel price increases throughout much of
2010, and steel prices for the products that we sell continue a
generally upward trend, as a result of relatively greater
demand, as evidenced by generally stronger drilling and
completion activities, industrial activity, and higher raw
material commodity prices. Finally, the flooding in Australia
has disrupted the supply of coking coal, iron ore and nickel,
and this and other factors have led to further increases in
steels raw material prices.
46
Results
of Operations
Our operating results by segment are as follows (in millions).
The results for the year ended December 31, 2009 include
the results of MRC Transmark (which comprises a majority of our
International segment) for the two months after the business
combination on October 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,589.9
|
|
|
$
|
3,610.1
|
|
|
$
|
5,255.2
|
|
International
|
|
|
255.6
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,845.5
|
|
|
$
|
3,661.9
|
|
|
$
|
5,255.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.9
|
|
|
$
|
(174.3
|
)
|
|
$
|
500.0
|
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
70.3
|
|
|
$
|
(170.5
|
)
|
|
$
|
500.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows key industry indicators for the years
ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Average Total Rig Count(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,546
|
|
|
|
1,089
|
|
|
|
1,879
|
|
Canada
|
|
|
351
|
|
|
|
221
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
1,897
|
|
|
|
1,310
|
|
|
|
2,260
|
|
International
|
|
|
1,094
|
|
|
|
997
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Worldwide
|
|
|
2,991
|
|
|
|
2,307
|
|
|
|
3,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Natural Gas Rig Count(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
943
|
|
|
|
801
|
|
|
|
1,491
|
|
Canada
|
|
|
148
|
|
|
|
120
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
1,091
|
|
|
|
921
|
|
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Commodity Prices(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/Mcf)
|
|
$
|
4.16
|
|
|
$
|
3.66
|
|
|
$
|
7.98
|
|
WTI crude oil (per barrel)
|
|
$
|
79.39
|
|
|
$
|
61.95
|
|
|
$
|
99.67
|
|
Brent crude oil (per barrel)
|
|
$
|
79.50
|
|
|
$
|
61.74
|
|
|
$
|
96.94
|
|
Well Permits(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,260
|
|
|
|
989
|
|
|
|
1,682
|
|
|
|
|
(1) |
|
Source Baker Hughes (www.bakerhughes.com) |
|
(2) |
|
Source Department of Energy, Energy Information
Administration (www.eia.gov) |
|
(3) |
|
Source RigData |
47
The breakdown of our sales by end market for the years ended
December 31, 2010, 2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Upstream
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
Midstream
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
Downstream and other industrials
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of sales, our upstream activity increased
slightly, approximating 45% of our sales during 2010, compared
to 44% of our sales during 2009. North America natural gas rig
counts, which account for approximately 58% of the total North
America rig count activity, increased approximately 18% on a
year-over-year basis. We saw an improvement of approximately 7%
in our North America upstream sales from 2009 to 2010, due to an
increase in our MRO activity, as well as higher OCTG volumes,
although OCTG prices remained relatively stable in the second
half of 2010. Internationally, our upstream activity decreased
due to significant reductions in E&P spending in the North
Sea.
As a percentage of sales, our midstream activity, including
pipelines, well tie-ins and natural gas utilities, remained
relatively consistent, to 23% of sales during 2010 from 24% of
sales during 2009. Our gathering and transmission pipeline sales
increased approximately 6% in 2010, primarily in the Haynesville
and Marcellus shale plays. Our natural gas utilities MRO
activity declined 11%, offsetting the increase in our gathering
and transmission pipeline sales. Additionally, the proportion of
our end market revenues shifted slightly to the upstream and
downstream markets with the acquisition of Transmark in October
2009.
As a percentage of sales, our downstream and other industrials
sales were relatively stable year-over-year at 32% of sales.
Despite some recent improvement, U.S. refineries continue
to be challenged by tight margins and overseas production
capacity additions. Although U.S. refinery utilization
improved in 2010 from a low point of 77% at the end of January
to a high point of 91% at the end of July, utilization has
declined to 88% at the end of December. In North America,
customers continue to delay certain project work, as they seek
to preserve capital and delay capital and other expenditures
until 2011 or later. Our sales to the chemicals and the general
industrials markets continued to improve in line with the
general economy during 2010, increasing 24% year over-year. Our
International segment, operated through MRC Transmark, has a
greater focus on oil and a lesser focus on natural gas as
compared to our North American segment. Our downstream activity
in Europe declined, as we have seen slowdowns in capital
expenditure projects in the refining sector of Europe, due to
shrinking refining margins and capital investment constraints.
In Asia and Australasia, activity has decreased due to
reductions in our customers capital spending programs.
48
Year
Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
For the years ended December 31, 2010 and 2009, the
following table summarizes our results of operations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,589.9
|
|
|
$
|
3,610.1
|
|
|
$
|
(20.2
|
)
|
|
|
<1
|
%
|
International
|
|
|
255.6
|
|
|
|
51.8
|
|
|
|
203.8
|
|
|
|
393
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,845.5
|
|
|
$
|
3,661.9
|
|
|
$
|
183.6
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
501.5
|
|
|
$
|
592.7
|
|
|
$
|
(91.2
|
)
|
|
|
(15
|
)%
|
International
|
|
|
87.0
|
|
|
|
16.4
|
|
|
|
70.6
|
|
|
|
430
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
588.5
|
|
|
$
|
609.1
|
|
|
$
|
(20.6
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
382.8
|
|
|
$
|
397.9
|
|
|
$
|
(15.1
|
)
|
|
|
(4
|
)%
|
International
|
|
|
65.0
|
|
|
|
10.7
|
|
|
|
54.3
|
|
|
|
507
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
447.7
|
|
|
$
|
408.6
|
|
|
$
|
39.2
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
309.9
|
|
|
$
|
(309.9
|
)
|
|
|
(100
|
)%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
|
|
|
$
|
309.9
|
|
|
$
|
(309.9
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.9
|
|
|
$
|
(174.3
|
)
|
|
$
|
234.2
|
|
|
|
134
|
%
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
6.6
|
|
|
|
174
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
70.3
|
|
|
|
(170.5
|
)
|
|
$
|
240.8
|
|
|
|
141
|
%
|
Interest expense
|
|
|
(139.6
|
)
|
|
|
(116.5
|
)
|
|
|
23.1
|
|
|
|
20
|
%
|
Other, net
|
|
|
(5.9
|
)
|
|
|
8.4
|
|
|
|
(14.3
|
)
|
|
|
(170
|
)%
|
Income tax benefit (expense)
|
|
|
23.4
|
|
|
|
(13.1
|
)
|
|
|
36.5
|
|
|
|
279
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(51.8
|
)
|
|
$
|
(291.7
|
)
|
|
$
|
239.9
|
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
149.6
|
|
|
$
|
334.1
|
|
|
$
|
(184.5
|
)
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales. Our sales were $3.85 billion for
the year ended December 31, 2010, as compared to the
$3.66 billion for the year ended December 31, 2009, an
increase of 5%.
Although our North American sales were down slightly
year-over-year, we started to see signs of an improving economy
beginning in the fourth quarter of 2009. The previous
years results included the carryover effect from high
average capital and other expenditures during 2008, which was
evident in our strong results though the first four months of
2009. As the economic environment in which we operate improved,
including the year-over-year growth in rig counts and commodity
prices, our sales have followed. The fourth quarter of 2010
represented our fifth consecutive quarter of revenue growth.
During the year ended December 31, 2010, the
U.S. Gross Domestic Product (GDP) expanded by
2.9%, compared with a 2.6% contraction during the year ended
December 31, 2009.
Internationally, our sales have weakened in 2010, due to reduced
capital and other expenditures and project delays by our
customers, especially in our downstream end market.
49
Sales of energy carbon steel tubular products accounted for
approximately 38% and 40% of our total sales for the years ended
December 31, 2010 and 2009. The change in sales of our
energy carbon steel tubular products from 2009 to 2010 can be
attributed to an approximate 22% increase in sales volumes,
offset by an approximate 11% decrease in price. Substantially
all of our energy carbon steel tubular products are sold in
North America. Our valves, fittings, flanges and other products
are not as susceptible to significant price fluctuations and
pricing was largely consistent with 2009 levels.
We operate in many foreign countries and are subject to foreign
currency rate fluctuations. Approximately 20% of our 2010
revenues were generated in domiciles outside of the United
States, compared to 12% in 2009 (principally as a result of the
acquisition of Transmark at the end of October 2009).
Gross Margin. Our gross margin was
$589 million (or 15.3% of sales) for the year ended
December 31, 2010, as compared to $609 million (or
16.6% of sales) for the year ended December 31, 2009.
Our North American gross margin decreased to 14.0% in 2010, from
16.4% in 2009. During the year ended December 31, 2010, we
recognized $75 million in increased cost of sales related
to our use of the last in-first-out (LIFO) method of
accounting for inventory costs, compared to an $116 million
decrease in cost of sales for the year ended December 31,
2009. Also, during the year ended December 31, 2009, we
recognized a $46 million inventory write-down; there was no
significant inventory write-down during the year ended
December 31, 2010. In addition, we continue to work through
higher cost inventory, from the carryover effect of 2008.
Although a majority of the inventory was worked through in 2009,
and to a lesser extent in 2010, some small amounts remain. These
factors resulted in a reduction in our gross margins from 2009
to 2010.
Internationally, our margin remained strong, increasing to 34.0%
of sales in 2010 from 31.7% of sales in 2009.
Selling, General and Administrative (SG&A)
Expenses. Our selling, general and administrative
expenses were $448 million (or 11.6% of sales) for the year
ended December 31, 2010, as compared to $409 million
(or 11.2% of sales) for the year ended December 31, 2009.
Our North American SG&A expenses as a percentage of sales
decreased to 10.7% from 11.0%, as we implemented various cost
savings initiatives, including reducing employee headcount by
2%, to right size our operations in light of the economic
environment we faced. With our International business softening,
we are currently evaluating similar cost savings initiatives for
our International segment for 2011.
Goodwill Impairment Charge. During 2009, our
earnings progressively decreased due to the reductions in our
customers expenditure programs caused by the global
economic recession, reductions in oil and natural gas commodity
prices and other factors. These reductions resulted in reduced
demand for our products and lower sales prices/margins, which
altered our view of our marketplace. Consequently, we revised
certain long-term projections for our business, which in turn
impacted its estimated fair value. As a result, we concluded
that the carrying value of our North American reporting unit
exceeded its fair value and recorded a non-cash goodwill
impairment charge in the amount of $310 million during the
year ended December 31, 2009. There was no such goodwill
impairment charge recorded during the year ended
December 31, 2010.
Operating Income (Loss). Operating income was
$70 million for the year ended December 31, 2010, as
compared to an operating loss of $170 million for the year
ended December 31, 2009, an improvement of
$240 million. The results of 2009 were impacted by the
$310 million non-cash goodwill impairment charge, as well
as the $46 million non-cash inventory write-down.
Interest Expense. Our interest expense was
$140 million for the year ended December 31, 2010, as
compared to $117 million for the year ended
December 31, 2009. The increase was due to a higher
weighted-average interest rate, including the impact of our
interest rate swap agreements and various commitment fees, which
increased to 8.5% during 2010 from 6.6% in 2009. The issuance of
our 9.50% senior secured notes in December 2009 and
February 2010 had the impact of increasing the interest rate
that we pay on $1.05 billion of debt by approximately
250 basis points. Also, in connection with the amendment to
our principal revolving credit facility, the interest rate and
commitment fees on such facility increased by approximately
200 basis points and 12.5 basis points, respectively.
50
Other, net. We use derivative instruments to
help manage our exposure to interest rate risks and certain
foreign currency risks. The change in the fair market value of
our derivatives reduced earnings by $5 million for the year
ended December 31, 2010 and increased earnings by
$9 million for the year ended December 31, 2009.
Income Tax Benefit (Expense). Our income tax
benefit was $23 million for the year ended
December 31, 2010, as compared to income tax expense of
$13 million for the year ended December 31, 2009. Our
effective tax rates were 31.1% for the year ended
December 31, 2010 and (4.7)% for the year ended
December 31, 2009. The 2010 rate differs from the federal
statutory rate of 35% principally as a result of the impact of
differing foreign income tax rates, which included the
establishment of a valuation allowance related to certain
foreign net operating loss carryforwards. The 2009 rate differs
from the federal statutory rate primarily as a result of our
nondeductible goodwill impairment charge.
Net (Loss). Our net loss was $52 million
for the year ended December 31, 2010 as compared to
$292 million for the year ended December 31, 2009, an
improvement of $240 million, primarily as a result of the
$310 million goodwill impairment charge recorded in 2009.
Adjusted EBITDA. Adjusted EBITDA (as
calculated for purposes of the indenture governing the notes)
was $150 million for the year ended December 31, 2010,
as compared to $334 million for the year ended
December 31, 2009.
The following table reconciles Adjusted EBITDA with our net
income (loss), as derived from our financial statements (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net (loss)
|
|
$
|
(51.8
|
)
|
|
$
|
(291.7
|
)
|
Income tax (benefit) expense
|
|
|
(23.4
|
)
|
|
|
13.1
|
|
Interest expense
|
|
|
139.6
|
|
|
|
116.5
|
|
Depreciation and amortization
|
|
|
16.6
|
|
|
|
14.5
|
|
Amortization of intangibles
|
|
|
53.9
|
|
|
|
46.6
|
|
Inventory write-down
|
|
|
0.4
|
|
|
|
46.5
|
|
Change in fair value of derivative instruments
|
|
|
4.9
|
|
|
|
(8.9
|
)
|
Goodwill impairment charge
|
|
|
|
|
|
|
309.9
|
|
MRC Transmark pre-acquisition contribution
|
|
|
|
|
|
|
38.5
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
(1.3
|
)
|
Other non-recurring and non-cash expenses(1)
|
|
|
9.4
|
|
|
|
50.4
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
149.6
|
|
|
$
|
334.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other non-recurring and non-cash expenses include transaction
related expenses, equity based compensation and other items
added back to net income pursuant to our debt agreements. |
|
(2) |
|
Adjusted EBITDA includes the impact of our LIFO costing
methodology, which resulted in an increase in cost of sales of
$75 million in 2010 and a decrease in cost of sales of
$116 million in 2009. |
51
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
For the years ended December 31, 2009 and 2008, the
following table summarizes our results of operations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,610.1
|
|
|
$
|
5,255.2
|
|
|
$
|
(1,645.1
|
)
|
|
|
(31
|
)%
|
International
|
|
|
51.8
|
|
|
|
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,661.9
|
|
|
$
|
5,255.2
|
|
|
$
|
(1,593.3
|
)
|
|
|
(30
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
592.7
|
|
|
$
|
1,037.8
|
|
|
$
|
(445.1
|
)
|
|
|
(43
|
)%
|
International
|
|
|
16.4
|
|
|
|
|
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
609.1
|
|
|
$
|
1,037.8
|
|
|
$
|
(428.7
|
)
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
397.9
|
|
|
$
|
482.1
|
|
|
$
|
(84.2
|
)
|
|
|
(17
|
)%
|
International
|
|
|
10.7
|
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
408.6
|
|
|
$
|
482.1
|
|
|
$
|
(73.5
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
309.9
|
|
|
$
|
|
|
|
$
|
309.9
|
|
|
|
100
|
%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
309.9
|
|
|
$
|
|
|
|
$
|
309.9
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(174.3
|
)
|
|
$
|
500.0
|
|
|
$
|
(674.3
|
)
|
|
|
(135
|
)%
|
International
|
|
|
3.8
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
(170.5
|
)
|
|
|
500.0
|
|
|
|
(670.5
|
)
|
|
|
(134
|
)%
|
Interest expense
|
|
|
(116.5
|
)
|
|
|
(84.5
|
)
|
|
|
32.0
|
|
|
|
38
|
%
|
Other, net
|
|
|
8.4
|
|
|
|
(8.7
|
)
|
|
|
17.1
|
|
|
|
197
|
%
|
Income tax benefit (expense)
|
|
|
(13.1
|
)
|
|
|
(153.3
|
)
|
|
|
(140.2
|
)
|
|
|
(91
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(291.7
|
)
|
|
$
|
253.5
|
|
|
$
|
(545.2
|
)
|
|
|
(215
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
334.1
|
|
|
$
|
618.2
|
|
|
$
|
(284.1
|
)
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales. Our sales were $3.66 billion for
the year ended December 31, 2009, as compared to
$5.26 billion for the year ended December 31, 2008.
Our North American sales decreased approximately
$1.6 billion (31%), primarily due to reduced operating
expenses and capital and other expenditures by our customers.
Although our strong 2008 results carried over into the first
four months of 2009, our results suffered from the global
economic slowdown. Both the average rig counts in North America
and commodity prices substantially fell, as the U.S. Gross
Domestic Product contracted by 2.6% in 2009, compared to being
virtually flat for the 2008 year.
Gross Margin. Our gross margin was
$609 million (or 16.6% of sales) for the year ended
December 31, 2009, as compared to $1,038 million (or
19.8% of sales) for the year ended December 31, 2008.
Our North American gross margin decreased to 16.4% from 19.8%.
During the year ended December 31, 2009, we recognized a
$116 million decrease in our cost of sales related to our
use of the LIFO method of accounting for inventory costs,
compared to an $126 million increase in cost of sales for
the year ended December 31, 2008.
52
We perform an internal analysis of our inventory on a quarterly
basis, comparing the carrying value of our inventory to the
estimated market value of the inventory. As a result of this
analysis, we recognized a $46 million inventory write-down;
there was no such inventory write-down during the year ended
December 31, 2008.
Selling, General and Administrative (SG&A)
Expenses. Our selling, general and administrative
expenses were $409 million (or 11% of sales) for the year
ended December 31, 2009, as compared to $482 million
(or 9% of sales) for the year ended December 31, 2008. Our
North American SG&A expenses decreased 17%, due to a
decrease in personnel costs and an overall effort to reduce our
expenses due to a reduction in our sales volumes. As part of our
cost savings initiatives, we reduced our North American
headcount by approximately 18%.
Goodwill Impairment Charge. During 2009, our
earnings progressively decreased due to the reductions in our
customers expenditure programs caused by the global
economic recession, reductions in oil and natural gas commodity
prices and other factors. These reductions resulted in reduced
demand for our products and lower sales prices/margins, which
altered our view of our marketplace. Consequently, we revised
certain long-term projections for our business, which in turn
impacted its estimated fair value. As a result, we concluded
that the carrying value of our North American reporting unit
exceeded its fair value and recorded a non-cash goodwill
impairment charge in the amount of $310 million during the
year ended December 31, 2009. There was no such goodwill
impairment charge recorded during the year ended
December 31, 2008.
Operating (Loss) Income. Including the impact
of the $310 million goodwill impairment charge, our
operating loss was $171 million for the year ended
December 31, 2009, as compared to operating income of
$500 million for the year ended December 31, 2008.
Interest Expense. Our interest expense was
$117 million for the year ended December 31, 2009, as
compared to $85 million for the year ended
December 31, 2008. The increase of $32 million was due
to an increase in the average debt balances during the year. The
increase in the average debt balances was due to: (i) debt
assumed in conjunction with the LaBarge acquisition (October
2008), (ii) debt incurred for working capital expansion
during the first quarter of 2009, (iii) debt incurred for
the May 2008 dividend recapitalization transaction, and
(iv) debt assumed in conjunction with the Transmark
acquisition (October 2009). Also, as a result of the 2009
de-designation and termination of our $700 million interest
rate swap agreement, we recorded $12 million and
$16 million, respectively, to interest expense. Our
weighted average interest rates increased slightly to 6.6% from
6.5%.
Other, net. We recorded a net gain on early
extinguishment of debt of $1 million for the year ended
December 31, 2009. We purchased and retired
$10 million of junior term loan facility debt in March
2009, resulting in a gain on early extinguishment of debt of
$6 million ($4 million, net of deferred income taxes).
We purchased and retired $25 million of junior term loan
facility debt in April 2009, resulting in a gain of
$10 million ($6 million, net of deferred income
taxes). We used the proceeds from the sale of the notes issued
in December 2009 to pay off our term loan facility and our
junior term loan facility. In connection with these payoffs, we
wrote off approximately $14 million of unamortized debt
issue costs that pertained to those facilities. We had no such
extinguishments of debt during the year ended December 31,
2008.
We use derivative instruments to help manage our exposure to
interest rate risks and certain foreign currency risks. The
change in the fair market value of our derivatives increased our
earnings by $9 million for the year ended December 31,
2009 and reduced our earnings by $6 million for the year
ended December 31, 2008.
Income Tax Benefit (Expense). Our income tax
expense was $13 million for the year ended
December 31, 2009, as compared to $153 million for the
year ended December 31, 2008. Our effective tax rates were
(4.7%) and 37.7% for the years ended December 31, 2009 and
2008, respectively. These rates differ from the federal
statutory rate of 35% principally as a result of our goodwill
impairment charge and state income taxes. Partially offsetting
these decreases was an increase in taxes attributable to our
international operations. Excluding the impact of our goodwill
impairment charge, our effective tax rate for the year ended
December 31, 2009 would have been 41.9%.
Net (Loss). Our net loss was $292 million
for the year ended December 31, 2009 as compared to net
income of $253 million for the year ended December 31,
2008. Excluding the impact of MRC Transmark ($4 million),
net income decreased $550 million as a result of the items
noted above, including, in particular, the $310 million
goodwill impairment charge.
53
Adjusted EBITDA. Adjusted EBITDA (as
calculated for purposes of the indenture governing the notes)
was $334 million for the year ended December 31, 2009,
as compared to $618 million for the year ended
December 31, 2008.
The following table reconciles Adjusted EBITDA with our net
(loss) income, as derived from our financial statements (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net (loss) income
|
|
$
|
(291.7
|
)
|
|
$
|
253.5
|
|
Income tax benefit (expense)
|
|
|
13.1
|
|
|
|
153.2
|
|
Interest expense
|
|
|
116.5
|
|
|
|
84.5
|
|
Depreciation and amortization
|
|
|
14.5
|
|
|
|
11.3
|
|
Amortization of intangibles
|
|
|
46.6
|
|
|
|
44.4
|
|
Inventory write-down
|
|
|
46.5
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
(8.9
|
)
|
|
|
6.2
|
|
Goodwill impairment charge
|
|
|
309.9
|
|
|
|
|
|
MRC Transmark pre-acquisition contribution
|
|
|
38.5
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
(1.3
|
)
|
|
|
|
|
Other non-recurring and non-cash expenses(1)
|
|
|
50.4
|
|
|
|
65.1
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
334.1
|
|
|
$
|
618.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other non-recurring and non-cash expenses include transaction
related expenses, equity based compensation and other items
added back to net income pursuant to our debt agreements. |
|
(2) |
|
Adjusted EBITDA includes the impact of our LIFO costing
methodology, which resulted in an decrease in cost of sales of
$116 million in 2009 and an increase in cost of sales of
$126 million in 2008. |
Financial
Condition and Cash Flows
Financial
Condition
The following table sets forth selected balance sheet data for
the periods indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Inventory
|
|
$
|
765.4
|
|
|
$
|
871.7
|
|
Working capital
|
|
|
842.6
|
|
|
|
930.2
|
|
Long-term debt, including current portion
|
|
|
1,360.2
|
|
|
|
1,452.6
|
|
Starting in 2010, we have been emphasizing a shift in our sales
to higher gross margin products. Typically, oil country tubular
goods (within our energy carbon steel tubular product portfolio)
has generated the lowest gross margin. In alignment with this
shift in emphasis, we have been re-balancing our inventories. At
the end of 2010, our energy carbon steel tubular products
constituted approximately 45% of our inventory balance, down
from 56% at the end of 2009. Conversely, our oilfield and
natural gas distribution products, which typically generate a
higher gross margin, comprised 55% of our inventory at the end
of 2010, up from 44% at the end of 2009.
Our working capital decreased 9%, as reduction in inventories
was offset by volume related increases in accounts receivable
and accounts payable, resulting in a $92 million reduction
in long-term borrowings. We closely monitor our working capital
position to ensure that we have the appropriate flexibility for
our operations.
54
Cash
Flows
The following table sets forth our cash flows for the periods
indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
112.5
|
|
|
$
|
505.5
|
|
|
$
|
(137.4
|
)
|
Investing activities
|
|
|
(16.2
|
)
|
|
|
(66.9
|
)
|
|
|
(314.2
|
)
|
Financing activities
|
|
|
(97.9
|
)
|
|
|
(393.9
|
)
|
|
|
452.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(1.6
|
)
|
|
$
|
44.7
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate on cash
|
|
$
|
1.7
|
|
|
$
|
(0.6
|
)
|
|
$
|
1.7
|
|
Operating
Activities
Net cash provided by operating activities decreased by
$393 million to $113 million for the year ended
December 31, 2010, primarily from operations. Net cash
provided by operations increased $643 million from 2008 to
2009, primarily from changes in our working capital, most
notably inventory, as we implemented our Inventory Reduction
Plan in response to changing market conditions. This provided
$367 million of cash in 2009 as compared to using
$462 million in 2008.
Investing
Activities
Net cash used in investing activities decreased by
$51 million to $16 million for the year ended
December 31, 2010. In each year, our net cash used
primarily related to our acquisition activity. In 2010,
$12 million was used to acquire South Texas and Dresser. In
2009, $56 million was used to acquire Transmark. In 2008,
$299 million was used for three transactions:
(1) acquisition of LaBarge Pipe & Steel Company
($152 million), (2) purchase of the remaining 49%
interest in Midfield Supply ULC ($132 million), and
(3) carryover from the Red Man Pipe & Supply Co.
acquisition ($15 million).
Our capital expenditures, net, are typically approximately 0.3%
of our sales for any given year.
Financing
Activities
Net cash provided by (used in) financing activities decreased by
$296 million to $98 million for the year ended
December 31, 2010. The decrease represents our discipline
in managing our working capital and paying down our
indebtedness. The decrease from 2008 to 2009 reflected our
efforts to reduce our working capital, primarily inventories,
the proceeds of which were used to reduce our outstanding debt
balances. During 2009, we substantially reduced the balance of
our indebtedness. Excluding the impact of the Transmark
acquisition and costs associated with the notes, our debt is
down from its peak in February 2009 to its low point in April
2010 by approximately $580 million. As a result of this
reduction, we reduced the balance of our revolving credit
facilities by approximately $343 million during 2009. Also,
in conjunction with the various amendments to our credit
facilities and the issuance of the notes, we paid
$27 million in debt issuance costs, which will be amortized
over the life of the respective facility. During 2008, we
increased the balance on our revolving credit facilities to
support the growth of our business, both for acquisitions and
for working capital. In 2008, we received proceeds of
$897 million, partially offset by our dividend
recapitalization of $475 million to our shareholders.
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 PVF and
other products and services to our customers at margins
sufficient to cover our fixed and variable expenses. As of
December 31, 2010 and 2009, we had cash and cash
equivalents of $56 million. A substantial portion of our
cash and cash equivalents is maintained in
55
the accounts of our various foreign subsidiaries and, if such
amounts were transferred among countries or repatriated to the
U.S., such amounts may be subject to additional tax liabilities.
Our credit facilities consist of a $900 million revolving
credit facility in the U.S., two credit facilities of our
Canadian subsidiary and a credit facility of our international
subsidiary. We maintain these facilities primarily to finance
our working capital, as well as certain mergers and
acquisitions. At December 31, 2010, we had
$475 million available under these credit facilities. As
noted above, our ability to transfer funds among countries could
be hampered by additional tax liabilities imposed as a result of
these transfers. From time to time, we may consider
opportunistic refinancing of our outstanding indebtedness based
on market conditions and the needs of our business.
We also have $1.05 billion of 9.50% senior secured
notes due December 15, 2016 (the notes)
outstanding. In December 2009, $1.0 billion of notes were
issued and the net proceeds of the offering of the notes were
primarily used to pay all the outstanding borrowings under our
$575 million term loan facility (the Term Loan
Facility) and our $450 million junior term loan
facility (the Junior Term Loan Facility). This
financing transaction enabled us to gain more operating
flexibility, in that several of our most restrictive covenants
were eliminated. In February 2010, we issued an additional
$50.0 million of notes and applied the net proceeds to
repay amounts outstanding under our Revolving Credit Facility.
Our credit ratings are below investment grade and as
such could impact both our ability to raise new funds as well as
the interest rates on our future borrowings. Our ability to
incur additional debt is restricted by our existing obligations.
We were in compliance with covenants under our various credit
facilities at December 31, 2010.
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 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.
Contractual
Obligations, Commitments and Contingencies
Contractual
Obligations
The following table summarizes our minimum payment obligations
as of December 31, 2010 relating to long-term debt,
interest payments, capital leases, operating leases, purchase
obligations and other long-term liabilities for the periods
indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2011
|
|
|
2012 to 2013
|
|
|
2014 to 2015
|
|
|
After 2015
|
|
|
Long-term debt
|
|
$
|
1,360.2
|
|
|
$
|
|
|
|
$
|
332.3
|
|
|
$
|
|
|
|
$
|
1,027.9
|
|
Interest payments(1)
|
|
|
625.4
|
|
|
|
110.8
|
|
|
|
219.5
|
|
|
|
199.5
|
|
|
|
95.6
|
|
Interest rate swap
|
|
|
12.0
|
|
|
|
9.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
8.6
|
|
|
|
1.2
|
|
|
|
2.4
|
|
|
|
1.8
|
|
|
|
3.2
|
|
Operating leases
|
|
|
90.9
|
|
|
|
27.6
|
|
|
|
38.7
|
|
|
|
19.0
|
|
|
|
5.6
|
|
Purchase obligations(2)
|
|
|
349.9
|
|
|
|
349.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,464.8
|
|
|
$
|
499.0
|
|
|
$
|
595.4
|
|
|
$
|
220.3
|
|
|
$
|
1,150.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest payments are based on interest rates in effect at
December 31, 2010 and assume contractual amortization
payments. |
56
|
|
|
(2) |
|
Purchase obligations reflect our commitments to purchase PVF
products in the ordinary course of business. While our vendors
often allow us to cancel these purchase orders without penalty,
in certain cases cancellations may subject to cancellation fees
or penalties, depending on the terms of the contract. |
We historically have been an acquisitive company. We expect to
fund future acquisitions primarily with cash flows from
(i) borrowings, either the unused portion of our facilities
or new debt issuances, (ii) cash provided by operations,
and/or
(iii) may also issue additional equity in connection with
such acquisitions.
Description
of Our Indebtedness
Revolving
Credit Facility
McJunkin Red Man Corporation is the borrower under a
$900 million Revolving Credit Facility. The description of
the Revolving Credit Facility presented below gives effect to
the amendment to the Revolving Credit Facility entered into in
December 2009. See Amendment below.
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 $900 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 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.
Borrowing Base. Availability under the
$900 million facility is subject to a borrowing base. The
borrowing base under the Revolving Credit Facility at any time
is equal to 85% of the sum of eligible accounts receivable and
the net orderly liquidation value of eligible inventory of us
and the guarantors of the facility, in each case subject to
customary reserves and eligibility criteria. As of
December 31, 2010, $286 million of borrowings were
outstanding and, due to limitations imposed by the borrowing
base, $360 million was available under the Revolving Credit
Facility.
Interest Rate and Fees. The revolving loans
bear interest at a rate per annum equal to, at the
borrowers option, either (i) the greater of the prime
rate and the federal funds effective rate plus 0.50%, plus in
either case (a) 2.00% if the borrowers consolidated
total debt to Consolidated EBITDA ratio is greater than or equal
to 2.75 to 1.00, (b) 1.75% if such ratio is greater than or
equal to 2.00 to 1.00 but less than 2.75 to 1.00, or
(c) 1.50% if such ratio is less than 2.00 to 1.00; or
(ii) LIBOR plus (a) 3.00% if the borrowers
consolidated total debt to Consolidated EBITDA ratio is greater
than or equal to 2.75 to 1.00, (b) 2.75% if such ratio is
greater than or equal to 2.00 to 1.00 but less than 2.75 to
1.00, or (c) 2.50% 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. At
December 31, 2010, our consolidated total debt to
Consolidated EBITDA ratio was 8.8 to 1.0. The weighted average
interest rate on the revolving loans outstanding at
December 31, 2010 was 3.34%.
During the period from and including the effective date of the
amendment (December 21, 2009) to but excluding the
date that we delivered financial statements to the Revolving
Credit Facility lenders for the fiscal quarter ending on
March 31, 2010, the revolving loans bore interest at a rate
per annum equal to, at our option, either the greater of the
prime rate and the federal funds effective rate plus 2.50%, or
LIBOR plus 3.00%, without regard to the ratio of our
consolidated total debt to Consolidated EBITDA.
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) 0.50% if the borrowers
consolidated total debt to Consolidated EBITDA ratio is greater
than or equal to 2.75 to 1.00 and (ii) 0.375% 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) 2.875% if the borrowers consolidated total
debt to Consolidated
57
EBITDA ratio is greater than or equal to 2.75 to 1.00,
(ii) 2.625% if such ratio is greater than or equal to 2.00
to 1.00 but less than 2.75 to 1.00, or (iii) 2.375% 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. At December 31,
2010, our consolidated total debt to Consolidated EBITDA ratio
was 8.8 to 1.0.
Prepayments. The borrower may voluntarily
prepay revolving loans and swingline loans in whole or in part
at the borrowers option, in each case without premium or
penalty. 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 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. While we will continue to draw down and repay the
facility during the normal course of business, we currently have
no plan to prepay the Revolving Credit Facility in full prior to
its maturity date.
Incremental Facilities. Subject to certain
terms and conditions, the borrower may request an increase in
revolving 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 borrowers ability to borrow under such
incremental facilities, however, would still be limited by the
borrowing base. Any lender that is offered to provide all or
part of the new revolving 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 Revolving Credit Facility are guaranteed by the
borrowers wholly owned domestic subsidiaries and secured,
subject to certain significant exceptions, by a senior security
interest in personal property consisting of and arising from
inventory and accounts receivable.
Covenants. The Revolving Credit Facility
contains customary covenants. This agreement, among other
things, restricts, 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 Revolving Credit Facility. The
Revolving Credit Facility requires 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. At
December 31, 2010, we had 100% of our floating interest
rate debt hedged with interest rate contracts.
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 EBITDA to consolidated fixed charges is at least
1.00 to 1.00.
Events of Default. The Revolving Credit
Facility contains 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
Revolving Credit Facility when due, a breach of certain
covenants in the Revolving Credit Facility, a breach of any
representation or warranty contained in the Revolving Credit
Facility in any material respect, defaults in payments
58
with respect to any other indebtedness in excess of
$30 million, defaults with respect to other indebtedness in
excess of $30 million that have the effect of accelerating
such indebtedness, bankruptcy, certain events relating to
employee benefits plans, failure of a material subsidiarys
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 Revolving Credit 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 $30 million or more
in the aggregate, and the invalidation of subordination
provisions of any document evidencing permitted additional debt
having a principal amount in excess of $15 million. If an
event of default were to occur with respect to this facility,
the maturity of this facility would be accelerated to payable
upon demand. The event of default on this facility would cause
us to cross-default on the notes, whereby the note holders would
have the right to accelerate the maturity of the notes to
payable upon demand.
The Revolving Credit Facility also contains an event of default
upon the occurrence of a change of control. Under the Revolving
Credit Facility, 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, (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.
Amendment. In connection with the issuance of
the notes in December 2009, we amended the Revolving Credit
Facility to permit the issuance of the notes and permit the
payment of a one-time dividend by McJunkin Red Man Corporation
to McJunkin Red Man Holding Corporation for purposes of repaying
the Junior Term Loan Facility. Pursuant to the amendment, we
agreed to increase the interest rate margin on outstanding
borrowings by an additional 1.50% per annum in all cases whether
determined by reference to the greater of prime rate and the
federal funds effective rate or to LIBOR, and for all levels of
our ratio of consolidated total debt to Consolidated EBITDA. The
amendment also fixed the applicable margin at a rate equivalent
to the otherwise maximum margin during the period from and
including the effective date of the amendment to but excluding
the date that we delivered financial statements to the Revolving
Credit Facility lenders for the fiscal quarter ending on
March 31, 2010. We also agreed to increase the commitment
fee under this facility by an additional 0.125% per annum for
all levels of our ratio of consolidated total debt to
Consolidated EBITDA.
Notes
On December 21, 2009, McJunkin Red Man Corporation issued
$1.0 billion of 9.50% senior secured notes due
December 15, 2016 (the notes). The proceeds of
the offering of the notes were used to pay all the outstanding
borrowings under the Term Loan Facility and the Junior Term Loan
Facility. McJunkin Red Man Corporation issued an additional
$50 million of notes on February 11, 2010.
The notes mature on December 15, 2016. Interest accrues at
9.50% per annum and is payable semi-annually in arrears on June
15 and December 15, commencing on June 15, 2010. The
notes are guaranteed on a senior secured basis by McJunkin Red
Man Holding Corporation and all of the current and future wholly
owned domestic subsidiaries of McJunkin Red Man Corporation
(other than certain excluded subsidiaries) and any of McJunkin
Red Man Corporations future restricted subsidiaries that
guarantee any indebtedness of McJunkin Red Man Corporation or
any subsidiary guarantor, including the Revolving Credit
Facility (the Subsidiary Guarantors).
59
Redemption and Repurchase. At any time prior
to December 15, 2012 and subject to certain conditions, the
Issuer may, on any one or more occasions, redeem up to 35% of
the aggregate principal amount of notes issued under the
indenture governing the notes (the Indenture) at a
redemption price of 109.50%, plus accrued and unpaid interest,
with the cash proceeds of certain qualifying equity offerings.
Additionally, at any time prior to December 15, 2012, the
Issuer may, on any one or more occasions, redeem all or a part
of the notes at a redemption price equal to 100%, plus any
accrued and unpaid interest, and plus a make-whole premium. On
or after December 15, 2012, the Issuer may redeem all or a
part of the notes upon not less than 15 nor more than
60 days notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued
and unpaid interest:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2012
|
|
|
107.125
|
%
|
2013
|
|
|
104.750
|
%
|
2014
|
|
|
102.375
|
%
|
2015 and thereafter
|
|
|
100.000
|
%
|
Upon the occurrence of a change of control, the Issuer will be
required to make an offer to repurchase each holders notes
at a repurchase price equal to 101% of their principal amount,
plus accrued and unpaid interest to the date of repurchase.
Covenants. The Indenture contains covenants
that limit the ability of McJunkin Red Man Corporation and its
restricted subsidiaries to, among other things, incur additional
indebtedness, issue certain preferred stock or disqualified
capital stock, create liens, pay dividends or make other
restricted payments, make certain payments on debt that is
subordinated or secured on a basis junior to the notes, make
investments, sell assets, create restrictions on the payment of
dividends or other amounts to McJunkin Red Man Corporation from
restricted subsidiaries, consolidate, merge, sell or otherwise
dispose of all or substantially all of McJunkin Red Man
Corporations assets, enter into transactions with
affiliates, and designate subsidiaries as unrestricted
subsidiaries.
Collateral. The notes and the guarantees by
the Subsidiary Guarantors are secured on a senior basis (subject
to permitted prior liens), together with any other notes issued
under the Indenture or other debt that is secured equally and
ratably with the notes, subject to certain conditions
(Priority Lien Obligations), equally and ratably by
security interests granted to the collateral trustee in all
Notes Priority Collateral (as such term is defined in the
Indenture) from time to time owned by McJunkin Red Man
Corporation or the Subsidiary Guarantors. The guarantee of
McJunkin Red Man Holding Corporation of the notes is not
secured. The Notes Priority Collateral generally comprises
substantially all of McJunkin Red Man Corporations and the
Subsidiary Guarantors tangible and intangible assets,
other than specified excluded assets.
The notes and the guarantees by the Subsidiary Guarantors are
also secured on a junior basis (subject to the lien to secure
the Revolving Credit Facility and other permitted prior liens)
by security interests granted to the collateral trustee in all
ABL Priority Collateral (as such term is defined in the
Indenture) from time to time owned by McJunkin Red Man
Corporation or the Subsidiary Guarantors. Subject to certain
exceptions, the ABL Priority Collateral generally comprises
substantially all of McJunkin Red Man Corporations and the
Subsidiary Guarantors accounts receivable, inventory,
general intangibles and other assets relating to the foregoing,
deposit and securities accounts, and proceeds and products of
the foregoing, other than specified excluded assets. Assets
owned by the Issuers non-guarantor subsidiaries and by
McJunkin Red Man Holding Corporation are not part of the
collateral securing the notes or the Revolving Credit Facility.
Midfield
Supply ULC CAD$80 Million (USD$80 million) Revolving Credit
Facility
One of our subsidiaries, Midfield Supply ULC
(Midfield), is the borrower under a
CAD$80 million (USD$80 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.
On November 18, 2009, the facility was amended to, among
other things, reduce the total revolving credit commitments
under the facility from CAD$150 million
(USD$150 million) to CAD$60 million
(USD$60 million), extend the maturity from November 2,
2010 to November 18, 2012 and change the pricing terms of
the facility. On
60
September 10, 2010, the facility was amended to defer
compliance with a leverage ratio covenant until March 31,
2011 and to modify the calculation of a fixed charge covenant
ratio for the compliance period ended September 30, 2010.
On October 20, 2010, the facility was amended to increase
the maximum limit of the facility to CAD$80 million
(USD$80 million).
The facility provides for the extension of up to
CAD$80 million (USD$80 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 CAD$10 million
(USD$10 million) sub-limit. The revolving loans have a
maturity date of November 18, 2012. All letters of credit
issued under the facility must expire at least 20 business days
prior to November 18, 2012.
Borrowing Base. Availability under the
Midfield Revolving Credit Facility is subject to a borrowing
base that at any time is equal to the lesser of 60% of eligible
inventory and 85% of the net orderly liquidation value of
eligible inventory, subject to customary reserves and
eligibility criteria. As of December 31, 2010,
USD$2 million of borrowings were outstanding and
USD$69 million were available under the Midfield Revolving
Credit Facility.
Interest Rate and Fees. From the period from
November 18, 2009 to December 31, 2009, the revolving
loans bore interest at a rate equal to either (i) the
Canadian prime rate plus 2.00% or (ii) the greater of 2.00%
and 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 (the BA Equivalent
Rate), plus 3.50%. After December 31, 2009, the
revolving loans bear interest at a rate equal to either:
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the Canadian prime rate, plus (a) 2.25% if the
average daily availability (as defined in the loan
and security agreement for the facility) for the previous fiscal
quarter was less than CAD$30 million (US$30 million),
(b) 2.00% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CAD$30 million (USD$30 million) but less than
CAD$60 million (USD$60 million), or (c) 1.75% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CAD$60 million
(USD$60 million), or, at the borrowers option,
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the BA Equivalent Rate plus (a) 3.75% if the average daily
availability for the previous fiscal quarter was less than
CAD$30 million (USD$30 million), (b) 3.50% if the
average daily availability for the previous fiscal quarter was
greater than or equal to CAD$30 million
(USD$30 million) but less than CAD$60 million
(USD$60 million), or (c) 3.25% if the if the average
daily availability for the previous fiscal quarter was greater
than or equal to CAD$60 million (USD$60 million).
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At December 31, 2010, the weighted average interest rate on
borrowings outstanding under the Midfield Revolving Credit
Facility was 5.00%.
The borrower must pay a monthly unused line fee with respect to
unutilized revolving loan commitments equal to (i) 1.00% 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) 1.25% 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) 3.75% if
the average daily availability for the previous fiscal quarter
was less than CAD$30 million (USD$30 million),
(ii) 3.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to
CAD$30 million (USD$30 million) but less than
CAD$60 million (USD$60 million), or (iii) 3.25%
if the average daily availability for the previous fiscal
quarter was greater than or equal to CAD$60 million
(USD$60 million).
Prepayments. The borrower may prepay the
revolving loans from time to time without premium or penalty.
While we will continue to draw down and repay the facility
during the normal course of business, we currently have no plan
to prepay the revolving loans in full prior to its maturity date.
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
61
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 November 18, 2009, 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.
The Midfield Revolving Credit Facility requires the borrower to
maintain Canadian Adjusted EBITDA (as such term is defined in
the loan and security agreement for the facility) of
(i) CAD$1.5 million for the two fiscal quarters ending
December 31, 2009, (ii) CAD$4.8 million for the
three fiscal quarters ending March 31, 2010 and
(iii) CAD$3.7 million for the four fiscal quarters
ending June 30, 2010. Midfields Adjusted EBITDA was
$5.0 million, $6.3 million and $5.5 million for
those periods, respectively. The facility also requires the
borrower, beginning with the fiscal quarter ending
March 31, 2011, to (i) maintain a leverage ratio of no
greater than 3.50 to 1.00 and (ii) maintain a fixed charge
coverage ratio of at least 1.15 to 1.00. The facility also
prohibits the borrower and its subsidiaries from making capital
expenditures in excess of CAD$10 million
(USD$10 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 CAD$0.25 million (USD$0.25 million) of
such excess may be carried forward and used to make capital
expenditures in the succeeding fiscal year. During the year
ended December 31, 2010, Midfields capital
expenditures totaled CAD$0.7 million (USD$0.7 million).
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 facilitys 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 CAD$0.25 million
(USD$0.25 million) if the other indebtedness may be
accelerated due to such default, judgments against the borrower
and its subsidiaries in excess of CAD$0.25 million
(USD$0.25 million) in the aggregate, the occurrence of any
loss or damage with respect to the collateral if the amount not
covered by insurance exceeds CAD$0.50 million
(USD$0.50 million), cessation or governmental restraint of
a material part of the borrowers or a subsidiarys
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., a change of control (as defined in
the loan and security agreement for the facility) occurs, and
any event or condition that has a material adverse effect on the
borrower or a guarantor. If an event of default were to occur
with respect to this facility, Bank of America, N.A. would have
the right to accelerate the maturity of this facility to payable
upon demand. The event of default on this facility would cause
us to cross-default on the Revolving Credit Facility, which in
turn would cause us to cross-default on the notes. In each
instance of cross-default, the debt holders would have the right
to accelerate the maturity of the respective obligation to
payable upon demand.
Midfield
Supply ULC CAD$15 Million (USD$15 Million)
Facility
One of our subsidiaries, Midfield Supply ULC
(Midfield), is also the borrower under a
CAD$15 million (USD$15 million) credit facility with
Alberta Treasury Branches. The facility provides for revolving
loans until July 31, 2011 (subject to extension under
certain circumstances), after which the revolving loans
outstanding under the facility convert to term loans that mature
on July 31, 2012 (subject to extension under certain
circumstances). The facility is secured by substantially all of
the real property and equipment of Midfield Supply ULC and its
subsidiary guarantors. The facility contains the same customary
covenants and events of default as the Midfield Revolving Credit
Facility, as well as its ratio of tangible asset value to
borrowings outstanding must be at least 2.00 to 1.00 (at
December 31, 2010, this ratio was 2.03 to 1.00). At
December 31, 2010, USD$14 million was outstanding
under this facility and the weighted average interest rate on
borrowings was 5.86%.
62
On September 16, 2010, we amended our Midfield term loan
facility to defer compliance with a leverage covenant until
March 31, 2011 and to defer compliance with a fixed charge
coverage ratio until December 31, 2010.
The Midfield CAD$15 million (USD$15 million) facility
and the Midfield CAD$80 million (USD$80 million)
facility are subject to an intercreditor agreement which relates
to, among other things, priority of liens and proceeds of sale
of collateral.
At December 31, 2010, we were in compliance with these
covenants, as amended.
Transmark
Facility
Transmark Fcx Group B.V. and its subsidiaries are parties to a
credit facility with HSBC Bank PLC, dated September 17,
2010 (the Transmark Facility), which consists of a
60 million (USD$80 million) revolving credit
facility, with a 20 million (USD$27 million)
sublimit on letters of credit. At December 31, 2010,
USD$23 million was outstanding on the revolving credit
facility, and USD$46 million was available under the
facility and the weighted average interest rate on borrowings
was 2.61%.
The facility will be reduced by 10 million
(USD$13 million) over its term, as follows:
0.5 million (USD$0.7 million) per quarter
starting in the fourth quarter of 2010 through the third quarter
of 2012, and then by 1.5 million
(USD$2.0 million) per quarter, starting in the fourth
quarter of 2012 through the third quarter of 2013.
The facility bears interest at LIBOR or, in relation to any loan
in Euros, EURIBOR, plus an applicable margin. The margin is
calculated according to the following table:
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Leverage Ratio
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Margin
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Less than or equal to 0.75:1
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1.50
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%
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Greater than 0.75:1, but less than or equal to 1.00:1
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1.75
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%
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Greater than 1.00:1, but less than or equal to 1.50:1
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2.00
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%
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Greater than 1.50:1, but less than or equal to 2.00:1
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2.25
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%
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Greater than 2.00:1
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2.50
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%
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The facility is secured by substantially all of the assets of
MRC Transmark and its wholly owned subsidiaries.
The facility also requires MRC Transmark to maintain:
(i) an interest coverage ratio not less than 3.50:1 and
(ii) a leverage ratio not to exceed 2.50:1. We were in
compliance with these covenants as of and for the year ended
December 31, 2010.
Other
Commitments
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 $16 million of
standby letters of credit and bid, performance and surety bonds
at December 31, 2010. Management does not expect any
material amounts to be drawn on these instruments.
Certain of our international subsidiaries also have trade
guarantees given by bankers on their behalf. The amount of these
guarantees at December 31, 2010 was approximately
6 million (USD $8 million).
Legal
Proceedings
We are involved in various legal proceedings and claims, both as
a plaintiff and a defendant, which arise in the ordinary course
of business. These legal proceedings include claims where we are
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. As of
December 31, 2010, we are a defendant in lawsuits involving
approximately 940 such claims. Each claim involves allegations
of exposure to asbestos-containing materials by a single
individual or an individual, his or her spouse
and/or
family members. The complaints typically name many other
defendants. In a majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs alleged injuries or their connection with the
products distributed by us. Through December 31, 2010,
lawsuits involving over 11,700 claims have been brought against
us. No asbestos lawsuit has resulted in a judgment against us to
date,
63
with the majority being settled, dismissed or otherwise
resolved. In total, since the first asbestos claim brought
against us through December 31, 2010, approximately
$1.2 million has been paid to asbestos claimants in
connection with settlements of claims against us without regard
to insurance recoveries. Of this amount, approximately
$1.0 million has been paid to settle claims alleging
mesothelioma, $0.2 million for claims alleging lung cancer
and $0.1 million for non-malignant claims. The following
chart summarizes, for each year since 2006, the approximate
number of pending claims, new claims, settled claims, dismissed
claims, and approximate total settlement payments, average
settlement amount and total defense costs:
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Average
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Settlement
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Settlement
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Defense
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Claims Pending
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Claims
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Claims
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Claims
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Payments
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Amount
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Costs
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at End of Period
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Filed
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Settled
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Dismissed
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$
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$
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$
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Fiscal year ended December 31, 2006
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815
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27
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6
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11
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75,000
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12,500
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179,791
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Fiscal year ended December 31, 2007
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828
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23
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4
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6
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75,500
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18,875
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218,900
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Fiscal year ended December 31, 2008
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849
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43
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15
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7
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292,500
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19,500
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336,497
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Nine months ended September 28, 2009
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894
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61
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11
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5
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192,500
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17,500
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540,113
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Fiscal year ended September 30, 2010
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942
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111
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29
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34
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482,000
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16,620
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538,354
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With the assistance of accounting and financial consultants and
our asbestos litigation counsel, we annually conduct analyses of
our asbestos-related litigation in order to estimate the
adequacy of the reserve for pending and probable
asbestos-related claims. These analyses consist of separately
estimating our reserve with respect to pending claims (both
those scheduled for trial and those for which a trial date had
not been scheduled), mass filings (including lawsuits brought in
West Virginia each involving many in some cases over
a hundred plaintiffs, which include little
information regarding the nature of each plaintiffs claim
and historically have rarely resulted in any payments to
plaintiff) and probable future claims. A key element of the
analysis is categorizing our claims by the type of disease
alleged by the plaintiffs and developing benchmark
estimated settlement values for each claim category based on our
historical settlement experience. These estimated settlement
values are applied to each of our pending individual claims.
With respect to pending claims where the disease type is
unknown, the outcome is projected based on the historic ratio of
disease types among filed claims (or disease mix)
and dismissal rate. The reserve with respect to mass filings is
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, probable claims expected to be asserted
against us over the next fifteen years are estimated based on
public health estimates of future incidences of certain
asbestos-related diseases in the general U.S. population.
Estimated settlement values are applied to those projected
claims. Our annual assessment, dated September 30, 2010,
projected that our payments to asbestos claimants over the next
fifteen years are estimated to range from $5 million to
$10 million. Given these estimates and existing insurance
coverage that historically has been available to cover
substantial portions of our past payments to claimants and
defense costs, we believe that our current accruals and
associated estimates relating to pending and probable
asbestos-related litigation likely to be asserted over the next
fifteen years are currently adequate. Our belief that our
accruals and associated estimates are currently adequate,
however, relies on a number of significant assumptions,
including:
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That our future settlement payments, disease mix and dismissal
rates will be materially consistent with historic experience;
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That future incidences of asbestos-related diseases in the
U.S. will be materially consistent with current public
health estimates;
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That the rates at which future asbestos-related mesothelioma
incidences result in compensable claims filings against us will
be materially consistent with its historic experience;
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That insurance recoveries for settlement payments and defense
costs will be materially consistent with historic experience;
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64
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That legal standards (and the interpretation of these standards)
applicable to asbestos litigation will not change in material
respects;
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That there are no materially negative developments in the claims
pending against us; and
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That key co-defendants in current and future claims remain
solvent.
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If any of these assumptions prove to be materially different in
light of future developments, liabilities related to
asbestos-related litigation may be materially different than
amounts accrued
and/or
estimated. Further, while we anticipate that additional claims
will be filed in the future, we are unable to predict with any
certainty the number, timing and magnitude of such future claims.
Also, there is a possibility that resolution of certain 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 our opinion, after
consultation with counsel, the ultimate resolution of all
pending matters is not expected to have a material effect on our
financial position, although it is possible that such
resolutions could have a material adverse impact on results of
operations in the period of resolution.
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 Estimates
We prepare our consolidated financial statements in accordance
with U.S. generally accepted accounting principles. 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:
Allowance for Doubtful Accounts: We evaluate
the adequacy of the allowance for losses on receivables 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 us 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 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, adjusted for current economic conditions. Because
this process is subjective and based on estimates, ultimate
losses may differ materially from those estimates. During 2010
we reduced our allowance for doubtful accounts by approximately
$2 million, as the economic conditions in which we, and our
customers, operate improved. At December 31, 2010 and 2009,
the allowance for doubtful accounts was $4.5 million and
$8.8 million, or 0.7% and 1.7% of gross accounts receivable.
Inventories: Our inventories are generally
valued at the lower of cost (principally
last-in,
first-out method (LIFO)) or market. We record an
estimate each month, if necessary, for the expected annual
effect of inflation and estimated year-end inventory volume.
These estimates are adjusted to actual results determined at
year-end. This practice excludes certain inventories, which are
held outside of the U.S., totaling $140 million
(approximately 18% of the consolidated total) at
December 31, 2010, which were valued at the lower of
weighted-average cost or market.
Under the LIFO inventory valuation method, changes in the cost
of inventory are recognized in cost of sales in the current
period even though these costs may have been incurred at
significantly different values. Since the company values most of
its inventory using the LIFO inventory costing methodology, a
rise in inventory costs has a negative effect on operating
results, while, conversely, a fall in inventory costs results in
a benefit to operating results. In a period of rising prices,
cost of sales recognized under LIFO is generally higher than the
cash costs
65
incurred to acquire the inventory sold. Conversely, in a period
of declining prices, costs of sales recognized under LIFO are
generally lower than cash costs of the inventory sold.
The LIFO inventory valuation methodology is not utilized by many
of the companies with which we compete, including foreign
competitors. As such, our results of operations may not be
comparable to those of our competitors during periods of
volatile material costs due, in part, to the differences between
the LIFO inventory valuation method and other acceptable
inventory valuation methods.
During 2008, in addition to an increase in sales volumes, we
experienced inflation in the cost of our products of
approximately 21% on a weighted average basis. The increase in
our tubular products was even more significant, with 2008
inflation of approximately 28%. In 2009, this trend reversed,
with our overall product mix experiencing 15% deflation, with
tubular products deflating approximately 20%. As a result of
lengthening lead times from our manufacturers during mid to late
2008, we continued to receive inventory during the fourth
quarter and into the first quarter of 2009 that was ordered to
support the greater demand during mid to late 2008. The
resulting inventory overstock, coupled with the deflation we
experienced, resulted in the cost of our inventory balance being
above market value. As a result of our lower-of-cost-or-market
assessment, we recorded a $46.5 million write-down of our
inventory during the year ended December 31, 2009. There
were no significant write-downs during the year ended
December 31, 2010.
Impairment of Long-Lived Assets: Our
long-lived assets consist primarily of amortizable intangible
assets, which comprise approximately 18% of our total assets.
These assets are recorded at fair value at the date of
acquisition and are amortized over their estimated useful lives.
We make significant judgments and estimates in both calculating
the fair value of these assets, as well as determining their
estimated useful lives.
The carrying value of these assets is subject to an impairment
test when events or circumstances indicate a possible
impairment. When events or circumstances indicate a possible
impairment, we assess recoverability from future operations
using an undiscounted cash flow analysis, derived from the
lowest appropriate asset group. If the carrying value exceeds
the undiscounted cash flows, we would recognize an impairment
charge to the extent that the carrying value exceeds the fair
value, which is determined based on a discounted cash flow
analysis. During 2009, as the key factors affecting our business
declined and our profitability progressively declined throughout
the year, we determined that an impairment indicator existed and
performed an impairment test on our long-lived assets. This test
required us to make forecasts of our future operating results,
the extent and timing of future cash flows, working capital,
profitability and growth trends. We performed our impairment
test as of October 27, 2009 which did not result in an
impairment charge. During 2010, no indicators of impairment
existed. While we believe our assumptions and estimates are
reasonable, the actual results may differ materially from the
projected results.
Goodwill and Other Indefinite-Lived Intangible
Assets: Our goodwill and other indefinite-lived
intangible assets comprise approximately 29% of our total
assets. Goodwill and intangible assets with indefinite useful
lives are tested for impairment annually or more frequently if
circumstances indicate that impairment may exist. Historically,
we have evaluated the company as one reporting unit and have
elected to perform our annual tests for indications of goodwill
impairment as of the end of October of each year, updating on an
interim basis should indications of impairment exist. As a
result of our Transmark acquisition, which closed on
October 30, 2009, we began evaluating goodwill for
impairment at two reporting units that mirror our two reportable
segments (North America and International).
The goodwill impairment test compares the carrying value of the
reporting unit that has the goodwill with the estimated fair
value of that reporting unit. If the carrying value is more than
the estimated fair value, the second step is performed, whereby
we calculate the implied fair value of goodwill by deducting the
fair value of all tangible and intangible net assets of the
reporting unit from the estimated fair value of the reporting
unit. Impairment losses are recognized to the extent that
recorded goodwill exceeds implied goodwill. Our impairment
methodology uses discounted cash flow and multiples of cash
earnings valuation techniques, plus valuation comparisons to
similar businesses. These valuation methods require us to make
certain assumptions and estimates regarding future operating
results, the extent and timing of future cash flows, working
capital, sales prices, profitability, discount rates and growth
trends. As a result of our impairment test, we recognized a
$309.9 million pre-tax impairment charge during the year
ended December 31, 2009. No such impairment charges were
recognized during the year
66
ended December 31, 2010. While we believe that such
assumptions and estimates are reasonable, the actual results may
differ materially from the projected results.
Income Taxes: Our tax provision is based upon
our expected taxable income and statutory rates in effect in
each country in which we operate. This provision involves the
interpretation of the respective tax laws in each country in
which we operate, as well as significant judgments regarding
future events, such as the amount, timing and character of
income, deductions and tax credits. Changes in tax laws,
regulations and our profitability in each respective country
could impact our tax liability for any given year. 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 effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
earnings in the period that includes the enactment date. Each
reporting period, we assess the likelihood that we will be able
to recover our deferred tax assets. If recovery is not likely,
we record a valuation allowance against the deferred tax assets
that we believe will not be recoverable. The ultimate recovery
of our deferred tax assets is dependent on various factors and
is subject to change. The benefit of an uncertain tax position
that meets the probable recognition threshold is
recognized in the financial statements. Recognized income tax
positions are measured at the largest amount that is greater
than 50% likely of being realized.
Recently
Issued Accounting Standards
In October 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to ASC 605, Revenue
Recognition, related to the accounting for revenue in
arrangements with multiple deliverables including how the
arrangement consideration is allocated among delivered and
undelivered items of the arrangement. Among the amendments, this
standard eliminated the use of the residual method for
allocating arrangement considerations and requires an entity to
allocate the overall consideration to each deliverable based on
an estimated selling price of each individual deliverable in the
arrangement in the absence of having vendor-specific objective
evidence or other third-party evidence of fair value of the
undelivered items. This standard also provides further guidance
on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the
disclosure requirements about the judgments made in applying the
estimated selling price method and how those judgments affect
the timing or amount of revenue recognition. This standard will
become effective on January 1, 2011. We do not expect that
the adoption of this standard will have a material impact on our
consolidated financial statements.
In January 2010, FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements, an
amendment to ASC Topic 820, Fair Value Measurement and
Disclosures. This amendment will require us to disclose
separately the amounts of significant transfers in and out of
Levels 1 and 2 fair value measurements and describe the
reasons for the transfers and present separate information for
Level 3 activity pertaining to gross purchases, sales,
issuances and settlements. This amendment is effective for
reporting periods beginning after December 31, 2009, except
for the disclosures about purchases, sales, issuances and
settlements in the roll forward activity in Level 3 fair
value measurements, which are effective for fiscal years
beginning after December 15, 2010, and for interim periods
within those fiscal years. Our adoption of this amendment,
pertaining to the Level 1 and Level 2 disclosures, on
January 1, 2010 did not have a material impact on our
consolidated financial statements. We do not believe that the
Level 3 amendment disclosures will have a material impact
on our consolidated financial statements.
In February 2010, FASB issued ASU
No. 2010-09,
Amendments to Certain Recognition and Disclosure
Requirements, an amendment to ASC Topic 855, Subsequent
Events, that removed the requirements for SEC registrants to
disclose the date through which subsequent events were
evaluated. There were no changes to the accounting for or
disclosure of events that occur after the balance sheet date but
before the financial statements are issued. Our adoption of this
amendment on January 1, 2010 did not have a material impact
on our consolidated financial statements.
In July 2010, FASB issued ASU
No. 2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses, which amended ASC Topic
310, Receivables. This amendment enhances the disclosure
requirements regarding the nature of credit risk inherent in our
portfolio of accounts receivable, how that risk is assessed in
arriving at our allowance for doubtful accounts and the changes
and reasons for those changes in
67
the allowance for doubtful accounts. The adoption of this
amendment did not have a material impact on our consolidated
financial statements.
In December 2010, FASB issued ASU
No. 2010-29,
Disclosure of Supplementary Pro Forma Information for
Business Combinations, which amended ASC Topic 805,
Business Combinations. This ASU amended certain existing
and added additional pro forma disclosure requirements. The
standard will become effective on January 1, 2011. We do
not expect that the adoption of this standard will have a
material impact on our consolidation financial statements.
68
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including, for example, statements about our
business strategy, our industry, our future profitability,
growth in our various markets and our expectations, beliefs,
plans, strategies, objectives, prospects and assumptions. These
forward-looking statements are not guarantees of future
performance. For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. These
statements are based on managements expectations that
involve a number of business risks and uncertainties, any of
which could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements. 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:
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risks related to the notes, to the collateral and to high yield
securities generally;
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decreases in oil and natural gas prices;
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decreases in oil and natural gas industry expenditure levels,
which may result from decreased oil and natural gas prices or
other factors;
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increased usage of alternative fuels, which may negatively
affect oil and natural gas industry expenditure levels;
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U.S. and international general economic conditions;
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our ability to compete successfully with other companies in our
industry;
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the risk that manufacturers of the products we distribute will
sell a substantial amount of goods directly to end users in the
markets that we serve;
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unexpected supply shortages;
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cost increases by our suppliers;
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our lack of long-term contracts with most of our suppliers;
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increases in customer, manufacturer and distributor inventory
levels;
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price reductions by suppliers of products sold by us, which
could cause the value of our inventory to decline;
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decreases in steel prices, which could significantly lower our
profit;
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increases in steel prices, which we may be unable to pass along
to our customers, which could significantly lower our profit;
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our lack of long-term contracts with many of our customers and
our lack of contracts with customers that require minimum
purchase volumes;
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changes in our customer and product mix;
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the potential adverse effects associated with integrating
Transmark into our business and whether this acquisition will
yield its intended benefits;
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ability to integrate other acquired companies into our business;
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the success of our acquisition strategies;
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our significant indebtedness;
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the dependence on our subsidiaries for cash to meet our debt
obligations;
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changes in our credit profile;
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69
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a decline in demand for certain of the products we distribute if
import restrictions on these products are lifted;
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environmental, health and safety laws and regulations;
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the sufficiency of our insurance policies to cover losses,
including liabilities arising from litigation;
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product liability claims against us;
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pending or future asbestos-related claims against us;
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the potential loss of key personnel;
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interruption in the proper functioning of our information
systems;
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loss of third-party transportation providers;
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potential inability to obtain necessary capital;
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risks related to hurricanes and other adverse weather events or
natural disasters;
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impairment of our goodwill or other intangible assets;
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adverse changes in political or economic conditions in the
countries in which we operate;
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exposure to U.S. and international laws and regulations,
including the Foreign Corrupt Practices Act and other economic
sanction programs;
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potential increases in costs and distraction of management
resulting from the requirements of being a publicly reporting
company;
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risks relating to evaluations of internal controls required by
Section 404 of the Sarbanes-Oxley Act; and
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the limited usefulness of our historic financial statements.
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Undue reliance should not be placed 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.
70
BUSINESS
General
We are the largest global distributor of pipe, valves and
fittings (PVF) and related products and services to
the energy industry based on sales and hold the leading position
in our industry across each of the upstream (exploration,
production, and extraction of underground oil and natural gas),
midstream (gathering and transmission of oil and natural gas,
natural gas utilities, and the storage and distribution of oil
and natural gas) and downstream (crude oil refining,
petrochemical processing and general industrials) end markets.
We currently serve our customers through over 400 global service
locations, including over 180 branches, 6 distribution centers
and over 190 pipe yards located in the most active oil and
natural gas regions in North America and over 30 branch
locations throughout Europe, Asia and Australasia.
McJunkin Red Man Holding Corporation was incorporated in
Delaware on November 20, 2006 and McJunkin Red Man
Corporation was incorporated in West Virginia on March 21,
1922 and was reincorporated in Delaware on June 14, 2010.
Our principal executive office is located at 2 Houston Center,
909 Fannin, Suite 3100, Houston, Texas 77010. We also have
corporate offices located at 835 Hillcrest Drive, Charleston,
West Virginia 25311 and 8023 East 63rd Place, Tulsa,
Oklahoma 74133. Our telephone number is
(877) 294-7574.
Our website address is www.mrcpvf.com. Information
contained on our website is expressly not incorporated by
reference into this prospectus.
Our business is segregated into two operating segments, one
consisting of our North American operations and one consisting
of our international operations. These segments represent our
business of providing PVF and related products and services to
the energy and industrial sectors, across each of the upstream,
midstream and downstream markets.
Financial information regarding our reportable segments appears
in Managements Discussion and Analysis of Financial
Condition and Results of Operations and in Note 13 of
the Notes to the Consolidated Financial Statements included in
this prospectus.
Our
Strengths
Global Market Leader with Worldwide Branch Network and
Significant Scale. We are the leading global
distributor of PVF and related products to the energy industry
based on sales, with over twice the sales of our nearest
competitor in 2010. We have a significant market presence
through a global network of over 400 service locations worldwide
providing us with substantial economies of scale, global reach
and product breadth that we believe makes us a more effective
competitor. The benefits of our size and extensive international
presence include: (1) the ability to act as a single-source
supplier to large, multi-national customers operating across all
segments of the global 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 global 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.
71
The following chart summarizes our revenue by geography for the
year ended December 31, 2010:
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Year Ended
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December 31,
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2010
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United States
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80
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%
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Canada
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13
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%
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International
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7
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%
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100
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%
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(International includes Europe, Asia and Australasia)
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 approximately half of our sales for
2010, and no single customer accounted for more than 5% of sales
in either period. 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 approximately
two-thirds of our 2010 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. Furthermore, during 2010 we
signed several new MRO contracts, including both contracts with
new customers that displace competitors and contracts with
existing customers that 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 year ended December 31,
2010, we generated approximately 45% of our sales in the
upstream sector, 23% in the midstream sector, and 32% in the
downstream, industrial and other energy end markets. 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 a one stop solution for our
integrated energy customers. In North America, our more than 180
branches are located near major hydrocarbon and refining
regions, including rapidly expanding oil and natural gas
E&P areas such as the Bakken, Barnett, Fayetteville,
Haynesville and Marcellus shales, where MRO expenditures for PVF
are typically over five times that of MRO expenditures for PVF
in conventional upstream areas. Outside North America, we have a
network of over 30 branch locations throughout Europe, Asia and
Australasia. Our geographic diversity enhances our ability to
quickly respond to customers worldwide, gives us a strong
presence in these high growth areas and reduces our exposure to
a downturn in any one region.
For the years ended December 31, 2008, December 31,
2009, and December 31, 2010, the breakdown of our revenue
by end market was as follows:
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Year Ended December 31,
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2008
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2009
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2010
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Upstream
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45
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%
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44
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%
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45
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%
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Midstream
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22
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%
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24
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%
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22
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%
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Downstream and industrial
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33
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%
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32
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%
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33
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%
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100
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%
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100
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%
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100
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%
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72
The shift to midstream markets in the year ended
December 31, 2009 is a direct result of our acquisition of
LaBarge Pipe & Steel Company (LaBarge) in
October 2008 (the LaBarge Acquisition), which
increased our presence in the midstream market. Our acquisition
of Transmark in October 2009 increased our presence in the
downstream and industrial market.
Strategic Supplier Relationships. We have
extensive relationships with our suppliers and have key supplier
relationships dating back in certain instances over
60 years. Approximately 39% of our total purchases for the
year ended December 31, 2010 were from our top ten
suppliers. 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 MRC
Approved Supplier List (MRC ASL), serves as a
significant strategic advantage to us in developing, maintaining
and institutionalizing key supplier relationships. For our
suppliers, being included on the MRC 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.
An IT Platform Focused on Customer
Service. Our business is supported by our
integrated, scalable, customer-linked and highly customized
information systems. These systems and our more than
3,600 employees (including Transmark) are linked by a wide
area network. We recently combined our North American business
operations onto one legacy enterprise server-based sales,
inventory & management system (SIMS). This
enabled 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 our customers
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 Structure 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
routine 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 large portion of our operating costs.
Furthermore, our capital expenditures were approximately 0.3% of
our sales for the year ended December 31, 2010. 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. During the year ended
December 31, 2010, we generated approximately
$101 million of free cash flow, which we define as net cash
provided by operations, less capital expenditures.
Experienced and Motivated Management Team. Our
senior management team has an average of approximately
30 years of experience (over 225 years in total) in
the oilfield and industrial supply business, the majority of
which has been with McJunkin Red Man or its predecessors.
Employees own approximately 7% of our company, including
approximately 4% that is owned by senior management, either
directly or indirectly through their equity interests in PVF
Holdings LLC, our indirect parent company. 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.
73
Our
Business Strategy
Our goal is to grow our market position as the largest global
distributor of PVF and related products to the energy industry.
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, increasing
recurring revenues through integrated supply, maintenance,
repair and operations (MRO) and project business,
continuing to increase our operational efficiency and making and
integrating strategic acquisitions. We also seek to extend our
current North American MRO contracts internationally, as well as
cross-sell certain products, most notably pipe, flanges,
fittings and other products (PFF) into MRC
Transmarks existing customer base, branch network and
valve-focused platform. We will also look at future
complementary PFF distribution acquisitions that would
supplement MRC Transmarks valve leadership position, and
we will look at future bolt-on acquisitions in North
America that broaden our geographic footprint or expand our
product offering to our major customers.
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 global one stop
PVF procurement solution across the upstream, midstream and
downstream sectors of the energy industry, maximizing
cross-selling opportunities by leveraging our extensive product
offering and increasing our penetration of existing
customers new multi-year 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
customers global 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 our deep customer and supplier relationships and thereby
increase our market share. There is also a significant
opportunity to extend our current North American MRO contracts
internationally as well as cross-sell certain products, most
notably pipe, flanges, fittings and other products, into
Transmarks existing customer base, branch network and
valve-focused product platform.
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.
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. Under these arrangements, we are
typically 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 and we
will seek to extend these contracts internationally as a result
of the Transmark acquisition.
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 global 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,
value added services and scale in purchasing, and
(4) existing deep relationships with customers and
suppliers.
We also have both exclusive and non-exclusive MRO contracts and
new project contracts in place. Our customers over the long term
are increasing their maintenance and capital spending, which is
being driven by aging infrastructure, increasing regulatory,
safety and environmental requirements, the increased utilization
of existing
74
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 through our
one-stop PVF solution, both in North America and
globally as a result of our Transmark acquisition, for servicing
the requirements of our customers and we are actively pursuing
such agreements.
We recently significantly enhanced our business development
efforts by implementing global account management processes more
closely aligned with our customers procurement operations
at the national and local level in order to continue to grow our
business. Our global account management strategy is based on
aligning key sales executives as single-point MRC contacts
servicing the upstream, midstream and downstream requirements of
customer accounts that represent the largest percentage of our
revenue. As a result in part of this effort, during 2009 our
executive sales force has had success in increasing sales under,
and in obtaining new, MRO contracts, and we continue to focus on
increasing our MRO business both in North America and globally.
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
information to optimize global, regional and local strategies,
reduce operating costs and maximize cash flow generation. As
part of this effort, management incentives are centered on
achieving adjusted EBITDA and return on assets targets.
In response to the recent downturn in certain of our end
markets, our management team has focused on several
restructuring initiatives to align our cost structure with the
level of business activity. For example, during 2008 and 2009 we
streamlined our organization by realigning our eight North
American geographic regions into four and merged, converted,
reorganized or closed over 47 branches as part of this process.
These cost saving initiatives include branch consolidations,
supplier rationalizations, regional realignments and reductions
in corporate overhead, personnel and profit sharing programs.
Several of these cost saving initiatives were put in place as
part of the McJunkin Red Man merger integration plan and thus we
believe will not need to be reversed once activity returns to
more normalized levels.
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 purchasing functions and
believe we have developed strong relationships with vendors that
value our international footprint, large sales force 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.
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 in select domestic and international regions as
well as identifying existing branches for overlap and strategic
elimination.
We believe that an attractive opportunity also exists to
continue to expand internationally. We continue to actively
evaluate opportunities to extend our offering to key
international markets, particularly in Asia, the Middle East and
South America, and recently expanded our global presence through
our acquisition of Transmark. The current installed base of
energy infrastructure internationally, including the upstream,
midstream and downstream end markets, is significantly larger
than in North America, and as a result we believe represents an
attractive long term opportunity both for us and our largest
customers. In addition, the increased focus, particularly by
foreign-owned integrated oil companies that traditionally have
not used distributors for their PVF procurement requirements, 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.
75
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, waterworks, food and beverage and other
general industrial markets, in addition to other energy end
markets such as power generation, solar, liquefied natural gas,
coal, nuclear and ethanol. We believe our extensive global
branch network, comprehensive PVF product offering, large sales
force 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.
Focus on Acquisition Integration. Since
January 2007, we have completed five acquisitions and one major
merger that have provided us with additional product, end market
or geographic adjacencies and diversification. In addition,
prior to the investment in our company by the Goldman Sachs
Principal Investment Area in January 2007, we completed 18
acquisitions between 2000 and 2006. As part of these
transactions, we believe we have demonstrated a track record of
successful acquisition integration, including expediently
bringing new systems onto ours, consolidating redundant
branches, leveraging operational best practices and generating
cost savings in purchasing and administrative functions.
Acquisitions, particularly of tuck-in family owned
competitors, remain an attractive growth opportunity and we
believe are a core competency of our company.
Further Penetrate the Canadian Oil Sands, Particularly the
Downstream Sector. The Canadian Oil Sands region
and its attendant downstream markets represent long-term growth
areas for our company. Improvements in mining and in-situ
technology are driving significant long-term investment in the
area and, according to the Alberta Energy Resources and
Conservation Board, the Canadian Oil Sands contain an ultimately
recoverable crude bitumen resource of 315 billion barrels,
with established reserves of 170 billion barrels in 2008.
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
significant growth due to advancements in recovery and upgrading
technologies. According to the Alberta Ministry of Energy, an
estimated CDN$91 .0 billion (US$91.0 billion) was
invested in Canadian Oil Sands projects from 1999 to 2009. 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. MRO expenditures for PVF in the Canadian Oil Sands
are typically over five times that of MRO expenditures for PVF
in traditional downstream environments. According to the Alberta
Ministry of Energy, almost CDN$170 billion
(US$170 billion) in Canadian Oil Sands-related projects
were underway or proposed as of September 2009, which we
estimate could generate significant PVF expenditures. However,
current uncertainties regarding oil prices and market conditions
may postpone some of these projects.
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 and
downstream markets which include the upgrader, refinery and
petrochemical 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 utilize a full team overseen by senior management
and have made targeted inventory and facility investments in
Canada, including a 60,000 square foot distribution center
located near Edmonton and a recently opened approximately
16,000 square foot distribution center near
Fort McMurray, to address this opportunity. Finally, we
also believe that an attractive opportunity exists to more fully
penetrate the MRO market in Canada, particularly in Eastern
Canada, including refineries, petrochemical facilities, gas
utilities and pulp and paper and other general industrial
markets. We recently opened a branch in Sarnia, Ontario to
target these end markets.
History
McJunkin Corporation (McJunkin) was founded in 1921
in Charleston, West Virginia and initially served the local oil
and natural gas industry, focusing primarily on the downstream
end market. In 1989, McJunkin broadened its upstream end market
presence by merging its oil and natural gas division with
Appalachian Pipe &
76
Supply Co. to form McJunkin Appalachian Oilfield Supply
Company (McJunkin Appalachian, which was a
subsidiary of McJunkin Corporation, but has since been merged
with and into McJunkin Red Man Corporation), which focused
primarily on upstream oil and natural gas customers.
In April 2007, we acquired Midway-Tristate Corporation
(Midway), a regional PVF oilfield distributor,
primarily serving the upstream Appalachia and Rockies regions.
This extended our leadership position in Appalachia/Marcellus
shale region, while adding additional branches in the Rockies.
Red Man Pipe & Supply Co. (Red
Man) was founded in 1976 in Tulsa, Oklahoma and began as a
distributor to the upstream end market and subsequently expanded
into the midstream and downstream end markets. In 2005, Red Man
acquired an approximate 51% voting interest in Canadian oilfield
distributor Midfield Supply ULC (Midfield), giving
Red Man a significant presence in the Western Canadian
Sedimentary Basin.
In October 2007, McJunkin and Red Man completed a business
combination transaction to form the combined company, McJunkin
Red Man Corporation. This transformational merger combined
leadership positions in the upstream, midstream and downstream
end markets, while creating a one stop PVF leader
across all end markets with full geographic coverage across
North America. Red Man has since been merged with and into
McJunkin Red Man Corporation.
On July 31, 2008, we acquired the remaining voting and
equity interest in Midfield. Also, in October 2008, we acquired
LaBarge Pipe & Steel Company (LaBarge).
LaBarge is engaged in the sale and distribution of carbon steel
pipe (predominately large diameter pipe) for use primarily in
the North American midstream energy infrastructure market. The
acquisition of LaBarge expanded our midstream end market
leadership, while adding a new product line in large outside
diameter pipe.
On October 30, 2009, we acquired Transmark Fcx Group B.V.
(Transmark) and as part of the acquisition, we
renamed Transmark as MRC Transmark Group B.V. (MRC
Transmark) MRC Transmark is a leading distributor of
valves and flow control products in Europe, Southeast Asia and
Australasia. Transmark was formed from a series of acquisitions,
the most significant being the acquisition of FCX European and
Australasian distribution business in July 2005. The acquisition
of Transmark provided geographic expansion internationally,
additional downstream diversification and enhanced valve market
leadership.
During 2010, we acquired The South Texas Supply Company, Inc.
(South Texas Supply) and also certain operations and
assets from Dresser Oil Tools, Inc. (Dresser). With
these two acquisitions, we expanded our footprint in the Eagle
Ford and Bakken shale regions, expanding our local presence in
two of the emerging active shale basins in North America.
Industry
We primarily serve the global oil and natural gas industry,
generating approximately 90% of our sales from supplying
products and various services to customers throughout the energy
industry. Of our total sales, 95% are comprised of PVF and
related oilfield supplies. Given the diverse requirements and
various factors that drive the growth of the upstream, midstream
and downstream end markets, our sales to each end market may
vary over time, though the overall strength of the global energy
market and the level of our customers capital and other
expenditures are typically good indicators of our performance.
While customer spending improved in 2010 over 2009, as part of
the broader global economic recovery, overall oil and natural
gas drilling and completion spending still remained at 2006
levels. Over the longer term we expect customer spending to
increase due to a variety of global supply and demand
fundamentals. Globally, the energy industry has, during the past
several years, experienced 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: (i) increased consumption of energy,
caused in part by the industrialization of China, India and
other non-OECD countries, (ii) continued global energy
infrastructure expansion and (iii) increased use of natural
gas, as opposed to coal, in power generation. At the same time,
energy supply has been generally 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
77
the next level of global exploration, extraction, production,
transportation, refining and processing of energy inputs.
Furthermore, as companies in the energy industry continue to
focus on improving operating efficiencies, they have been
increasingly looking to outsource their procurement and related
administrative functions to distributors such as MRC.
The following table summarizes our revenue by end market for the
years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Upstream
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
Midstream
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
Downstream and industrial
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream: Exploration and production
(E&P) companies, commonly referred to as
upstream companies, search for oil and natural gas underground
and extract it to the surface. Representative companies include
Anadarko, Canadian Natural Resources, Ltd., Chesapeake Energy
Corporation, Chevron Corporation, ConocoPhillips Company, EnCana
Corporation, Exxon Mobil Corporation, Husky Energy Inc.,
Marathon and Royal Dutch Shell plc. E&P companies typically
purchase oilfield supplies, including carbon steel and other
pipe, valves, sucker rods, tools, pumps, production equipment
and meters.
Notwithstanding the significant decrease in 2009 and slight
increase in 2010, the capital spending budgets of E&P
companies have grown over the past decade as tight supply
conditions and strong global demand for oil and natural gas have
spurred companies to expand their operations.
Oil and
Natural Gas Drilling and Completion Spending(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In billions
|
|
2011E
|
|
|
2010E
|
|
|
2009A
|
|
|
2008A
|
|
|
2007A
|
|
|
2006A
|
|
|
United States
|
|
$
|
140.6
|
|
|
$
|
115.7
|
|
|
$
|
83.5
|
|
|
$
|
150.7
|
|
|
$
|
127.6
|
|
|
$
|
117.0
|
|
Canada
|
|
|
21.0
|
|
|
|
17.0
|
|
|
|
10.0
|
|
|
|
20.5
|
|
|
|
17.7
|
|
|
|
21.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America total
|
|
$
|
161.6
|
|
|
$
|
132.7
|
|
|
$
|
93.5
|
|
|
$
|
171.2
|
|
|
$
|
145.3
|
|
|
$
|
138.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International(2)
|
|
$
|
38.9
|
|
|
$
|
36.6
|
|
|
$
|
38.4
|
|
|
$
|
39.5
|
|
|
$
|
33.9
|
|
|
$
|
30.1
|
|
|
|
|
(1) |
|
Source Spears & Associates: Drilling and
Production Outlook, December 2010 |
|
(2) |
|
Includes Europe and the Far East |
Rig counts are indicative of activity levels in the upstream end
market. The average North American rig count increased at an
approximate 4% compound annual growth rate between 2006 and
2008, but, due to the global economic recession that started in
late 2008, the average fell by more than 40% in 2009. As the
economy recovered, the rig count recovered, increasing by 45% in
2010. Furthermore, more technically sophisticated drilling
methods, such as deep and horizontal drilling and the multiple
fracturing of hydrocarbon production zones, coupled with higher
oil and natural gas prices relative to long term averages, have
made E&P in previously underdeveloped areas, such as
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 United States,
including the Bakken, Barnett, Fayetteville, Haynesville, Eagle
Ford and Marcellus shales, where we have an extensive local
presence. During 2010, there was a significant shift towards oil
prospects, with an average oil rig count of approximately 39% of
the total for 2010, the highest percentage in the United States
in the last twenty years. Additionally, we believe improved
E&P technologies will allow for more deepwater drilling
both offshore in the Gulf of Mexico and offshore in certain
international areas, where we maintain a presence. In the Gulf
of Mexico, new drilling and safety requirements will have to be
met in 2011 before there will be a significant activity
increase. In Canada, improvements in mining and in-situ
technology are driving increased investment in the Canadian Oil
Sands.
78
Oil and
Natural Gas Rig Count
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Average Total Rig Count(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,546
|
|
|
|
1,089
|
|
|
|
1,879
|
|
|
|
1,768
|
|
|
|
1,649
|
|
Canada
|
|
|
351
|
|
|
|
221
|
|
|
|
381
|
|
|
|
344
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
1,897
|
|
|
|
1,310
|
|
|
|
2,260
|
|
|
|
2,112
|
|
|
|
2,119
|
|
International
|
|
|
1,094
|
|
|
|
997
|
|
|
|
1,079
|
|
|
|
1,005
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Worldwide
|
|
|
2,991
|
|
|
|
2,307
|
|
|
|
3,339
|
|
|
|
3,117
|
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Natural Gas Rig Count(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
943
|
|
|
|
801
|
|
|
|
1,491
|
|
|
|
1,466
|
|
|
|
1,372
|
|
Canada
|
|
|
148
|
|
|
|
120
|
|
|
|
220
|
|
|
|
215
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
1,091
|
|
|
|
921
|
|
|
|
1,711
|
|
|
|
1,681
|
|
|
|
1,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Commodity Prices(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/Mcf)
|
|
$
|
4.16
|
|
|
$
|
3.66
|
|
|
$
|
7.98
|
|
|
$
|
6.26
|
|
|
$
|
6.40
|
|
WTI crude oil (per barrel)
|
|
$
|
79.39
|
|
|
$
|
61.95
|
|
|
$
|
99.67
|
|
|
$
|
72.34
|
|
|
$
|
66.05
|
|
Brent crude oil (per barrel)
|
|
$
|
79.50
|
|
|
$
|
61.74
|
|
|
$
|
96.94
|
|
|
$
|
72.44
|
|
|
$
|
65.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Permit(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,260
|
|
|
|
989
|
|
|
|
1,682
|
|
|
|
1,512
|
|
|
|
1,514
|
|
|
|
|
(1) |
|
Source Baker Hughes
(www.bakerhughes.com) |
|
(2) |
|
Source Department of Energy, Energy Information
Administration (www.eia.gov) |
|
(3) |
|
Source RigData |
Midstream: The midstream end market of the oil and
natural 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 AGL Resources Inc.,
Atmos Energy Corporation, Chesapeake Midstream Partners,
Consolidated Edison, Inc., DCP Midstream Partners, LP,
El Paso Natural Gas Company, 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 natural gas, actuation systems for the
remote opening and closing of valves, polyethylene pipe for
last mile transmission to end user locations, and
metering equipment for the measurement of oil and natural gas
delivery.
The natural gas utilities portion of the midstream sector has
been one of our fastest growing markets since regulatory changes
enacted in the late 1990s encouraged utilities to outsource
through distribution their PVF purchasing and procurement needs.
Outsourcing provides significant labor and working capital
savings to customers through the consolidation of standardized
product procurement spending and the delegation of warehousing
operations to us. We estimate that less than one-half of natural
gas utilities currently outsource in varying degrees and we
anticipate that some of the remaining large natural gas
utilities will most likely switch from the direct sourcing model
to a distributor model. Furthermore, we believe natural 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 and enable them to focus on
their core operations.
The gathering and transmission pipeline activity is anticipated
to exhibit significant growth over the next several years due to
the new discoveries of natural gas reserves in various shale
natural gas fields and the need for additional pipelines to
carry heavy sour crude from Canada to refineries in the United
States. Recent heightened
79
activity in oil and natural gas fields such as the Bakken, Eagle
Ford, Niobrara and Marcellus shale regions remain largely
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.
Drivers of pipeline development and growth include the
development of natural gas production in new geographies,
increased pipeline interconnection driven by a need to lower
price differences within regions, and the need to link
facilities that may be developed over the next decade.
The need for increased safety and governmental demands for
pipeline integrity have also accelerated the MRO cycle for PVF
products in this segment. Governmentally mandated programs have
hastened 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 regulations for pipeline
integrity management should continue to stimulate MRO demand for
products as older pipelines are inspected and eventually
replaced.
Additions
to Natural Gas Pipeline Mileage
2006-2010(1)
|
|
|
(1) |
|
U.S. Energy Information Administration
(www.eia.gov) |
Downstream: 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, Royal Dutch Shell
plc 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.
Over the past year, refinery utilization rates have decreased
significantly as part of the global economic slowdown. As a
result, several new projects to increase capacity have been
delayed, or in some cases cancelled. The number of operable
refineries in the U.S. declined from 223 in 1985 to
approximately 148 in 2010, and we believe that the continued
stress on this refinery infrastructure caused by demand for
petroleum products will accelerate PVF replacement rates over
the longer term. This trend is most pronounced outside the
U.S. where capacity utilization rates are the highest and
the demand for petroleum products is growing the fastest.
80
Percent Utilization
of Refinery Operable
Capacity(1)
|
|
|
|
|
United States
|
|
|
European Union
|
|
|
|
|
(1) |
|
Source BP Statistical Review of World Energy June
2010 (www.bp.com/statisticalreview) |
The pre-recession gap between fuel consumption and domestic
refining capacity, coupled with an anticipated recovery in
refinery utilization levels, may necessitate new projects and
generate new project and MRO contract opportunities for MRC.
Further, as refineries look for ways to improve margins and
value-added capabilities, they are also increasingly broadening
the crude processed to include heavier, sourer crude. Heavier,
sour crude is harsher and more corrosive than light sweet crude,
and requires high-grade alloys in many parts of the refining
process, shortening product replacement cycles and creating
additional MRO contract opportunities for us following project
completion. Thus, we believe that this need will create greater
demand for our specialty products that 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 in production of a variety of primary petrochemicals (e.g.
ethylene and propylene) that are the building blocks for many 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 and other expenditures to increase capacity.
Industry participants include integrated oil and natural 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 and Exxon Mobil Corporation.
Other Industries Served. Beyond the oil and
natural gas industry, we also supply products and services to
other energy sectors such as chemical, petrochemical, 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, fabrication,
pharmaceutical, food and beverage and manufacturing, 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. We include these industries within our downstream
end market category.
North
American Operations
Our North American segment represented approximately 93% of our
consolidated revenues in 2010 and is comprised of our business
of distributing pipe, valves and fittings to the energy and
industrial sectors, across each of the upstream, midstream and
downstream end markets, through our distribution operations
located throughout North America.
81
Products: Through our over 180 branches
strategically located throughout North America, we distribute a
complete line of PVF products, primarily used in specialized
applications in the energy infrastructure market, from our
global network of suppliers. The products we distribute 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. Key product types are described
below:
|
|
|
|
|
Carbon Steel Fittings and Flanges. Products
include carbon weld fittings, flanges and piping components used
primarily to connect piping and valve systems for the
transmission of various liquids and gases. These products are
used across all the industries in which we operate.
|
|
|
|
Carbon Steel Line Pipe and Oil Country Tubular Goods
(OCTG). Carbon standard and line pipe are
typically used in high-yield, high-stress, abrasive applications
such as the gathering and transmission of oil, natural gas and
phosphates. OCTG is used as down hole well casing, production
casing and tubing for the conveying of hydrocarbons to the
surface and is either classified as carbon or alloy depending on
the grade of material.
|
|
|
|
Natural Gas Distribution Products. Products
include risers, meters, polyethylene pipe and fittings and
various other components and supplies used primarily in the
distribution of natural gas to residential and commercial
customers.
|
|
|
|
Oilfield Supplies. We offer a full range of
oilfield supplies and completion equipment. Products offered
include high density polyethylene pipe and fittings, valves,
well heads, pumping units and rods. Additionally, we can supply
a wide range of production equipment including meter runs, tanks
and separators used in our upstream end market.
|
|
|
|
Stainless Steel and Alloy Pipe and
Fittings. Products include stainless, alloy and
corrosion resistant pipe, tubing, fittings and flanges. These
are used most often in the chemical, refining and power
generation industries but are used across all of the end markets
in which we operate. Alloy products are principally used in
high-pressure, high-temperature and high-corrosion applications
typically seen in process piping applications.
|
|
|
|
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 lined corrosion resistant piping
systems, valve automation and top work components used for
regulating flow and on/off service, and a wide range of steam
and instrumentation products used in various process
applications within our refinery, petrochemical and general
industrial end markets.
|
Services: We provide many of our customers
with a comprehensive array of services including multiple
deliveries each day, zone store management, valve tagging and
significant system interfaces that directly tie the customer
into our proprietary information systems. This allows us to
interface with our customers information technology
(IT) systems and provide an integrated supply
service. Such services strengthen our position with our
customers as we become more integrated into the customers
business and supply chain and are able to market a total
transaction cost solution rather than individual product
prices.
Our comprehensive legacy information systems, which provide for
customer and supplier electronic integrations, information
sharing and
e-commerce
applications, further strengthen our ability to provide high
levels of service to our customers. In 2010, we processed over
1.5 million EDI/EDE customer transactions. 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
82
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 certain
of 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 often have MRC employees
on-site
full-time at many customer locations. Our integrated supply
group offers procurement-related services, physical warehousing
services, product quality assurance and inventory ownership and
analysis services.
Suppliers: We source the products we
distribute from a global network of 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. Our purchases
from our top ten suppliers in 2010 approximated 41% of our North
American total purchases, with our single largest supplier
constituting approximately 12%. We are the largest buyer for
many of our suppliers and we source a significant majority of
the products we distribute directly from the manufacturer. The
remainder of the products we distribute are sourced from
manufacturer representatives, trading companies and, in some
instances, other distributors.
We believe our customers and suppliers recognize us as an
industry leader for the quality of products we supply and for
the formal processes we use to evaluate vendor performance. This
vendor assessment process is referred to as the MRC 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 MRC Approved Supplier List (MRC 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 Approved Manufacturer List
(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 our 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 MRC 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 truck fleet to ensure timely and efficient delivery of
our products. With respect to deliveries of products from us to
our customers, or our outbound needs, we utilize both our
corporate fleet and third-party transportation providers. With
respect to shipments of products from suppliers to us, or our
inbound needs, we principally use third party carriers. We
utilize third parties for approximately 20% of our outbound
deliveries and for nearly all of our inbound shipments.
Seasonality: Our business experiences mild
seasonal effects as demand for the products we distribute is
generally higher during the months of August, September and
October. Demand for the products we distribute 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 and due to winter weather
disruptions. In addition, certain E&P activities, primarily
in Canada, typically experience a springtime reduction due to
seasonal thaws and regulatory restrictions, limiting the ability
of drilling rigs to operate effectively during these periods.
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, our customers require highly reliable products from
distributors with established qualifications and experience. As
our PVF products typically represent a fraction of the total
cost of a given 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
83
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 of 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 date of
the invoice). Customers generally have the right to return
products we have sold, subject to certain conditions and
limitations, although returns have historically been immaterial
to our sales. For the years ended December 31, 2010 and
2009, our top twenty-five North American customers represented
approximately half of our North American sales. For many of our
largest customers, we are often their sole or primary PVF
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 benefit 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.
Backlog: Backlog is determined by the amount
of unshipped third-party customer orders, either specific or
general (including under pipe programs) in nature, which may be
revised or cancelled by the customer in certain instances. There
can be no assurance that the backlog amounts will be ultimately
realized as revenue, or that the Company will earn a profit on
the backlog of orders. Our backlog at December 31, 2010 was
$519 million. At December 31, 2009, our backlog, which
at that time generally excluded oil and gas well program orders,
was $264 million.
Competition: We are the largest North American
PVF distributor to the energy industry based on sales. The broad
PVF distribution industry is fragmented and includes large,
nationally recognized distributors, major regional distributors
and many smaller local distributors. The principal methods of
competition include offering prompt local service, fulfillment
capability, breadth of product and service offerings, price and
total costs to the customer. Our competitors include nationally
recognized distributors, such as Wilson Industries, Inc. (a
subsidiary of Schlumberger) and National Oilwell Varco, Inc.,
several large regional or product-specific competitors and many
local, family-owned PVF distributors.
Employees: As of December 31, 2010, we
had approximately 3,120 employees in North America.
Twenty-two employees in the United States belong to a union and
are covered by collective bargaining agreements. We consider our
relationships with our employees to be good.
International
Operations
Our International segment represents our valve distribution
business to the energy and general industrial sectors, across
each of the upstream and downstream end markets, through our
distribution operations located throughout Europe, Asia and
Australasia. Our International segment represented approximately
7% of our consolidated revenues in 2010.
Products: Through our over 30 strategic branch
and service facilities throughout Europe, Asia and Australasia,
we distribute a complete line of valve and specialty products.
The products we distribute 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. Due
to our geographical footprint, we are able to service our global
customers at several of their locations. Key product types are
described below:
|
|
|
|
|
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 lined corrosion resistant piping
systems, valve automation and top work components used for
regulating flow and on/off
|
84
|
|
|
|
|
service and a wide range of steam and instrumentation products
used in various process applications within our offshore
refinery, petrochemical and general industrial end markets.
|
Services: We provide our customers with a
comprehensive array of services, including multiple daily
deliveries, zone stores management, valve tagging and
significant system interfaces that directly tie the customer
into our proprietary information systems. This allows us to
interface with our customers IT systems and provide an
integrated supply service. Such services strengthen our position
with our customers as we become more integrated into the
customers business and supply chain and are able to market
a total transaction cost solution rather than
individual product prices.
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 certain
of 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 valves and other related products. Our
integrated supply group offers procurement-related services,
physical warehousing services, product inspection, product
quality assurance and inventory ownership and analysis services.
Suppliers: We source the products we
distribute from a global and regional network of 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. Our purchases
from our top ten suppliers in 2010 approximated 43% of our
International total purchases, with our single largest supplier
constituting approximately 9%. We are a significant buyer for
many of our suppliers and we source a significant majority of
the products we distribute directly from the manufacturer. The
remainder of the products we distribute are sourced from
manufacturer representatives, trading companies and other
distributors.
Customers: Our principal customers are
companies active in the upstream 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, our
customers require highly reliable products from distributors
with established qualifications and experience. As our valve
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, consisting of thousands of
active customers. We are not dependent on any one customer or
group of customers. Customers generally have the right to return
products we have sold, subject to certain conditions and
limitations, although returns have historically been immaterial
to our sales. For the year ended December 31, 2010, our top
ten International customers represented approximately 40% of our
International sales. For many of our largest customers, we are
often their sole or primary valve provider by end market or
geography, their largest or second largest supplier in aggregate
or, in certain instances, the sole provider for their upstream
and downstream procurement needs. We believe that many customers
for which we are not the end market exclusive or comprehensive
sole source valve 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 valve and PVF distributors
with the most extensive product offering and broadest geographic
presence. Furthermore, we believe our business will benefit 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 valve provider.
Backlog: Backlog is determined by the amount
of unshipped third-party customer orders, either specific or
general in nature, which may be revised or cancelled by the
customer in certain instances. There can be no assurance that
the backlog amounts will be ultimately realized as revenue or
that the Company will earn a profit on the backlog of orders.
Our backlog at December 31, 2010 and 2009 was
$64 million and $98 million, respectively.
Competition: We are one of the largest global
valve distributors to the energy industry based on sales. The
broad PVF distribution industry is fragmented and includes
large, nationally recognized distributors, major regional
85
distributors and many smaller local distributors. The principal
methods of competition include offering prompt local service,
fulfillment capability, breadth of product and service
offerings, price and total costs to the customer. Our
competitors include several large regional or product-specific
competitors and many local, family-owned PVF distributors.
Employees: As of December 31, 2010, we
had approximately 490 employees. Five employees in New
Zealand belong to a union and are covered by collective
bargaining agreements. We consider our relationships with our
employees to be good.
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, or exposure to, hazardous substances and wastes,
the responsibility to investigate and clean up 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
U.S. federal Superfund law or its foreign equivalent, 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
imposed 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
U.S. federal Superfund law or its state or foreign
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.
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.
In particular, legislation and regulations limiting emissions of
greenhouse gases (GHGs), including carbon dioxide
associated with the burning of fossil fuels, are at various
stages of consideration and implementation at the international,
national, regional and state levels. In 2005, the Kyoto Protocol
to the 1992 United Nations Framework Convention on Climate
Change, which established a binding set of emission targets for
GHGs, became binding on the countries that ratified it. Certain
states have adopted or are considering legislation or regulation
imposing overall caps on GHG emissions from certain facility
categories or mandating the increased use of electricity from
renewable energy sources. Similar legislation has been proposed
at the federal level. In addition, the U.S. Environmental
Protection Agency (the EPA) has begun to implement
regulations that would require permits for and reductions in
greenhouse gas emissions for certain categories of facilities,
the first of which became effective in January 2010. The EPA
also intends to set GHG emissions standards for power plants in
May 2012 and for refineries
86
in November 2012. These laws and regulations could negatively
impact the market for the products we distribute and,
consequently, our business.
In addition, the federal government and certain state
governments are considering enhancing the regulation of
hydraulic fracturing, a practice involving the injection of
certain substances into rock formations to stimulate production
of hydrocarbons, particularly natural gas, from shale basin
regions. Any increased federal or state regulation of hydraulic
fracturing could reduce the demand for our products in these
regions.
Exchange
Rate Information
In this prospectus, unless otherwise indicated, foreign currency
amounts are converted into U.S. dollar amounts at the
exchange rates in effect on December 31, 2010 and 2009 for
balance sheet figures. Income statement figures are converted on
a monthly basis, using each months average conversion rate.
87
MANAGEMENT
Executive
Officers and Directors
The following table sets forth the names, ages (as of
December 31, 2010) and positions of each person who is
an executive officer or director of McJunkin Red Man Holding
Corporation:
|
|
|
|
|
|
|
|
|
Age
|
|
Position
|
|
Andrew R. Lane
|
|
|
51
|
|
|
Chairman, President and Chief Executive Officer
|
James F. Underhill
|
|
|
55
|
|
|
Executive Vice President and Chief Financial Officer
|
Stephen W. Lake
|
|
|
47
|
|
|
Executive Vice President and General Counsel
|
Gary A. Ittner
|
|
|
58
|
|
|
Executive Vice President and Chief Administrative Officer
|
Rory M. Isaac
|
|
|
60
|
|
|
Executive Vice President Business Development
|
Scott A. Hutchinson
|
|
|
55
|
|
|
Executive Vice President North America Operations
|
Neil P. Wagstaff
|
|
|
47
|
|
|
Executive Vice President International Operations
|
Leonard M. Anthony
|
|
|
56
|
|
|
Director
|
Rhys J. Best
|
|
|
64
|
|
|
Director
|
Peter C. Boylan III
|
|
|
46
|
|
|
Director
|
Henry Cornell
|
|
|
54
|
|
|
Director
|
Christopher A.S. Crampton
|
|
|
32
|
|
|
Director
|
John F. Daly
|
|
|
44
|
|
|
Director
|
Craig Ketchum
|
|
|
53
|
|
|
Director
|
Gerard P. Krans
|
|
|
63
|
|
|
Director
|
Dr. Cornelis A. Linse
|
|
|
61
|
|
|
Director
|
John A. Perkins
|
|
|
63
|
|
|
Director
|
H.B. Wehrle, III
|
|
|
59
|
|
|
Director
|
Andrew R. Lane has served as our president and chief
executive officer since September 2008 and our chairman of the
board since December 2009. He has also served as a director
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
Halliburtons 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 director of KBR, Inc. from June
2006 to April 2007. He began his career in the oil and natural
gas industry as a field engineer for Gulf Oil Corporation in
1982, and later worked as a production engineer in Gulf
Oils Pipeline Design and Permits Group. Mr. Lane
received a B.S. in mechanical engineering from Southern
Methodist University in 1981, (Cum Laude). He also completed the
Advanced Management Program (A.M.P.) at Harvard Business School
in 2000. He is a member of the executive board of the Southern
Methodist University School of Engineering. Mr. Lane is
uniquely qualified to serve as one of our directors due to his
extensive executive and leadership experience in the oil and
natural gas industry and his deep knowledge of our operations.
James F. Underhill has served as our executive vice
president and chief financial officer since November 2007. He
served as our 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
88
1987, Mr. Underhill served as controller, assistant
controller, and corporate accounting manager. Mr. Underhill
joined MRC in 1980 and has since overseen our 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 our IT 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 MRC,
Mr. Underhill worked in the New York City office of the
accounting firm of Main Hurdman (Main Hurdman was incorporated
into the successor accounting firm, KPMG).
Stephen W. Lake has served as our executive vice
president and general counsel since May 2010. Prior to that
time, he served as our executive vice president, general counsel
and corporate secretary since October 2008. Prior to that, he
had served as our senior vice president, general counsel and
corporate secretary since June 2008. Prior to that, he was our
senior vice president general counsel since joining
MRC in January 2008. Previously, Mr. Lake was a shareholder
at the law firm Gable & Gotwals in Tulsa, Oklahoma
from January 1998 through January 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 2005 through January 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.
Gary A. Ittner has served as our executive vice president
and chief administrative officer since September 2010. Prior to
that, he served as our executive vice president
supply chain management since February 2009. Prior to that, he
had served as our senior corporate vice president of supply
chain management since November 2007, having specific
responsibility for the procurement of all industrial valves,
automation, fittings and alloy tubular products. From March 2001
to November 2007, he served as our senior corporate vice
president of supply chain management. Before joining the supply
chain 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 Associations Industrial
Piping Division. Mr. Ittner began working at MRC in 1971
following his freshman year at the University of Cincinnati and
joined MRC full-time following his graduation in 1974.
Rory M. Isaac has served as our executive vice
president business development since December 2008.
Prior to that, he served as our senior corporate vice president
of sales (focusing on downstream, industrials and natural gas
utilities operations) since November 2007. From 2000 to 2007 he
served as our senior vice president national
accounts, utilities and marketing. From 1995 to 2000 he served
as our senior vice president national accounts.
Mr. Isaac joined MRC in 1981. He has extensive experience
in sales, customer relations and management and has served at
MRC as a branch manager, regional manager and regional vice
president. In 1995 he began working in our corporate office in
Charleston, West Virginia as senior vice president for national
accounts, where he was responsible for managing and growing our
national accounts customer base and directing business
development efforts into integrated supply markets. Prior to
joining MRC, Mr. Isaac worked at Consolidated Services,
Inc. and Charleston Supply Company. Mr. Isaac attended the
Citadel.
Scott A. Hutchinson has served as our executive vice
president North America operations since November
2009. Prior to that, he had served as our senior vice president
of the Eastern region covering most operational units east of
the Mississippi River. Mr. Hutchinsons extensive
background in branch sales and operations was instrumental as he
led the integration effort of the Midwest, Eastern and
Appalachian regions. From October 1998 to January 2009 he served
as senior vice president of our Midwest region. During this time
he was key in the acquisitions and integration of Wilkins
Supply, Joliet Valve, Cigma and Valvax, solidifying and
expanding the market reach of the company in the Midwest. From
May 1988 to October 1998 he worked in various field positions
including branch manager, regional manager, and regional vice
president in our Western Region. From 1984 to 1988 he served as
outside sales representative for Grant Supply in Houston, TX
which became part of our company in 1987. Prior to joining us,
Mr. Hutchinson worked for Fluor Corporation in procurement.
Mr. Hutchinson received a Bachelor of Arts degree in
marketing from the University of Central Florida in 1977.
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Neil P. Wagstaff has served as our executive vice
president international operations since
January 1, 2011. Prior to that, he served as our executive
vice president international operations and as chief
executive officer of MRC Transmark since October 2009. From July
2006 until October 2009, he served as group chief executive of
Transmark Fcx Group B.V. where he was responsible for the
groups overall performance in 13 operating companies in
Europe, Asia and Australia and oversaw a number of acquisitions
and integrations. Prior to that he held a variety of positions
within Transmark Fcx, serving as a group divisional director
from 2003, responsible for operations in the UK and Asia, as
well as managing director for the UK businesses. He was also
sales and marketing director of Heaton Valves prior to the
acquisition by Transmark group in 1996, as well as Sales and
Marketing Director for Hattersley Heaton valves and Shipham
Valves. Mr. Wagstaff began his career in the valve
manufacturing business in 1983 when he studied mechanical
engineering at the Saunders Valve Company. Educated at London
Business School, he is a chartered director and fellow of the UK
Institute of Directors.
Leonard M. Anthony has been a member of our board of
directors since October 2008. Mr. Anthony served as the
president and chief executive officer of WCI Steel, Inc., an
integrated producer of custom steel products, from December 2007
to October 2008. He was also a member of the board of directors
of WCI Steel from December 2007 to October 2008.
Mr. Anthony has more than 25 years of financial and
operational management experience. From April 2005 to August
2007, Mr. Anthony was the executive vice president and
chief financial officer of Dresser-Rand Group Inc., a global
supplier of rotating equipment solutions to the oil, natural
gas, petrochemical and processing industries. From May 2003 to
April 2005, he served as chief financial officer of
International Steel Group Inc. From 1979 to 2003, he worked at
Bethlehem Steel Corporation, where he held various managerial
and leadership positions. Bethlehem filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy
Code on October 15, 2001. Mr. Anthony had been the
vice president of finance and treasurer of Bethlehem from
October 1999 to September 2001 and senior vice president and
chief financial officer from immediately prior to its bankruptcy
in October 2001 to its acquisition by International Steel in
April 2003, where he assumed the role of chief financial officer
and treasurer. Mr. Anthony earned a B.S. in accounting from
Pennsylvania State University, an M.B.A. from the Wharton School
of the University of Pennsylvania and an A.M.P. from Harvard
Business School. Mr. Anthony has extensive experience at
multiple levels of financial control, planning and reporting and
risk management for large corporate enterprises.
Rhys J. Best has been a member of our board of directors
since December 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 natural
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.
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 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
Commercial Metals Corporation, a producer and marketer of scrap
metals and metal products and the chairman (non-executive) and a
member of the board of directors 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. Mr. Best
has extensive executive and leadership experience in overseeing
the production and marketing of pipes and fittings in the oil
and natural gas industry.
Peter C. Boylan III has been a member of our board
of directors since August 2010 and a member or PVF Holdings, LLC
board of directors since November 2007. Mr. Boylan has
served as the chief executive officer of Boylan Partners, LLC, a
provider of investment and advisory services, since March 2002.
From April 2002 through March 2004, Mr. Boylan served as
director, president and chief executive officer of Liberty
Broadband Interactive Television, Inc., a global technology
provider controlled by Liberty Media Corporation. From July 2000
to April 2002, Mr. Boylan was co-president, co-chief
operating officer, member of the office of the chief executive
officer,
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and director of
Gemstar-TV
Guide International, Inc., a media, entertainment, technology
and communications company. Mr. Boylan currently serves on
the board of directors of BOK Financial Corporation, a
$24 billion publicly traded regional financial services
company operating seven banking divisions in eight states and a
broker/dealer subsidiary in 10 states. Mr. Boylan
serves on the credit committee and the risk oversight and audit
committees. Mr. Boylan has extensive corporate executive
management and leadership experience, accounting, financial, and
audit committee expertise, media and technology expertise, civic
service, and experience sitting on other public and private
boards of directors. In 2004, after a federal judge dismissed a
U.S. Securities & Exchange Commission (SEC) civil
suit filed against Mr. Boylan in the United States District
Court for the Central District of California (Western Division)
he entered into court ordered mediation with the SEC leading to
a civil settlement and a Final Judgment against Mr. Boylan,
enjoining him from violating the anti-fraud, books and records
and other provisions of the federal securities laws, and
ordering the payment of $600,000 in disgorgement and civil
penalties. Mr. Boylan consented to the entry of the order
without admitting or denying any wrongdoing. The Final Judgment
and settlement had no officer and director bar. The judgment
against Mr. Boylan arose out of a complaint filed against
Mr. Boylan and other executive officers by the
U.S. Securities & Exchange Commission, alleging
that Mr. Boylan and other executive officers violated
various provisions of the U.S. securities laws during his
tenure as co-president, co-chief operating officer and director
of
Gemstar-TV
Guide International, Inc. (Gemstar) from July 2000 to April
2002. Mr. Boylan was indemnified by Gemstar for legal fees
and expenses.
Henry Cornell has been a member of our board of directors
since November 2006. Mr. Cornell is a Managing Director of
Goldman, Sachs & Co. He is the Chief Operating Officer
of Goldman Sachs Merchant Banking Division, which includes
all of the firms corporate, real estate and infrastructure
investment activities, and is a member of the global Merchant
Banking Investment Committee. Mr. Cornell also serves on
the Board of Directors of First Marblehead Corporation, Cobalt
International Energy, Kinder Morgan, Inc., and USI Holdings
Corporation. Mr. Cornell is the Chairman of The Citizens
Committee of New York City, Treasurer and Trustee of the Whitney
Museum of American Art, a Trustee of Grinnell College (and
Chairman of the Investment Committee), a member of The Council
on Foreign Relations, Trustee Emeritus of the Asia Society, a
Trustee and Chairman of the Investment Committee of the Japan
Society, and a member of Sothebys International Advisory
Board. He earned a B.A. from Grinnell College in 1976 and a J.D.
from New York Law School in 1981. Mr. Cornell practiced law
with the firm of Davis, Polk & Wardwell from 1981 to
1984 in New York and London. Mr. Cornell joined Goldman,
Sachs & Co. in 1984. Mr. Cornell brings extensive
experience in corporate investment, corporate governance and
strategic planning including in the pipeline transportation and
energy storage industries. He also has extensive experience
serving on boards of directors of other significant companies
including multinational companies in the energy industry.
Christopher A.S. Crampton has been a member of our board
of directors since January 2007. He is currently a vice
president in the Merchant Banking Division of Goldman,
Sachs & Co., which he joined in 2003. From 2000 to
2003, he worked in the investment banking division of Deutsche
Bank Securities. He is a graduate of Princeton University.
Mr. Crampton has extensive experience in investment
banking, corporate finance and strategic planning.
John F. Daly has been a member of our board of the
directors since January 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 at the University of Pennsylvania.
Mr. Daly currently serves as a director of KAG Holding
Corp., Fiberlink Communications Corp. and Hawker Beechcraft,
Inc. In the past five years, Mr. Daly has also served on
the boards of Cooper-Standard Automotive, Inc., Euramax
Holdings, Inc. and IPC Systems, Inc. Mr. Daly has extensive
experience in investment banking, corporate finance and
strategic planning, including in the industrial and
manufacturing sectors. He also has extensive experience serving
on boards of directors of other significant companies, including
multinational companies.
Craig Ketchum has been a member of our board of directors
since October 2007. Mr. Ketchum served as our chairman of
the board of directors from September 2008 to December 2009 and
as our president and chief executive officer 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
2007. He served at Red Man in various capacities since 1979,
including store operations and sales, working at Red Man
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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 Mans board of
directors. 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. Mr. Ketchum is intimately familiar
with PVF distribution operations and is uniquely qualified to
serve as a director due to his years of service in senior
management of both Red Man and McJunkin Red Man Corporation.
Gerard P. Krans has been a member of our board of
directors since December 2009. Mr. Krans serves as the
chairman of the board of directors of Transmark Holdings N.V., a
privately owned energy and oil services group, and Transmark
Investments. Mr. Krans also serves on the board of
directors of Royal Wagenborg and Crucell. From 2001 to 2007,
Mr. Krans served as chairman of the board of directors of
Royal van Zanten. From 1995 to 2000, Mr. Krans served on
the executive board of VOPAK. From 1973 to 1995, Mr. Krans
served in various positions with Royal Dutch Shell.
Mr. Krans received university degrees in law, econometrics
and taxation. Mr. Krans has extensive experience in
strategic planning and corporate oversight, including in the
energy, chemical and oil sectors.
Dr. Cornelis A. Linse has been a member of our board
of directors since May 2010. He is currently a non-executive
director of Transmark Holdings N.V., a privately owned energy
and oil services group. From February 2007 until January 2010,
Dr. Linse was the director of common infrastructure
management for Shell International B.V. During this same period,
he also served as chairman of the board of Shell Pension Fund
the Netherlands, a pension fund sponsored by Shell Petroleum
N.V. From February 2003 to February 2007, he was the executive
vice president of contracting and procurement for Shell
International B.V. Dr. Linse has held various leadership
and managerial roles in the oil and gas industry since 1978, and
has extensive experience in developing business infrastructure
in growing, multinational companies. Dr. Linse earned a PhD
from Leiden University in 1978.
John A. Perkins has been a member of our board of
directors since December 2009. From 2001 until 2006 he was Chief
Executive of London-based Truflo International plc, an
international industrial group involved in the manufacture and
specialist distribution of valves and related flow control
products. Prior to emigrating to the UK in 1987, he was
Executive Director and (from 1982) Managing Director of
Metboard, a South African investment, property and financial
services group which merged with the banking group Investec,
which was subsequently listed on the Johannesburg and London
Stock Exchanges. Mr. Perkins earned a B.Com degree from the
University of the Witwatersrand and is a South African Chartered
Accountant. He is currently a non-executive director on the
Supervisory Board of Transmark Investments B.V., a privately
owned energy and oil services group. Mr. Perkins brings
extensive experience in the valve manufacturing and distribution
industries throughout Europe, the United States, Australasia and
the Far East.
H.B. Wehrle, III has been a member of our board of
directors since January 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 our chairman of the board of
directors. Mr. Wehrle began his career with McJunkin in
1973 in sales. He subsequently served as treasurer and was later
promoted to executive vice president. He was elected president
of McJunkin in 1987. Mr. Wehrle graduated from Princeton
University and received an M.B.A. from Georgia State University
in 1978. He is affiliated with 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 and
the University of Charleston. Mr. Wehrle is intimately
familiar with PVF distribution operations and is uniquely
qualified to serve as a director due to his years of service in
senior management of both McJunkin and McJunkin Red Man
Corporation.
Each of our directors, except for Andrew R. Lane, Leonard M.
Anthony, Dr. Cornelis A. Linse and John A. Perkins, is also
a director of PVF Holdings LLC, our parent company.
Mr. Wehrle and Mr. Ketchum, two of our directors, are
each co-chairman of PVF Holdings LLC.
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Board of
Directors
Our board of directors currently consists of twelve 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. Each
director who is an employee of Goldman Sachs & Co. is
entitled to six (6) votes and all other directors are
entitled to one (1) vote on all matters that come before
the board of directors.
Board
Leadership Structure
Our board of directors currently combines the positions of CEO
and Chairman. These positions are currently held by
Mr. Lane. The responsibilities of the chairman include
presiding at all meetings of the board, reviewing and approving
meeting agendas, meeting schedules and other information, as
appropriate, and performing such other duties as required from
time to time. We believe that the current model is effective for
the company as the combined position of CEO and Chairman
maximizes strategic advantages and company and industry
expertise. Mr. Lane has extensive leadership experience in
our industry and is best positioned to set and execute strategic
priorities. Mr. Lanes leadership enhances the
boards exercise of its responsibilities. In addition, this
model provides enhanced efficiency and effective decision-making
and clear accountability. The board evaluates this structure
periodically.
In addition, each of our audit committee and compensation
committee is led by a chair, each of whom is an independent
director. The board believes that having these two key
committees with independent chairs provides a structure for
strong independent oversight of our management.
Risk
Oversight
The Board of Directors administers its risk oversight function
primarily through the audit committee, which oversees the
Companys risk management practices. The audit committee is
responsible for, among other things, discussing with management
on a regular basis the Companys guidelines and policies
that govern the process for risk assessment and risk management.
This discussion includes the Companys major risk exposures
and actions taken to monitor and control such exposures. The
board believes that its administration of risk management has
not affected the boards leadership structure, as described
above.
In addition, we have established a risk management committee.
Our risk management committee is currently comprised of Andrew
R. Lane, James F. Underhill, Stephen W. Lake, Gary A. Ittner,
Rory M. Isaac, Scott A. Hutchinson, Neil P. Wagstaff, Diana D.
Morris, Elton Bond, Theresa L. Dudding and Hugh Brown. The
principal responsibilities of the risk management committee are
to review and monitor any material risks or exposures associated
with the conduct of our business, the internal risk management
systems implemented to identify, minimize, monitor or manage
such risks or exposures, and the Companys policies and
procedures for risk management. While the audit committee is
responsible for reviewing the Companys policies and
practices with respect to risk assessment and risk management,
it is the responsibility of senior management of the Company to
determine the appropriate level of the Companys exposure
to risk.
Committees
of the Board
Audit Committee. Our audit committee is
currently comprised of Leonard M. Anthony, Rhys J. Best,
Christopher A.S. Crampton and John A. Perkins. Mr. Anthony
is chairman of the audit committee. Our board of directors has
determined that Mr. Anthony qualifies as an audit
committee financial expert and an independent
director under the rules of the New York Stock Exchange.
The audit committees primary duties and responsibilities
are to assist the board of directors in oversight of the
integrity of our financial statements, the integrity and
adequacy of our auditing, accounting and financial reporting
processes and systems of internal controls for financial
reporting, compliance with legal and regulatory requirements,
including internal controls designed for that purpose, the
independence, qualifications and performance of our independent
auditor and the performance of our internal audit function.
Compensation Committee. Our compensation
committee is currently comprised of Rhys J. Best, Peter C.
Boylan, III, Christopher A.S. Crampton and John F. Daly.
Mr. Best is chairman of the compensation committee. The
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principal responsibilities of the compensation committee are to
establish policies and periodically determine matters involving
executive compensation, recommend changes in employee benefit
programs, grant or recommend the grant of stock options and
stock awards and provide counsel regarding key personnel
selection.
International Committee. Our international
committee is currently comprised of Gerard P. Krans, Rhys J.
Best, Christopher A.S. Crampton, John F. Daly, Dr. Cornelis
A. Linse and John A. Perkins. Mr. Krans is chairman of the
international committee. The purpose of the international
committee is to assist the board of directors and our management
with the oversight of our business strategies and initiatives
outside of the United States.
Code of
Ethics
We have adopted a code of ethics that applies to our principal
executive officer, principal financial officer, principal
accounting officer or controller and persons performing similar
functions. A copy of the code of ethics has been posted on our
website at www.mrcpvf.com. In the event that we amend or
waive provisions of this code of ethics with respect to such
officers, we intend to also disclose the same on our website.
Executive
Compensation
Compensation
Discussion and Analysis
Overview
Since the GS Acquisition in January 2007, the overriding
objective of our owners and management has been to increase the
economic value and size of our company during our owners
period of ownership, and our compensation programs have been
designed to support this continuing goal. In addition,
compensation decisions during 2007 and 2008 were made to
successfully integrate the compensation programs of McJunkin
Corporation and Red Man. This integration was largely completed
by the end of 2008.
The compensation committee of our board of directors (the
Committee) oversees company-wide compensation
practices; reviews, develops and administers executive
compensation programs; and approves or makes recommendations to
our board of directors regarding certain compensation matters.
During 2010, the Committee was comprised of Rhys J. Best, Peter
C. Boylan, III (appointed in November 2010), Christopher
A.S. Crampton, John F. Daly, Harry K. Hornish, Jr. and Sam
B. Rovit (appointed in May 2010), with Mr. Best serving as
chairman. Each of the directors serving on the Committee during
2010 also currently serves on the Committee, with the exception
of Messrs. Hornish and Rovit, who resigned from our board
of directors in January 2011 and February 2011, respectively.
Each member of the Committee is a non-employee director.
Generally, the Committee has decision-making authority with
respect to executive compensation matters, including
determination of the compensation and benefits of the executive
officers. With respect to equity-based compensation awards
(including to the executive officers), the Committee approves
grants or makes recommendations to the entire board of directors
for final approval.
Pursuant to the Committees charter, its duties include:
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Subject to the terms of any employment contracts, reviewing and
determining, or making recommendations to our board of directors
with respect to, the annual salary, bonus, stock options and
other compensation, incentives and benefits, direct and
indirect, of the CEO and other executive officers. In
determining long-term incentive compensation of the CEO and
other executive officers, the Committee will consider, among
other things, the Companys performance and relative
shareholder return, the value of similar incentive awards to
chief executive officers and other executive officers of
comparable companies and the awards given to the CEO and the
executive officers in the past.
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Reviewing and approving corporate goals and objectives relevant
to compensation of the CEO and other executive officers and
evaluating the CEOs and other executive officers
performance in light of those goals and objectives on an annual
basis, and, either separately or together with other independent
directors (as directed by the Board), determining and approving
the CEOs and other executive officers compensation
level based on this evaluation or making recommendations to the
board of directors with respect thereto.
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Reviewing and authorizing or recommending to our board of
directors to authorize, as determined by the Committee, the
Company to enter into, amend or terminate any employment,
consulting, change in control, severance or termination, or
other compensation agreements or arrangements with the CEO and
other executive officers of the Company (and, at the option of
the Committee, other officers and employees of the Company).
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Periodically reviewing and considering the competitiveness and
appropriateness of our executive compensation.
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Reviewing new executive compensation programs, reviewing on a
periodic basis the operation of our existing executive
compensation programs to determine whether they integrate
appropriately, and establishing and periodically reviewing
policies for the administration of executive compensation
programs.
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Overseeing the administration of incentive compensation plans
and equity-based compensation plans and exercising all authority
and discretion provided to the Committee under those plans and
performing such duties and responsibilities as may be assigned
by our board of directors with respect to such plans.
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Conducting a review at least annually of, and determining or
making recommendations to our board of directors regarding
compensation for non-employee directors (including compensation
for service on the board of directors and committees thereof,
meeting fees and equity-based compensation). The Committee is
also responsible for and oversees administration of any plans or
programs providing for the compensation of non-employee
directors.
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Overseeing the procedures and substance of the Companys
compensation and benefit policies (subject, if applicable, to
shareholder approval), including establishing, reviewing,
approving and making recommendations to our board of directors
with respect to any incentive-compensation and equity-based
plans of the Company that are subject to board approval.
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Compensation
Philosophy and Objectives
The Committee believes that our executive compensation programs
should be structured to reward the achievement of specific
annual, long-term and strategic performance goals of our
company. Accordingly, the executive compensation philosophy of
the Committee is threefold:
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To align the interests of our executive officers with those of
our shareholders, thereby providing long-term economic benefit
to our shareholders;
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To provide competitive financial incentives in the form of
salary, bonus and benefits, with the goal of attracting and
retaining talented executive officers; and
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To maintain a compensation program that includes at-risk,
performance based awards whereby executive officers who
demonstrate exceptional performance will have the opportunity to
realize appropriate economic rewards.
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Setting
Executive Compensation
Role of
the Compensation Committee
The Committee has granted short-term cash incentive and
long-term equity incentive awards to motivate our executive
officers to achieve the business goals established by our
company. In addition to considering our philosophy and
objectives, the Committee considers the impact of the duties and
responsibilities of each executive officer on the results and
success of the Company. Based on these factors, the Committee
has devised a compensation program designed to keep our
executive officers highly incentivized and also to achieve
parity among executive officers with similar duties and
responsibilities.
Role of
Executive Officers
Since Andrew R. Lane was hired as chief executive officer in
September 2008, he has met periodically with Diana D. Morris,
our senior vice president of human resources, to discuss
executive compensation issues.
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Ms. Morris makes quarterly presentations to the Committee
with respect to issues and developments regarding compensation
and our compensation programs. Mr. Lane and Ms. Morris
work together annually to develop tally sheets, which
Mr. Lane presents to the Committee. These tally sheets
present the current compensation of each executive officer,
divided into each element of compensation, and also present the
proposed changes to such compensation for the upcoming year
(except that no proposals are made with respect to changes to
Mr. Lanes compensation). Such changes to
Mr. Lanes compensation are left to the discretion of
the Committee. Following Mr. Lanes presentation of
the tally sheets, the Committee determines appropriate changes
in compensation for the upcoming year. During the first quarter
of each year, the Committee approves the executive
officers annual target bonuses (expressed in each case as
a percentage of base salary) and the performance metrics for the
Variable Compensation Plan with respect to such year. Certain
elements of compensation (such as annual base salary and annual
target bonus percentage) are set forth in employment agreements
entered into between the company and certain executive officers.
Decisions with respect to equity-based compensation awards
granted to our named executive officers are made by the
Committee, which may recommend such awards to the entire board
of directors for final approval.
Role of
Compensation Consultant
Pursuant to the Committees charter, the Committee has the
power to retain or terminate compensation consultants and engage
other advisors. In 2008, the Company engaged Hewitt Associates,
a third-party global human resources consulting firm, to review
and make recommendations with respect to the structure of our
compensation programs, including executive compensation,
following the business combination of McJunkin Corporation and
Red Man Pipe & Supply Co. in October 2007. During this
engagement Hewitt Associates worked with a team from the Company
to review and assess compensation. The primary task of Hewitt
Associates in 2008 was to assist the Company in successfully
integrating the compensation programs of McJunkin Corporation
and Red Man Pipe & Supply Co. As part of this process,
Hewitt Associates reviewed existing McJunkin Corporation and Red
Man compensation programs and made recommendations as to how
such programs could be integrated based on its review and survey
data. As part of Hewitt Associates integration work in
2008, an executive compensation specialist from Hewitt
Associates advised the Committee regarding the appropriate
allocation of executive compensation among each element of
compensation using benchmark data. Certain recommendations from
the Hewitt study were approved by the Compensation Committee.
Starting on January 1, 2009, McJunkin Red Man implemented a
new compensation program structure, which included integration
of multiple heritage plans previously maintained by McJunkin
Corporation and Red Man Pipe & Supply Co. The
Committee did not engage Hewitt Associates or any other
compensation consultant during 2009. In December 2010, the
Committee engaged Meridian Compensation Partners, LLC (an
independent consultant specializing in executive compensation)
to formulate a report and make recommendations to the Committee
regarding executive compensation during 2011, based on peer
group and other market data, as well as industry trends and
current practices.
Components
of Executive Compensation
Our named executive officers for the fiscal year ended
December 31, 2010 were Andrew R. Lane, James F. Underhill,
Neil P. Wagstaff, Gary A. Ittner and Scott A. Hutchinson. In
addition, the company has elected to also describe and disclose
compensation earned by Rory M. Isaac and Stephen W. Lake, who
are not named executive officers and who shall be referred to as
additional executive officers throughout the
executive compensation disclosure. The principal components of
compensation for our named executive officers and the additional
executive officers are:
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Base salary;
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Short-term incentive compensation;
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Long-term equity compensation;
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Retirement benefits; and
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Perquisites and other personal benefits.
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Base
Salary
We provide our named executive officers and additional executive
officers with base salary to compensate them for services
rendered during the fiscal year. Base salary for executives
(including the named executive officers and additional executive
officers) is reviewed on an annual basis and is determined based
on each executives position, responsibilities,
performance, current compensation (both individually and as
compared to other executives) and survey data. Each of
Messrs. Lane, Underhill, Wagstaff and Lake is party to an
employment agreement. The initial base salaries of these
executive officers are set forth in their respective agreements,
and are reviewed by the Committee annually and may be adjusted
upward at the time of such review based on the factors described
above.
Short-term
Incentive Compensation
We utilize an annual cash bonus plan called the Variable
Compensation Plan, in which each of our named executive officers
and additional executive officers participates, to provide
appropriate incentives to achieve annual objectives. Each of the
named executive officers and additional executive officers had a
target annual bonus for the 2010 performance year equal to 100%
of his annual base salary. The target annual bonus percentages
for each of Messrs. Lane, Underhill, Wagstaff and Lake are
set forth in their respective employment agreements with us. The
Committee determined in early 2009 that all of our executive
vice presidents (including Messrs. Ittner, Hutchinson and
Isaac) should have annual target bonuses equal to 100% of annual
base salary during 2009 due to the responsibilities and duties
associated with these positions. These target annual bonuses
remained in effect during 2010. The payment of awards under the
Variable Compensation Plan for the 2010 performance year
depended on the achievement of three weighted performance
metrics. Those metrics were adjusted earnings before interest,
taxes, depreciation and amortization (EBITDA);
return on net assets (RONA), calculated as EBITDA
divided by net assets; and individualized key performance
indicators (KPIs) established for each participant
in the plan. Achievement of goals with respect to EBITDA, RONA
and KPIs constituted 70%, 20% and 10% of annual awards,
respectively.
KPIs for the named executive officers and additional executive
officers normally comprise 10% of annual bonuses, but were
capped at 5% for 2010. These KPIs during 2010 related directly
to the functions of their respective disciplines which
contributed to the achievement of the Companys financial
goals for 2010. The following is a summary of the achievements
by the named executive officers in 2010 with respect to their
individual KPI goals. Andrew R. Lane led a growth focused plan
which resulted in the company meeting revenue goals with
stronger balance sheet positions for inventory management and
debt reduction. Mr. Lane has also led improvements in
business processes and more strategic account management plans
for major customers. Mr. Lane also engaged outside
consultants to assess growth opportunities and strategies and
furthered the growth potential and market position of the
company by targeting strategic acquisitions. In addition,
Mr. Lane examined opportunities internally for more
efficient operational structures and processes. James F.
Underhill successfully met goals relating to the improvement of
timely financial reporting as well as the preparation of public
reporting documents on
Forms 10-K,
10-Q, and
8-K.
Mr. Underhill also made significant progress and achieved
success with respect to internal audit capacity and the
implementation of certain compliance measures as well as
measurable improvement in the finance and accounting areas
relating to process improvements and consolidation of accounting
and financial reporting for all operating entities. Neil P.
Wagstaff led efforts of MRC Transmark to integrate project and
global contract groups with the North American operating sector
and expanded the capabilities of MRC Transmark by opening a new
facility in Singapore and a business development office in
London. Mr. Wagstaff also managed the operational
efficiency of MRC Transmark by reducing expenses and divesting
of non-core operations while maintaining attractive gross margin
levels. Gary A. Ittner successfully managed our inventory and
supply chain purchases. Mr. Ittner also integrated the
activities of support functions, information technology, human
resources, and business processes, safety and quality to address
and organize process improvements and operational support for
the company. Scott A. Hutchinson managed strategic growth by
expanding operations in the markets serving the oil and gas
shale plays through target acquisitions in key geographic areas
and the opening or relocation of branch operations.
Mr. Hutchinson also furthered and enhanced the efficiency
of operations through improved processes, strong leadership of
this regional operations management, and close cooperation with
the executive team including the business development and
administrative groups. Rory M. Isaac successfully streamlined
the business
97
development organization to align with market opportunities,
strengthened the pricing organization increasing resources to
maximize revenue potential as well as the development of a gross
margin enhancement strategy, and led the negotiation and
execution of new customer contracts and the renewal of existing
customer contracts. Stephen W. Lake, as General Counsel,
assisted in closing the sale of two acquisitions during 2010 as
well as the closing of certain non core asset divestitures.
Mr. Lakes oversight and guidance was also
instrumental in the development of processes and reporting as
required for public companies and was responsible for the
rollout of and training for key global policies including with
respect to import/export policy, ethics, Foreign Corrupt
Practices Act , Office of Foreign Assets Control and antitrust.
Mr. Lake also implemented systems to track and review the
terms of company contracts.
For the 2010 performance year, the EBITDA and RONA performance
goals were determined by a budgeting process that involved an
examination of our companys markets, customers and general
outlook with respect to 2010. The final budget was approved by
our board of directors. 70% of annual incentive awards are
earned based on achievement of EBITDA, 20% are earned based on
achievement of RONA and 10% are earned based on achievement of
KPIs applicable to the particular participant. The 2010 EBITDA
and RONA performance goals related to the performance of the
entire MRC organization. No awards under the Variable
Compensation Plan were payable with respect to the EBITDA or
RONA performance metrics unless at least 51% of the relevant
performance goal was achieved. At 51% achievement of each such
performance metric, there was a payout of 2% of each
participants target annual incentive bonus related to such
performance metric; this portion of the payout increased with
respect to such performance metric in 2% increments for each
additional percent of achievement up to full achievement of the
relevant performance goal. Achievement of KPIs was determined on
a discretionary basis. Upon full achievement of each of the
performance metrics (EBITDA, RONA and KPIs), 100% of the target
annual incentive bonus could be paid. In 2010, the maximum award
possible under the executive plan was 115% of target if goals
were exceeded. The achievement of the performance metrics is
evaluated on an annual basis in connection with awards to the
named executive officers and additional executive officers under
this plan. In 2010, the Company failed to reach its full EBITDA
and RONA goals. As a result, the Committee determined that the
maximum achievable percentage of the annual awards for KPIs
should be capped at a maximum of 5% for 2010 in recognition of
the overall financial goals not being met.
Messrs. Lane, Underhill, Wagstaff, Ittner, Hutchinson and
Lake were paid 57% of their target annual incentive bonus under
the Variable Compensation Plan and Mr. Isaac was paid 56%
of this target annual incentive bonus under the Variable
Compensation Plan. The amounts paid under the Variable
Compensation Plan to the named executive officers and additional
executive officers for performance in respect of the 2010
performance year are as follows: $399,000 for Mr. Lane;
$285,000 for Mr. Underhill; $189,064 for Mr. Wagstaff
; $213,750 for Mr. Ittner; $196,650 for
Mr. Hutchinson; $210,000 for Mr. Isaac; and $213,750
for Mr. Lake.
Long-Term
Equity Compensation
We believe that long-term equity compensation is important to
assure that the interests of management remain aligned with
those of stockholders. Since the GS Acquisition, however, the
form of long-term equity compensation that has been granted to
executives (including the named executive officers and
additional executive officers) has evolved. In connection with
the GS Acquisition and the Red Man Transaction, certain
executives (including Messrs. Underhill, Ittner,
Hutchinson, Isaac and Lake) were granted profits units in PVF
Holdings LLC. The number of profits units awarded in connection
with those transactions was determined based on various factors,
including a consideration of what size award was required to
adequately incentivize the executives (as part of the
executives overall compensation package) and, most
notably, negotiations between executives and our company as part
of the overall negotiations relating to the GS Acquisition and
the Red Man Transaction. Starting in 2008, our board of
directors along with the Committee decided to grant executives
equity compensation in the form of stock options in respect of
our common stock and restricted common stock.
We do not currently have a formal policy regarding the timing of
equity award grants. In connection with the GS Acquisition and
the Red Man transaction, equity awards were made to various
executives. Since the Red Man transaction, our board of
directors has approved grants of equity awards in connection
with new hires and changes in position and has made grants in
its discretion to employees to reward their service to our
company. The Committee is currently considering a periodic
program of equity-based incentive plans.
98
Profits
Units
Profits units are governed by Articles III and VII of the
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC dated as of October 31, 2007, and amended on
December 18, 2007 and October 30, 2009 (the PVF
LLC Agreement). Messrs. Underhill, Ittner, Hutchinson
and Isaac were granted profits units in PVF Holdings LLC on
January 31, 2007 and Mr. Lake was granted profits
units in PVF Holdings LLC on January 7, 2008. Grantees who
received profits units were not required to make any capital
contribution in exchange for their profits units, which were
awarded as compensation. Profits units have no voting rights,
and PVF Holdings LLC may from time to time distribute its
available cash to holders of profits units along with its other
equity holders. Distributions by PVF Holdings LLC 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 holders net aggregate
capital contributions (for purposes of the PVF LLC Agreement)
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. Please see the table titled
Outstanding Equity Awards at 2010 Fiscal Year-End
below for the number of profits units held by the named
executive officers and additional executive officers as of
December 31, 2010.
Pursuant to the PVF LLC Agreement, profits 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), all unvested profits units
will be forfeited. However, in the event of a termination for
Cause, unless otherwise determined by the board of directors of
PVF Holdings LLC, all profits units, whether vested or unvested,
will be forfeited. In the event of a termination by reason of
death or Disability (as defined in the PVF LLC Agreement), all
unvested profits units will become vested and nonforfeitable.
Also, in the event of a Transaction (as defined in the PVF LLC
Agreement), all unvested profits units will become vested and
nonforfeitable. The PVF LLC Agreement also specifies that
profits units may be subject to different vesting schedules if
approved by the board of directors of PVF Holdings LLC. The
terms of the profits units held by Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake, including the vesting
schedules, are governed solely by the PVF LLC Agreement.
Stock
Options and Restricted Stock
We maintain a restricted stock plan and a stock option plan
(which has a sub-plan for participants residing in Canada).
Pursuant to these plans, awards of restricted stock and stock
options may be granted to key employees, directors and
consultants of the Issuer and its subsidiaries and affiliates.
The terms and conditions to which each award is subject are set
forth in individual award agreements.
In connection with the hiring of Mr. Lane in September
2008, Mr. Lane purchased 170,218 shares of our common
stock, and was granted stock options in respect of
1,758,929 shares of our common stock, with an exercise
price of $17.63 (taking into account the October 2008 stock
split). Mr. Lanes options will become vested in equal
installments on each of the second, third, fourth and fifth
anniversaries of the date of grant, conditioned on continued
employment through the applicable vesting date.
Mr. Lanes options are subject to pro-rata accelerated
vesting in the event his employment is terminated (i) by us
other than for Cause (as defined in his employment agreement),
(ii) by Mr. Lane for Good Reason (as defined in his
employment agreement) or (iii) by reason of
Mr. Lanes death or disability. In addition,
Mr. Lanes options will become fully vested and
exercisable upon the occurrence of a Change in Control (as
defined in his employment agreement). All of
Mr. Lanes stock options, whether vested or unvested,
will be forfeited in the event his employment is terminated by
us for Cause (as defined in the stock option plan).
In February 2009, Mr. Lane was granted 50,000 shares
of our restricted common stock. This restricted stock award
becomes fully vested on the fifth anniversary of the date of
grant, and is conditioned on continued employment through the
vesting date. Mr. Lanes restricted stock award will
become fully vested in the event of a Transaction (as defined in
the restricted stock agreement) or upon the termination of
Mr. Lanes employment due to his death or disability.
All shares of restricted stock, whether vested or unvested, will
be forfeited if his employment is terminated by us for Cause (as
defined in the restricted stock plan).
99
In June 2009, Mr. Lane transferred all common stock,
restricted stock and stock options held by him in respect of the
Issuer to Andy & Cindy Lane Family, L.P. for no
consideration. The terms and conditions of the stock option and
restricted stock awards, including conditions relating to
Mr. Lanes employment, continue to govern these awards
following such transfer. In September 2009, the option exercise
price of the stock options held by Andy & Cindy Lane
Family, L.P. was reduced from $17.63 to $12.50, which is not
less than the fair market value of our common stock as of the
date of such amendment. This reduction in exercise price was
made to maintain the incentive value of this award. In December
2009, in connection with the $2.9 million cash dividend
paid by McJunkin Red Man Corporation to McJunkin Red Man Holding
Corporation, the option exercise price of the stock options held
by Andy & Cindy Lane Family, L.P. was reduced to
$12.48.
In December 2009, Messrs. Underhill, Ittner, Hutchinson,
Isaac and Lake were granted stock options and on April 1,
2010, Mr. Wagstaff was granted options, in each case that
follow the generally applicable vesting schedule of three equal
installments on the third, fourth and fifth anniversaries of the
date of grant and are conditioned on continued employment
through the applicable vesting date. These options will become
fully vested and exercisable upon the occurrence of a
Transaction (as defined in the stock option plan) or upon the
termination of the executives employment due to death or
Disability (as defined in the stock option plan). All stock
options granted, whether vested or unvested, will be forfeited
in the event of a termination of employment for Cause (as
defined in the stock option plan).
Retirement
and Other Benefits
On December 31, 2007, we adopted the McJunkin Red Man
Corporation Nonqualified 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.
Participants in this plan include Messrs. Underhill,
Ittner, Hutchinson and Isaac. Pursuant to this plan, prior to
2009, McJunkin Red Man Corporation made predetermined annual
contributions to each participants account, less any
discretionary matching contributions made on behalf of the
participant by our company to a defined contribution plan for
such calendar year. The Committee resolved in 2009 that no
further company contributions would be made to participant
accounts under this plan. On August 10, 2010, this plan was
frozen by resolution of the Committee. As of such date, no
company contributions or participant deferral elections have
been permitted and any existing participant deferral elections
were cancelled. Amounts deferred by participants or contributed
by the Company to accounts under the plan prior to
August 10, 2010 shall continue to be governed by the
applicable provisions of the plan.
If a participants 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 participants
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
participants account will be credited quarterly with
interest at the Prime Rate plus 1%. At December 31, 2010,
Mr. Underhill had an account balance of $147,813,
Mr. Ittner had an account balance of $126,698,
Mr. Hutchinson had an account balance of $84,464 and
Mr. Isaac had an account balance of $126,698. None of these
executives elected to convert their balances into phantom common
units. As of December 31, 2007, all existing participants
were fully vested in their entire accounts, including
contributions by McJunkin Red Man Corporation. People who became
participants after December 31, 2007 are fully vested in
their elective deferral amounts and will 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 2010 below.
Participants receive the vested balance of their accounts, in
cash, upon a Separation from Service (as defined in
Section 409A of the Internal Revenue Code of 1986, as
amended (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 the Separation from Service occurs. In the event of a
participants 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
participants account, vested and unvested, shall be paid
within 30 days following such event to the
100
participants 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) may be required to be delayed in
accordance with Section 409A.
Perquisites
and Other Personal Benefits
The Committee reviews the perquisites and personal benefits
provided to certain of the named executive officers and
additional executive officers on an annual basis to ensure the
reasonableness of such programs. Mr. Wagstaff is provided
with an automobile allowance, which is the continuation of a
perquisite provided prior to the acquisition of Transmark FCX.
Other than Mr. Wagstaff, none of the named executive
officers or additional executive officers currently receive any
perquisites or other personal benefits.
In addition, our named executive officers and additional
executive officers who have entered into employment agreements
with the Issuer or an affiliate will be provided certain
severance payments and benefits in the event of a termination of
their employment under certain circumstances. These agreements
are designed to promote stability and continuity of senior
management. Additional information regarding payment under these
severance provisions is provided below, in the section titled
Potential Payments upon Termination or a Change in
Control.
Relation
among Various Components of Compensation
With respect to setting executive compensation amounts
generally, since the Red Man Transaction, achieving parity among
executives with similar duties and responsibilities has been an
important goal as part of our integration process. In
determining the amount of compensation of the executive officers
attributable to each element of compensation, the Committee
considers various factors, including the value of unvested
outstanding equity awards, amount of base salary and target
bonus. These segments, in total, are then viewed in light of
competitiveness of the compensation package in the marketplace
and the impact of the executives position on the success
of the company.
Tax
and Accounting Implications
All deferred compensation arrangements have been structured in a
manner intended to comply with Section 409A.
Compensation
Committee Interlocks and Insider Participation
During 2010, the Committee consisted of Rhys J. Best, Peter C.
Boylan, III (appointed in November 2010), Christopher A.S.
Crampton, John F. Daly, Harry K. Hornish, Jr. and Sam B.
Rovit (appointed in May 2010), with Mr. Best serving as
chairman. Mr. Hornish resigned from the board of directors
in January 2011 and Mr. Rovit resigned from the board of
directors in February 2011. No member of the Committee was an
officer or employee of the Issuer or any of its subsidiaries
during 2010 and no member of the Committee was formerly an
officer of MRC or any of its subsidiaries. In addition, during
2010, none of our executive officers served as a member of a
compensation committee or board of directors of any other entity
an executive officer of which served as a member of our board.
Stock
Ownership Guidelines
We do not have any formal policies regarding stock ownership by
directors or officers. We believe that awards made pursuant to
our long-term equity programs are sufficient to ensure that the
interests of directors and officers remain aligned with those of
stockholders.
101
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 our board of directors
that the Compensation Discussion and Analysis be included in
this Annual Report.
The Compensation Committee
Rhys J. Best
Peter C. Boylan, III
Christopher A.S. Crampton
John F. Daly
Risk in
Relation to Compensation Programs
We have performed an internal review of all of our material
compensation programs and have concluded that there are no plans
that provide meaningful incentives for employees, including the
named executive officers and additional executive officers, to
take risks that would be reasonably likely to have a material
adverse effect on us. Because our current compensation plans
have an upside cap on the amount of variable compensation that
can be paid under such plan, risk of windfall or excessive
compensation is negligible. This limit also has the effect of
not encouraging operational or strategic decisions that expose
the business to risk.
Summary
Compensation Table for 2010
The following table sets forth certain information with respect
to compensation earned during the fiscal year ended
December 31, 2010 by our named executive officers and
additional executive officers.
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Change in
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Non-Equity
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Nonqualified
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Incentive Plan
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Deferred
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All Other
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Name and
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Compensation
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Option Awards
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Compensation
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Compensation
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Principal Position
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Year
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Salary ($)
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($)(1)
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($)(2)
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Earnings ($)
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($)(3)
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Total ($)
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Andrew R. Lane,
Chairman, President and Chief Executive Officer
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2010
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700,000
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399,000
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12,422
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1,111,422
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James F. Underhill,
Executive Vice President and Chief Financial Officer
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2010
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500,000
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285,000
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5,073
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52,164
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842,237
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Neil P. Wagstaff,
Executive Vice President International Operations(4)
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2010
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331,691
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189,064
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276,225
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88,816
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885,796
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Gary A. Ittner,
Executive Vice President and Chief Administrative Officer
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2010
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375,000
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213,750
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4,348
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74,812
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667,910
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Scott A. Hutchinson,
Executive Vice President North American Operations
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2010
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345,000
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196,650
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2,899
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66,226
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610,775
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Rory M. Isaac,
Executive Vice President Business Development
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2010
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375,000
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210,000
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4,348
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16,324
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605,672
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Stephen W. Lake,
Executive Vice President and General Counsel
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2010
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375,000
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213,750
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11,479
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600,229
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(1) |
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The amounts in this column represent cash awards earned pursuant
to the annual Variable Compensation Plan in respect of
performance during 2010. As a result of our companys level
of achievement with respect to its performance goals for fiscal
year 2010, Messrs. Lane, Underhill, Wagstaff, Ittner,
Hutchinson and Lake were paid 57% of their target annual
incentive bonuses and Mr. Isaac was paid 56% of his target
annual bonus. Please refer to the narrative following the table
titled Grants of Plan-Based Awards in Fiscal Year
2010 in the Compensation Discussion and Analysis for a
discussion of the 2010 performance goals, including a discussion
of the 5% maximum cap imposed on the portion of bonus
attributable to individual performance in 2010. |
102
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(2) |
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Mr. Wagstaff was granted options to purchase company stock
of McJunkin Red Man Holding Corporation on April 1, 2010.
The amount in this column represents the grant date fair value
of such option award calculated pursuant to ASC Topic 718. This
option award will become vested in three equal installments on
the third, fourth and fifth anniversaries of the date of grant
and is conditioned on continued employment through the
applicable vesting date. In addition, this option award will
become fully vested and exercisable upon the occurrence of a
Transaction (as defined in the stock option plan) or upon the
termination of the executives employment due to death or
Disability (as defined in the stock option plan). All stock
options granted, whether vested or unvested, will be forfeited
in the event of a termination of employment for Cause (as
defined in the stock option plan). |
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(3) |
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Amounts in this column include (i) company matching
contributions made to the McJunkin Red Man Corporation
Retirement Plan $9,800 for Messrs. Lane, Ittner, Hutchinson
and Lake and $8,800 for Messrs. Underhill and Isaac; and
(ii) the imputed value for company provided group life
insurance of $2,622, $4,902, $4,902, $4,902, $7,524 and $1,679
for Messrs. Lane, Underhill, Ittner, Hutchinson, Isaac and
Lake, respectively; (iii) $38,462 for the value of unused
vacation to Mr. Underhill; and (iv) relocation
payments made to Messrs. Ittner and Hutchinson in
accordance with company policy in the amounts of $60,110 and
$51,524, respectively. Amounts in this column for
Mr. Wagstaff include $3,415 for medical insurance, $37,539
for pension contributions and an auto allowance of $47,862. |
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(4) |
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All compensation amounts paid to Mr. Wagstaff were paid in
British pounds sterling and have been converted into U.S.
Dollars for purposes of the Summary Compensation Table and
tables that follow based on the exchange rate £1 = $1.5609
as of December 31, 2010. |
Grants of
Plan-Based Awards in Fiscal Year 2010
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All Other Option
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Estimated Future Payouts Under Non-
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Awards: Number of
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Equity Incentive Plan Awards
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Securities
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Exercise or Base
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Threshold
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Target
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Maximum
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Underlying Options
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Price of
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Name
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($)(1)
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($)(2)
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($)(2)
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(#)
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Option Awards ($)
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Andrew R. Lane
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14,000
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700,000
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|
|
805,000
|
|
|
|
|
|
|
|
|
|
James F. Underhill
|
|
|
10,000
|
|
|
|
500,000
|
|
|
|
575,000
|
|
|
|
|
|
|
|
|
|
Neil P. Wagstaff
|
|
|
6,633
|
|
|
|
331,691
|
|
|
|
381,445
|
|
|
|
87,413
|
|
|
|
11.44
|
|
Gary A. Ittner
|
|
|
7,500
|
|
|
|
375,000
|
|
|
|
431,250
|
|
|
|
|
|
|
|
|
|
Scott A. Hutchinson
|
|
|
6,900
|
|
|
|
345,000
|
|
|
|
396,750
|
|
|
|
|
|
|
|
|
|
Rory M. Isaac
|
|
|
7,500
|
|
|
|
375,000
|
|
|
|
431,250
|
|
|
|
|
|
|
|
|
|
Stephen W. Lake
|
|
|
7,500
|
|
|
|
375,000
|
|
|
|
431,250
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under the Variable Compensation Plan, no portion of the awards
based on EBITDA or RONA for each named executive officer and
additional executive officer are payable unless there is at
least 51% achievement of those performance goals. At 51%
achievement of each such performance goal, there is a payout of
2% of a participants target annual incentive bonus with
respect to the performance metric for which such achievement has
occurred. The amounts in this column reflect 2% of the named
executive officers and additional executive officers
target annual incentive bonuses for 2010. |
|
(2) |
|
Payouts for the EBITDA and RONA performance goals under the
Variable Compensation Plan increase in 2% increments for each
additional percent of achievement beyond 51% up to full
achievement of those annual goals. Upon full achievement of each
of those performance goals and full achievement of KPIs, 100% of
the target annual incentive bonus is paid. If performance goals
are exceeded, the maximum payment is 115% of target annual
incentive. The amounts in these columns reflect 100% and 115% of
the named executive officers and additional executive
officers target annual incentive bonuses for 2010. |
Employment
Agreements
Certain of the named executive officers and additional executive
officers have entered into employment agreements with us. In
addition to the terms of these agreements described below, the
employment agreements
103
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
R. Lane
On September 10, 2008, McJunkin Red Man entered into an
employment agreement with Andrew R. Lane as chief executive
officer and member of the board of directors. This employment
agreement has an initial term of five years, which will
automatically be extended on September 10, 2013 and each
subsequent anniversary thereof for one additional year, unless
ninety days written notice of non-renewal is given by
either party. Mr. Lanes agreement provides for an
initial base salary, to be reviewed annually, of $700,000, 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 individual
and/or
company performance criteria to be established for each fiscal
year by our board of directors, with a target annual bonus of
100% of Mr. Lanes base salary in effect at the
beginning of the relevant fiscal year. 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.
James
F. Underhill
On December 3, 2009, McJunkin Red Man entered into an
amended and restated employment agreement with James F.
Underhill as executive vice president and chief financial
officer, which replaced in its entirety the employment agreement
entered into between Mr. Underhill, McJunkin Red Man
Corporation and PVF Holdings LLC on December 4, 2006. The
term of Mr. Underhills employment agreement will end
on January 31, 2012. Mr. Underhills agreement
provides for an initial base salary, to be reviewed annually, of
$500,000, 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 individual
and/or
company performance criteria to be established for each fiscal
year by the board of directors, with a target annual bonus of
100% of Mr. Underhills base salary in effect at the
beginning of the relevant fiscal year.
Mr. Underhill is subject to covenants prohibiting
competition, solicitation of customers and employees and
interference with business relationships during his employment
and for twelve months thereafter, and is also subject to
perpetual restrictive covenants regarding confidentiality,
non-disparagement and proprietary rights.
Neil
P. Wagstaff
On September 10, 2009, Transmark Fcx Limited, a subsidiary
of McJunkin Red Man Corporation, entered into an employment
agreement with Neil P. Wagstaff as executive vice president of
McJunkin Red Man Corporation. In addition, until
December 31, 2010, Mr. Wagstaff also held the title of
Chief Executive Officer of Transmark Fcx Limited. This
employment agreement has an initial term ending on
October 30, 2014. Mr. Wagstaffs agreement
provides for an initial base salary, to be reviewed annually, of
£212,500 British pounds sterling, 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
individual
and/or
company performance criteria to be established for each fiscal
year by the board of directors, with a target annual bonus of
100% of Mr. Wagstaffs base salary in effect at the
beginning of the relevant fiscal year. During 2010,
Mr. Wagstaffs annual base salary was £212,500
British pounds sterling.
Mr. Wagstaff is subject to covenants prohibiting
competition, solicitation of customers and employees and
interference with business relationships during his employment
and for twelve months thereafter, and is also subject to
perpetual restrictive covenants regarding confidentiality,
non-disparagement and proprietary rights.
Stephen
W. Lake
On December 26, 2007, PVF Holdings LLC and McJunkin Red Man
Corporation entered into an employment agreement with Stephen W.
Lake as general counsel. This employment agreement has an
initial term ending on January 7, 2011, which was
automatically extended on January 7, 2011 and will be
automatically extended each subsequent anniversary for one
additional year unless ninety days written notice of
non-renewal is given by either
104
party. Mr. Lakes agreement provides for an initial
base salary, to be reviewed annually, of $300,000, 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
individual
and/or
company performance criteria to be established for each fiscal
year by the board of directors, with a target bonus of 100% of
Mr. Lakes base salary in effect at the beginning of
the relevant fiscal year. During 2010, Mr. Lakes
annual base salary was $375,000.
Mr. Lake is subject to covenants prohibiting competition,
solicitation of customers and employees and interference with
business relationships during his employment and for twelve
months thereafter, and is also subject to perpetual restrictive
covenants regarding confidentiality, non-disparagement and
proprietary rights.
Variable
Compensation Plan
Please see the section of the Compensation Discussion and
Analysis titled Short-Term Incentive Compensation
for a discussion of the terms and conditions of the Variable
Compensation Plan, including the performance goals set for the
2010 performance year.
Outstanding
Equity Awards at 2010 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards(2)
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Shares or Units
|
|
Market Value of
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
Option
|
|
Number of Shares
|
|
of Stock That
|
|
Shares or Units of
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
or Units That Have
|
|
Have Not
|
|
Stock That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable(1)
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
Vested (#)
|
|
Vested ($)(3)
|
|
Andrew R. Lane
|
|
|
439,732
|
|
|
|
1,319,197
|
|
|
$
|
12.48
|
(4)
|
|
|
9/10/18
|
|
|
|
|
|
|
|
50,000
|
|
|
|
375,500
|
|
James F. Underhill
|
|
|
|
|
|
|
43,706
|
|
|
$
|
11.42
|
(4)
|
|
|
12/3/19
|
|
|
|
199.13
|
|
|
|
398.28
|
|
|
|
1,343,490
|
|
Neil P. Wagstaff
|
|
|
|
|
|
|
87,413
|
|
|
$
|
11.44
|
|
|
|
10/30/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary A. Ittner
|
|
|
|
|
|
|
43,706
|
|
|
$
|
11.42
|
(4)
|
|
|
12/3/19
|
|
|
|
127.10
|
|
|
|
254.22
|
|
|
|
857,543
|
|
Scott A. Hutchinson
|
|
|
|
|
|
|
131,119
|
|
|
$
|
11.42
|
(4)
|
|
|
12/3/19
|
|
|
|
55.08
|
|
|
|
110.15
|
|
|
|
371,561
|
|
Rory M. Isaac
|
|
|
|
|
|
|
43,706
|
|
|
$
|
11.42
|
(4)
|
|
|
12/3/19
|
|
|
|
127.10
|
|
|
|
254.22
|
|
|
|
857,543
|
|
Stephen W. Lake
|
|
|
|
|
|
|
87,413
|
|
|
$
|
11.42
|
(4)
|
|
|
12/3/19
|
|
|
|
|
|
|
|
127.10
|
|
|
|
428,738
|
|
|
|
|
(1) |
|
The stock options granted to Mr. Lane (and currently held
by Andy & Cindy Lane Family, L.P.) become vested in
equal installments on each of the second, third, fourth and
fifth anniversaries of the date of grant, conditioned on
continued employment through the applicable vesting date.
One-fourth of Mr. Lanes options vested on
September 10, 2010. Mr. Lanes options are
subject to pro-rata accelerated vesting in the event his
employment is terminated (i) by McJunkin Red Man other than
for Cause (as defined in his employment agreement), (ii) by
Mr. Lane for Good Reason (as defined in his employment
agreement or (iii) by reason of Mr. Lanes death
or Disability (as defined in his employment agreement). In
addition, Mr. Lanes options will become fully vested
and exercisable upon the occurrence of a Change in Control (as
defined in his employment agreement). |
|
|
|
The stock options held by Messrs. Underhill, Wagstaff,
Ittner, Hutchinson, Isaac and Lake will become vested in three
equal installments on the third, fourth and fifth anniversaries
of the date of grant, and are conditioned on continued
employment through the applicable vesting date. These options
will become fully vested and exercisable upon the occurrence of
a Transaction (as defined in the stock option plan) or upon the
termination of the executives employment due to death or
Disability (as defined in the stock option plan). |
|
(2) |
|
For Mr. Lane, the amounts in these columns are in respect
of an award of restricted stock made in February 2009 (and
currently held by Andy & Cindy Lane Family, L.P.). For
Messrs. Underhill, Ittner, Hutchinson, Isaac and Lake, the
amounts in these columns are in respect of grants of profits
units in PVF Holdings LLC made to Messrs. Underhill,
Ittner, Hutchinson and Isaac in 2007 and to Mr. Lake in
2008. Profits units held by Messrs. Underhill, Ittner,
Hutchinson, Isaac and Lake become vested in equal increments on
each of the third, fourth and fifth anniversaries of the date of
grant, subject to accelerated vesting in the event of certain
terminations of employment or a Transaction (as defined in the
PVF LLC Agreement). Messrs. Underhill, Ittner, Hutchinson
and Isaac became vested in 33.33% of their profits units on
January 31, 2010. |
105
|
|
|
(3) |
|
The market value of Mr. Lanes restricted stock is
based on a per share value of the companys stock of $7.51
as of December 31, 2010. The market value of unvested
profits units is based on the value of profits units in PVF
Holdings LLC as of December 31, 2010, which was $3,373.23
per unit. |
|
(4) |
|
In September 2009, the option exercise price of the stock
options held by Andy & Cindy Lane Family, L.P. was
reduced from $17.63 to $12.50, which is not less than the fair
market value of our common stock as of the date of such
amendment. In December 2009, in connection with the
$2.9 million cash dividend paid by McJunkin Red Man
Corporation to McJunkin Red Man Holding Corporation, the option
exercise price for Mr. Lanes options reduced to
$12.48. Also in connection with the December 2009 cash dividend,
options granted to Messrs. Underhill, Ittner, Hutchinson,
Isaac and Lake were reduced from $11.44 to $11.42. |
Option
Exercises and Stock Vested During 2010
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares That
|
|
Value Realized on
|
Name
|
|
Became Vested (#)(1)
|
|
Vesting ($)(2)
|
|
Andrew R. Lane
|
|
|
|
|
|
|
|
|
James F. Underhill
|
|
|
199.13
|
|
|
|
828,952
|
|
Neil P. Wagstaff
|
|
|
|
|
|
|
|
|
Gary A. Ittner
|
|
|
127.10
|
|
|
|
529,101
|
|
Scott A. Hutchinson
|
|
|
55.08
|
|
|
|
229,291
|
|
Rory M. Isaac
|
|
|
127.10
|
|
|
|
529,101
|
|
Stephen W. Lake
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This column reflects the number of profits units in PVF LLC that
became vested on January 31, 2010. |
|
(2) |
|
The value realized upon the vesting of profits units on
January 31, 2010 is based on the value of profits units in
PVF Holdings LLC as of January 31, 2010, which was
$4,162.87 per unit. |
Nonqualified Deferred Compensation for 2010
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
Aggregate Balance at
|
|
|
Contributions in Last
|
|
Last Fiscal Year End
|
Name
|
|
Fiscal Year ($)(1)
|
|
($)
|
|
Andrew R. Lane
|
|
|
|
|
|
|
|
|
James F. Underhill
|
|
|
5,073
|
|
|
|
147,814
|
|
Neil P. Wagstaff
|
|
|
|
|
|
|
|
|
Gary A. Ittner
|
|
|
4,348
|
|
|
|
126,698
|
|
Scott A. Hutchinson
|
|
|
2,899
|
|
|
|
84,464
|
|
Rory M. Isaac
|
|
|
4,348
|
|
|
|
126,698
|
|
Stephen W. Lake
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No contributions were made by our company to participant
accounts under the McJunkin Red Man Nonqualified Deferred
Compensation Plan in 2010. However, during 2010 the accounts of
the named executive officers with accounts under such plan were
credited with interest in accordance with the plan. |
Please see the section of the Compensation Discussion and
Analysis titled Retirement and Other Benefits for a
discussion of the terms and conditions of the McJunkin Red Man
Corporation Nonqualified Deferred Compensation Plan.
Potential
Payments upon Termination or Change in Control
Each of the named executive officers and additional 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 payments and benefits
reflected in the tables below
106
assume that the relevant trigger event (termination of
employment or a change in control, as applicable) took place on
December 31, 2010.
The narrative and tables below describe our obligations to each
of the named executive officers and additional executive
officers pursuant to their employment agreements (in the case of
Messrs. Lane, Underhill, Wagstaff and Lake) as well as
pursuant to other compensatory arrangements.
Voluntary
Separation
In the event of a voluntary separation from employment by a
named executive officer or additional executive officer, all
unvested profits units in PVF Holdings LLC and all stock option
and restricted stock awards in respect of McJunkin Red Man
common stock held by such executive would be forfeited. As of
December 31, 2010, all stock options held by
Messrs. Underhill, Wagstaff, Ittner, Hutchinson, Isaac and
Lake were unvested, all restricted stock held by Mr. Lane
was unvested, and 75% of options held by Mr. Lane were
unvested. As of December 31, 2010, profit units held by
Messrs. Underhill, Ittner, Hutchinson and Isaac were
one-third vested and all profits units held by Mr. Lake
were unvested. The fully vested accounts in the McJunkin Red Man
Corporation Nonqualified Deferred Compensation Plan held by
Messrs. Underhill, Ittner, Hutchinson and Isaac would
become payable (subject to the requirements of
Section 409A). In addition, each named executive officer
and additional executive officer would be paid the value of any
accrued but unused vacation time as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
Accrued
|
|
Compensation
|
|
|
Name
|
|
Obligations ($)(1)
|
|
Account Balance ($)
|
|
Total ($)
|
|
Andrew R. Lane
|
|
|
75,385
|
|
|
|
|
|
|
|
75,385
|
|
James F. Underhill
|
|
|
57,692
|
|
|
|
147,814
|
|
|
|
205,506
|
|
Neil P. Wagstaff
|
|
|
15,308
|
|
|
|
|
|
|
|
15,308
|
|
Gary A. Ittner
|
|
|
50,481
|
|
|
|
126,698
|
|
|
|
177,179
|
|
Scott A. Hutchinson
|
|
|
39,808
|
|
|
|
84,464
|
|
|
|
124,272
|
|
Rory M. Isaac
|
|
|
43,269
|
|
|
|
126,698
|
|
|
|
169,967
|
|
Stephen W. Lake
|
|
|
27,404
|
|
|
|
|
|
|
|
27,404
|
|
|
|
|
(1) |
|
These amounts represent accrued but unused vacation time as of
December 31, 2010. |
Termination
Not for Cause and Termination for Good Reason
The employment agreements to which Messrs. Lane, Underhill,
Wagstaff and Lake are parties provide that if their employment
is terminated other than for Cause or
Disability (as such terms are defined in the
agreements) or if they resign for Good Reason (as
such term is defined in the agreements), they are entitled to
the following severance payment and benefits:
|
|
|
|
|
All accrued, but unpaid, obligations (including, but not limited
to, salary, bonus, expense reimbursement and vacation pay);
|
|
|
|
In the case of Messrs. Lane and Wagstaff, monthly payments
equal to
1/12
of base salary at the rate in effect immediately prior to
termination and
1/12
target annual bonus for 18 months following termination. In
the case of Messrs. Underhill and Lake, continuation of
base salary for 12 months following termination, at the
rate in effect immediately prior to termination;
|
|
|
|
Continuation of medical benefits for 18 months for
Messrs. Lane and Wagstaff and 12 months for
Messrs. Underhill and Lake or, in each case (except in the
case of Mr. Wagstaff), until such earlier time as the
executive becomes eligible for medical benefits from a
subsequent employer;
|
|
|
|
A pro-rata annual bonus for the fiscal year in which termination
occurs, based on actual performance through the end of the
fiscal year; and
|
107
|
|
|
|
|
Solely in the case of Mr. Lane, a pro-rata portion of the
stock options granted to him, which are currently held by
Andy & Cindy Lane Family, L.P., would become vested.
However, the restricted stock granted to Mr. Lane, which is
currently held by Andy & Cindy Lane Family, L.P.,
would be forfeited.
|
The payments and the provision of benefits described in this
paragraph are generally subject to the execution of a release
and compliance with restrictive covenants prohibiting
competition, solicitation of employees and interference with
business relationships during employment and thereafter during
the applicable restriction period. These restrictions apply to
each of Messrs. Lane, Underhill, Wagstaff and Lake during
their employment and for 18 months following termination
for Messrs. Lane and Wagstaff, and for 12 months
following termination for Messrs. Underhill and Lake. In
addition, Messrs. Lane, Underhill, Lake and Wagstaff are
subject to perpetual restrictive covenants regarding
confidentiality, non-disparagement and proprietary rights.
As of December 31, 2010, all stock options held by
Messrs. Underhill, Wagstaff, Ittner, Hutchinson, Isaac and
Lake were unvested, all restricted stock held by Mr. Lane
was unvested and 75% of options held by Mr. Lane were
unvested. As of December 31, 2010, profits units held by
Messrs. Underhill, Ittner, Hutchinson and Isaac were
one-third vested and all profits units held by Mr. Lake
were unvested. The vesting schedules of these profits units,
stock options and shares of restricted stock are described in
the narrative following the table titled Outstanding
Equity Awards at 2010 Fiscal Year End. In the event of a
termination of employment by us without Cause (as defined in
their respective agreements) or upon an executives
resignation for Good Reason (as defined in their respective
agreements), the profits units held by Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake that are currently unvested
would be forfeited pursuant to the PVF LLC Agreement.
The fully vested account in the McJunkin Red Man Corporation
Nonqualified Deferred Compensation Plan held by certain named
executive officers and additional executive officers would
become payable (subject to the requirements of
Section 409A) upon a termination by us of such executive
officers employment other than for Cause or a termination
of employment by such executive officer for Good Reason.
In addition, each named executive officer and additional
executive officers would also be paid the value of any accrued
but unused vacation time as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Deferred
|
|
|
|
|
Accrued
|
|
|
|
Pro Rata
|
|
Value of
|
|
Accelerated
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Base Salary
|
|
Incentive
|
|
Medical
|
|
Vesting of
|
|
Account
|
|
|
|
|
($)(1)
|
|
Continuation ($)
|
|
($)(2)
|
|
Benefits ($)
|
|
Equity ($)(3)
|
|
Balance ($)
|
|
Total ($)
|
|
Andrew R. Lane
|
|
|
75,385
|
|
|
|
1,050,000
|
|
|
|
399,000
|
|
|
|
28,062
|
|
|
|
0
|
|
|
|
|
|
|
|
1,552,447
|
|
James F. Underhill
|
|
|
57,692
|
|
|
|
500,000
|
|
|
|
285,000
|
|
|
|
18,708
|
|
|
|
0
|
|
|
|
147,814
|
|
|
|
1,009,214
|
|
Neil P. Wagstaff
|
|
|
15,308
|
|
|
|
497,536
|
|
|
|
189,064
|
|
|
|
5,122
|
|
|
|
0
|
|
|
|
|
|
|
|
707,030
|
|
Gary A. Ittner
|
|
|
50,481
|
|
|
|
|
|
|
|
213,750
|
|
|
|
|
|
|
|
0
|
|
|
|
126,698
|
|
|
|
390,929
|
|
Scott A. Hutchinson
|
|
|
39,808
|
|
|
|
|
|
|
|
196,650
|
|
|
|
|
|
|
|
0
|
|
|
|
84,464
|
|
|
|
320,922
|
|
Rory M. Isaac
|
|
|
43,269
|
|
|
|
|
|
|
|
210,000
|
|
|
|
|
|
|
|
0
|
|
|
|
126,698
|
|
|
|
379,967
|
|
Stephen W. Lake
|
|
|
27,404
|
|
|
|
375,000
|
|
|
|
213,750
|
|
|
|
18,708
|
|
|
|
0
|
|
|
|
|
|
|
|
634,862
|
|
|
|
|
(1) |
|
These amounts represent accrued but unused vacation time as of
December 31, 2010. |
|
(2) |
|
Each of the named executive officers and additional executive
officers has an annual target bonus of 100% of annual base
salary in effect at the beginning of the relevant fiscal year.
Assuming a termination date of December 31, 2010, each of
Messrs. Lane, Underhill, Wagstaff, Ittner, Hutchinson and
Lake would be entitled to receive 57% of his target annual
incentive bonus and Mr. Isaac would be entitled to receive
56% of his target annual bonus. |
|
3) |
|
In the case of Mr. Lane, the amount in this column
represents the value of the pro-rata acceleration of the vesting
of his stock options. Because the exercise price of these
options is $12.48 per share, which was above the per share value
of the companys stock as of December 31, 2010, which
was $7.51, there would be no value realized upon this
accelerated vesting. The restricted stock award granted to
Mr. Lane would not be subject to accelerated vesting under
these circumstances. In the case of Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake, all of their unvested
profits units held as of December 31, 2010 would be
forfeited as of such date. Additionally, because the exercise
price of awarded options is $11.42 for Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake and $11.44 for
Mr. Wagstaff, there would be no value realized upon this
accelerated vesting. |
108
Termination
by Us for Cause
Upon a termination by us for Cause (as defined in the stock
option plan), pursuant to the applicable award agreements, stock
options held by Messrs. Lane, Underhill, Wagstaff, Ittner,
Hutchinson, Isaac and Lake and restricted stock held by
Mr. Lane, whether vested or unvested, would in each case be
forfeited immediately for no consideration. Under these
circumstances, the profits units held by Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake whether or not vested, would
also be forfeited immediately for no consideration.
In addition, as described in the narrative above following the
table titled Nonqualified Deferred Compensation for
2010, the fully vested accounts in the McJunkin Red Man
Corporation Nonqualified Deferred Compensation Plan would become
payable (subject to the requirements of Section 409A). Each
named executive officer and additional executive officer would
also be paid the value of any accrued but unused vacation time
as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
Accrued
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Account
|
|
|
Name
|
|
($)(1)
|
|
Balance ($)
|
|
Total ($)
|
|
Andrew R. Lane
|
|
|
75,385
|
|
|
|
|
|
|
|
75,385
|
|
James F. Underhill
|
|
|
57,692
|
|
|
|
147,814
|
|
|
|
205,506
|
|
Neil P. Wagstaff
|
|
|
15,308
|
|
|
|
|
|
|
|
15,308
|
|
Gary A. Ittner
|
|
|
50,481
|
|
|
|
126,698
|
|
|
|
177,179
|
|
Scott A. Hutchinson
|
|
|
39,808
|
|
|
|
84,464
|
|
|
|
124,272
|
|
Rory M. Isaac
|
|
|
43,269
|
|
|
|
126,698
|
|
|
|
169,967
|
|
Stephen W. Lake
|
|
|
27,404
|
|
|
|
|
|
|
|
27,404
|
|
|
|
|
(1) |
|
These amounts represent accrued but unused vacation time as of
December 31, 2010. |
Termination
due to Death or Disability
Pursuant to the employment agreements with Messrs. Lane,
Underhill, Wagstaff and Lake, upon a termination of employment
due to 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.
Pursuant to the applicable award agreements, all unvested stock
options and restricted stock awards granted to the named
executive officers and additional executive officers would
become fully vested in the event of a termination due to death
or Disability (as defined in the applicable plan). Pursuant to
the PVF LLC Agreement, all unvested profits units held by
Messrs. Underhill, Ittner, Hutchinson, Isaac and Lake would
become fully vested and nonforfeitable in the event of a
termination due to death or Disability (as defined in the PVF
LLC Agreement). 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 account, whether or not vested, would be payable.
Each named executive officer and additional executive officer
(or their beneficiaries) would also be paid the value of any
accrued but unused vacation time as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Deferred
|
|
|
|
|
Accrued
|
|
Accelerated
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Vesting of
|
|
Account
|
|
|
Name
|
|
($)(1)
|
|
Equity ($)(2)
|
|
Balance ($)
|
|
Total ($)
|
|
Andrew R. Lane
|
|
|
75,385
|
|
|
|
375,500
|
|
|
|
|
|
|
|
450,885
|
|
James F. Underhill
|
|
|
57,692
|
|
|
|
1,343,490
|
|
|
|
147,814
|
|
|
|
1,548,996
|
|
Neil P. Wagstaff
|
|
|
15,308
|
|
|
|
|
|
|
|
|
|
|
|
15,308
|
|
Gary A. Ittner
|
|
|
50,481
|
|
|
|
857,543
|
|
|
|
126,698
|
|
|
|
1,034,722
|
|
Scott A. Hutchinson
|
|
|
39,808
|
|
|
|
371,561
|
|
|
|
84,464
|
|
|
|
495,833
|
|
Rory M. Isaac
|
|
|
43,269
|
|
|
|
857,543
|
|
|
|
126,698
|
|
|
|
1,027,510
|
|
Stephen W. Lake
|
|
|
27,404
|
|
|
|
428,738
|
|
|
|
|
|
|
|
456,142
|
|
109
|
|
|
(1) |
|
These amounts represent accrued but unused vacation time as of
December 31, 2010. |
|
(2) |
|
In the case of Mr. Lane, the amount in this column includes
the value of the pro-rata acceleration of the vesting of his
unvested stock options and the full acceleration of vesting of
his entire restricted stock award. Because the exercise price of
his options is $12.48 per share, which was above the per share
value of the companys stock as of December 31, 2010,
which was $7.51, there would be no value realized upon this
accelerated vesting. The value of the accelerated vesting of
Mr. Lanes restricted stock is based on the per share
value of the companys stock as of December 31, 2010,
which was $7.51. In the case of Messrs. Underhill, Ittner,
Hutchinson, Isaac and Lake, all of their profits units and stock
options, and in the case of Mr. Wagstaff, stock options,
held as of December 31, 2010 would become fully vested as
of such date. With respect to profits units, the value realized
upon such acceleration is based on the value of profits units in
PVF Holdings LLC as of December 31, 2010, which was
$3,373.23 per unit. With respect to options, because the
exercise price of their options is $11.42 per share for
Messrs. Underhill, Ittner, Hutchinson, Isaac and Lake, and
$11.44 per share for Mr. Wagstaff, which was above the per
share value of the companys stock as of December 31,
2010, which was $7.51, there would be no value realized upon
this accelerated vesting. |
Change
in Control
The PVF LLC Agreement provides that in the event of a
Transaction (as defined in the PVF LLC Agreement), profits units
will become fully vested and nonforfeitable. This accelerated
vesting of the profits 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 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.
The McJ Holding Corporation 2007 Stock Option Plan and the McJ
Holding Corporation 2007 Restricted Stock Plan, pursuant to
which stock options and restricted stock have been granted to
our named executive officers and additional executive officers,
provide that in the event of a Transaction (as defined in the
applicable plan), outstanding stock options and restricted stock
shall become fully vested (and exercisable in the case of
options). The definition of Transaction in each of
the plans is the same as that set forth in the PVF LLC
Agreement. 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
participants 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
110
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 executive officers with
accounts because each of their accounts was fully vested as of
the effective date of the plan, which was December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Deferred
|
|
|
|
|
Accrued
|
|
Accelerated
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Vesting of
|
|
Account
|
|
|
Name
|
|
($)(1)
|
|
Equity ($)(2)
|
|
Balance ($)
|
|
Total ($)
|
|
Andrew R. Lane
|
|
|
75,385
|
|
|
|
375,500
|
|
|
|
|
|
|
|
450,885
|
|
James F. Underhill
|
|
|
57,692
|
|
|
|
1,343,490
|
|
|
|
147,814
|
|
|
|
1,548,996
|
|
Neil P. Wagstaff
|
|
|
15,308
|
|
|
|
|
|
|
|
|
|
|
|
15,308
|
|
Gary A. Ittner
|
|
|
50,481
|
|
|
|
857,543
|
|
|
|
126,698
|
|
|
|
1,034,722
|
|
Scott A. Hutchinson
|
|
|
39,808
|
|
|
|
371,561
|
|
|
|
84,464
|
|
|
|
495,833
|
|
Rory M. Isaac
|
|
|
43,269
|
|
|
|
857,543
|
|
|
|
126,698
|
|
|
|
1,027,510
|
|
Stephen W. Lake
|
|
|
27,404
|
|
|
|
428,738
|
|
|
|
|
|
|
|
456,142
|
|
|
|
|
(1) |
|
These amounts represent accrued but unused vacation time as of
December 31, 2010. |
|
(2) |
|
In the case of Mr. Lane, all restricted stock and unvested
stock options he held as of December 31, 2010 would become
fully vested as of such date. Because the exercise price of his
options is $12.48 per share, which was above the per share value
of the companys stock as of December 31, 2010, which
was $7.51, there would be no value realized upon this
accelerated vesting. The value of the accelerated vesting of
Mr. Lanes restricted stock is based on the per share
value of the companys stock as of December 31, 2010,
which was $7.51. In the case of Messrs. Underhill,
Wagstaff, Ittner, Hutchinson, Isaac and Lake, all of the profits
units and stock options they held as of December 31, 2010
would become fully vested as of such date. With respect to
profits units, the value realized upon such acceleration is
based on the value of profits units in PVF Holdings LLC as of
December 31, 2010, which was $3,373.23 per unit. With
respect to options, because the exercise price of their options
is $11.42 per share, which was above the per share value of the
companys stock as of December 31, 2010, which was
$7.51, there would be no value realized upon this accelerated
vesting. |
Non-Employee
Director Compensation
As compensation for their services on our board of directors,
each non-employee director is paid an annual cash fee of
$100,000. No additional cash fees are paid in respect of service
on board committees. In addition, many of our directors have
received equity compensation awards at the time of their
appointment to our board of directors and at such other times as
the Committee and the board of directors has deemed appropriate.
All directors are also reimbursed for travel expenses and other
out-of-pocket costs incurred in connection with their attendance
at meetings.
111
Director
Compensation for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock Awards
|
|
Option Awards
|
|
All Other
|
|
|
Name
|
|
Paid in Cash ($)
|
|
($)(1)
|
|
($)
|
|
Compensation ($)
|
|
Total ($)
|
|
Leonard M. Anthony
|
|
|
100,000
|
|
|
|
|
|
|
|
14,510
|
|
|
|
|
|
|
|
114,510
|
|
Rhys J. Best
|
|
|
100,000
|
|
|
|
|
|
|
|
14,510
|
|
|
|
|
|
|
|
114,510
|
|
Peter C. Boylan, III
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Henry Cornell(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A.S. Crampton(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Daly(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry K. Hornish, Jr.
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Craig Ketchum
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Gerard P. Krans
|
|
|
100,000
|
|
|
|
|
|
|
|
14,510
|
|
|
|
|
|
|
|
114,510
|
|
Dr. Cornelis A. Linse
|
|
|
75,000
|
|
|
|
|
|
|
|
29,017
|
|
|
|
|
|
|
|
104,017
|
|
John A. Perkins
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Sam B. Rovit
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
H.B. Wehrle, III
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
(1) |
|
The following table indicates the aggregate number of shares of
our common stock subject to outstanding option awards and the
number of stock awards held by our non-employee directors as of
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
Name
|
|
Stock Options (#)(a)
|
|
(#)
|
|
Leonard M. Anthony
|
|
|
22,415
|
|
|
|
7,300
|
(b)
|
Rhys J. Best
|
|
|
43,525
|
|
|
|
|
|
Peter C. Boylan, III
|
|
|
38,131
|
|
|
|
|
|
Craig Ketchum
|
|
|
|
|
|
|
381.31
|
(c)
|
Gerard P. Krans
|
|
|
5,394
|
|
|
|
|
|
Dr. Cornelis A. Linse
|
|
|
10,787
|
|
|
|
|
|
John A. Perkins
|
|
|
8,741
|
|
|
|
|
|
Sam B. Rovit
|
|
|
34,497
|
|
|
|
|
|
H.B. Wehrle, III
|
|
|
|
|
|
|
381.31
|
(c)
|
|
|
|
(a) |
|
All stock options held by directors were granted pursuant to the
McJ Holding Stock Option Plan. Stock options held by directors
vest in equal increments on each of the third, fourth and fifth
anniversaries of the date of grant or in equal increments on
each of the second, third, fourth and fifth anniversaries of the
date of grant. Vesting of all options is conditioned on
continued service and subject to accelerated vesting under
certain circumstances, including termination of service by
reason of death or disability or the occurrence of a Transaction
(as defined in the plan). |
|
(b) |
|
The restricted stock held by Mr. Anthony was granted
pursuant to the McJ Holding Restricted Stock Plan and will vest
on the fifth anniversary of the date of grant, conditioned on
continued service and subject to accelerated vesting under
certain circumstances including termination of service by reason
of death or disability or the occurrence of a Transaction (as
defined in the plan). |
|
(c) |
|
Reflects profits units in PVF Holdings LLC held by
Messrs. Ketchum and Wehrle. Pursuant to the PVF LLC
Agreement, these profits units generally become vested in
one-third increments on each of the third, fourth and fifth
anniversaries of the date of grant. Also, in the event of a
Transaction (as defined in the PVF LLC Agreement), all unvested
profits units will become vested and nonforfeitable. In
addition, the letter agreements entered into between
Mr. Ketchum and McJunkin Red Man on December 22, 2008
and between Mr. Wehrle and McJunkin Red Man Holding
Corporation on September 24, 2008 provide for accelerated
vesting in additional circumstances. Pursuant to
Mr. Ketchums letter, his profits units will become
fully vested and no longer subject to forfeiture in the event
that his service as Chairman of the |
112
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Issuers board of directors and as a member of the
Issuers board of directors is terminated for any reason.
Pursuant to Mr. Wehrles letter, his profits units
will become fully vested and no longer subject to forfeiture in
the event of the termination of his service as Chairman of the
board of directors of PVF Holdings LLC and as a member of the
Issuers board of directors for any reason. |
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(2) |
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Each of these directors served on our board of directors during
2010, but generally did not receive any cash compensation for
such services. |
Compensation
Committee Interlocks and Insider Participation
Our compensation committee is comprised of Rhys J. Best, Peter
C. Boylan, III, Christopher A.S. Crampton and John F. Daly.
Mr. Daly is a managing director in the Principal Investment
Area of Goldman Sachs & Co. and Mr. Crampton is a
vice president in the Principal Investment Area of Goldman
Sachs & Co. For a description of our companys
transactions with Goldman Sachs & Co. and certain of
its affiliates, see Item 13, Certain Relationships
and Related Party Transactions Transactions with the
Goldman Sachs Funds. No interlocking relationship exists
between our board or compensation committee and the board of
directors or compensation committee of any other company.
113
PRINCIPAL
STOCKHOLDERS
The following table presents, as of March 1, 2011,
information regarding beneficial ownership of common stock of
McJunkin Red Man Holding Corporation by:
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each director of McJunkin Red Man Holding Corporation;
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each named executive officer of McJunkin Red Man Holding
Corporation;
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each stockholder known by us to beneficially hold five percent
or more of the common stock of McJunkin Red Man Holding
Corporation; and
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all of the executive officers and directors as a group.
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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, 2 Houston Center, 909 Fannin,
Suite 3100, Houston, Texas 77010.
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Shares Beneficially Owned
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Name and Address
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Number
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Percent
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PVF Holdings LLC(1)
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168,428,052
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99.7
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%
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The Goldman Sachs Group, Inc.(1)
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168,428,052
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99.7
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%
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200 West Street
New York, New York 10282
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Andrew R. Lane(2)
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220,218
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*
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James F. Underhill(3)
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Stephen W. Lake(4)
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Gary A. Ittner(5)
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Rory M. Isaac(6)
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Scott A. Hutchinson(7)
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Neil P. Wagstaff(8)
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Leonard M. Anthony(9)
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35,669
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*
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Rhys J. Best(10)
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Peter C. Boylan III(11)
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Henry Cornell(1)
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168,428,052
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99.7
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%
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Christopher A.S. Crampton(1)
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John F. Daly(1)
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168,428,052
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99.7
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%
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Craig Ketchum(12)
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Gerard P. Krans(13)
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Dr. Cornelis A. Linse(14)
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21,575
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*
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John A. Perkins(15)
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43,706
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*
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H.B. Wehrle, III(16)
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All directors and executive officers, as a group
(20 persons)(17)
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168,749,220
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99.8
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%
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* |
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Less than 1%. |
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(1) |
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PVF Holdings LLC directly owns 168,428,052 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 |
114
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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 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 102,386,912 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) 28,820,018 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) 14,887,217 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) 9,882,779 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) 1,142,616 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) 22,244,574 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) 18,502,254 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) 6,116,878 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) 790,572 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. |
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(2) |
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Mr. Lane owns no shares of common stock directly.
Mr. Lane owns 170,218 shares of common stock,
50,000 shares of restricted common stock and options to
purchase 1,758,929 shares of our common stock at an
exercise price of $12.48 through a limited partnership. The
options were granted to Mr. Lane on September 10, 2008
and will generally vest in one-fourth annual increments on the
second, third, fourth and fifth anniversaries of the date of
grant. The restricted common stock was granted to Mr. Lane
on February 24, 2009 and will generally become fully vested
on the fifth anniversary of the date of grant. |
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(3) |
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Mr. Underhill owns no shares of common stock directly.
Mr. Underhill owns 25,706 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.
Mr. Underhill also owns options to purchase
43,706 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Underhills options
was December 3, 2009. These options will generally vest in
equal increments on the third, fourth and fifth anniversaries of
the date of grant. |
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(4) |
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Mr. Lake owns no shares of common stock directly.
Mr. Lake owns 25,706 shares indirectly through his
ownership of common units in PVF Holdings LLC. Mr. Lake
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. Lake also owns profits units in PVF Holdings
LLC. These profits units do not give Mr. Lake beneficial
ownership of any shares of our common stock because they do not
give Mr. Lake the power to vote or dispose of any such
shares. Mr. Lake also owns options to purchase
87,413 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Lakes options was |
115
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December 3, 2009. These options will generally vest in
equal increments on the third, fourth and fifth anniversaries of
the date of grant. |
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(5) |
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Mr. Ittner owns no shares of common stock directly.
Mr. Ittner owns 12,798 shares indirectly through his
ownership of common units in PVF Holdings LLC. Mr. Ittner
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. Ittner also owns profits units in PVF Holdings
LLC. These profits units do not give Mr. Ittner beneficial
ownership of any shares of our common stock because they do not
give Mr. Ittner the power to vote or dispose of any such
shares. Mr. Ittner also owns options to purchase
43,706 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Ittners options was
December 3, 2009. These options will generally vest in
equal increments on the third, fourth and fifth anniversaries of
the date of grant. |
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(6) |
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Mr. Isaac owns no shares of common stock directly.
Mr. Isaac owns 64,101 shares indirectly through his
ownership of common units in PVF Holdings LLC. Mr. Isaac
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. Isaac also owns profits units in PVF Holdings
LLC. These profits units do not give Mr. Isaac beneficial
ownership of any shares of our common stock because they do not
give Mr. Isaac the power to vote or dispose of any such
shares. Mr. Isaac also owns options to purchase
43,706 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Isaacs options was
December 3, 2009. These options will generally vest in
equal increments on the third, fourth and fifth anniversaries of
the date of grant. |
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(7) |
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Mr. Hutchinson owns no shares of common stock directly.
Mr. Hutchinson owns 25,706 shares indirectly through
his ownership of common units in PVF Holdings LLC.
Mr. Hutchinson 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. Hutchinson also
owns profits units in PVF Holdings LLC. These profits units do
not give Mr. Hutchinson beneficial ownership of any shares
of our common stock because they do not give Mr. Hutchinson
the power to vote or dispose of any such shares.
Mr. Hutchinson also owns options to purchase
131,119 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Hutchinsons options
was December 3, 2009. These options will generally vest in
equal increments on the third, fourth and fifth anniversaries of
the date of grant. |
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(8) |
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Mr. Wagstaff owns no shares of common stock directly.
Mr. Wagstaff owns 1,551,291 shares indirectly through
his ownership of common units in PVF Holdings LLC.
Mr. Wagstaff 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. Wagstaff also owns
options to purchase 87,143 shares of our common stock at an
exercise price of $11.44. The date of grant of
Mr. Wagstaffs options was April 1, 2010. These
options will generally vest in equal increments on the third,
fourth and fifth anniversaries of the date of grant. |
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(9) |
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Mr. Anthony owns 28,369 shares of common stock and
7,300 shares of restricted common stock directly.
Mr. Anthony also owns options to purchase
17,021 shares of our common stock at an exercise price of
$12.48 and options to purchase 5,394 shares of our common
stock at an exercise price of $9.27. The dates of the grants of
Mr. Anthonys options were October 3, 2008 and
May 12, 2010, respectively. The options for
17,021 shares will generally vest in one-third annual
increments on the third, fourth and fifth anniversaries of the
date of grant. The options for 5,394 shares will generally
vest in one-fourth annual increments on the second, third,
fourth and fifth anniversaries of the date of grant. The date of
grant of Mr. Anthonys restricted common stock was
September 10, 2009. This restricted common stock will
generally become vested on the fifth anniversary of the date of
grant. |
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(10) |
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Mr. Best owns no shares of common stock directly.
Mr. Best owns 63,991 shares indirectly due to his
limited liability companys 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 companys 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
38,131 shares of our common stock at an exercise price of
$4.81 and options to purchase 5,394 shares of our common
stock at an exercise price of $9.27. The dates of the grants for
the |
116
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options were December 24, 2007 and May 12, 2010,
respectively. The options for 38,131 shares will generally
vest in equal annual increments on each of December 1,
2010, 2011 and 2012. The options for 5,394 shares will
generally vest in one-fourth annual increments on the second,
third, fourth and fifth anniversaries of the date of grant. |
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(11) |
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Mr. Boylan owns no shares of common stock directly.
Mr. Boylan owns 127,982 shares indirectly through his
ownership of common units in PVF Holdings LLC. Mr. Boylan
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. Boylan also owns options to purchase
38,131 shares of our common stock at an exercise price of
$4.81. The date of grant for the options was December 24,
2007. The options will generally vest in one-third annual
increments on the third, fourth and fifth anniversaries of the
date of grant. |
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(12) |
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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 5,648,791 shares of common stock.
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 companys 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. |
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(13) |
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Mr. Krans owns no shares of common stock directly.
Mr. Krans owns 10,600,489 shares indirectly through
his ownership of common units in PVF Holdings LLC.
Mr. Krans 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. Krans also owns
options to purchase 5,394 shares of our common stock at an
exercise price of $9.27. The date of grant of
Mr. Krans options was May 12, 2010. The options
will generally vest in one-fourth annual increments on the
second, third, fourth and fifth anniversaries of the date of
grant. |
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(14) |
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Dr. Linse owns 21,575 shares of common stock directly.
Dr. Linse also owns options to purchase 10,787 shares
of our common stock at an exercise price of $9.27. The date of
grant of Dr. Linses options was May 12, 2010.
The options will generally vest in one-fourth annual increments
on the second, third, fourth and fifth anniversaries of the date
of grant. |
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(15) |
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Mr. Perkins owns 43,706 shares of common stock
directly. Mr. Perkins also owns options to purchase
8,741 shares of our common stock at an exercise price of
$11.42. The date of grant of Mr. Perkinss options was
December 3, 2009. These options will generally vest in
one-fourth annual increments on the second, third, fourth and
fifth anniversaries of the date of grant. |
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(16) |
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Mr. Wehrle owns no shares of common stock directly.
Mr. Wehrle owns 2,607,138 shares 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. |
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(17) |
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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, (ii) 170,218 shares of
unrestricted common stock and 50,000 shares of restricted
common stock held indirectly by Andrew R. Lane, the chairman,
president and chief executive officer and a director of McJunkin
Red Man Holding Corporation through a limited partnership,
(iii) 28,369 shares of unrestricted common stock and
7,300 shares of restricted common stock held directly by
Leonard Anthony, a director of McJunkin Red Man Holding
Corporation; (iv) 21,575 shares of unrestricted common
stock held directly by Dr. Cornelis A. Linse, a director of
McJunkin Red Man Holding Corporation; and
(v) 43,706 shares of unrestricted common stock held
directly by John Perkins, a director of McJunkin Red Man Holding
Corporation. |
117
The following table sets forth, as of the date hereof, the
number of common units and profits units of PVF Holdings LLC
held by each of the directors, executive officers and beneficial
owners of more than five percent of the common stock of McJunkin
Red Man Holding Corporation.
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Common Units
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Profits Units
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Owned Directly
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Owned Directly or
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Name of Beneficial Owner
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or Indirectly
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Indirectly
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The Goldman Sachs Funds
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203,365.2099
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Andrew R. Lane
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James F. Underhill
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51.0592
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597.3853
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Stephen W. Lake
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51.0592
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127.1033
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|
Gary A. Ittner
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|
25.6386
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|
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|
381.3098
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Rory M. Isaac
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|
|
127.3212
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|
|
|
381.3098
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|
Scott A. Hutchinson
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|
51.0592
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|
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165.2342
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Neil P. Wagstaff
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|
3,081.2400
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Leonard M. Anthony
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Rhys J. Best
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|
127.1033
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Peter C. Boylan III
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|
254.2065
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|
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Henry Cornell
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Christopher A.S. Crampton
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John F. Daly
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Craig Ketchum
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|
|
11,219.8688
|
|
|
|
381.3098
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|
Gerard P. Krans
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|
|
21,055.1400
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|
|
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Dr. Cornelis A. Linse
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|
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|
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|
John A. Perkins
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|
|
|
|
|
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|
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H.B. Wehrle, III
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|
|
5,128.1093
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|
|
|
381.3098
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|
The Goldman Sachs Funds and all of our directors and executive
officers, as a group
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|
|
244,537.0152
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|
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2,414.9620
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|
Other holders of common units of PVF Holdings, LLC, as a group
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|
|
90,001.8910
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|
|
|
2,707.2994
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|
Total
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|
|
334,538.9062
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|
|
|
5,122.2614
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|
118
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 that occurred during the years ended
December 31, 2008, December 31, 2009 and
December 31, 2010.
Transactions
with the Goldman Sachs Funds
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, are the
majority owners of PVF Holdings LLC, our parent company.
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
were paid $311,722,411.39 in such distribution.
LaBarge
Acquisition
On October 9, 2008, we acquired LaBarge Pipe &
Steel Company. In connection with the LaBarge Acquisition,
McJunkin Red Man Corporation paid an affiliate of the Goldman
Sachs Funds a $1.6 million merger and acquisition advisory
fee.
Transmark
Acquisition
On October 30, 2009, we acquired Transmark Fcx Group B.V.,
now known as MRC Transmark Group B.V. (Transmark).
In connection with the acquisition of Transmark, McJunkin Red
Man Corporation agreed to pay to an affiliate of the Goldman
Sachs Funds a 4.0 (US$6.0) million merger and
acquisition advisory fee.
Revolving
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 and was a lender under our
Term Loan Facility and Junior Term Loan Facility. Goldman Sachs
Credit Partners is also a co-lead arranger and joint bookrunner
under our Revolving Credit Facility and was a co-lead arranger
and joint bookrunner under our Term Loan Facility and Junior
Term Loan Facility and was also the syndication agent under the
Term Loan Facility and the Junior Term Loan Facility.
We paid a $4.4 million fee to Goldman Sachs Credit Partners
in May 2008 in connection with the Junior Term Loan Facility, 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 and a fee of $2 million to
Goldman Sachs Credit Partners in October 2008 in connection with
the $100 million upsizing of our Revolving Credit Facility.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Description of
Our Indebtedness.
Notes
Offerings
Under the registration rights agreement, we agreed to file a
market-making prospectus in order to enable Goldman
Sachs to engage in market-making activities for the notes.
Goldman Sachs was a joint book-running manager for our December
2009 and February 2010 notes offerings and received fees of
$9.5 million in connection with serving in this capacity.
119
Transactions
with USI Southwest
In January 2010, we engaged Anco Insurance Services of Houston,
Inc. (doing business as USI Southwest), an affiliate of the
Goldman Sachs Funds, to provide insurance brokerage services to
McJunkin Red Man Holding Corporation and its subsidiaries.
During the year ended December 31, 2010, we paid USA
Southwest $2.2 million for these services.
Transactions
with Kinder Morgan Energy Partners, L.P.
On September 1, 2009, we entered into a Supply Agreement
with Kinder Morgan Energy Partners, L.P., an affiliate of the
Goldman Sachs Funds, pursuant to which we have agreed to provide
maintenance, repair and operating supplies and related products
for an initial term expiring on December 31, 2014. In
connection with services provided to Kinder prior to the entry
of the Supply Agreement, we received $40.9 million in the
year ended December 31, 2008, $15.5 million in the
year ended December 31, 2009 and $13.7 million in the
year ended December 31, 2010.
Transactions
with Cobalt, Coffeyville, Energy Future Holdings and
CCS
Cobalt International Energy LP (Cobalt), Coffeyville
Resources Refining & Marketing, LLC
(Coffeyville), Luminant Generation Company LLC,
Luminant Mining Company LLC and Oncor Electric Delivery Company
LLC (together with Luminant Generation Company LLC and Luminant
Mining Company LLC, Energy Future Holdings), and
CCS Corporation (CCS), affiliates of the
Goldman Sachs Funds, are customers of our company. Our sales to
Cobalt were $0.5 million in 2008, $1.3 million in 2009
and $6.1 million in 2010. Our sales to Coffeyville were
$0.5 million in 2008, $0.1 million in 2009 and
$0.2 million in 2010. Our sales to Energy Future Holdings
were $0.3 million in 2008, $0.5 million in 2009 and
$4.1 million in 2010. Our sales to CCS were
$0.5 million in 2008, $0.5 million in 2009 and
$0.4 million in 2010.
Transactions
with Prideco
We lease certain equipment and buildings from Prideco, LLC, an
entity owned by Craig Ketchum (a member 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. We paid Prideco, LLC an
aggregate rental amount of approximately $3.3 million in
the year ended December 31, 2008, $2.4 million in the
year ended December 31, 2009, and $1.5 million in the
year ended December 31, 2010.
Under four separate real property leases, we lease office and
warehouse space for the wholesale distribution of pipe, valves
and fittings from Prideco, LLC. The total rental amount under
these leases was approximately $0.1 million in the year
ended December 31, 2008, $0.1 million in the year
ended December 31, 2009, and $0.1 million in the year
ended December 31, 2010. The location of the leased
property, monthly rent in 2010, term, expiration date, square
footage of the leased premises and renewal option for each of
these leases are included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly 2010
|
|
|
|
|
|
|
Square
|
|
|
|
Location
|
|
Rent
|
|
|
Term
|
|
Expiration
|
|
Feet
|
|
|
Renewal Option
|
|
Artesia, NM
|
|
$
|
2,200
|
|
|
5 years
|
|
May 31, 2013
|
|
|
8,750
|
|
|
One five-year renewal option
|
Lovington, NM
|
|
$
|
2,350
|
|
|
3 years
|
|
September 30, 2012
|
|
|
6,000
|
|
|
Open option to renew
|
Tulsa, OK
|
|
$
|
3,000
|
|
|
3 years
|
|
March 31, 2012
|
|
|
7,980
|
|
|
One five-year renewal option
|
Woodward, OK
|
|
$
|
3,500
|
|
|
5 years
|
|
July 31, 2012
|
|
|
6,000
|
|
|
None
|
Additionally, under one master lease, Prideco, LLC leases
approximately 430 trucks, cars and sports utility vehicles to
us. All of these vehicles are used in our operations. Under the
master lease, most vehicles are leased for a term of
36 months. The total rental amount under this lease was
approximately $3.1 million in the year ended
December 31, 2008, $2.3 million in the year ended
December 31, 2009 and $1.4 million in the year ended
December 31, 2010.
120
We believe the rental amounts under our 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 the
board of directors of McJunkin Red Man Holding Corporation), E.
Gaines Wehrle (a former member of the board of directors of
McJunkin Red Man Holding Corporation), Stephen D. Wehrle (a
former executive officer of McJunkin Red Man Holding
Corporation) 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 paid Hansford
Associates Limited Partnership an aggregate rental amount of
approximately $2.5 million in the year ended
December 31, 2008, $2.5 million in the year ended
December 31, 2009 and $2.5 million in the year ended
December 31, 2010.
We believe that the rental amounts under McJunkin Red Man
Corporations leases with Hansford Associates Limited
Partnership are generally comparable to market rates negotiable
among unrelated third parties.
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, a former executive officer of McJunkin Red Man
Holding Corporation, and certain of Mr. Foxs
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 paid Appalachian Leasing Company an aggregate
rental amount of approximately $0.2 million in the year
ended December 31, 2008, $0.2 million in the year
ended December 31, 2009 and $0.2 million in the year
ended December 31, 2010. Under two separate leases,
McJunkin Red Man Corporation leases office and warehouse space
for the wholesale distribution of pipe, valves and fittings from
Appalachian Leasing Company. The location of the leased
property, monthly rent as of December 2010, 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
|
|
December 2010
|
|
|
Term
|
|
Expiration
|
|
Feet
|
|
|
Renewal Option
|
|
Hurricane, WV
|
|
$
|
10,005
|
|
|
3 years
|
|
December 31, 2013
|
|
|
17,350
|
|
|
Four three-year renewal options
|
Corbin, KY
|
|
$
|
4,473
|
|
|
3 years
|
|
May 31, 2012
|
|
|
8,000
|
|
|
None
|
We believe that the rental amounts under McJunkin Red Man
Corporations leases with Appalachian Leasing Company are
generally comparable to market rates negotiable among unrelated
third parties.
Transactions
with Executive Officers and Directors
Under the terms of the merger agreement for the GS Acquisition,
McJunkin Red Man Corporation is 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
Corporations shareholders of record immediately prior to
the merger, including H.B. Wehrle, III. The remaining
Non-Core Asset that has not yet been sold is certain real
property located in Charleston, West Virginia, including a
building. At December 31, 2010, this asset had a net book
value of approximately $1.4 million. McJunkin Red Man
Corporation is currently in the process of selling this
remaining Non-Core Asset.
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,
121
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 certain 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 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
LLCs 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 paid to the 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
|
|
Paid on Common Units
|
|
|
Paid 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
|
|
Scott A. Hutchinson
|
|
$
|
78,264.60
|
|
|
$
|
20,982.00
|
|
|
$
|
99,246.60
|
|
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
|
|
Diana D. Morris
|
|
$
|
19,482.65
|
|
|
|
|
|
|
$
|
19,482.65
|
|
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
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Distributions
|
|
|
Proceeds from Distributions
|
|
|
|
|
Name
|
|
Paid on Common Units
|
|
|
Paid on Profits Units
|
|
|
Total
|
|
|
Other Ketchum Family Members(8)
|
|
$
|
19,238,151.48
|
|
|
|
|
|
|
$
|
19,238,151.48
|
|
All executive officers, directors and their immediate family
members
|
|
$
|
111,395,062.82
|
|
|
$
|
572,970.00
|
|
|
$
|
111,968,032.82
|
|
|
|
|
(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. Foxs 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 was paid $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 was paid $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. Wehrles 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. |
Registration
Rights Agreement
Pursuant to the Amended and Restated Registration Rights
Agreement, dated as of October 31, 2007, as amended, by and
among PVF Holdings LLC, the Goldman Sachs Funds and certain
holders of common units of PVF Holdings LLC, PVF Holdings LLC
may be required to register the sale of common units held by the
Goldman Sachs Funds. Under the Amended and Restated Registration
Rights Agreement, the Goldman Sachs Funds have the right to
request that PVF Holdings LLC use its reasonable best efforts to
register the sale of common units held by the Goldman Sachs
Funds on its behalf on up to five occasions. The Goldman Sachs
Funds right to demand registration is subject to certain
limitations, including PVF Holdings LLCs 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,
the Goldman Sachs Funds and certain holders of common units of
PVF Holdings LLC that are party to the Amended and Restated
Registration Rights Agreement and their respective transferees,
will have the ability to exercise certain piggyback registration
rights. The Amended and Restated Registration Rights Agreement
also includes provisions dealing with allocation of securities
included in registration statements, registration procedures,
indemnification, contribution and allocation of expenses.
Management
Stockholders Agreement
Each holder of a stock option
and/or
restricted stock award, including the members of the board of
directors of McJunkin Red Man Holding Corporation who have
received awards, is a party to a management stockholders
agreement. Employees or directors that purchase common stock of
McJunkin Red Man Holding Corporation must also become a party to
the management stockholders agreement. The management
stockholders agreement sets forth the terms and conditions
governing common stock of McJunkin Red Man Holding Corporation,
including vested restricted stock and shares of common stock
received upon the exercise of stock option awards.
123
The management stockholders agreement provides that upon the
termination of a shareholders employment with McJunkin Red
Man Holding Corporation or its affiliates (including, in the
case of a non-employee member of our board of directors, the
termination of his or her service on our board), McJunkin Red
Man Holding Corporation may exercise its right to purchase from
shareholder (or his or her permitted transferee) all or a
portion of the shareholders vested restricted stock,
common stock received upon the exercise of the
shareholders stock options,
and/or
common stock purchased by the shareholder. In the event of a
termination by the company or its affiliates for cause (as
defined in the management stockholders agreement), 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 shareholder. 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). Prior to the consummation of an initial
public offering of our common stock, if PVF Holdings LLC
proposes to (i) transfer common stock to any person who is
not its affiliate or (ii) effect an Exit Event (as defined
in the management stockholders agreement), PVF Holdings LLC may
require shareholders to transfer a proportionate number of their
shares of common stock to such person. In such event,
shareholders would receive the same price for their common stock
as PVF Holdings LLC receives for its common stock and would be
required to pay for a proportionate share of all transaction
expenses.
Other than as described above in this section, the management
stockholders agreement prohibits the transfer of any shares of
common stock of McJunkin Red Man Holding Corporation (including
vested shares restricted stock) by a shareholder, other than
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.
Our directors hold various equity interests in respect of our
shares of common stock. Andrew R. Lane, Leonard Anthony,
Cornelis Linse and John Perkins hold shares of our common stock
that they have purchased for fair market value; Andrew R. Lane
and Leonard Anthony hold awards of restricted stock; and Andrew
R. Lane, Leonard Anthony, Rhys Best, Peter C. Boylan III, Gerard
P. Krans, John Perkins and Dr. Cornelis A. Linse hold stock
options to purchase shares of our common stock. Accordingly,
each of them is a party to the management stockholders
agreement. Upon the consummation of an initial public offering
of our common stock, none of Messrs, Lane, Anthony, Linse or
Perkins will be a party to the management stockholders agreement
in respect of common stock purchased by them, and neither
Mr. Lane nor Mr. Anthony will be a party to the
management stockholders agreement in respect of common stock
acquired by them upon exercise of their stock options.
Related
Party Transaction Policy
We have in place a formal policy for the review, approval,
ratification and disclosure of related party transactions. 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 or will have a direct or indirect material
interest. The audit committee of the board of directors of
McJunkin Red Man Holding Corporation 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 the board
of directors of McJunkin Red Man Holding Corporation 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 the audit committee. In addition, related party
transactions involving compensation will be approved by the
compensation committee in lieu of our audit committee.
In addition 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
124
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.
Board
of Directors
As a private company whose securities are not listed on any
national securities exchange, McJunkin Red Man Holding
Corporation is not required to have a majority of, or any,
independent directors. Further, even if McJunkin Red Man Holding
Corporation were listed on a national securities exchange,
because Goldman, Sachs & Co. beneficially owns more
than 50% of the membership interests of PVF Holdings LLC and PVF
Holdings LLC owns a substantial majority of the common stock of
McJunkin Red Man Holding Corporation, McJunkin Red Man Holding
Corporation would be deemed a controlled company
under the rules of the NYSE and Nasdaq and, therefore, would not
need to have a majority of independent directors or
all-independent compensation and nominating committees. However,
the rules of the SEC require us to disclose in this prospectus
which of our directors would be considered independent within
the meaning of the rules of a national securities exchange that
we may choose. McJunkin Red Man Holding Corporation currently
has five directors who would be considered independent within
the definitions of either the NYSE or Nasdaq:
Messrs. Leonard M. Anthony, Rhys J. Best, Peter C. Boylan
III, Dr. Cornelis A. Linse and John A. Perkins.
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DESCRIPTION
OF NOTES
The notes were issued under an indenture (the
indenture), dated December 21, 2009,
among the Issuer, the Guarantors and U.S. Bank National
Association, as trustee (the trustee). On
December 21, 2009, the Issuer issued and sold
$1.0 billion of 9.50% senior secured notes due 2016
(original first lien notes). On February 11,
2010, the Issuer issued and sold $50 million of
9.50% senior secured notes due 2016 (additional first
lien notes). The original first lien notes and the
additional first lien notes:
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are pari passu in right of payment;
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are secured equally and ratably;
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vote together on any matter submitted to the holders for a vote,
including waivers and amendments; and
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are otherwise treated as a single class for all purposes under
the indenture, including redemptions and offers to purchase.
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Unless otherwise indicated, the original first lien notes and
the additional first lien notes are collectively referred to
herein as the notes. The terms of the notes include
those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939,
as amended, which is referred to in this prospectus as the Trust
Indenture Act, or TIA.
You can find the definitions of certain terms used in this
description under Certain Definitions.
Certain defined terms used in this description but not defined
below under the caption Certain
Definitions have the meanings assigned to them in the
indenture, the collateral trust agreement, the intercreditor
agreement
and/or the
exchange and registration rights agreements. In this
description, the term Parent refers only to
McJunkin Red Man Holding Corporation, a Delaware corporation,
and not to any of its subsidiaries or direct or indirect
equityholders, the term Issuer refers only to
McJunkin Red Man Corporation, a West Virginia corporation and a
Wholly Owned Restricted Subsidiary of Parent, and not to any of
its subsidiaries, the term refinancing
transactions means the issuance of the original first
lien notes and the application of the use of proceeds therefrom,
and the term current transactions means the
issuance of the additional first lien notes and the application
of the use of proceeds therefrom.
The following description is a summary of the material
provisions of the indenture, the collateral trust agreement, the
intercreditor agreement and the registration rights agreement.
It does not restate those agreements in their entirety. We urge
you to read the indenture, the collateral trust agreement, the
intercreditor agreement and the exchange and registration rights
agreements because they, and not this description, define your
rights as a holder of the notes. Copies of the indenture, the
collateral trust agreement, the intercreditor agreement and the
exchange and registration rights agreements from the Issuer
without charge upon request.
The registered holder of a note will be treated as the owner of
it for all purposes. Only registered holders will have rights
under the indenture.
Brief
Description of the Notes and the Note Guarantees
The
Notes
The notes:
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are general senior secured obligations of the Issuer;
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share, equally and ratably with all obligations of the Issuer
under any other Priority Lien Debt, in the benefits of Liens
held by the collateral trustee on all Notes Priority Collateral
from time to time owned by the Issuer, which Liens will be
junior to all Permitted Prior Liens on the Notes Priority
Collateral and senior to the Liens on the Notes Priority
Collateral securing any future Subordinated Lien Obligations;
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share, equally and ratably with all obligations of the Issuer
under any other Priority Lien Debt, in the benefits of the Liens
held by the collateral trustee on the ABL Priority Collateral,
which Liens will be junior to all Permitted Prior Liens on the
ABL Priority Collateral, including Liens securing the ABL Debt
Obligations,
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and, consequently, the notes will be effectively junior to all
ABL Debt Obligations to the extent of the value of the ABL
Priority Collateral;
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are structurally subordinated to any existing and future
Indebtedness and other liabilities of the Issuers
non-Guarantor Subsidiaries;
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are pari passu in right of payment with all existing and
future Indebtedness of the Issuer that is not subordinated;
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are senior in right of payment to any existing and future
subordinated Indebtedness of the Issuer; and
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are guaranteed on a senior secured basis by the Subsidiary
Guarantors, and on a senior unsecured basis by Parent, as
described under the caption The Note
Guarantees.
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As of December 31, 2010, the Issuer would had outstanding
$1.05 billion in aggregate principal amount of Priority
Lien Debt (consisting solely of the notes) plus certain
outstanding interest rate swap agreements that have been
designated as Priority Lien Debt, approximately
$286 million in aggregate principal amount of drawn ABL
Debt and outstanding letters of credit of approximately
$5 million (and $360 million of available borrowings
under the ABL Credit Facility) and no Subordinated Lien Debt.
Pursuant to the indenture, the Issuer is permitted to incur
additional Indebtedness as Priority Lien Debt in an amount not
to exceed the Priority Lien Cap. The Issuer is also permitted to
incur additional ABL Debt in an amount not to exceed the ABL
Lien Cap and additional Subordinated Lien Debt in an amount not
to exceed the Subordinated Lien Cap. Any future incurrence of
Priority Lien Debt, ABL Debt or Subordinated Lien Debt will be
subject to all of the covenants described below, including the
covenants described under the captions Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock and
Certain Covenants Liens.
The
Note Guarantees
The notes are guaranteed by Parent and by all of the current and
future Wholly Owned Domestic Subsidiaries of the Issuer (other
than Excluded Subsidiaries) and any of the Issuers future
Restricted Subsidiaries that guarantee any Indebtedness of the
Issuer or any Subsidiary Guarantor, including the ABL Credit
Facility.
Each guarantee by a Subsidiary Guarantor of the notes:
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is a general senior secured obligation of that Subsidiary
Guarantor;
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shares, equally and ratably with all obligations of that
Subsidiary Guarantor under any other Priority Lien Debt, in the
benefit of Liens on all Notes Priority Collateral from time to
time owned by that Subsidiary Guarantor, which Liens will be
junior to all Permitted Prior Liens on the Notes Priority
Collateral and senior to the Liens on the Notes Priority
Collateral securing any future Subordinated Lien Obligations;
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shares, equally and ratably with all obligations of that
Subsidiary Guarantor under any other Priority Lien Debt, in the
benefits of the Liens held by the collateral trustee on the ABL
Priority Collateral of that Subsidiary Guarantor, which Liens
will be junior to all Permitted Prior Liens on the ABL Priority
Collateral, including Liens securing the ABL Debt Obligations,
and, consequently, the Note Guarantees will be effectively
junior to all ABL Debt Obligations to the extent of the value of
the ABL Priority Collateral of that Subsidiary Guarantor;
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is pari passu in right of payment with all existing and
future Indebtedness of that Subsidiary Guarantor that is not
subordinated; and
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is senior in right of payment to any future subordinated
Indebtedness of that Subsidiary Guarantor.
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Not all of the Issuers Subsidiaries guarantee the notes.
In the event of a bankruptcy, liquidation or reorganization of
any of these non-Guarantor Subsidiaries, the non-Guarantor
Subsidiaries will pay the holders of their debt and their trade
creditors before they will be able to distribute any of their
assets to the Issuer. As of December 31, 2010, the
Issuers non-Guarantor Subsidiaries had consolidated total
liabilities (excluding intercompany liabilities of Subsidiaries
that are not Guarantors) of approximately $453 million,
including trade payables, and consolidated total assets of
$505 million, which represented 16% of the Issuers
and its Subsidiaries
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consolidated total assets. In addition, for the fiscal year
ended December 31, 2010, the Issuers non-Guarantor
subsidiaries had consolidated total revenue of
$727 million, which represented 19% of the Issuers
consolidated total revenue. See Risk Factors
Risks Related to the Notes Your Right to Receive
Payment on the Notes Will Be Structurally Subordinated to the
Liabilities of Our Non-Guarantor Subsidiaries.
The guarantee by Parent of the notes is a general senior
unsecured obligation of Parent, is pari passu in right of
payment with all existing and future Indebtedness of Parent that
is not subordinated, is senior in right of payment to any future
subordinated Indebtedness of Parent and is effectively
subordinated to any future secured Indebtedness of Parent and
structurally subordinated to any Indebtedness of the Issuer and
its Subsidiaries. Parent has no significant assets other than
its interest in the Issuer, and has no income from operations
independent of the Issuer and its Subsidiaries.
If the Issuer or any of its Restricted Subsidiaries acquires or
creates another Wholly Owned Domestic Subsidiary (other than an
Excluded Subsidiary), such Wholly Owned Domestic Subsidiary must
become a Subsidiary Guarantor, execute a supplemental indenture
and deliver an Opinion of Counsel to the trustee. In addition,
any Restricted Subsidiary of the Issuer that guarantees any
Indebtedness of the Issuer or any Subsidiary Guarantor,
including the ABL Credit Facility, must become a Subsidiary
Guarantor, execute a supplemental indenture and deliver an
Opinion of Counsel to the trustee.
The Note Guarantee of a Guarantor will be released under
specified circumstances, including, in the case of a Subsidiary
Guarantor, in connection with a disposition of the Subsidiary
Guarantors Capital Stock if various conditions are
satisfied. See Certain Covenants
Guarantees.
As of the date the Issuer issued the notes, all of the
Issuers Subsidiaries were Restricted
Subsidiaries. However, under the circumstances described
below under the caption Certain
Covenants Designation of Restricted and Unrestricted
Subsidiaries, the Issuer is permitted to designate certain
of its Subsidiaries as Unrestricted Subsidiaries.
Any Unrestricted Subsidiaries will not be subject to any of the
covenants in the indenture and will not guarantee the notes. The
notes are not guaranteed by PVF Holdings LLC, which is the
direct parent of Parent and the indirect parent of the Issuer.
Principal,
Maturity and Interest
The indenture provides for the issuance by the Issuer of notes
with an unlimited principal amount. The Issuer may issue
additional notes (the additional notes) from
time to time after this offering. Any offering of additional
notes is subject to the covenants described below under the
captions Certain Covenants
Incurrence of Indebtedness and Issuance of Disqualified Stock
and Preferred Stock and Certain
Covenants Liens. The original first lien
notes, the additional first lien notes, and any additional notes
subsequently issued under the indenture would be treated as a
single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers
to purchase. We intend to take the position that the additional
first lien notes will be fungible with the original first lien
notes for U.S. federal income tax purposes. See
Certain Material United States Federal Tax
Considerations Qualified Reopening. However,
any additional notes may not be fungible with the additional
first lien notes and the original first lien notes for
U.S. federal income tax purposes. Any additional notes, if
any, will be issued in denominations of $2,000 and integral
multiples of $1,000 in excess of $2,000. The notes will mature
on December 15, 2016.
Interest on the notes accrues at the rate of 9.50% per annum and
is payable semi-annually in arrears on June 15 and
December 15, having commenced on June 15, 2010. The
Issuer will make each interest payment to the holders of record
on the immediately preceding June 1 and December 1,
respectively.
Interest on the additional first lien notes will be deemed to
accrue from December 21, 2009. Interest will be computed on
the basis of a
360-day year
comprised of twelve
30-day
months.
Methods
of Receiving Payments on the Notes
If a holder has given wire transfer instructions to the Issuer,
the Issuer will pay all principal, interest and premium on that
holders notes in accordance with those instructions. All
other payments on the notes will be made
128
at the office or agency of the paying agent and registrar within
the City and State of New York unless the Issuer elects to make
interest payments by check mailed to the holders at their
addresses set forth in the register of holders.
Paying
Agent and Registrar for the Notes
The trustee currently acts as paying agent and registrar. The
Issuer may change the paying agent or registrar without prior
notice to the holders, and the Issuer or any of its Subsidiaries
may act as paying agent or registrar.
Transfer
and Exchange
A holder may transfer or exchange notes in accordance with the
indenture and the procedures described in Notice to
Investors. The registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer may require a holder to
pay any taxes and fees required by law or permitted by the
indenture. The Issuer is not required to transfer or exchange
any note selected for redemption. Also, the Issuer is not
required to transfer or exchange any note (1) for a period
of 15 days before a selection of notes to be redeemed or
(2) tendered and not withdrawn in connection with a Change
of Control Offer or an Asset Sale Offer.
Security
The obligations of the Issuer with respect to the notes, the
obligations of the Subsidiary Guarantors under the Note
Guarantees, all other existing and future Priority Lien
Obligations and the performance of all other obligations of the
Issuer and the Subsidiary Guarantors under the note documents
are secured by Liens held by the collateral trustee on the Notes
Priority Collateral and the ABL Priority Collateral. The Liens
on the Notes Priority Collateral securing the notes are senior
to the Liens on the Notes Priority Collateral securing any
future Subordinated Lien Obligations. The Liens on the ABL
Priority Collateral securing the notes are junior to the Liens
on the ABL Priority Collateral securing the ABL Debt
Obligations, but senior to the Liens on the ABL Priority
Collateral securing any future Subordinated Lien Obligations.
All such Liens are subject to Permitted Prior Liens.
On December 21, 2009, the Issuer and the Subsidiary
Guarantors entered into a collateral trust agreement with the
collateral trustee and the trustee. The collateral trust
agreement sets forth the terms on which the collateral trustee
will receive, hold, administer, maintain, enforce and distribute
the proceeds of all Liens upon all Collateral owned by the
Issuer or any Subsidiary Guarantor for the benefit of all
present and future holders of Priority Lien Obligations and all
future holders of Subordinated Lien Obligations (if any). The
Priority Lien Obligations and the Subordinated Lien Obligations
are collectively referred to as the Secured
Obligations.
Collateral
Trustee
The collateral trustee acts for the benefit of the holders of:
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the notes;
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all other Priority Lien Obligations outstanding from time to
time; and
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all Subordinated Lien Obligations outstanding from time to time,
if any.
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U.S. Bank National Association currently acts as collateral
trustee under the collateral trust agreement. Neither the Issuer
nor any of its Affiliates may act as collateral trustee. No
Secured Debt Representative may serve as collateral trustee;
provided that the trustee may serve as collateral trustee if the
notes are the only Secured Obligations outstanding (other than
Hedging Obligations).
The collateral trustee holds (directly or through co-trustees or
agents), and is entitled to enforce on behalf of the holders of
Priority Lien Obligations and Subordinated Lien Obligations, if
any, all Liens on the Collateral created by the security
documents for their benefit, subject to the provisions of the
intercreditor agreement and the collateral trust agreement, in
each case as described below.
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Except as provided in the collateral trust agreement or as
directed by an Act of Required Debtholders in accordance with
the collateral trust agreement, the collateral trustee is not
obligated:
(1) to act upon directions purported to be delivered to it
by any Person;
(2) to foreclose upon or otherwise enforce any Lien; or
(3) to take any other action whatsoever with regard to any
or all of the security documents, the Liens created thereby or
the Collateral.
The Issuer will deliver to each Secured Debt Representative
copies of all security documents delivered to the collateral
trustee.
On December 21, 2009, the collateral trustee entered into
an intercreditor agreement (the intercreditor
agreement) with the Issuer, the Subsidiary Guarantors,
the trustee, and The CIT Group/ Business Credit Inc. and Bank of
America, N.A., each as co-collateral agent under the ABL Credit
Facility (collectively in such capacity, and together with any
other collateral agent, collateral trustee or other
representative of lenders or holders of ABL Debt Obligations
that becomes party to the intercreditor agreement upon the
refinancing or replacement of the ABL Credit Facility, or any
successor representative acting in such capacity, the
ABL Collateral Agent), to provide for, among
other things, the junior nature of the Liens on the ABL Priority
Collateral securing the Priority Lien Obligations. The Liens
held by the collateral trustee on the Notes Priority Collateral
securing Priority Lien Obligations are senior to the Liens
securing any future Subordinated Lien Obligations. The Liens
held by the collateral trustee on the ABL Priority Collateral
securing Priority Lien Obligations are junior to the Liens held
by the ABL Collateral Agent on the ABL Priority Collateral
securing the ABL Debt Obligations, but senior to the Liens on
the ABL Priority Collateral securing any future Subordinated
Lien Obligations. All such Liens are subject to Permitted Prior
Liens.
Collateral
The Notes Priority Collateral comprises substantially all of the
tangible and intangible assets of the Issuer and the Subsidiary
Guarantors, other than the ABL Priority Collateral and Excluded
Assets.
The ABL Priority Collateral comprises substantially all
accounts, inventory or documents of title, customs receipts,
insurance certificates, shipping documents and other written
materials related to the purchase or import of any inventory,
all letter of credit rights, chattel paper, instruments,
investment property and general intangibles pertaining to the
foregoing, deposit accounts (other than the Net Available Cash
Account, to the extent that it constitutes a deposit account)
and securities accounts (other than the Net Available Cash
Account, 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, 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 the Notes Priority Collateral and, 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, in each case held by the
Issuer and the Subsidiary Guarantors, other than the Excluded
ABL Assets.
ABL
Debt
As of December 31, 2010, the Issuer had approximately
$286 million in aggregate principal amount of drawn ABL
Debt outstanding, all of which consisted of borrowings under the
ABL Credit Facility, and outstanding letters of credit of
approximately $5 million. As of December 31, 2010, the
Issuer had approximately $360 million available for
borrowing under the ABL Credit Facility. The indenture and the
security documents provide that the Issuer and the Subsidiary
Guarantors may incur additional ABL Debt, in an amount not to
exceed the ABL Lien Cap. Any additional ABL Debt would be
secured by Liens on the ABL Priority Collateral that would be
effectively senior to the Liens on the ABL Priority Collateral
securing the notes and other Priority Lien Debt. Additional ABL
Debt will only be permitted if such Indebtedness and the related
Liens are permitted to be incurred under the
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covenants described below under the captions
Certain Covenants Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred
Stock and Certain Covenants
Liens.
Additional
Priority Lien Debt
The indenture and the security documents provide that the Issuer
may incur additional Priority Lien Debt, in an amount not to
exceed the Priority Lien Cap, by issuing additional notes under
the indenture or under one or more additional indentures,
incurring additional Indebtedness under Credit Facilities (other
than the ABL Credit Facility) or otherwise issuing or increasing
a new Series of Secured Debt secured by Priority Liens on the
Notes Priority Collateral and junior Liens on the ABL Priority
Collateral. All additional Priority Lien Debt will be pari
passu in right of payment with the notes, will be guaranteed
on a pari passu basis by each Subsidiary Guarantor and
will be secured equally and ratably with the notes by Liens on
the Collateral held by the collateral trustee for as long as the
notes and the Note Guarantees are secured by the Collateral,
subject to the covenants contained in the indenture. The
collateral trustee under the collateral trust agreement holds
all Priority Liens in trust for the benefit of the holders of
the notes, any future Priority Lien Debt and all other Priority
Lien Obligations. Additional Priority Lien Debt will only be
permitted to be secured by the Collateral if such Indebtedness
and the related Liens are permitted to be incurred under the
covenants described below under the captions
Certain Covenants Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred
Stock and Certain Covenants
Liens.
Future
Subordinated Lien Debt
The indenture and the security documents provide that the Issuer
and the Guarantors may incur Subordinated Lien Debt in the
future, in an amount not to exceed the Subordinated Lien Cap, by
issuing notes under one or more new indentures, incurring
additional Indebtedness under other Credit Facilities (other
than the ABL Credit Facility) or otherwise issuing or increasing
a new Series of Secured Debt secured by Subordinated Liens on
the Collateral. Subordinated Lien Debt will be permitted to be
secured by the Collateral only if such Subordinated Lien Debt
and the related Subordinated Liens are permitted to be incurred
under the covenants described below under the captions
Certain Covenants Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred
Stock and Certain Covenants
Liens. The collateral trustee under the collateral trust
agreement holds all Subordinated Liens in trust for the benefit
of the holders of any future Subordinated Lien Debt and all
other Subordinated Lien Obligations. The Liens on the Notes
Priority Collateral securing any future Subordinated Lien
Obligations will be junior to the Liens on the Notes Priority
Collateral held by the collateral trustee securing the Priority
Lien Obligations and the Liens on the Notes Priority Collateral
held by the ABL Collateral Agent securing the ABL Debt
Obligations. The Liens on the ABL Priority Collateral securing
any future Subordinated Lien Obligations will be junior to the
Liens on the ABL Priority Collateral securing the ABL Debt
Obligations and the Liens securing the Priority Lien
Obligations. All such Liens will be subject to Permitted Prior
Liens.
The
Intercreditor Agreement
On December 21, 2009, the collateral trustee, on behalf of
all current and future holders of Priority Lien Obligations and
all future holders of Subordinated Lien Obligations, entered
into the intercreditor agreement with the Issuer, the Subsidiary
Guarantors and the ABL Collateral Agent to provide for, among
other things, the junior nature of the Liens on the ABL Priority
Collateral securing the Priority Lien Obligations. The
intercreditor agreement includes certain intercreditor
arrangements relating to the rights of the collateral trustee in
the ABL Priority Collateral.
The intercreditor agreement permits the ABL Debt Obligations,
the Priority Lien Obligations and the Subordinated Lien
Obligations to be refunded, refinanced or replaced by certain
permitted replacement facilities without affecting the lien
priorities set forth in the intercreditor agreement, in each
case without the consent of any holder of ABL Debt Obligations,
Priority Lien Obligations (including holders of the notes) or
Subordinated Lien Obligations.
Certain
Definitions Used in the Intercreditor Agreement
ABL Default means an Event of
Default (as defined in the ABL Credit Facility).
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Collateral Trustee Standstill Period means a
period of at least 180 days since the earlier of:
(x) the date of the commencement of any Insolvency or
Liquidation Proceeding by or against the Issuer or any
Subsidiary Guarantor that has not been dismissed, or
(y) the date on which the Collateral Trustee first declares
the existence of a Priority Lien Default or a Subordinated Lien
Default, as applicable, demands the repayment of all the
principal amount of any Priority Lien Obligations or
Subordinated Lien Obligations, as applicable, and the ABL
Collateral Agent has received notice from the Collateral Trustee
of such declaration of a Priority Lien Default or Subordinated
Lien Default, as applicable.
Discharge of Subordinated Lien Obligations
means the occurrence of all of the following:
(1) termination or expiration of all commitments to extend
credit that would constitute Subordinated Lien Debt;
(2) payment in full in cash of the principal of and
interest (including interest accruing on or after the
commencement of any Insolvency or Liquidation Proceeding,
whether or not such interest would be allowed in such Insolvency
or Liquidation Proceeding) on all Indebtedness outstanding under
the Subordinated Lien Documents and constituting Subordinated
Lien Debt;
(3) termination or cash collateralization (in an amount and
manner required by the Subordinated Lien Documents or otherwise
reasonably satisfactory to the trustee, agent or other
representative under the relevant Subordinated Lien Documents,
but in no event greater than 105% of the aggregate undrawn face
amount) of all letters of credit issued under the Subordinated
Lien Documents and constituting Subordinated Lien Debt; and
(4) payment in full in cash of all other Subordinated Lien
Obligations that are outstanding and unpaid at the time the
Subordinated Lien Debt is paid in full in cash (other than any
obligations for taxes, costs, indemnifications, reimbursements,
damages and other liabilities in respect of which no claim or
demand for payment has been made at such time).
Enforcement means collectively or
individually for the ABL Collateral Agent or the Collateral
Trustee when an ABL Default, a Priority Lien Default or a
Subordinated Lien Default, as the case may be, has occurred and
is continuing, any action taken by such Person to repossess, or
exercise any remedies with respect to, any material amount of
Collateral or commence the judicial enforcement of any of the
rights and remedies with respect to any Collateral under the ABL
Debt Documents, the Priority Lien Documents, the Subordinated
Lien Documents or under any applicable law, but in all cases
excluding (i) the demand of the repayment of all the
principal amount of any of the Obligations, (ii) the
imposition of a default rate or late fee, (iii) the
collection and application of, or the delivery of any activation
notice with respect to, accounts or other proceeds of ABL
Priority Collateral deposited from time to time in deposit
accounts or securities accounts against the ABL Debt
Obligations; provided, however, the foregoing exclusion set
forth in clause (iii) shall immediately cease to apply upon
the earlier of (x) the ABL Collateral Agents delivery
of written notice to the Issuer that such exclusion no longer
applies and (y) the termination of the commitments under
the ABL Credit Facility, and (iv) the collection and
application of, or the delivery of any activation notice with
respect to, proceeds of Notes Priority Collateral or
Subordinated Lien Collateral deposited from time to time in
deposit accounts or securities accounts against the Priority
Lien Obligations or Subordinated Lien Obligations, as applicable.
Enforcement Notice means a written notice
delivered at a time when an ABL Default, a Priority Lien Default
or a Subordinated Lien Default has occurred and is continuing,
by either the ABL Collateral Agent or the Collateral Trustee to
the other such Person announcing that an Enforcement Period has
commenced, specifying the relevant event of default, stating the
current balance of the ABL Debt Obligations, the current balance
owing with respect to the Priority Lien Obligations or the
current balance owing with respect to the Subordinated Lien
Obligations, as the case may be, and requesting the payment of
the current balance owing of the ABL Debt Obligations, the
Priority Lien Obligations or the Subordinated Lien Obligations,
as the case may be.
Enforcement Period means the period of time
following the receipt by either the ABL Collateral Agent or the
Collateral Trustee of an Enforcement Notice from the other until
one of (i) in the case of an Enforcement Period commenced
by the Collateral Trustee, the Discharge of Priority Lien
Obligations or the Discharge of Subordinated Lien Obligations,
as the case may be, (ii) in the case of an Enforcement
Period commenced by the ABL Collateral
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Agent, the Discharge of ABL Debt Obligations, or (iii) the
ABL Collateral Agent or the Collateral Trustee (as applicable)
agree in writing to terminate the Enforcement Period.
Net Available Cash Account means any deposit
account or securities account established by the Issuer or any
Guarantor in accordance with the requirements of the covenant
set forth in Section 15 of the ABL Credit Facility and
which does not contain proceeds of Loans (as defined in the ABL
Credit Facility) or ABL Priority Collateral and which has been
identified to the ABL Collateral Agent as such at the time that
proceeds from any sale of Priority Lien Collateral or
Subordinated Lien Collateral shall be deposited pending final
application in accordance with such covenant.
Priority Lien Default means an Event of
Default (as defined in any of the Priority Lien Documents).
Subordinated Lien Default means an
Event of Default (as defined in any of the
Subordinated Lien Documents).
Relative
Lien Priorities
The intercreditor agreement provides that, notwithstanding the
date, time, method, manner or order of grant, attachment or
perfection of any Liens securing the Priority Lien Obligations
granted on the Collateral, of any Liens securing the
Subordinated Lien Obligations granted on the Collateral or of
any Liens securing the ABL Debt Obligations granted on the
Collateral and notwithstanding any provision of any UCC, or any
other applicable law or the relevant other documents or any
defect or deficiencies in, or failure to perfect, the relevant
Liens or any other circumstance whatsoever, any Lien of the ABL
Collateral Agent on the ABL Priority Collateral, shall be senior
in all respects and prior to any Lien on the ABL Priority
Collateral securing any Priority Lien Obligations or
Subordinated Lien Obligations.
Prohibition
on Contesting Liens
The intercreditor agreement provides that the ABL Collateral
Agent, the Collateral Trustee, and each holder of ABL Debt
Obligations, Priority Lien Obligations and Subordinated Lien
Obligations will not (and will waive any right to) contest or
support any other Person in contesting, in any proceeding
(including any Insolvency or Liquidation Proceeding), the
perfection, priority, validity or enforceability of a Lien held
by or on behalf of any holder of ABL Debt Obligations, Priority
Lien Obligations or Subordinated Lien Obligations in all or any
part of the Collateral, or the provisions of the intercreditor
agreement. The intercreditor agreement provides that nothing
therein can be construed to prevent or impair the rights of the
ABL Collateral Agent, the Collateral Trustee, or any holder of
ABL Debt Obligations, Priority Lien Obligations or Subordinated
Lien Obligations to enforce the intercreditor agreement.
Enforcement
The intercreditor agreement provides that, except as provided
below in this paragraph, until the Discharge of ABL Debt
Obligations, whether or not any Insolvency or Liquidation
Proceeding has been commenced by or against the Issuer or any
Guarantor, neither the Collateral Trustee nor any holder of any
Priority Lien Obligations or Subordinated Lien Obligations will:
(1) exercise or seek to exercise any rights or remedies
with respect to any ABL Priority Collateral (including the
exercise of any right of setoff or any right under any lockbox,
pledged or blocked account agreement, securities account control
agreement, armored car agreement, credit card processing
agreement or any similar agreement among the Collateral Trustee
and/or the
ABL Collateral Agent and the Issuer or a Guarantor and the
relevant service provider, depository or securities
intermediary, landlord waiver or bailees letter or similar
arrangement to which the Collateral Trustee or any holder of
Priority Lien Obligations or Subordinated Lien Obligations is a
party) or institute any action or proceeding with respect to
such rights or remedies (including any action of foreclosure),
until after the passage of the Collateral Trustee Standstill
Period, provided that the Collateral Trustee, each holder
of Priority Lien Obligations and each holder of Subordinated
Lien Obligations shall not exercise any rights or remedies with
respect to the ABL Priority Collateral if, notwithstanding the
expiration of the Collateral Trustee Standstill Period, the ABL
Collateral
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Agent or the holders of ABL Debt Obligations shall have
commenced and be diligently pursuing the exercise of their
rights and remedies with respect to all or any material portion
of the ABL Priority Collateral;
(2) contest, protest or object to any foreclosure
proceeding or action brought by the ABL Collateral Agent or any
holder of ABL Debt Obligations or any other exercise by such
Persons of any rights and remedies relating to the ABL Priority
Collateral, whether under the ABL Debt Documents or
otherwise; and
(3) subject to their rights under clause (1) above and
except as may be permitted in clauses (1) through
(7) of the third paragraph of this subsection, object to
the forbearance by the ABL Collateral Agent or any holder of ABL
Debt Obligations from bringing or pursuing any Enforcement.
Until the Discharge of ABL Debt Obligations (whether or not any
Insolvency or Liquidation Proceeding has been commenced by or
against the Issuer or any Guarantor), the ABL Collateral Agent
and the holders of ABL Debt Obligations have the right to
enforce rights, exercise remedies (including set-off and the
right to credit bid their debt) and, in connection therewith
(including voluntary dispositions of ABL Priority Collateral by
the respective Subsidiary Guarantors after an ABL Default), make
determinations regarding the release, disposition or
restrictions with respect to the ABL Priority Collateral without
any consultation with or the consent of the Collateral Trustee
or any holder of Priority Lien Obligations or Subordinated Lien
Obligations, provided that the Liens securing the
Priority Lien Obligations and the Subordinated Lien obligations
shall remain on the proceeds (other than those properly applied
to the ABL Debt Obligations) of such Collateral released or
disposed of subject to the relative priorities described in the
intercreditor agreement.
Notwithstanding the preceding paragraph, the Collateral Trustee
and any holder of Priority Lien Obligations and any holder of
Subordinated Lien Obligations may:
(1) file a claim or statement of interest with respect to
the Priority Lien Obligations or Subordinated Lien Obligations,
as applicable; provided that an Insolvency or Liquidation
Proceeding has been commenced by or against the Issuer or a
Subsidiary Guarantor;
(2) take any action (not adverse to the priority status of
the Liens on the ABL Priority Collateral, or the rights of the
ABL Collateral Agent or any holder of ABL Debt Obligations to
exercise remedies in respect thereof) in order to create,
perfect, preserve or protect its Lien on any of the Collateral;
(3) file any necessary responsive or defensive pleadings in
opposition to any motion, claim or other pleading objecting to
or otherwise seeking the disallowance of the claims of the
holders of Priority Lien Obligations or Subordinated Lien
Obligations, if any, in each case, in accordance with the terms
of the intercreditor agreement;
(4) file any pleadings, objections, motions or agreements
which assert rights or interests available to unsecured
creditors of the Issuer or the Subsidiary Guarantors arising
under either any Insolvency or Liquidation Proceeding or
applicable non-bankruptcy law, in each case not prohibited by
the terms of the intercreditor agreement;
(5) vote on any plan of reorganization, file any proof of
claim, make other filings and make any arguments and motions
that are, in each case, not prohibited by the terms of the
intercreditor agreement, with respect to the Priority Lien
Obligations or the Subordinated Lien Obligations;
(6) exercise any of its rights or remedies with respect to
any of the ABL Priority Collateral after the termination of the
Collateral Trustee Standstill Period to the extent permitted by
the intercreditor agreement; and
(7) make a cash bid on all or any portion of the ABL
Priority Collateral in any foreclosure proceeding or action.
The Collateral Trustee, on behalf of itself and each holder of
Priority Lien Obligations and each holder of Subordinated Lien
Obligations, has agreed that it will not take or receive any ABL
Priority Collateral or any proceeds of such ABL Priority
Collateral in connection with the exercise of any right or
remedy (including set-off) with respect to any such ABL Priority
Collateral in its capacity as a creditor in violation of the
intercreditor agreement. Unless and until the Discharge of ABL
Debt Obligations, except as expressly provided in the provisions
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set forth in the first and third paragraph under the caption
Enforcement, and the provisions under
the caption Agreements With Respect to
Insolvency or Liquidation Proceedings as they relate to
adequate protection, the sole right of the Collateral Trustee,
the holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations with respect to the ABL Priority
Collateral will be to hold a Lien (if any) on such Collateral
pursuant to the respective Priority Lien Documents or
Subordinated Lien Documents, as applicable, for the period and
to the extent granted therein and to receive a share of the
proceeds thereof, if any, after the Discharge of ABL Debt
Obligations.
Subject to the provisions set forth in the first and third
paragraph under the caption Enforcement,
and the provisions under the caption
Agreements With Respect to Insolvency or
Liquidation Proceedings as they relate to adequate
protection,
(1) the Collateral Trustee, on behalf of itself, the
holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations, has agreed that such Persons will
not take any action that would hinder any exercise of remedies
under the ABL Credit Documents or that is otherwise prohibited
under the intercreditor agreement, including any sale, lease,
exchange, transfer or other disposition of the ABL Priority
Collateral, whether by foreclosure or otherwise;
(2) the Collateral Trustee, on behalf of itself, the
holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations, has agreed to waive any and all
rights such Persons may have as a junior lien creditor or
otherwise to object to the manner in which the ABL Collateral
Agent or the holders of ABL Debt Obligations seek to enforce or
collect the ABL Debt Obligations or the Liens securing the ABL
Debt Obligations granted in any of the ABL Debt Documents or
undertaken in accordance with the intercreditor agreement,
regardless of whether any action or failure to act by or on
behalf of the ABL Collateral Agent or the holders of ABL Debt
Obligations is adverse to the interest of the holders of
Priority Lien Obligations or Subordinated Lien
Obligations; and
(3) the Collateral Trustee has acknowledged that no
covenant, agreement or restriction contained in any Priority
Lien Document or Subordinated Lien Document (in each case, other
than the intercreditor agreement) shall be deemed to restrict in
any way the rights and remedies of the ABL Collateral Agent or
the holders of ABL Debt Obligations with respect to the
enforcement of the Liens on the ABL Priority Collateral as set
forth in the intercreditor agreement and the ABL Debt Documents.
Except as otherwise set forth under the first paragraph under
the caption Enforcement, the
fourth paragraph under the caption
Enforcement, and the provisions
related to set-off and priorities of proceeds of Collateral as
set forth in the intercreditor agreement, the Collateral Trustee
and the holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations may exercise rights and remedies
as unsecured creditors against the Issuer or any Guarantor that
has guaranteed or granted Liens to secure the Priority Lien
Obligations or the Subordinated Lien Obligations, as applicable,
and the Collateral Trustee may exercise rights and remedies with
respect to the Notes Priority Collateral in accordance with the
terms of the Priority Lien Documents and Subordinated Lien
Documents, as applicable, and applicable law; provided, however,
that in the event that the Collateral Trustee or any holder of
Priority Lien Obligations or Subordinated Lien Obligations
becomes a judgment Lien creditor in respect of ABL Priority
Collateral as a result of its enforcement of such rights as an
unsecured creditor with respect to the Priority Lien Obligations
or Subordinated Lien Obligations, as applicable, such judgment
Lien shall be subject to the terms of the intercreditor
agreement for all purposes (including in relation to the ABL
Debt Obligations) as the other Liens securing the Priority Lien
Obligations and Subordinated Lien Obligations are subject to the
intercreditor agreement.
Collateral
Access Rights
The intercreditor agreement provides that the ABL Collateral
Agent and the Collateral Trustee will not commence Enforcement
until the earlier of the date on which (a) an Enforcement
Notice has been given to the Collateral Trustee or the ABL
Collateral Agent, as the case may be, or (b) any Insolvency
or Liquidation Proceeding is commenced by or against the Issuer
or any Subsidiary Guarantor that has not been dismissed. Subject
to the provisions under the caption
Enforcement, the Collateral Trustee may,
to the extent permitted by applicable law, join in any judicial
proceedings commenced by the ABL Collateral Agent to enforce
Liens on the Collateral,
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provided that neither the Collateral Trustee, nor any
holder of Priority Lien Obligations or Subordinated Lien
Obligations shall interfere with the Enforcement actions of the
ABL Collateral Agent with respect to the ABL Priority Collateral.
If the Collateral Trustee, or any of its agents or
representatives, or any third party pursuant to any Enforcement
undertaken by the Collateral Trustee or any receiver, shall
obtain possession or physical control of any real estate assets
that are part of the Collateral, the Collateral Trustee shall
notify the ABL Collateral Agent of such possession or physical
control. The ABL Collateral Agent will be permitted, upon notice
to the Collateral Trustee within at least 10 business days
thereafter, to exercise access rights under the intercreditor
agreement, at which time the parties shall confer in good faith
to coordinate with respect to the ABL Collateral Agents
exercise of such access rights. After delivery of such notice to
the Collateral Trustee, the ABL Collateral Agent will have a
nonexclusive rent free access right to use such property for a
period of approximately 180 days, subject to certain
adjustments (the Access Period) for the
purposes specified in the intercreditor agreement. The
intercreditor agreement provides that if the Collateral Trustee
shall foreclose or otherwise sell any of the Notes Priority
Collateral, the Collateral Trustee will notify the buyer thereof
that the buyer is acquiring such Notes Priority Collateral
subject to the terms of the intercreditor agreement.
The intercreditor agreement also addresses the relative rights
of the ABL Collateral Agent and the Collateral Trustee to use
the Issuers and the Subsidiary Guarantors
intellectual property rights and equipment and agreements with
landlords in connection with enforcement or exercise of remedies
with respect to the Collateral.
Application
of Proceeds
The intercreditor agreement provides that, subject to the
provisions related to reorganization securities under the
caption Insolvency or Liquidation
Proceedings, so long as the Discharge of ABL Debt
Obligations has not occurred, whether or not any Insolvency or
Liquidation Proceeding has been commenced by or against the
Issuer or any Guarantor, all ABL Priority Collateral or proceeds
thereof received in connection with the sale or other
disposition of, or collection on, such Collateral upon the
exercise of remedies by the ABL Collateral Agent or the holders
of ABL Debt Obligations, shall be applied by the ABL Collateral
Agent to the ABL Debt Obligations in such order as specified in
the relevant ABL Debt Documents. Upon the Discharge of ABL Debt
Obligations, the ABL Collateral Agent will deliver to the
Collateral Trustee any Collateral and proceeds of Collateral
held by it or as a court of competent jurisdiction may otherwise
direct to be applied by the Collateral Trustee in such order as
specified in the Priority Lien Documents and Subordinated Lien
Documents.
Payments
Over in Violation of Intercreditor Agreement
The intercreditor agreement provides that, whether or not any
Insolvency or Liquidation Proceeding has been commenced by or
against the Issuer or any Guarantor, any Collateral or proceeds
thereof received by any holder of ABL Debt Obligations, Priority
Lien Obligations or Subordinated Lien Obligations in connection
with the exercise of any right or remedy (including set-off)
relating to the Collateral in contravention of the intercreditor
agreement shall be segregated and held in trust and forthwith
paid over to the ABL Collateral Agent or the Collateral Trustee,
as appropriate, in the same form as received, with any necessary
endorsements, or as a court of competent jurisdiction may
otherwise direct. The Collateral Trustee and the ABL Collateral
Agent will each be irrevocably authorized to make any such
endorsements as agent for the other Person.
Releases
The intercreditor agreement provides that if, in connection with
the exercise of the ABL Collateral Agents remedies in
respect of any Collateral as provided for under the caption
Enforcement, the ABL Collateral Agent,
for itself
and/or on
behalf of any holder of ABL Debt Obligations, releases its Liens
on any part of the ABL Priority Collateral, then the Liens, if
any, of the Collateral Trustee, the holders of Priority Lien
Obligations and the holders of Subordinated Lien Obligations, on
the Collateral sold or disposed of in connection with such
exercise, shall be automatically, unconditionally and
simultaneously released.
The intercreditor agreement provides that if, in connection with
any sale, lease, exchange, transfer or other disposition of any
Collateral (collectively, a Disposition)
permitted under the terms of the ABL Debt Documents,
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the Priority Lien Documents and the Subordinated Lien Documents
(including voluntary Dispositions of ABL Priority Collateral by
the Issuer or the respective Guarantors after an ABL Default,
voluntary Dispositions of Notes Priority Collateral by the
Issuer or the respective Guarantors after a Priority Lien
Default and voluntary Dispositions of Notes Priority Collateral
by the Issuer or the respective Guarantors after a Subordinated
Lien Default), the ABL Collateral Agent, for itself
and/or on
behalf of any holder of ABL Debt Obligations, releases any of
its Liens on any part of the ABL Priority Collateral (in each
case other than in connection with the Discharge of ABL Debt
Obligations or after the occurrence and during the continuance
of a Priority Lien Default or a Subordinated Lien Default) then
the Liens, if any, of the Collateral Trustee, for itself
and/or on
behalf of any of the holders of Priority Lien Obligations or any
of the holders of Subordinated Lien Obligations, on such
Collateral shall be automatically, unconditionally and
simultaneously released.
Insurance
The intercreditor agreement provides that unless and until the
Discharge of ABL Debt Obligations has occurred and subject to
the terms of, and the rights of the Issuer and the Guarantors
under, the ABL Debt Documents:
(1) the ABL Collateral Agent and the holders of ABL Debt
Obligations shall have the sole and exclusive right to adjust
settlement for any insurance policy covering the ABL Priority
Collateral or the Liens with respect thereto in the event of any
loss thereunder or with respect thereto and to approve any award
granted in any condemnation or similar proceeding (or any deed
in lieu of condemnation) affecting such Collateral; and
(2) all proceeds of any such policy and any such award (or
any payments with respect to a deed in lieu of condemnation) if
in respect to such ABL Priority Collateral and to the extent
required by the ABL Debt Documents shall be paid to the ABL
Collateral Agent for the benefit of the holders of ABL Debt
Obligations pursuant to the terms of the ABL Debt Documents
(including, without limitation, for purposes of cash
collateralization of letters of credit) and thereafter, to the
extent no ABL Debt Obligations are outstanding, and subject to
the terms of, and the rights of the Issuer and the Guarantors
under, the Priority Lien Documents or Subordinated Lien
Documents, as applicable, to the Collateral Trustee for the
benefit of the holders of Priority Lien Obligations or the
holders of Subordinated Lien Obligations, as applicable, to the
extent required under the Priority Lien Documents or
Subordinated Lien Documents, as applicable, and then, to the
extent no Priority Lien Obligations or Subordinated Lien
Obligations which were secured by such Collateral are
outstanding, to the owner of the subject property, such other
Person as may be entitled thereto or as a court of competent
jurisdiction may otherwise direct.
The ABL Collateral Agent and Collateral Trustee have each
received separate lenders loss payable endorsements naming
themselves as loss payee and additional insured, as their
interests may appear, with respect to policies which insure the
Collateral. To the extent any proceeds are received for business
interruption or for any liability or indemnification and those
proceeds are not compensation for a casualty loss with respect
to the Notes Priority Collateral or Subordinated Lien
Collateral, such proceeds shall (subject to the rights of the
Issuer and the Guarantors) first be applied to repay the ABL
Debt Obligations and then be applied, to the extent required by
the Priority Lien Documents or the Subordinated Lien Documents,
to the Priority Lien Obligations or Subordinated Lien
Obligations, as applicable.
Bailees
for Perfection
The intercreditor agreement provides that the ABL Collateral
Agent will:
(1) agree to hold that part of the Collateral that is in
its (or its agents or bailees) possession or control
to the extent that possession or control thereof is taken to
perfect a Lien thereon under the UCC (such Collateral being the
Pledged Collateral) as collateral agent for
the holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations and as bailee for the Collateral
Trustee and any assignee solely for the purpose of perfecting
the security interest granted under the Priority Lien Documents
and the Subordinated Lien Documents, subject to the terms and
conditions under this caption Bailees for
Perfection;
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(2) have no obligation whatsoever to any other Person to
ensure that the Pledged Collateral is genuine or owned by the
Issuer or any of the Guarantors or to preserve rights or
benefits of any Person except as expressly set forth under this
caption Bailees for Perfection;
(3) not have a fiduciary relationship with any other Person
with respect to such acts; and
(4) upon the Discharge of ABL Debt Obligations, deliver the
remaining Pledged Collateral (if any) together with any
necessary endorsements, first, to the Collateral Trustee to the
extent the Priority Lien Obligations or the Subordinated Lien
Obligations which are secured by such Pledged Collateral remain
outstanding, and second, to the Issuer or the applicable
Guarantor.
The duties or responsibilities of the ABL Collateral Agent
described under this caption Bailees for
Perfection will be limited solely to holding the Pledged
Collateral as bailee in accordance therewith and delivering the
Pledged Collateral upon a Discharge of ABL Debt Obligations as
provided in the paragraph above, so that, subject to the terms
of the intercreditor agreement, until a Discharge of ABL Debt
Obligations, the ABL Collateral Agent will be entitled to deal
with the Pledged Collateral or ABL Priority Collateral within
its control in accordance with the terms of the
intercreditor agreement and other ABL Debt Documents as if the
Liens (if any) of the Collateral Trustee did not exist.
Agreements
With Respect to Insolvency or Liquidation
Proceedings
Until the Discharge of ABL Debt Obligations has occurred, if the
Issuer or any Subsidiary Guarantor shall be subject to any
Insolvency or Liquidation Proceeding and the ABL Collateral
Agent shall, acting in accordance with the ABL Credit Facility,
agree to permit the use of Cash Collateral (as such
term is defined in Section 363(a) of the Bankruptcy Code)
other than the identifiable cash proceeds of any Priority Lien
Collateral or Subordinated Lien Collateral, in each case, on
which a Lien has been granted to the ABL Collateral Agent
pursuant to the ABL Debt Documents, or to the Issuer or any
Subsidiary Guarantor to obtain financing, whether from the
holders of ABL Debt Obligations or any other Person under
Section 364 of the Bankruptcy Code or any similar
Bankruptcy Law (DIP Financing); provided
that, the aggregate principal amount of the DIP Financing
plus the aggregate outstanding principal amount of ABL Debt
Obligations plus the aggregate face amount of any letters of
credit issued and not reimbursed under the ABL Credit Facility
does not exceed the ABL Lien Cap, then each holder of Priority
Lien Obligations and each holder of Subordinated Lien
Obligations will agree that it will raise no objection to or
contest such Cash Collateral use or DIP Financing so long as
such Cash Collateral use or DIP Financing meet the following
requirements:
(1) it is on commercially reasonable terms; and
(2) the holders of Priority Lien Obligations and the
holders of Subordinated Lien Obligations retain the right to
object to any ancillary agreements or arrangements regarding the
Cash Collateral use or the DIP Financing that are materially
prejudicial to their perfected interests in the Notes Priority
Collateral or Subordinated Lien Collateral, as applicable.
To the extent the Liens securing the ABL Debt Obligations are
subordinated to or pari passu with such DIP Financing
which meets the requirements of clauses (1) and
(2) above, the Collateral Trustee will agree (a) to
subordinate any Liens in the ABL Priority Collateral to the
Liens securing such DIP Financing (and all Obligations relating
thereto) and will not request adequate protection or any other
relief in connection therewith (except, as expressly agreed by
the ABL Collateral Agent or to the extent permitted by terms of
the intercreditor agreement), and (b) to permit a sale of
the ABL Priority Collateral free and clear of Liens or other
claims, under Section 363 of the Bankruptcy Code or
otherwise, then each holder of Priority Lien Obligations and
each holder of Subordinated Lien Obligations will agree that it
will not raise any objection to or contest such sale or request
adequate protection or any other relief in connection therewith
(it being understood that the holders of Priority Lien
Obligations and the holders of Subordinated Lien Obligations
will still, but subject to the intercreditor agreement, have
rights with respect to the proceeds of such Collateral).
Until the Discharge of ABL Debt Obligations has occurred, the
Collateral Trustee, each holder of Priority Lien Obligations and
each holder of Subordinated Lien Obligations, agrees not to seek
(or support any other Person seeking) relief from the automatic
stay or any other stay in any Insolvency or Liquidation
Proceeding in respect of
138
the ABL Priority Collateral, without the prior written consent
of the ABL Collateral Agent, and until both the Discharge of
Priority Lien Obligations and the Discharge of Subordinated Lien
Obligations have occurred, the ABL Collateral Agent, on behalf
of itself and the holders of ABL Debt Obligations, will not seek
(or support any other Person seeking) relief from the automatic
stay or any other stay in any Insolvency or Liquidation
Proceeding in respect of the Notes Priority Collateral and
Subordinated Lien Collateral (other than to the extent such
relief is required to exercise its rights as set forth under the
captions Collateral Access Rights or
with respect to the provisions of the intercreditor agreement
regarding intellectual property rights, access to information or
use of equipment, without the prior written consent of the
Collateral Trustee).
The Collateral Trustee, each holder of Priority Lien Obligations
and each holder of Subordinated Lien Obligations, agrees not to
contest (or support any other Person contesting): (a) any
request by the ABL Collateral Agent for adequate protection with
respect to the ABL Priority Collateral or (b) any objection
by the ABL Collateral Agent to any motion, relief, action or
proceeding based on the ABL Collateral Agent or the holders of
ABL Debt Obligations claiming a lack of adequate protection with
respect to the ABL Priority Collateral.
Notwithstanding the foregoing paragraph, in any Insolvency or
Liquidation Proceeding, (i) if the holders of ABL Debt
Obligations (or any subset thereof) are granted adequate
protection in the form of additional collateral (even if such
collateral is not of a type which would otherwise have
constituted ABL Priority Collateral) in connection with any Cash
Collateral use or DIP Financing, then the Collateral Trustee, on
behalf of itself, any of the holders of Priority Lien
Obligations or any of the holders of Subordinated Lien
Obligations, may seek or request adequate protection with
respect to its interests in such Collateral in the form of a
Lien on the same additional collateral, which Lien will be
subordinated (except to the extent that the Collateral Trustee
already had a Lien on such Collateral (in which case the
priorities set forth in the intercreditor agreement shall
apply)) to the Liens securing the ABL Debt Obligations and such
Cash Collateral use or DIP Financing (and all Obligations
relating thereto) on the same basis as the other Liens of the
Collateral Trustee on the ABL Priority Collateral and
(ii) in the event the Collateral Trustee, on behalf of
itself, any of the holders of Priority Lien Obligations or any
of the holders of Subordinated Lien Obligations, seeks or
requests adequate protection of their respective interest in the
ABL Priority Collateral and such adequate protection is granted
in the form of additional collateral, then the Collateral
Trustee, on behalf of itself, any of the holders of Priority
Lien Obligations or any of the holders of Subordinated Lien
Obligations, will agree that it will not oppose any request by
the ABL Collateral Agent for adequate protection in the form of
a Lien on such additional collateral as security for the ABL
Debt Obligations and for any Cash Collateral use or DIP
Financing provided by the holders of the ABL Debt Obligations
and that any Lien on such additional collateral securing the
Priority Lien Obligations
and/or
Subordinated Lien Obligations shall be subordinated to the Lien
on such collateral securing the ABL Debt Obligations and any
such DIP Financing provided by the holders of ABL Debt
Obligations (and all obligations relating thereto) and to any
other Liens granted to the holders of ABL Debt Obligations as
adequate protection on the same basis as the other Liens
securing the Priority Lien Obligations and the Subordinated Lien
Obligations are so subordinated to such ABL Debt Obligations
under the intercreditor agreement.
The intercreditor agreement provides that:
(1) except as otherwise expressly set forth in the first
paragraph under the caption Agreements With
Respect to Insolvency or Liquidation Proceedings or in
connection with the exercise of remedies with respect to the ABL
Priority Collateral, nothing in the intercreditor agreement will
limit the rights of any holder of Priority Lien Obligations or
any holder of Subordinated Lien Obligations from seeking
adequate protection with respect to their rights in the
Collateral in any Insolvency or Liquidation Proceeding
(including adequate protection in the form of a cash payment,
periodic cash payments or otherwise);
(2) if any holder of ABL Debt Obligations, any holder of
Priority Lien Obligations or any holder of Subordinated Lien
Obligations is required in any Insolvency or Liquidation
Proceeding or otherwise to turn over or otherwise pay to the
estate of the Issuer or any Guarantor any amount paid in respect
of ABL Debt Obligations, Priority Lien Obligations or
Subordinated Lien Obligations, as the case may be (a
Recovery), then such Person shall be entitled
to a reinstatement of ABL Debt Obligations, Priority Lien
Obligations or Subordinated Lien Obligations, as the case may
be, with respect to all such recovered amounts and, if the
intercreditor agreement is terminated prior to such Recovery,
the intercreditor agreement will be reinstated in
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full force and effect, and such prior termination shall not
diminish, release, discharge, impair or otherwise affect the
obligations of the parties to the intercreditor agreement from
such date of reinstatement;
(3) if, in any Insolvency or Liquidation Proceeding,
(a) the holders of Priority Lien Obligations or the holders
of Subordinated Lien Obligations receive pursuant to a plan of
reorganization or similar dispositive restructuring plan a
distribution of debt obligations (Junior Lien
Reorganization Securities) in whole or in part on
account of their junior Liens on the ABL Priority Collateral
(such Collateral, the Applicable Junior
Collateral) that are secured by Liens on such
Applicable Junior Collateral, and
(b) the holders of ABL Debt Obligations receive pursuant to
such plan of reorganization or similar dispositive restructuring
plan a distribution of debt obligations (Senior Lien
Reorganization Securities) in whole or in part on
account of their ABL Debt Obligations that are secured by Liens
on such Applicable Junior Collateral,
then the holders of Priority Lien Obligations and holders of
Subordinated Lien Obligations, as applicable, shall be entitled
to retain their Junior Lien Reorganization Securities and shall
not be obligated to turnover the same to any or all of the
holders of ABL Debt Obligations, and, to the extent the Junior
Lien Reorganization Securities and the Senior Lien
Reorganization Securities are secured by Liens upon the same
Applicable Junior Collateral, the provisions of the
intercreditor agreement will survive the distribution of such
Junior Lien Reorganization Securities and Senior Lien
Reorganization Securities and will apply with like effect to the
Junior Lien Reorganization Securities and Senior Lien
Reorganization Securities, to such Liens securing such Junior
Lien Reorganization Securities and Senior Lien Reorganization
Securities and to the distribution of proceeds of such
Applicable Junior Collateral;
(4) the holders of ABL Debt Obligations, the holders of
Priority Lien Obligations and the holders of Subordinated Lien
Obligations acknowledge and agree that (i) the grants of
Liens pursuant to the ABL Debt Documents, the Priority Lien
Documents and the Subordinated Lien Documents constitute three
separate and distinct grants of Liens and (ii) because of,
among other things, their differing rights in the Collateral,
the Priority Lien Obligations, the Subordinated Lien Obligations
and the ABL Debt Obligations are fundamentally different from
each other and must be separately classified in any plan of
reorganization proposed or adopted in an Insolvency or
Liquidation Proceeding. To further effectuate the intent of the
parties as provided in the immediately preceding sentence, if it
is held that the claims of the holders of ABL Debt Obligations,
the holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations in respect of the Collateral
constitute only one secured claim (rather than separate classes
of senior and junior secured claims), then the holders of ABL
Debt Obligations shall be entitled to receive, in addition to
amounts distributed to them in respect of principal,
pre-petition interest and other claims, all amounts owing in
respect of post-petition interest, fees, costs and other
charges, irrespective of whether a claim for such amounts is
allowed or allowable in such Insolvency or Liquidation
Proceeding, before any distribution from, or in respect of, any
Collateral is made in respect of the claims held by the holders
of Priority Lien Obligations or the holders of Subordinated Lien
Obligations, with the holders of Priority Lien Obligations and
the holders of Subordinated Lien Obligations agreeing to turn
over to the holders of ABL Debt Obligations amounts otherwise
received or receivable by them to the extent necessary to
effectuate the intent of this sentence, even if such turnover
has the effect of reducing the claim or recovery of the holders
of Priority Lien Obligations or the holders of Subordinated Lien
Obligations;
(5) neither the Collateral Trustee nor any holder of
Priority Lien Obligations or any holder of Subordinated Lien
Obligations will oppose or seek to challenge any claim by the
ABL Collateral Agent or any holder of ABL Debt Obligations for
allowance in any Insolvency or Liquidation Proceeding of ABL
Debt Obligations consisting of post-petition interest, fees or
expenses to the extent of the value of the Lien securing any
holder of ABL Debt Obligations claim, without regard to
the existence of the Lien of the Collateral Trustee on behalf of
the holders of Priority Lien Obligations and the holders of
Subordinated Lien Obligations on the Collateral; and
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(6) neither the ABL Collateral Agent nor any holder of ABL
Debt Obligations shall oppose or seek to challenge any claim by
the Collateral Trustee, any holder of Priority Lien Obligations
or any holder of Subordinated Lien Obligations for allowance in
any Insolvency or Liquidation Proceeding of Priority Lien
Obligations or Subordinated Lien Obligations, as applicable,
consisting of post-petition interest, fees or expenses to the
extent of the value of the Lien securing any holder of Priority
Lien Obligations or holder of Subordinated Lien
Obligations, as applicable, claim, without regard to the
existence of the Lien of the ABL Collateral Agent on behalf of
the holders of ABL Debt Obligations on the Collateral.
Notice
Requirements and Procedural Provisions
The intercreditor agreement also provides for various advance
notice requirements and other procedural provisions typical for
agreements of this type, including procedural provisions to
allow any successor ABL Collateral Agent to become a party to
the intercreditor agreement (without the consent of any holder
of ABL Debt Obligations, Priority Lien Obligations or
Subordinated Lien Obligations) upon the refinancing or
replacement of the ABL Debt Obligations, Priority Lien
Obligations or Subordinated Lien Obligations as permitted by the
applicable ABL Debt Documents, Priority Lien Documents and
Subordinated Lien Documents.
The
Collateral Trust Agreement
On December 21, 2009, the Issuer and the Subsidiary
Guarantors entered into a collateral trust agreement with the
collateral trustee and the trustee. The collateral trust
agreement sets forth the terms on which the collateral trustee
will receive, hold, administer, maintain, enforce and distribute
the proceeds of all Liens on all Collateral owned by the Issuer
or any Subsidiary Guarantor for the benefit of all present and
future holders of Priority Lien Obligations and all future
holders of Subordinated Lien Obligations (if any).
Enforcement
of Liens
If the collateral trustee at any time receives written notice
stating that any event has occurred that constitutes a default
under any Secured Debt Document entitling the collateral trustee
to foreclose upon, collect or otherwise enforce its Liens
thereunder, it will promptly deliver written notice thereof to
each Secured Debt Representative. Thereafter, the collateral
trustee may await direction by an Act of Required Debtholders
and will act, or decline to act, as directed by an Act of
Required Debtholders, in the exercise and enforcement of the
collateral trustees interests, rights, powers and remedies
in respect of the Collateral or under the security documents or
applicable law and, following the initiation of such exercise of
remedies, the collateral trustee will act, or decline to act,
with respect to the manner of such exercise of remedies as
directed by an Act of Required Debtholders, subject to the
limitations set forth in the intercreditor agreement with
respect to the rights of the collateral trustee in the ABL
Priority Collateral. Unless it has been directed to the contrary
by an Act of Required Debtholders, the collateral trustee in any
event may (but will not be obligated to) take or refrain from
taking such action with respect to any default under any Secured
Debt Document as it may deem advisable and in the best interest
of the holders of Secured Obligations, subject in all cases to
the limitations in the intercreditor agreement.
Until the Discharge of Priority Lien Obligations, the holders of
the notes and the holders of other future Priority Lien
Obligations will have, subject to the intercreditor agreement
and the exceptions set forth below in clauses (1) through
(4) and the provisions described below under the caption
Provisions of the Indenture Relating to
Security Relative Rights, and subject to the
rights of the holders of Permitted Prior Liens, the exclusive
right to authorize and direct the collateral trustee with
respect to the Collateral (including, without limitation, the
exclusive right to authorize or direct the collateral trustee to
enforce, collect or realize on any Collateral or exercise any
other right or remedy with respect to the Collateral) and the
provisions of the security documents relating thereto, and no
Subordinated Lien Representative or holder of Subordinated Lien
Obligations may authorize or direct the collateral trustee with
respect to such matters. Notwithstanding the foregoing, the
holders of Subordinated Lien Obligations may, subject to the
rights of the holders of Permitted Prior Liens and subject to
the limitations set forth in the intercreditor agreement, direct
the collateral trustee with respect to Collateral:
(1) without any condition or restriction whatsoever, at any
time after the Discharge of Priority Lien Obligations;
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(2) as necessary to redeem any Collateral in a
creditors redemption permitted by law or to deliver any
notice or demand necessary to enforce (subject to the prior
Discharge of Priority Lien Obligations) any right to claim, take
or receive proceeds of Collateral remaining after the Discharge
of Priority Lien Obligations in the event of foreclosure or
other enforcement of any Permitted Prior Lien;
(3) as necessary to perfect or establish the priority
(subject to the priority of the Liens securing Priority Lien
Obligations, Liens securing ABL Debt Obligations and Permitted
Prior Liens) of the Subordinated Liens upon any Collateral;
provided that, unless otherwise agreed to by the
collateral trustee in the security documents, the holders of
Subordinated Lien Obligations may not require the collateral
trustee to take any action to perfect any Subordinated Liens on
any Collateral through possession or control; or
(4) as necessary to create, prove, preserve or protect (but
not enforce) the Subordinated Liens upon any Collateral.
Subject to the intercreditor agreement and the provisions
described below under the caption Provisions
of the Indenture Relating to Security Relative
Rights, both before and during an Insolvency or
Liquidation Proceeding, until the Discharge of Priority Lien
Obligations, none of the holders of Subordinated Lien
Obligations, the collateral trustee (unless acting pursuant to
an Act of Required Debtholders) or any Subordinated Lien
Representative will be permitted to:
(1) request judicial relief, in an Insolvency or
Liquidation Proceeding or in any other court, that would hinder,
delay, limit or prohibit the lawful exercise or enforcement of
any right or remedy otherwise available to the holders of
Priority Lien Obligations in respect of the Priority Liens or
that would limit, invalidate, avoid or set aside any Priority
Lien or subordinate the Priority Liens to the Subordinated Liens
or grant the Subordinated Liens equal ranking to the Priority
Liens;
(2) oppose or otherwise contest any motion for relief from
the automatic stay or from any injunction against foreclosure or
enforcement of Priority Liens made by any holder of Priority
Lien Obligations or any Priority Lien Representative in any
Insolvency or Liquidation Proceeding;
(3) oppose or otherwise contest any lawful exercise by any
holder of Priority Lien Obligations or any Priority Lien
Representative of the right to credit bid Priority Lien Debt at
any sale of Collateral in foreclosure of Priority Liens;
(4) oppose or otherwise contest any other request for
judicial relief made in any court by any holder of Priority Lien
Obligations or any Priority Lien Representative relating to the
lawful enforcement of any Priority Lien; or
(5) challenge the validity, enforceability, perfection or
priority of the Priority Liens.
Notwithstanding the foregoing and subject to the terms of the
intercreditor agreement, both before and during an Insolvency or
Liquidation Proceeding, the holders of Subordinated Lien
Obligations or Subordinated Lien Representatives may take any
actions and exercise any and all rights that would be available
to a holder of unsecured claims, including, without limitation,
the commencement of an Insolvency or Liquidation Proceeding
against the Issuer or any Guarantor in accordance with
applicable law; provided the applicable Secured Debt
Documents will provide that no holder of Subordinated Lien
Obligations or Subordinated Lien Representative will be
permitted to take any action prohibited by the intercreditor
agreement or any of the actions prohibited by the provisions
described in clauses (1) through (5) of the
immediately preceding paragraph or oppose or contest any order
that it has agreed not to oppose or contest under the provisions
described below under the caption Insolvency
or Liquidation Proceedings.
The collateral trust agreement provides that, at any time prior
to the Discharge of Priority Lien Obligations and after:
(1) the commencement of any Insolvency or Liquidation
Proceeding in respect of the Issuer or any Guarantor; or
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(2) the collateral trustee and each Subordinated Lien
Representative have received written notice from any Priority
Lien Representative that:
(a) any Series of Priority Lien Debt has become due and
payable in full (whether at maturity, upon acceleration or
otherwise), or
(b) the holders of Priority Liens securing one or more
Series of Priority Lien Debt have become entitled under any
Priority Lien Document to and desire to enforce any or all of
the Priority Liens by reason of a default under such Priority
Lien Documents,
no payment of money (or the equivalent of money) will be made
from the proceeds of Collateral by the Issuer or any Subsidiary
Guarantor to the collateral trustee (other than distributions to
the collateral trustee for the benefit of the holders of
Priority Lien Obligations), any Subordinated Lien Representative
or any holder of Subordinated Lien Obligations (including,
without limitation, payments and prepayments made for
application to Subordinated Lien Obligations).
All proceeds of Collateral received by the collateral trustee,
any Subordinated Lien Representative or any holder of
Subordinated Lien Obligations in violation of the provisions
described in the immediately preceding paragraph will be held by
such Person for the account of, prior to the Discharge of
Priority Lien Obligations, the holders of Priority Liens and
remitted to any Priority Lien Representative upon demand by such
Priority Lien Representative. The Subordinated Liens will remain
attached to and, subject to the provisions described under the
caption Provisions of the Indenture Relating
to Security Ranking of Subordinated Liens,
enforceable against all proceeds so held or remitted. All
proceeds of Collateral received by the collateral trustee, any
Subordinated Lien Representative or any holder of Subordinated
Lien Obligations not in violation of the immediately preceding
paragraph will be received by such Person free from the Priority
Liens and all other Liens except Subordinated Liens and
Permitted Prior Liens, subject to the terms of the intercreditor
agreement.
Waiver
of Right of Marshalling
The collateral trust agreement provides that, prior to the
Discharge of Priority Lien Obligations, the holders of
Subordinated Lien Obligations, each Subordinated Lien
Representative and the collateral trustee may not assert or
enforce any right of marshalling accorded to a junior
lienholder, as against the holders of Priority Lien Obligations
or the Priority Lien Representatives (in their capacity as
priority lienholders) with respect to the Collateral. Following
the Discharge of Priority Lien Obligations, the holders of
Subordinated Lien Obligations and any Subordinated Lien
Representative may assert their right under the Uniform
Commercial Code or otherwise to any proceeds remaining following
a sale or other disposition of Collateral by, or on behalf of,
the holders of Priority Lien Obligations, subject to the terms
of the intercreditor agreement.
Insolvency
or Liquidation Proceedings
The collateral trust agreement provides that, if in any
Insolvency or Liquidation Proceeding and prior to the Discharge
of Priority Lien Obligations, the holders of Priority Lien
Obligations or any Priority Lien Representative consent to any
order:
(1) for use of cash collateral;
(2) approving a
debtor-in-possession
financing secured by a Lien that is senior to or on a parity
with all Priority Liens upon any property of the estate in such
Insolvency or Liquidation Proceeding;
(3) granting any relief on account of Priority Lien
Obligations as adequate protection (or its equivalent) for the
benefit of the holders of Priority Lien Obligations in the
Collateral; or
(4) relating to a sale of assets of the Issuer or any
Subsidiary Guarantor that provides, to the extent the Collateral
sold is to be free and clear of Liens, that all Priority Liens
and Subordinated Liens will attach to the proceeds of the sale;
then, the holders of Subordinated Lien Obligations and the
Subordinated Lien Representatives, in their capacity as holders
or representatives of secured claims, will not oppose or
otherwise contest the entry of such order, so long as
143
none of the holders of Priority Lien Obligations or any Priority
Lien Representative opposes or otherwise contests any request
made by the holders of Subordinated Lien Obligations or a
Subordinated Lien Representative for the grant to the collateral
trustee, for the benefit of the holders of Subordinated Lien
Obligations and the Subordinated Lien Representatives, of a
junior Lien upon any property on which a Lien is (or is to be)
granted under such order to secure the Priority Lien
Obligations, co-extensive in all respects with, but subordinated
to, such Lien and all Priority Liens on such property.
Notwithstanding the foregoing and subject to the terms of the
intercreditor agreement, both before and during an Insolvency or
Liquidation Proceeding, the holders of Subordinated Lien
Obligations and the Subordinated Lien Representatives may take
any actions and exercise any and all rights that would be
available to a holder of unsecured claims, including, without
limitation, the commencement of Insolvency or Liquidation
Proceedings against the Issuer or any Guarantor in accordance
with applicable law; provided that the applicable Secured
Debt Documents will provide that no holder of Subordinated Lien
Obligations or Subordinated Lien Representative will be
permitted to take any action prohibited by the intercreditor
agreement or any of the actions prohibited by the provisions
described in clauses (1) through (5) of the third
paragraph under the caption Enforcement of
Liens, or oppose or contest any order that it has agreed
not to oppose or contest under the provisions described in
clauses (1) through (4) of the immediately preceding
paragraph.
The holders of Subordinated Lien Obligations or any Subordinated
Lien Representative will not file or prosecute in any Insolvency
or Liquidation Proceeding any motion for adequate protection (or
any comparable request for relief) based upon their interest in
the Collateral under the Subordinated Liens, except that,
subject to the provisions of the intercreditor agreement:
(1) they may freely seek and obtain relief:
(a) granting a junior Lien co-extensive in all respects
with, but subordinated to, all Liens granted in the Insolvency
or Liquidation Proceeding to, or for the benefit of, the holders
of Priority Lien Obligations; or (b) in connection with the
confirmation of any plan of reorganization or similar
dispositive restructuring plan; and
(2) they may freely seek and obtain any relief upon a
motion for adequate protection (or any comparable relief),
without any condition or restriction whatsoever, at any time
after the Discharge of Priority Lien Obligations.
Order
of Application
The collateral trust agreement provides that if any Collateral
is sold or otherwise realized upon by the collateral trustee in
connection with any foreclosure, collection or other enforcement
of Priority Liens granted to the collateral trustee in the
security documents, the proceeds received by the collateral
trustee from such foreclosure, collection or other enforcement
will be distributed by the collateral trustee, subject to the
provisions of the intercreditor agreement, in the following
order of application:
FIRST, to the payment of all amounts payable under the
collateral trust agreement on account of the collateral
trustees fees and any reasonable legal fees, costs and
expenses or other liabilities of any kind incurred by the
collateral trustee or any co-trustee or agent of the collateral
trustee in connection with any security document;
SECOND, to the repayment of Indebtedness and other obligations
(other than Secured Debt Obligations) secured by a Permitted
Prior Lien on the Collateral sold or realized upon, to the
extent that such other Indebtedness or obligation is (or is
required) to be discharged in connection with such sale or other
realization;
THIRD, to the respective Priority Lien Representatives for
application to the payment of all outstanding notes and other
Priority Lien Debt and any other Priority Lien Obligations that
are then due and payable in such order as may be provided in the
Priority Lien Documents in an amount sufficient to pay in full
in cash all outstanding notes and other Priority Lien Debt and
all other Priority Lien Obligations that are then due and
payable (including all interest accrued thereon after the
commencement of any Insolvency or Liquidation Proceeding at the
rate, including any applicable post-default rate, specified in
the Priority Lien Documents, even if such interest is not
enforceable, allowable or allowed as a claim in such proceeding,
and including the discharge or cash collateralization (at the
lower of (1) 105% of the aggregate undrawn amount and
(2) the
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percentage of the aggregate undrawn amount required for release
of Liens under the terms of the applicable Priority Lien
Document) of all outstanding letters of credit constituting
Priority Lien Debt);
FOURTH, to the respective Subordinated Lien Representatives for
application to the payment of all outstanding Subordinated Lien
Debt and any other Subordinated Lien Obligations that are then
due and payable in such order as may be provided in the
Subordinated Lien Documents in an amount sufficient to pay in
full in cash all outstanding Subordinated Lien Debt and all
other Subordinated Lien Obligations that are then due and
payable (including all interest accrued thereon after the
commencement of any Insolvency or Liquidation Proceeding at the
rate, including any applicable post-default rate, specified in
the Subordinated Lien Documents, even if such interest is not
enforceable, allowable or allowed as a claim in such proceeding,
and including the discharge or cash collateralization (at the
lower of (1) 105% of the aggregate undrawn amount and
(2) the percentage of the aggregate undrawn amount required
for release of Liens under the terms of the applicable
Subordinated Lien Document) of all outstanding letters of
credit, if any, constituting Subordinated Lien Debt); and
FIFTH, any surplus remaining after the payment in full in cash
of the amounts described in the preceding clauses will be paid
to the Issuer or the applicable Guarantor, as the case may be,
or its successors or assigns, or as a court of competent
jurisdiction may direct.
If any Subordinated Lien Representative or any holder of a
Subordinated Lien Obligation collects or receives any proceeds
with respect to Subordinated Lien Obligations of such
foreclosure, collection or other enforcement that should have
been applied to the payment of the Priority Lien Obligations in
accordance with the provisions described in the immediately
preceding paragraph, whether after the commencement of an
Insolvency or Liquidation Proceeding or otherwise, such
Subordinated Lien Representative or such holder of a
Subordinated Lien Obligation, as the case may be, will forthwith
deliver the same to the collateral trustee, for the account of
the holders of the Priority Lien Obligations to be applied in
accordance with the provisions described in the immediately
preceding paragraph. Until so delivered, such proceeds will be
held by that Subordinated Lien Representative or that holder of
a Subordinated Lien Obligation, as the case may be, for the
benefit of the holders of the Priority Lien Obligations. These
provisions will not apply to payments received by any holder of
Subordinated Lien Obligations if such payments are not proceeds
of realization upon Collateral.
The provisions described above under the caption
Order of Application are intended for
the benefit of, and will be enforceable by, each present and
future holder of Secured Obligations, each present and future
Secured Debt Representative and the collateral trustee, as
holder of Priority Liens and Subordinated Liens, in each case,
as a party to the collateral trust agreement or as a third party
beneficiary thereof. The Secured Debt Representative of each
future Series of Secured Debt will be required to deliver a Lien
Sharing and Priority Confirmation to the collateral trustee and
each other Secured Debt Representative at the time of incurrence
of such Series of Secured Debt.
No appraisal of the fair market value of the Collateral has been
made in connection with this offering of the notes or was made
at the time of the offering of the original first lien notes or
the additional first lien notes, and the value of the Collateral
will depend on market and economic conditions, the availability
of buyers and other factors. As a result, liquidating the
Collateral may not produce proceeds in an amount sufficient to
pay any amounts due on the notes. There can be no assurance that
the value of the Collateral or that the net proceeds received
upon a sale of the Collateral would be sufficient to repay all,
or would not be substantially less than, amounts due on the
notes following a foreclosure upon the Collateral (and any
payments in respect of Permitted Prior Liens) or a liquidation
of the Issuers assets or the assets of the Subsidiary
Guarantors. See Risk Factors Risks Related to
the Collateral and the Guarantees The Value of the
Collateral Securing the Notes May Not Be Sufficient to Satisfy
Our Obligations Under the Notes.
Release
of Liens on Collateral
The collateral trust agreement provides that the collateral
trustees Liens on the Collateral will be released:
(1) in whole, upon (a) payment in full and discharge
of all outstanding Secured Debt and all other Secured
Obligations that are outstanding, due and payable at the time
all of the Secured Debt is paid in full and
145
discharged and (b) termination or expiration of all
commitments to extend credit under all Secured Debt Documents
and the cancellation or termination or cash collateralization
(at the lower of (1) 105% of the aggregate undrawn amount
and (2) the percentage of the aggregate undrawn amount
required for release of Liens under the terms of the applicable
Secured Debt Documents) of all outstanding letters of credit
issued pursuant to any Secured Debt Documents;
(2) as to any Collateral that is sold, transferred or
otherwise disposed of by the Issuer or any Subsidiary Guarantor
(including indirectly, by way of a sale or other disposition of
Capital Stock of a Subsidiary Guarantor) to a Person that is not
(either before or after such sale, transfer or disposition) the
Issuer or a Restricted Subsidiary of the Issuer in a transaction
or other circumstance that is not prohibited by either the
Asset Sale provisions of the indenture or by the
terms of any applicable Secured Debt Documents, at the time of
such sale, transfer or other disposition or to the extent of the
interest sold, transferred or otherwise disposed of; provided
that the collateral trustees Liens upon the Collateral
will not be released if the sale or disposition is subject to
the covenant described below under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets;
(3) upon completion of any Asset Sale Offer conducted in
compliance with the provision of the indenture described below
under the caption Repurchase at the Option of
Holders Asset Sales, to the extent any Net
Proceeds constituted Excess Proceeds with respect to such Asset
Sale Offer and remain unexpended following the consummation of
such Asset Sale Offer;
(4) as to less than all or substantially all of the
Collateral, if consent to the release of all Priority Liens (or,
at any time after the Discharge of Priority Lien Obligations,
consent to the release of all Subordinated Liens) on such
Collateral has been given by an Act of Required Debtholders;
(5) as to all or substantially all of the Collateral, if
(a) release of that Collateral is permitted under each
Series of Secured Debt at the time outstanding as provided for
in the applicable Secured Debt Documents, and (b) the
Issuer has delivered an Officers Certificate to the
collateral trustee certifying that all requirements for such
release have been complied with;
(6) if and to the extent (a) required by all Series of
Secured Debt at the time outstanding or (b) upon request of
the Issuer, if such release is permitted for all Series of
Secured Debt at the time outstanding without the consent of the
holders thereof, in each case as provided for in the applicable
Secured Debt Documents; or
(7) if and to the extent required by the provisions of the
intercreditor agreement described above under the caption
The Intercreditor Agreement
Releases,
and, in each such case, upon request of the Issuer, the
collateral trustee will execute (with such acknowledgements
and/or
notarizations as are required) and deliver evidence of such
release to the Issuer; provided, however, to the
extent the Issuer requests the collateral trustee to deliver
evidence of the release of Collateral in accordance with this
paragraph, the Issuer will deliver to the collateral trustee an
Officers Certificate to the effect that such release of
Collateral pursuant to the provisions described in this
paragraph did not violate the terms of any applicable Secured
Debt Document.
The security documents provide that the Liens securing the
Secured Debt will extend to the proceeds of any sale of
Collateral. As a result, the collateral trustees Liens
will apply to the proceeds of any such Collateral received in
connection with any sale or other disposition of assets
described in the immediately preceding paragraph, subject to the
provisions of the intercreditor agreement.
Release
of Liens in Respect of Notes
The indenture and the collateral trust agreement provide that
the collateral trustees Liens upon the Collateral will no
longer secure the notes outstanding under the indenture or any
other Obligations under the indenture, and the right of the
holders of the notes and such Obligations to the benefits and
proceeds of the collateral trustees Liens on the
Collateral will terminate and be discharged:
(1) upon satisfaction and discharge of the indenture as
described under the caption Satisfaction and
Discharge;
146
(2) upon a Legal Defeasance or Covenant Defeasance of the
notes as described under the caption Legal
Defeasance and Covenant Defeasance;
(3) upon payment in full and discharge of all notes
outstanding under the indenture and all Obligations that are
outstanding, due and payable under the indenture at the time the
notes are paid in full and discharged;
(4) in whole or in part, with the consent of the holders of
the requisite percentage of notes in accordance with the
provisions described below under the caption
Amendment, Supplement and Waiver; or
(5) if and to the extent required by the provisions of the
intercreditor agreement described above under the caption
The Intercreditor Agreement
Releases.
Amendment
of Security Documents
The collateral trust agreement provides that:
(1) no amendment or supplement to the provisions of any
security document will be effective without the approval of the
collateral trustee acting as directed by an Act of Required
Debtholders, except that any amendment or supplement that has
the effect solely of (a) adding or maintaining Collateral,
securing additional Secured Debt that was otherwise permitted by
the terms of the Secured Debt Documents to be secured by the
Collateral or preserving, perfecting or establishing the
priority of the Liens thereon or the rights of the collateral
trustee therein; (b) curing any ambiguity, defect, mistake,
omission or inconsistency; (c) providing for the assumption
of the Issuers or any Subsidiary Guarantors
obligations under any security document in the case of a merger
or consolidation or sale of all or substantially all of the
assets of the Issuer or such Guarantor, as applicable;
(d) making any change that would provide any additional
rights or benefits to the secured parties or the collateral
trustee or that does not adversely affect in any material
respect the legal rights under the indenture or any other
Secured Debt Document of any holder of notes, any other secured
party or the collateral trustee; (e) conforming the text of
any security document to any provision of this Description of
Notes to the extent that such provision in this Description of
Notes was intended to be a verbatim recitation of any security
document; or (f) complying with any requirement of the
Commission, will, in each case, become effective when executed
and delivered by the Issuer and any applicable Subsidiary
Guarantor party thereto and the collateral trustee;
(2) no amendment or supplement to the provisions of any
security document that
(a) reduces, impairs or adversely affects the right of any
holder of Secured Obligations:
(i) to vote its outstanding Secured Debt as to any matter
described as subject to an Act of Required Debtholders or
direction by the Required Priority Lien Debtholders,
(ii) to share in the order of application described above
under Order of Application in the
proceeds of enforcement of or realization after default on any
Collateral that has not been released in accordance with the
provisions described above under Release of
Liens on Collateral, or
(iii) to require that Liens securing Secured Obligations be
released only as set forth in the provisions described above
under the caption Release of Liens on
Collateral, or
(b) amends the provisions described in this clause (2)
or the definition of Act of Required Debtholders,
Required Priority Lien Debtholders or Required
Subordinated Lien Debtholders, will become effective
without the consent of the requisite percentage or number of
holders of each Series of Secured Debt so affected as specified
under the applicable Secured Debt Documents; and
(3) no amendment or supplement to the provisions of any
security document that imposes any obligation upon the
collateral trustee or any Secured Debt Representative or
adversely affects the rights of the collateral trustee or any
Secured Debt Representative, in its individual capacity as such
will become effective without the consent of the collateral
trustee or such Secured Debt Representative, as applicable.
Any amendment or supplement to the provisions of the security
documents that releases Collateral will be effective only if
such release is granted in accordance with the applicable
Secured Debt Document in compliance
147
with each then outstanding Series of Secured Debt, except as
specified in the next sentence. Any amendment or supplement that
results in the collateral trustees Liens upon all or
substantially all of the Collateral no longer securing the notes
and all related Obligations under the note documents may only be
effected in accordance with the provisions described above under
the caption Release of Liens in Respect of
Notes.
The collateral trust agreement provides that, notwithstanding
anything to the contrary in the provisions described under the
caption Amendment of Security Documents,
but subject to the provisions described in clauses (2) and
(3) of the first paragraph under that caption, any
amendment or waiver of, or any consent under, any provision of
the collateral trust agreement or any other security document
that secures Priority Lien Obligations will apply automatically
to any comparable provision of any comparable Subordinated Lien
Document without the consent of or notice to any Subordinated
Lien Representative or holder of Subordinated Lien Obligations
and without any action by the Issuer, any Subsidiary Guarantor,
any holder of notes or other Priority Lien Obligations or any
Subordinated Lien Representative or holder of Subordinated Lien
Obligations.
Voting
In connection with any matter under the collateral trust
agreement requiring a vote of holders of Secured Debt, each
Series of Secured Debt will cast its votes in accordance with
the Secured Debt Documents governing such Series of Secured
Debt. The amount of Secured Debt to be voted by a Series of
Secured Debt will equal (1) the aggregate principal amount
of Secured Debt held by such Series of Secured Debt (including
outstanding letters of credit whether or not then available or
drawn), plus (2) other than in connection with an
exercise of remedies, the aggregate unfunded commitments to
extend credit which, when funded, would constitute Indebtedness
of such Series of Secured Debt. Following and in accordance with
the outcome of the applicable vote under its Secured Debt
Documents, the Secured Debt Representative of each applicable
Series of Secured Debt will vote the total amount of Secured
Debt under that Series of Secured Debt as a block in respect of
any vote under the collateral trust agreement. See Act of
Required Debtholders.
Provisions
of the Indenture Relating to Security
Equal
and Ratable Sharing of Collateral by Holders of Priority Lien
Debt
The indenture provides that, notwithstanding:
(1) anything to the contrary contained in the security
documents;
(2) the time of incurrence of any Series of Priority Lien
Debt;
(3) the order or method of attachment or perfection of any
Lien securing any Series of Priority Lien Debt;
(4) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect any
Liens securing any Series of Priority Lien Debt;
(5) the time of taking possession or control over any
Collateral securing any Series of Priority Lien Debt;
(6) that any Priority Lien may not have been perfected or
may be or have become subordinated, by equitable subordination
or otherwise, to any other Lien; or
(7) the rules for determining priority under any law
governing relative priorities of Liens,
all Priority Liens granted at any time by the Issuer or any
Subsidiary Guarantor will secure, equally and ratably, all
present and future Priority Lien Obligations of the Issuer or
such Subsidiary Guarantor, as the case may be.
The provisions described in the immediately preceding paragraph
are intended for the benefit of, and will be enforceable by,
each present and future holder of Priority Lien Obligations,
each present and future Priority Lien Representative and the
collateral trustee, as holder of Priority Liens, in each case,
as a party to the collateral trust agreement or as a third party
beneficiary thereof. The Priority Lien Representative of each
future Series of Priority Lien Debt will be required to deliver
a Lien Sharing and Priority Confirmation to the collateral
trustee and the trustee at the time of incurrence of such Series
of Priority Lien Debt.
148
Ranking
of Subordinated Liens
The indenture requires the Subordinated Lien Documents, if any,
to provide that, notwithstanding:
(1) anything to the contrary contained in the security
documents;
(2) the time of incurrence of any Series of Secured Debt;
(3) the order or method of attachment or perfection of any
Liens securing any Series of Secured Debt;
(4) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect any
Lien upon any Collateral;
(5) the time of taking possession or control over any
Collateral;
(6) that any Priority Lien may not have been perfected or
may be or have become subordinated, by equitable subordination
or otherwise, to any other Lien;
(7) the rules for determining priority under any law
governing relative priorities of Liens; or
(8) all Subordinated Liens at any time granted by the
Issuer or any Subsidiary Guarantor will be subject and
subordinate to all Priority Liens securing all present and
future Priority Lien Obligations of the Issuer or such
Subsidiary Guarantor, as the case may be.
The indenture also requires the Subordinated Lien Documents, if
any, to provide that the provisions described in the foregoing
clauses (1) through (8) are intended for the benefit
of, and will be enforceable by, each present and future holder
of Priority Lien Obligations, each present and future Priority
Lien Representative and the collateral trustee as holder of
Priority Liens, in each case, as a party to the collateral trust
agreement or as a third party beneficiary thereof. The
Subordinated Lien Representative of each future Series of
Subordinated Lien Debt will be required to deliver a Lien
Sharing and Priority Confirmation to the collateral trustee at
the time of incurrence of such Series of Subordinated Lien Debt.
Relative
Rights
Nothing in the note documents will:
(1) impair, as between the Issuer and the holders of the
notes, the obligation of the Issuer to pay principal, interest,
premium, if any, or Special Interest, if any, on the notes in
accordance with their terms or any other obligation of the
Issuer or any Guarantor under the note documents;
(2) affect the relative rights of holders of notes as
against any other creditors of the Issuer or any Guarantor
(other than as expressly specified in the intercreditor
agreement or the collateral trust agreement);
(3) restrict the right of any holder of notes to sue for
payments that are then due and owing (but not the right to
enforce any judgment in respect thereof against any Collateral
to the extent specifically prohibited by the provisions of the
intercreditor agreement or the collateral trust agreement, as
generally described above under the captions
The Intercreditor Agreement and
The Collateral Trust Agreement;
(4) restrict or prevent any holder of notes or other
Priority Lien Obligations, the trustee, the collateral trustee
or any other person from exercising any of its rights or
remedies upon a Default or Event of Default not specifically
restricted or prohibited by the provisions of the intercreditor
agreement or the collateral trust agreement, as generally
described above under the captions The
Intercreditor Agreement and The
Collateral Trust Agreement; or
(5) restrict or prevent any holder of notes or other
Priority Lien Obligations, the trustee, the collateral trustee
or any other person from taking any lawful action in an
Insolvency or Liquidation Proceeding not specifically restricted
or prohibited by the provisions of the intercreditor agreement
or the collateral trust agreement, as generally described above
under the captions The Intercreditor
Agreement and The Collateral
Trust Agreement.
149
Further
Assurances
The indenture provides that the Issuer and each of the
Subsidiary Guarantors will do or cause to be done all acts and
things that may be reasonably required, or that the collateral
trustee from time to time may reasonably request, to assure and
confirm that the collateral trustee holds, for the benefit of
the holders of Obligations under the notes documents, duly
created and enforceable and perfected Liens upon the Collateral
(including any property or assets that are acquired or otherwise
become Collateral), in each case, as and to the extent
contemplated by, and with the Lien priority required under, the
Secured Debt Documents.
The collateral trust agreement provides that, upon the
reasonable request of the collateral trustee or any Secured Debt
Representative at any time and from time to time, the Issuer and
each of the Subsidiary Guarantors will promptly execute,
acknowledge and deliver such security documents, instruments,
certificates, notices and other documents, and take such other
actions as may be reasonably required, or that the collateral
trustee may reasonably request, to create, perfect, protect,
assure or enforce the Liens and benefits intended to be
conferred, in each case as and to the extent contemplated by the
Secured Debt Documents for the benefit of the holders of Secured
Obligations.
Insurance
The indenture requires that the Issuer and the Subsidiary
Guarantors:
(1) keep their properties insured and maintain such general
liability, automobile liability, workers
compensation/employers liability, property casualty
insurance and any excess umbrella coverage related to any of the
foregoing as is customary for companies in the same or similar
businesses operating in the same or similar locations;
(2) maintain such other insurance as may be required by
law; and
(3) maintain such other insurance as may be required by the
security documents relating to the Notes.
The indenture provides that upon the request of the trustee or
the collateral trustee, the Issuer and the Subsidiary Guarantors
will furnish to the trustee or collateral trustee full
information as to their property and liability insurance
carriers. The indenture requires that the Issuer
(x) provide the trustee and the collateral trustee with
notice of cancellation or modification with respect to its
property and casualty policies before the effective date of such
cancellation or modification and (y) name the trustee or
collateral trustee as a co-loss payee on property and casualty
policies and as an additional insured as its interests may
appear on the liability policies listed in clause (1) above.
Compliance
with the Trust Indenture Act
The indenture has been qualified under and is subject to and
governed by the Trust Indenture Act. To the extent
applicable, the indenture requires the Issuer to comply with the
provisions of TIA § 314 and to cause TIA
§ 313(b), relating to reports, and TIA
§ 314(d), relating to the release of property or
securities or relating to the substitution therefor of any
property or securities to be subjected to the Lien of the
security documents, to be complied with. Any certificate or
opinion required by TIA § 314(d) may be made by an
officer of the Issuer except in cases where TIA
§ 314(d) requires that such certificate or opinion be
made by an independent Person, which Person will be an
independent engineer, appraiser or other expert selected by or
reasonably satisfactory to the trustee.
Notwithstanding anything to the contrary in the preceding
paragraph, the Issuer will not be required to comply with all or
any portion of TIA § 314(d) if the Issuer determines,
in good faith, that under the terms of TIA § 314(d)
and/or any
interpretation or guidance as to the meaning thereof of the
Commission and its staff, including no action
letters or exemptive orders, all or any portion of TIA
§ 314(d) is inapplicable to released collateral. The
Issuer and the Guarantors may, subject to the provisions of the
indenture, among other things, without any release or consent by
the trustee or the collateral trustee or any holder of Priority
Lien Obligations, conduct ordinary course activities with
respect to the Collateral.
150
Mandatory
Redemption
The Issuer is not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Optional
Redemption
At any time prior to December 15, 2012, the Issuer may, on
any one or more occasions, redeem up to 35% of the aggregate
principal amount of notes issued under the indenture (including
the notes offered hereby, the original first lien notes, the
additional first lien notes and any additional notes) at a
redemption price of 109.50% of the principal amount thereof,
plus accrued and unpaid interest and Special Interest (if
any) thereon to the applicable redemption date, with all or a
portion of the net cash proceeds of one or more Qualified Equity
Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes
issued under the indenture (including any additional notes)
remains outstanding immediately after the occurrence of such
redemption (excluding notes held by the Issuer and its
Subsidiaries); and
(2) the redemption must occur within 90 days of the
date of the closing of such Qualified Equity Offering.
At any time prior to December 15, 2012, the Issuer may, on
any one or more occasions, redeem all or a part of the notes,
upon not less than 15 nor more than 60 days notice,
at a redemption price equal to 100% of the principal amount of
the notes redeemed, plus the Applicable Premium as of,
and accrued and unpaid interest and Special Interest (if any)
to, the date of redemption, subject to the rights of holders of
notes on the relevant record date to receive interest due on the
relevant interest payment date.
Except pursuant to the two preceding paragraphs, the notes will
not be redeemable at the Issuers option prior to
December 15, 2012.
On or after December 15, 2012, the Issuer may redeem all or
a part of the notes upon not less than 15 nor more than
60 days notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus
accrued and unpaid interest and Special Interest, if any,
thereon, to the applicable redemption date, if redeemed during
the 12-month
period beginning on December 15 of the years indicated below,
subject to the rights of holders of notes on the relevant record
date to receive interest on the relevant interest payment date:
|
|
|
|
|
Year
|
|
Percentage
|
|
2012
|
|
|
107.125
|
%
|
2013
|
|
|
104.750
|
%
|
2014
|
|
|
102.375
|
%
|
2015 and thereafter
|
|
|
100.000
|
%
|
If less than all of the notes are to be redeemed at any time,
the trustee will select notes for redemption on a pro rata
basis (or, in the case of notes issued in global form as
discussed under Book-Entry, Delivery and
Form, based on a method that most nearly approximates a
pro rata selection as the trustee deems fair and
appropriate) unless otherwise required by law or applicable
stock exchange or depositary requirements.
No notes of $2,000 or less shall be redeemed in part. Notices of
redemption shall be sent electronically or mailed by first class
mail or as otherwise provided in accordance with the procedures
of DTC at least 15 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed
more than 60 days prior to a redemption date if the notice
is issued in connection with a defeasance of the notes or a
satisfaction and discharge of the indenture. Notices of
redemption may be given prior to the completion thereof, and any
redemption or notice may, at the Issuers discretion, be
subject to one or more conditions precedent, including, but not
limited to, completion of the Qualified Equity Offering.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note shall state the portion of
the principal amount thereof to be redeemed. A new note in
principal amount equal to the unredeemed portion of the original
note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the
redemption date, unless the Issuer
151
defaults in the payment of the redemption price, interest ceases
to accrue on notes or portions of them called for redemption.
The Issuer or its Affiliates may acquire notes by means other
than a redemption from time to time, including through open
market purchases, privately negotiated transactions, tender
offers, exchange offers or otherwise so long as the acquisition
does not otherwise violate the terms of the indenture, upon such
terms and at such prices as the Issuer or its Affiliates may
determine which may be more or less than the consideration for
which the notes offered hereby are being sold and could be for
cash or other consideration.
Repurchase
at the Option of Holders
Change
of Control
If a Change of Control occurs, each holder of notes will have
the right to require the Issuer to repurchase all or any part
(equal to $2,000 or an integral multiple of $1,000 in excess
thereof) of that holders notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the
Change of Control Offer, the Issuer will offer a Change of
Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid
interest and Special Interest (if any) thereon, to the date of
purchase, subject to the rights of holders of notes on the
relevant record date to receive interest due on the relevant
interest payment date. Within 30 days following any Change
of Control (or prior to the Change of Control if a definitive
agreement is in place for the Change of Control), the Issuer
will send a notice to each holder electronically or by first
class mail at its registered address or otherwise in accordance
with the procedures of DTC, describing the transaction or
transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date
specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such
notice is mailed, pursuant to the procedures required by the
indenture and described in such notice. The Issuer will comply
with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations
are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, the Issuer
will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under
the Change of Control provisions of the indenture by virtue of
such compliance.
On the Change of Control Payment Date, the Issuer will, to the
extent lawful:
(1) accept for payment all notes or portions thereof
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions
thereof properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes so accepted together with an Officers Certificate of
the Issuer stating the aggregate principal amount of notes or
portions thereof being purchased by the Issuer.
The paying agent will promptly mail or wire transfer to each
holder of notes properly tendered and so accepted the Change of
Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry)
to each holder a new note equal in principal amount to any
unpurchased portion of the notes surrendered, if any;
provided that each such new note will be in a principal
amount of $2,000 or an integral multiple of $1,000 in excess
thereof. Any note so accepted for payment will cease to accrue
interest on and after the Change of Control Payment Date.
The provisions described above that require the Issuer to make a
Change of Control Offer in connection with a Change of Control
will be applicable regardless of whether any other provisions of
the indenture are applicable. Except as described above with
respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that
the Issuer repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.
152
The Change of Control purchase feature of the notes may in
certain circumstances make more difficult or discourage a sale
or takeover of the Issuer and, thus, the removal of incumbent
management. The Change of Control purchase feature is a result
of negotiations between the Issuer and the initial purchasers.
The Issuer will not be required to make a Change of Control
Offer upon a Change of Control if (1) a third party makes
the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by the
Issuer and purchases all notes properly tendered and not
withdrawn under such Change of Control Offer or (2) a
notice of redemption has been given for all of the notes
pursuant to the indenture as described above under the caption
Optional Redemption, unless and until
there is a default in payment of the applicable redemption
price. Notwithstanding anything to the contrary contained
herein, a Change of Control Offer may be made in advance of a
Change of Control, subject to one or more conditions precedent,
including but not limited to the consummation of such Change of
Control, if a definitive agreement is in place for the Change of
Control at the time the Change of Control Offer is made.
The ABL Credit Facility provides that certain change of control
events will constitute a default under the ABL Credit Facility.
Credit agreements that the Issuer enters into in the future may
contain similar provisions. Such defaults could result in
amounts outstanding under the ABL Credit Facility and such other
agreements being declared immediately due and payable or lending
commitments being terminated. Additionally, the Issuers
ability to pay cash to holders of notes following the occurrence
of a Change of Control may be limited by its then existing
financial resources; sufficient funds may not be available to
the Issuer when necessary to make any required repurchases of
notes. See Risk Factors Risks Related to the
Notes We May Not Have the Ability to Raise the Funds
Necessary to Finance the Change of Control Offer or the Asset
Sale Offer Required by the Indenture Governing the Notes.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, transfer, conveyance or other
disposition of all or substantially all of the
properties or assets of the Issuer and its Subsidiaries taken as
a whole. Although there is a limited body of case law
interpreting the phrase substantially all, there is
no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of notes to require
the Issuer to repurchase such notes as a result of a sale,
transfer, conveyance or other disposition of less than all of
the assets of the Issuer and its Subsidiaries taken as a whole
to another Person or group may be uncertain.
A Change of Control would be triggered at such time as a
majority of the members of the Board of Directors of the Issuer
or Parent are not Continuing Directors (defined as directors
serving on December 21, 2009, nominated by directors a
majority of whom were serving on December 21, 2009 or
nominated or elected by our sponsor). You should note, however,
that recent case law suggests that, in the event that incumbent
directors are replaced as a result of a contested election,
issuers may nevertheless avoid triggering a Change of Control
under a clause similar to the provision described in the prior
sentence if the outgoing directors were to approve the new
directors for the purpose of such Change of Control clause.
Asset
Sales
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Issuer (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of;
(2) with respect to Asset Sales involving aggregate
consideration in excess of $25.0 million, such fair market
value is determined in good faith by the Board of Directors of
the Issuer or Parent; and
(3) at least 75% of the consideration therefor received by
the Issuer or such Restricted Subsidiary is in the form of cash,
Cash Equivalents or Replacement Assets or a combination of cash,
Cash Equivalents or
153
Replacement Assets; provided that, for purposes of this
provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on the Issuers or such
Restricted Subsidiarys most recent balance sheet or in the
footnotes thereto), of the Issuer or any Restricted Subsidiary
(other than contingent liabilities, Indebtedness that is by its
terms contractually subordinated in right of payment to the
notes or any Note Guarantee and liabilities to the extent owed
to the Issuer or any Restricted Subsidiary of the Issuer) that
are assumed by the transferee of any such assets or Equity
Interests pursuant to an agreement that releases the Issuer or
such Restricted Subsidiary, as the case may be, from further
liability;
(b) any securities, notes or other obligations received by
the Issuer or any such Restricted Subsidiary, as the case may
be, from such transferee that are converted by the Issuer or
such Restricted Subsidiary into cash or Cash Equivalents within
180 days (to the extent of the cash or Cash Equivalents
received in that conversion); and
(c) any Designated Non-Cash Consideration received by the
Issuer or any Restricted Subsidiary in such Asset Sale having an
aggregate fair market value, taken together with all other
Designated Non-Cash Consideration received pursuant to this
clause (c) that is at the time outstanding, not to exceed
the greater of (x) $75.0 million and (y) 2.5% of
the Issuers 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.
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale other than (1) a Sale of Notes Priority
Collateral or (2) a Sale of a Subsidiary Guarantor, the
Issuer or such Restricted Subsidiary may apply such Net Proceeds
at its option and to the extent it so elects:
(1) to repay, repurchase or redeem Priority Lien
Obligations (including Priority Lien Obligations under the
notes) or ABL Debt Obligations;
(2) to repay any Indebtedness secured by a Permitted Prior
Lien;
(3) to repay Indebtedness and other obligations of a
Restricted Subsidiary that is not a Guarantor, other than
Indebtedness owed to the Issuer or another Restricted Subsidiary;
(4) to repay other Indebtedness of the Issuer or any
Subsidiary Guarantor (other than any Disqualified Stock or any
Indebtedness that is contractually subordinated in right of
payment to the notes), other than Indebtedness owed to Parent,
the Issuer or a Restricted Subsidiary of the Issuer; provided
that the Issuer shall equally and ratably redeem or
repurchase the notes as described under the caption
Optional Redemption, through open market
purchases (to the extent such purchases are at or above 100% of
the principal amount thereof) or by making an offer (in
accordance with the procedures set forth below for an Asset Sale
Offer) to all holders to purchase the notes at 100% of the
principal amount thereof, plus the amount of accrued but
unpaid interest, if any, on the amount of notes that would
otherwise be prepaid;
(5) to acquire all or substantially all of the assets of,
or any Capital Stock of, another Permitted Business, if, after
giving effect to any such acquisition of Capital Stock, the
Permitted Business is or becomes a Restricted Subsidiary of the
Issuer;
(6) to make an Investment in Replacement Assets or make a
capital expenditure in or that is used or useful in a Permitted
Business; or
(7) any combination of the foregoing;
provided that the Issuer will be deemed to have complied
with the provisions described in clauses (5) and
(6) of this paragraph if and to the extent that, within
365 days after the Asset Sale that generated the Net
Proceeds, the Issuer has entered into and not abandoned or
rejected a binding agreement to acquire the assets or Capital
Stock of a Permitted Business, make an Investment in Replacement
Assets or make a capital expenditure in compliance with the
provision described in clauses (5) and (6) of this
paragraph, and that acquisition, purchase or capital expenditure
is thereafter completed within 180 days after the end of
such 365-day
period. Pending the final application of any
154
such Net Proceeds, the Issuer may temporarily reduce revolving
credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale that constitutes (1) a Sale of Notes Priority
Collateral or (2) a Sale of a Subsidiary Guarantor, the
Issuer (or the applicable Restricted Subsidiary, as the case may
be) may apply an amount equal to such Net Proceeds:
(1) to make an Investment in other assets or property that
would constitute Notes Priority Collateral;
(2) to make an Investment in Capital Stock of another
Permitted Business if, after giving effect to such Investment,
the Permitted Business becomes a Subsidiary Guarantor or is
merged into or consolidated with the Issuer or any Subsidiary
Guarantor;
(3) to make a capital expenditure with respect to assets
that constitute Notes Priority Collateral;
(4) to repay Indebtedness secured by a Permitted Prior Lien
on any Notes Priority Collateral that was sold in such Asset
Sale;
(5) to repay, repurchase or redeem Priority Lien
Obligations (including Priority Lien Obligations under the
notes); provided that the Issuer shall equally and
ratably redeem or repurchase the notes as described under the
caption Optional Redemption, through
open market purchases (to the extent such purchases are at or
above 100% of the principal amount thereof) or by making an
offer (in accordance with the procedures set forth below for an
Asset Sale Offer) to all holders to purchase the notes at 100%
of the principal amount thereof, plus the amount of
accrued but unpaid interest, if any, on the amount of notes that
would otherwise be prepaid; or
(6) any combination of the foregoing;
provided that the Issuer will be deemed to have complied
with the provision described in clauses (1), (2) and
(3) of this paragraph if, and to the extent that, within
365 days after the Asset Sale that generated the Net
Proceeds, the Issuer has entered into and not abandoned or
rejected a binding agreement to make an Investment in assets or
property that would constitute Notes Priority Collateral or make
an Investment in Capital Stock of another Permitted Business or
to make a capital expenditure with respect to assets that
constitute Notes Priority Collateral in compliance with the
provisions described in clauses (1), (2) and (3) of
this paragraph, and that purchase or capital expenditure is
thereafter completed within 180 days after the end of such
365-day
period.
Any Net Proceeds from Asset Sales that are not applied or
invested as described in the two preceding paragraphs will
constitute Excess Proceeds. Within 10
business days after the aggregate amount of Excess Proceeds
exceeds $35.0 million, the Issuer will make an Asset Sale
Offer to all holders of notes and all holders of other Priority
Lien Debt containing provisions similar to those set forth in
the indenture with respect to offers to purchase with the
proceeds of sales of assets, to purchase the maximum principal
amount of notes and such other Priority Lien Debt that may be
purchased out of the Excess Proceeds. The offer price for the
notes and any other Priority Lien Debt in any Asset Sale Offer
will be equal to 100% of the principal amount of the notes and
such other Priority Lien Debt purchased, plus accrued and
unpaid interest and Special Interest (if any) on the notes and
any other Priority Lien Debt to the date of purchase, and will
be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Issuer may use such
Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and such
other Priority Lien Debt tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the notes and such other
Priority Lien Debt shall be purchased on a pro rata basis
based on the principal amount of notes and such other Priority
Lien Debt tendered. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero. The Issuer
may satisfy the foregoing obligation with respect to any Net
Proceeds prior to the expiration of the relevant 365 day
period (as such period may be extended in accordance with the
indenture) or with respect to Excess Proceeds of
$35.0 million or less.
The ABL Credit Facility provides that certain asset sales will
constitute a default under the ABL Credit Facility. Credit
agreements that the Issuer enters into in the future may contain
similar provisions. Such defaults could result in amounts
outstanding under the ABL Credit Facility and such other
agreements being declared immediately due and payable or lending
commitments being terminated. Additionally, the Issuers
ability to pay cash to holders of notes following the occurrence
of an Asset Sale may be limited by their then existing financial
155
resources; sufficient funds may not be available to the Issuer
when necessary to make any required repurchases of notes. See
Risk Factors Risks Related to the
Notes We May Not Have the Ability to Raise the Funds
Necessary to Finance the Change of Control Offer or the Asset
Sale Offer Required by the Indenture Governing the Notes.
The Issuer will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations
are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, the Issuer will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such
compliance.
Certain
Covenants
Effectiveness
of Certain Covenants
If on any date following December 21, 2009:
(1) the notes are rated Baa3 or better by Moodys and
BBB- or better by S&P (or, if either such entity ceases to
rate the notes for reasons outside of the control of the Issuer,
the equivalent investment grade credit rating from any other
nationally recognized statistical rating
organization within the meaning of
Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act selected by the Issuer as a replacement
agency); and
(2) no Default or Event of Default shall have occurred and
be continuing,
then, beginning on that day and subject to the provisions of the
following paragraph, the covenants specifically listed under the
following captions in this offering circular will be suspended:
(1) Repurchase at the Option of
Holders Asset Sales;
(2) Certain Covenants
Restricted Payments;
(3) Certain Covenants
Incurrence of Indebtedness and Issuance of Disqualified Stock
and Preferred Stock;
(4) Certain Covenants
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries;
(5) clause (3) of Certain
Covenants Merger, Consolidation or Sale of
Assets;
(6) Certain Covenants
Transactions with Affiliates;
(7) Certain Covenants
Designation of Restricted and Unrestricted Subsidiaries;
(8) Certain Covenants
Guarantees; and
(9) Certain Covenants
Reports.
During any period that the foregoing covenants have been
suspended, the Issuers or Parents Board of Directors
may not designate any of the Issuers Subsidiaries as
Unrestricted Subsidiaries pursuant to the covenant described
below under the caption Designation of
Restricted and Unrestricted Subsidiaries.
Notwithstanding the foregoing, if the rating assigned by either
such rating agency should subsequently decline to below Baa3 or
BBB-, respectively, the foregoing covenants will be reinstituted
as of and from the date of such rating decline. Calculations
under the reinstated Restricted Payments covenant
will be made as if the Restricted Payments covenant
had been in effect since December 21, 2009 except that no
Default will be deemed to have occurred solely by reason of a
Restricted Payment made while that covenant was suspended.
156
Restricted
Payments
(A) The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of the Issuers or any of its
Restricted Subsidiaries Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Issuer or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the
Issuers or any of its Restricted Subsidiaries Equity
Interests in their capacity as such (other than dividends,
payments or distributions (a) payable in Equity Interests
(other than Disqualified Stock) of the Issuer or to the Issuer
or a Restricted Subsidiary of the Issuer or (b) payable by
a Restricted Subsidiary so long as, in the case of any dividend,
payment or distribution payable on or in respect of any class or
series of securities issued by a Restricted Subsidiary other
than a Wholly Owned Restricted Subsidiary, the Issuer or a
Restricted Subsidiary receives at least its pro rata share of
such dividend or distribution in accordance with its Equity
Interests in such class or series of securities);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving the Issuer) any Equity
Interests of the Issuer or any Restricted Subsidiary of the
Issuer held by Persons other than the Issuer or any Restricted
Subsidiary of the Issuer;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any,
Subordinated Lien Debt or any Indebtedness of the Issuer or any
Subsidiary Guarantor that is unsecured or contractually
subordinated to the notes or to any Note Guarantee (excluding
any intercompany Indebtedness between or among the Issuer and
any of its Restricted Subsidiaries), except payments of
(x) interest, (y) principal at the Stated Maturity
thereof (or the satisfaction of a sinking fund obligation) or
(z) principal and accrued interest, due within one year of
the date of such payment, purchase, redemption, defeasance,
acquisition or retirement; or
(4) make any Restricted Investment
(all such restricted payments and other restricted actions set
forth in clauses (1) through (4) above (other than any
exceptions thereto) being collectively referred to as
Restricted Payments), unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof;
(2) the Issuer would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption
Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries after December 21, 2009
permitted by the provisions described in clauses (1), (6), (7),
(9), (10), (12), (18) and (19) of the next succeeding
paragraph (B), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Issuer for
the period (taken as one accounting period) from the first day
of the first fiscal quarter beginning after December 21,
2009 to the end of the Issuers most recently ended fiscal
quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds and the fair
market value of assets other than cash received by the Issuer
since December 21, 2009 as a contribution to its equity
capital or from the issue or sale of Equity Interests of the
Issuer or from the issue or sale of Equity Interests of any
direct or indirect parent of the Issuer to the extent such net
cash proceeds are actually contributed to the Issuer as equity
(other than Excluded Contributions, Refunding Capital Stock,
Disqualified Stock and Designated
157
Preferred Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable
debt securities of the Issuer that have been converted into or
exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or debt securities) sold to a Restricted
Subsidiary of the Issuer), plus
(c) the net cash proceeds and the fair market value of
assets other than cash received by the Issuer or any Restricted
Subsidiary of the Issuer from (i) the disposition, sale,
liquidation, retirement or redemption of all or any portion of
any Restricted Investment made after December 21, 2009, net
of disposition costs and repurchases and redemptions of such
Restricted Investments from the Issuer or its Restricted
Subsidiaries and repayments of loans or advances, and releases
of guarantees which constitute Restricted Investments by the
Issuer or its Restricted Subsidiaries, and (ii) the sale
(other than to the Issuer or a Restricted Subsidiary of the
Issuer) of the Capital Stock of an Unrestricted Subsidiary,
plus
(d) without duplication, (i) to the extent that any
Unrestricted Subsidiary of the Issuer that was designated as
such after December 21, 2009 is redesignated as a
Restricted Subsidiary, the fair market value of the
Issuers direct or indirect Investment in such Subsidiary
as of the date of such redesignation, plus (ii) an
amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from payments of dividends, repayments of
the principal of loans or advances or other transfers of assets
from Unrestricted Subsidiaries of the Issuer to the Issuer or
any Restricted Subsidiary of the Issuer after December 21,
2009, except, in each case, to the extent that any such
Investment or net reduction in Investment is included in the
calculation of Consolidated Net Income, plus
(e) without duplication, in the event the Issuer or any
Restricted Subsidiary of the Issuer makes any Investment in a
Person that, as a result of or in connection with such
Investment, becomes a Restricted Subsidiary of the Issuer, an
amount equal to the fair market value of the existing Investment
in such Person that was previously treated as a Restricted
Payment.
(B) The preceding provisions will not prohibit:
(1) the payment of any dividend or distribution or the
consummation of any redemption within 60 days after the
date of declaration thereof or the giving of a redemption notice
related thereto, as the case may be, if at said date of
declaration or notice such payment would have complied with the
provisions of the indenture;
(2) (a) the making of any Restricted Payment in
exchange for, or out of the proceeds of the substantially
concurrent sale of, Equity Interests of the Issuer or any direct
or indirect parent of the Issuer (other than any Disqualified
Stock or any Equity Interests sold to a Restricted Subsidiary of
the Issuer or to an employee stock ownership plan or any trust
established by the Issuer) or from substantially concurrent
contributions to the equity capital of the Issuer (collectively,
including any such contributions, Refunding Capital
Stock); provided, that for the purposes hereof,
Restricted Payments will be deemed to be made substantially
concurrent with any such sale or contributions if the Restricted
Payment occurs within 45 days of such sale or
contribution; and
(b) the declaration and payment of accrued dividends on any
Equity Interests redeemed, repurchased, retired, defeased or
acquired out of the proceeds of the sale of Refunding Capital
Stock within 45 days of such sale;
provided that the amount of any such proceeds or
contributions that are utilized for any Restricted Payment
pursuant to this clause (2) shall be excluded from the
amount described in clause (3)(b) of the preceding paragraph
(A) and clause (4) of this paragraph (B) and
shall not constitute Excluded Contributions;
(3) the payment, defeasance, redemption, repurchase,
retirement or other acquisition of (a) Indebtedness of the
Issuer or any Subsidiary Guarantor that is contractually
subordinated to the notes or to any Note Guarantee or
(b) any Subordinated Lien Debt or (c) any Indebtedness
of the Issuer or any Subsidiary Guarantor that is unsecured or
(d) Disqualified Stock of the Issuer or any Restricted
Subsidiary thereof, in each such case of (a) through
(d) in exchange for, or out of the net cash proceeds from,
an incurrence of Permitted Refinancing Indebtedness;
158
(4) Restricted Investments acquired (a) as a capital
contribution to, or out of the net cash proceeds of
substantially concurrent contributions to, the equity capital of
the Issuer or (b) from the net cash proceeds of the
substantially concurrent sale (other than to a Restricted
Subsidiary of the Issuer or to an employee stock ownership plan
or any trust established by the Issuer) of, or in exchange for,
Equity Interests of the Issuer (other than Disqualified Stock);
provided, that for the purposes hereof, Restricted
Investments will be deemed to be acquired substantially
concurrent with such contribution or the sale of any such Equity
Interests if the acquisition occurs within 45 days of such
contribution or sale; provided, further, that the amount
of any such net cash proceeds that are utilized for any such
acquisition and the fair market value of any assets so acquired
or exchanged shall be excluded from the amount described in
clause (3)(b) of the preceding paragraph (A) and
clause (2) of this paragraph (B) and shall not
constitute Excluded Contributions;
(5) the repurchase of Equity Interests deemed to occur
(i) upon the exercise of options or warrants if such Equity
Interests represent all or a portion of the exercise price
thereof and (ii) in connection with the withholding of a
portion of the Equity Interests granted or awarded to a director
or an employee to pay for the taxes payable by such director or
employee upon such grant or award;
(6) the payment of dividends on the Issuers common
stock (or the payment of dividends to Parent or any other direct
or indirect parent of the Issuer to fund the payment of
dividends on its common stock) following any public offering of
common stock of the Issuer or Parent or any other direct or
indirect parent of the Issuer, in an aggregate amount of up to
6.0% per annum of the net proceeds received by the Issuer (or by
Parent or any other direct or indirect parent of the Issuer and
contributed to the Issuer) from such public offering;
provided, however that the aggregate amount of all
such dividends pursuant to this clause (6) since
December 21, 2009 shall not exceed the aggregate amount of
net proceeds received by the Issuer (or by a direct or indirect
parent of the Issuer and contributed to the Issuer) from such
public offering;
(7) the purchase, redemption, retirement or other
acquisition for value of any Equity Interests of the Issuer,
Parent or any other direct or indirect parent of the Issuer held
by any current, future or former director, officer, consultant
or employee of the Issuer, Parent or any other direct or
indirect parent of the Issuer or any Restricted Subsidiary of
the Issuer, or their estates or the beneficiaries of such
estates (including the payment of dividends and distributions to
Parent to enable Parent to repurchase Equity Interests owned by
Parents parent at the same time as Parents parent
repurchases Equity Interests from their directors, officers,
consultants and employees), in an amount not to exceed
$10.0 million in any calendar year prior to a Qualified
Equity Offering (and $15.0 million in any calendar year
following a Qualified Equity Offering); provided that the
Issuer may carry over and make in subsequent calendar years, in
addition to the amounts permitted for such calendar year, the
amount of purchases, redemptions, acquisitions or retirements
for value permitted to have been but not made in any preceding
calendar year up to a maximum of $20.0 million in any
calendar year prior to a Qualified Equity Offering (and
$25.0 million in any calendar year following a Qualified
Equity Offering), provided, further, that such
amounts will be increased by (a) the cash proceeds from the
sale after December 21, 2009 of Equity Interests of the
Issuer or, to the extent contributed to the Issuer, Equity
Interests of Parent or any other direct or indirect parent of
the Issuer, in each case to directors, officers, consultants or
employees of the Issuer, Parent or any other direct or indirect
parent of the Issuer or any Restricted Subsidiary of the Issuer
after December 21, 2009, plus (b) the cash proceeds of
key man life insurance policies received by the Issuer, its
Restricted Subsidiaries, Parent or any other direct or indirect
parent of the Issuer and contributed to the Issuer after
December 21, 2009, in the case of each of clauses (a)
and (b), to the extent such net cash proceeds are not otherwise
applied to make or increase the amounts available for Restricted
Payments pursuant to clause (3)(b) of the preceding paragraph
(A) or clauses (2), (4) or (16) of this paragraph
(B);
(8) the distribution, as a dividend or otherwise, of Equity
Interests of, or Indebtedness owed to the Issuer or a Restricted
Subsidiary thereof by, any Unrestricted Subsidiary;
(9) upon the occurrence of a Change of Control (or
similarly defined term in other Indebtedness) and within
90 days after completion of the offer to repurchase notes
and other Priority Lien Obligations pursuant to the covenant
described above under the caption Repurchase
at the Option of Holders Change of Control
(including the purchase of all notes tendered), any repayment,
repurchase, redemption, defeasance or
159
other acquisition or retirement for value of any Subordinated
Lien Debt or any Indebtedness of the Issuer or any Subsidiary
Guarantor that is unsecured or contractually subordinated to the
notes or to any Note Guarantee that is required to be
repurchased or redeemed pursuant to the terms thereof as a
result of such Change of Control (or similarly defined term in
other Indebtedness), at a purchase price not greater than 101%
of the outstanding principal amount or liquidation preference
thereof (plus accrued and unpaid interest and liquidated
damages, if any);
(10) within 90 days after completion of any offer to
repurchase notes or other Priority Lien Obligations pursuant to
the covenant described above under the caption
Repurchase at the Option of
Holders Asset Sales (including the purchase of
all notes tendered), any repayment, repurchase, redemption,
defeasance or other acquisition or retirement for value of any
Subordinated Lien Debt or any Indebtedness of the Issuer or any
Subsidiary Guarantor that is unsecured or contractually
subordinated to the notes or to any Note Guarantee that is
required to be repurchased or redeemed pursuant to the terms
thereof as a result of such Asset Sale (or similarly defined
term in such other Indebtedness), at a purchase price not
greater than 100% of the outstanding principal amount or
liquidation preference thereof (plus accrued and unpaid
interest and liquidated damages, if any);
(11) payments or distributions, in the nature of
satisfaction of dissenters rights, pursuant to or in
connection with a consolidation, merger or transfer of assets
that complies with the provisions of the indenture applicable to
mergers, consolidations and transfers of all or substantially
all the property and assets of the Issuer;
(12) the payment of cash in lieu of the issuance of
fractional shares of Equity Interests upon exercise or
conversion of securities exercisable or convertible into Equity
Interests of the Issuer;
(13) the declaration and payment of dividends or
distributions by the Issuer or any Restricted Subsidiary to, or
the making of loans to, Parent or any other direct or indirect
parent of the Issuer in amounts sufficient for Parent or any
other direct or indirect parent of the Issuer to pay, in each
case without duplication:
(a) franchise and excise taxes and other fees, taxes and
expenses, in each case to the extent required to maintain their
corporate existence, any taxes required to be withheld and paid
by Parent or any other direct or indirect parent of the Issuer,
and tax distributions pursuant to the limited liability company
agreement of PVF Holdings LLC;
(b) federal, state, local and
non-U.S. income
taxes, to the extent such income taxes are attributable to the
income of the Issuer and its Restricted Subsidiaries and, to the
extent of the amount actually received from its Unrestricted
Subsidiaries, in amounts required to pay taxes attributable to
the income of such Unrestricted Subsidiaries, determined as if
the Issuer and such Subsidiaries filed a separate consolidated,
combined, unitary or affiliated tax return as a stand-alone
group;
(c) (1) customary salary, bonus and other benefits
payable to officers and employees of Parent or any other direct
or indirect parent of the Issuer to the extent such salaries,
bonuses and other benefits are attributable to the ownership or
operation of the Issuer and its Restricted Subsidiaries and
(2) any reasonable and customary indemnification claims
made by directors or officers of the Issuer, Parent or any other
direct or indirect parent of the Issuer;
(d) general corporate administrative, operating and
overhead costs and expenses of Parent or any other direct or
indirect parent of the Issuer to the extent such costs and
expenses are attributable to the ownership or operation of the
Issuer and its Restricted Subsidiaries; and
(e) fees and expenses related to any equity or debt
offering of Parent or such other parent entity (whether or not
successful);
(14) dividends or distributions from the Issuer to Parent
on December 21, 2009 in order to repay the Junior Term Loan
Facility in connection with the refinancing transactions;
160
(15) Investments in Unrestricted Subsidiaries or joint
ventures which, taken together with all other Restricted
Payments made pursuant to the provision described in this clause
(15), do not exceed the greater of $30.0 million and 1.0%
of the Issuers Consolidated Total Assets;
(16) Restricted Payments in an aggregate amount not to
exceed the amount of all Excluded Contributions;
(17) the declaration and payment of dividends or
distributions to holders of any class or series of Disqualified
Stock of the Issuer or any of its Restricted Subsidiaries and
preferred stock of any Restricted Subsidiary issued or incurred
in accordance with the covenant described under
Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock;
(18) the declaration and payment of dividends or
distributions:
(a) to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) of the Issuer
issued after December 21, 2009;
(b) to Parent or any other direct or indirect parent of the
Issuer, the proceeds of which will be used to fund the payment
of dividends to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) of Parent or any
other direct or indirect parent of the Issuer issued after
December 21, 2009; provided, however, that
the aggregate amount of dividends declared and paid pursuant to
this clause (18)(b) does not exceed the net cash proceeds (other
than net cash proceeds constituting Excluded Contributions)
actually received by the Issuer from any such sale of Designated
Preferred Stock; and
(c) on Refunding Capital Stock that is preferred stock in
excess of the dividends declarable and payable thereon pursuant
to clause (2) of this paragraph;
provided, however, in the case of each of (a),
(b) and (c) of this clause (18), that for the most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date of issuance of such Designated Preferred Stock or the
declaration of such dividends on Refunding Capital Stock that is
preferred stock, after giving effect to such issuance or
declaration on a pro forma basis, the Issuer would have
had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(19) other Restricted Payments in an amount which, taken
together with all other Restricted Payments made pursuant to the
provision described in this clause (19), do not exceed the
greater of $50.0 million and 1.75% of the Issuers
Consolidated Total Assets; or
(20) payments, dividends or distributions in an amount
equal to the net cash proceeds of any disposition, sale,
liquidation, retirement or redemption of Non-Core Assets for the
purposes of complying with the requirements of that certain
Agreement and Plan of Merger, dated as of December 4, 2006,
among the Issuer, Parent and Hg Acquisition Corp., as amended
through December 21, 2009,
provided that, in the case of clauses (4),
(7) through (11) and (16) above, no Default or
Event of Default has occurred and is continuing or would occur
as a consequence thereof.
The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
to or by the Issuer or such Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment. In determining
whether any Restricted Payment is permitted by the covenant
described under the caption Restricted
Payments, the Issuer and its Restricted Subsidiaries may
allocate all or any portion of such Restricted Payment among the
categories described in clauses (1) through (20) of
the immediately preceding paragraph or among such categories and
the types of Restricted Payments described in the first
paragraph under Restricted Payments
(including categorization as a Permitted Investment);
provided that, at the time of such allocation, all such
Restricted Payments, or allocated portions thereof, would be
permitted under the various provisions of the covenant described
under the caption Restricted Payments;
and provided, further that the Issuer and its Restricted
Subsidiaries may reclassify all or a portion of such Restricted
Payment or Permitted Investment in any manner that complies with
this covenant, and following such reclassification such
Restricted Payment or Permitted Investment shall be treated as
having been made pursuant to only one of such clauses of this
covenant.
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Incurrence
of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur any Indebtedness
(including Acquired Debt) or issue any shares of Disqualified
Stock, and the Issuer will not permit any of its Restricted
Subsidiaries to issue any preferred stock (other than in each
case Disqualified Stock or preferred stock of Restricted
Subsidiaries held by the Issuer or a Restricted Subsidiary, so
long as so held); provided, however, that (i) the
Issuer or any Restricted Subsidiary may incur Indebtedness
(including Acquired Debt) and issue Disqualified Stock and
(ii) any Restricted Subsidiary may issue preferred stock,
if the Fixed Charge Coverage Ratio for the Issuers most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or
Disqualified Stock or preferred stock is issued would have been
at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred
or the Disqualified Stock or preferred stock had been issued, as
the case may be, and the application of proceeds therefrom had
occurred, at the beginning of such four-quarter period;
provided, further, that the amount of Indebtedness
(excluding Acquired Debt not incurred in connection with or in
contemplation of the applicable merger, acquisition or other
similar transaction), Disqualified Stock and preferred stock
that may be incurred or issued, as applicable, by Restricted
Subsidiaries that are not Guarantors, pursuant to the foregoing,
shall not exceed $60.0 million at any one time outstanding.
The covenant described by the first paragraph under the caption
Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock will not prohibit
the incurrence or issuance of any of the following
(collectively, Permitted Debt):
(1) Indebtedness incurred by the Issuer or any Subsidiary
Guarantor under Credit Facilities (and the incurrence by the
Subsidiary Guarantors of Guarantees thereof) in an aggregate
principal amount at any one time outstanding under the provision
described in this clause (1) (with letters of credit being
deemed to have a principal amount equal to the maximum potential
liability of the Issuer and its Restricted Subsidiaries
thereunder) not to exceed (as of any date of incurrence of
Indebtedness under the provision described in this
clause (1) and after giving pro forma effect to such
incurrence and the application of the net proceeds therefrom)
the greater of (a) $1.25 billion and (b) the
amount of the Borrowing Base as of the date of such incurrence;
(2) Indebtedness incurred by the Issuer and the Subsidiary
Guarantors represented by the notes and the Note Guarantees
issued on December 21, 2009 and the notes and related
guarantees to be issued in exchange for the notes and the Note
Guarantees pursuant to the exchange and registration rights
agreement (other than any additional notes, but including
exchange notes and related exchange guarantees to be issued in
exchange for additional notes otherwise permitted to be incurred
hereunder pursuant to a registration rights agreement);
(3) Existing Indebtedness;
(4) Indebtedness of the Issuer or any of its Restricted
Subsidiaries (including without limitation Capital Lease
Obligations, mortgage financings or purchase money obligations),
Disqualified Stock issued by the Issuer or any Restricted
Subsidiary and preferred stock issued by any Restricted
Subsidiary, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of design,
construction, installation, repair or improvement of property
(real or personal), plant or equipment or other fixed or capital
assets used in the business of the Issuer or such Restricted
Subsidiary or in a Permitted Business (whether through the
direct purchase of assets or the Capital Stock of any Person
owning such assets (but no other material assets)), in an
aggregate principal amount at any time outstanding, including
all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to the
provision described in this clause (4), not to exceed as of any
date of incurrence the greater of (a) 1.0% of the
Issuers Consolidated Total Assets and
(b) $30.0 million;
(5) Permitted Refinancing Indebtedness incurred by the
Issuer or any of its Restricted Subsidiaries in exchange for, or
the net proceeds of which are used to refund, refinance or
replace, Indebtedness (other than intercompany Indebtedness)
that was permitted by the indenture to be incurred or
Disqualified Stock or
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Preferred Stock permitted to be issued under the provisions
described in the first paragraph of this covenant or clauses
(2), (3), (4), (5), (8), (9), (10), (15), (16) or
(17) of this paragraph;
(6) intercompany Indebtedness incurred by the Issuer or any
of its Restricted Subsidiaries and owing to and held by the
Issuer or any of its Restricted Subsidiaries; provided,
however, that:
(a) if the Issuer or any Subsidiary Guarantor is the
obligor on such Indebtedness, such Indebtedness must be
unsecured and expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes, in
the case of the Issuer, or the Note Guarantee, in the case of a
Subsidiary Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than the Issuer or a Restricted Subsidiary thereof
and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Issuer or a
Restricted Subsidiary thereof, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Issuer or
such Restricted Subsidiary, as the case may be, that was not
permitted by the provision described in this clause (6);
(7) (a) the Guarantee by the Issuer or any of the
Subsidiary Guarantors of Indebtedness of the Issuer or a
Restricted Subsidiary of the Issuer that was permitted to be
incurred by another provision of this covenant, (b) the
Guarantee by any Foreign Subsidiary of Indebtedness of another
Foreign Subsidiary of the Issuer that was permitted to be
incurred by another provision of this covenant or (c) any
Guarantee by a Restricted Subsidiary of Indebtedness of the
Issuer (so long as such Restricted Subsidiary also guarantees
the Notes if required pursuant to the covenant under the caption
Guarantees);
(8) (x) Indebtedness, Disqualified Stock or Preferred
Stock of the Issuer or any of its Restricted Subsidiaries
incurred to finance an acquisition or (y) Acquired Debt;
provided that, in either case, after giving effect to the
transactions that result in the incurrence or issuance thereof,
on a pro forma basis, either (a) the Issuer would be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of this covenant or (b) the Fixed
Charge Coverage Ratio for the Issuer would not be less than
immediately prior to such transactions;
(9) preferred stock of a Restricted Subsidiary of the
Issuer issued to the Issuer or another Restricted Subsidiary of
the Issuer; provided that (a) any subsequent
issuance or transfer of Equity Interests that results in any
such preferred stock being held by a Person other than the
Issuer or a Restricted Subsidiary thereof and (b) any sale
or other transfer of any such preferred stock to a Person that
is not either the Issuer or a Restricted Subsidiary thereof will
be deemed, in each case, to constitute an issuance of such
preferred stock that was not permitted by the provision
described in this clause (9);
(10) additional Indebtedness of the Issuer or any of its
Restricted Subsidiaries incurred in an aggregate principal
amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to the provision
described in this clause (10), not to exceed as of any date of
incurrence the greater of 4.0% of the Issuers Consolidated
Total Assets and $125.0 million;
(11) Indebtedness incurred by the Issuer or any Restricted
Subsidiary to the extent that the net proceeds thereof are
promptly deposited to defease or to satisfy and discharge the
notes;
(12) Indebtedness of the Issuer or any Restricted
Subsidiary consisting of obligations to pay insurance premiums
or take-or-pay obligations contained in supply arrangements
incurred in the ordinary course of business;
(13) Indebtedness in respect of any bankers
acceptance, bank guarantees, letter of credit, warehouse receipt
or similar facilities, and reinvestment obligations related
thereto, entered into in the ordinary course of business;
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(14) Guarantees (a) incurred in the ordinary course of
business in respect of obligations of (or to) suppliers,
customers, franchisees, lessors and licensees that, in each
case, are non- Affiliates or (b) otherwise constituting
Investments permitted under the indenture;
(15) (a) Indebtedness of Foreign Subsidiaries
outstanding on December 21, 2009 and (b) additional
Indebtedness of Foreign Subsidiaries incurred in an aggregate
principal amount at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to the provision
described in this clause (15)(b), not to exceed as of any date
of incurrence the greater of 4.0% of the Issuers
Consolidated Total Assets and $125.0 million;
(16) Indebtedness issued by the Issuer or any of its
Restricted Subsidiaries to any current, future or former
director, officer, consultant or employee of the Issuer, the
direct or indirect parent of the Issuer or any Restricted
Subsidiary of the Issuer (or any of their Affiliates), or their
estates or the beneficiaries of such estates to finance the
purchase, redemption, acquisition or retirement for value of
Equity Interests permitted by clause (2) of the second
paragraph of the covenant described under the caption
Restricted Payments, in an aggregate
principal amount at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to the provision
described in this clause (16), not to exceed $5.0 million
as of any date of incurrence;
(17) Contribution Indebtedness;
(18) (a) Indebtedness incurred in connection with any
permitted Sale and Leaseback Transaction and (b) any
refinancing, refunding, renewal or extension of any Indebtedness
specified in subclause (a) above, provided that,
except to the extent otherwise permitted hereunder, 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 the direct
and contingent obligors with respect to such Indebtedness are
not changed;
(b) Indebtedness in respect of overdraft facilities,
employee credit card programs and other cash management
arrangements in the ordinary course of business; and
(c) Indebtedness representing deferred compensation to
employees of the Issuer (or any direct or indirect parent
thereof) and its Restricted Subsidiaries incurred in the
ordinary course of business; and
(19) 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.
For purposes of determining compliance with this covenant, in
the event that any proposed Indebtedness or preferred stock
meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through
(19) above, or is entitled to be incurred or issued
pursuant to the first paragraph of this covenant, the Issuer, in
its sole discretion, will be permitted to divide and classify at
the time of its incurrence or issuance, and may from time to
time divide or reclassify, all or a portion of such item of
Indebtedness or Disqualified Stock or preferred stock such that
it will be deemed to have been incurred pursuant to another of
such clauses or the first paragraph of this covenant to the
extent that such reclassified Indebtedness could be incurred
pursuant to such new clause or the first paragraph of this
covenant at the time of such reclassification (including in part
pursuant to one or more clauses
and/or in
part pursuant to the first paragraph of this covenant),
provided, however, that Indebtedness under the ABL Credit
Facility outstanding on December 21, 2009 will be deemed to
have been incurred on that date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt.
For the purpose of determining compliance with any
U.S. dollar-denominated restriction on the incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount
of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in
effect on the date such Indebtedness was incurred or first
committed (in the case of revolving credit debt); provided
that if such Indebtedness denominated in a foreign currency
is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the
applicable U.S. dollar denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in
effect on the date of such refinancing, such
U.S. dollar-denominated restriction shall be deemed not
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to have been exceeded so long as the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of such Indebtedness being refinanced, plus the amount of
any reasonable premium (including reasonable tender premiums),
defeasance costs and any reasonable fees and expenses incurred
in connection with the issuance of such new Indebtedness. The
principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which
such respective Indebtedness is denominated that is in effect on
the date of such refinancing.
Notwithstanding any other provision of this covenant, the
maximum amount of Indebtedness that may be incurred pursuant to
this covenant will not be deemed to be exceeded, with respect to
any outstanding Indebtedness, due solely to the result of
fluctuations in the exchange rates of currencies. In addition,
for purposes of determining any particular amount of
Indebtedness, any Guarantees, Liens or obligations with respect
to letters of credit, in each case, supporting Indebtedness
otherwise included in the determination of such particular
amount, will not be included.
The Issuer will not incur, and will not permit any Subsidiary
Guarantor to incur, any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any
other Indebtedness of the Issuer or such Subsidiary Guarantor
unless such Indebtedness is also contractually subordinated in
right of payment to the notes and the applicable Note Guarantees
on substantially identical terms; provided, however, that
no Indebtedness will be deemed to be contractually subordinated
in right of payment to any other Indebtedness of the Issuer
solely by virtue of being unsecured or by virtue of being
secured on a junior priority basis or by virtue of the fact that
the holders of any secured Indebtedness have entered into
intercreditor agreements giving one or more of such holders
priority over the other holders in the collateral held by them.
Liens
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind (other
than Permitted Liens) upon any of their property or assets, now
owned or hereafter acquired.
Dividend
and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to
exist or become effective any consensual encumbrance or
consensual restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its
Capital Stock (or with respect to any other interest or
participation in, or measured by, its profits) to the Issuer or
any of its Restricted Subsidiaries or pay any Indebtedness owed
to the Issuer or any of its Restricted Subsidiaries;
(2) make loans or advances to the Issuer or any of its
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Issuer
or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to
encumbrances or restrictions:
(1) existing under, by reason of or with respect to the ABL
Credit Facility, Existing Indebtedness, or any other agreements
in effect on December 21, 2009 and any amendments,
modifications, restatements, renewals, extensions, increases,
supplements, refundings, replacements or refinancings thereof;
provided that the encumbrances and restrictions in any
such amendments, modifications, restatements, renewals,
extensions, increases, supplements, refundings, replacements or
refinancings are not materially more restrictive, taken as a
whole, than those in effect on December 21, 2009;
(2) existing under, by reason of or with respect to any
other Credit Facility of the Issuer permitted under the
indenture; provided that the applicable encumbrances and
restrictions contained in the agreement or agreements governing
the other Credit Facility are not materially more restrictive,
taken as a whole, than those contained in the ABL Credit
Facility (with respect to other credit agreements) or the
indenture (with respect to other indentures), in each case as in
effect on December 21, 2009;
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(3) existing under, by reason of or with respect to
applicable law, rule, regulation or administrative or court
order;
(4) with respect to any Person or the property or assets of
a Person acquired by the Issuer or any of its Restricted
Subsidiaries existing at the time of such acquisition and not
incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable
to any Person or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so
acquired and any amendments, modifications, restatements,
renewals, extensions, increases, supplements, refundings,
replacements or refinancings thereof; provided that the
encumbrances and restrictions in any such amendments,
modifications, restatements, renewals, extensions, increases,
supplements, refundings, replacement or refinancings are entered
into in the ordinary course of business or not materially more
restrictive, taken as a whole, than those contained in the ABL
Credit Facility, the indenture, Existing Indebtedness or such
other agreements as in effect on the date of the acquisition;
(5) in the case of the provision described in
clause (3) of the first paragraph of this covenant:
(a) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset,
(b) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of the Issuer or any Restricted Subsidiary
thereof not otherwise prohibited by the indenture,
(c) existing under, by reason of or with respect to
(i) purchase money obligations for property acquired in the
ordinary course of business or (ii) capital leases or
operating leases that impose encumbrances or restrictions on the
property so acquired or covered thereby, or
(d) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of
property or assets of the Issuer or any Restricted Subsidiary
thereof in any manner material to the Issuer or any Restricted
Subsidiary thereof;
(6) existing under, by reason of or with respect to
customary provisions in joint venture, operating or similar
agreements, asset sale agreements and stock sale agreements
arising in connection with the entering into of such
transactions;
(7) existing under, by reason of or with respect to any
agreement for the sale or other disposition of some or all of
the Capital Stock of, or any property and assets of, a
Restricted Subsidiary that restricted distributions by that
Restricted Subsidiary pending the closing of such sale or other
disposition;
(8) existing under, by reason of or with respect to
Permitted Refinancing Indebtedness; provided that the
encumbrances and restrictions contained in the agreements
governing that Permitted Refinancing Indebtedness are not
materially more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) restricting cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course
of business;
(10) existing under, by reason of or with respect to
customary provisions contained in leases or licenses of
intellectual property and other agreements, in each case,
entered into in the ordinary course of business;
(11) existing under, by reason of or with respect to the
indenture, the notes, the Note Guarantees and the security
documents; and
(12) existing under, by reason of or with respect to
Indebtedness of a Restricted Subsidiary not prohibited to be
incurred under the indenture; provided that (a) such
encumbrances or restrictions are ordinary and customary in light
of the type of Indebtedness being incurred and the jurisdiction
of the obligor and (b) such encumbrances or restrictions
will not affect in any material respect the Issuers or any
Subsidiary Guarantors ability to make principal and
interest payments on the notes, as determined in good faith by
the Issuer.
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For purposes of determining compliance with this covenant,
(1) the priority of any Preferred Stock in receiving
dividends or liquidating distributions prior to distributions
being paid on common stock shall not be deemed a restriction on
the ability to make distributions on Capital Stock and
(2) the subordination of loans or advances made to the
Issuer or a Restricted Subsidiary of the Issuer to other
Indebtedness incurred by the Issuer or any such Restricted
Subsidiary shall not be deemed a restriction on the ability to
make loans or advances.
Merger,
Consolidation or Sale of Assets
The Issuer will not, directly or indirectly:
(1) consolidate or merge with or into another Person
(whether or not the Issuer is the surviving corporation) or
(2) sell, assign, transfer, convey, lease or otherwise
dispose of all or substantially all of the properties and assets
of the Issuer and its Restricted Subsidiaries taken as a whole,
in one or more related transactions, to another Person or
Persons, unless:
(1) either: (a) the Issuer is the surviving
corporation; or (b) the Person formed by or surviving such
consolidation or merger (if other than the Issuer) or to which
such sale, assignment, transfer, conveyance, lease or other
disposition shall have been made (i) is a corporation,
limited liability company, partnership (including a limited
partnership) or trust organized or existing under the laws of
the United States, any state or territory thereof or the
District of Columbia (provided that if such Person is not
a corporation, (A) a corporate Wholly Owned Restricted
Subsidiary of such Person organized or existing under the laws
of the United States, any state or territory thereof or the
District of Columbia, or (B) a corporation of which such
Person is a Wholly Owned Restricted Subsidiary organized or
existing under the laws of the United States, any state or
territory thereof or the District of Columbia, is a co-issuer of
the notes or becomes a co-issuer of the notes in connection
therewith) and (ii) assumes all the obligations of the
Issuer under the notes, the indenture and the exchange and
registration rights agreements pursuant to agreements reasonably
satisfactory to the trustee;
(2) immediately after giving effect to such transaction no
Event of Default exists;
(3) immediately after giving effect to such transaction and
any related financing transactions as if the same had occurred
at the beginning of the applicable four-quarter period, on a
pro forma basis, either
(a) the Issuer or the Person formed by or surviving any
such consolidation or merger (if other than the Issuer) would be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the
caption Incurrence of Indebtedness and
Issuance of Disqualified Stock and Preferred Stock; or
(b) the Fixed Charge Coverage Ratio for the Issuer or the
Person formed by or surviving any such consolidation or merger
(if other than the Issuer) would not be less than the Fixed
Charge Coverage Ratio for the Issuer immediately prior to such
transactions; and
(4) each Guarantor, unless such Guarantor is the Person
with which the Issuer has entered into a transaction under the
covenant described under the caption Merger,
Consolidation or Sale of Assets, shall have by amendment
to its Note Guarantee confirmed that its Note Guarantee shall
apply to the obligations of the Issuer or the surviving Person
in accordance with the notes and the indenture.
The provision described in clause (3) of the immediately
preceding paragraph will not apply to (a) any merger,
consolidation or sale, assignment, lease, transfer, conveyance
or other disposition of assets between or among the Issuer and
any of its Restricted Subsidiaries or (b) any merger
between the Issuer and an Affiliate of the Issuer, or between a
Restricted Subsidiary and an Affiliate of the Issuer, in each
case in this clause (b) solely for the purpose of
reincorporating the Issuer or such Restricted Subsidiary, as the
case may be, in the United States, any state thereof, the
District of Columbia or any territory thereof, so long as the
amount of Indebtedness of the Issuer and its Restricted
Subsidiaries is not increased thereby.
Transactions
with Affiliates
The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into, make,
amend, renew or extend any transaction, contract, agreement,
understanding, loan, advance or
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Guarantee with, or for the benefit of, any Affiliate involving
aggregate consideration in excess of $3.5 million (each, an
Affiliate Transaction), unless:
(1) such Affiliate Transaction is on fair and reasonable
terms not materially less favorable to the Issuer or the
relevant Restricted Subsidiary than it would obtain in a
hypothetical comparable arms-length transaction by the
Issuer or such Restricted Subsidiary with a Person that was not
an Affiliate of the Issuer; and
(2) the Issuer delivers to the trustee with respect to any
Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of
$25.0 million, a resolution of the Board of Directors of
Parent set forth in an Officers Certificate certifying
that such Affiliate Transaction or series of related Affiliate
Transactions complies with this covenant and that such Affiliate
Transaction or series of related Affiliate Transactions has been
approved by a majority of the disinterested members of
Parents Board of Directors.
The following items shall not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) transactions between or among the Issuer
and/or its
Restricted Subsidiaries;
(2) payment of reasonable fees and compensation to, and
indemnification and similar arrangements on behalf of, current,
former or future directors of Parent, any other direct or
indirect parent of the Issuer, the Issuer or any Restricted
Subsidiary of the Issuer;
(3) Restricted Payments that are permitted by the
provisions of the indenture described above under the caption
Restricted Payments and the definition
of Permitted Investments (including any payments that are
excluded from the definitions of Restricted Payment and
Restricted Investment);
(4) any sale of Equity Interests (other than Disqualified
Stock) of the Issuer;
(5) loans and advances to officers and employees of Parent,
any other direct or indirect parent of the Issuer, the Issuer or
any of the Issuers Restricted Subsidiaries or guarantees
in respect thereof or otherwise made on the Issuers or any
of its Restricted Subsidiaries behalf (or the cancellation
of such loans, advances or guarantees), in both cases for bona
fide business purposes in the ordinary course of business;
(6) any employment, consulting, service or termination
agreement, or customary indemnification arrangements, entered
into by the Issuer or any of its Restricted Subsidiaries with
current, former or future officers and employees of Parent, the
Issuer or any of its Restricted Subsidiaries and the payment of
compensation to officers and employees of Parent, the Issuer or
any of its Restricted Subsidiaries (including amounts paid
pursuant to employee benefit plans, employee stock option or
similar plans), in each case in the ordinary course of business;
(7) transactions with a Person that is an Affiliate of the
Issuer solely because the Issuer, directly or indirectly, owns
Equity Interests in, or controls, such Person;
(8) payments by the Issuer or any of its Restricted
Subsidiaries to The Goldman Sachs Group, Inc. and its Affiliates
for any financial advisory services, financing, mergers and
acquisitions advisory, insurance brokerage, underwriting or
placement services or in respect of other investment banking
services, including without limitation, in connection with
acquisitions or divestitures, which payments are approved by a
majority of the disinterested members of the Board of Directors
of Parent in good faith;
(9) transactions pursuant to any contracts, instruments or
other agreements or arrangements in each case as in effect on
December 21, 2009, and any transactions contemplated
thereby, or any amendment, modification or supplement thereto or
any replacement thereof entered into from time to time, as long
as such agreement or arrangement as so amended, modified,
supplemented or replaced, taken as a whole, is not materially
more disadvantageous to the Issuer and its Restricted
Subsidiaries at the time executed than the original agreement or
arrangement as in effect on December 21, 2009;
(10) any Guarantee by Parent or any other direct or
indirect parent of the Issuer of Indebtedness of the Issuer that
was permitted by the indenture;
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(11) transactions with Affiliates solely in their capacity
as holders of Indebtedness or Equity Interests of the Issuer or
any of its Subsidiaries, so long as such transaction is with all
holders of such class (and there are such non-Affiliate holders)
and such Affiliates are treated no more favorably than all other
holders of such class generally;
(12) transactions with customers, clients, suppliers, joint
venture partners or purchasers or sellers of goods or services
(including pursuant to joint venture agreements) in the ordinary
course of business on terms not materially less favorable as
might reasonably have been obtained at such time from a Person
that is not an Affiliate of the Issuer, as determined in good
faith by the Issuer;
(13) transactions in which the Issuer or any of its
Restricted Subsidiaries, as the case may be, delivers to the
Trustee a letter from an independent financial advisor stating
that such transaction is fair to the Issuer or such Restricted
Subsidiary from a financial point of view or meets the
requirements of prong (1) of the previous paragraph of this
covenant;
(14) the existence of, or the performance by the Issuer or
any of its Restricted Subsidiaries of its obligations under the
terms of, any registration rights agreement to which it is a
party or becomes a party in the future;
(15) any contribution to the common equity capital of the
Issuer;
(16) any transaction with any Person who is not an
Affiliate immediately before the consummation of such
transaction that becomes an Affiliate as a result of such
transaction;
(17) the pledge of Equity Interests of any Unrestricted
Subsidiary to lenders to support the Indebtedness of such
Unrestricted Subsidiary owed to such lenders; and
(18) payments by the Issuer (or Parent or any other direct
or indirect parent of the Issuer) or any of the Restricted
Subsidiaries pursuant to any tax sharing, allocation or similar
agreement.
Designation
of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Issuer or Parent may designate any
Subsidiary (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary; provided that:
(1) any Guarantee by the Issuer or any Restricted
Subsidiary of the Issuer of any Indebtedness of the Subsidiary
being so designated will be deemed to be an incurrence of
Indebtedness by the Issuer or such Restricted Subsidiary (or
both, if applicable) at the time of such designation, and such
incurrence of Indebtedness would be permitted under the covenant
described above under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock;
(2) the aggregate fair market value of all outstanding
Investments owned by the Issuer and its Restricted Subsidiaries
in the Subsidiary being so designated (including any Guarantee
by the Issuer or any Restricted Subsidiary of the Issuer of any
Indebtedness of such Subsidiary) will be deemed to be an
Investment made as of the time of such designation and that such
Investment would be permitted under the covenant described above
under the caption Certain
Covenants Restricted Payments;
(3) such Subsidiary does not own any Equity Interests of,
or hold any Liens on any property of, the Issuer or any
Restricted Subsidiary of the Issuer (other than Equity Interests
of any Restricted Subsidiary of such Subsidiary that is
concurrently being designated as an Unrestricted Subsidiary);
(4) the Subsidiary being so designated, after giving effect
to such designation:
(a) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary of
the Issuer that would not be permitted under
Certain Covenants Transactions
with Affiliates after giving effect to the exceptions
thereto;
(b) is a Person with respect to which neither the Issuer
nor any of its Restricted Subsidiaries has any direct or
indirect obligation (i) to subscribe for additional Equity
Interests or (ii) to maintain or preserve such
Persons financial condition or to cause such Person to
achieve any specified levels of operating
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results except to the extent permitted under
Certain Covenants Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred
Stock and Certain Covenants
Restricted Payments; and
(c) (i) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the
Issuer or any of its Restricted Subsidiaries, except to the
extent such Guarantee or credit support would be released upon
such designation and (ii) to the extent the Indebtedness of
the Subsidiary is non-recourse Indebtedness, any Guarantee or
credit support by the Issuer or a Restricted Subsidiary would be
permitted under Certain Covenants
Incurrence of Indebtedness and Issuance of Disqualified Stock
and Preferred Stock and Certain
Covenants Restricted Payments; and
(5) no Event of Default would be in existence following
such designation.
Any designation of a Restricted Subsidiary of the Issuer as an
Unrestricted Subsidiary shall be evidenced to the trustee by
filing with the trustee a certified copy of the resolution of
the Board of Directors of the Issuer or Parent giving effect to
such designation and an Officers Certificate certifying
that such designation complied with the preceding conditions and
was permitted by the indenture. If, at any time, any
Unrestricted Subsidiary would fail to meet any of the preceding
requirements described in clause (4) above, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes
of the indenture and any Indebtedness, Investments or Liens on
the property of such Subsidiary shall be deemed to be incurred
or made by a Restricted Subsidiary of the Issuer as of such date
and, if such Indebtedness, Investments or Liens are not
permitted to be incurred or made as of such date under the
indenture, the Issuer shall be in default under the indenture.
The Board of Directors of the Issuer or Parent may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that:
(1) such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Issuer of any
outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if such Indebtedness is
permitted under the covenant described under the caption
Certain Covenants Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred
Stock; calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period;
(2) all outstanding Investments owned by such Unrestricted
Subsidiary will be deemed to be made as of the time of such
designation and such Investments shall only be permitted if such
Investments would be permitted under the covenant described
above under the caption Certain
Covenants Restricted Payments;
(3) all Liens upon property or assets of such Unrestricted
Subsidiary existing at the time of such designation would be
permitted under the caption Certain
Covenants Liens; and
(4) no Default or Event of Default would be in existence
following such designation.
Guarantees
If the Issuer or any of its Restricted Subsidiaries
(a) acquires or creates another Wholly Owned Domestic
Subsidiary (other than an Excluded Subsidiary) on or after
December 21, 2009 or (b) any Restricted Subsidiary of
the Issuer becomes a guarantor with respect to the ABL Credit
Facility or any other indebtedness of the Issuer or any
Subsidiary Guarantor, then, within 45 days of the date of
such acquisition or guarantee, as applicable, such Subsidiary
must become a Subsidiary Guarantor and execute a supplemental
indenture and deliver an Opinion of Counsel to the trustee.
The Issuer will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee any other Indebtedness of
the Issuer or any Subsidiary Guarantor (including, but not
limited to, any Indebtedness under any Credit Facility) unless
such subsidiary is a Subsidiary Guarantor or simultaneously
executes and delivers a supplemental indenture providing for the
Guarantee of the payment of the notes by such Restricted
Subsidiary, which Guarantee shall be senior in right of payment
to or pari passu in right of payment with such Restricted
Subsidiarys Guarantee of such other Indebtedness. This
covenant shall not be applicable to any guarantee of any
Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not incurred in
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connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. In addition, in the event that any Wholly
Owned Domestic Subsidiary that is an Excluded Subsidiary ceases
to be an Excluded Subsidiary, or if any Excluded Subsidiary
becomes a guarantor with respect to the ABL Credit Facility or
any other Indebtedness of the Issuer or any Subsidiary
Guarantor, then such Subsidiary must become a Subsidiary
Guarantor and execute a supplemental indenture and deliver an
Opinion of Counsel to the trustee within 45 days of the
date of such event. The form of the Note Guarantee will be
attached as an exhibit to the indenture.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge
with or into (whether or not such Guarantor is the surviving
Person), another Person, other than the Issuer or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger (if other than the Guarantor)
(i) is organized or existing under the laws of the United
States, any state thereof or the District of Columbia
(provided that the provisions described in this
clause (i) shall not apply if such Guarantor is organized
under the laws of a jurisdiction other than the United States,
any state thereof or the District of Columbia) and
(ii) assumes all the obligations of that Guarantor under
the indenture, its Note Guarantee and the exchange and
registration rights agreements pursuant to a supplemental
indenture satisfactory to the trustee; or
(b) in the case of a Subsidiary Guarantor, such sale or
other disposition or consolidation or merger complies with the
covenant described above under the caption
Repurchase at the Option of
Holders Asset Sales.
Notwithstanding the foregoing, any Guarantor may (i) merge
with the Issuer or a Restricted Subsidiary of the Issuer solely
for the purpose of reincorporating the Guarantor in the United
States, any state thereof, the District of Columbia or any
territory thereof or (ii) convert into a corporation,
partnership, limited partnership, limited liability company or
trust organized under the laws of the jurisdiction of
organization of such Guarantor, in each case without regard to
the requirements set forth in clause (1) of the preceding
paragraph.
The Note Guarantee of Parent will automatically and
unconditionally be released without the need for any further
action by any party upon written notice from the Issuer to the
trustee. The Note Guarantee of a Subsidiary Guarantor will
automatically and unconditionally be released without the need
for any action by any party:
(1) in connection with any sale or other disposition of
Capital Stock of a Subsidiary Guarantor (including by way of
consolidation or merger or otherwise) to a Person that is not
(either before or after giving effect to such transaction) a
Subsidiary of the Issuer, such that, immediately after giving
effect to such transaction, such Guarantor would no longer
constitute a Subsidiary of the Issuer, if the sale of such
Capital Stock of that Subsidiary Guarantor complies with the
covenants described above under the caption
Repurchase at the Option of
Holders Asset Sales and
Certain Covenants Restricted
Payments;
(2) in connection with the merger or consolidation of a
Subsidiary Guarantor with any other Subsidiary Guarantor;
(3) in the event of the release of the guarantee under the
ABL Credit Facility of a Subsidiary Guarantor that is not
(a) a Wholly Owned Domestic Subsidiary or (b) a
Restricted Subsidiary that guarantees Indebtedness of the Issuer
or any Subsidiary Guarantor;
(4) if the Issuer properly designates any Restricted
Subsidiary that is a Subsidiary Guarantor as an Unrestricted
Subsidiary under the indenture;
(5) upon the Legal Defeasance or Covenant Defeasance or
satisfaction and discharge of the indenture;
(6) solely in the case of a Note Guarantee created pursuant
to the provision described in the second paragraph under the
caption Guarantees, upon the release or
discharge of the Guarantee which resulted in
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the creation of such Note Guarantee pursuant to the covenant
described under the caption Guarantees,
except a discharge or release by or as a result of payment under
such Guarantee; or
(7) upon a liquidation or dissolution of a Subsidiary
Guarantor permitted under the indenture.
In addition, the Note Guarantee of any Subsidiary Guarantor will
be released in connection with a sale of all of the assets of
such Subsidiary Guarantor in a transaction that complies with
the conditions in the third paragraph under the caption
Guarantees above. Also, notwithstanding
any other provision in the indenture, any Restricted Subsidiary
of the Issuer (including any Subsidiary Guarantor) may be
liquidated at any time, so long as all assets owned by such
entity which constitute Collateral remain Collateral owned by
the Issuer or a Subsidiary Guarantor following any such
liquidation.
Reports
Whether or not the Issuer is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, so
long as any notes are outstanding, the Issuer will furnish to
the holders of notes or cause the trustee to furnish to the
holders of notes or post on its website or file with the
Commission for public availability:
(1) all quarterly and annual reports that would be required
to be filed with the Commission on
Forms 10-Q
and 10-K if
the Issuer were required to file such reports, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report (whether or not
unqualified) thereon by the Issuers certified independent
accountants, which reports shall be filed (a) in the case
of quarterly reports, within 15 days after the time period
specified in the Commissions rules and regulations and
(b) in the case of annual reports, within 30 days
after the time period specified in the Commissions rules
and regulations; and
(2) as soon as practicable, and in any event 5 days
after the time periods specified in the Commissions rules
and regulations, all current reports that would be required to
be filed with the Commission on
Form 8-K
if the Issuer were required to file such reports;
provided, however, that if the last day of any such time
period is not a business day, such report will be due on the
next succeeding business day.
All such reports will be prepared in all material respects in
accordance with all of the rules and regulations applicable to
such reports, except that such reports will not be required to
contain separate financial information for Subsidiary Guarantors
or Subsidiaries whose securities are pledged to secure the notes
that would be required under
Rule 3-10
or
Rule 3-16
of
Regulation S-X
promulgated by the Commission, except to the extent required by
the rules and regulations of the Commission actually applicable
to the Issuer at such time.
If, at any time after consummation of the exchange offer
contemplated by the registration rights agreement, the Issuer is
no longer subject to the periodic reporting requirements of the
Exchange Act for any reason, the Issuer will nevertheless
continue filing the reports specified in the preceding
paragraphs of this covenant with the Commission within the time
periods specified above unless the Commission will not accept
such a filing. The Issuer will not take any action for the
purpose of causing the Commission not to accept any such
filings. If, notwithstanding the foregoing, the Commission will
not accept the Issuers filings for any reason, the Issuer
will post the reports referred to in the preceding paragraphs on
its website within the time periods specified above.
If the Issuer has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual
financial information required by the preceding paragraphs will
include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in
Managements Discussion and Analysis of Financial Condition
and Results of Operations, of the financial condition and
results of operations of the Issuer and its Restricted
Subsidiaries separate from the financial condition and results
of operations of the Unrestricted Subsidiaries of the Issuer.
In the event that (1) the rules and regulations of the
Commission permit the Issuer and Parent, or any other direct or
indirect parent of the Issuer, to report at such parent
entitys level on a consolidated basis and (2) such
parent entity of the Issuer is not engaged in any business in
any material respect other than incidental to its
172
ownership, directly or indirectly, of the Capital Stock of the
Issuer, the information and reports required by this covenant
may be those of such parent company on a consolidated basis.
Notwithstanding the foregoing, prior to completion of the
exchange offer or effectiveness of the shelf registration
statement contemplated by the exchange and registration rights
agreements, the requirements above will be deemed satisfied
(1) by the filing with the Commission of the exchange offer
registration statement or shelf registration statement and any
amendments thereto, within the time periods set forth above,
with such financial information that satisfies
Regulation S-X
of the Securities Act or (2) by posting reports that would
be required to be filed substantially in the form required by
the Commission on the Issuers website (or the website of
Parent or other direct or indirect parent of the Issuer) or
providing such reports to the trustee, subject to exceptions
consistent with the presentation of financial information in
this prospectus.
In addition, the Issuer and the Guarantors agree that, for so
long as any notes remain outstanding, if at any time they are
not required to file with the Commission the reports required by
the preceding paragraphs, they will furnish to the holders of
notes and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Notwithstanding anything herein to the contrary, the Issuer will
not be deemed to have failed to comply with any of its
agreements set forth under this covenant for purposes of
clause (4) under Events of Default and Remedies
until 90 days after the date any report required to be
provided by this covenant is due.
Events of
Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 consecutive days in the payment when due
of interest on, or Special Interest with respect to, the notes;
(2) default in payment when due (whether at maturity, upon
acceleration, redemption or otherwise) of the principal of, or
premium, if any, on the notes;
(3) failure by the Issuer or any of its Restricted
Subsidiaries to comply with the provisions described under the
captions Repurchase at the Option of
Holders Change of Control,
Repurchase at the Option of
Holders Asset Sales, or
Certain Covenants Merger,
Consolidation or Sale of Assets or the provisions
described in the third paragraph under the caption
Certain Covenants Guarantees
for 30 days after written notice by the trustee or holders
representing 25% or more of the aggregate principal amount of
notes outstanding;
(4) failure by the Issuer or any of its Restricted
Subsidiaries for 60 days after written notice by the
trustee or holders representing 25% or more of the aggregate
principal amount of notes outstanding to comply with any of the
agreements in the indenture or the security documents for the
benefit of the holders of the notes other than those referred to
in clauses (1)-(3) above;
(5) default under any mortgage, indenture or instrument
under which there is issued or by which there is secured or
evidenced any Indebtedness for money borrowed by the Issuer or
any of the Issuers Significant Subsidiaries (or any group
of Restricted Subsidiaries of the Issuer that together would
constitute a Significant Subsidiary of the Issuer), or the
payment of which is guaranteed by the Issuer or any of the
Issuers Significant Subsidiaries (or any group of
Restricted Subsidiaries of the Issuer that together would
constitute a Significant Subsidiary of the Issuer), whether such
Indebtedness or Guarantee now exists, or is created after
December 21, 2009, if that default:
(a) is caused by a failure to make any payment when due at
the final maturity of such Indebtedness (after giving effect to
any applicable grace period) (a Payment
Default); or
(b) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$50.0 million or more;
173
(6) failure by the Issuer or any of the Issuers
Significant Subsidiaries (or any group of Restricted
Subsidiaries of the Issuer that together would constitute a
Significant Subsidiary of the Issuer) to pay non-appealable
final judgments aggregating in excess of $50.0 million
(excluding amounts covered by insurance provided by a carrier
that has acknowledged coverage and has the ability to perform),
which judgments are not paid, discharged or stayed for a period
of more than 60 days after such judgments have become final
and non-appealable and, in the event such judgment is covered by
insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly
stayed;
(7) the occurrence of any of the following:
(a) any security document for the benefit of holders of the
notes is held in any judicial proceeding to be unenforceable or
invalid or ceases for any reason to be in full force and effect
in any material respect, other than in accordance with the terms
of the relevant security documents; or
(b) except as permitted by the indenture, any Priority Lien
for the benefit of holders of the notes purported to be granted
under any security document for the benefit of holders of the
notes on Collateral, individually or in the aggregate, having a
fair market value in excess of $50.0 million ceases to be
an enforceable and perfected first-priority Lien in any material
respect, subject only to Permitted Prior Liens, and such
condition continues for 60 days after written notice by the
trustee or the collateral trustee of failure to comply with such
requirement; provided that it will not be an Event of Default
under this clause 7(b) if such condition results from the
action or inaction of the trustee or the collateral
trustee; or
(c) the Issuer or any Significant Subsidiary that is a
Subsidiary Guarantor (or any such Subsidiary Guarantors that
together would constitute a Significant Subsidiary), or any
Person acting on behalf of any of them, denies or disaffirms, in
writing, any material obligation of the Issuer or such
Significant Subsidiary that is a Guarantor (or such Subsidiary
Guarantors that together constitute a Significant Subsidiary)
set forth in or arising under any security document for the
benefit of holders of the notes;
(8) except as permitted by the indenture, any Note
Guarantee of a Subsidiary Guarantor that is a Significant
Subsidiary of the Issuer (or any such Subsidiary Guarantors that
together would constitute a Significant Subsidiary) shall be
held in any judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect in
any material respect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm in writing its
obligations under its Note Guarantee if, and only if, in each
such case, such Default continues for 21 days after notice
of such Default shall have been given to the trustee; and
(9) certain events of bankruptcy or insolvency with respect
to the Issuer or any Significant Subsidiary of the Issuer (or
any Restricted Subsidiaries of the Issuer that together would
constitute a Significant Subsidiary).
In the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to the Issuer or any
Significant Subsidiary of the Issuer (or any group of Restricted
Subsidiaries of the Issuer that, taken together, would
constitute a Significant Subsidiary), all outstanding notes will
become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing,
the trustee or the holders of at least 25% in aggregate
principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately by notice in writing
to the Issuer specifying the Event of Default(s).
Holders of the notes may not enforce the indenture or the notes
except as provided in the indenture. Subject to certain
limitations, holders of a majority in principal amount of the
then outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from holders of the
notes notice of any Default or Event of Default (except a
Default or Event of Default relating to the payment of principal
or interest or premium, if any, or Special Interest, if any) if
it determines that withholding notice is in their interest. In
addition, the trustee shall have no obligation to accelerate the
notes if in the best judgment of the trustee acceleration is not
in the best interest of the holders of the notes.
In the event of any Event of Default specified in
clause (5) above, such Event of Default and all
consequences thereof (excluding any resulting payment default,
other than as a result of acceleration of the notes) shall be
174
annulled, waived and rescinded, automatically and without any
action by the trustee or the holders, if within 20 days
after such Event of Default arose:
(1) the Indebtedness or guarantee that is the basis for
such Event of Default has been discharged;
(2) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise
to such Event of Default; or
(3) the default that is the basis for such Event of Default
has been cured.
The holders of a majority in aggregate principal amount of the
notes then outstanding by notice to the trustee may on behalf of
the holders of all of the notes waive any existing Default or
Event of Default and its consequences under the indenture or the
security documents except a continuing Default or Event of
Default in the payment of interest or Special Interest, if any,
on, premium, if any, on, or the principal of, the notes and may
rescind any acceleration with respect to the notes and its
consequences (provided such rescission would not conflict with
any judgment of a court of competent jurisdiction). No such
rescission shall affect any subsequent default or impair any
right consequent thereon. The holders of a majority in principal
amount of the then outstanding notes will have the right to
direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee. However, the
trustee may refuse to follow any direction that conflicts with
law or the indenture, that may involve the trustee in personal
liability, or that the trustee determines in good faith may be
unduly prejudicial to the rights of holders of notes not joining
in the giving of such direction and may take any other action it
deems proper that is not inconsistent with any such direction
received from holders of notes. A holder may not pursue any
remedy with respect to the indenture or the notes unless each of
the following conditions is met:
(1) the holder gives the trustee written notice of a
continuing Event of Default;
(2) the holders of at least 25% in aggregate principal
amount of outstanding notes make a written request to the
trustee to pursue the remedy;
(3) such holder or holders offer the trustee indemnity,
security or prefunding reasonably satisfactory to the trustee
against any costs, loss, liability or expense;
(4) the trustee does not comply with the request within
60 days after receipt of the request and the offer of
indemnity; and
(5) during such
60-day
period, the holders of a majority in aggregate principal amount
of the outstanding notes do not give the trustee a direction
that is inconsistent with the request.
However, such limitations do not apply to the right of any
holder of a note to receive payment of the principal of,
premium, if any, or Special Interest, if any, or interest on,
such note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the notes, which
right shall not be impaired or affected without the consent of
the holder, except to the extent that the institution or
prosecution thereof or the entry of judgment thereon would,
under applicable law, result in the surrender, impairment,
waiver or loss of any Lien of a security document upon any
property subject to such Lien.
The Issuer is required to deliver to the trustee annually within
120 days after the end of each fiscal year a statement
regarding compliance with the indenture. Within 30 days of
becoming aware of any Default or Event of Default, the Issuer is
required to deliver to the trustee a statement specifying such
Default or Event of Default unless such Default or Event of
Default has been cured before the end of the 30 day period.
In addition to acceleration of maturity of the notes, if an
Event of Default occurs and is continuing, the trustee, the
collateral trustee
and/or the
holders of the notes will have the right to exercise remedies
with respect to the Collateral, such as foreclosure, as are
available under the indenture, the security documents and at law.
No
Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders
No director, officer, employee, incorporator or stockholder of
the Issuer or any Guarantor, as such, or of Parent or any other
direct or indirect parent of the Issuer, shall have any
liability for any obligations of the Issuer or the Guarantors
under the notes, the indenture, the Note Guarantees or the note
documents or for any claim based on, in
175
respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal
Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have all
of its obligations discharged with respect to the outstanding
notes and all obligations of the Guarantors discharged with
respect to their Note Guarantees (Legal
Defeasance) and cure all then existing Events of
Default except for:
(1) the rights of holders of outstanding notes to receive
payments in respect of the principal of, or interest or premium
and Special Interest, if any, on such notes when such payments
are due from the trust referred to below;
(2) the Issuers obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and the Issuers and the Guarantors
obligations in connection therewith;
(4) the Legal Defeasance provisions of the
indenture; and
(5) the optional redemption provisions of the indenture to
the extent that Legal Defeasance is to be effected together with
a redemption.
In addition, the Issuer may, at its option and at any time,
elect to have the obligations of the Issuer and the Guarantors
released with respect to certain covenants that are described in
the indenture (Covenant Defeasance) and
thereafter any omission to comply with those covenants shall not
constitute a Default or Event of Default with respect to the
notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under
Events of Default and Remedies will no longer
constitute Events of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Issuer must irrevocably deposit with the trustee,
in trust, for the benefit of the holders of the notes, cash in
U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent
public accountants, a nationally recognized investment bank or a
nationally recognized appraisal or valuation firm, to pay the
principal of, or interest and premium and Special Interest, if
any, on the outstanding notes on the Stated Maturity or on the
applicable redemption date, as the case may be, and the Issuer
must specify whether the notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuer shall have
delivered to the trustee an Opinion of Counsel reasonably
acceptable to the trustee confirming that, subject to customary
assumptions and exclusions, (a) the Issuer has received
from, or there has been published by, the Internal Revenue
Service a ruling or (b) since December 21, 2009, there
has been a change in the applicable U.S. federal income tax
law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such Legal
Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Issuer shall
have delivered to the trustee an Opinion of Counsel reasonably
acceptable to the trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding notes
will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Covenant Defeasance and
will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
176
(4) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default
or Event of Default resulting from borrowing funds to be applied
to make the deposit required to effect such Legal Defeasance or
Covenant Defeasance and any similar and simultaneous deposit
relating to other Indebtedness and, in each case, the granting
of Liens in connection therewith);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the
indenture) to which the Issuer or any of its Subsidiaries is a
party or by which the Issuer or any of its Subsidiaries is bound
(other than that resulting with respect to any Indebtedness
being defeased from any borrowing of funds to be applied to make
the deposit required to effect such Legal Defeasance or Covenant
Defeasance and any similar and simultaneous deposit relating to
such Indebtedness, and the granting of Liens in connection
therewith);
(6) the Issuer must deliver to the trustee an
Officers Certificate stating that the deposit was not made
by the Issuer with the intent of preferring the holders of notes
over the other creditors of the Issuer with the intent of
defeating, hindering, delaying or defrauding creditors of the
Issuer or others;
(7) if the notes are to be redeemed prior to their Stated
Maturity, the Issuer must deliver to the trustee irrevocable
instructions to redeem all of the notes on the specified
redemption date; and
(8) the Issuer must deliver to the trustee an
Officers Certificate and an Opinion of Counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
The Collateral will be released from the Lien securing the
notes, as provided under the caption The
Collateral Trust Agreement Release of Liens in
Respect of Notes, upon a Legal Defeasance or Covenant
Defeasance in accordance with the provisions described above.
Amendment,
Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the
indenture, the notes, the Note Guarantees, or the security
documents relating to the notes (subject to compliance with the
intercreditor agreement and the collateral trust agreement) may
be amended or supplemented with the consent of the holders of at
least a majority in aggregate principal amount of the notes then
outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer
for, notes), and any existing Default or Event of Default or
compliance with any provision of the indenture, the notes, the
Note Guarantees or the security documents relating to the notes
may be waived with the consent of the holders of a majority in
aggregate principal amount of the then outstanding notes
(including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for,
notes).
Without the consent of each holder affected, an amendment or
waiver may not (with respect to any notes held by a
non-consenting holder):
(1) reduce the percentage of the aggregate principal amount
of notes whose holders must consent to an amendment, supplement
or waiver;
(2) reduce the principal of, or change the Stated Maturity
of, any note or alter the provisions, or waive any payment, with
respect to the redemption of such notes (other than provisions
relating to the covenants described under
Repurchase at the Option of Holders
(except to the extent provided in clause (9) below));
(3) reduce the rate of, or change the time for, payment of
interest on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, if any, or Special
Interest, if any, on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority
in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than
U.S. dollars;
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(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of holders of
notes to receive payments of principal of, or interest or
premium, if any, or Special Interest, if any, on the notes;
(7) release any Guarantor from any of its obligations under
its Note Guarantee or the indenture, except in accordance with
the terms of the indenture or the Note Guarantees;
(8) impair the right of any holder to institute suit for
the enforcement of any payment on or with respect to such
holders notes or the Note Guarantees;
(9) amend, change or modify the obligation of the Issuer to
make and consummate an Asset Sale Offer with respect to any
Asset Sale in accordance with the covenant described under the
caption Repurchase at the Option of
Holders Asset Sales after the obligation to
make such Asset Sale Offer has arisen, or the obligation of the
Issuer to make and consummate a Change of Control Offer in the
event of a Change of Control in accordance with the covenant
described under the caption Repurchase at the
Option of Holders Change of Control after such
Change of Control has occurred, including, in each case,
amending, changing or modifying any definition relating
thereto; or
(10) make any change in the amendment and waiver
provisions, except to increase any such percentage required for
such actions or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of
the holder of each outstanding note affected thereby.
In addition, any amendment to, or waiver of, the provisions of
the indenture or any security document that has the effect of
releasing all or substantially all of the Collateral from the
Liens securing the notes will require the consent of the holders
of at least
662/3%
in aggregate principal amount of the notes then outstanding (but
only to the extent any such consent is required under the
Collateral Trust Agreement).
Notwithstanding the preceding, without notice to or the consent
of any holder of notes, the Issuer, the Guarantors and the
trustee may amend or supplement the indenture, the notes, the
Note Guarantees or the security documents relating to the notes
to:
(1) cure any ambiguity, omission, mistake, defect or
inconsistency;
(2) provide for uncertificated notes in addition to or in
place of certificated notes;
(3) provide for the assumption of the Issuers or any
Guarantors obligations to holders of notes in the case of
a merger or consolidation or sale of all or substantially all of
such issuers or Guarantors assets;
(4) make any change that would provide any additional
rights or benefits to the holders of notes or that does not
adversely affect the legal rights of such holder under the
indenture in any material respect;
(5) comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act;
(6) comply with the provisions described under
Certain Covenants Guarantees;
(7) conform the text of the indenture, the notes, the Note
Guarantees or any security document to any provision of this
Description of Notes to the extent that such provision in this
Description of Notes was intended to be a verbatim recitation of
the indenture, the notes, the Note Guarantees or any security
document;
(8) evidence and provide for the acceptance of appointment
by a successor trustee, provided that the successor trustee is
otherwise qualified and eligible to act as such under the terms
of the indenture, or evidence and provide for a successor or
replacement collateral trustee under the security documents;
(9) provide for the issuance of additional notes (and the
grant of security for the benefit of the additional notes) in
accordance with the terms of the indenture and the collateral
trust agreement;
(10) make, complete or confirm any grant of Collateral
permitted or required by the indenture or any of the security
documents or any release, termination or discharge of Collateral
that becomes effective as set forth in the indenture or any of
the security documents;
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(11) grant any Lien for the benefit of the holders of any
future Subordinated Lien Debt or any present or future Priority
Lien Debt in accordance with the terms of the indenture and the
collateral trust agreement;
(12) add additional secured parties to the extent Liens
securing obligations held by such parties are permitted under
the indenture;
(13) mortgage, pledge, hypothecate or grant a security
interest in favor of the collateral agent for the benefit of the
trustee and the holders of the notes as additional security for
the payment and performance of the Issuers and any
Guarantors obligations under the indenture, in any
property, or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the trustee or the
collateral trustee in accordance with the terms of the indenture
or otherwise;
(14) provide for the succession of any parties to the
security documents (and other amendments that are administrative
or ministerial in nature) in connection with an amendment,
renewal, extension, substitution, refinancing, restructuring,
replacement, supplementing or other modification from time to
time of any agreement in accordance with the terms of the
indenture and the relevant security document;
(15) provide for a reduction in the minimum denominations
of the notes;
(16) add a Guarantor or other guarantor under the indenture
or release a Guarantor in accordance with the terms of the
indenture;
(17) add covenants for the benefit of the holders or
surrender any right or power conferred upon the Issuer or any
Guarantor;
(18) make any amendment to the provisions of the indenture
relating to the transfer and legending of notes as permitted by
the indenture, including, without limitation, to facilitate the
issuance and administration of the notes, provided that
compliance with the indenture as so amended may not result in
notes being transferred in violation of the Securities Act or
any applicable securities laws;
(19) provide for the assumption by one or more successors
of the obligations of any of the Guarantors under the indenture
and the Note Guarantees;
(20) provide for the issuance of exchange notes in
accordance with the terms of the indenture; or
(21) comply with the rules of any applicable securities
depositary.
The consent of the holders of the notes is not necessary under
the indenture to approve the particular form of any proposed
amendment. It is sufficient if the consent approves the
substance of the proposed amendment.
Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost,
stolen or destroyed notes that have been replaced or paid and
notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer or discharged from such trust)
have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee
for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise, will become due
and payable within one year or are to be called for redemption
within one year under arrangements satisfactory to the trustee
for the giving of notice of redemption by the trustee in the
name, and at the expense, of the Issuer, and the Issuer or any
Guarantor has irrevocably deposited or caused to be deposited
with the trustee as trust funds in trust solely for the benefit
of the holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts
as will be sufficient without consideration of any reinvestment
of interest, to pay and discharge the entire indebtedness on the
notes not delivered to the
179
trustee for cancellation for principal, premium, if any, and
Special Interest, if any, and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default shall have occurred and
be continuing (other than that resulting from borrowing funds to
be applied to make such deposit and any similar and simultaneous
deposit relating to other Indebtedness and, in each case, the
granting of Liens in connection therewith) with respect to the
indenture and the notes issued thereunder on the date of such
deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or
constitute a default under, any other material instrument to
which the Issuer or any Guarantor is a party or by which the
Issuer or any Guarantor is bound (other than any such default
resulting from any borrowing of funds to be applied to make the
deposit and any similar simultaneous deposit relating to other
Indebtedness, and the granting of Liens in connection therewith);
(3) the Issuer or any Guarantor has paid or caused to be
paid all sums payable by it under the indenture and not provided
for by the deposit required by clause 1(b) above; and
(4) the Issuer has delivered irrevocable instructions to
the trustee under the indenture to apply the deposited money
toward the payment of the notes at maturity or the redemption
date, as the case may be.
In addition, the Issuer must deliver an Officers
Certificate and an Opinion of Counsel to the trustee stating
that all conditions precedent to satisfaction and discharge have
been satisfied.
The Collateral will be released from the Lien securing the
notes, as provided under the caption The
Collateral Trust Agreement Release of Liens in
Respect of Notes, upon a satisfaction and discharge in
accordance with the provisions described above.
Concerning
the Trustee
U.S. Bank National Association is the trustee under the
indenture and has been appointed by the Issuer as paying agent
and registrar with respect to the notes.
If the trustee becomes a creditor of the Issuer or any
Guarantor, the indenture limits its right, to obtain payment of
claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise.
The trustee is permitted to engage in other transactions;
however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The indenture provides that in case an Event of Default shall
occur and be continuing, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent
person in the conduct of such persons own affairs. Subject
to such provisions, the trustee is under no obligation to
exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have
offered to the trustee security, indemnity or prefunding
satisfactory to it against any loss, liability or expense.
Book-Entry,
Delivery and Form
Except as set forth below, the notes were issued in registered,
global form in minimum denominations of $2,000 and integral
multiples of $1,000 in excess thereof. The notes may be issuable
from time to time in denominations of less than $2,000 solely to
the extent necessary to accommodate book-entry positions that
have been created in denominations of less than $2,000 by DTC.
Except as set forth below, global notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in global
notes may not be exchanged for definitive notes in registered
certificated form (Certificated Notes) except
in the limited circumstances described below. See
Exchange of Global Notes for Certificated
Notes. Except in the limited circumstances described
below, owners of beneficial interests in global notes will not
be entitled to receive physical delivery of notes in
certificated form.
Transfers of beneficial interests in global notes will be
subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those
of Euroclear and Clearstream), which may change from time to
time.
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Depository
Procedures
The following description of the operations and procedures of
DTC, Euroclear and Clearstream are provided solely as a matter
of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are
subject to changes by them. The Issuer and the Guarantors take
no responsibility for these operations and procedures and urge
investors to contact the system or their participants directly
to discuss these matters.
DTC has advised the Issuer that DTC is a limited-purpose trust
company created to hold securities for its participating
organizations (collectively, the
Participants) and to facilitate the clearance
and settlement of transactions in those securities between the
Participants through electronic book-entry changes in accounts
of its Participants. The Participants include securities brokers
and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other
organizations. Access to DTCs system is also available to
other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly
(collectively, the Indirect Participants).
Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers
of ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Issuer that, pursuant to procedures
established by it:
(1) upon deposit of the global notes, DTC will credit the
accounts of the Participants designated by the initial
purchasers with portions of the principal amount of the global
notes; and
(2) ownership of these interests in the global notes will
be shown on, and the transfer of ownership of these interests
will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interest in the global notes).
All interests in a global note, including those held through
Euroclear or Clearstream, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and
requirements of such systems. The laws of some states require
that certain Persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such Persons
will be limited to that extent. Because DTC can act only on
behalf of the Participants, which in turn act on behalf of the
Indirect Participants, the ability of a Person having beneficial
interests in a global note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the global
notes will not have notes registered in their names, will not
receive physical delivery of notes in certificated form and will
not be considered the registered owners or holders
thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest (including
Special Interest, if any) and premium, if any, on, a global note
registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the
indenture. Under the terms of the indenture, the Issuer and the
trustee will treat the Persons in whose names the notes,
including the global notes, are registered as the owners of the
notes for the purpose of receiving payments and for all other
purposes. Consequently, neither the Issuer, the trustee nor any
agent of the Issuer or the trustee has or will have any
responsibility or liability for:
(1) any aspect of DTCs records or any
Participants or Indirect Participants records
relating to or payments made on account of beneficial ownership
interest in the global notes or for maintaining, supervising or
reviewing any of DTCs records or any Participants or
Indirect Participants records relating to the beneficial
ownership interests in the global notes; or
(2) any other matter relating to the actions and practices
of DTC or any of its Participants or Indirect Participants.
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DTC has advised the Issuer that its current practice, upon
receipt of any payment in respect of securities such as the
notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe that it will not
receive payment on such payment date. Each relevant Participant
is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee or the Issuer. Neither the
Issuer nor the trustee will be liable for any delay by DTC or
any of the Participants or the Indirect Participants in
identifying the beneficial owners of the notes, and the Issuer
and the trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all
purposes.
Transfers between the Participants will be effected in
accordance with DTCs procedures, and will be settled in
same-day
funds, and transfers between participants in Euroclear and
Clearstream will be effected in accordance with their respective
rules and operating procedures.
Cross-market transfers between the Participants, on the one
hand, and Euroclear or Clearstream participants, on the other
hand, will be effected through DTC in accordance with DTCs
rules on behalf of Euroclear or Clearstream, as the case may be,
by their respective depositaries; however, such cross-market
transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within
the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to
effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or
receiving payment in accordance with normal procedures for
same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised the Issuer that it will take any action
permitted to be taken by a holder of notes only at the direction
of one or more Participants to whose account DTC has credited
the interests in the global notes and only in respect of such
portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the
notes, DTC reserves the right to exchange the global notes for
legended notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
global notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. None of the Issuer, the trustee and any
of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
Exchange
of Global Notes for Certificated Notes
A global note is exchangeable for Certificated Notes if:
(1) DTC (a) notifies the Issuer that it is unwilling
or unable to continue as depositary for the global notes and the
Issuer fails to appoint a successor depositary within ninety
(90) days of delivery of such notice or (b) has ceased
to be a clearing agency registered under the Exchange
Act and the Issuer fails to appoint a successor depositary
within ninety (90) days of delivery of such notice;
(2) the Issuer, at its option, notifies the trustee in
writing that it elects to cause the issuance of the Certificated
Notes; or
(3) there has occurred and is continuing a Default or Event
of Default with respect to the notes and a Holder requests that
its global note be exchanged for a Certificated Note.
In addition, beneficial interests in a global note may be
exchanged for Certificated Notes upon prior written notice given
to the trustee by or on behalf of DTC in accordance with the
indenture. In all cases, Certificated Notes
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delivered in exchange for any global note or beneficial
interests in global notes will be registered in the names, and
issued in any approved denominations, requested by or on behalf
of the depositary (in accordance with its customary procedures)
and will bear the applicable restrictive legend referred to in
Notice to Investors in the offering memorandum dated
December 16, 2009 or February 8, 2010, respectively,
unless that legend is not required by applicable law.
Exchange
of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests
in any global note unless the transferor first delivers to the
trustee a written certificate (in the form provided in the
indenture) to the effect that such transfer will comply with the
appropriate transfer restrictions applicable to such notes.
Same-Day
Settlement and Payment
The Issuer will make payments in respect of the notes
represented by the global notes, including principal, premium,
if any, and interest (including Special Interest, if any), by
wire transfer of immediately available funds to the accounts
specified by the holder of the global note. The Issuer will make
all payments of principal, interest (including Special Interest,
if any) and premium, if any, with respect to Certificated Notes
by wire transfer of immediately available funds to the accounts
specified by the holders of the Certificated Notes or, if no
such account is specified, by mailing a check to each such
holders registered address. The notes represented by the
global notes are expected to be eligible to trade in DTCs
Same-Day
Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. The Issuer
expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
global note from a Participant will be credited, and any such
crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised the Issuer that cash received in Euroclear or
Clearstream as a result of sales of interests in a global note
by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date
of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
Certain
Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
ABL Credit Facility means that certain
$900,000,000 Revolving Loan Credit Agreement, dated as of
October 31, 2007, as amended by the First Amendment, dated
as of December 21, 2009, among the Issuer (f/k/a McJunkin
Corporation), the several lenders from time to time party
thereto, Goldman Sachs Credit Partners L.P. and Lehman Brothers
Inc., as 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 syndication agent, and JPMorgan Chase Bank, N.A.,
Wachovia Bank. N.A., and PNC Bank, National Association, as
co-documentation agents, and any related notes, Guarantees,
collateral documents, instruments and agreements executed in
connection therewith, and in each case as further amended,
restated, adjusted, waived, renewed, modified, refunded,
replaced, restated, restructured, increased, supplemented or
refinanced in whole or in part from time to time, regardless of
whether such amendment, restatement, adjustment, waiver,
modification, renewal, refunding, replacement, restatement,
restructuring, increase, supplement or refinancing is with the
same financial institutions (whether as agents or lenders) or
otherwise and any indentures or credit facilities or commercial
paper facilities that replace, refund or refinance any part of
the loans, notes, or other commitments thereunder, including any
such replacement, refunding or refinancing facility or indenture
that increases the amount borrowable thereunder or alters the
maturity thereof.
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ABL Debt means
(1) Indebtedness outstanding under the ABL Credit Facility
on December 21, 2009 or incurred from time to time after
such date under the ABL Credit Facility; and
(2) additional Indebtedness (including letters of credit
and reimbursement obligations with respect thereto) of the
Issuer or any Subsidiary Guarantor secured by Liens on ABL
Priority Collateral; provided, in the case of any
additional Indebtedness referred to in this clause (2), that:
(a) on or before the date on which such additional
Indebtedness is incurred by the Issuer or such Guarantor, as
applicable, such additional Indebtedness is designated by the
Issuer, in an Officers Certificate delivered to the
collateral trustee, as ABL Debt for purposes of the
Secured Debt Documents; provided, that such Indebtedness
may not be designated as both ABL Debt and Priority Lien Debt,
or designated as both ABL Debt and Subordinated Lien
Debt; and
(b) the collateral agent or other representative with
respect to such Indebtedness, the ABL Collateral Agent, the
collateral trustee, the Issuer and each applicable Guarantor
have duly executed and delivered the intercreditor agreement (or
a joinder to the intercreditor agreement or a new intercreditor
agreement substantially similar to the intercreditor agreement,
as in effect on December 21, 2009, and in a form reasonably
acceptable to each of the parties thereto).
ABL Debt Documents means the ABL Credit
Facility, any additional credit agreement or indenture related
thereto and all other loan documents, security documents, notes,
guarantees, instruments and agreements governing or evidencing,
or executed or delivered in connection with, the ABL Credit
Facility, as such agreements or instruments may be amended or
supplemented from time to time.
ABL Debt Obligations means ABL Debt incurred
or arising under the ABL Debt Documents and all other
Obligations (excluding any Obligations that would constitute ABL
Debt) in respect thereof, together with (1) Banking Product
Obligations of the Issuer or any Subsidiary Guarantor relating
to services provided to the Issuer or any Guarantor that are
secured, or intended to be secured, by the ABL Debt Documents if
the provider of such Banking Product Obligations has agreed to
be bound by the terms of the intercreditor agreement or such
providers interest in the ABL Priority Collateral is
subject to the terms of the intercreditor agreement; and
(2) Hedging Obligations that are secured, or intended to be
secured, under the ABL Debt Documents if the provider of such
Hedging Obligations has agreed to be bound by the terms of the
intercreditor agreement or such providers interest in the
ABL Priority Collateral is subject to the terms of the
intercreditor agreement.
ABL Lien Cap means, as of any date of
determination, the greater of (1) $1.25 billion and
(2) the amount of the Borrowing Base as of such date, after
giving pro forma effect to the incurrence of any ABL Debt
and the application of the net proceeds therefrom.
ABL Priority Collateral means all accounts,
inventory or documents of title, customs receipts, insurance
certificates, shipping documents and other written materials
related to the purchase or import of any inventory, all letter
of credit rights, chattel paper, instruments, investment
property and general intangibles pertaining to the foregoing,
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,
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 the Notes
Priority Collateral and, 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, in each case held by the Issuer and the Subsidiary
Guarantors, other than the Excluded ABL Assets.
Acquired Debt means, with respect to any
specified Person:
(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into, or becomes a
Subsidiary of, such specified Person, whether or not such
Indebtedness is incurred in connection
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with, or in contemplation of, such other Person merging with or
into, or becoming a Subsidiary of, such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by the specified Person.
Act of Required Debtholders means, as to any
matter at any time:
(1) prior to the Discharge of Priority Lien Obligations, a
direction in writing delivered to the collateral trustee by or
with the written consent of the holders of at least 50.1% of the
sum of:
(a) the aggregate outstanding principal amount of Priority
Lien Debt (including outstanding letters of credit whether or
not then drawn); and
(b) other than in connection with the exercise of remedies,
the aggregate unfunded commitments to extend credit which, when
funded, would constitute Priority Lien Debt; and
(2) at any time after the Discharge of Priority Lien
Obligations, a direction in writing delivered to the collateral
trustee by or with the written consent of the holders of
Subordinated Lien Debt representing the Required Subordinated
Lien Debtholders.
For purposes of this definition, (a) Secured Debt
registered in the name of, or beneficially owned by, the Issuer
or any Affiliate of the Issuer will be deemed not to be
outstanding, and (b) votes will be determined in accordance
with the provisions described above under the caption
The Collateral
Trust Agreement Voting.
Affiliate of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or
otherwise. For purposes of this definition, the terms
controlling, controlled by and
under common control with shall have correlative
meanings.
Applicable Premium means, with respect to any
note on any redemption date, the greater of:
(1) 1.0% of the principal amount of the note; or
(2) the excess of:
(a) the present value at such redemption date of
(i) the redemption price of the note at December 15,
2012 (such redemption price being set forth in the table
appearing above under the caption Optional
Redemption), plus (ii) all required interest
payments due on the note through December 15, 2012
(excluding accrued but unpaid interest to the redemption date),
computed using a discount rate equal to the Treasury Rate as of
such redemption date plus 50 basis points; over
(b) the principal amount of the note.
Asset Sale means:
(1) the sale, lease (other than operating leases in the
ordinary course of business), conveyance or other disposition of
any property or assets, other than Equity Interests of the
Issuer; provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of
the Issuer and the Issuers Restricted Subsidiaries taken
as a whole will be governed by the provisions of the indenture
described above under the caption Repurchase
at the Option of Holders Change of Control
and/or the
provisions described above under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets and not by the provisions
of the covenant described under the caption
Repurchase at the Option of
Holders Asset Sales; and
(2) the issuance of Equity Interests by any of the
Issuers Restricted Subsidiaries or the sale by the Issuer
or any Restricted Subsidiary thereof of Equity Interests in any
of its Restricted Subsidiaries (other than directors
qualifying shares).
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Notwithstanding the preceding, the following items shall be
deemed not to be Asset Sales:
(1) any single transaction or series of related
transactions that involves property or assets having a fair
market value of less than $15.0 million;
(2) a transfer of property or assets between or among the
Issuer and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted
Subsidiary of the Issuer to the Issuer or to another Restricted
Subsidiary thereof;
(4) the sale, lease, assignment, license or sublease of
equipment, inventory, accounts receivable or other assets in the
ordinary course of business (including, without limitation, any
ABL Priority Collateral);
(5) the sale or other disposition of cash or Cash
Equivalents;
(6) a Restricted Payment that is permitted by the covenant
described above under the caption Certain
Covenants Restricted Payments or a Permitted
Investment;
(7) any sale, exchange or other disposition of any property
or equipment that has become damaged, worn out, obsolete or
otherwise unsuitable or unnecessary for use in connection with
the business of the Issuer or its Restricted Subsidiaries;
(8) the licensing or sub-licensing of intellectual property
in the ordinary course of business or consistent with past
practice;
(9) any sale or other disposition deemed to occur with
creating, granting or perfecting a Lien not otherwise prohibited
by the indenture or the note documents;
(10) any issuance or sale of Equity Interests in, or
Indebtedness or other securities of, an Unrestricted Subsidiary;
(11) the surrender or waiver of contract rights or
settlement, release or surrender of a contract, tort or other
litigation claim in the ordinary course of business;
(12) foreclosures, condemnations or any similar action on
assets;
(13) the lease, assignment or sub-lease of any real or
personal property in the ordinary course of business; and
(14) the sale of Non-Core Assets.
Asset Sale Offer has the meaning assigned to
that term in the indenture governing the notes.
Attributable Debt in respect of a Sale and
Leaseback Transaction means, at the time of determination, the
present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
Sale and Leaseback Transaction, including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP.
Banking Product Obligations means, with
respect to the Issuer or any Subsidiary Guarantor, any
obligations of the Issuer or such Guarantor owed to any Person
in respect of treasury management services (including, without
limitation, services in connection with operating, collections,
payroll, trust or other depository or disbursement accounts,
including automated clearinghouse,
e-payable,
electronic funds transfer, wire transfer, controlled
disbursement, overdraft, depositary, information reporting,
lock-box and stop payment services), commercial credit card and
merchant card services, stored valued card services, other cash
management services or lock-box leases and other banking
products or services related to any of the foregoing.
Bankruptcy Code means Title 11 of the
United States Code.
Beneficial Owner has the meaning assigned to
such term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act. The terms Beneficially
Owns and Beneficially Owned shall
have a corresponding meaning.
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Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation;
(2) with respect to a partnership, the Board of Directors
of the general partner of the partnership; and
(3) with respect to any other Person, the board or
committee of such Person serving a similar function.
Borrowing Base means, as of any date, an
amount equal to:
(1) 85% of the face amount of all accounts receivable owned
by the Issuer and its Restricted Subsidiaries as of the end of
the most recent month preceding such date for which internal
financial statements are available that were not more than
180 days past due; plus
(2) 65% of the book value of all inventory owned by the
Issuer and its Restricted Subsidiaries as of the end of the most
recent fiscal month preceding such date for which internal
financial statements are available.
business day means any day other than a Legal
Holiday.
Capital Lease Obligation means, at the time
any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at that time
be required to be capitalized on a balance sheet in accordance
with GAAP.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or
limited); and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
Cash Equivalents means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof)
having maturities of not more than two years from the date of
acquisition;
(3) time deposits, demand deposits, money market deposits,
certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition,
bankers acceptances with maturities not exceeding one year
from the date of acquisition and overnight bank deposits, in
each case, with any domestic commercial bank having capital and
surplus in excess of $250.0 million (or $100.0 million
in the case of a
non-U.S. bank);
(4) repurchase obligations for underlying securities of the
types described in clauses (2), (3) and (7) entered
into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper rated at least
P-1 by
Moodys Investors Service, Inc. or at least
A-1 by
Standard & Poors Rating Services (or, if at any
time neither Moodys nor S&P shall be rating such
obligations, an equivalent rating from another rating agency)
and in each case maturing within two years after the date of
acquisition;
(6) marketable short-term money market and similar
securities having a rating of at least
P-2 or
A-2 from
either Moodys or S&P, respectively, or liquidity
funds or other similar money market mutual funds, with a rating
of at least Aaa by Moodys or AAAm by S&P (or, if at
any time neither Moodys nor S&P shall be rating such
obligations, an equivalent rating from another rating agency);
187
(7) securities issued by any state, commonwealth or
territory of the United States or any political subdivision or
taxing authority of any such state, commonwealth or territory or
any public instrumentality thereof, maturing within two years
from the date of acquisition thereof and having an investment
grade rating from Moodys Investors Service, Inc. or
Standard & Poors Rating Services;
(8) money market funds (or other investment funds) at least
95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (7) of this
definition;
(9) (a) euros or any national currency of any
participating member state of the EMU;
(b) local currency held by the Issuer or any of its
Restricted Subsidiaries from time to time in the ordinary course
of business;
(c) securities issued or directly and fully guaranteed by
the sovereign nation or any agency thereof (provided that
the full faith and credit of such sovereign nation is pledged in
support thereof) in which the Issuer or any of its Restricted
Subsidiaries is organized or is conducting business having
maturities of not more than one year from the date of
acquisition; and
(d) investments of the type and maturity described in
clauses (3) through (8) above of foreign obligors,
which investments or obligors satisfy the requirements and have
ratings described in such clauses.
Change of Control means the occurrence of any
of the following:
(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of the
Issuer and its Restricted Subsidiaries, taken as a whole, to any
person (as that term is used in
Section 13(d)(3) of the Exchange Act) other than one or
more Permitted Holders;
(2) the adoption of a plan relating to the liquidation or
dissolution of the Issuer (unless, after such liquidation or
dissolution, Parent assumes all of the obligations of the Issuer
under the indenture and the security documents for the benefit
of holders of the notes as provided thereunder);
(3) any person or group (as such
terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, has become the
ultimate Beneficial Owner, directly or indirectly, of 50% or
more of the voting power of the Voting Stock of the
Issuer; or
(4) the first day on which a majority of the members of the
Board of Directors of the Issuer or the Parent are not
Continuing Directors.
Change of Control Offer has the meaning
assigned to that term in the indenture governing the notes.
Class means (1) in the case of
Subordinated Lien Debt, every Series of Subordinated Lien Debt,
taken together, and (2) in the case of Priority Lien Debt,
every Series of Priority Lien Debt, taken together.
Collateral means the Notes Priority
Collateral and the ABL Priority Collateral.
collateral trustee means U.S. Bank
National Association, in its capacity as collateral trustee
under the collateral trust agreement, together with its
successors in such capacity.
Commission means the United States Securities
and Exchange Commission and any successor organization.
Consolidated Cash Flow means, with respect to
any specified Person for any period, the Consolidated Net Income
of such Person for such period plus, without duplication:
(1) provision for taxes based on income or profits or
capital gains of such Person and its Restricted Subsidiaries for
such period, including without limitation state, franchise and
similar taxes and foreign withholding taxes of such Person and
its Restricted Subsidiaries paid or accrued during such period,
to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income; plus
(2) Fixed Charges of such Person and its Restricted
Subsidiaries for such period (including without limitation
(x) net losses on Hedging Obligations or other derivative
instruments entered into for the purpose of
188
hedging interest rate risk and (y) costs of surety bonds in
connection with financing activities), to the extent that any
such Fixed Charges were deducted in computing such Consolidated
Net Income; plus
(3) depreciation and amortization (including amortization
or impairment write-offs of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid
in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such
depreciation and amortization was deducted in computing such
Consolidated Net Income; plus
(4) any other non-cash expenses or charges, including any
impairment charge or asset write-offs or write-downs related to
intangible assets (including goodwill), long-lived assets and
Investments in debt and equity securities pursuant to GAAP,
reducing Consolidated Net Income for such period (provided
that if any such non-cash charges 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 Cash Flow to such extent, and
excluding amortization of a prepaid cash expense or charge that
was paid in a prior period); plus
(5) the amount of any integration costs or other business
optimization expenses or costs deducted (and not added back) in
such period in computing Consolidated Net Income, including any
one-time costs incurred in connection with acquisitions and
costs related to the closure
and/or
consolidation of facilities; plus
(6) the amount of any minority interest expense consisting
of income of a Restricted Subsidiary attributable to minority
equity interests of third parties in any non-Wholly Owned
Restricted Subsidiary deducted (and not added back) in such
period in calculating Consolidated Net Income; plus
(7) the amount of management, monitoring, consulting and
advisory fees and related expenses (if any) paid in such period
to the Principals to the extent otherwise permitted under the
terms of the indenture; minus
(8) non-cash items increasing such Consolidated Net Income
for such period, other than the accrual of revenue in the
ordinary course of business,
in each case, on a consolidated basis and determined in
accordance with GAAP.
Consolidated Net Income means, with respect
to any specified Person for any period, the aggregate of the Net
Income of such Person and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income of any Person, other than the specified
Person, that is not a Restricted Subsidiary of the specified
Person or that is accounted for by the equity method of
accounting shall not be included, except that Consolidated Net
Income shall be increased by the amount of dividends or
distributions or other payments that are paid in cash (or to the
extent converted into cash) or Cash Equivalents to the specified
Person or a Restricted Subsidiary thereof during such period;
(2) solely for the purpose of determining the amount
available for Restricted Payments under clause 3(a) of the
first paragraph under Certain
Covenants Restricted Payments, the Net Income
of any Restricted Subsidiary (other than any Subsidiary
Guarantor) shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its equityholders, unless such restrictions with respect to
the declaration and payment of dividends or distributions have
been properly waived for such entire period; provided
that Consolidated Net Income will be increased by the amount
of dividends or other distributions or other payments paid in
cash (or to the extent converted into cash) or Cash Equivalents
to the Issuer or a Restricted Subsidiary thereof in respect of
such period, to the extent not already included therein;
(3) the cumulative effect of a change in accounting
principles shall be excluded;
(4) any amortization of fees or expenses that have been
capitalized shall be excluded;
189
(5) non-cash charges relating to employee benefit or
management compensation plans of the Issuer or any Restricted
Subsidiary thereof or any non-cash compensation charge arising
from any grant of stock, stock options or other equity-based
awards for the benefit of the members of the Board of Directors
of Parent or the Issuer or employees of Parent or the Issuer and
its Restricted Subsidiaries shall be excluded (other than in
each case any non-cash charge to the extent that it represents
an accrual of or reserve for cash expenses in any future period
or amortization of a prepaid cash expense incurred in a prior
period);
(6) any non-recurring charges or expenses incurred in
connection with the refinancing transactions shall be excluded;
(7) any non-cash restructuring charges, plus up to
an aggregate of $20.0 million of other restructuring
charges in any fiscal year shall be excluded;
(8) any non-cash impairment charge or asset write-off, in
each case pursuant to GAAP, and the amortization of intangibles
arising pursuant to GAAP, shall be excluded;
(9) any gain or loss, together with any related provision
for taxes on such gain or loss, realized in connection with
(a) any sale of assets outside the ordinary course of
business of such Person or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries
or the extinguishment of any Indebtedness or Hedging Obligations
or other derivative instruments of such Person or any of its
Restricted Subsidiaries, shall, in each case, be excluded;
(10) any after-tax effect of income (loss) from disposed,
abandoned, transferred, closed or discontinued operations and
any net after-tax gains or losses on disposal of disposed,
abandoned, transferred, closed or discontinued operations shall,
in each case, be excluded;
(11) any extraordinary, non-recurring or unusual gain or
loss or expense, together with any related provision for taxes,
shall be excluded;
(12) the effects of adjustments in the property, plant and
equipment, inventories, goodwill, intangible assets and debt
line items in such Persons consolidated financial
statements pursuant to GAAP resulting from the application of
purchase accounting in relation to the refinancing transactions
or any acquisition or the amortization or write-off of any
amounts thereof, net of taxes, shall be excluded;
(13) any fees and expenses incurred during such period, or
any amortization thereof for such period, in connection with any
acquisition, disposition, recapitalization, Investment, Asset
Sale, issuance or repayment of Indebtedness, issuance of Equity
Interests, financing transaction or amendment or modification of
any debt instrument (including, in each case, 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, shall be excluded; and
(14) accruals and reserves that are established or adjusted
by December 21, 2010 that are so required to be established
or adjusted as a result of the refinancing transactions in
accordance with GAAP shall be excluded.
Consolidated Total Assets of any Person
means, as of any date, the amount which, in accordance with
GAAP, would be set forth under the caption Total
Assets (or any like caption) on a consolidated balance
sheet of such Person and its Restricted Subsidiaries, as of the
end of the most recently ended fiscal quarter for which internal
financial statements are available.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of the
Issuer or Parent, as the case may be, who:
(1) was a member of such Board of Directors on
December 21, 2009;
(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the
time of such nomination or election; or
190
(3) was nominated for election or elected to that Board of
Directors by the Principals or their Related Parties.
Contribution Indebtedness means Indebtedness
of the Issuer or any Subsidiary Guarantor in an aggregate
principal amount equal to the aggregate amount of cash
contributions (other than Excluded Contributions) made to the
capital of the Issuer or such Subsidiary Guarantor after
December 21, 2009; provided that:
(1) such cash contributions have not been used to make a
Restricted Payment, and
(2) such Contribution Indebtedness (a) is incurred
within 180 days after the making of such cash contributions
and (b) is so designated as Contribution Indebtedness
pursuant to an Officers Certificate on the incurrence date
thereof.
Credit Facilities means one or more debt
facilities (including, without limitation, the ABL Credit
Facility), credit agreements, commercial paper facilities, note
purchase agreements, indentures, or other agreements, in each
case with banks, lenders, purchasers, investors, trustees,
agents or other representatives of any of the foregoing,
providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables or
interests in receivables to such lenders or other persons or to
special purpose entities formed to borrow from such lenders or
other persons against such receivables or sell such receivables
or interests in receivables), letters of credit, notes or other
borrowings or other extensions of credit, including any notes,
mortgages, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case, as
amended, restated, modified, renewed, refunded, restated,
restructured, increased, supplemented, replaced or refinanced in
whole or in part from time to time, including any replacement,
refunding or refinancing facility or agreement that increases
the amount permitted to be borrowed thereunder or alters the
maturity thereof or adds entities as additional borrowers or
guarantors thereunder and whether by the same or any other
agent, lender, group of lenders, or otherwise.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
Designated Non-cash Consideration means the
fair market value of non-cash consideration received by the
Issuer or a Restricted Subsidiary in connection with an Asset
Sale that is so designated as Designated Non-cash Consideration
pursuant to an Officers Certificate, setting forth the
basis of such valuation, executed by the principal financial
officer of the Issuer, less the amount of cash or Cash
Equivalents received in connection with a subsequent sale of or
collection on such Designated Non-cash Consideration.
Designated Preferred Stock means preferred
stock of the Issuer or any parent corporation thereof (in each
case other than Disqualified Stock) that is issued for cash
(other than to the Issuer or any of its Subsidiaries) and is so
designated as Designated Preferred Stock pursuant to an
Officers Certificate executed by the principal financial
officer of the Issuer or the applicable parent corporation
thereof, as the case may be, on the issuance date thereof.
Discharge of ABL Debt Obligations means the
occurrence of all of the following:
(1) termination or expiration of all commitments to extend
credit that would constitute ABL Debt;
(2) payment in full in cash of the principal of, and
interest and premium, if any, on all ABL Debt (other than any
undrawn letters of credit), other than from the proceeds of an
incurrence of ABL Debt;
(3) discharge or cash collateralization (at the lower of
(A) 105% of the aggregate undrawn amount and (B) the
percentage of the aggregate undrawn amount required for release
of liens under the terms of the applicable ABL Debt Document) of
all outstanding letters of credit constituting ABL Debt; and
(4) payment in full in cash of all other ABL Debt
Obligations that are outstanding and unpaid at the time the ABL
Debt is paid in full in cash (other than any obligations for
taxes, costs, indemnifications, reimbursements, damages and
other liabilities in respect of which no claim or demand for
payment has been made at such time).
Discharge of Priority Lien Obligations means
the occurrence of all of the following:
(1) termination or expiration of all commitments to extend
credit that would constitute Priority Lien Debt;
191
(2) payment in full in cash of the principal of, and
interest and premium, if any, and Special Interest, if any, on,
all Priority Lien Debt (other than any undrawn letters of
credit), other than from the proceeds of an incurrence of
Priority Lien Debt;
(3) discharge or cash collateralization (at the lower of
(A) 105% of the aggregate undrawn amount and (B) the
percentage of the aggregate undrawn amount required for release
of liens under the terms of the applicable Priority Lien
Document) of all outstanding letters of credit constituting
Priority Lien Debt; and
(4) payment in full in cash of all other Priority Lien
Obligations that are outstanding and unpaid at the time the
Priority Lien Debt is paid in full in cash (other than any
obligations for taxes, costs, indemnifications, reimbursements,
damages and other liabilities in respect of which no claim or
demand for payment has been made at such time).
Disqualified Stock means any Capital Stock
that, by its terms (or by the terms of any security into which
it is convertible, or for which it is exchangeable, in each case
at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the
notes mature; provided, however, that only the portion of
the Capital Stock which so matures, is mandatorily redeemable or
is redeemable at the option of the holder prior to such date
shall be deemed to be Disqualified Stock. Notwithstanding the
preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the
right to require the Issuer to repurchase such Capital Stock
upon the occurrence of a Change of Control (or similarly defined
term) or an Asset Sale (or similarly defined term) shall not
constitute Disqualified Stock if the terms of such Capital Stock
provide that the Issuer may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under
the caption Certain Covenants
Restricted Payments. The term Disqualified
Stock shall also include any options, warrants or other
rights that are convertible into Disqualified Stock or that are
redeemable at the option of the holder, or required to be
redeemed, prior to the date that is 91 days after the date
on which the notes mature. Disqualified Stock shall not include
Capital Stock which is issued to any plan for the benefit of
employees of the Issuer or its Subsidiaries or by any such plan
to such employees solely because it may be required to be
repurchased by the Issuer or its Subsidiaries in order to
satisfy applicable statutory or regulatory obligations.
Domestic Subsidiary means any Restricted
Subsidiary of the Issuer that was formed under the laws of the
United States or any state of the United States or the District
of Columbia.
equally and ratably means, in reference to
sharing of Liens or proceeds thereof as between holders of
Secured Obligations within the same Class, that such Liens or
proceeds:
(1) will be allocated and distributed first to the Secured
Debt Representative for each outstanding Series of Priority Lien
Debt or Subordinated Lien Debt within that Class, for the
account of the holders of such Series of Priority Lien Debt or
Subordinated Lien Debt, ratably in proportion to the principal
of, and interest and premium (if any) and Special Interest (if
any) and reimbursement obligations (contingent or otherwise)
with respect to letters of credit, if any, outstanding (whether
or not drawings have been made on such letters of credit and
whether for payment or cash collateralization) on, each
outstanding Series of Priority Lien Debt or Subordinated Lien
Debt within that Class when the allocation or distribution is
made, and thereafter; and
(2) will be allocated and distributed (if any remain after
payment in full of all of the principal of, and interest and
premium (if any) and reimbursement obligations (contingent or
otherwise) with respect to letters of credit, if any,
outstanding (whether or not drawings have been made on such
letters of credit and whether for payment or cash
collateralization) on all outstanding Secured Obligations within
that Class) to the Secured Debt Representative for each
outstanding Series of Priority Lien Debt or Subordinated Lien
Debt within that Class, for the account of the holders of any
remaining Secured Obligations within that Class, ratably in
proportion to the aggregate unpaid amount of such remaining
Secured Obligations within that Class due and demanded (with
written notice to the applicable Secured Debt Representative and
the collateral trustee) prior to the date such distribution is
made.
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Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Excluded ABL Assets means each of the
following:
(1) Non-Core Assets;
(2) 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
Issuer and any Subsidiary Guarantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to
which the Issuer or such Subsidiary Guarantor is a party or
under which the Issuer or such Subsidiary Guarantor has any
right, title or interest or to which the Issuer or such
Subsidiary Guarantor or any property of the Issuer or such
Subsidiary Guarantor is subject, as the same may from time to
time be amended, supplemented or otherwise modified, including
(a) all rights of the Issuer or such Subsidiary Guarantor
to receive moneys due and to become due to it thereunder or in
connection therewith, (b) all rights of the Issuer or such
Subsidiary Guarantor to receive proceeds of any insurance,
indemnity, warranty or guarantee with respect thereto,
(c) all claims of the Issuer or such Subsidiary Guarantor
for damages arising out of any breach of or default thereunder
and (d) all rights of the Issuer or such Subsidiary
Guarantor 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 Issuer
or such Subsidiary Guarantor of a security interest in its
right, title and interest in any such contract, agreement,
instrument or indenture (i) is prohibited by such contract,
agreement, instrument or indenture without the consent of any
other party thereto, (ii) would give any other party to any
such contract, agreement, instrument or indenture the right to
terminate its obligations thereunder or (iii) is not
permitted without consent if all necessary consents to such
grant of a security interest have not 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) (provided that the foregoing shall not affect,
limit, restrict or impair the grant by Issuer or such Subsidiary
Guarantor of a security interest in any account or any money or
other amounts due or to become due under any such contract,
agreement, instrument or indenture);
(3) all equipment, as such term is defined in
Article 9 of the UCC, now or hereafter owned by the Issuer
or any Subsidiary Guarantor or to which the Issuer or any
Subsidiary Guarantor 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 Issuer or any Subsidiary Guarantor or to
which the Issuer or any Subsidiary Guarantor 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 to the extent
such equipment is subject to a Lien permitted by the indenture
and the terms of the Indebtedness securing such Lien prohibit
assignment of, or granting of a security interest in, the
Issuers or such Subsidiary Guarantors 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 equipment shall
cease to constitute an Excluded ABL Asset);
(4) 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, now or hereafter owned by the Issuer or
any Subsidiary Guarantor, in each case to the extent the grant
by the Issuer or such Subsidiary Guarantor of a security
interest in any such rights, priorities and privileges relating
to intellectual property (i) is prohibited by any contract,
agreement or other instrument governing such rights, priorities
and privileges without the consent of any other party thereto,
(ii) would give any other party to any such contract,
agreement or other instrument the right to
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terminate its obligations thereunder or (iii) is not
permitted without consent if all necessary consents to such
grant of a security interest have not 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); and
(5) all securities (whether certificated or
uncertificated), security entitlements, securities accounts,
commodity contracts and commodity accounts of the Issuer or any
Subsidiary Guarantor, whether now or hereafter acquired by the
Issuer or any Subsidiary Guarantor, in each case to the extent
the grant by the Issuer or a Subsidiary Guarantor of a security
interest therein in its right, title and interest in any such
investment property (i) is prohibited by any contract,
agreement, instrument or indenture governing such investment
property without the consent of any other party thereto,
(ii) would give any other party to any such contract,
agreement, instrument or indenture the right to terminate its
obligations thereunder or (iii) is not permitted without
the consent if all necessary consents to such grant of a
security interest have not 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).
Excluded Assets means each of the following:
(1) Excluded ABL Assets;
(2) all interests in real property other than fee interests
and other interests appurtenant thereto;
(3) fee interests in real property (a) on
December 21, 2009 other than the fee interests listed on
Exhibit G to the indenture and (b) acquired after
December 21, 2009 if the net book value of such fee
interest is less than $2.0 million;
(4) all securities of any of the Issuers
affiliates (as the terms securities and
affiliates are used in
Rule 3-16
of
Regulation S-X
under the Securities Act);
(5) any property or asset to the extent that the grant or
perfection of a Lien under the security documents in such
property or asset is prohibited by applicable law or requires
any consent of any governmental authority not obtained pursuant
to applicable law; provided that such property or asset
will be an Excluded Asset only to the extent and for so long as
the consequences specified above will result and will cease to
be an Excluded Asset and will become subject to the Lien granted
under the security documents, immediately and automatically, at
such time as such consequences will no longer result;
(6) any intellectual property to the extent that the grant
or perfection of a Lien under the security documents will
constitute or result in the abandonment, invalidation or
rendering unenforceable of any right, title or interest of any
grantor therein; provided that such property or asset
will be an Excluded Asset only to the extent and for so long as
the consequences specified above will result and will cease to
be an Excluded Asset and will become subject to the Lien granted
under the security documents, immediately and automatically, at
such time as such consequences will no longer result;
(7) (i) deposit or securities accounts the balance of
which consists exclusively of (a) withheld income taxes and
federal, state or local employment taxes in such amounts as are
required in the reasonable judgment of the Issuer or any
Subsidiary Guarantor to be paid to the Internal Revenue Service
or state or local government agencies within the following two
months with respect to employees of the Issuer or its
Subsidiaries and (b) amounts required to be paid over to an
employee benefit plan pursuant to DOL Reg. Sec. 2510.3 102 on
behalf of employees of the Issuer or its Subsidiaries, and
(ii) all segregated deposit or securities accounts
constituting (and the balance of which consists solely of funds
set aside in connection with) tax accounts, payroll accounts and
trust accounts;
(8) Equity Interests in any joint venture with a third
party that is not an Affiliate, to the extent a pledge of such
Equity Interests is prohibited by the documents covering such
joint venture;
(9) any property owned by a Foreign Subsidiary that is not
a Subsidiary Guarantor;
194
(10) items specified in the Security Agreement as
exceptions to the collateral described therein; and
(11) the cash, cash equivalents or other assets subject to
Permitted Liens described in clauses (5), (10), (11), (18),
(20), (23) (to the extent that the cash, cash equivalents or
other assets subject to a Permitted Lien that was refinanced
pursuant to clause (23) itself qualified as an Excluded
Asset), (26), (27), (28) and (29) of such definition;
provided that if and when any such cash, cash equivalents
or other assets cease to be subject to a Permitted Lien listed
in this clause (11), such property shall be deemed at all times
from and after December 21, 2009 to constitute Notes
Priority Collateral.
Excluded Contributions means net cash
proceeds received by the Issuer and its Restricted Subsidiaries
as capital contributions after December 21, 2009 or from
the issuance or sale (other than to a Restricted Subsidiary) of
Equity Interests (other than Disqualified Stock) of the Issuer
or a direct or indirect parent of the Issuer, in each case to
the extent designated as an Excluded Contribution pursuant to an
Officers Certificate and not previously included in the
calculation set forth in clause (3)(b) of paragraph (A) of
Certain Covenants Restricted Payments
for purposes of determining whether a Restricted Payment may be
made.
Excluded Subsidiary means:
(1) any Foreign Subsidiary; and
(2) any Restricted Subsidiary of the Issuer; provided
that (a) the total assets of all Restricted
Subsidiaries that are Excluded Subsidiaries solely as a result
of this clause (2), as reflected on their respective most recent
balance sheets prepared in accordance with GAAP, do not in the
aggregate at any time exceed $1.0 million and (b) the
total revenues of all Restricted Subsidiaries that are Excluded
Subsidiaries solely as a result of this clause (2) for the
twelvemonth period ending on the last day of the most recent
fiscal quarter for which financial statements for the Issuer are
available, as reflected on such income statements, do not in the
aggregate exceed $5.0 million.
Existing Indebtedness means the aggregate
principal amount of Indebtedness of the Issuer and its
Subsidiaries (other than Indebtedness under the ABL Credit
Facility) in existence on December 21, 2009, until such
amounts are repaid.
fair market value means the price that would
be paid in an arms-length transaction between an informed
and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy. For purposes of
determining compliance with the provisions of the indenture
described under the caption Certain
Covenants, any determination that the fair market value of
assets other than cash or Cash Equivalents is equal to or
greater than $50.0 million will be made by the
Issuers or Parents Board of Directors and evidenced
by a resolution thereof and set forth in an Officers
Certificate.
Fixed Charge Coverage Ratio means with
respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the
Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays, repurchases, retires or
redeems any Indebtedness or issues, repurchases or redeems
preferred stock or Disqualified Stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the Calculation Date), then
the Fixed Charge Coverage Ratio shall be calculated giving
pro forma effect to such incurrence, assumption,
Guarantee, repayment, repurchase, retirement or redemption of
Indebtedness, or such issuance, repurchase or redemption of
preferred stock or Disqualified Stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) Investments, acquisitions, dispositions, mergers,
consolidations, business restructurings, operational changes and
any financing transactions relating to any of the foregoing
(collectively, relevant transactions), in
each case that have been made by the specified Person or any of
its Restricted Subsidiaries during the four-quarter reference
period or subsequent to such reference period and on or prior to
the Calculation Date, shall be given pro forma effect as
if they had occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference
period shall be calculated on a pro forma basis,
including Pro
195
Forma Cost Savings; if since the beginning of such period any
Person that subsequently becomes a Restricted Subsidiary of the
Issuer or was merged with or into the Issuer or any Restricted
Subsidiary thereof since the beginning of such period shall have
made any relevant transaction that would have required
adjustment pursuant to this definition, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma
effect thereto for such period as if such relevant
transaction had occurred at the beginning of the applicable
four-quarter period and Consolidated Cash Flow for such
reference period shall be calculated on a pro forma
basis, including Pro Forma Cost Savings;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, shall be
excluded;
(3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, shall be
excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following
the Calculation Date; and
(4) consolidated interest expense attributable to interest
on any Indebtedness (whether existing or being incurred)
computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the
Calculation Date (taking into account any interest rate option,
swap, cap or similar agreement applicable to such Indebtedness
if such agreement has a remaining term in excess of
12 months or, if shorter, at least equal to the remaining
term of such Indebtedness) had been the applicable rate for the
entire period. Interest on Indebtedness that may optionally be
determined at an interest rate based on a factor of a prime or
similar rate, a Eurocurrency interbank offered rate, or other
rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen
as the Issuer may designate. Interest on any Indebtedness under
a revolving credit facility computed on a pro forma basis shall
be computed based on the average daily balance of such
Indebtedness during the applicable period except as set forth in
the first paragraph of this definition.
Fixed Charges means, with respect to any
specified Person for any period, the sum, without duplication,
of:
(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued, to the extent deducted (and not added back) in
computing Consolidated Net Income, including, without
limitation, (a) amortization of original issue discount,
(b) non-cash interest payments (but excluding any non-cash
interest expense attributable to the movement in the mark to
market valuation of Hedging Obligations or other derivative
instruments pursuant to GAAP), (c) the interest component
of any deferred payment obligations, (d) the interest
component of all payments associated with Capital Lease
Obligations, (e) imputed interest with respect to
Attributable Debt, (f) commissions, discounts and other
fees and charges incurred in respect of letter of credit or
bankers acceptance financings, and (g) in each case
net of the effect of all payments made or received pursuant to
Hedging Obligations, but in each case excluding
(v) accretion of accrual of discounted liabilities not
constituting Indebtedness, (w) any expense resulting from
the discounting of any outstanding Indebtedness in connection
with the application of purchase accounting in connection with
any acquisition, (x) any Special Interest,
(y) amortization of deferred financing fees, debt issuance
costs, commissions, fees and expenses and (z) any expensing
of bridge, commitment or other financing fees; plus
(2) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period;
plus
(3) any interest expense on Indebtedness of another Person
that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or
accrued and whether or not in cash, on any series of
Disqualified Stock of such Person or any of its Restricted
Subsidiaries, and all cash dividends on any series of preferred
stock of any Restricted Subsidiary of such Person, other than
dividends on Equity Interests payable solely in Equity Interests
of the Issuer (other than Disqualified Stock) or to the Issuer
or a Restricted Subsidiary of the Issuer, times (b) a
fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal,
less
196
(5) interest income for such period, in each case, on a
consolidated basis and in accordance with GAAP.
Foreign Subsidiary means any Restricted
Subsidiary of the Issuer other than a Domestic Subsidiary.
GAAP means generally accepted accounting
principles in the United States as set forth in the opinions and
pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, the opinions
and pronouncements of the Public Company Accounting Oversight
Board and in the statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect from time to
time. At any time after December 21, 2009, the Issuer may
elect to apply IFRS accounting principles in lieu of GAAP and,
upon any such election, references herein to GAAP shall
thereafter be construed to mean IFRS (except as otherwise
provided in the indenture); provided that any such
election, once made, shall be irrevocable; provided
further, that any calculation or determination in the
indenture that requires the application of GAAP for periods that
include fiscal quarters ended prior to the Companys
election to apply IFRS shall remain as previously calculated or
determined in accordance with GAAP. The Company shall give
notice of any such election made in accordance with this
definition to the Trustee and the holders of notes.
Government Securities means
(1) securities that are direct obligations of the United
States of America for the timely payment of which its full faith
and credit is pledged or (2) securities that are
obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States of America.
Guarantee means, as to any Person, a
guarantee other than by endorsement of negotiable instruments
for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of
a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any
Indebtedness of another Person.
Guarantors means:
(1) Parent;
(2) each direct or indirect Wholly Owned Domestic
Subsidiary of the Issuer on December 21, 2009 (other than
Excluded Subsidiaries);
(3) any other Restricted Subsidiary of the Issuer that has
issued a guarantee with respect to the ABL Credit Facility or
any other Indebtedness of the Issuer or any Guarantor; and
(4) any other Restricted Subsidiary of the Issuer that
executes a Note Guarantee in accordance with the provisions of
the indenture;
and their respective successors and assigns until released from
their obligations under their Note Guarantees and the indenture
in accordance with the terms of the indenture.
Hedging Obligations means, with respect to
any specified Person, the obligations of such Person under:
(1) interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements and other agreements
or arrangements designed for the purpose of fixing, hedging,
mitigating or swapping interest rate risk either generally or
under specific contingencies;
(2) foreign exchange contracts, currency swap agreements
and other agreements or arrangements designed for the purpose of
fixing, hedging, mitigating or swapping foreign currency
exchange rate risk either generally or under specific
contingencies; and
(3) commodity swap agreements, commodity cap agreements or
commodity collar agreements designed for the purpose of fixing,
hedging, mitigating or swapping commodity risk either generally
or under specific contingencies;
including, in each case, any guarantee obligations in respect
thereof.
holder means a Person in whose name a note is
registered.
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IFRS means the international accounting
standards promulgated by the International Accounting Standards
Board and its predecessors, as adopted by the European Union, as
in effect from time to time.
incur means, with respect to any
Indebtedness, to incur, create, issue, assume, guarantee or
otherwise become directly or indirectly liable for or with
respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness; provided
that (1) any Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary of the Issuer
will be deemed to be incurred by such Restricted Subsidiary at
the time it becomes a Restricted Subsidiary of the Issuer and
(2) neither the accrual of interest nor the accretion of
original issue discount nor the payment of interest in the form
of additional Indebtedness with the same terms and the payment
of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock (to the extent
provided for when the Indebtedness or Disqualified Stock on
which such interest or dividend is paid was originally issued)
shall be considered an incurrence of Indebtedness; provided
that in each case the amount thereof is for all other
purposes included in the Fixed Charges of the Issuer or its
Restricted Subsidiary as accrued and the amount of any such
accretion or payment of interest in the form of additional
Indebtedness or additional shares of Disqualified Stock is for
all purposes included in the Indebtedness of the Issuer or its
Restricted Subsidiary as accreted or paid.
Indebtedness means, with respect to any
specified Person, any indebtedness of such Person, whether or
not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments;
(3) evidenced by letters of credit (or reimbursement
agreements in respect thereof), but excluding obligations with
respect to letters of credit (including trade letters of credit)
securing obligations (other than obligations described in
clause (1) or (2) above or clause (4), (5), (6),
(7) or (8) below) entered into in the ordinary course
of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing
is reimbursed no later than the fifth business day following
receipt by such Person of a demand for reimbursement;
(4) in respect of bankers acceptances;
(5) in respect of Capital Lease Obligations and
Attributable Debt;
(6) in respect of the balance deferred and unpaid of the
purchase price of any property, except (i) any such balance
that constitutes an accrued expense or trade payable or similar
obligation to a trade creditor and (ii) any earn-out
obligations until such obligation becomes a liability on the
balance sheet of such Person in accordance with GAAP;
(7) representing Hedging Obligations, other than Hedging
Obligations that are incurred in the normal course of business
and not for speculative purposes, and that do not increase the
Indebtedness of the obligor outstanding at any time other than
as a result of fluctuations in interest rates, commodity prices
or foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder; or
(8) representing Disqualified Stock valued at the greater
of its voluntary or involuntary maximum fixed repurchase price.
In addition, the term Indebtedness includes
(1) all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person); provided that the
amount of such Indebtedness shall be the lesser of (a) the
fair market value of such asset at such date of determination
and (b) the amount of such Indebtedness, and (2) to
the extent not otherwise included, the Guarantee by the
specified Person of any Indebtedness of any other Person. For
purposes hereof, the maximum fixed repurchase price
of any Disqualified Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were purchased
on any date on which Indebtedness shall be required to be
determined pursuant to the indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified
Stock, such fair market value shall be determined in good faith
by the Board of Directors of the issuer of such Disqualified
Stock.
198
The amount of any Indebtedness outstanding as of any date shall
be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, and shall be:
(1) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the
case of any other Indebtedness;
provided that Indebtedness shall not include:
(i) any liability for foreign, federal, state, local or
other taxes,
(ii) 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,
(iii) any liability arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business; provided, however, that such
liability is extinguished within five business days of its
incurrence,
(iv) any liability owed to any Person in connection with
workers compensation, health, disability or other employee
benefits or property, casualty or liability insurance provided
by such Person pursuant to reimbursement or indemnification
obligations to such Person, in each case incurred in the
ordinary course of business,
(v) any indebtedness existing on December 21, 2009
that has been satisfied and discharged or defeased by legal
defeasance,
(vi) agreements providing for indemnification, adjustment
of purchase price or earnouts or similar obligations, or
Guarantees or letters of credit, surety bonds or performance
bonds securing any obligations of the Issuer or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
incurred in connection with the disposition or acquisition of
any business, assets or Restricted Subsidiary (other than
Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition), so long as the
principal amount does not exceed the gross proceeds actually
received in connection with such transaction, or
(vii) indebtedness under leases that exists solely as a
result of the implementation of the proposed revisions to lease
accounting standards by the Financial Accounting Standards Board
and the International Accounting Standards Board, as described
in the discussion paper Leases: Preliminary Views
dated March 2009.
No Indebtedness of any Person will be deemed to be contractually
subordinated in right of payment to any other Indebtedness of
such Person solely by virtue of being unsecured or by virtue of
being secured on a junior priority basis.
Insolvency or Liquidation Proceeding means:
(1) any case commenced by or against the Issuer or any
Guarantor under the Bankruptcy Code, or any similar federal or
state law for the relief of debtors, any other proceeding for
the reorganization, recapitalization or adjustment or
marshalling of the assets or liabilities of the Issuer or any
Guarantor, any receivership or assignment for the benefit of
creditors relating to the Issuer or any Guarantor or any similar
case or proceeding relative to the Issuer or any Guarantor or
its creditors, as such, in each case whether or not voluntary;
(2) any liquidation, dissolution, marshalling of assets or
liabilities or other winding up of or relating to the Issuer or
any Guarantor, in each case whether or not voluntary and whether
or not involving bankruptcy or insolvency, unless otherwise
permitted by the indenture and the security documents;
199
(3) any proceeding seeking the appointment of a trustee,
receiver, liquidator, custodian or other insolvency official
with respect to the Issuer or any Guarantor or any of their
assets;
(4) any other proceeding of any type or nature in which
substantially all claims of creditors of the Issuer or any
Guarantor are determined and any payment or distribution is or
may be made on account of such claims; or
(5) any analogous procedure or step in any jurisdiction.
Investment Grade Securities means:
(1) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof;
(2) debt securities or debt instruments with an investment
grade rating (but not including any debt securities or
instruments constituting loans or advances among the Issuer and
its Subsidiaries);
(3) investments in any fund that invests exclusively in
investments of the type described in clauses (1) and
(2) above which fund may also hold immaterial amounts of
cash pending investment or distribution; and
(4) corresponding instruments in countries other than the
United States customarily utilized for high quality investments.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the form of loans or
other extensions of credit (including Guarantees, but excluding
advances to customers or suppliers and trade credit in the
ordinary course of business to the extent they are in conformity
with GAAP, recorded as accounts receivable, prepaid expenses or
deposits on the balance sheet of the Issuer or its Restricted
Subsidiaries and endorsements for collection or deposit arising
in the ordinary course of business), advances (excluding
commission, payroll, travel and similar advances to officers,
directors and employees made in the ordinary course of business,
and excluding advances set forth in the preceding
parenthetical), capital contributions (by means of any transfer
of cash or other property to others or any payment for property
or services for the account or use of others), purchases or
other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are
or would be classified as investments on a balance sheet
prepared in accordance with GAAP. In no event shall a guarantee
of an operating lease of the Issuer or any Restricted Subsidiary
be deemed an Investment.
If the Issuer or any Restricted Subsidiary of the Issuer sells
or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Issuer such that, after
giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of the Issuer, the Issuer shall
be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the
Investment in such Restricted Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of
the covenant described above under the caption
Certain Covenants Restricted
Payments. The acquisition by the Issuer or any Restricted
Subsidiary of the Issuer of a Person that holds an Investment in
a third Person shall be deemed to be an Investment by the Issuer
or such Restricted Subsidiary in such third Person only if such
Investment was made in contemplation of, or in connection with,
the acquisition of such Person by the Issuer or such Restricted
Subsidiary and the amount of any such Investment shall be
determined as provided in the final paragraph of the covenant
described above under the caption Certain
Covenants Restricted Payments.
Junior Term Loan Facility means the
$450,000,000 Term Loan Credit Agreement, dated as of
May 22, 2008, among Parent, the several lenders from time
to time party thereto, Goldman Sachs Credit Partners L.P. and
Lehman Brothers Inc., as co-lead arrangers and joint
bookrunners, Lehman Brothers Commercial Paper Inc., as
administrative agent and collateral agent, and Goldman Sachs
Credit Partners L.P., as syndication agent, as amended.
Legal Holiday means a Saturday, a Sunday or a
day on which banking institutions in The City of New York or at
a place of payment are authorized by law, regulation or
executive order to remain closed.
Lien means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including
(1) any conditional sale or other title retention
agreement, (2) any lease in the nature thereof,
(3) any
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option or other agreement to sell or give a security interest
and (4) any filing, authorized by or on behalf of the
relevant grantor, of any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
Lien Sharing and Priority Confirmation means:
(1) as to any Series of Priority Lien Debt, the written
agreement of the Secured Debt Representative of such Series of
Priority Lien Debt, holders of such Series of Priority Lien Debt
or as set forth in the indenture, credit agreement or other
agreement governing such Series of Priority Lien Debt, for the
benefit of all holders of Secured Debt and each then present or
future Secured Debt Representative:
(a) that all Priority Lien Obligations will be and are
secured equally and ratably by all Priority Liens at any time
granted by the Issuer or any Subsidiary Guarantor to secure any
Obligations in respect of such Series of Priority Lien Debt,
whether or not upon property otherwise constituting Collateral,
and that all such Priority Liens will be enforceable by the
collateral trustee for the benefit of all holders of Priority
Lien Obligations equally and ratably;
(b) that the holders of Obligations in respect of such
Series of Priority Lien Debt are bound by the provisions of the
collateral trust agreement, including the provisions relating to
the ranking of Priority Liens and the order of application of
proceeds from enforcement of Priority Liens; and
(c) consenting to the terms of the collateral trust
agreement and the intercreditor agreement and the collateral
trustees performance of, and directing the collateral
trustee to perform, its obligations under the collateral trust
agreement and the intercreditor agreement;
(2) as to any Series of ABL Debt, the written agreement of
the Secured Debt Representative of such Series of ABL Debt, the
holders of such Series of ABL Debt or as set forth in the credit
agreement, indenture or other agreement governing such Series of
ABL Debt, for the benefit of all holders of Secured Debt and
each then present future Secured Debt Representative, that the
holders of Obligations in respect of such Series of ABL Debt are
bound by the provisions of the intercreditor agreement; and
(3) as to any Series of Subordinated Lien Debt, the written
agreement of the Secured Debt Representative of such Series of
Subordinated Lien Debt, the holders of such Series of
Subordinated Lien Debt or as set forth in the indenture, credit
agreement or other agreement governing such Series of
Subordinated Lien Debt, for the benefit of all holders of
Secured Debt and each then present or future Secured Debt
Representative:
(a) that all Subordinated Lien Obligations will be and are
secured equally and ratably by all Subordinated Liens at any
time granted by the Issuer or any Subsidiary Guarantor to secure
any Obligations in respect of such Series of Subordinated Lien
Debt, whether or not upon property otherwise constituting
Collateral for such Series of Subordinated Lien Debt, and that
all such Subordinated Liens will be enforceable by the
collateral trustee for the benefit of all holders of
Subordinated Lien Obligations equally and ratably;
(b) that the holders of Obligations in respect of such
Series of Subordinated Lien Debt are bound by the provisions of
the collateral trust agreement and the intercreditor agreement,
including the provisions relating to the ranking of Subordinated
Liens and the order of application of proceeds from the
enforcement of Subordinated Liens; and
(c) consenting to the terms of the collateral trust
agreement and the intercreditor agreement and the collateral
trustees performance of, and directing the collateral
trustee to perform, its obligations under the collateral trust
agreement and the intercreditor agreement.
Moodys means Moodys Investors
Service Inc., and any successor to the rating agency business
thereto.
Net Income means, with respect to any Person,
the net income (loss) of such Person, determined in accordance
with GAAP and before any reduction in respect of dividends on
preferred stock.
Net Proceeds means the aggregate cash
proceeds, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not the interest component, thereof) received by the
201
Issuer or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of (1) the direct costs
relating to such Asset Sale and the sale or other disposition of
any non-cash consideration, including, without limitation,
legal, accounting and investment banking fees, and brokerage or
sales commissions, and any relocation expenses incurred as a
result thereof, (2) taxes paid or payable as a result
thereof, in each case, after taking into account any available
tax credits or deductions and any tax sharing arrangements,
(3) amounts required to be applied to the repayment of
Indebtedness or other liabilities, secured by a Lien on the
asset or assets that were the subject of such Asset Sale, or
required to be paid as a result of such sale, and (4) any
reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP, as well as
any other reserve established in accordance with GAAP related to
pension and other post-employment benefit liabilities,
liabilities related to environmental matters, or any
indemnification obligations associated with such transaction;
provided that, in the case of a Sale of a Subsidiary
Guarantor, any Net Proceeds received in such Sale of a
Subsidiary Guarantor in respect of ABL Priority Collateral will
constitute Net Proceeds from an Asset Sale other than a Sale of
a Subsidiary Guarantor and will not constitute Net Proceeds from
an Asset Sale that constitutes a Sale of a Subsidiary Guarantor.
New York Uniform Commercial Code means the
Uniform Commercial Code as in effect from time to time in the
State of New York.
Non-Core Assets means the following assets
owned by the Issuer
and/or its
Subsidiaries on the date hereof: (1) 623,521 shares of
common stock of PrimeEnergy Corporation; (2) Hansford
Street property and building and fixtures related thereto (1352,
1354, 1401 and 1403 Hansford Street, Charleston, WV 25301); and
(3) Vacant lot and fixtures related thereto at Hillcrest
Drive (835 Hillcrest Drive, Charleston, WV, 25311).
note documents means the indenture, the notes
and the security documents related to the notes, each as amended
or supplemented in accordance with the terms thereof.
Note Guarantee means a Guarantee of the notes
pursuant to the indenture.
Notes Priority Collateral means all of the
tangible and intangible properties and assets at any time owned
or acquired by the Issuer or any Subsidiary Guarantor, except:
(1) Excluded Assets; and
(2) ABL Priority Collateral.
Obligations means any principal, interest,
penalties, fees, expenses, indemnifications, reimbursements,
damages and other liabilities (including all interest, Special
Interest (if any), fees and expenses accruing after the
commencement of any Insolvency or Liquidation Proceeding, even
if such interest, fees and expenses are not enforceable,
allowable or allowed as a claim in such proceeding) under any
Secured Debt Documents or ABL Debt Documents, as the case may be.
Officer means, with respect to any Person,
the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller,
the General Counsel, the Secretary, any Executive Vice
President, any Senior Vice President, any Vice President or any
Assistant Vice President of such Person.
Officers Certificate means a
certificate signed on behalf of the Issuer by an Officer of the
Issuer, who must be the principal executive officer, the
principal financial officer, the treasurer, the principal
accounting officer or the general counsel of the Issuer that
meets the requirements of the indenture.
Opinion of Counsel means an opinion from
legal counsel who is reasonably acceptable to the trustee (who
may be counsel to or an employee of the Issuer, any Subsidiary
of the Issuer or the trustee) that meets the requirements of the
indenture.
Parent means McJunkin Red Man Holding
Corporation, a Delaware corporation, and its successors.
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Permitted Business means any business
conducted or proposed to be conducted (as described in the
offering circular) by the Issuer and its Restricted Subsidiaries
on December 21, 2009 and other businesses reasonably
related, complementary or ancillary thereto and reasonable
expansions or extensions thereof.
Permitted Holder means each of the Principals
and their Related Parties, PVF Holdings LLC and its members, and
members of management of the Issuer or a direct or indirect
parent of the Issuer and any group (within the meaning of
Section 1 3(d)(3) or Section 1 4(d)(2) of the Exchange
Act or any successor provision) of which any of the foregoing
are members; provided that in the case of such group and
without giving effect to the existence of such group or any
other group, such Principals, Related Parties, PVF Holdings LLC
and its members and members of management, collectively, have
direct or indirect beneficial ownership of more than 50% of the
total voting power of the Voting Stock of the Issuer.
Permitted Investments means:
(1) any Investment in the Issuer or in a Restricted
Subsidiary of the Issuer;
(2) any Investment in cash or Cash Equivalents or
Investment Grade Securities;
(3) any Investment by the Issuer or any Restricted
Subsidiary of the Issuer in a Person, if as a result of such
Investment:
(a) such Person becomes a Restricted Subsidiary of the
Issuer; or
(b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Issuer or a Restricted Subsidiary
of the Issuer;
and, in each case, any Investment held by such Person,
provided that such Investment was not acquired by such
Person in contemplation of such acquisition, merger,
consolidation or transfer;
(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales or from any other
disposition of assets not constituting an Asset Sale;
(5) Investments to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
the Issuer or any direct or indirect parent of the Issuer;
(6) Hedging Obligations that are incurred in the normal
course of business and not for speculative purposes, and that do
not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in interest rates,
commodity prices or foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder;
(7) Investments received in satisfaction of judgments or in
settlements of debt or compromises of obligations incurred in
the ordinary course of business;
(8) loans or advances to employees of the Issuer or any of
its Restricted Subsidiaries that are approved by a majority of
the disinterested members of the Board of Directors of the
Issuer or Parent, in an aggregate principal amount of
$5.0 million at any one time outstanding;
(9) Investments consisting of the licensing or contribution
of intellectual property pursuant to joint marketing
arrangements with other Persons; and
(10) other Investments in any Person that is not an
Affiliate of the Issuer (other than a Restricted Subsidiary or
any Person that is an Affiliate of the Issuer solely because the
Issuer, directly or indirectly, own Equity Interests in or
controls such Person) having an aggregate fair market value
(measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this
clause (10) since December 21, 2009, not to exceed the
greater of (1) $75.0 million and (2) 2.5% of the
Issuers Consolidated Total Assets at the time of such
Investment;
(11) any Investment existing on December 21, 2009;
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(12) any Investment acquired by the Issuer or any of its
Restricted Subsidiaries (a) in exchange for any other
Investment or accounts receivable held by the Issuer or any such
Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or accounts receivable or
(b) as a result of a foreclosure by the Issuer or any of
its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any
secured Investment in default;
(13) guarantees of Indebtedness of the Issuer or any
Restricted Subsidiary which Indebtedness is permitted under the
covenant described in Certain Covenants
Incurrence of Indebtedness and Issuance of Disqualified Stock
and Preferred Stock;
(14) any transaction which constitutes an Investment to the
extent permitted and made in accordance with the provisions of
the covenant described under Certain
Covenants Transactions With Affiliates;
(15) Investments consisting of purchases and acquisitions
of inventory, supplies, material or equipment;
(16) Investments (including debt obligations and Equity
Interests) received in connection with the bankruptcy or
reorganization of suppliers and customers or in settlement of
delinquent obligations of, or other disputes with, customers and
suppliers arising in the ordinary course of business; and
(17) Investments in Unrestricted Subsidiaries and joint
ventures of the Issuer or any of its Restricted Subsidiaries in
an aggregate amount not to exceed $75.0 million.
Permitted Liens means:
(1) Liens on ABL Priority Collateral securing (a) ABL
Debt in an aggregate principal amount (as of the date of
incurrence of any ABL Debt and after giving pro forma
effect to the application of the net proceeds therefrom and
with letters of credit issued under the ABL Credit Facility
being deemed to have a principal amount equal to the face amount
thereof), not exceeding the ABL Lien Cap, and (b) all other
ABL Debt Obligations;
(2) Priority Liens securing (a) Priority Lien Debt in
an aggregate principal amount (as of the date of incurrence of
any Priority Lien Debt and after giving pro forma effect
to the application of the net proceeds therefrom and with
letters of credit issued under any Priority Lien Documents being
deemed to have a principal amount equal to the face amount
thereof), not exceeding the Priority Lien Cap, and (b) all
other Priority Lien Obligations;
(3) Subordinated Liens securing (a) Subordinated Lien
Debt in an aggregate principal amount (as of the date of
incurrence of any Subordinated Lien Debt and after giving pro
forma effect to the application of the net proceeds
therefrom), not exceeding the Subordinated Lien Cap and
(b) all other Subordinated Lien Obligations, which Liens
are made junior to the Priority Lien Obligations (and, with
respect to ABL Priority Collateral, to ABL Lien Obligations)
pursuant to the collateral trust agreement and the intercreditor
agreement;
(4) Liens in favor of the Issuer or any Restricted
Subsidiary;
(5) Liens on property or Capital Stock of a Person existing
at the time such Person is acquired by, merged with or into or
consolidated, combined or amalgamated with the Issuer or any
Restricted Subsidiary of the Issuer; provided that such
Liens were in existence prior to, and were not incurred in
connection with or in contemplation of, such merger,
acquisition, consolidation, combination or amalgamation and do
not extend to any assets other than those of the Person acquired
by or merged into or consolidated, combined or amalgamated with
the Issuer or the Restricted Subsidiary;
(6) Liens on property existing at the time of acquisition
thereof by the Issuer or any Restricted Subsidiary of the
Issuer; provided that such Liens were in existence prior
to, and were not incurred in connection with or in contemplation
of, such acquisition and do not extend to any property other
than the property so acquired by the Issuer or the Restricted
Subsidiary;
(7) Liens existing on December 21, 2009, other than
liens to secure the notes issued on December 21, 2009 or to
secure Obligations under the ABL Credit Facility outstanding on
such date;
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(8) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture (other than ABL
Debt, Priority Lien Debt or Subordinated Lien Debt); provided
that (a) the new Lien shall be limited to all or part
of the same property and assets that secured the original Lien,
and (b) the Indebtedness secured by the new Lien is not
increased to any amount greater than the sum of (i) the
outstanding principal amount or, if greater, committed amount of
the Indebtedness renewed, refunded, refinanced, replaced,
defeased or discharged with such Permitted Refinancing
Indebtedness, and (ii) an amount necessary to pay any fees
and expenses, including premiums, related to such renewal,
refunding, refinancing, replacement, defeasance or discharge;
(9) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by the provision described in
clause (4) of the second paragraph of the covenant
described under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock; provided
that any such Lien (i) covers only the assets acquired,
constructed or improved with such Indebtedness and (ii) is
created within 180 days of such acquisition, construction
or improvement;
(10) Liens incurred or pledges or deposits made in the
ordinary course of business in connection with workers
compensation, unemployment insurance and other types of social
security and employee health and disability benefits;
(11) Liens to secure the performance of bids, tenders,
completion guarantees, public or statutory obligations, surety
or appeal bonds, bid leases, performance bonds, reimbursement
obligations under letters of credit that do not constitute
Indebtedness or other obligations of a like nature, and deposits
as security for contested taxes or for the payment of rent, in
each case incurred in the ordinary course of business;
(12) Liens for taxes, assessments or governmental charges
or claims that are not yet overdue by more than 30 days or
that are payable or subject to penalties for nonpayment or that
are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; provided
that any reserve or other appropriate provision required under
GAAP has been made therefor;
(13) Carriers, warehousemens, landlords,
mechanics, suppliers, materialmens and
repairmens and similar Liens, or Liens in favor of customs
or revenue authorities or freight forwarders or handlers to
secure payment of custom duties, in each case (whether imposed
by law or agreement) incurred in the ordinary course of business;
(14) licenses, entitlements, servitudes, easements,
rights-of-way, restrictions, reservations, covenants,
conditions, utility agreements, rights of others to use sewers,
electric lines and telegraph and telephone lines, minor
imperfections of title, minor survey defects, minor encumbrances
or other similar restrictions on the use of any real property,
including zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business,
that were not incurred in connection with Indebtedness and do
not, in the aggregate, materially diminish the value of said
properties or materially interfere with their use in the
operation of the business of the Issuer or any of its Restricted
Subsidiaries;
(15) leases, subleases, licenses, sublicenses or other
occupancy agreements granted to others in the ordinary course of
business which do not secure any Indebtedness and which do not
materially interfere with the ordinary course of business of the
Issuer or any of its Restricted Subsidiaries;
(16) with respect to any leasehold interest where the
Issuer or any Restricted Subsidiary of the Issuer is a lessee,
tenant, subtenant or other occupant, mortgages, obligations,
liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord
or sublandlord of such leased real property encumbering such
landlords or sublandlords interest in such leased
real property;
(17) Liens arising from Uniform Commercial Code financing
statement filings regarding precautionary filings, consignment
arrangements or operating leases entered into by the Issuer or
any of its Restricted Subsidiaries granted in the ordinary
course of business;
(18) Liens (i) of a collection bank arising under
Section 4-210
of the New York Uniform Commercial Code on items in the course
of collection, (ii) in favor of banking institutions
arising as a matter of law encumbering deposits (including the
right of set-off) within general parameters customary in the
banking
205
industry or (iii) attaching to commodity trading accounts
or other commodity brokerage accounts incurred in the ordinary
course of business;
(19) Liens securing judgments for the payment of money not
constituting an Event of Default under the indenture pursuant to
clause (6) under Events of Default and
Remedies, so long as such Liens are adequately bonded;
(20) deposits made in the ordinary course of business to
secure liability to insurance carriers;
(21) Liens arising out of conditional sale, title
retention, consignment or similar arrangements, or that are
contractual rights of set-off, relating to the sale or purchase
of goods entered into by the Issuer or any of its Restricted
Subsidiaries in the ordinary course of business;
(22) any encumbrance or restriction (including put and call
arrangements) with respect to Capital Stock of any joint venture
or similar arrangement pursuant to any joint venture or similar
agreement permitted under the indenture;
(23) any extension, renewal or replacement, in whole or in
part of any Lien described in clauses (5), (6), (7), (9),
(13) through (16), (18), (19) and (22) through
(29) of this definition of Permitted Liens;
provided that any such extension, renewal or replacement
is no more restrictive in any material respect than any Lien so
extended, renewed or replaced and does not extend to any
additional property or assets;
(24) Liens on cash or Cash Equivalents securing Hedging
Obligations incurred by the Company or any Subsidiary Guarantor
in the normal course of business and not for speculative
purposes;
(25) Liens other than any of the foregoing incurred by the
Issuer or any Restricted Subsidiary of the Issuer with respect
to Indebtedness or other obligations that do not, in the
aggregate, exceed $50.0 million at any one time outstanding;
(26) Liens on Capital Stock issued by, or any property or
assets of, any Foreign Subsidiary securing Indebtedness incurred
by a Foreign Subsidiary in compliance with the covenant
described under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock;
(27) Liens deemed to exist in connection with Investments
in repurchase agreements permitted under Certain
Covenants Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock, provided
that such Liens do not extend to any assets other than those
that are the subject of such repurchase agreement;
(28) 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; and
(29) Liens solely on any cash earnest money deposits made
by the Issuer or any of its Restricted Subsidiaries in
connection with any letter of intent or purchase agreement not
prohibited by the indenture.
Permitted Prior Liens means:
(1) Liens described in clauses (1), (5), (6), (7), (8) (to
the extent the Lien refinanced pursuant to clause (8)
itself qualified as a Permitted Prior Lien), (9), (10), (11),
(13), (18), (19), (20), (21), (22), (23) (to the extent the Lien
refinanced pursuant to clause (23) itself qualified as a
Permitted Prior Lien), (24), (25), (26), (27), (28) and
(29) of the definition of Permitted
Liens; and
(2) Permitted Liens that arise by operation of law and are
not voluntarily granted, to the extent entitled by law to
priority over the Liens created by the security documents.
Permitted Refinancing Indebtedness means:
(A) any Indebtedness of the Issuer or any of its Restricted
Subsidiaries (other than Disqualified Stock) issued in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or
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refund other Indebtedness of the Issuer or any of its Restricted
Subsidiaries (other than Disqualified Stock and intercompany
Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus all accrued interest thereon
and the amount of any reasonably determined premium necessary to
accomplish such refinancing and such reasonable fees and
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is contractually
subordinated in right of payment to the notes or the Note
Guarantees, such Permitted Refinancing Indebtedness is
contractually subordinated in right of payment to, the notes on
terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;
(4) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is pari passu in
right of payment with the notes or any Note Guarantees, such
Permitted Refinancing Indebtedness is par! passu in right
of payment with, or subordinated in right of payment to, the
notes or such Note Guarantees; and
(5) such Indebtedness is incurred either (a) by the
Issuer or any Subsidiary Guarantor or (b) the Restricted
Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or
refunded; and
(B) any Disqualified Stock of the Issuer or any of its
Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace
or refund other Disqualified Stock of the Issuer or any of its
Restricted Subsidiaries (other than Disqualified Stock held by
the Issuer or any of its Restricted Subsidiaries); provided
that:
(1) the liquidation or face value of such Permitted
Refinancing Indebtedness does not exceed the liquidation or face
value of the Disqualified Stock so extended, refinanced,
renewed, replaced or refunded (plus all accrued dividends
thereon and the amount of any reasonably determined premium
necessary to accomplish such refinancing and such reasonable
fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
redemption date later than the final redemption date of, and has
a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Disqualified Stock
being extended, refinanced, renewed, replaced or refunded;
(3) such Permitted Refinancing Indebtedness has a final
redemption date later than the final maturity date of, and is
contractually subordinated in right of payment to, the notes on
terms at least as favorable to the holders of notes as those
contained in the documentation governing the Disqualified Stock
being extended, refinanced, renewed, replaced or refunded;
(4) such Permitted Refinancing Indebtedness is not
redeemable at the option of the holder thereof or mandatorily
redeemable prior to the final maturity of the Disqualified Stock
being extended, refinanced, renewed, replaced or
refunded; and
(5) such Disqualified Stock is issued either (a) by
the Issuer or any Subsidiary Guarantor or (b) by the
Restricted Subsidiary that is the issuer of the Disqualified
Stock being extended, refinanced, renewed, replaced or refunded.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
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preferred stock means, with respect to any
Person, any Capital Stock of such Person that has preferential
rights to any other Capital Stock of such Person with respect to
dividends or redemptions upon liquidation.
Principals means The Goldman Sachs Group,
Inc., a Delaware corporation, Goldman, Sachs & Co., a
New York limited partnership, GS Capital Partners V Fund, L.P.,
a Delaware limited partnership, and GS Capital Partners VI Fund,
L.P., a Delaware limited partnership.
Priority Lien means a Lien granted by a
security document to the collateral trustee, at any time, upon
any property of the Issuer or any Guarantor to secure Priority
Lien Obligations.
Priority Lien Cap means, as of any date of
determination, the amount of Priority Lien Debt that may be
incurred by the Issuer or any of the Subsidiary Guarantors such
that, after giving pro forma effect to such incurrence
and the application of the net proceeds therefrom, the Priority
Lien Debt Ratio would not exceed (i) 3.75 to 1.0 at any
time after the Companys financial results for the fiscal
quarter ended March 31, 2010 would be included in the
calculation of the Priority Lien Debt Ratio and (ii) 3.00
to 1.0 at any time prior thereto.
Priority Lien Debt means:
(1) the original first lien notes together with the related
Note Guarantees of the Subsidiary Guarantors (and exchange notes
and exchange guarantees issued in lieu thereof);
(2) the additional first lien notes together with the
related Note Guarantees of the Subsidiary Guarantors (and
exchange notes and exchange guarantees issued in lieu thereof)
and any additional notes issued under any indenture or other
Indebtedness (including letters of credit and reimbursement
obligations with respect thereto) of the Issuer that is secured
equally and ratably with the notes by a Priority Lien that was
permitted to be incurred and so secured under each applicable
Secured Debt Document, and guarantees (including Note
Guarantees) thereof by any of the Guarantors; provided,
in the case of any additional notes, guarantees or other
Indebtedness referred to in this clause (2), that:
(a) on or before the date on which such additional notes
are issued or Indebtedness is incurred by the Issuer or
guarantees incurred by such Subsidiary Guarantor, such
additional notes, guarantees or other Indebtedness, as
applicable, is designated by the Issuer, in an Officers
Certificate delivered to the collateral trustee, as
Priority Lien Debt for the purposes of the Secured
Debt Documents; provided that no Series of Secured Debt
may be designated as both Subordinated Lien Debt and Priority
Lien Debt and no Series of Secured Debt may be designated as
both ABL Debt and Priority Lien Debt;
(b) such additional notes, guarantees or other Indebtedness
is governed by an indenture or a credit agreement, as
applicable, or other agreement that includes a Lien Sharing and
Priority Confirmation and meets the requirements described in
Provisions of the Indenture Relating to
Security Equal and Ratable Sharing of Collateral by
Holders of Priority Lien Debt; and
(c) all requirements set forth in the collateral trust
agreement as to the confirmation, grant or perfection of the
collateral trustees Lien to secure such additional notes,
guarantees or other Indebtedness or Obligations in respect
thereof are satisfied (and the satisfaction of such requirements
and the other provisions of this clause (c) will be
conclusively established if the Issuer delivers to the
collateral trustee an Officers Certificate stating that
such requirements and other provisions have been satisfied and
that such notes, guarantees or other Indebtedness is
Priority Lien Debt); and
(3) Hedging Obligations of the Issuer or any Subsidiary
Guarantor incurred in accordance with the terms of the Secured
Debt Documents; provided that:
(a) on or before or within thirty (30) days after the
date on which such Hedging Obligations are incurred by the
Issuer or Subsidiary Guarantor (or on or within thirty
(30) days after December 21, 2009 for Hedging
Obligations in existence on such date), such Hedging Obligations
are designated by the Issuer or Subsidiary Guarantor, as
applicable, in an Officers Certificate delivered to the
collateral trustee, as Priority Lien Debt for the
purposes of the Secured Debt Documents; provided that no
Hedging Obligation may be designated as both Priority Lien Debt
and Subordinated Lien Debt;
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(b) the counterparty in respect of such Hedging
Obligations, in its capacity as a holder or beneficiary of such
Priority Lien, executes and delivers a joinder to the collateral
trust agreement in accordance with the terms thereof or
otherwise becomes subject to the terms of the collateral trust
agreement; and
(c) all other requirements set forth in the collateral
trust agreement have been complied with (and the satisfaction of
such requirements will be conclusively established if the Issuer
delivers to the collateral trustee an Officers Certificate
stating that such requirements and other provisions have been
satisfied and that such Hedging Obligations are Priority
Lien Debt).
Priority Lien Debt Ratio means, as of any
date of determination, the ratio of Priority Lien Debt of the
Issuer and its Restricted Subsidiaries as of that date to the
Issuers Consolidated Cash Flow for the most recently ended
four full fiscal quarters for which internal financial
statements are available immediately preceding the date of
determination, with such adjustments to the amount of Priority
Lien Debt and Consolidated Cash Flow as are consistent with the
adjustment provisions set forth in the definition of Fixed
Charge Coverage Ratio. For purposes of this calculation,
the amount of Priority Lien Debt outstanding as of any date of
determination shall not include any Priority Lien Debt that
consists solely of Hedging Obligations that are incurred in the
normal course of business and not for speculative purposes.
Priority Lien Documents means the indenture
and any additional indenture, credit facility or other agreement
pursuant to which any Priority Lien Debt is incurred and the
security documents related thereto (other than any security
documents that do not secure Priority Lien Obligations), as each
may be amended, supplemented or otherwise modified.
Priority Lien Obligations means Priority Lien
Debt and all other Obligations in respect thereof.
Priority Lien Representative means
(1) the collateral trustee, in the case of the notes, or
(2) in the case of any other Series of Priority Lien Debt,
the trustee, agent or representative of the holders of such
Series of Priority Lien Debt who is appointed as a
representative of such Series of Priority Lien Debt (for
purposes related to the administration of the security
documents) pursuant to the indenture, credit agreement or other
agreement governing such Series of Priority Lien Debt.
Pro Forma Cost Savings means, with respect to
any period, the reduction in net costs and related adjustments
that (1) are directly attributable to an acquisition that
occurred during the four- quarter period or after the end of the
four-quarter period and on or prior to the Calculation Date and
calculated on a basis that is consistent with
Regulation S-X
under the Securities Act as in effect and applied as of
December 21, 2009, (2) were actually implemented with
respect to any acquisition within 12 months after the date
of the acquisition and prior to the Calculation Date that are
supportable and quantifiable by underlying accounting records or
(3) the Issuer reasonably determines are probable based
upon specifically identifiable actions taken or to be taken
within 12 months of the date of determination and, in the
case of each of (1), (2) and (3), are described, as
provided below, in an Officers Certificate, as if all such
reductions in costs had been effected as of the beginning of
such period. Pro Forma Cost Savings described above shall be
established by a certificate delivered to the trustee from the
Issuers Chief Financial Officer that outlines the specific
actions taken or to be taken and the net cost savings achieved
or to be achieved from each such action and, in the case of
clause (3) above, that states such savings have been
determined to be probable.
Qualified Equity Offering means (1) any
public or private placement of Capital Stock (other than
Disqualified Stock) of the Issuer, Parent or any other direct or
indirect parent of the Issuer (other than Capital Stock sold to
the Issuer or a Subsidiary of the Issuer); provided that
if such public offering or private placement is of Capital Stock
of Parent or any other direct or indirect parent of the Issuer,
the term Qualified Equity Offering shall refer to
the portion of the net cash proceeds therefrom that has been
contributed to the equity capital of the Issuer or (2) the
contribution of cash to the Issuer as an equity capital
contribution.
Rating Agency means each of
(1) S&P, (2) Moodys and (3) if either
S&P or Moodys no longer provide ratings, any other
ratings agency which is nationally recognized for rating debt
securities.
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Related Party means (1) any investment
fund under common control or management with The Goldman Sachs
Group, Inc., (2) any controlling stockholder, general
partner or member of The Goldman Sachs Group, Inc. and
(3) any trust, corporation, limited liability company or
other entity, the beneficiaries, stockholders, members, general
partners or Persons Beneficially Owning an 80% or more interest
of which consist of The Goldman Sachs Group, Inc.
and/or the
Persons referred to in the immediately preceding
clauses (1) and (2). Notwithstanding the foregoing, the
term Related Party shall not include any operating
company which would be deemed a Related Party solely
by virtue of ownership by The Goldman Sachs Group, Inc.
and/or the
Persons referred to in the immediately preceding
clauses (1) and (2).
Replacement Assets means (1) tangible
assets that will be used or useful in a Permitted Business or
(2) substantially all the assets of a Permitted Business or
a majority of the Voting Stock of any Person engaged in a
Permitted Business that will become on the date of acquisition
thereof a Restricted Subsidiary.
Required Priority Lien Debtholders means, at
any time, the holders of a majority in aggregate principal
amount of all Priority Lien Debt then outstanding, calculated in
accordance with the provisions described in
The Collateral
Trust Agreement Voting. For purposes of
this definition, Priority Lien Debt registered in the name of,
or beneficially owned by, any issuer thereof, any guarantor
thereof or any Affiliate of any issuer or any guarantor thereof
will be deemed not to be outstanding.
Required Subordinated Lien Debtholders means,
at any time, the holders of a majority in aggregate principal
amount of all Subordinated Lien Debt then outstanding,
calculated in accordance with the provisions described in
The Collateral
Trust Agreement Voting. For purposes of
this definition, Subordinated Lien Debt registered in the name
of, or beneficially owned by, any issuer thereof, any guarantor
thereof or any Affiliate of any issuer or any guarantor thereof
will be deemed not to be outstanding.
Restricted Investment means an Investment
other than a Permitted Investment.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
S&P means Standard &
Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc., and any successor to the rating agency business
thereto.
Sale and Leaseback Transaction means, with
respect to any Person, any transaction involving any of the
assets or properties of such Person whether now owned or
hereafter acquired, whereby such Person sells or transfers such
assets or properties and then or thereafter leases such assets
or properties or any part thereof.
Sale of a Subsidiary Guarantor means
(1) any Asset Sale to the extent involving a sale, lease,
conveyance or other disposition of a majority of the Capital
Stock of a Subsidiary Guarantor or (2) the issuance of
Equity Interests by a Subsidiary Guarantor, other than
(a) an issuance of Equity Interests by a Subsidiary
Guarantor to the Issuer or another Subsidiary Guarantor and
(b) an issuance of directors qualifying shares.
Sale of Notes Priority Collateral means any
Asset Sale to the extent involving a sale, lease, conveyance or
other disposition of Notes Priority Collateral.
Secured Debt means Priority Lien Debt and
Subordinated Lien Debt.
Secured Debt Documents means the Priority
Lien Documents and the Subordinated Lien Documents.
Secured Debt Representative means each
Priority Lien Representative and Subordinated Lien
Representative.
Secured Obligations means Priority Lien
Obligations and Subordinated Lien Obligations.
Security Agreement means the Security
Agreement dated as of December 21, 2009, by and among the
issuer, the Subsidiary Guarantors and the collateral trustee, as
amended or supplemented from time to time in accordance with its
terms.
security documents means the collateral trust
agreement, the intercreditor agreement, each Lien Sharing and
Priority Confirmation, and all security agreements, pledge
agreements, collateral assignments, collateral agency
210
agreements, debentures, control agreements or other grants or
transfers for security executed and delivered by the Issuer or
any Guarantor creating (or purporting to create) a Lien upon
Collateral in favor of the collateral trustee, in each case, as
amended, modified, renewed, restated or replaced, in whole or in
part, from time to time, in accordance with its terms and the
provisions described above under the caption
The Collateral
Trust Agreement Amendment of Security
Documents.
Series of ABL Debt means, severally, the ABL
Credit Facility and any Credit Facility and other Indebtedness
or Hedging Obligations that constitutes ABL Debt Obligations.
Series of Priority Lien Debt means,
severally, the notes and any additional notes, any Credit
Facility (other than the ABL Credit Facility) and other
Indebtedness or Hedging Obligations that constitutes Priority
Lien Debt.
Series of Secured Debt means each Series of
Subordinated Lien Debt and each Series of Priority Lien Debt.
Series of Subordinated Lien Debt means,
severally, each issue or series of Subordinated Lien Debt for
which a single transfer register is maintained.
Shelf Registration Statement has the meaning
set forth in the exchange and registration rights agreements.
Significant Subsidiary means any Restricted
Subsidiary that would constitute a significant
subsidiary within the meaning of Article 1 of
Regulation S-X
under the Securities Act.
Special Interest means all special interest
then owing pursuant to the exchange and registration rights
agreements.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date originally scheduled for
the payment thereof.
Subordinated Lien means a Lien granted by a
security document to the collateral trustee, at any time, upon
any Collateral of the Issuer or any Subsidiary Guarantor to
secure Subordinated Lien Obligations.
Subordinated Lien Cap means, as of any date
of determination, the amount of Subordinated Lien Debt that may
be incurred by the Issuer or any Subsidiary Guarantor such that,
after giving pro forma effect to such incurrence and the
application of the net proceeds therefrom the Subordinated Lien
Debt Ratio would not exceed 4.0 to 1.0.
Subordinated Lien Debt means
(1) any Indebtedness (including letters of credit and
reimbursement obligations with respect thereto) of the Issuer or
any Subsidiary Guarantor that is secured on a subordinated basis
to the Priority Lien Debt by a Subordinated Lien that was
permitted to be incurred and so secured under each applicable
Secured Debt Document; provided that:
(a) on or before the date on which such Indebtedness is
incurred by the Issuer or such Subsidiary Guarantor, such
Indebtedness is designated by the Issuer or Subsidiary
Guarantor, as applicable, in an Officers Certificate
delivered to the collateral trustee, as Subordinated Lien
Debt for the purposes of the indenture and the collateral
trust agreement; provided that no Series of Secured Debt
may be designated as both Subordinated Lien Debt and Priority
Lien Debt;
(b) such Indebtedness is governed by an indenture, credit
agreement or other agreement that includes a Lien Sharing and
Priority Confirmation and meets the requirements described in
Provisions of the Indenture Relating to
Security Ranking of Subordinated
Liens; and
(c) all requirements set forth in the collateral trust
agreement as to the confirmation, grant or perfection of the
collateral trustees Liens to secure such Indebtedness or
Obligations in respect thereof are satisfied (and the
satisfaction of such requirements and the other provisions of
this clause (1) will be conclusively established if the
Issuer delivers to the collateral trustee an Officers
Certificate stating that such requirements and other provisions
have been satisfied and that such Indebtedness is
Subordinated Lien Debt); and
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(2) Hedging Obligations of the Issuer or any Subsidiary
Guarantor incurred in accordance with the terms of the Secured
Debt Documents; provided that:
(a) on or before or within thirty (30) days after the
date on which such Hedging Obligations are incurred by the
Issuer or Subsidiary Guarantor (or on or within thirty
(30) days after December 21, 2009 for Hedging
Obligations in existence on such date), such Hedging Obligations
are designated by the Issuer or Subsidiary Guarantor, as
applicable, in an Officers Certificate delivered to the
collateral trustee, as Subordinated Lien Debt for
the purposes of the Secured Debt Documents; provided that
no Hedging Obligation may be designated as both Subordinated
Lien Debt and Priority Lien Debt;
(b) the counterparty in respect of such Hedging
Obligations, in its capacity as a holder or beneficiary of such
Subordinated Lien, executes and delivers a joinder to the
collateral trust agreement in accordance with the terms thereof
or otherwise becomes subject to the terms of the collateral
trust agreement; and
(c) all other requirements set forth in the collateral
trust agreement have been complied with (and the satisfaction of
such requirements will be conclusively established if the Issuer
delivers to the collateral trustee an Officers Certificate
stating that such requirements and other provisions have been
satisfied and that such Hedging Obligations are
Subordinated Lien Debt).
Subordinated Lien Debt Ratio means, as of any
date of determination, the ratio of (1) Priority Lien Debt,
plus (2) Subordinated Lien Debt of the Issuer and
its Restricted Subsidiaries as of that date to the Issuers
Consolidated Cash Flow for the most recently ended four full
fiscal quarters for which internal financial statements are
available immediately preceding the date of determination, with
such adjustments to the amount of Priority Lien Debt, the amount
of Subordinated Lien Debt and Consolidated Cash Flow as are
consistent with the adjustment provisions set forth in the
definition of Fixed Charge Coverage Ratio. For
purposes of this calculation, the amount of Priority Lien Debt
and/or
Subordinated Lien Debt outstanding as of any date of
determination shall not include any Priority Lien Debt or
Subordinated Lien Debt that consists solely of Hedging
Obligations that are incurred in the normal course of business
and not for speculative purposes.
Subordinated Lien Documents means,
collectively, any indenture, credit agreement or other agreement
governing each Series of Subordinated Lien Debt and the security
documents related thereto (other than any security documents
that do not secure Subordinated Lien Obligations), in each case
as such documents may be amended, restated, modified or
supplemented from time to time in accordance with their terms.
Subordinated Lien Obligations means
Subordinated Lien Debt and all other Obligations in respect
thereof.
Subordinated Lien Representative means, in
the case of any future Series of Subordinated Lien Debt, the
trustee, agent or representative of the holders of such Series
of Subordinated Lien Debt (1) is appointed as a
Subordinated Lien Representative (for purposes related to the
administration of the security documents) pursuant to the
indenture, credit agreement or other agreement governing such
Series of Subordinated Lien Debt, together with its successors
in such capacity, and (2) has become a party to the
collateral trust agreement by executing a joinder in the form
required under the collateral trust agreement.
Subsidiary means, with respect to any
specified Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners
of which are such Person or one or more subsidiaries of such
Person (or any combination thereof).
Subsidiary Guarantor means a Guarantor that
is a Restricted Subsidiary of the Issuer.
Treasury Rate means, as of any redemption
date, the yield to maturity as of such redemption date of United
States Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve
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Statistical Release H.15 (519) that has become publicly
available at least two business days prior to the redemption
date (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to
December 15, 2012; provided, however, that if the
period from the redemption date to December 15, 2012, is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year will be used.
Uniform Commercial Code means the Uniform
Commercial Code as in effect from time to time in any applicable
jurisdiction.
Unrestricted Subsidiary means any Subsidiary
of the Issuer that is designated as an Unrestricted Subsidiary
pursuant to a resolution of the Issuers or Parents
Board of Directors in compliance with the covenant described
under the caption Certain
Covenants Designation of Restricted and Unrestricted
Subsidiaries, and any Subsidiary of such Subsidiary.
Voting Stock of any Person as of any date
means the Capital Stock of such Person that is at the time
entitled to vote in the election of the Board of Directors of
such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness or Disqualified Stock at any date,
the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal or
liquidation or face value, including payment at final maturity
or redemption, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment; by
(2) the then outstanding principal or liquidation or face
value amount of such Indebtedness or Disqualified Stock.
Wholly Owned Domestic Subsidiary of any
specified Person means a Domestic Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interest of
which shall at the time be owned by such Person or by one or
more Wholly Owned Restricted Subsidiaries of such Person.
Wholly Owned Restricted Subsidiary of any
specified Person means a Restricted Subsidiary of such Person
all of the outstanding Capital Stock or other ownership
interests of which (other than directors qualifying shares
or Investments by foreign nationals mandated by applicable law)
shall at the time be owned by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person and one or
more Wholly Owned Restricted Subsidiaries of such Person.
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CERTAIN
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain material United States
federal income tax consequences and, in the case of a
Non-U.S. Holder
(as defined below), certain material United States federal
estate tax consequences, of purchasing, owning and disposing of
the notes. This summary applies to you only if you are a
beneficial owner of a note and you hold your note as a capital
asset within the meaning of the Internal Revenue Code of 1986,
as amended (the Internal Revenue Code) (generally,
investment property).
This summary does not discuss considerations or consequences
relevant to persons subject to special provisions of United
States federal tax law, such as:
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dealers in securities or currencies;
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traders in securities;
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U.S. Holders (as defined below) whose functional currency
is not the United States dollar;
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persons holding notes as part of a conversion, constructive
sale, wash sale or other integrated transaction or a hedge,
straddle or synthetic security;
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persons subject to the alternative minimum tax;
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certain United States expatriates;
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financial institutions;
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insurance companies;
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controlled foreign corporations and passive foreign investment
companies, and shareholders of such corporations;
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regulated investment companies;
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real estate investment trusts;
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entities that are tax-exempt for United States federal income
tax purposes and retirement plans, individual retirement
accounts and tax-deferred accounts; and
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pass-through entities, including partnerships and entities and
arrangements classified as partnerships for United States
federal tax purposes, and beneficial owners of pass-through
entities.
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If a partnership or an entity or arrangement classified as a
partnership for United States federal tax purposes holds notes,
the United States federal income tax treatment of a partner in
the partnership generally will depend on the status of the
partner and the activities of the partnership. If you are a
partnership (or an entity or arrangement classified as a
partnership for United States federal tax purposes) or a partner
in a partnership, you should consult your own tax advisor
regarding the United States federal income and estate tax
consequences of purchasing, owning and disposing of notes.
This summary does not discuss all of the aspects of United
States federal income and estate taxation that may be relevant
to you in light of your particular investment or other
circumstances. In addition, this summary does not discuss any
United States state or local or
non-U.S. income
or other tax consequences, nor does it discuss the recently
enacted Medicare tax on certain investment income. This summary
is based on United States federal income and estate tax law,
including the provisions of the Internal Revenue Code, Treasury
regulations, administrative rulings and judicial authority, all
as in effect or in existence as of the date of this prospectus.
Subsequent developments in United States federal income and
estate tax law, including changes in law or differing
interpretations, which may be applied retroactively, could have
a material effect on the United States federal income and estate
tax consequences of purchasing, owning and disposing of notes.
Before you purchase notes, you should consult your own tax
advisor regarding the particular United States federal, state
and local and
non-U.S. income
and other tax consequences of purchasing, owning and disposing
of notes.
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Qualified
Reopening
We issued $1,000,000,000 and $50,000,000 aggregate principal
amount of our 9.50% senior secured notes due
December 15, 2016 on December 21, 2009 and
February 11, 2010, respectively. We have taken the position
that the issuance of notes on February 11, 2010 (the
February notes) constituted a qualified
reopening of our 9.50% senior secured notes due
December 15, 2016 for United States federal income tax
purposes. Accordingly, we have treated all of the February notes
as having the same issue price as the notes issued on
December 21, 2009 (the December notes) and
therefore as having been issued with the same amount of original
issue discount (OID) as the December notes for
United States federal income tax purposes. However, the
application of the qualified reopening rules is not entirely
clear, and it is possible that the February notes could be
treated as a separate issue from the December notes, with an
issue price determined by the first price at which a substantial
amount of the February notes was sold (other than to bond
houses, brokers, or similar persons or organizations acting in
the capacity of underwriters, placement agents, or wholesalers).
In that event, the February notes would have been issued with
OID in an amount different from the amount of OID on the
December notes, the February notes would not have been fungible
with the December notes for United States federal income tax
purposes and the notes received in exchange for the February
notes would not be fungible with the notes received in exchange
for the December notes for United States federal income tax
purposes. The remainder of this summary assumes that the
issuance of the February notes constituted a qualified reopening
of our 9.50% senior secured notes due December 15,
2016 for United States federal income tax purposes.
U.S.
Holders
The following summary applies to you only if you are a
U.S. Holder. As used in this summary, the term
U.S. Holder means a beneficial owner of a note or for
United States federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity classified as a corporation)
created or organized in or under the laws of the United States,
any State thereof or the District of Columbia;
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an estate, the income of which is subject to United States
federal income taxation regardless of the source of such
income; or
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a trust, if (1) a United States court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (within the meaning of
the Internal Revenue Code) has the authority to control all of
the trusts substantial decisions, or (2) the trust
has a valid election in effect under applicable Treasury
regulations to be treated as a United States person.
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Stated
Interest and Original Issue Discount
Stated interest on your notes will be taxable to you as ordinary
interest income at the time it is paid or accrued in accordance
with your usual method of accounting for United States federal
income tax purposes.
The notes were issued with OID for United States federal income
tax purposes. Generally, a debt instrument is issued with OID if
the excess of the stated redemption price at maturity of the
debt instrument (which, in the case of the notes, equals the
stated principal amount) over its issue price is equal to or
greater than a de minimis amount (generally
1/4
of 1 percent of the debt instruments stated
redemption price at maturity multiplied by the number of
complete years from its issue date to its maturity date).
You will be required to include OID in gross income, as ordinary
income, as the OID accrues on a constant yield basis, in advance
of the receipt of the cash payment attributable to the OID,
regardless of your usual method of accounting for United States
federal income tax purposes. The amount of OID that you must
include in gross income for each taxable year is the sum of the
daily portions of OID that accrue on your notes for each day of
the taxable year during which you hold the notes. The daily
portion of OID is determined by allocating to each day of an
accrual period (generally, the period between interest payment
dates or compounding dates), other than an initial short accrual
period or the final accrual period, a pro rata portion of the
OID allocable to such accrual period. The amount of OID
allocable to an accrual period is the product of the
adjusted issue price of the notes at the
215
beginning of the accrual period multiplied by the yield to
maturity of the notes (determined on the basis of compounding at
the close of each accrual period and appropriately adjusted to
reflect the length of the accrual period), reduced by the amount
of any stated interest allocable to such accrual period. The
adjusted issue price of the notes at the beginning
of an accrual period generally will equal their issue price,
increased by the aggregate amount of OID that has accrued on the
notes in all prior accrual periods and decreased by the amount
of any payments other than of stated interest. The yield
to maturity is the discount rate that, when applied to all
principal and interest payments under the notes, produces a
present value equal to the issue price. As explained above, we
have treated all of the notes (that is, the December notes and
the February notes as well as the notes received in exchange for
the December notes and the February notes) as having the same
amount of OID for United States federal income tax purposes. The
amount of OID included in your gross income will increase your
adjusted tax basis in the notes. Under these rules, you will
have to include increasingly greater amounts of OID in
successive accrual periods. You should consult your own tax
advisor concerning the consequences of, and accrual of, OID on
the notes.
Market
Discount
If you purchase a note for an amount that is less than its
adjusted issue price as of the date of the purchase, the excess
of the adjusted issue price over your purchase price will be
treated as market discount. However, the market discount will be
considered to be zero if it is less than
1/4
of 1 percent of the principal amount of the note multiplied
by the number of complete years to maturity from the date you
purchase the note.
Under the market discount rules of the Internal Revenue Code, if
you purchase a note with market discount, you will generally be
required to include any gain realized on the sale, exchange,
retirement, redemption or other disposition of the note as
ordinary income (generally treated as interest income) to the
extent of the market discount which accrued but was not
previously included in your gross income. In addition, you may
be required to defer, until the maturity of the note or its
earlier disposition in a taxable transaction, the deduction of
all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the note. In general,
market discount will be considered to accrue ratably during the
period from the date of the purchase of the note to the maturity
date of the note, unless you make an irrevocable election (on an
instrument-by-instrument
basis) to accrue market discount under a constant yield method.
However, you may elect to include market discount in income
currently as it accrues (under either a ratable or constant
yield method), in which case the rules described above regarding
the treatment as ordinary income of gain upon the disposition of
the note and the deferral of interest deductions will not apply.
Your election to include market discount in income currently,
once made, applies to all market discount obligations acquired
by you on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the
consent of the Internal Revenue Service.
Acquisition
Premium
If you purchase a note for an amount that exceeds the
notes adjusted issue price as of the date of the purchase
and is less than or equal to the notes stated redemption
price at maturity, you will be considered to have purchased the
note with acquisition premium. Under the acquisition premium
rules, you are permitted to reduce your OID accruals on such
note by a fraction, the numerator of which is the excess of your
adjusted tax basis in the note immediately after its purchase
over the notes adjusted issue price at the time of
purchase and the denominator of which is the total amount of
unaccrued OID remaining on the note.
Bond
Premium
If you purchase a note for an amount in excess of the amount
payable at maturity of the note, you will be considered to have
purchased the note with bond premium equal to the excess of your
purchase price over the amount payable at maturity (or on an
earlier call date if it results in a smaller amortization
premium), and you will not be required to include any OID in
income. It may be possible for you to elect to amortize the
premium using a constant yield method over the remaining term of
the note (or until an earlier call date, as applicable). The
amortized amount of the premium for a taxable year generally
will be treated first as a reduction of interest on the note
includible in gross income in such taxable year to the extent
thereof, then as a deduction allowed in that taxable year to the
extent of your prior interest inclusions on the note, and
finally as a carryforward allowable against your future interest
inclusions on the note. If you make such an election, your tax
basis in the note will be reduced by the amount
216
of the allowable amortization. If you do not elect to amortize
bond premium, the premium will decrease the gain or increase the
loss you would otherwise recognize on a disposition of your
note. Your election to amortize premium on a constant yield
method will apply to all debt obligations held or subsequently
acquired by you on or after the first day of the first taxable
year to which the election applies. You may not revoke the
election without the consent of the Internal Revenue Service.
You should consult your own tax advisor before making this
election.
Constant
Yield Method Election
As an alternative to the above-described rules for including
interest payments, OID and any market discount in income and
amortizing any bond premium, you may elect to include in gross
income all interest that accrues on your notes, including stated
interest, OID, any market discount (including any de minimis
market discount), and any adjustments for bond premium, on the
constant yield method. If you make such an election with respect
to a note with amortizable bond premium, you are deemed to have
made the election to amortize bond premium currently with
respect to all other debt instruments held or subsequently
acquired by you. If you make such an election with respect to a
note with market discount, you are deemed to have made the
election to include market discount currently in income on all
debt instruments held or subsequently acquired by you.
Particularly if you are on the cash method of accounting, a
constant yield election may have the effect of causing you to
include interest in income earlier than would be the case if no
such election were made, and the election may not be revoked
without the consent of the Internal Revenue Service. You should
consult your own tax advisor before making this election.
Sale
or Other Taxable Disposition of Notes
Upon the sale, redemption, exchange or other taxable disposition
of notes, you generally will recognize taxable gain or loss
equal to the difference, if any, between:
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the amount realized on the disposition (less any amount
attributable to accrued interest, which will be taxable as
ordinary interest income to the extent not previously included
in gross income, in the manner described under Certain
Material United States Federal Tax
Considerations U.S. Holders
Stated Interest and Original Issue Discount); and
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your adjusted tax basis in the notes.
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In the absence of a constant yield election, your adjusted tax
basis in a note generally will be its cost increased by the
amount of OID and any market discount on the note previously
included in your income and decreased by the amount of any
previously amortized bond premium and the amount of any payment,
other than a payment of stated interest, on the note. Your gain
or loss generally will be capital gain or loss. This capital
gain or loss will be long-term capital gain or loss if at the
time of the disposition you have held the note for more than one
year. The deductibility of capital losses is subject to
limitations. If you are a non-corporate U.S. Holder, your
long-term capital gain generally will be subject to tax at
preferential rates.
Backup
Withholding
In general, backup withholding (currently at a rate
of 28 percent) may apply:
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to any payments made to you of principal of and interest on your
note, and
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to payment of the proceeds of a sale or other disposition of
your note,
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if you are a non-corporate U.S. Holder and you fail to
provide a correct taxpayer identification number or otherwise
fail to comply with applicable requirements of the backup
withholding rules or otherwise establish an exemption.
The backup withholding tax is not an additional tax and may be
credited against your United States federal income tax
liability, provided that correct information is timely provided
to the Internal Revenue Service.
217
Non-U.S.
Holders
The following summary applies to you if you are a beneficial
owner of a note and you are neither a U.S. Holder (as
defined above) nor a partnership (or an entity or arrangement
classified as a partnership for United States federal tax
purposes) (a
Non-U.S. Holder).
United
States Federal Withholding Tax
Under current United States federal income tax laws, and subject
to the discussion below, United States federal withholding tax
will not apply to payments by us or our paying agent (in its
capacity as such) of principal of and interest on your notes
under the portfolio interest exception of the
Internal Revenue Code, provided that in the case of interest:
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you do not, directly or indirectly, actually or constructively,
own ten percent or more of the total combined voting power of
all classes of our stock entitled to vote within the meaning of
section 871(h)(3) of the Internal Revenue Code and the
Treasury regulations thereunder;
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you are not a controlled foreign corporation for United States
federal income tax purposes that is related, directly or
indirectly, to us through sufficient stock ownership (as
provided in the Internal Revenue Code);
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you are not a bank receiving interest described in
section 881(c)(3)(A) of the Internal Revenue Code;
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such interest is not effectively connected with your conduct of
a United States trade or business; and
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you provide a signed written statement, on an Internal Revenue
Service
Form W-8BEN
(or other applicable form) which can reliably be related to you,
certifying under penalties of perjury that you are not a United
States person within the meaning of the Internal Revenue Code
and providing your name and address to:
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(A) us or our paying agent; or
(B) a securities clearing organization, bank or other
financial institution that holds customers securities in
the ordinary course of its trade or business and holds your
notes on your behalf and that certifies to us or our paying
agent under penalties of perjury that it, or the bank or
financial institution between it and you, has received from you
your signed, written statement and provides us or our paying
agent with a copy of this statement.
The applicable Treasury regulations provide alternative methods
for satisfying the certification requirement described above. In
addition, under these Treasury regulations, special rules apply
to pass-through entities and this certification requirement may
also apply to beneficial owners of pass-through entities.
If you cannot satisfy the requirements of the portfolio
interest exception described above, payments of interest
made to you will be subject to 30 percent United
States federal withholding tax unless you provide us or our
paying agent with a properly executed (1) Internal Revenue
Service
Form W-8ECI
(or other applicable form) stating that interest paid on your
notes is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business
in the United States, or (2) Internal Revenue Service
Form W-8BEN
(or other applicable form) claiming an exemption from or
reduction in this withholding tax under an applicable income tax
treaty.
United
States Federal Income Tax
Except for the possible application of United States federal
withholding tax (see Certain Material United States
Federal Tax
Considerations Non-U.S. Holders
United States Federal Withholding Tax above) and backup
withholding tax (see Certain Material United States
Federal Tax
Considerations Non-U.S. Holders Backup
Withholding and Information Reporting below), you
generally will not have to pay United States federal income tax
on payments of principal of and interest on your notes, or on
any gain realized from (or accrued interest
218
treated as received in connection with) the sale, redemption,
retirement at maturity or other taxable disposition of your
notes unless:
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in the case of interest payments or disposition proceeds
representing accrued interest, you cannot satisfy the
requirements of the portfolio interest exception
described above or claim a complete exemption from United States
federal income tax on such interest under an applicable income
tax treaty (and your United States federal income tax liability
has not otherwise been fully satisfied through the United States
federal withholding tax described above);
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in the case of gain, you are an individual who is present in the
United States for 183 days or more during the taxable year
of the sale or other disposition of your notes and specific
other conditions are met (in which case, except as otherwise
provided by an applicable income tax treaty, the gain, which may
be offset by United States source capital losses, generally will
be subject to a flat 30 percent United States federal
income tax, even though you are not considered a resident alien
under the Internal Revenue Code); or
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the interest or gain is effectively connected with your conduct
of a United States trade or business and, if required by an
applicable income tax treaty, is attributable to a United States
permanent establishment maintained by you.
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If you are engaged in a trade or business in the United States
and interest or gain in respect of your notes is effectively
connected with the conduct of your trade or business (and, if
required by an applicable income tax treaty, is attributable to
a United States permanent establishment maintained
by you), the interest or gain generally will be subject to
United States federal income tax on a net basis at the regular
graduated rates and in the manner applicable to a
U.S. Holder (although the interest will be exempt from the
withholding tax discussed under Certain Material United
States Federal Tax
Considerations Non-U.S. Holders
United States Federal Withholding Tax if you provide a
properly executed Internal Revenue Service
Form W-8ECI
(or other applicable form) on or before any payment date to
claim the exemption). In addition, if you are a foreign
corporation, you may be subject to a branch profits tax equal to
30 percent of your effectively connected earnings and
profits for the taxable year, as adjusted for certain items,
unless a lower rate applies to you under an applicable United
States income tax treaty.
United
States Federal Estate Tax
If you are an individual and are not a United States citizen or
a resident of the United States (as specially defined for United
States federal estate tax purposes) at the time of your death,
your notes generally will not be subject to the United States
federal estate tax, unless, at the time of your death:
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you directly or indirectly, actually or constructively, own ten
percent or more of the total combined voting power of all
classes of our stock entitled to vote within the meaning of
section 871(h)(3) of the Internal Revenue Code and the
Treasury regulations thereunder; or
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your interest on the notes is effectively connected with your
conduct of a United States trade or business.
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Backup
Withholding and Information Reporting
Under current Treasury regulations, backup withholding and
information reporting generally will not apply to payments made
by us or our paying agent (in its capacity as such) to you if
you have provided the required certification that you are a
Non-U.S. Holder
as described in Certain Material United States Federal Tax
Considerations Non-U.S. Holders
United States Federal Withholding Tax above, and provided
that neither we nor our paying agent has actual knowledge or
reason to know that you are a U.S. Holder (as described in
Certain Material United States Federal Tax
Considerations U.S. Holders above).
However, we or our paying agent may be required to report to the
IRS and you payments of interest on the notes and the amount of
tax, if any, withheld with respect to those payments. Copies of
the information returns reporting such interest payments and any
withholding may also be made available to the tax authorities in
the country in which you reside under the provisions of a treaty
or agreement.
The gross proceeds from the disposition of your notes may be
subject to information reporting and backup withholding tax
(currently at a rate of 28 percent). If you sell your notes
outside the United States through a
219
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to you 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 backup
withholding, will apply to a payment of sales proceeds, even if
that payment is made outside the United States, if you sell your
notes through a
non-U.S. office
of U.S. broker or a foreign broker with certain United
States connections unless the broker has documentary evidence in
its files that you are a
non-U.S. person
and certain other conditions are met or you otherwise establish
an exemption. If you receive payments of the proceeds of a sale
of your notes to or through a U.S. office of a broker, the
payment is subject to both U.S. backup withholding and
information reporting unless you provide a
Form W-8BEN
certifying that you are a
non-U.S. person
or you otherwise establish an exemption, provided that the
broker does not have actual knowledge or reason to know that you
are not a U.S. person or the conditions of any other
exemption are not, in fact, satisfied.
You should consult your own tax advisor regarding application of
backup withholding in your particular circumstance and the
availability of and procedure for obtaining an exemption from
backup withholding under current Treasury regulations. Any
amounts withheld under the backup withholding rules from a
payment to you will be allowed as a refund or credit against
your United States federal income tax liability, provided the
required information is timely furnished to the Internal Revenue
Service.
220
PLAN OF
DISTRIBUTION
This prospectus is to be used by Goldman, Sachs & Co.
in connection with offers and sales of the notes in
market-making transactions effected from time to time. Goldman
Sachs may act as principal or agent in such transactions. Such
sales will be made at prevailing market prices at the time of
sale, at prices related thereto or at negotiated prices. We will
not receive any of the proceeds from such sales.
Certain affiliates of Goldman Sachs, including GS Capital
Partners V Fund, L.P., GS Capital Partners VI Fund, L.P. and
related entities, or the Goldman Sachs Funds, are the majority
owners of PVF Holdings LLC, our parent company. Under the
registration rights agreement that we entered into when the
notes were initially sold pursuant to Rule 144A and
Regulation S under the Securities Act, we agreed to file a
market-making prospectus in order to enable Goldman
Sachs to engage in market-making activities for the notes.
Goldman Sachs was a joint book-running manager for our December
2009 and February 2010 notes offerings and received fees of
$9.5 million in connection with serving in this capacity.
See Certain Relationships and Related Party
Transactions. Goldman Sachs Credit Partners L.P., an
affiliate of Goldman Sachs, is one of the lenders under our
Revolving Credit Facility and was a lender under our Term Loan
Facility and Junior Term Loan Facility. Goldman Sachs Credit
Partners is also a co-lead arranger and joint bookrunner under
our Revolving Credit Facility and was a co-lead arranger and
joint bookrunner under our Term Loan Facility and Junior Term
Loan Facility and was also the syndication agent under the Term
Loan Facility and the Junior Term Loan Facility. Goldman Sachs
Credit Partners L.P. has received customary fees for its
services in such capacity. In addition, Goldman Sachs and its
affiliates have engaged in and may in the future continue to
engage in commercial banking, investment banking or other
financial advisory transactions with us and our affiliates. We
have been advised by Goldman Sachs that, subject to applicable
laws and regulations, it intends to make a market in the notes.
However, Goldman Sachs is not obligated to do so, and any such
market-making may be interrupted or discontinued at any time
without notice.
We and Goldman Sachs, among other parties, have entered into
registration rights agreements with respect to the use by
Goldman Sachs of this prospectus. Pursuant to such agreements,
we agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act and
to contribute to payments which Goldman Sachs might be required
to make in respect thereof.
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WHERE YOU
CAN FIND MORE INFORMATION
We and the guarantors have filed with the SEC a registration
statement on
Form S-1
under the Securities Act with respect to the notes. As allowed
by SEC rules, this prospectus, which is a part of the
registration statement, omits certain information included in
that registration statement and the exhibits thereto. For
further information with respect to us and the notes, we refer
you to the registration statement, including all amendments,
supplements, schedules and exhibits thereto.
We are not currently subject to the informational requirements
of the Securities Exchange Act of 1934, as amended. However,
under the indenture for the notes, we have agreed to furnish to
holders of the notes (1) all quarterly and annual reports
that would be required to be filed the SEC on
Forms 10-Q
and 10-K if
we were required to file such reports and (2) all current
reports that would be required to be filed with the SEC on
Form 8-K
if we were required to file such reports.
After consummation of the exchange offer, the indenture for the
notes provides that, if we are no longer subject to the periodic
reporting requirements of the Exchange Act for any reason, we
will nonetheless continue to file the reports specified in the
immediately preceding paragraph unless the SEC will not accept
such a filing. The indenture for the notes also provides that
McJunkin Red Man Holding Corporation may comply with the
reporting requirements of the indenture in lieu of us. In
accordance therewith, McJunkin Red Man Holding Corporation, and
not McJunkin Red Man Corporation, will file reports and other
information with the SEC.
In addition, we have agreed that, for so long as any notes
remain outstanding, if at any time we are not required to file
with the SEC the reports required by the preceding paragraphs,
we will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
You may read and copy any document we file or furnish with the
SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, DC 20549. You may also
obtain copies of the documents at prescribed rates by writing to
the Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330
to obtain information on the operation of the Public Reference
Room. In addition, the SEC maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC. You can review the registration statement, as well as our
future SEC filings, by accessing the SECs Internet site at
http://www.sec.gov.
You may also request copies of those documents, at no cost to
you, by contacting us at the following address:
McJunkin Red Man Holding Corporation
2 Houston Center, 909 Fannin, Suite 3100
Houston, TX 77010
Attention: Stephen W. Lake
(877) 294-7574
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LEGAL
MATTERS
The validity of the notes offered hereby and the guarantees
thereof will be passed upon for us by Fried, Frank, Harris,
Shriver & Jacobson LLP, New York, New York. Certain
matters with respect to Texas law will be passed upon for us by
Jones, Walker, Waechter, Poitevent, Carrère &
Denègre L.L.P. Certain matters with respect to West
Virginia law will be passed upon for us by Bowles Rice McDavid
Graff & Love LLP.
EXPERTS
The consolidated financial statements of McJunkin Red Man
Holding Corporation as of December 31, 2010 and 2009, and
for each of the three years in the period ended
December 31, 2010, appearing in this prospectus, 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.
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INDEX TO
FINANCIAL STATEMENTS
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Audited Consolidated Financial Statements of McJunkin Red Man
Holding Corporation and Subsidiaries:
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
McJunkin Red Man Holding Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of
McJunkin Red Man Holding Corporation and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2010. These financial statements are the
responsibility of the Companys 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. We were not engaged to perform an
audit of the Companys 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 Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of McJunkin Red Man Holding Corporation and
subsidiaries at December 31, 2010 and 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 23, 2011
F-2
McJUNKIN
RED MAN HOLDING CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
56,202
|
|
|
$
|
56,244
|
|
Accounts receivable, net
|
|
|
596,404
|
|
|
|
506,194
|
|
Inventories
|
|
|
765,367
|
|
|
|
871,653
|
|
Income taxes receivable
|
|
|
32,593
|
|
|
|
21,260
|
|
Other current assets
|
|
|
10,209
|
|
|
|
12,264
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,460,775
|
|
|
|
1,467,615
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Debt issuance costs, net
|
|
|
32,211
|
|
|
|
35,618
|
|
Assets held for sale
|
|
|
12,722
|
|
|
|
25,117
|
|
Other assets
|
|
|
14,212
|
|
|
|
17,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,145
|
|
|
|
78,340
|
|
Fixed assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
104,725
|
|
|
|
111,480
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
549,384
|
|
|
|
549,733
|
|
Other intangible assets, net
|
|
|
893,365
|
|
|
|
952,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,442,749
|
|
|
|
1,501,921
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,067,394
|
|
|
$
|
3,159,356
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
426,632
|
|
|
$
|
338,512
|
|
Accrued expenses and other current liabilities
|
|
|
102,807
|
|
|
|
120,816
|
|
Deferred revenue
|
|
|
18,140
|
|
|
|
17,023
|
|
Deferred income taxes
|
|
|
70,636
|
|
|
|
51,984
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
9,114
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
618,215
|
|
|
|
537,449
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
1,360,241
|
|
|
|
1,443,496
|
|
Deferred income taxes
|
|
|
331,183
|
|
|
|
354,064
|
|
Payable to shareholders
|
|
|
2,028
|
|
|
|
16,665
|
|
Other liabilities
|
|
|
17,869
|
|
|
|
15,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,711,321
|
|
|
|
1,829,909
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share;
800,000 shares authorized,
|
|
|
|
|
|
|
|
|
issued and outstanding December 2010 168,808, issued
and
|
|
|
|
|
|
|
|
|
outstanding December 2009 168,735
|
|
|
1,688
|
|
|
|
1,687
|
|
Preferred stock, $0.01 par value per share;
150,000 shares authorized,
|
|
|
|
|
|
|
|
|
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
1,273,716
|
|
|
|
1,269,772
|
|
Retained (deficit)
|
|
|
(517,690
|
)
|
|
|
(466,116
|
)
|
Accumulated other comprehensive loss
|
|
|
(19,856
|
)
|
|
|
(13,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
737,858
|
|
|
|
791,998
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,067,394
|
|
|
$
|
3,159,356
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
McJUNKIN
RED MAN HOLDING CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
3,845,536
|
|
|
$
|
3,661,922
|
|
|
$
|
5,255,166
|
|
Cost of sales (exclusive of depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization shown separately below)
|
|
|
3,256,641
|
|
|
|
3,006,346
|
|
|
|
4,217,371
|
|
Inventory write-down
|
|
|
362
|
|
|
|
46,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
588,533
|
|
|
|
609,085
|
|
|
|
1,037,795
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
447,808
|
|
|
|
408,564
|
|
|
|
482,084
|
|
Depreciation and amortization
|
|
|
16,579
|
|
|
|
14,516
|
|
|
|
11,335
|
|
Amortization of intangibles
|
|
|
53,852
|
|
|
|
46,575
|
|
|
|
44,398
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
309,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
518,239
|
|
|
|
779,555
|
|
|
|
537,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
70,294
|
|
|
|
(170,470
|
)
|
|
|
499,978
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(139,641
|
)
|
|
|
(116,504
|
)
|
|
|
(84,493
|
)
|
Change in fair value of derivative instruments
|
|
|
(4,926
|
)
|
|
|
8,946
|
|
|
|
(6,233
|
)
|
Net gain on early extinguishment of debt
|
|
|
|
|
|
|
1,304
|
|
|
|
|
|
Other, net
|
|
|
(904
|
)
|
|
|
(1,830
|
)
|
|
|
(2,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,471
|
)
|
|
|
(108,084
|
)
|
|
|
(93,229
|
)
|
(Loss) income before income taxes
|
|
|
(75,177
|
)
|
|
|
(278,554
|
)
|
|
|
406,749
|
|
Income tax (benefit) expense
|
|
|
(23,353
|
)
|
|
|
13,117
|
|
|
|
153,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(51,824
|
)
|
|
$
|
(291,671
|
)
|
|
$
|
253,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
1.63
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
1.63
|
|
Weighted-average common shares, basic
|
|
|
168,768
|
|
|
|
158,134
|
|
|
|
155,292
|
|
Weighted-average common shares, diluted
|
|
|
168,768
|
|
|
|
158,134
|
|
|
|
155,656
|
|
Dividends per common share
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
3.05
|
|
See notes to consolidated financial statements.
F-4
McJUNKIN
RED MAN HOLDING CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
150,074
|
|
|
$
|
1,501
|
|
|
$
|
1,152,647
|
|
|
$
|
49,969
|
|
|
$
|
(810
|
)
|
|
$
|
59,263
|
|
|
$
|
1,262,570
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,486
|
|
|
|
|
|
|
|
|
|
|
|
253,486
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,869
|
)
|
|
|
|
|
|
|
(36,869
|
)
|
Change in fair value of derivative instruments (net of
$10.3 million of deferred income taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,410
|
)
|
|
|
|
|
|
|
(17,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,207
|
|
Shares released from escrow associated with the acquisition of
Red Man Pipe & Supply Co.
|
|
|
896
|
|
|
|
9
|
|
|
|
7,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,025
|
|
Equity contribution
|
|
|
4,928
|
|
|
|
49
|
|
|
|
41,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,348
|
|
Payment of stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
1,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(475,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(475,000
|
)
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
10,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,241
|
|
Redemption of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,263
|
)
|
|
|
(59,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
155,898
|
|
|
|
1,559
|
|
|
|
1,212,236
|
|
|
|
(171,545
|
)
|
|
|
(55,089
|
)
|
|
|
|
|
|
|
987,161
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291,671
|
)
|
|
|
|
|
|
|
|
|
|
|
(291,671
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,434
|
|
|
|
|
|
|
|
23,434
|
|
Pension related adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651
|
|
|
|
|
|
|
|
651
|
|
Change in fair value of derivative instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,761
|
|
|
|
|
|
|
|
1,761
|
|
Fair value of derivative instrument reclassified into earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,898
|
|
|
|
|
|
|
|
15,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249,927
|
)
|
Common stock issued for acquisition of Transmark Fcx
|
|
|
12,733
|
|
|
|
128
|
|
|
|
49,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,404
|
|
Equity contribution
|
|
|
43
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Restricted stock vested during period
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(4
|
)
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,900
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,900
|
)
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
7,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
168,735
|
|
|
|
1,687
|
|
|
|
1,269,772
|
|
|
|
(466,116
|
)
|
|
|
(13,345
|
)
|
|
|
|
|
|
|
791,998
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,824
|
)
|
|
|
|
|
|
|
|
|
|
|
(51,824
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,707
|
)
|
|
|
|
|
|
|
(4,707
|
)
|
Pension related adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,804
|
)
|
|
|
|
|
|
|
(1,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,335
|
)
|
Equity contribution
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Restricted stock vested during period
|
|
|
73
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Forfeited dividends on forfeited unvested restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
168,808
|
|
|
$
|
1,688
|
|
|
$
|
1,273,716
|
|
|
$
|
(517,690
|
)
|
|
$
|
(19,856
|
)
|
|
$
|
|
|
|
$
|
737,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
McJUNKIN
RED MAN HOLDING CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(51,824
|
)
|
|
$
|
(291,671
|
)
|
|
$
|
253,486
|
|
Adjustments to reconcile net (loss) income to net cash provided
by
|
|
|
|
|
|
|
|
|
|
|
|
|
(used in) operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,579
|
|
|
|
14,516
|
|
|
|
11,335
|
|
Amortization of intangibles
|
|
|
53,852
|
|
|
|
46,575
|
|
|
|
44,398
|
|
Amortization of debt issuance costs
|
|
|
11,800
|
|
|
|
6,900
|
|
|
|
5,208
|
|
Deferred income tax expense (benefit)
|
|
|
2,673
|
|
|
|
(21,137
|
)
|
|
|
(18,661
|
)
|
Equity-based compensation expense
|
|
|
3,744
|
|
|
|
7,830
|
|
|
|
10,241
|
|
Increase (decrease) in LIFO reserve
|
|
|
74,557
|
|
|
|
(115,597
|
)
|
|
|
126,210
|
|
Inventory write-down
|
|
|
362
|
|
|
|
46,491
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
4,926
|
|
|
|
(8,946
|
)
|
|
|
6,233
|
|
Hedge termination
|
|
|
(25,038
|
)
|
|
|
|
|
|
|
|
|
Amortization and release of previously designated hedge from OCI
|
|
|
|
|
|
|
27,925
|
|
|
|
|
|
Goodwill and other intangible asset impairment
|
|
|
|
|
|
|
309,900
|
|
|
|
|
|
Net gain on early extinguishment of debt
|
|
|
|
|
|
|
(1,304
|
)
|
|
|
|
|
Provision for uncollectible accounts
|
|
|
(2,042
|
)
|
|
|
994
|
|
|
|
7,681
|
|
Nonoperating (gains) losses and other items not (providing)
using cash
|
|
|
260
|
|
|
|
(573
|
)
|
|
|
1,927
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(83,648
|
)
|
|
|
311,613
|
|
|
|
(265,282
|
)
|
Inventories
|
|
|
27,098
|
|
|
|
521,528
|
|
|
|
(594,089
|
)
|
Income taxes
|
|
|
(12,278
|
)
|
|
|
(79,827
|
)
|
|
|
41,770
|
|
Other current assets
|
|
|
1,249
|
|
|
|
9,296
|
|
|
|
(8,528
|
)
|
Accounts payable
|
|
|
85,074
|
|
|
|
(193,825
|
)
|
|
|
160,787
|
|
Deferred revenue
|
|
|
1,071
|
|
|
|
(18,322
|
)
|
|
|
34,342
|
|
Accrued expenses and other current liabilities
|
|
|
4,043
|
|
|
|
(66,874
|
)
|
|
|
45,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
112,458
|
|
|
|
505,492
|
|
|
|
(137,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(14,307
|
)
|
|
|
(16,698
|
)
|
|
|
(20,874
|
)
|
Proceeds from the disposition of assets
|
|
|
3,054
|
|
|
|
6,518
|
|
|
|
2,430
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dresser Oil Tools, Inc.
|
|
|
(9,446
|
)
|
|
|
|
|
|
|
|
|
The South Texas Supply Company, Inc., net of cash of $781
|
|
|
(2,947
|
)
|
|
|
|
|
|
|
|
|
Transmark Fcx, net of cash of $42,989
|
|
|
|
|
|
|
(55,490
|
)
|
|
|
|
|
LaBarge Pipe & Steel Company, net of cash of $2,163
|
|
|
|
|
|
|
|
|
|
|
(152,089
|
)
|
Red Man Pipe & Supply Co., net of cash of $13,886
|
|
|
|
|
|
|
|
|
|
|
(14,896
|
)
|
Purchase of remaining 49% interest in Midfield Supply ULC
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)
|
Payment of shareholder loans in connection with the purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
of remaining 49% interest in Midfield Supply ULC
|
|
|
|
|
|
|
|
|
|
|
(31,749
|
)
|
Proceeds from the sale of assets held for sale, net of payment
to shareholders
|
|
|
4,060
|
|
|
|
|
|
|
|
|
|
Other investment and notes receivable transactions
|
|
|
3,351
|
|
|
|
(1,266
|
)
|
|
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,235
|
)
|
|
|
(66,936
|
)
|
|
|
(314,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term obligations
|
|
|
47,897
|
|
|
|
975,330
|
|
|
|
450,000
|
|
Payments on long-term obligations
|
|
|
|
|
|
|
(997,359
|
)
|
|
|
(5,750
|
)
|
Net (payments) proceeds on/from revolving credit facilities
|
|
|
(141,899
|
)
|
|
|
(342,476
|
)
|
|
|
452,832
|
|
Debt issuance costs paid
|
|
|
(4,386
|
)
|
|
|
(26,875
|
)
|
|
|
(12,361
|
)
|
Cash equity contributions
|
|
|
200
|
|
|
|
500
|
|
|
|
41,348
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(2,900
|
)
|
|
|
(475,000
|
)
|
Dividends held in escrow for restricted stock shareholders
|
|
|
|
|
|
|
|
|
|
|
906
|
|
Forfeited dividends on forfeited unvested restricted stock
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(97,938
|
)
|
|
|
(393,850
|
)
|
|
|
451,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
|
(1,715
|
)
|
|
|
44,706
|
|
|
|
377
|
|
Effect of foreign exchange rate on cash
|
|
|
1,673
|
|
|
|
(567
|
)
|
|
|
1,653
|
|
Cash beginning of period
|
|
|
56,244
|
|
|
|
12,105
|
|
|
|
10,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
56,202
|
|
|
$
|
56,244
|
|
|
$
|
12,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
125,419
|
|
|
$
|
78,398
|
|
|
$
|
84,740
|
|
Cash (received) paid for income taxes
|
|
$
|
(10,250
|
)
|
|
$
|
112,620
|
|
|
$
|
130,978
|
|
See notes to consolidated financial statements.
F-6
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31.
2010
|
|
NOTE 1
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Business Operations: McJunkin Red Man
Holding Corporation is a holding company headquartered in
Houston, Texas, with administrative offices in Charleston, West
Virginia; Tulsa, Oklahoma; Calgary, Alberta, Canada; and
Bradford, United Kingdom. We are a majority owned subsidiary of
PVF Holdings LLC. Our wholly owned subsidiaries, McJunkin Red
Man Corporation and its subsidiaries (MRC), are
global distributors of pipe, valves, fittings and related
products and services 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, petrochemical processing and general
industrials) markets. We have branches in principal industrial,
hydrocarbon producing and refining areas throughout the United
States, Canada, Europe, Asia and Australasia. Our products are
obtained from a broad range of suppliers.
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 certain shareholders of
McJunkin Corporation (McJunkin) for the purposes 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
GSCP V Funds). In connection with the business
combination transaction with Red Man Pipe & Supply Co.
(Red Man) in October 2007, the GSCP V Funds and GS
Capital Partners VI Fund, L.P., GS Capital Partners VI Offshore
Fund, L.P., GS Capital Partners VI GmbH & Co. KG, and
GS Capital Partners VI Parallel, L.P. (collectively, the
GSCP VI Funds, and together with the GSCP V Funds,
the Goldman Sachs Funds) and certain existing
members of PVF Holdings LLC and certain shareholders of Red Man
made cash and noncash equity contributions to PVF Holdings LLC
in exchange for common units of PVF Holdings LLC. Management and
control of all of the Goldman Sachs Funds is vested exclusively
in their general partners and investment managers, which are
affiliates of Goldman Sachs. The investment manager of certain
of the Goldman Sachs Funds is Goldman, Sachs & Co.,
which is a wholly owned subsidiary of Goldman Sachs.
The consolidated financial statements include the accounts of
McJunkin Red Man Holding Corporation and its wholly owned and
majority owned subsidiaries (collectively referred to as
the Company or by such terms as we,
our or us). All material intercompany
balances and transactions have been eliminated in consolidation.
Investments in our unconsolidated joint ventures, over which we
exercise significant influence, but do not control, are
accounted for by the equity method. Our unconsolidated joint
ventures, along with our percentage of ownership of each, are:
(a) TFCX Finland Oy (50%), (b) MRC Transmark Middle
East FZCO (50%) and (c) Transmark DRW GmbH (50%). As of
December 31, 2010 and 2009, our total investment in these
entities was insignificant.
Use of Estimates: The preparation of
financial statements in conformity with the accounting
principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reported period. We believe that our most significant
estimates and assumptions are related to estimated losses on
accounts receivable, estimated realizable value on excess and
obsolete inventories, goodwill, intangibles, deferred taxes and
self-insurance programs. Actual results could differ materially
from those estimates.
Cash Equivalents: We consider all
highly liquid investments with maturities of three months or
less at the date of purchase to be cash equivalents.
Allowance for Doubtful Accounts: We
evaluate the adequacy of the allowance for losses on receivables
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 us to make significant
estimates of factors affecting doubtful accounts, including
customer specific information, current economic
F-7
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
conditions, volume, growth and composition of the account, and
other factors such as financial statements, news 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 is included in selling, general and administrative
expenses in the accompanying consolidated statements of income.
Inventories: Our inventories are
generally valued at the lower of cost, principally
last-in,
first-out method (LIFO) or market. We record an estimate each
month, if necessary, for the expected annual effect of inflation
and estimated year-end inventory volume. These estimates are
adjusted to actual results determined at year-end. This practice
excludes certain inventories, which are held outside of the
United States, approximating $140 million and
$163 million at December 31, 2010 and 2009, which are
valued at the lower of weighted-average cost or market.
Our inventory is substantially finished goods. The amount of
general and administrative costs charged to inventory was
immaterial for the years ended December 31, 2010, 2009, and
2008.
Allowances for excess and obsolete inventories are determined
based on analyses comparing inventories on hand to sales trends.
The allowance, which totaled $11 million and
$8 million at December 31, 2010 and 2009, is the
amount deemed necessary to reduce the cost of the inventory to
its estimated realizable value.
Assets Held for Sale: Certain of our
assets, consisting principally of certain
available-for-sale
securities and two parcels of real estate, were designated as
noncore assets under the terms of the acquisition of McJunkin
Corporation by certain affiliates of the Goldman Sachs Group,
Inc. In accordance with the acquisition agreement, we classified
these as assets held for sale in the consolidated balance sheet.
A corresponding liability to shareholders (of our predecessor
company, McJunkin Corporation) was recognized to reflect the
obligation to the shareholders of record at the date of the
acquisition. In the second quarter of 2010, we sold the
available-for-sale
securities. In September 2010, a portion of the proceeds from
this sale, less selling expenses, other expenses and the related
tax liability, was paid to the former shareholders of our
predecessor company, net of administrative cost reimbursement
retained by us. We paid the remainder, net of expected expenses,
in December 2010. In the third quarter of 2010, we retained one
of the parcels of real estate for our future use and paid the
former shareholders the fair market value of the property, net
of administrative cost reimbursement retained by us.
In January 2011, we sold our measurement fabrication business to
a third party, while retaining the distribution portion of the
business. The fabrication business was a noncore business of our
North American segment and was not material to our consolidated
financial statements; therefore, we have not reported this
portion of the business as discontinued operations. As a result
of this agreement, we recorded an $0.2 million loss on the
sale, as a result of the estimated fair value being less than
the carrying value. The assets that were sold in this
transaction were not material to our consolidated balance sheet.
Debt Issuance Costs: We defer costs
directly related to obtaining financing and amortize them over
the term of the indebtedness on a straight-line basis. The use
of the straight-line method does not produce results that are
materially different from those which would result from the use
of the effective interest method. Such amounts are reflected in
the consolidated income statement as a component of interest
expense. Debt issuance costs are shown net of accumulated
amortization of $14 million and $6 million at
December 31, 2010 and 2009.
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 such assets principally by the straight-line
method; accelerated depreciation and cost recovery methods are
used for income tax purposes. Leasehold improvements are
amortized using the straight-line method over the shorter of the
remaining lease term or the estimated useful life of the
improvements. When assets are retired or otherwise disposed of,
the cost and related
F-8
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Goodwill and Other Intangible
Assets: Goodwill represents the excess of
cost over the fair value of net assets acquired. Goodwill and
intangible assets with indefinite useful lives are tested for
impairment annually or more frequently if circumstances indicate
that impairment may exist. We evaluate goodwill for impairment
at two reporting units that mirror our two reportable segments
(North America and International).
The goodwill impairment test compares the carrying value of the
reporting unit that has the goodwill with the estimated fair
value of that reporting unit. If the carrying value is more than
the estimated fair value, we then calculate the implied fair
value of goodwill by deducting the fair value of all tangible
and intangible net assets of the reporting unit from the
estimated fair value of the reporting unit. Impairment losses
are recognized to the extent that recorded goodwill exceeds
implied goodwill. Our impairment methodology uses discounted
cash flow and multiples of cash earnings valuation techniques,
plus valuation comparisons to similar businesses. These
valuation methods require us to make certain assumptions and
estimates regarding future operating results, the extent and
timing of future cash flows, working capital, sales prices,
profitability, discount rates and growth trends. While we
believe that such assumptions and estimates are reasonable, the
actual results may differ materially from the projected results
(see Note 6 for more information regarding goodwill).
Other intangible assets primarily include customer bases and
noncompetition agreements resulting from business acquisitions.
Other intangible assets are recorded at fair value at the date
of acquisition. Amortization is provided using the straight-line
method over their estimated useful lives, ranging from one to
twenty years.
The carrying value of intangible assets is subject to an
impairment test when events or circumstances indicate a possible
impairment. When events or circumstances indicate a possible
impairment, we assess recoverability from future operations
using undiscounted cash flows derived from the lowest
appropriate asset group. To the extent the carrying value
exceeds the undiscounted cash flows, an impairment charge would
be recognized to the extent that the carrying value exceeds the
fair value, which is determined based on a discounted cash flow
analysis. While we believe that assumptions and estimates
utilized in the impairment analysis are reasonable, the actual
results may differ materially from the projected results. These
impairments are determined prior to performing our goodwill
impairment test.
Derivatives and Hedging: We utilize
interest rate swaps to reduce our exposure to potential interest
rate increases. Changes in the fair values of our derivative
instruments are based upon independent market quotes. We record
all derivatives on the consolidated balance sheets at fair
value. Prior to June 29, 2009, if a derivative was
designated as a cash flow hedge, we measured the effectiveness
of the hedge, or the degree that the gain (loss) for the hedging
instrument offset the loss (gain) on the hedged item, at each
reporting period. The effective portion of the gain (loss) on
the derivative instrument, net of deferred taxes, was recognized
in other comprehensive income as a component of equity and,
subsequently, reclassified into earnings when the forecasted
transaction affected earnings. The ineffective portion of a
derivatives change in fair value was recognized in
earnings immediately. Derivatives that did not qualify for hedge
treatment were recorded at fair value with gains (losses)
recognized in earnings in the period of change. On June 29,
2009, we removed the designation of our swap as a cash flow
hedge. Accordingly, changes in the fair value of the derivative
are recorded in earnings in the period of change; and the fair
value that was previously included in other comprehensive income
was amortized over the remaining life of the agreement or until
the forecasted transaction expires. At December 31, 2009,
we determined that the forecasted transaction was not going to
occur (due to the fact that we terminated the interest rate swap
agreement in January 2010), therefore, the fair value that
remained in other comprehensive income was charged to interest
expense in our consolidated statements of income.
We utilize foreign exchange forward contracts (exchange
contracts) to manage our foreign exchange rate risks resulting
from purchase commitments and sales orders. Changes in the fair
values of our exchange contracts are based upon independent
market quotes. We do not designate our exchange contracts as
hedging instruments;
F-9
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
therefore, we record our exchange contracts on the consolidated
balance sheets at fair value, with the gains and losses
recognized in earnings in the period of change.
Fair Value: We measure certain of our
assets and liabilities at fair value on a recurring basis. Fair
value is an exit price, representing the amount that would be
received to sell an asset or be paid to transfer a liability in
an orderly transaction between market participants. As such,
fair value is a market-based measurement that is determined
based on assumptions that market participants would use in
pricing an asset or a liability. A three-tier fair value
hierarchy is established as a basis for considering such
assumptions for inputs used in the valuation methodologies to
measuring fair value:
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 reflect our own
assumptions about the assumptions that market participants would
use in pricing an asset or liability (including all assumptions
about risk).
Certain assets and liabilities are measured at fair value on a
nonrecurring basis. Our assets and liabilities measured at fair
value on a nonrecurring basis include property, plant and
equipment, goodwill and other intangible assets. We do not
measure these assets at fair value on an ongoing basis; however,
these assets are subject to fair value adjustments in certain
circumstances, such as when there is evidence of impairment.
Our impairment methodology for goodwill and other intangible
assets uses both (i) a discounted cash flow analysis
requiring certain assumptions and estimates to be made regarding
the extent and timing of future cash flows, discount rates and
growth trends and (ii) valuation comparisons to a group of
similar, publicly traded companies. As all of the assumptions
employed to measure these assets and liabilities on a
nonrecurring basis are based on managements judgment using
internal and external data, these fair value determinations are
classified as Level 3. We have not elected to apply the
fair value option to any of our eligible financial assets and
liabilities.
Insurance: We are self-insured for
first party automobile coverage, product recall, ocean cargo
shipments and portions of employee healthcare and asbestos
claims. In addition, we maintain a nonmaterial deductible
program as it relates to workers compensation, automobile
liability, property and general liability claims including, but
not limited to, product liability claims, which are secured by
various letters of credit totaling $5 million. Our
estimated liability and related expenses for claims are based in
part upon estimates provided by insurance carriers, third-party
administrators, and actuaries. Insurance reserves are deemed by
us to be sufficient to cover outstanding claims, including those
incurred but not reported as of the estimation date. Further, we
maintain a commercially reasonable umbrella/excess policy that
covers liabilities in excess of the primary limits.
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 effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Each reporting
period, we assess the likelihood that we will be able to recover
our deferred tax assets. If recovery is not likely, we record a
valuation allowance against the deferred tax asset that we
believe will not be recoverable. The ultimate recovery of our
deferred tax asset is dependent on various factors and is
subject to change.
The benefit of an uncertain tax position that meets the
probable recognition threshold is recognized in the
financial statements. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are
reflected in the period in which the change in
F-10
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
judgment occurs. We record interest related to unrecognized tax
benefits in interest expense and penalties related to
unrecognized tax benefits in income tax expense.
Foreign Currency Translation and
Transactions: The functional currency of our
foreign operations is the applicable local currency. The
cumulative effects of translating the balance sheet accounts
from the functional currency into the U.S. dollar at
current exchange rates are included in accumulated other
comprehensive income. The balance sheet accounts (with the
exception of retained earnings) are translated using current
exchange rates as of the balance sheet date. Retained earnings
are translated at historical exchange rates and revenue and
expense accounts are translated using a weighted-average
exchange rate during the year. Historically, gains or losses
resulting from foreign currency transactions have been
immaterial and are recognized in the consolidated statements of
income within other, net.
Equity-Based Compensation: Our
equity-based compensation consists of (1) restricted common
units and profit units of PVF Holdings LLC and
(2) restricted stock and nonqualified stock options of our
Company. 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. Our policy is to expense
equity-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 then current
market value of the shares vested.
The fair value of nonqualified 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.
Revenue Recognition: Sales to our
principal customers are made pursuant to agreements that
normally provide for transfer of legal title and risk upon
shipment. We recognize revenue as products are shipped, title
has transferred to the customer and the customer assumes the
risks and rewards of ownership, and collectability is reasonably
assured. Freight charges billed to customers are reflected in
revenues. Return allowances, which are not material, are
estimated using historical experience. Amounts received in
advance are deferred and recognized as revenue when the products
are shipped and title transfers.
Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net basis and
therefore are excluded from net sales in the accompanying
consolidated statements of income.
Cost of Goods Sold: Cost of goods sold
includes the cost of inventory sold and related items, such as
vendor rebates, inventory allowances, and shipping and handling
costs associated with outbound freight.
Earnings per Share: Basic earnings per
share are computed based on the weighted-average number of
common shares outstanding, excluding any dilutive effects of
unexercised stock options and unvested restricted stock. Diluted
earnings per share are computed based on the weighted-average
number of common shares outstanding including any dilutive
effect of unexercised stock options and unvested restricted
stock. The dilutive effect of unexercised stock options and
unvested restricted stock is calculated under the treasury stock
method.
Concentration of Credit Risk: Most of
our business activity is with customers in the energy and
industrial sectors. In the normal course of business, we grant
credit to these customers in the form of trade accounts
receivable. These receivables could potentially subject us to
concentrations of credit risk; however, we minimize such risk by
closely monitoring extensions of trade credit. We generally do
not require collateral on trade receivables.
We maintain the majority of our cash and cash equivalents with
several reputable financial institutions. These financial
institutions are located in many different geographical regions
with varying economic characteristics and risks. Deposits held
with banks may exceed insurance limits. We believe the risk of
loss associated with our cash equivalents to be remote.
We have a broad customer base doing business in all regions of
the world. During 2010, 2009 and 2008, we did not have sales to
any one customer in excess of 10% of gross sales, and at those
respective year-ends no individual
F-11
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customer balances exceeded 10% of gross accounts receivable.
Accordingly, no significant concentration of credit risk is
considered to exist.
We have a broad supplier base, sourcing our products in most
regions of the world. During 2010, we had purchases from one
vendor in excess of 10% of our gross purchases (11%), while
during 2009 and 2008, we did not have any purchases from any one
vendor in excess of 10% of our gross purchases, and at those
respective year-ends no individual vendor balance exceeded 10%
of gross accounts payable. Accordingly, no significant
concentration is considered to exist.
Segment Reporting: We operate as two
reportable segments, one consisting of our North American
operations and one consisting of our other International
operations. Our North American segment consists of our
operations in the United States and Canada and has operations in
four geographical regions, which have similar economic
characteristics, products and services, types of customers,
distribution methods and regulatory environments in each region.
Our International segment has operations in Europe, Asia and
Australasia. These segments represent our global business of
providing pipe, valves, fittings and related products and
services to the energy and industrial sectors, 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, through our distribution
operations located throughout the world.
Recent Accounting Pronouncements: In
October 2009, the Financial Accounting Standards Board
(FASB) issued an amendment to Accounting Standards
Codification (ASC) 605, Revenue Recognition,
related to the accounting for revenue in arrangements with
multiple deliverables including how the arrangement
consideration is allocated among delivered and undelivered items
of the arrangement. Among the amendments, this standard
eliminated the use of the residual method for allocating
arrangement considerations and requires an entity to allocate
the overall consideration to each deliverable based on an
estimated selling price of each individual deliverable in the
arrangement in the absence of having vendor-specific objective
evidence or other third-party evidence of fair value of the
undelivered items. This standard also provides further guidance
on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the
disclosure requirements about the judgments made in applying the
estimated selling price method and how those judgments affect
the timing or amount of revenue recognition. This standard will
become effective on January 1, 2011. We do not expect that
the adoption of this standard will have a material impact on our
consolidated financial statements.
In January 2010, FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements, an
amendment to ASC Topic 820, Fair Value Measurement and
Disclosures. This amendment will require us to disclose
separately the amounts of significant transfers in and out of
Levels 1 and 2 fair value measurements and describe the
reasons for the transfers and present separate information for
Level 3 activity pertaining to gross purchases, sales,
issuances and settlements. This amendment is effective for
reporting periods beginning after December 31, 2009, except
for the disclosures about purchases, sales, issuances and
settlements in the rollforward activity in Level 3 fair
value measurements, which are effective for fiscal years
beginning after December 15, 2010, and for interim periods
within those fiscal years. Our adoption of this amendment,
pertaining to the Level 1 and Level 2 disclosures on
January 1, 2010, did not have a material impact on our
consolidated financial statements. We do not believe that the
Level 3 amendment disclosures will have a material impact
on our consolidated financial statements.
In February 2010, FASB issued ASU
No. 2010-09,
Amendments to Certain Recognition and Disclosure
Requirements, an amendment to ASC Topic 855, Subsequent
Events, that removed the requirements for SEC registrants to
disclose the date through which subsequent events were
evaluated. There were no changes to the accounting for or
disclosure of events that occur after the balance sheet date but
before the financial statements are issued. Our adoption of this
amendment on January 1, 2010 did not have a material impact
on our consolidated financial statements.
F-12
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2010, FASB issued ASU
No. 2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses, which amended ASC Topic
310, Receivables. This amendment enhances the disclosure
requirements regarding the nature of credit risk inherent in our
portfolio of accounts receivable, how that risk is assessed in
arriving at our allowance for doubtful accounts and the changes
and reasons for those changes in the allowance for doubtful
accounts. The adoption of this amendment did not have a material
impact on our consolidated financial statements.
In December 2010, FASB issued ASU
No. 2010-29,
Disclosure of Supplementary Pro Forma Information for
Business Combinations, which amended ASC Topic 805,
Business Combinations. This ASU amended certain existing
and added additional pro forma disclosure requirements. The
standard will become effective on January 1, 2011. We do
not expect that the adoption of this standard will have a
material impact on our consolidated financial statements.
Acquisitions
On October 9, 2008, we acquired LaBarge Pipe &
Steel Company (LaBarge) for $154.2 million.
LaBarge was engaged in the sale and distribution of carbon steel
pipe (predominately large diameter pipe) for use primarily in
the North American energy infrastructure market. The purchase
price has been allocated in the following table. Transaction
costs capitalized in connection with the acquisition of LaBarge
totaled $3.8 million and included $1.6 million paid to
an affiliate of the Goldman Sachs Funds as reimbursement of
their costs associated with due diligence and advisory services.
On January 21, 2010, LaBarge was legally merged into MRC.
On October 30, 2009, we acquired Transmark Fcx Group BV
(together with its subsidiaries, Transmark) for
$147.9 million. Headquartered in Bradford, United Kingdom,
Transmark is a global distributor of specialty valves and flow
control equipment, with a network of 37 distribution and service
facilities in 13 countries throughout Europe, Asia and
Australasia. The purchase price has been allocated in the
following table. In connection with this transaction, we
expensed approximately $17.4 million in transaction costs,
including $5.8 million paid to an affiliate of the Goldman
Sachs Funds as reimbursement of their costs associated with due
diligence and advisory services. These expenses are included
within selling, general and administrative expenses in our
consolidated statements of income. As a part of the acquisition,
we renamed Transmark Fcx Group BV as MRC Transmark Group B.V.
(MRC Transmark).
On May 28, 2010, we acquired The South Texas Supply
Company, Inc. (South Texas Supply) for
$3.9 million. South Texas operates two branches in southern
Texas, within the Eagle Ford Shale region. The impact of this
acquisition was not material to our consolidated financial
statements.
On August 31, 2010, we acquired operations and assets from
Dresser Oil Tools, Inc. (Dresser) for
$9.3 million. Dresser operates five branches in North
Dakota and Montana, within the Bakken Shale region. The impact
of this acquisition was not material to our consolidated
financial statements.
F-13
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The consideration paid for these acquisitions has been allocated
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Acquisition of
|
|
|
Acquisition of
|
|
|
Acquisition of
|
|
|
|
South Texas Supply
|
|
|
Transmark Fcx
|
|
|
LaBarge Pipe &
|
|
|
|
and Dresser
|
|
|
Group BV
|
|
|
Steel Company
|
|
|
Consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration paid
|
|
$
|
13.2
|
|
|
$
|
98.5
|
|
|
$
|
150.4
|
|
Transaction costs(1)
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash consideration
|
|
|
13.2
|
|
|
|
98.5
|
|
|
|
154.2
|
|
Common stock issued
|
|
|
|
|
|
|
49.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
13.2
|
|
|
$
|
147.9
|
|
|
$
|
154.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares issued
|
|
|
|
|
|
|
12.7
|
|
|
|
|
|
Fair value of shares issued
|
|
$
|
|
|
|
$
|
49.4
|
|
|
$
|
|
|
Net assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
0.7
|
|
|
$
|
43.0
|
|
|
$
|
2.3
|
|
Accounts receivable
|
|
|
7.1
|
|
|
|
71.9
|
|
|
|
21.7
|
|
Inventory
|
|
|
7.3
|
|
|
|
65.1
|
|
|
|
138.6
|
|
Other current assets
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
Fixed assets
|
|
|
0.9
|
|
|
|
11.1
|
|
|
|
4.4
|
|
Other assets
|
|
|
0.1
|
|
|
|
11.2
|
|
|
|
0.9
|
|
Customer base intangibles
|
|
|
|
|
|
|
43.0
|
|
|
|
33.0
|
|
Trade name
|
|
|
|
|
|
|
14.0
|
|
|
|
1.1
|
|
Sales order backlog
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
Goodwill
|
|
|
3.6
|
|
|
|
44.4
|
|
|
|
0.3
|
|
Accounts payable
|
|
|
(5.5
|
)
|
|
|
(47.2
|
)
|
|
|
(43.7
|
)
|
Accrued expenses
|
|
|
(0.6
|
)
|
|
|
(22.0
|
)
|
|
|
(4.4
|
)
|
Income taxes payable
|
|
|
|
|
|
|
(6.8
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
(12.8
|
)
|
|
|
|
|
Debt
|
|
|
|
|
|
|
(80.2
|
)
|
|
|
|
|
Other liabilities
|
|
|
(0.4
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.2
|
|
|
$
|
147.9
|
|
|
$
|
154.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill deductible for tax purposes
|
|
|
No
|
|
|
|
No
|
|
|
|
Yes
|
|
|
|
|
(1) |
|
Prior to the adoption of ASC 805 (on January 1, 2009),
transaction costs were capitalized as a component of the
purchase price of the acquisition. Subsequent to the adoption,
transaction costs are expensed as incurred. |
F-14
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro
Forma Financial Information (Unaudited)
The following unaudited pro forma results of operations assume
that the Transmark acquisition described above occurred on
January 1, 2009. 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 or of results
that may be obtained in the future (in millions, except per
share data).
|
|
|
|
|
|
|
2009
|
|
|
Pro forma sales
|
|
$
|
3,933
|
|
Pro forma net loss
|
|
|
(278
|
)
|
Loss per common share, basic
|
|
$
|
(1.65
|
)
|
Loss per common share, diluted
|
|
$
|
(1.65
|
)
|
|
|
NOTE 3
|
ACCOUNTS
RECEIVABLE
|
The rollforward of our allowance for doubtful accounts is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
8,790
|
|
|
$
|
9,915
|
|
|
$
|
2,247
|
|
Net charge-offs
|
|
|
(2,297
|
)
|
|
|
(2,119
|
)
|
|
|
(536
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
523
|
|
Provision
|
|
|
(2,042
|
)
|
|
|
994
|
|
|
|
7,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,451
|
|
|
$
|
8,790
|
|
|
$
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our accounts receivable is also presented net of other volume
related allowances. Those allowances approximated
$4.7 million and $4.0 million at December 31,
2010 and 2009.
The composition of our inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Finished goods inventory at average cost:
|
|
|
|
|
|
|
|
|
Energy carbon steel tubular products
|
|
$
|
396,611
|
|
|
$
|
503,948
|
|
Valves, fittings, flanges and all other products
|
|
|
481,137
|
|
|
|
402,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
877,748
|
|
|
|
906,638
|
|
Less: Excess of average cost over LIFO cost (LIFO reserve)
|
|
|
(101,419
|
)
|
|
|
(26,862
|
)
|
Less: Other inventory reserves
|
|
|
(10,962
|
)
|
|
|
(8,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
765,367
|
|
|
$
|
871,653
|
|
|
|
|
|
|
|
|
|
|
During 2010 and 2009, our inventory quantities were reduced,
resulting in a liquidation of a LIFO inventory layer that was
carried at a higher cost prevailing from a prior year, as
compared with current costs in the current year (a LIFO
decrement). A LIFO decrement results in the erosion of
layers created in earlier years and therefore a LIFO layer is
not created for years that have decrements. In 2010, the effect
of this LIFO decrement decreased cost of sales by approximately
$11 million and in 2009, increased cost of sales by
approximately $45 million.
F-15
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of our
lower-of-cost-or-market
assessment, we recognized pretax charges of $0.4 million
and $46.5 million during the years ended December 31,
2010 and 2009. No such charges were recognized in 2008.
|
|
NOTE 5
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Depreciable Life
|
|
|
2010
|
|
|
2009
|
|
|
Land and improvements
|
|
|
|
|
|
$
|
24,685
|
|
|
$
|
17,918
|
|
Building and building improvements
|
|
|
40 years
|
|
|
|
48,803
|
|
|
|
47,052
|
|
Machinery and equipment
|
|
|
3 to 10 years
|
|
|
|
70,960
|
|
|
|
69,542
|
|
Construction in progress
|
|
|
|
|
|
|
2,902
|
|
|
|
3,597
|
|
Property held under capital leases
|
|
|
20 to 30 years
|
|
|
|
2,089
|
|
|
|
2,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,439
|
|
|
|
140,198
|
|
Allowances for depreciation and amortization
|
|
|
|
|
|
|
(44,714
|
)
|
|
|
(28,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,725
|
|
|
$
|
111,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill by segment for
the years ended December 31, 2010 and 2009, are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
International
|
|
|
Total
|
|
|
Balances at December 31, 2008
|
|
$
|
807,250
|
|
|
$
|
|
|
|
$
|
807,250
|
|
Goodwill impairment charge
|
|
|
(309,900
|
)
|
|
|
|
|
|
|
(309,900
|
)
|
Acquisition of Transmark
|
|
|
|
|
|
|
44,441
|
|
|
|
44,441
|
|
Other
|
|
|
(172
|
)
|
|
|
|
|
|
|
(172
|
)
|
Effect of foreign currency translation
|
|
|
9,396
|
|
|
|
(1,282
|
)
|
|
|
8,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
816,474
|
|
|
|
43,159
|
|
|
|
859,633
|
|
Accumulated impairment losses
|
|
|
(309,900
|
)
|
|
|
|
|
|
|
(309,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net goodwill at December 31, 2009
|
|
|
506,574
|
|
|
|
43,159
|
|
|
|
549,733
|
|
Acquisition of South Texas Supply and Dresser
|
|
|
3,591
|
|
|
|
|
|
|
|
3,591
|
|
Other
|
|
|
(687
|
)
|
|
|
|
|
|
|
(687
|
)
|
Effect of foreign currency translation
|
|
|
|
|
|
|
(3,253
|
)
|
|
|
(3,253
|
)
|
Balances at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
819,378
|
|
|
|
39,906
|
|
|
|
859,284
|
|
Accumulated impairment losses
|
|
|
(309,900
|
)
|
|
|
|
|
|
|
(309,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net goodwill at December 31, 2010
|
|
$
|
509,478
|
|
|
$
|
39,906
|
|
|
$
|
549,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, our earnings progressively decreased due to the
weakening of the U.S. and global economies, the reductions
in oil and natural gas prices, and the reductions in our
customers expenditure programs (both new programs and
recurring maintenance programs). These factors resulted in a
reduced demand for our product; consequently, we revised our
long-term projections, which in turn impacted the fair value of
our business. As a result, we concluded that the carrying value
of our reporting unit exceeded the fair value of our reporting
unit and
F-16
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thus, for the year ended December 31, 2009, we recorded a
pretax impairment charge of $310 million. No impairment
charges were recorded in any of the other periods presented.
Other intangible assets by major classification consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Period (in years)
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer base
|
|
|
16.2
|
|
|
$
|
693,809
|
|
|
$
|
(149,312
|
)
|
|
$
|
544,497
|
|
Amortizable trade names
|
|
|
5.9
|
|
|
|
21,699
|
|
|
|
(9,264
|
)
|
|
|
12,435
|
|
Unamortizable trade names
|
|
|
N/A
|
|
|
|
336,223
|
|
|
|
|
|
|
|
336,223
|
|
Noncompete agreements
|
|
|
5
|
|
|
|
970
|
|
|
|
(760
|
)
|
|
|
210
|
|
Sales order backlog
|
|
|
1
|
|
|
|
8,914
|
|
|
|
(8,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8
|
|
|
$
|
1,061,615
|
|
|
$
|
(168,250
|
)
|
|
$
|
893,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer base
|
|
|
16.2
|
|
|
$
|
696,489
|
|
|
$
|
(103,327
|
)
|
|
$
|
593,162
|
|
Amortizable trade names
|
|
|
5.9
|
|
|
|
22,643
|
|
|
|
(5,244
|
)
|
|
|
17,399
|
|
Unamortizable trade names
|
|
|
N/A
|
|
|
|
336,223
|
|
|
|
|
|
|
|
336,223
|
|
Noncompete agreements
|
|
|
5
|
|
|
|
970
|
|
|
|
(566
|
)
|
|
|
404
|
|
Sales order backlog
|
|
|
1
|
|
|
|
9,526
|
|
|
|
(4,526
|
)
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8 years
|
|
|
$
|
1,065,851
|
|
|
$
|
(113,663
|
)
|
|
$
|
952,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Intangible Assets
Total amortization of all acquisition-related intangible assets
for each of the years ending December 31, 2011 to 2015 is
currently estimated as follows (in millions):
|
|
|
|
|
2011
|
|
$
|
49.4
|
|
2012
|
|
|
47.3
|
|
2013
|
|
|
47.3
|
|
2014
|
|
|
47.3
|
|
2015
|
|
|
47.3
|
|
F-17
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The significant components of our long-term debt are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Issuer:
|
|
|
|
|
|
|
|
|
9.50% senior secured notes due 2016, net of discount of
$22,062 and $24,670
|
|
$
|
1,027,938
|
|
|
$
|
975,330
|
|
Asset-based revolving credit facility
|
|
|
286,398
|
|
|
|
340,126
|
|
Non-Guarantors:
|
|
|
|
|
|
|
|
|
Midfield revolving credit facility
|
|
|
1,297
|
|
|
|
50,209
|
|
Midfield term loan facility
|
|
|
14,415
|
|
|
|
13,680
|
|
MRC Transmark revolving credit facility
|
|
|
23,214
|
|
|
|
52,791
|
|
MRC Transmark term loan facility
|
|
|
|
|
|
|
10,750
|
|
MRC Transmark factoring facility
|
|
|
6,979
|
|
|
|
9,034
|
|
Other
|
|
|
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,360,241
|
|
|
|
1,452,610
|
|
Less current portion
|
|
|
|
|
|
|
9,114
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,360,241
|
|
|
$
|
1,443,496
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes: On
December 21, 2009, our wholly owned subsidiary, MRC, issued
$1.0 billion aggregate principal amount of its
9.50% Senior Secured Notes (the Notes) maturing
on December 15, 2016. On February 11, 2010, MRC issued
an additional $50 million aggregate amount of the Notes.
MRC received proceeds of $1.023 billion, resulting in an
original issue discount (OID) of approximately
$27 million, which will be accreted over the life of the
Notes in interest expense in our consolidated statements of
income. The Notes rank equally in right of payment with all of
MRCs existing and future senior indebtedness. We guarantee
the Notes, along with our wholly owned domestic subsidiaries.
The Notes are secured by a senior lien on substantially all of
the tangible and intangible assets of MRC and its wholly owned
domestic subsidiaries, except for the collateral securing the
Asset-Based Revolving Credit Facility (ABL), for
which the Notes are secured on a junior basis. Assets owned by
our non-guarantor subsidiaries are not part of the collateral
securing the Notes.
Under the terms of the indenture governing the Notes, MRC must
offer to repurchase the Notes at a price equal to 101% of their
outstanding principal in the event of a change in control as
defined in the indenture. At any time prior to December 15,
2012, MRC may redeem up to 35% of the aggregate principal amount
of the Notes at 109.50% plus accrued and unpaid interest, with
all or a portion of the net cash proceeds of one or more
Qualified Equity Offerings (as defined in the indenture
governing the Notes), provided that at least 65% of the
aggregate principal amount of the Notes remains outstanding and
the redemption occurs within 90 days of the date of the
closing of such Qualified Equity Offering. Further, at any time
prior to December 15, 2012, MRC may redeem all or part of
the Notes, with 15 to 60 days notice, at a redemption price
equal to 100% of the principal amount of the Notes redeemed,
plus a make-whole premium defined in the indenture governing the
Notes, and accrued and unpaid
F-18
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest to the date of redemption. On or after
December 15, 2012, MRC may redeem all or part of the Notes,
with 15 to 60 days notice, at the redemption prices set
forth in the table below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2012
|
|
|
107.125
|
%
|
2013
|
|
|
104.750
|
%
|
2014
|
|
|
102.375
|
%
|
2015 and thereafter
|
|
|
100.000
|
%
|
The indenture governing the Notes contains covenants that impose
significant restrictions on MRCs business. The
restrictions that these covenants place on MRC and its
restricted subsidiaries include limitations on its ability and
the ability of its restricted subsidiaries to, among other
things, incur additional indebtedness, issue certain preferred
stock or disqualified capital stock, create liens, pay dividends
or make other restricted payments, make certain payments on debt
that is subordinated or secured on a basis junior to the Notes,
make investments, sell assets, create restrictions on the
payment of dividends or other amounts to us from restricted
subsidiaries, consolidate, merge, sell or otherwise dispose of
all or substantially all of our assets, enter into transactions
with our affiliates and designate its subsidiaries as
unrestricted subsidiaries. We were in compliance with the
covenants contained in our indenture as of and for the years
ended December 31, 2010 and 2009.
MRC is required to register with the Securities and Exchange
Commission notes having substantially identical terms as the
Notes as part of an offer to exchange freely tradable exchange
notes for MRCs Notes. We are required to file an exchange
offer registration statement within 470 days after the
issue date of the Notes (filing deadline) and use
our commercially reasonable efforts to cause the exchange offer
registration statement to be declared effective within
110 days after the filing deadline (effectiveness
deadline). The exchange offer is required to be completed
within 30 business days of the effectiveness deadline. We may
also be required to file a shelf registration statement in
certain circumstances. If we fail to meet these deadlines,
special interest will accrue and be payable with respect to the
Notes.
In connection with the issuance of the Notes, we paid off our
$575 million Term Loan Facility and $450 million
Junior Term Loan Facility. These facilities bore interest at a
rate per annum equal to, at our option, either (i) 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% (Term Loan Facility) or LIBOR multiplied by the
statutory reserve rate plus 3.25% (Junior Term Loan Facility).
We were in compliance with the covenants contained in these
facilities as of and during the periods prior to payoff. As a
result of these payoffs, we wrote off approximately
$14 million of debt issuance costs, which are included in
the gain on early extinguishment of debt in our consolidated
statements of income. In 2009, prior to the payoff, we purchased
and retired $36 million of our Junior Term Loan Facility
and recognized a gain on early extinguishment of
$16 million ($10 million, net of deferred income
taxes) in our consolidated statements of income.
Asset-Based Revolving Credit
Facility: MRC is the borrower under a
$900 million Asset-Based Revolving Credit Facility
(ABL). The ABL 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 ABL may not exceed
$900 million, subject to adjustments based on changes in
the borrowing base and less the sum of all letters of credit
outstanding and the aggregate principal amount of swingline
loans outstanding. 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.
Availability under the $900 million ABL is subject to a
borrowing base. The borrowing base is equal to 85% of the sum of
eligible accounts receivable and the net orderly liquidation
value of eligible inventory, subject to customary reserves and
eligibility criteria.
F-19
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Borrowings under the ABL bear interest at a rate per annum equal
to, at our option, either (i) the greater of the prime rate
as quoted in The Wall Street Journal and the federal
funds effective rate plus 0.50%, plus in either case
(a) 2.00% if MRCs consolidated total debt to
consolidated adjusted EBITDA ratio is greater than or equal to
2.75 to 1.00, (b) 1.75% if such ratio is greater than or
equal to 2.00 to 1.00 but less than 2.75 to 1.00, or
(c) 1.50% if such ratio is less than 2.00 to 1.00; or
(ii) LIBOR plus (a) 3.00% if the borrowers
consolidated total debt to consolidated adjusted EBITDA ratio is
greater than or equal to 2.75 to 1.00, (b) 2.75% if such
ratio is greater than or equal to 2.00 to 1.00 but less than
2.75 to 1.00, or (c) 2.50% if such ratio is less than 2.00
to 1.00. Interest on swingline lines is calculated on the basis
of the rate described in (i) of the preceding sentence.
In addition, MRC is required to pay a commitment fee with
respect to unutilized commitments at a rate per annum equal to
(i) 0.50% if our consolidated total debt to consolidated
adjusted EBITDA ratio is greater than or equal to 2.75 to 1.00
and (ii) 0.375% if such ratio is less than 2.75 to 1.00.
MRC is also required to pay customary letter of credit fees and
agency fees.
The ABL provides that MRC has the right at any time to request
incremental commitments, but the lenders are under no obligation
to provide any such additional commitments. The increase in
facility commitments may not exceed the sum of
(i) $150 million, plus (ii) only after the entire
$150 million is drawn, an amount such that on a pro forma
basis, after giving effect to the new facility commitments and
certain other specified transactions, the secured leverage ratio
will be no greater than 4.75 to 1.00. If MRC were to request any
such additional commitments and the existing lenders or new
lenders were to agree to provide such commitments, the ABL size
could be increased as described above, but our ability to borrow
would still be limited by the amount of the borrowing base.
If at any time the aggregate amount of outstanding loans,
unreimbursed letter of credit drawings and undrawn letters of
credit under the ABL exceeds the lesser of (i) the total
revolving credit commitments or (ii) the borrowing base,
MRC 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 ABL is less than 7% of total
revolving credit commitments, or an event of default pursuant to
certain provisions of the credit agreement has occurred, MRC
would then be required to deposit daily in a collection account
managed by the agent under the ABL. MRC 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 ABL; the
principal amount of the loans outstanding is due and payable in
full on October 31, 2013.
All obligations under the ABL are guaranteed by MRCs
existing and future wholly owned domestic subsidiaries. All
obligations under the ABL are secured, subject to certain
significant exceptions, by substantially all of MRCs
assets, 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
us or any subsidiary guarantor; and
|
|
|
|
A second-priority security interest in, and mortgages on,
substantially all of our other tangible and intangible assets
and of each subsidiary guarantor.
|
The ABL contains customary covenants which restrict, subject to
certain exceptions, the ability of MRC 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 MRC and its subsidiaries taken as a
whole, and enter into agreements that restrict subsidiary
dividends or limit the ability of MRC and its subsidiaries to
create or keep liens for the benefit of the lenders with respect
to our obligations under the facility.
F-20
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The facility requires that we continue to maintain interest rate
swap, cap and hedge agreements for the purpose of ensuring that
no less than 50% of the aggregate principal amount of total
indebtedness of MRC and its subsidiaries outstanding is either
subject to such interest rate agreements or bears interest at a
fixed rate.
Although the credit agreement governing the ABL does not require
MRC 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 ABL at any time, MRC would
not be permitted to borrow any additional amounts unless its pro
forma ratio of consolidated adjusted 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. We were in compliance with the
covenants contained in our ABL as of and during the years ended
December 31, 2010, 2009 and 2008.
Midfield Revolving Credit
Facility: Midfield Supply ULC
(Midfield), our Canadian subsidiary, has a Canadian
dollar revolving credit facility (Midfield
Revolver). On October 20, 2010, we increased the
maximum limit of the facility to CAD $80 million (USD
$80 million as of December 31, 2010) from CAD
$60 million (USD $60 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 CAD $10 million (USD $10 million)
sub-limit.
Borrowings through December 31, 2009 bore interest at
either (i) the Canadian prime rate plus 2.00% or
(ii) the greater of 2.00% and 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 Services (the BA Equivalent
Rate), plus 3.50%. After December 31, 2009, the
borrowings will bear interest at a rate equal to either
(i) the Canadian prime rate, plus (a) 2.25% if the
average daily availability (as defined in the loan
and security agreement for the facility) for the previous fiscal
quarter was less than CAD $30 million (USD
$30 million), (b) 2.00% if the average daily
availability for the previous fiscal quarter was greater than or
equal to CAD $30 million (USD $30 million) but less
than CAD $60 million (USD $60 million), or
(c) 1.75% if the average daily availability for the
previous fiscal quarter was greater than or equal to CAD
$60 million (USD $60 million), or, at our option,
(ii) the BA Equivalent Rate plus (a) 3.75% if the
average daily availability for the previous fiscal quarter was
less than CAD $30 million (USD $30 million),
(b) 3.50% if the average daily availability for the
previous fiscal quarter was greater than or equal to CAD
$30 million (USD $30 million) but less than CAD
$60 million (USD $60 million), or (c) 3.25% if
the average daily availability for the previous fiscal quarter
was greater than or equal to CAD $60 million (USD
$60 million).
The Midfield Revolver is secured by substantially all of
Midfields and its subsidiary guarantors 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 18, 2012.
The Midfield Revolver required Midfield to maintain adjusted
EBITDA of (i) CAD $1.5 million (USD $1.4 million)
for the two fiscal quarters ended December 31, 2009,
(ii) CAD $4.8 million (USD $4.5 million) for the
three fiscal quarters ending March 31, 2010 and
(iii) CAD $3.7 million (USD $3.5 million) for the
four fiscal quarters ending June 30, 2010. The facility
also requires Midfield, beginning with the fiscal quarter ending
March 31, 2011, to maintain a leverage ratio of no greater
than 3.50 to 1.00 and, beginning with the fiscal quarter ending
September 30, 2010, to maintain a fixed charge coverage
ratio of at least 1.15 to 1.00. The facility prohibits Midfield
and its subsidiaries from making capital expenditures in excess
of CAD $10 million (USD $10 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 CAD
$0.25 million (USD $0.25 million) of such excess may
be carried forward and used to make capital expenditures in the
succeeding fiscal year.
F-21
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Midfield Term Loan Facility: Midfield
also has a CAD $15 million (USD $15 million as of
December 31, 2010) term loan facility. The facility
provides for revolving loans until July 31, 2011, after
which the revolving loans outstanding under the facility convert
to term loans that mature on July 31, 2012. The facility is
secured by substantially all of Midfields and its
subsidiary guarantors real property and equipment.
The facility provides for two types of funding,
(i) prime-based loans
and/or
(ii) guaranteed notes. The interest rates for the facility
vary based on the type of funding: (i) the prime-based
loans bear interest at the Canadian prime rate, plus 3.25% and
(ii) the guaranteed notes bear interest at the Canadian
Dealer Offered Rate, plus 4.50%.
The Midfield term loan facility contains similar covenants as
the Midfield Revolver, as discussed above.
On September 10, 2010, we amended our Midfield Revolver to
defer compliance with a leverage ratio covenant until
March 31, 2011 and to modify the calculation of a fixed
charge covenant ratio for the compliance period ended
September 30, 2010. On September 16, 2010, we amended
our Midfield term loan facility to defer compliance with a
leverage covenant until March 31, 2011 and to defer
compliance with a fixed charge coverage ratio until
December 31, 2010. At December 31, 2010, we were in
compliance with these covenants as amended.
Transmark Revolving Credit Facility: On
September 17, 2010, MRC Transmark, our international
subsidiary, refinanced its revolving credit facility (MRC
Transmark Revolver). This facility provides for borrowings
up to 60 million (USD $80 million), with a
20 million (USD $27 million)
sub-limit on
letters of credit. The facility matures on September 17,
2013.
The facility will be reduced by 10 million (USD
$13 million) over its term, as follows:
0.5 million (USD $0.7 million) per quarter
starting in the fourth quarter of 2010 through the third quarter
of 2012, and then by 1.5 million (USD
$2.0 million) per quarter, starting in the fourth quarter
of 2012 through the third quarter of 2013.
The facility bears interest at LIBOR or, in relation to any loan
in Euros, EURIBOR, plus an applicable margin. The margin varies
based on MRC Transmarks leverage as described in the
following table:
|
|
|
|
|
MRC Transmarks Leverage Ratio
|
|
Margin
|
|
|
Less than or equal to 0.75:1
|
|
|
1.50
|
%
|
Greater than 0.75:1, but less than or equal to 1.00:1
|
|
|
1.75
|
%
|
Greater than 1.00:1, but less than or equal to 1.50:1
|
|
|
2.00
|
%
|
Greater than 1.50:1, but less than or equal to 2.00:1
|
|
|
2.25
|
%
|
Greater than 2.00:1
|
|
|
2.50
|
%
|
The facility is secured by substantially all of the assets of
MRC Transmark and its wholly owned subsidiaries.
The facility also requires MRC Transmark to
maintain: (i) an interest coverage ratio not
less than 3.50:1 and (ii) a leverage ratio not to exceed
2.50:1. We were in compliance with these covenants as of and for
the year ended December 31, 2010.
In connection with the refinancing, MRC Transmarks
existing revolving credit facility and term loan facility were
paid off. The previous facilities bore interest at a rate, at
our option, of either (i) EURIBOR plus the margin, or, in
the case of any currency other than the Euro, (ii) LIBOR
plus the margin, in each case for a period of one, three or six
months. The margin was based on leverage and ranged from 1.50%
to 2.50% (revolving credit facility) and 2.00% to 3.00% (term
loan facility). We were in compliance with the covenants
contained in these facilities as of and for the periods prior to
payoff. Also, in conjunction with the refinancing, we paid
approximately $0.2 million to terminate interest rate swap
agreements.
Transmark Factoring Facility: MRC
Transmark also maintains a factoring facility for one of its
wholly owned subsidiaries. The subsidiary factors all invoices
for certain approved customers in transactions through which the
lender will advance the face value of the invoices (subject to a
10% withholding deposit). The lender receives a commission of
0.18%. The interest rate on this facility is EURIBOR plus 0.45%.
F-22
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Availability: At December 31,
2010, our availability under our revolving credit facilities was
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eligible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral (up
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment
|
|
|
to Commitment
|
|
|
Amount
|
|
|
Letters of
|
|
|
|
|
|
|
Amount
|
|
|
Amount)
|
|
|
Outstanding
|
|
|
Credit
|
|
|
Availability
|
|
|
ABL
|
|
$
|
900
|
|
|
$
|
651
|
|
|
$
|
286
|
|
|
$
|
5
|
|
|
$
|
360
|
|
Midfield Revolver
|
|
|
80
|
|
|
|
71
|
|
|
|
2
|
|
|
|
|
|
|
|
69
|
|
MRC Transmark Revolver
|
|
|
80
|
|
|
|
80
|
|
|
|
23
|
|
|
|
11
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,060
|
|
|
$
|
802
|
|
|
$
|
311
|
|
|
$
|
16
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on hand:
|
|
|
56
|
|
|
|
|
|
|
Liquidity at December 31, 2010:
|
|
$
|
531
|
|
|
|
|
|
|
Interest on Borrowings: Our
weighted-average interest rate on average borrowings outstanding
at December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
9.50% senior secured notes due December 2016
|
|
|
9.88
|
%
|
|
|
9.87
|
%
|
Asset-based revolving credit facility
|
|
|
3.34
|
%
|
|
|
3.29
|
%
|
Midfield revolving credit facility
|
|
|
5.00
|
%
|
|
|
4.25
|
%
|
Midfield term loan facility
|
|
|
5.86
|
%
|
|
|
4.40
|
%
|
Transmark revolving credit facility
|
|
|
2.61
|
%
|
|
|
2.96
|
%
|
Transmark term loan facility
|
|
|
|
|
|
|
2.42
|
%
|
Transmark factoring facility
|
|
|
1.46
|
%
|
|
|
1.16
|
%
|
Other
|
|
|
|
|
|
|
5.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
8.29
|
%
|
|
|
7.72
|
%
|
|
|
|
|
|
|
|
|
|
Maturities of Long-Term Debt: At
December 31, 2010, annual maturities of long-term debt
during the next five fiscal years and thereafter are as follows
(in thousands):
|
|
|
|
|
2011
|
|
$
|
|
|
2012
|
|
|
22,691
|
|
2013
|
|
|
309,612
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
1,027,938
|
|
|
|
NOTE 8
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
We use derivative financial instruments to help manage our
exposure to interest rate risk and fluctuations in foreign
currencies.
On December 3, 2007, we entered into a floating to fixed
interest rate swap contract, effective December 31, 2007,
for a notional amount of $700 million to limit exposure to
interest rate increases related to a portion of our floating
rate indebtedness. Under the terms of this contract, we paid
interest at a fixed rate of approximately 3.91% and received
3-month
LIBOR variable interest rate payments monthly. The interest rate
swap contract was set to terminate after three years. As of the
effective date of the swap contracts, we designated the interest
rate swap as a
F-23
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cash flow hedge and the effective portion of the gain or loss on
the derivative hedging instrument was reported in other
comprehensive income, while the ineffective portion was recorded
in current earnings. During the fourth quarter of 2008, one of
the underlying participants in our interest rate swap contract
declared bankruptcy, resulting in a loss of hedge accounting for
that portion of the swap. As a result, the change in the fair
value of that portion of the interest rate swap contract
($175 million) was recorded in current earnings in 2008.
Also, the portion of the swap that was previously included in
other comprehensive income was being amortized over the
remaining life of the agreement. On June 29, 2009, we
removed the designation of the swap as a cash flow hedge. As a
result, changes in the fair value of the interest rate swap
contract were recorded in earnings. The remaining portion of the
swap, that was previously included in other comprehensive
income, was being amortized over the remaining life of the
contract. On January 22, 2010, we paid $25 million to
terminate this interest rate swap contract.
Effective March 31, 2009, we entered into a freestanding,
$500 million interest rate swap contract to pay interest at
a fixed rate of approximately 1.77% and receive
1-month
LIBOR variable interest rate payments monthly through
March 31, 2012. We also have other interest rate swap
contracts and foreign exchange forward contracts, which are not
material. All of our derivative instruments are freestanding
and, accordingly, changes in their fair market value are
recorded in earnings.
The table below provides data about the fair value of our
interest rate swap derivatives that are recorded in our
consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(1)
|
|
$
|
|
|
|
$
|
8,975
|
|
|
$
|
|
|
|
$
|
26,773
|
|
Foreign exchange forward contracts(2)
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
955
|
|
|
|
|
(1) |
|
Included in Accrued expenses and other current
liabilities in our consolidated balance sheets. The total
notional amount of our interest rate contracts approximated
$.5 billion and $1.2 billion at December 31, 2010
and 2009. |
|
(2) |
|
Included in Other current assets and Accrued
expenses and other current liabilities in our consolidated
balance sheets. The total notional amount of our foreign
exchange forward contracts approximated $8 million and
$21 million at December 31, 2010 and 2009. |
The table below provides data about the amount of gains and
(losses) recognized in our consolidated statements of income on
our interest rate swap derivatives (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(1)
|
|
$
|
|
|
|
$
|
(27,925
|
)
|
|
$
|
(255
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
(5,548
|
)
|
|
|
8,045
|
|
|
|
(5,978
|
)
|
Foreign exchange forward contracts
|
|
|
622
|
|
|
|
901
|
|
|
|
|
|
|
|
|
(1) |
|
On June 29, 2009, we removed the designation of our
$700 million swap as a cash flow hedge. As a result, we
reclassified $28 million from accumulated other
comprehensive income to earnings. The amount is included in
Interest expense in our consolidated statements of
income. |
F-24
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of our (loss) income before income taxes were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
(59,375
|
)
|
|
$
|
(197,216
|
)
|
|
$
|
385,338
|
|
Foreign
|
|
|
(15,802
|
)
|
|
|
(81,338
|
)
|
|
|
21,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75,177
|
)
|
|
$
|
(278,554
|
)
|
|
$
|
406,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes included in the consolidated statements of income
consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(26,111
|
)
|
|
$
|
32,684
|
|
|
$
|
149,123
|
|
State
|
|
|
(1,709
|
)
|
|
|
3,609
|
|
|
|
13,885
|
|
Foreign
|
|
|
1,794
|
|
|
|
(2,039
|
)
|
|
|
8,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,026
|
)
|
|
|
34,254
|
|
|
|
171,924
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,801
|
|
|
|
(18,156
|
)
|
|
|
(15,252
|
)
|
State
|
|
|
458
|
|
|
|
(1,401
|
)
|
|
|
(2,462
|
)
|
Foreign
|
|
|
(3,586
|
)
|
|
|
(1,580
|
)
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,673
|
|
|
|
(21,137
|
)
|
|
|
(18,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(23,353
|
)
|
|
$
|
13,117
|
|
|
$
|
153,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate varied from the statutory federal income
tax rate for the following reasons (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal tax expense at statutory rates
|
|
$
|
(26,311
|
)
|
|
$
|
(97,576
|
)
|
|
$
|
142,362
|
|
State taxes
|
|
|
(813
|
)
|
|
|
1,436
|
|
|
|
7,424
|
|
Nondeductible expenses
|
|
|
1,024
|
|
|
|
1,303
|
|
|
|
766
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
104,049
|
|
|
|
|
|
Foreign
|
|
|
701
|
|
|
|
3,501
|
|
|
|
475
|
|
Change in valuation allowance
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
431
|
|
|
|
404
|
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(23,353
|
)
|
|
$
|
13,117
|
|
|
$
|
153,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
31.1
|
%
|
|
|
(4.7
|
)%
|
|
|
37.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of our current deferred tax assets and
liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable valuation
|
|
$
|
1,141
|
|
|
$
|
3,419
|
|
Accruals and reserves
|
|
|
2,445
|
|
|
|
8,808
|
|
Net operating loss carryforwards
|
|
|
3,005
|
|
|
|
2,389
|
|
Other
|
|
|
3,103
|
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,694
|
|
|
|
16,346
|
|
Valuation allowance
|
|
|
(1,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,079
|
|
|
|
16,346
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,550
|
)
|
|
|
(4,549
|
)
|
Inventory valuation
|
|
|
(73,470
|
)
|
|
|
(62,306
|
)
|
Property, plant and equipment
|
|
|
(21,006
|
)
|
|
|
(12,281
|
)
|
Interest in foreign subsidiary
|
|
|
(9,813
|
)
|
|
|
(7,829
|
)
|
Investments
|
|
|
|
|
|
|
(7,269
|
)
|
Intangible assets
|
|
|
(294,537
|
)
|
|
|
(321,087
|
)
|
Debt
|
|
|
(5,745
|
)
|
|
|
(5,744
|
)
|
Other
|
|
|
(777
|
)
|
|
|
(1,329
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(409,898
|
)
|
|
|
(422,394
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(401,819
|
)
|
|
$
|
(406,048
|
)
|
|
|
|
|
|
|
|
|
|
The valuation allowance is based on our estimate that the
recovery of certain deferred tax assets will not be likely. At
December 31, 2010, the valuation allowance related to net
operating loss carryforwards in certain foreign jursidictions.
In the United States, we had approximately $0.4 million of
federal and $104 million of state net operating loss
carryforwards as of December 31, 2010, which will expire in
future years through 2030. In certain
non-U.S. jurisdictions,
we had $13 million of net operating loss carryforwards, in
which $11 million have no expiration and $2 million
will expire in future years through 2015.
Undistributed earnings of our foreign subsidiaries were
approximately $126 million and $105 million for the
years ended December 31, 2010 and 2009. These earnings are
expected to be indefinitely reinvested outside of the United
States and, therefore, no provision for United States federal or
state income taxes has been made. If we were to distribute these
earnings, they would be taxed at approximately the
U.S. statutory rate. Foreign tax credits may be available
to reduce the resulting United States tax liability.
Income tax returns are filed in tax jurisdictions around the
world. We are no longer subject to U.S. federal income tax
examination for all years through 2006 and the statute of
limitations at our international locations is generally six to
seven years.
At December 31, 2010 and 2009, our unrecognized tax
benefits were immaterial to our consolidated financial
statements.
F-26
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
STOCKHOLDERS
EQUITY
|
Preferred
Stock
We have authorized 150,000,000 shares of preferred stock.
Our Board of Directors has the authority to issue shares and set
the terms of the shares of preferred stock. As of
December 31, 2010 and 2009, there were no shares of
preferred stock issued or outstanding.
Dividends
On May 21, 2008, our Board of Directors approved a dividend
of $475 million to our stockholders, of which
$474 million was distributed to PVF Holdings LLC and
$1 million was held by us in accordance with the terms of
our restricted stock award agreements with holders of our
restricted stock. On December 18, 2009, we paid a special
$3 million dividend to our stockholders for taxes relating
to the original dividend distribution in May 2008.
As more fully described in Note 7, our debt covenants
restrict our ability to pay dividends without approval of our
lenders.
Accumulated
Other Comprehensive Loss
Accumulated other comprehensive loss in the accompanying
consolidated balance sheets consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Currency translation adjustments
|
|
$
|
(18,703
|
)
|
|
$
|
(13,996
|
)
|
Pension related adjustments
|
|
|
(1,153
|
)
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(19,856
|
)
|
|
$
|
(13,345
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per Share
Earnings per share are calculated in the table below (in
thousands, except per share amounts). Stock options and
restricted stock are disregarded in this calculation if they are
determined to be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net (loss) income
|
|
$
|
(51,824
|
)
|
|
$
|
(291,671
|
)
|
|
$
|
253,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic shares outstanding
|
|
|
168,768
|
|
|
|
158,134
|
|
|
|
155,292
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive shares outstanding
|
|
|
168,768
|
|
|
|
158,134
|
|
|
|
155,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.31
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
1.63
|
|
Diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
1.63
|
|
For the years ended December 31, 2010, 2009 and 2008, our
anti-dilutive stock options approximated 3.9 million,
4.0 million and 3.5 million and our anti-dilutive
restricted stock approximated 0.2 million, 0.3 million
and 0.3 million.
F-27
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
EMPLOYEE
BENEFIT PLANS
|
Stock Option and Restricted Stock
Plans: Under the terms of the 2007 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 ten years. Vesting generally occurs in one-third
increments on the third, fourth and fifth anniversaries of the
date specified in the employees respective option
agreements, subject to accelerated vesting under certain
circumstances set forth in the option agreements. We expense the
fair value of the stock option grants on a straight-line basis
over the vesting period. A Black-Scholes option-pricing model is
used to estimate the fair value of the stock options.
Under the terms of the restricted stock plan, restricted stock
may be granted at the direction of the Board of Directors and
vesting generally occurs in one-fourth increments on the second,
third, fourth and fifth anniversaries of the date specified in
the employees respective restricted stock agreements,
subject to accelerated vesting under certain circumstances set
forth in the restricted stock agreements. We expense the fair
value of the restricted stock grants on a straight-line basis
over the vesting period.
During the year ended December 31, 2010, the following
activity occurred under our stock option and restricted stock
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
(thousands)
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
3,979,210
|
|
|
$
|
9.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
190,702
|
|
|
|
11.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(215,843
|
)
|
|
|
8.38
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(16,947
|
)
|
|
|
4.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
3,937,122
|
|
|
$
|
9.95
|
|
|
|
7.7
|
|
|
$
|
3,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
809,363
|
|
|
$
|
8.99
|
|
|
|
7.2
|
|
|
$
|
994
|
|
Options outstanding and vested
|
|
|
809,363
|
|
|
$
|
8.99
|
|
|
|
7.2
|
|
|
$
|
994
|
|
Options outstanding, vested and expected to vest
|
|
|
3,729,121
|
|
|
$
|
10.02
|
|
|
|
7.7
|
|
|
$
|
2,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
227,885
|
|
|
$
|
5.57
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(50,664
|
)
|
|
|
4.71
|
|
Forfeited
|
|
|
(21,756
|
)
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
155,465
|
|
|
$
|
5.97
|
|
|
|
|
|
|
|
|
|
|
F-28
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the years ended December 31, 2010, 2009 and 2008,
the following activity occurred under our stock option and
restricted stock plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average, grant-date fair value of awards granted
|
|
$
|
2.55
|
|
|
$
|
0.91
|
|
|
$
|
3.82
|
|
Total intrinsic value of stock options exercised
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total fair value of stock options vested
|
|
$
|
727,441
|
|
|
$
|
23,061
|
|
|
$
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average, grant-date fair value of awards granted
|
|
$
|
|
|
|
$
|
466,505
|
|
|
$
|
|
|
Total fair value of restricted stock vested
|
|
$
|
514,082
|
|
|
$
|
955,866
|
|
|
$
|
|
|
Stock
Options
Following are the weighted-average assumptions used to estimate
the fair values of our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
2.54
|
%
|
|
|
2.45
|
%
|
|
|
3.14
|
%
|
Dividend yield(1)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
22.07
|
%
|
|
|
22.07
|
%
|
|
|
22.07
|
%
|
Expected life (in years)
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
|
(1) |
|
The expected dividend yield reflects the restriction on our
ability to pay dividends and does not anticipate
special dividends. |
During 2009, we modified the exercise price of approximately
1.8 million stock option grants from $17.62 to $12.50.
Also, in conjunction with the $3 million dividend paid
during 2009, we reduced the exercise prices of the outstanding
options by between $0.01 and $0.02 per option.
Restricted Common Units: Certain of our
key employees received restricted common units of PVF Holdings
LLC that vest over a
three-to-five
year requisite service period. At December 31, 2010, all of
the restricted common units were either vested or forfeited.
Prior to full vesting or forfeiture, the expense was being
recognized on a straight-line basis over the vesting period.
Profits Units: Certain of our key
employees received profit units in PVF Holdings LLC that vest
over a five-year requisite service period. The holders of these
units are entitled to a share of any distributions made by PVF
Holdings LLC once common unit holders have received a return of
their capital contributions (for purposes of the Amended and
Restated Limited Liability Company Agreement of PVF Holdings
LLC, dated October 31, 2007, as amended). Expense is being
recognized on a straight-line basis over the vesting period.
F-29
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recognized compensation expense and related income tax benefits
under our equity-based compensation plans are set forth in the
table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Equity-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,425
|
|
|
$
|
3,077
|
|
|
$
|
1,911
|
|
Restricted stock
|
|
|
253
|
|
|
|
247
|
|
|
|
241
|
|
Restricted common units
|
|
|
(337
|
)
|
|
|
2,466
|
|
|
|
1,130
|
|
Profit units
|
|
|
1,403
|
|
|
|
2,040
|
|
|
|
6,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation expense
|
|
$
|
3,744
|
|
|
$
|
7,830
|
|
|
$
|
10,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits related to equity-based compensation
|
|
$
|
1,383
|
|
|
$
|
2,892
|
|
|
$
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense under our equity-based
compensation plans is set forth in the table below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Vesting
|
|
|
December 31,
|
|
|
|
Period (in years)
|
|
|
2010
|
|
|
Unrecognized equity-based compensation expense:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2.8
|
|
|
$
|
9,994
|
|
Restricted stock
|
|
|
2.5
|
|
|
|
610
|
|
Restricted common units
|
|
|
|
|
|
|
|
|
Profit units
|
|
|
1.5
|
|
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized equity-based compensation expense
|
|
|
|
|
|
$
|
12,616
|
|
|
|
|
|
|
|
|
|
|
Defined Contribution Employee Benefit
Plans: Employees may participate in the
McJunkin Red Man Retirement Plan, under which any employee who
has completed at least six months of service may elect to defer
a percentage of their base earnings, pursuant to
Section 401(k) of the Internal Revenue Code. In addition,
we make matching contributions with respect to participant
contributions. Effective January 1, 2009, the six months of
service requirement was eliminated and employees may immediately
make a deferral election upon hire. The McJunkin Red Man
Retirement Plan also features a discretionary profit-sharing
component. This 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 must have at least six months of service to
receive a profit-sharing contribution.
Eligible employees of Midfield Supply ULC located in Canada
participate in a Registered Retirement Savings Plan after three
months of service. Elective contributions are made on an
employee-by-employee
basis.
F-30
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We maintain defined contribution plans in the following
international locations:
|
|
|
|
|
Approximate
|
Country
|
|
Employer Contribution
|
|
Belgium
|
|
Service prior to January 1, 1999, contributions at a rate of
1.5% of salary
|
|
|
Service after January 1, 1999, contributions at a rate of 4% of
salary
|
Australia
|
|
Statutory minimum of 9% of salary
|
United Kingdom
|
|
Employer contributions at rates of 5%, 8% and 10% of salary
|
New Zealand
|
|
Service after April 1, 2008, statutory minimum of 1% of salary
in 2008, and 2% of salary thereafter
|
|
|
Service prior to April 1, 2008, contributions at a rate of 5% of
salary
|
France
|
|
Employer contribution rate of 6% of salary
|
Our provisions for the defined contribution plans are set forth
in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Defined contribution plans
|
|
$
|
5,179
|
|
|
$
|
4,075
|
|
|
$
|
3,152
|
|
Profit-sharing expenses
|
|
|
|
|
|
|
|
|
|
|
25,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,179
|
|
|
$
|
4,075
|
|
|
$
|
28,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Employee Benefit
Plans: We sponsor defined benefit pension
plans in Europe for two subsidiaries of MRC Transmark.
Independent trusts or insurance companies administer these
plans. Benefits are dependent on years of service and the
employees compensation. Pension costs under our retirement
plans are actuarially determined.
The following tables set forth the benefit obligations, the fair
value of the plan assets and the funded status of our pension
plans; and the amounts recognized in our consolidated financial
statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
26,277
|
|
|
$
|
|
|
Acquisition of Transmark
|
|
|
|
|
|
|
26,744
|
|
Service cost
|
|
|
927
|
|
|
|
168
|
|
Interest cost
|
|
|
1,315
|
|
|
|
234
|
|
Actuarial loss
|
|
|
2,362
|
|
|
|
30
|
|
Benefits paid
|
|
|
(1,139
|
)
|
|
|
(211
|
)
|
Expenses paid
|
|
|
(133
|
)
|
|
|
|
|
Foreign currency exchange
|
|
|
(2,071
|
)
|
|
|
(688
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of period
|
|
$
|
27,538
|
|
|
$
|
26,277
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of period
|
|
$
|
25,388
|
|
|
$
|
24,702
|
|
|
|
|
|
|
|
|
|
|
F-31
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
29,838
|
|
|
$
|
|
|
Acquisition of Transmark
|
|
|
|
|
|
|
29,059
|
|
Return on plan assets
|
|
|
1,703
|
|
|
|
1,115
|
|
Employer contributions
|
|
|
755
|
|
|
|
356
|
|
Participant contributions
|
|
|
457
|
|
|
|
408
|
|
Benefits paid
|
|
|
(1,139
|
)
|
|
|
(211
|
)
|
Expenses paid
|
|
|
(133
|
)
|
|
|
|
|
Foreign currency exchange
|
|
|
(2,250
|
)
|
|
|
(889
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
29,231
|
|
|
$
|
29,838
|
|
|
|
|
|
|
|
|
|
|
Funded status and net amounts recognized:
|
|
|
|
|
|
|
|
|
Plan assets, net of projected benefit obligation
|
|
$
|
1,693
|
|
|
$
|
3,561
|
|
Unrecognized actuarial loss (gain)
|
|
|
1,401
|
|
|
|
(814
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
3,094
|
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
Noncurrent other assets
|
|
$
|
2,306
|
|
|
$
|
4,393
|
|
Noncurrent other liabilities
|
|
|
(613
|
)
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
|
Accrued benefit obligation
|
|
|
1,693
|
|
|
|
3,561
|
|
Other comprehensive income loss (income)
|
|
|
1,401
|
|
|
|
(814
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
3,094
|
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our net periodic pension cost (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Service cost
|
|
$
|
927
|
|
|
$
|
168
|
|
Interest cost
|
|
|
1,315
|
|
|
|
234
|
|
Expected return on plan assets
|
|
|
(1,498
|
)
|
|
|
(248
|
)
|
Net periodic pension cost
|
|
$
|
744
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
Valuation: We use the corridor approach in the
valuation of our defined benefit plans. The corridor approach
defers all actuarial gains and losses resulting from variances
between actual results and economic estimates or actuarial
assumptions. These unrecognized gains and losses are amortized
when the net gains and losses exceed 10% of the greater of the
market-related value of plan assets or the projected benefit
obligation at the beginning of the year. The amount in excess of
the corridor is amortized over the average remaining service
period to retirement date for active plan participants or, for
retired participants, the average remaining life expectancy.
F-32
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the principal weighted-average
assumptions used to determine benefit obligation and benefit
costs:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
Benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00%
|
|
|
|
5.38%
|
|
Rate of compensation increase
|
|
|
2.00%
|
|
|
|
2.00%
|
|
Benefit cost:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00%
|
|
|
|
5.38%
|
|
Rate of compensation increase
|
|
|
2.00%
|
|
|
|
2.00%
|
|
Expected return on plan assets
|
|
|
5.55%
|
|
|
|
5.93%
|
|
We determine our discount rates in the Euro zone using the iBoxx
Euro Corporate AA Bond indices, with appropriate adjustments for
the duration of the plan obligations.
The expected rate of return is assessed annually and is based on
long-term relationships among major asset classes and the level
of incremental returns that can be earned by investment
management strategies. Equity returns are based on estimates of
long-term inflation rates, real rates of return, fixed income
premiums over cash and equity risk premiums. Fixed income
returns are based on maturity, long-term inflation, real rates
of return and credit spreads. Insurance contract returns are
based upon the average fixed return on contracts and the
historical supplemental profit sharing of the insurers.
Plan Assets: The investment objective for the
plans are to earn a long-term expected rate of return, net of
investment fees and transaction costs, to satisfy the benefit
obligations of the plan, while at the same time maintaining
sufficient liquidity to pay benefit obligations and expenses and
meet any other cash needs, in the
short-to-medium
term.
The following table sets forth the weighted-average target asset
allocations for our pension plans:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Fixed income securities
|
|
|
73%
|
|
|
|
76%
|
|
Equity securities
|
|
|
22%
|
|
|
|
19%
|
|
Insurance contracts
|
|
|
5%
|
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
Our investment policies and strategies for the pension benefit
plans do not use target allocations for the individual asset
categories. Our goals are to maximize returns subject to
specific risk management policies. We address diversification by
the use of investments in domestic and international fixed
income securities and domestic and international equity
securities. These investments are readily marketable and can be
sold to fund benefit obligations as they become payable.
Our defined benefit plan assets are measured at fair value on a
recurring basis and include the following items:
Cash and cash equivalents: Foreign and
domestic currencies, as well as short-term securities, are
valued at cost plus accrued interest, which approximates fair
value.
Corporate stock and fixed income: Valued at
the closing price reported on the active market in which the
individual securities are traded. Automated quotes are provided
by multiple pricing services and validated by the plan
custodian. These securities are traded on exchanges, as well as
in the
over-the-counter
market.
Insurance contracts: Valued at contributions
made, plus earnings, less participant withdrawals and
administrative expenses, which approximates fair value.
F-33
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the fair values of our pension
plan assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
|
|
|
$
|
|
|
Fixed income
|
|
|
19,250
|
|
|
|
19,250
|
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
|
5,886
|
|
|
|
5,886
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
|
3,895
|
|
|
|
|
|
|
|
3,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,231
|
|
|
$
|
25,336
|
|
|
$
|
3,895
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
223
|
|
|
$
|
223
|
|
|
$
|
|
|
|
$
|
|
|
Fixed income
|
|
|
20,098
|
|
|
|
20,098
|
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
|
5,667
|
|
|
|
5,667
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
|
3,850
|
|
|
|
|
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,838
|
|
|
$
|
25,988
|
|
|
$
|
3,850
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial objectives of the qualified pension plans are
estimated in conjunction with a comprehensive review of each
plans liability structure. Our asset allocation policy is
based on detailed asset/liability analyses. In developing
investment policy and financial goals, consideration is given to
each plans demographics, the returns and risks associated
with alternative investment strategies and the current and
projected cash, expense and funding ratios of each plan.
Investment policies must also comply with local statutory
requirements as determined by each country. We have adopted a
long-term investment horizon such that the risk and duration of
investment losses are weighed against the long-term potential
for appreciation of assets. Although there cannot be complete
assurance that these objectives will be realized, it is believed
that the likelihood for their realization is reasonably high,
based upon the asset allocation chosen and the historical and
expected performance of the asset classes utilized by the plans.
The intent is for investments to be broadly diversified across
asset classes, investment styles, market sectors, investment
managers, developed and emerging markets and securities in order
to moderate portfolio volatility and risk. Investments may be in
separate accounts, commingled trusts, mutual funds and other
pooled asset portfolios provided they all conform to fiduciary
standards.
External investment managers are hired to manage pension assets.
Over the long-term, the investment portfolio is expected to earn
returns that exceed a composite of market indices that are
weighted to match each plans target asset allocation. The
portfolio return should also (over the long-term) meet or exceed
the return used for actuarial calculations in order to meet the
future needs of the plan.
We expect to contribute approximately $0.7 million to our
defined benefit pension plans in 2011.
The table below reflects pension benefits expected to be paid
from the plan assets for the next ten years (in thousands). The
expected benefits are based on the same assumptions used to
measure our benefit obligation at December 31, 2010 and
include estimated future employee service.
|
|
|
|
|
2011
|
|
$
|
1,164
|
|
2012
|
|
|
1,231
|
|
2013
|
|
|
1,543
|
|
2014
|
|
|
1,333
|
|
2015
|
|
|
1,948
|
|
2016-2020
|
|
|
7,692
|
|
F-34
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 12
|
RELATED-PARTY
TRANSACTIONS
|
Europump
Systems Inc.
Certain Midfield Supply ULC employees, who are shareholders,
serve as executive officers of Europump Systems Inc.
(Europump). Europump is engaged in the business of
selling, servicing and renting industrial pumps. On July 1,
2007, we entered into a five-year distribution agreement with
Europump. During the years ended December 31, 2010, 2009
and 2008, our purchases from Europump approximated
$28 million, $10 million and $23 million. At
December 31, 2010 and 2009, we had payables to Europump of
approximately $1 million and $2 million. During the
years ended December 31, 2010, 2009 and 2008, our sales to
Europump approximated $0.8 million, $0.6 million and
$0.4 million. At December 31, 2010 and 2009, we had
receivables of approximately $0.3 million and
$0.2 million from Europump.
Credit
Facilities
Goldman Sachs Credit Partners L.P. (GSCP), an
affiliate of the Goldman Sachs Funds, is a co-lead arranger and
joint bookrunner under the Asset-Based Revolving Credit
Facility, and was the co-lead arranger and joint bookrunner
under the Term Loan Facility and the Junior Term Loan Facility
and was also the syndication agent under the Term Loan Facility
and the Junior Term Loan Facility.
Payments made to affiliates of the Goldman Sachs Funds in
connection with our credit facilities are set forth in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Affiliates of the Goldman Sachs Funds
|
|
$
|
700
|
|
|
$
|
10,750
|
|
|
$
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
We lease land and buildings at various locations from Hansford
Associates Limited Partnership (Hansford
Associates), Appalachian Leasing Company
(Appalachian Leasing), Prideco LLC
(Prideco) and former Midfield shareholders. We lease
equipment and vehicles from Prideco. Certain of our officers and
directors participate in ownership of Hansford Associates,
Appalachian Leasing and Prideco. Most of these leases are
renewable for various periods through 2016 and are renewable at
our option. 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.
Rent expense attributable to related parties is set forth in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Hansford Associates
|
|
$
|
2,545
|
|
|
$
|
2,547
|
|
|
$
|
2,468
|
|
Appalachian Leasing
|
|
|
174
|
|
|
|
170
|
|
|
|
165
|
|
Prideco
|
|
|
1,510
|
|
|
|
2,374
|
|
|
|
3,281
|
|
Former Midfield shareholders
|
|
|
2,484
|
|
|
|
1,998
|
|
|
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,713
|
|
|
$
|
7,089
|
|
|
$
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum rental payments required under operating leases
with related parties that have initial or remaining
noncancelable lease terms in excess of one year are set forth in
the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
thereafter
|
|
|
Hansford Associates
|
|
$
|
2,237
|
|
|
$
|
652
|
|
|
$
|
528
|
|
|
$
|
203
|
|
|
$
|
|
|
Appalachian Leasing
|
|
|
174
|
|
|
|
142
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
Prideco
|
|
|
557
|
|
|
|
83
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
Former Midfield shareholders
|
|
|
2,010
|
|
|
|
1,563
|
|
|
|
1,238
|
|
|
|
686
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,978
|
|
|
$
|
2,440
|
|
|
$
|
1,899
|
|
|
$
|
889
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates
of the Goldman Sachs Funds
On September 1, 2009, we entered into a supply agreement
with an affiliate of the Goldman Sachs Funds pursuant to which
we have agreed to provide maintenance, repair and operating
supplies and related products for an initial term expiring on
December 31, 2014. Also, our customer base includes several
affiliates of the Goldman Sachs Funds.
The total revenues from these affiliates are set forth in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Affiliates of the Goldman Sachs Funds
|
|
$
|
24,430
|
|
|
$
|
17,839
|
|
|
$
|
41,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total receivables due from these affiliates are set forth in
the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Affiliates of the Goldman Sachs Funds
|
|
$
|
1,900
|
|
|
$
|
1,223
|
|
|
|
|
|
|
|
|
|
|
In January of 2010, we engaged an affiliate of the Goldman Sachs
Funds to provide insurance brokerage services. During 2010, we
paid this affiliate approximately $2 million.
Certain affiliates of the Goldman Sachs Funds are counterparties
to our interest rate swap agreements. The notional amount
attributable to these affiliates was $325 million and
$675 million of the $0.5 billion and $1.2 billion
outstanding at December 31, 2010 and 2009.
|
|
NOTE 13
|
SEGMENT,
GEOGRAPHIC AND PRODUCT LINE INFORMATION
|
We operate as two business segments, North America and
International. Our North American segment consists of our
operations in the United States and Canada. Our International
segment consists of our operations outside of North America,
principally Europe, Asia and Australasia. These segments
represent our business of selling pipe, valves and fittings to
the energy and industrial sectors, 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, petrochemical processing and
general industrials) markets.
F-36
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents financial information for each
reportable segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,589.9
|
|
|
$
|
3,610.1
|
|
|
$
|
5,255.2
|
|
International
|
|
|
255.6
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
3,845.5
|
|
|
$
|
3,661.9
|
|
|
$
|
5,255.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
14.8
|
|
|
$
|
14.0
|
|
|
$
|
11.3
|
|
International
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
16.6
|
|
|
$
|
14.5
|
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
44.1
|
|
|
$
|
44.6
|
|
|
$
|
44.4
|
|
International
|
|
|
9.8
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangibles expense
|
|
$
|
53.9
|
|
|
$
|
46.6
|
|
|
$
|
44.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
309.9
|
|
|
$
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill impairment charge
|
|
$
|
|
|
|
$
|
309.9
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.9
|
|
|
$
|
(174.3
|
)
|
|
$
|
500.0
|
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
70.3
|
|
|
|
(170.5
|
)
|
|
|
500.0
|
|
Interest expense
|
|
|
139.6
|
|
|
|
116.5
|
|
|
|
84.5
|
|
Other expense (income)
|
|
|
5.9
|
|
|
|
(8.4
|
)
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(75.2
|
)
|
|
$
|
(278.6
|
)
|
|
$
|
406.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
509.5
|
|
|
$
|
506.6
|
|
International
|
|
|
39.9
|
|
|
|
43.1
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
549.4
|
|
|
$
|
549.7
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,824.9
|
|
|
$
|
2,848.5
|
|
International
|
|
|
242.5
|
|
|
|
310.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,067.4
|
|
|
$
|
3,159.4
|
|
|
|
|
|
|
|
|
|
|
F-37
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The percentages of our revenues relating to the following
geographic areas are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
80
|
%
|
|
|
88
|
%
|
|
|
88
|
%
|
Canada
|
|
|
13
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
International(1)
|
|
|
7
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
United States
|
|
|
63%
|
|
|
|
62%
|
|
Canada
|
|
|
28%
|
|
|
|
29%
|
|
International(1)
|
|
|
9%
|
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
International includes our operations in Europe, Asia and
Australasia. |
The percentages of our net sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Type
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Energy carbon steel tubular products
|
|
|
38%
|
|
|
|
40%
|
|
|
|
44%
|
|
Oilfield and natural gas distribution products
|
|
|
62%
|
|
|
|
60%
|
|
|
|
56%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 14
|
FAIR
VALUE MEASUREMENTS
|
We 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 at December 31, 2009 were certain
investments held for sale that were reported at fair value
utilizing Level 1 inputs. The fair value of these
investments held for sale was determined by obtaining quoted
prices on nationally recognized securities exchanges. We sold
these investments in June 2010.
Interest Rate Contracts: Interest rate
contracts are reported at fair value utilizing Level 2
inputs. We obtain dealer quotations to value our interest rate
swap agreements. These quotations rely on observable market
inputs such as yield curves and other market-based factors.
Foreign Exchange Forward
Contracts: Foreign exchange forward contracts
are reported at fair value utilizing Level 2 inputs, as the
fair value is based on broker quotes for the same or similar
derivative instruments.
F-38
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents assets and liabilities measured at
fair value on a recurring basis, and the basis for that
measurement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
8,975
|
|
|
|
|
|
|
|
8,975
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
209
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale (marketable equity securities)
|
|
$
|
22,690
|
|
|
$
|
22,690
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
955
|
|
|
|
|
|
|
|
955
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
26,773
|
|
|
|
|
|
|
|
26,773
|
|
|
|
|
|
The following table presents the carrying value and estimated
fair value of our financial instruments that are carried at
adjusted historical cost (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
56,202
|
|
|
$
|
56,202
|
|
|
$
|
56,244
|
|
|
$
|
56,244
|
|
Accounts receivable, net
|
|
|
596,404
|
|
|
|
596,404
|
|
|
|
506,194
|
|
|
|
506,194
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
426,632
|
|
|
|
426,632
|
|
|
|
338,512
|
|
|
|
338,512
|
|
Accrued expenses and other liabilities
|
|
|
102,807
|
|
|
|
102,807
|
|
|
|
120,816
|
|
|
|
120,816
|
|
Long-term debt
|
|
|
1,360,241
|
|
|
|
1,292,826
|
|
|
|
1,452,610
|
|
|
|
1,435,110
|
|
The carrying values of our financial instruments, including cash
and cash equivalents, accounts receivable, trade accounts
payable and accrued liabilities, approximate fair value because
of the short maturity of these financial instruments.
We estimated the fair value of the senior secured notes using
quoted market prices as of December 31, 2010 and 2009.
We estimated the fair value of our ABL based on dealer
quotations as of December 31, 2010. The ABL was repriced
late in December 2009; therefore, at December 31, 2009, the
carrying value was deemed to approximate the fair value. The
carrying values of the remaining portions of our long-term debt
approximate their fair values.
|
|
NOTE 15
|
COMMITMENTS
AND CONTINGENCIES
|
Leases
We regularly enter into operating and capital lease arrangements
for certain of our facilities and equipment. Our leases are
renewable at our option for various periods through 2019.
Certain renewal options are subject to escalation clauses and
contain clauses for payment of real estate taxes, maintenance,
insurance and certain other
F-39
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating expenses of the properties. We amortize leasehold
improvements over the remaining life of the lease. Rental
expense under our operating lease arrangements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating rental expense
|
|
$
|
37,804
|
|
|
$
|
30,371
|
|
|
$
|
24,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under noncancelable operating and
capital lease arrangements having initial terms of one year or
more are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
27,576
|
|
|
$
|
1,181
|
|
2012
|
|
|
22,445
|
|
|
|
1,192
|
|
2013
|
|
|
16,265
|
|
|
|
1,203
|
|
2014
|
|
|
10,627
|
|
|
|
1,087
|
|
2015
|
|
|
8,382
|
|
|
|
754
|
|
Thereafter
|
|
|
5,618
|
|
|
|
3,195
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90,913
|
|
|
$
|
8,612
|
|
|
|
|
|
|
|
|
|
|
Litigation
We are involved in various legal proceedings and claims, both as
a plaintiff and a defendant, which arise in the ordinary course
of business.
These legal proceedings include claims where we are 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. As of December 31,
2010, we are a defendant in lawsuits involving approximately 940
such claims. Each claim involves allegations of exposure to
asbestos-containing materials by a single individual or an
individual, his or her spouse
and/or
family members. The complaints typically name many other
defendants. In a majority of these lawsuits, little or no
information is known regarding the nature of the
plaintiffs alleged injuries or their connection with the
products distributed by us. Through December 31, 2010,
lawsuits involving over 11,700 claims have been brought against
us with the majority being settled, dismissed or otherwise
resolved. In total, since the first asbestos claim brought
against us through December 31, 2010, approximately
$1.2 million has been paid to asbestos claimants in
connection with settlements of claims against us without regard
to insurance recoveries.
With the assistance of accounting and financial consultants and
our asbestos litigation counsel, we conducted analyses of
asbestos-related litigation in order to estimate the adequacy of
the reserve for pending and probable asbestos-related claims.
These analyses consist of separately estimating our reserve with
respect to pending claims (both those scheduled for trial and
those for which a trial date had not been scheduled), mass
filings (including lawsuits brought in West Virginia each
involving many in some cases over a
hundred plaintiffs, which include little information
regarding the nature of each plaintiffs claim and
historically have rarely resulted in any payments to plaintiffs)
and probable future claims. A key element of the analysis is
categorizing our claims by the type of disease alleged by the
plaintiffs and developing benchmark estimated
settlement values for each claim category based on our
historical settlement experience. These estimated settlement
values are applied to each of our pending individual claims.
With respect to pending claims where the disease type is
unknown, the outcome is projected based on the historic ratio of
disease types among filed claims (or disease mix)
and dismissal rate. The reserve with respect to mass filings is
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, probable claims expected to be asserted
against us over the next fifteen years are estimated based on
public health estimates of future incidences of certain
asbestos-related diseases in the general U.S. population.
Estimated
F-40
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
settlement values are applied to those projected claims. Our
annual assessment, dated September 30, 2010, projected our
payments to asbestos claimants over the next fifteen years are
estimated to range from $5 million to $10 million.
Given these estimates and existing insurance coverage that
historically has been available to cover substantial portions of
our past payments to claimants and defense costs, we believe
that our current accruals and associated estimates relating to
pending and probable asbestos-related litigation likely to be
asserted over the next fifteen years are currently adequate. Our
belief that our accruals and associated estimates are currently
adequate, however, relies on a number of significant
assumptions, including:
|
|
|
|
|
That our future settlement payments, disease mix and dismissal
rates will be materially consistent with historic experience;
|
|
|
|
That future incidences of asbestos-related diseases in the
U.S. will be materially consistent with current public
health estimates;
|
|
|
|
That the rates at which future asbestos-related mesothelioma
incidences result in compensable claims filings against us will
be materially consistent with its historic experience;
|
|
|
|
That insurance recoveries for settlement payments and defense
costs will be materially consistent with historic experience;
|
|
|
|
That legal standards (and the interpretation of these standards)
applicable to asbestos litigation will not change in material
respects;
|
|
|
|
That there are no materially negative developments in the claims
pending against us; and
|
|
|
|
That key co-defendants in current and future claims remain
solvent.
|
If any of these assumptions prove to be materially different in
light of future developments, liabilities related to
asbestos-related litigation may be materially different than
amounts accrued
and/or
estimated. Further, while we anticipate that additional claims
will be filed in the future, we are unable to predict with any
certainty the number, timing and magnitude of such future claims.
On July 30, 2010, an action was brought against the Company
in Delaware Chancery Court by a former shareholder of our
predecessor, McJunkin Corporation, on his own behalf and as
trustee for a trust, alleging the Company has not fully complied
with a contractual obligation to divest of certain noncore
assets contained in the December 2006 merger agreement and
seeking damages and equitable relief. We have also received
written notice from other former shareholders who similarly
claim the Company has not fully complied with that contractual
obligation. We believe that this action, and the related claim
of other shareholders, is without merit and we intend to
vigorously defend ourselves against the allegations. On
September 28, 2010, the Company filed a motion to dismiss
the action in its entirety. On February 11, 2011, the Court
granted the Companys motion to dismiss the claims for
equitable relief with prejudice, but denied the motion to
dismiss the contractual claims. The Company submitted its
response to the remaining claims in March 2011.
There is a possibility that resolution of certain 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 our opinion, after
consultation with counsel, the ultimate resolution of all
pending matters is not expected to have a material effect on our
financial position, although it is possible that such
resolutions could have a material adverse impact on results of
operations in the period of resolution.
Customer
Contracts
We have contracts and agreements with many of our customers that
dictate certain terms of our sales arrangements (pricing,
deliverables, etc.). While we make every effort to abide by the
terms of these contracts, certain provisions are complex and
often subject to varying interpretations. Under the terms of
these contracts, our
F-41
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customers have the right to audit our adherence to the contract
terms. Historically, any settlements that have resulted from
these customer audits have been immaterial to our consolidated
financial statements.
Letters
of Credit
Our letters of credit outstanding at December 31, 2010
approximated $16 million.
Bank
Guarantees
Certain of our international subsidiaries have trade guarantees
given by bankers on their behalf. The amount of these guarantees
at December 31, 2010 was approximately 6 million
(USD $8 million).
Purchase
Commitments
We have purchase obligations consisting primarily of inventory
purchases made in the normal course of business to meet
operating needs. While our vendors often allow us to cancel
these purchase orders without penalty, in certain cases,
cancellations may subject us to cancellation fees or penalties
depending on the terms of the contract.
Warranty
Claims
We are involved from time to time in various warranty claims,
which arise in the ordinary course of business. Historically,
any settlements that have resulted from these warranty claims
have been immaterial to our consolidated financial statements.
|
|
NOTE 16
|
GUARANTOR
AND NON-GUARANTOR FINANCIAL STATEMENTS
|
As described in Note 7, we, along with our wholly owned
domestic subsidiaries, guarantee the senior secured notes due
December 15, 2016.
The following condensed financial information illustrates the
composition of the combined guarantor subsidiaries (in
millions). The columns in the following tables reflect the
status of our subsidiaries in each respective period.
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash
|
|
$
|
1.1
|
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
50.7
|
|
|
$
|
|
|
|
$
|
56.2
|
|
Accounts receivable, net
|
|
|
0.7
|
|
|
|
447.1
|
|
|
|
|
|
|
|
148.6
|
|
|
|
|
|
|
|
596.4
|
|
Inventory, net
|
|
|
|
|
|
|
625.4
|
|
|
|
|
|
|
|
140.0
|
|
|
|
|
|
|
|
765.4
|
|
Income taxes receivable
|
|
|
1.0
|
|
|
|
89.8
|
|
|
|
|
|
|
|
1.9
|
|
|
|
(60.1
|
)
|
|
|
32.6
|
|
Other current assets
|
|
|
|
|
|
|
2.7
|
|
|
|
2.1
|
|
|
|
5.4
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2.8
|
|
|
|
1,169.4
|
|
|
|
2.1
|
|
|
|
346.6
|
|
|
|
(60.1
|
)
|
|
|
1,460.8
|
|
F-42
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Investment in subsidiaries
|
|
|
734.7
|
|
|
|
478.3
|
|
|
|
|
|
|
|
|
|
|
|
(1213.0
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
6.5
|
|
|
|
|
|
|
|
480.2
|
|
|
|
|
|
|
|
(486.7
|
)
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
138.0
|
|
|
|
0.1
|
|
|
|
9.7
|
|
|
|
(88.7
|
)
|
|
|
59.1
|
|
Fixed assets, net
|
|
|
|
|
|
|
46.3
|
|
|
|
19.9
|
|
|
|
38.5
|
|
|
|
|
|
|
|
104.7
|
|
Goodwill
|
|
|
|
|
|
|
509.5
|
|
|
|
|
|
|
|
39.9
|
|
|
|
|
|
|
|
549.4
|
|
Other intangible assets, net
|
|
|
|
|
|
|
823.5
|
|
|
|
|
|
|
|
69.9
|
|
|
|
|
|
|
|
893.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
744.0
|
|
|
$
|
3,165.0
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,848.5
|
)
|
|
$
|
3,067.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
|
|
|
$
|
306.5
|
|
|
$
|
1.1
|
|
|
$
|
119.0
|
|
|
$
|
|
|
|
$
|
426.6
|
|
Accrued expenses
|
|
|
0.1
|
|
|
|
67.2
|
|
|
|
11.1
|
|
|
|
24.4
|
|
|
|
|
|
|
|
102.8
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
60.1
|
|
|
|
|
|
|
|
(60.1
|
)
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
17.4
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
18.1
|
|
Deferred income taxes
|
|
|
|
|
|
|
73.2
|
|
|
|
(0.6
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
70.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
0.1
|
|
|
|
464.3
|
|
|
|
71.7
|
|
|
|
142.1
|
|
|
|
(60.1
|
)
|
|
|
618.1
|
|
Long-term debt, net
|
|
|
|
|
|
|
1,314.3
|
|
|
|
|
|
|
|
134.6
|
|
|
|
(88.7
|
)
|
|
|
1,360.2
|
|
Intercompany payable
|
|
|
|
|
|
|
327.6
|
|
|
|
|
|
|
|
159.1
|
|
|
|
(486.7
|
)
|
|
|
|
|
Other liabilities
|
|
|
6.1
|
|
|
|
324.1
|
|
|
|
3.4
|
|
|
|
17.7
|
|
|
|
|
|
|
|
351.3
|
|
Shareholders equity
|
|
|
737.8
|
|
|
|
734.7
|
|
|
|
427.2
|
|
|
|
51.1
|
|
|
|
(1,213.0
|
)
|
|
|
737.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
744.0
|
|
|
$
|
3,165.0
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,848.5
|
)
|
|
$
|
3,067.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash
|
|
$
|
0.4
|
|
|
$
|
5.1
|
|
|
$
|
|
|
|
$
|
50.7
|
|
|
$
|
|
|
|
$
|
56.2
|
|
Accounts receivable, net
|
|
|
0.6
|
|
|
|
344.6
|
|
|
|
0.1
|
|
|
|
163.3
|
|
|
|
(2.4
|
)
|
|
|
506.2
|
|
Inventory, net
|
|
|
|
|
|
|
708.3
|
|
|
|
|
|
|
|
163.4
|
|
|
|
|
|
|
|
871.7
|
|
Income taxes receivable
|
|
|
5.9
|
|
|
|
53.5
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
(35.8
|
)
|
|
|
21.3
|
|
Other current assets
|
|
|
|
|
|
|
3.4
|
|
|
|
1.6
|
|
|
|
7.2
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6.9
|
|
|
|
1,114.9
|
|
|
|
1.7
|
|
|
|
382.3
|
|
|
|
(38.2
|
)
|
|
|
1,467.6
|
|
Investment in subsidiaries
|
|
|
788.9
|
|
|
|
451.0
|
|
|
|
|
|
|
|
|
|
|
|
(1,239.9
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
|
0.5
|
|
|
|
423.4
|
|
|
|
|
|
|
|
(423.9
|
)
|
|
|
|
|
Other assets
|
|
|
1.0
|
|
|
|
145.9
|
|
|
|
0.4
|
|
|
|
10.3
|
|
|
|
(79.2
|
)
|
|
|
78.4
|
|
Fixed assets, net
|
|
|
|
|
|
|
49.6
|
|
|
|
18.9
|
|
|
|
43.0
|
|
|
|
|
|
|
|
111.5
|
|
Goodwill
|
|
|
|
|
|
|
506.6
|
|
|
|
|
|
|
|
43.1
|
|
|
|
|
|
|
|
549.7
|
|
Other intangible assets, net
|
|
|
|
|
|
|
863.3
|
|
|
|
|
|
|
|
88.9
|
|
|
|
|
|
|
|
952.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
796.8
|
|
|
$
|
3,131.8
|
|
|
$
|
444.4
|
|
|
$
|
567.6
|
|
|
$
|
(1,781.2
|
)
|
|
$
|
3,159.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Trade accounts payable
|
|
$
|
|
|
|
$
|
238.4
|
|
|
$
|
5.9
|
|
|
$
|
97.1
|
|
|
$
|
(2.9
|
)
|
|
$
|
338.5
|
|
Accrued expenses
|
|
|
0.4
|
|
|
|
78.4
|
|
|
|
15.5
|
|
|
|
26.5
|
|
|
|
|
|
|
|
120.8
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
35.8
|
|
|
|
|
|
|
|
(35.8
|
)
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
15.5
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
17.0
|
|
Deferred income taxes
|
|
|
|
|
|
|
55.1
|
|
|
|
(1.3
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
51.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
0.4
|
|
|
|
387.4
|
|
|
|
55.9
|
|
|
|
123.2
|
|
|
|
(38.7
|
)
|
|
|
528.2
|
|
Long-term debt, net
|
|
|
|
|
|
|
1,315.5
|
|
|
|
|
|
|
|
216.3
|
|
|
|
(79.2
|
)
|
|
|
1,452.6
|
|
Intercompany payable
|
|
|
|
|
|
|
282.8
|
|
|
|
|
|
|
|
140.6
|
|
|
|
(423.4
|
)
|
|
|
|
|
Other liabilities
|
|
|
4.4
|
|
|
|
357.2
|
|
|
|
4.4
|
|
|
|
20.6
|
|
|
|
|
|
|
|
386.6
|
|
Shareholders equity
|
|
|
792.0
|
|
|
|
788.9
|
|
|
|
384.1
|
|
|
|
66.9
|
|
|
|
(1,239.9
|
)
|
|
|
792.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
796.8
|
|
|
$
|
3,131.8
|
|
|
$
|
444.4
|
|
|
$
|
567.6
|
|
|
$
|
(1,781.2
|
)
|
|
$
|
3,159.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Sales
|
|
$
|
|
|
|
|
|
|
|
$
|
3,124.8
|
|
|
$
|
|
|
|
$
|
726.7
|
|
|
$
|
(6.0
|
)
|
|
$
|
3,845.5
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
2,694.5
|
|
|
|
|
|
|
|
568.5
|
|
|
|
(6.0
|
)
|
|
|
3,257.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
430.3
|
|
|
|
|
|
|
|
158.2
|
|
|
|
|
|
|
|
588.5
|
|
Operating expenses
|
|
|
0.4
|
|
|
|
|
|
|
|
291.3
|
|
|
|
82.4
|
|
|
|
144.1
|
|
|
|
|
|
|
|
518.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
139.0
|
|
|
|
(82.4
|
)
|
|
|
14.1
|
|
|
|
|
|
|
|
70.3
|
|
Other (expense) income
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(267.3
|
)
|
|
|
153.1
|
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
(145.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(128.3
|
)
|
|
|
70.7
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
(75.2
|
)
|
Equity in earnings of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
|
|
|
(51.1
|
)
|
|
|
|
|
|
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
|
|
Income tax (benefit)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(48.0
|
)
|
|
|
27.4
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(51.8
|
)
|
|
|
|
|
|
$
|
(51.1
|
)
|
|
$
|
43.3
|
|
|
$
|
(14.1
|
)
|
|
$
|
21.9
|
|
|
$
|
(51.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Sales
|
|
$
|
|
|
|
$
|
3,215.6
|
|
|
$
|
|
|
|
$
|
448.3
|
|
|
$
|
(2.0
|
)
|
|
$
|
3,661.9
|
|
Cost of sales
|
|
|
|
|
|
|
2,641.6
|
|
|
|
|
|
|
|
366.7
|
|
|
|
(2.0
|
)
|
|
|
3,006.3
|
|
Inventory write-down
|
|
|
|
|
|
|
44.1
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
529.9
|
|
|
|
|
|
|
|
79.2
|
|
|
|
|
|
|
|
609.1
|
|
Operating expenses
|
|
|
0.3
|
|
|
|
295.3
|
|
|
|
92.1
|
|
|
|
82.0
|
|
|
|
|
|
|
|
469.7
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
240.9
|
|
|
|
|
|
|
|
69.0
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.3
|
)
|
|
|
(6.3
|
)
|
|
|
(92.1
|
)
|
|
|
(71.8
|
)
|
|
|
|
|
|
|
(170.5
|
)
|
Other (expense) income
|
|
|
(7.1
|
)
|
|
|
(385.0
|
)
|
|
|
293.6
|
|
|
|
(9.6
|
)
|
|
|
|
|
|
|
(108.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(7.4
|
)
|
|
|
(391.3
|
)
|
|
|
201.5
|
|
|
|
(81.4
|
)
|
|
|
|
|
|
|
(278.6
|
)
|
Equity in earnings of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
|
|
|
(286.6
|
)
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
238.7
|
|
|
|
|
|
Income tax (benefit)
|
|
|
(2.3
|
)
|
|
|
(56.8
|
)
|
|
|
75.8
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(291.7
|
)
|
|
$
|
(286.6
|
)
|
|
$
|
125.7
|
|
|
$
|
(77.8
|
)
|
|
$
|
238.7
|
|
|
$
|
(291.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Sales
|
|
$
|
|
|
|
$
|
2,653.2
|
|
|
$
|
1,977.6
|
|
|
$
|
632.7
|
|
|
$
|
(8.3
|
)
|
|
$
|
5,255.2
|
|
Cost of sales
|
|
|
|
|
|
|
2,132.7
|
|
|
|
1,585.9
|
|
|
|
506.4
|
|
|
|
(7.6
|
)
|
|
|
4,217.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
520.5
|
|
|
|
391.7
|
|
|
|
126.3
|
|
|
|
(0.7
|
)
|
|
|
1,037.8
|
|
Operating expenses
|
|
|
7.1
|
|
|
|
211.6
|
|
|
|
228.7
|
|
|
|
90.4
|
|
|
|
|
|
|
|
537.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7.1
|
)
|
|
|
308.9
|
|
|
|
163.0
|
|
|
|
35.9
|
|
|
|
(0.7
|
)
|
|
|
500.0
|
|
Other (expense) income
|
|
|
(17.1
|
)
|
|
|
(300.7
|
)
|
|
|
239.1
|
|
|
|
(14.5
|
)
|
|
|
|
|
|
|
(93.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(24.2
|
)
|
|
|
8.2
|
|
|
|
402.1
|
|
|
|
21.4
|
|
|
|
(0.7
|
)
|
|
|
406.8
|
|
Equity in earnings of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
|
|
|
270.0
|
|
|
|
264.9
|
|
|
|
13.4
|
|
|
|
|
|
|
|
(548.3
|
)
|
|
|
|
|
Income tax (benefit)
|
|
|
(8.4
|
)
|
|
|
3.1
|
|
|
|
150.6
|
|
|
|
8.0
|
|
|
|
|
|
|
|
153.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
254.2
|
|
|
$
|
270.0
|
|
|
$
|
264.9
|
|
|
$
|
13.4
|
|
|
$
|
(549.0
|
)
|
|
$
|
253.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(0.2
|
)
|
|
$
|
32.3
|
|
|
$
|
5.5
|
|
|
$
|
74.8
|
|
|
$
|
|
|
|
$
|
112.4
|
|
Investing activities
|
|
|
0.6
|
|
|
|
(13.6
|
)
|
|
|
(5.5
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
(16.2
|
)
|
Financing activities
|
|
|
0.3
|
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
(82.7
|
)
|
|
|
|
|
|
|
(97.9
|
)
|
Effect of exchange rate on cash
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
0.7
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
0.4
|
|
|
|
5.2
|
|
|
|
|
|
|
|
50.6
|
|
|
|
|
|
|
|
56.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
1.1
|
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
50.7
|
|
|
$
|
|
|
|
$
|
56.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(9.2
|
)
|
|
$
|
480.7
|
|
|
$
|
4.8
|
|
|
$
|
29.2
|
|
|
$
|
|
|
|
$
|
505.5
|
|
Investing activities
|
|
|
(0.2
|
)
|
|
|
(106.3
|
)
|
|
|
(4.9
|
)
|
|
|
44.5
|
|
|
|
|
|
|
|
(66.9
|
)
|
Financing activities
|
|
|
9.8
|
|
|
|
(377.1
|
)
|
|
|
|
|
|
|
(26.6
|
)
|
|
|
|
|
|
|
(393.9
|
)
|
Effect of exchange rate on cash
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
0.4
|
|
|
|
(1.3
|
)
|
|
|
(0.1
|
)
|
|
|
45.1
|
|
|
|
|
|
|
|
44.1
|
|
Cash beginning of period
|
|
|
|
|
|
|
6.5
|
|
|
|
0.1
|
|
|
|
5.5
|
|
|
|
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
0.4
|
|
|
$
|
5.2
|
|
|
$
|
|
|
|
$
|
50.6
|
|
|
$
|
|
|
|
$
|
56.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(22.5
|
)
|
|
$
|
(133.7
|
)
|
|
$
|
(37.2
|
)
|
|
$
|
56.0
|
|
|
$
|
|
|
|
$
|
(137.4
|
)
|
Investing activities
|
|
|
(0.9
|
)
|
|
|
(293.4
|
)
|
|
|
67.5
|
|
|
|
(87.4
|
)
|
|
|
|
|
|
|
(314.2
|
)
|
Financing activities
|
|
|
23.4
|
|
|
|
426.2
|
|
|
|
(29.8
|
)
|
|
|
32.1
|
|
|
|
|
|
|
|
451.9
|
|
Effect of exchange rate on cash
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
2.0
|
|
Cash beginning of period
|
|
|
|
|
|
|
5.8
|
|
|
|
0.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
|
|
|
$
|
4.9
|
|
|
$
|
1.7
|
|
|
$
|
5.5
|
|
|
$
|
|
|
|
$
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
QUARTERLY
INFORMATION (UNAUDITED)
|
Our quarterly financial information is presented in the table
below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
858.3
|
|
|
$
|
926.9
|
|
|
$
|
1,025.5
|
|
|
$
|
1,034.8
|
|
|
$
|
3,845.5
|
|
Gross margin
|
|
|
147.3
|
|
|
|
135.1
|
|
|
|
154.5
|
|
|
|
151.6
|
|
|
|
588.5
|
|
Net loss
|
|
|
(11.9
|
)
|
|
|
(15.9
|
)
|
|
|
(10.5
|
)
|
|
|
(13.5
|
)
|
|
|
(51.8
|
)
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.31
|
)
|
Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.31
|
)
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,153.7
|
|
|
$
|
857.5
|
|
|
$
|
822.1
|
|
|
$
|
828.6
|
|
|
$
|
3,661.9
|
|
Gross margin
|
|
|
258.0
|
|
|
|
140.5
|
|
|
|
70.7
|
|
|
|
139.9
|
|
|
|
609.1
|
|
Net income (loss)
|
|
|
71.8
|
|
|
|
16.7
|
|
|
|
(361.7
|
)
|
|
|
(18.5
|
)
|
|
|
(291.7
|
)
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
$
|
(2.32
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(1.84
|
)
|
Diluted
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
$
|
(2.32
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(1.84
|
)
|
F-47
Until ,
2011 all dealers that effect transactions in the notes may
be required to deliver a prospectus.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The registration rights agreement relating to the securities of
the registrants being registered hereby provides that the
Company will bear all expenses in connection with the
performance of its obligations relating to the market-making
activities of Goldman, Sachs & Co. and its respective
affiliates. These expenses include printer expenses and legal
and accounting fees in an approximate aggregate amount of
$250,000.
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Delaware
McJunkin Red Man Corporation (the Company), McJunkin
Nigeria Limited, McJunkin-Puerto Rico Corporation, McJunkin Red
Man Development Corporation, McJunkin Red Man Holding
Corporation, McJunkin-West Africa Corporation and MRC Management
Company are Delaware corporations. Section 145 of the
Delaware General Corporation Law, or DGCL, provides that a
corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits and
proceedings, whether civil, criminal, administrative or
investigative (other than action by or in the right of the
corporation a derivative action), if
they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was
unlawful.
A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses
(including attorneys fees) incurred in connection with the
defense or settlement of such action, and the statute requires
court approval before there can be any indemnification where the
person seeking indemnification has been found liable to the
corporation. The statute provides that it is not exclusive of
other indemnification that may be granted by a
corporations certificate of incorporation, bylaws,
disinterested director vote, stockholder vote, agreement, or
otherwise.
The DGCL further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether
or not the corporation would otherwise have the power to
indemnify him under Section 145.
The bylaws of the Company and McJunkin Red Man Holding
Corporation provide for the indemnification of directors and
officers to the fullest extent permitted by Delaware law. The
bylaws of McJunkin Nigeria Limited provide for indemnification
of directors and officers for acts in good faith and in a manner
reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to criminal
matters, for which such person did not have reasonable cause to
believe such conduct was unlawful. The bylaws of McJunkin-Puerto
Rico Corporation, McJunkin Red Man Development Corporation and
McJunkin-West Africa Corporation provide that the corporation
has the power to indemnify of directors and officers for acts in
good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation and, with
respect to criminal matters, for which such person did not have
reasonable cause to believe such conduct was unlawful. The
bylaws of MRC Management Company provide for indemnification of
directors and officers in accordance with the provisions of
Section 145 of the DGCL. The certificates of incorporation
of the Company and McJunkin Red Man Holding Corporation provide
that a director shall have no personal liability for monetary
damages for breach of fiduciary duty as a director, except
(i) for any breach of the directors duty of loyalty,
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper
personal benefit.
II-1
West
Virginia
Greenbrier Petroleum Corporation, Milton Oil & Gas
Company and Ruffner Realty Company are West Virginia
corporations. The West Virginia Business Corporation Act
(WVBCA) empowers a corporation to indemnify an
individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if: (1)(A)
he conducted himself in good faith; and (B) he reasonably
believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best
interests; and (ii) in all other cases, that his conduct
was at least not opposed to its best interests; and (C) in
the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful; or (2) he engaged in
conduct for which broader indemnification has been made
permissible or obligatory under a provision of the articles of
incorporation. A corporation may not indemnify a director
(1) in connection with a proceeding by or in the right of
the corporation, except for reasonable expenses incurred in
connection with the proceeding; or (2) in connection with
any other proceeding with respect to conduct for which he was
adjudged liable on the basis that he received financial benefit
to which he was not entitled, whether or not involving action in
his official capacity. A corporation must indemnify a director
who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because he is
or was a director of the corporation against reasonable expenses
incurred by him in connection with the proceeding. Under the
WVBCA, a corporation may pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding
in advance of the final disposition of the proceeding if:
(1) the director furnishes the corporation a written
affirmation of his good faith belief that he has met the
relevant standard of conduct; and (2) the director
furnishes the corporation a written undertaking to repay the
advance if the director is not entitled to mandatory
indemnification under the WVBCA and it is ultimately determined
that he did not meet the relevant standard of conduct. A
corporation may indemnify and advance expenses to an officer of
the corporation to the same extent as to a director. A
corporation may also purchase and maintain on behalf of a
director or officer of the corporation insurance against
liabilities incurred in such capacities, whether or not the
corporation would have the power to indemnify him against the
same liability under the WVBCA.
The bylaws of Greenbrier Petroleum Corporation provide for
indemnification of directors and officers for acts in good faith
and in a manner reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to
criminal matters, for which such person did not have reasonable
cause to believe such conduct was unlawful. The bylaws of Milton
Oil & Gas Company and Ruffner Realty Company provide
for indemnification of directors and officers except in relation
to matters as to which such person is adjudged to be liable for
such persons own negligence or misconduct in the
performance of such persons duties.
New
York
Midway-Tristate Corporation is a New York corporation.
Section 722(a) of the New York Business Corporation Law
(NYBCL) provides that a corporation may indemnify
any officer or director made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of
the corporation to procure judgment in its favor), whether civil
or criminal, including an action by or in the right of any other
corporation, or other enterprise, which any director or officer
of the corporation served in any capacity at the request of the
corporation, by reason of the fact that he was a director or
officer of the corporation, or served such other corporation or
other enterprise in any capacity, against judgments, fines,
amounts paid in settlement and reasonable expenses, including
attorneys fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if
such director or officer acted, in good faith, for a purpose
which he reasonably believed to be in, or, in the case of
service for any other corporation or other enterprise, not
opposed to, the best interests of the corporation and, in
criminal actions or proceedings, had no reasonable cause to
believe that his conduct was unlawful.
Section 722(c) of the NYBCL provides that a corporation may
indemnify any officer or director made, or threatened to be
made, a party to an action by or in the right of the corporation
to procure judgment in its favor by reason of the fact that he
is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or
officer of any other corporation of any type or kind, or other
enterprise, against amounts paid in settlement and reasonable
expenses, including attorneys fees, actually and
necessarily incurred by him in connection with the defense or
settlement of such action, or in connection with an appeal
therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in, or, in the case
of service for another corporation or other enterprise, not
opposed to, the best interests of the corporation. The
corporation may not,
II-2
however, indemnify any officer or director pursuant to
Section 722(c) in respect of (1) a threatened action,
or a pending action which is settled or otherwise disposed of,
or (2) any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action was
brought or, if no action was brought, any court of competent
jurisdiction, determines upon application, that the person is
fairly and reasonably entitled to indemnity for such portion of
the settlement and expenses as the court deems proper.
Section 723 of the NYBCL provides that an officer or
director who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the
character set forth in Section 722 is entitled to
indemnification as permitted in such section. Section 724
of the NYBCL permits a court to award the indemnification
required by Section 722.
Section 721 of the NYBCL provides that, in addition to
indemnification provided in Article 7 of the NYBCL, a
corporation may indemnify a director or officer by a provision
contained in the certificate of incorporation or by-laws or by a
duly authorized resolution of its shareholders or directors or
by agreement, provided that no indemnification may be made to or
on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were
the result of active and deliberate dishonesty and were material
to the cause of action so adjudicated, or that such director or
officer personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
Section 402(b) of the NYBCL provides that a
corporations certificate of incorporation may include a
provision eliminating or limiting the personal liability of its
directors to the corporation or its shareholders for damages for
any breach of duty in such capacity, except (i) liability
of a director if a judgment or other final adjudication adverse
to such director establishes that the directors acts or
omissions were in bad faith or involved intentional misconduct
or a knowing violation of law or that he personally gained in
fact a financial profit or other advantage to which he was not
legally entitled or that his acts violated Section 719 of
the NYBCL or (ii) liability of any director for any act or
omission prior to the adoption of a provision authorized by
Section 402(b) of the NYBCL.
The bylaws of Midway-Tristate Corporation provide for
indemnification to the fullest extent permitted by New York law
except if it is adjudged that such persons acts were committed
in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of
action so adjudicated or such person gained a financial profit
or other advantage to which such person was not legally
entitled. The certificate of incorporation of Midway-Tristate
Corporation provides for indemnification of all persons whom it
shall have power to indemnify under Article 7 of the NYBCL
to the fullest extent permitted under said Article and that no
director of the corporation shall be liable for any breach of
duty except if such persons actions are adjudged to be in
bad faith or involved intentional misconduct or a knowing
violation of the law or such person personally gained a
financial profit or other advantage to which such person was not
legally entitled or that such persons acts violated
Section 719 of the NYBCL.
Texas
The South Texas Supply Company, Inc. is a Texas corporation. The
Texas Business Corporation Act (TBCA) permits a
Texas corporation to indemnify any present or former director,
officer, employee or agent of the corporation against judgments,
penalties, fines, settlements and reasonable expenses incurred
in connection with a proceeding in which any such person was, is
or is threatened to be, made a party by reason of holding such
office or position, provided that he conducted himself in good
faith and reasonably believed that, in the case of conduct in
his official capacity as a director or officer of the
corporation, such conduct was in the corporations best
interests and, in the case of a criminal proceeding, a director
or officer may be indemnified only if he had no reasonable cause
to believe his conduct was unlawful. However, indemnification is
limited to reasonable expenses actually incurred where
(a) a person is found liable on the basis that a personal
benefit was improperly received or (b) the person is found
liable in a derivative suit brought on behalf of the corporation
and the person was not liable for willful or intentional
misconduct. Under the TBCA, a director or officer must be
indemnified in cases in which he is wholly successful on the
merits or in the defense of the proceedings. The TBCA provides
that indemnification pursuant to its provisions is not exclusive
of other rights of indemnification to which a person may be
entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The TBCA authorizes
II-3
corporations to maintain insurance to cover indemnification
expenses on behalf of any person who is or was a director,
officer, agent or employee of the corporation or was serving at
the request of the corporation, regardless of whether the
corporation would have the power to indemnify such person
against liability under the TBCA.
The bylaws of The South Texas Supply Company, Inc. provide that
the board of directors of the corporation may authorize the
corporation to pay expenses incurred by, or to satisfy a
judgment or fine rendered or levied against directors and
officers as provided by Article 2.02(A)(16) of the TBCA.
Insurance
The company has also obtained officers and directors
liability insurance which insures against liabilities that
officers and directors of each of the registrants may, in such
capacities, incur.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
During the three years preceding the filing of this registration
statement, the Registrant has not sold its securities without
registration under the Securities Act of 1933, as amended (the
Securities Act) except as described below.
On December 21, 2009 and February 11, 2010, the
Registrant issued an aggregate of $1,050,000,000 of
9.50% senior secured notes due December 15, 2016 (the
Notes). The Notes are guaranteed by the guarantors
listed on page ii of this registration statement. The sales of
the Notes were made in private placements pursuant to
Section 4(2) of the Securities Act. To the extent
applicable, the initial resale of the Notes by Goldman,
Sachs & Co. and the other initial purchasers thereof
was made to qualified institutional buyers pursuant to
Rule 144A and Regulation S under the Securities Act
and, therefore, was exempt under Section 4(2) of the
Securities Act.
No other sales of the Registrants securities have taken
place within the last three years.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
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.
|
II-4
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
3
|
.1***
|
|
Certificate of Incorporation of McJunkin Red Man Corporation.
|
|
3
|
.2***
|
|
Bylaws of McJunkin Red Man Corporation.
|
|
3
|
.3***
|
|
Certificate of Incorporation of McJunkin Red Man Holding
Corporation.
|
|
3
|
.4***
|
|
Bylaws of McJunkin Red Man Holding Corporation.
|
|
3
|
.5***
|
|
Certificate of Incorporation of McJunkin Red Man Development
Corporation.
|
|
3
|
.6***
|
|
Bylaws of McJunkin Red Man Development Corporation.
|
|
3
|
.7***
|
|
Certificate of Incorporation of McJunkin Nigeria Limited.
|
|
3
|
.8***
|
|
Bylaws of McJunkin Nigeria Limited.
|
|
3
|
.9***
|
|
Certificate of Incorporation of McJunkin-Puerto Rico Corporation.
|
|
3
|
.10***
|
|
Bylaws of McJunkin-Puerto Rico Corporation.
|
|
3
|
.11***
|
|
Certificate of Incorporation of McJunkin-West Africa Corporation.
|
|
3
|
.12***
|
|
Bylaws of McJunkin-West Africa Corporation.
|
|
3
|
.13***
|
|
Certificate of Incorporation of Milton Oil & Gas
Company.
|
|
3
|
.14***
|
|
Bylaws of Milton Oil & Gas Company.
|
|
3
|
.15***
|
|
Certificate of Incorporation of Ruffner Realty Company.
|
|
3
|
.16***
|
|
Bylaws of Ruffner Realty Company.
|
|
3
|
.17***
|
|
Certificate of Incorporation of Greenbrier Petroleum Corporation.
|
|
3
|
.18***
|
|
Bylaws of Greenbrier Petroleum Corporation.
|
|
3
|
.19***
|
|
Certificate of Incorporation of Midway-Tristate Corporation.
|
|
3
|
.20***
|
|
Bylaws of Midway-Tristate Corporation.
|
|
3
|
.21***
|
|
Certificate of Incorporation of MRC Management Company.
|
|
3
|
.22***
|
|
Bylaws of MRC Management Company.
|
|
3
|
.23***
|
|
Certificate of Incorporation of The South Texas Supply Company,
Inc.
|
|
3
|
.24***
|
|
Bylaws of The South Texas Supply Company, Inc.
|
|
4
|
.1***
|
|
Indenture, dated as of December 21, 2009, by and among
McJunkin Red Man Corporation, the guarantors named therein and
U.S. Bank National Association, as trustee.
|
|
4
|
.2***
|
|
Form of 9.50% Senior Secured Notes due December 15,
2016 (included as part of Exhibit 4.1 above).
|
|
4
|
.3***
|
|
Exchange and Registration Rights Agreement, dated as of
December 21, 2009, by and among McJunkin Red Man
Corporation, McJunkin Red Man Holding Corporation, the
subsidiary guarantors party thereto, Goldman, Sachs &
Co., Barclays Capital Inc., Banc of America Securities LLC and
J.P. Morgan Securities Inc.
|
|
4
|
.4***
|
|
Exchange and Registration Rights Agreement, dated as of
February 11, 2010, by and among McJunkin Red Man
Corporation, McJunkin Red Man Holding Corporation, the
subsidiary guarantors party thereto, Goldman, Sachs &
Co. and Barclays Capital Inc.
|
|
4
|
.5***
|
|
Reaffirmation Agreement, dated as of February 11, 2010, by
and among McJunkin Red Man Corporation, McJunkin Red Man Holding
Corporation, the subsidiary guarantors party thereto, and U.S.
Bank National Association, as collateral trustee.
|
|
5
|
.1
|
|
Opinion of Fried, Frank, Harris, Shriver & Jacobson
LLP.
|
|
5
|
.2+
|
|
Opinion of Jones, Walker, Waechter, Poitevent,
Carrère & Denègre L.L.P.
|
|
5
|
.3
|
|
Opinion of Bowles Rice McDavid Graff & Love LLP.
|
|
10
|
.1.1*
|
|
Revolving Loan Credit Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.1.2*
|
|
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
|
.1.3*
|
|
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.
|
II-5
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
10
|
.1.4*
|
|
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.
|
|
10
|
.1.5*
|
|
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
|
.1.6**
|
|
Joinder Agreement, dated as of October 3, 2008, by and
among Raymond James Bank, FSB, McJunkin Red Man Corporation and
The CIT Group/Business Credit, Inc.
|
|
10
|
.1.7**
|
|
Joinder Purchase Agreement, dated as of October 3, 2008, by
and among Raymond James Bank, FSB, McJunkin Red Man Corporation
and The CIT Group/Business Credit, Inc.
|
|
10
|
.1.8**
|
|
Joinder Agreement, dated as of October 16, 2008, by and
among SunTrust Bank, McJunkin Red Man Corporation and The CIT
Group/Business Credit, Inc.
|
|
10
|
.1.9**
|
|
Joinder Purchase Agreement, dated as of October 16, 2008,
by and among SunTrust Bank, McJunkin Red Man Corporation and The
CIT Group/Business Credit, Inc.
|
|
10
|
.1.10***
|
|
Joinder Agreement, dated as of January 2, 2009, by and
among Barclays Bank PLC, McJunkin Red Man Corporation and The
CIT Group/Business Credit, Inc.
|
|
10
|
.1.11***
|
|
Joinder Purchase Agreement, dated as of January 2, 2009, by
and among Barclays Bank PLC, McJunkin Red Man Corporation and
The CIT Group/Business Credit, Inc.
|
|
10
|
.1.12***
|
|
Amendment No. 1, dated as of December 21, 2009, to the
Revolving Loan Credit Agreement, by and among McJunkin Red Man
Corporation and the other parties thereto.
|
|
10
|
.2.1*
|
|
Revolving Loan Security Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.2.2***
|
|
Supplement No. 1 to Revolving Loan Security Agreement,
dated as of December 31, 2007.
|
|
10
|
.2.3***
|
|
Supplement No. 2 to Revolving Loan Security Agreement,
dated as of October 16, 2008.
|
|
10
|
.3.1***
|
|
Revolving Loan Guarantee, dated as of October 31, 2007.
|
|
10
|
.3.2***
|
|
Supplement No. 1 to Revolving Loan Guarantee, dated as of
December 31, 2007.
|
|
10
|
.3.3***
|
|
Supplement No. 2 to Revolving Loan Guarantee, dated as of
October 16, 2008.
|
|
10
|
.4***
|
|
Amended and Restated Loan and Security Agreement, dated as of
November 18, 2009, by and among Midfield Supply ULC and the
other parties thereto.
|
|
10
|
.5***
|
|
Amended and Restated Letter Agreement, dated as of
November 13, 2009, by and between Alberta Treasury Branches
and Midfield Supply ULC.
|
|
10
|
.6***
|
|
Revolving Facility Agreement, dated September 17, 2010,
between MRC Transmark Holdings UK Limited, HSBC Bank plc and the
other parties thereto.
|
|
10
|
.7*
|
|
Employment Agreement, dated as of September 10, 2008, by
and among McJunkin Red Man Holding Corporation and Andrew R.
Lane.
|
|
10
|
.7.1***
|
|
Amendment to Employment Agreement by and among McJunkin Red Man
Holding Corporation and Andrew R. Lane, dated February 23,
2011.
|
|
10
|
.8***
|
|
Amended and Restated Employment Agreement, dated as of
December 31, 2009, by and among McJunkin Red Man Holding
Corporation and James Underhill.
|
|
10
|
.8.1***
|
|
Amendment to Employment Agreement by and among McJunkin Red Man
Holding Corporation and James Underhill, dated February 23,
2011.
|
|
10
|
.9.1***
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Director Grant May 2010 Dutch
residents).
|
|
10
|
.9.2***
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Director Grant May 2010 US
residents).
|
|
10
|
.10.1***
|
|
Employment Agreement, dated as of September 10, 2009, by
and between Transmark Fcx Limited and Neil P. Wagstaff.
|
|
10
|
.10.2***
|
|
Amendment to Employment Agreement by and between MRC Transmark
Limited and Neil P. Wagstaff, dated February 23, 2011.
|
|
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.
|
II-6
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
10
|
.12***
|
|
Letter Agreement, dated as of December 22, 2008, by and
among McJunkin Red Man Holding Corporation and Craig Ketchum.
|
|
10
|
.13.1***
|
|
McJ Holding Corporation 2007 Stock Option Plan, as amended.
|
|
10
|
.13.2*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement.
|
|
10
|
.14.1***
|
|
McJ Holding Corporation 2007 Restricted Stock Plan, as amended.
|
|
10
|
.14.2*
|
|
Form of McJunkin Red Man Holding Corporation Restricted Stock
Award Agreement.
|
|
10
|
.15.1*
|
|
McJunkin Red Man Holding Corporation 2007 Stock Option Plan
(Canada).
|
|
10
|
.15.2*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are parties
to non-competition agreements).
|
|
10
|
.15.3*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are not
parties to non-competition agreements).
|
|
10
|
.16*
|
|
McJunkin Red Man Corporation Deferred Compensation Plan.
|
|
10
|
.17*
|
|
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
|
.18.1*
|
|
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
|
.18.2*
|
|
Amendment No. 1 to the Management Stockholders Agreement,
dated as of December 21, 2007, executed by PVF Holdings LLC.
|
|
10
|
.18.3*
|
|
Amendment No. 2 to the Management Stockholders Agreement,
dated as of December 26, 2007, executed by PVF Holdings LLC.
|
|
10
|
.19***
|
|
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC, dated as of October 31, 2007.
|
|
10
|
.20.1***
|
|
Amendment No. 1, dated as of December 18, 2007, to the
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC.
|
|
10
|
.20.2***
|
|
Amendment No. 2, dated as of October 31, 2009, to the
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC.
|
|
10
|
.21.1***
|
|
Amended and Restated Registration Rights Agreement of PVF
Holdings LLC, dated as of October 31, 2007.
|
|
10
|
.21.2***
|
|
Amendment No. 1 to the Amended and Restated Registration
Rights Agreement of PVF Holdings LLC, dated as of
October 31, 2009.
|
|
10
|
.22*
|
|
Subscription Agreement, dated as of September 10, 2008, by
and among McJunkin Red Man Holding Corporation, Andrew R. Lane,
and PVF Holdings LLC.
|
|
10
|
.23.1*
|
|
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 R. Lane.
|
|
10
|
.23.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of June 1,
2009, by and among McJunkin Red Man Holding Corporation, PVF
Holdings LLC, and Andrew R. Lane.
|
|
10
|
.23.3***
|
|
Second Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of
September 10, 2009, by and among McJunkin Red Man Holding
Corporation, PVF Holdings LLC, and Andrew R. Lane.
|
|
10
|
.24.1***
|
|
McJunkin Red Man Holding Corporation Restricted Stock Award
Agreement, dated as of February 24, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and
Andrew R. Lane.
|
|
10
|
.24.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation Restricted
Stock Award Agreement, dated as of June 1, 2009, by and
among McJunkin Red Man Holding Corporation, PVF Holdings LLC,
and Andrew R. Lane.
|
II-7
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
10
|
.25***
|
|
Subscription Agreement, dated as of October 3, 2008, by and
among McJunkin Red Man Holding Corporation, Len Anthony, and PVF
Holdings LLC.
|
|
10
|
.26.1***
|
|
McJunkin Red Man Holding Corporation Nonqualified Stock Option
Agreement, dated as of October 3, 2008, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Len
Anthony.
|
|
10
|
.26.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of
September 10, 2009, by and among McJunkin Red Man Holding
Corporation, PVF Holdings LLC, and Len Anthony.
|
|
10
|
.27***
|
|
McJunkin Red Man Holding Corporation Restricted Stock Award
Agreement, dated as of September 10, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Len
Anthony.
|
|
10
|
.28***
|
|
Subscription Agreement, dated as of October 30, 2009, by
and among McJunkin Red Man Holding Corporation, John A. Perkins,
and PVF Holdings LLC.
|
|
10
|
.29***
|
|
McJunkin Red Man Holding Corporation Nonqualified Stock Option
Agreement, dated as of December 3, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and John
A. Perkins.
|
|
10
|
.30***
|
|
Indemnification Agreement by and between the Company and Peter
C. Boylan, III dated August 11, 2010.
|
|
12
|
.1***
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
.1***
|
|
List of Subsidiaries of McJunkin Red Man Holding Corporation.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2
|
|
Consent of Fried, Frank, Harris, Shriver & Jacobson
LLP (included in Exhibit 5.1).
|
|
23
|
.3+
|
|
Consent of Jones, Walker, Waechter, Poitevent,
Carrère & Denègre L.L.P. (included in
Exhibit 5.2).
|
|
23
|
.4
|
|
Consent of Bowles Rice McDavid Graff & Love LLP
(included in Exhibit 5.3).
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages).
|
|
25
|
.1***
|
|
Form T-1
Statement of Eligibility under the Trust Indenture Act of
1939 with respect to the Indenture governing the
9.50% Senior Secured Notes due December 15, 2016.
|
|
|
|
+ |
|
To be filed by amendment. |
|
* |
|
Incorporated by reference to Amendment No. 1 to the
Registration Statement on
Form S-1
of McJunkin Red Man Holding Corporation
(No. 333-153091),
filed with the SEC on September 26, 2008. |
|
** |
|
Incorporated by reference to Amendment No. 2 to the
Registration Statement on
Form S-1
of McJunkin Red Man Holding Corporation
(No. 333-153091),
filed with the SEC on October 31, 2008. |
|
*** |
|
Incorporated by reference to the Registration Statement on
Form S-4
of McJunkin Red Man Corporation
(No. 333-173035),
filed with the SEC on March 24, 2011. |
|
|
|
Management contract or compensatory plan or arrangement required
to be posted as an exhibit to this report. |
Each of the undersigned registrants hereby undertake:
(a) (1) to file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
II-8
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the Calculation of Registration Fee
table in effective registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering;
(4) that, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed
in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is
first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first
use; and
(5) that, for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities the undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) the portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) Each of the undersigned registrants hereby undertakes
to respond to requests for information that is incorporated by
reference in to the prospectus pursuant to Items 4, 10(b),
11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first
class mail or equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the
request.
(c) Each of the undersigned registrants hereby undertakes
to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement.
II-9
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
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 Act and will be governed by the final adjudication of such
issue.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, McJunkin Red
Man Corporation has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, on the 24th
day of March, 2011.
MCJUNKIN RED MAN CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, McJunkin Red
Man Holding Corporation has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
MCJUNKIN RED MAN HOLDING CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Leonard
M. Anthony
Leonard
M. Anthony
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Rhys
J. Best
Rhys
J. Best
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Peter
C. Boylan III
Peter
C. Boylan III
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Henry
Cornell
Henry
Cornell
|
|
Director
|
|
March 24, 2011
|
II-12
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Christopher
A.S. Crampton
Christopher
A.S. Crampton
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ John
F. Daly
John
F. Daly
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Craig
Ketchum
Craig
Ketchum
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Gerard
P. Krans
Gerard
P. Krans
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ Dr. Cornelis
A. Linse
Dr. Cornelis
A. Linse
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ John
A. Perkins
John
A. Perkins
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ H.B.
Wehrle, III
H.B.
Wehrle, III
|
|
Director
|
|
March 24, 2011
|
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, McJunkin Red
Man Development Corporation has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
MCJUNKIN RED MAN DEVELOPMENT CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, McJunkin
Nigeria Limited has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, on the 24th
day of March, 2011.
MCJUNKIN NIGERIA LIMITED
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act,
McJunkin-Puerto Rico Corporation has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Houston,
State of Texas, on the 24th day of March, 2011.
MCJUNKIN-PUERTO RICO CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act,
McJunkin-West Africa Corporation has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Houston,
State of Texas, on the 24th day of March, 2011.
MCJUNKIN-WEST AFRICA CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act, Milton
Oil & Gas Company has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
MILTON OIL & GAS COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act, Ruffner
Realty Company has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, on the 24th
day of March, 2011.
RUFFNER REALTY COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act, Greenbrier
Petroleum Corporation has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
GREENBRIER PETROLEUM CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act,
Midway-Tristate Corporation has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
MIDWAY-TRISTATE CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act, MRC
Management Company has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, on the 24th
day of March, 2011.
MRC MANAGEMENT COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act, The South
Texas Supply Company, Inc. has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of
Texas, on the 24th day of March, 2011.
THE SOUTH TEXAS SUPPLY COMPANY, INC.
Andrew R. Lane
Chairman, President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew R. Lane and James
F. Underhill, and each of them, his or her true and lawful
attorneys-in-fact and agents with full powers of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all
amendments to this registration statement, including
post-effective amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, and hereby ratifies and confirms all his or her said
attorneys-in-fact and agents, or any of them, or his or her
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
II-23
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
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***
|
|
Certificate of Incorporation of McJunkin Red Man Corporation.
|
|
3
|
.2***
|
|
Bylaws of McJunkin Red Man Corporation.
|
|
3
|
.3***
|
|
Certificate of Incorporation of McJunkin Red Man Holding
Corporation.
|
|
3
|
.4***
|
|
Bylaws of McJunkin Red Man Holding Corporation.
|
|
3
|
.5***
|
|
Certificate of Incorporation of McJunkin Red Man Development
Corporation.
|
|
3
|
.6***
|
|
Bylaws of McJunkin Red Man Development Corporation.
|
|
3
|
.7***
|
|
Certificate of Incorporation of McJunkin Nigeria Limited.
|
|
3
|
.8***
|
|
Bylaws of McJunkin Nigeria Limited.
|
|
3
|
.9***
|
|
Certificate of Incorporation of McJunkin-Puerto Rico Corporation.
|
|
3
|
.10***
|
|
Bylaws of McJunkin-Puerto Rico Corporation.
|
|
3
|
.11***
|
|
Certificate of Incorporation of McJunkin-West Africa Corporation.
|
|
3
|
.12***
|
|
Bylaws of McJunkin-West Africa Corporation.
|
|
3
|
.13***
|
|
Certificate of Incorporation of Milton Oil & Gas
Company.
|
|
3
|
.14***
|
|
Bylaws of Milton Oil & Gas Company.
|
|
3
|
.15***
|
|
Certificate of Incorporation of Ruffner Realty Company.
|
|
3
|
.16***
|
|
Bylaws of Ruffner Realty Company.
|
|
3
|
.17***
|
|
Certificate of Incorporation of Greenbrier Petroleum Corporation.
|
|
3
|
.18***
|
|
Bylaws of Greenbrier Petroleum Corporation.
|
|
3
|
.19***
|
|
Certificate of Incorporation of Midway-Tristate Corporation.
|
|
3
|
.20***
|
|
Bylaws of Midway-Tristate Corporation.
|
|
3
|
.21***
|
|
Certificate of Incorporation of MRC Management Company.
|
|
3
|
.22***
|
|
Bylaws of MRC Management Company.
|
|
3
|
.23***
|
|
Certificate of Incorporation of The South Texas Supply Company,
Inc.
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
3
|
.24***
|
|
Bylaws of The South Texas Supply Company, Inc.
|
|
4
|
.1***
|
|
Indenture, dated as of December 21, 2009, by and among
McJunkin Red Man Corporation, the guarantors named therein and
U.S. Bank National Association, as trustee.
|
|
4
|
.2***
|
|
Form of 9.50% Senior Secured Notes due December 15,
2016 (included as part of Exhibit 4.1 above).
|
|
4
|
.3***
|
|
Exchange and Registration Rights Agreement, dated as of
December 21, 2009, by and among McJunkin Red Man
Corporation, McJunkin Red Man Holding Corporation, the
subsidiary guarantors party thereto, Goldman, Sachs &
Co., Barclays Capital Inc., Banc of America Securities LLC and
J.P. Morgan Securities Inc.
|
|
4
|
.4***
|
|
Exchange and Registration Rights Agreement, dated as of
February 11, 2010, by and among McJunkin Red Man
Corporation, McJunkin Red Man Holding Corporation, the
subsidiary guarantors party thereto, Goldman, Sachs &
Co. and Barclays Capital Inc.
|
|
4
|
.5***
|
|
Reaffirmation Agreement, dated as of February 11, 2010, by
and among McJunkin Red Man Corporation, McJunkin Red Man Holding
Corporation, the subsidiary guarantors party thereto, and U.S.
Bank National Association, as collateral trustee.
|
|
5
|
.1
|
|
Opinion of Fried, Frank, Harris, Shriver & Jacobson
LLP.
|
|
5
|
.2+
|
|
Opinion of Jones, Walker, Waechter, Poitevent,
Carrère & Denègre L.L.P.
|
|
5
|
.3
|
|
Opinion of Bowles Rice McDavid Graff & Love LLP.
|
|
10
|
.1.1*
|
|
Revolving Loan Credit Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.1.2*
|
|
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
|
.1.3*
|
|
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
|
.1.4*
|
|
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.
|
|
10
|
.1.5*
|
|
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
|
.1.6**
|
|
Joinder Agreement, dated as of October 3, 2008, by and
among Raymond James Bank, FSB, McJunkin Red Man Corporation and
The CIT Group/Business Credit, Inc.
|
|
10
|
.1.7**
|
|
Joinder Purchase Agreement, dated as of October 3, 2008, by
and among Raymond James Bank, FSB, McJunkin Red Man Corporation
and The CIT Group/Business Credit, Inc.
|
|
10
|
.1.8**
|
|
Joinder Agreement, dated as of October 16, 2008, by and
among SunTrust Bank, McJunkin Red Man Corporation and The CIT
Group/Business Credit, Inc.
|
|
10
|
.1.9**
|
|
Joinder Purchase Agreement, dated as of October 16, 2008,
by and among SunTrust Bank, McJunkin Red Man Corporation and The
CIT Group/Business Credit, Inc.
|
|
10
|
.1.10***
|
|
Joinder Agreement, dated as of January 2, 2009, by and
among Barclays Bank PLC, McJunkin Red Man Corporation and The
CIT Group/Business Credit, Inc.
|
|
10
|
.1.11***
|
|
Joinder Purchase Agreement, dated as of January 2, 2009, by
and among Barclays Bank PLC, McJunkin Red Man Corporation and
The CIT Group/Business Credit, Inc.
|
|
10
|
.1.12***
|
|
Amendment No. 1, dated as of December 21, 2009, to the
Revolving Loan Credit Agreement, by and among McJunkin Red Man
Corporation and the other parties thereto.
|
|
10
|
.2.1*
|
|
Revolving Loan Security Agreement, dated as of October 31,
2007, by and among McJunkin Red Man Corporation and the other
parties thereto.
|
|
10
|
.2.2***
|
|
Supplement No. 1 to Revolving Loan Security Agreement,
dated as of December 31, 2007.
|
|
10
|
.2.3***
|
|
Supplement No. 2 to Revolving Loan Security Agreement,
dated as of October 16, 2008.
|
|
10
|
.3.1***
|
|
Revolving Loan Guarantee, dated as of October 31, 2007.
|
|
10
|
.3.2***
|
|
Supplement No. 1 to Revolving Loan Guarantee, dated as of
December 31, 2007.
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
10
|
.3.3***
|
|
Supplement No. 2 to Revolving Loan Guarantee, dated as of
October 16, 2008.
|
|
10
|
.4***
|
|
Amended and Restated Loan and Security Agreement, dated as of
November 18, 2009, by and among Midfield Supply ULC and the
other parties thereto.
|
|
10
|
.5***
|
|
Amended and Restated Letter Agreement, dated as of
November 13, 2009, by and between Alberta Treasury Branches
and Midfield Supply ULC.
|
|
10
|
.6***
|
|
Revolving Facility Agreement, dated September 17, 2010,
between MRC Transmark Holdings UK Limited, HSBC Bank plc and the
other parties thereto.
|
|
10
|
.7*
|
|
Employment Agreement, dated as of September 10, 2008, by
and among McJunkin Red Man Holding Corporation and Andrew R.
Lane.
|
|
10
|
.7.1***
|
|
Amendment to Employment Agreement by and among McJunkin Red Man
Holding Corporation and Andrew R. Lane, dated February 23,
2011.
|
|
10
|
.8***
|
|
Amended and Restated Employment Agreement, dated as of
December 31, 2009, by and among McJunkin Red Man Holding
Corporation and James Underhill.
|
|
10
|
.8.1***
|
|
Amendment to Employment Agreement by and among McJunkin Red Man
Holding Corporation and James Underhill, dated February 23,
2011.
|
|
10
|
.9.1***
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Director Grant May 2010 Dutch
residents).
|
|
10
|
.9.2***
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Director Grant May 2010 US
residents).
|
|
10
|
.10.1***
|
|
Employment Agreement, dated as of September 10, 2009, by
and between Transmark Fcx Limited and Neil P. Wagstaff.
|
|
10
|
.10.2***
|
|
Amendment to Employment Agreement by and between MRC Transmark
Limited and Neil P. Wagstaff, dated February 23, 2011.
|
|
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***
|
|
Letter Agreement, dated as of December 22, 2008, by and
among McJunkin Red Man Holding Corporation and Craig Ketchum.
|
|
10
|
.13.1***
|
|
McJ Holding Corporation 2007 Stock Option Plan, as amended.
|
|
10
|
.13.2*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement.
|
|
10
|
.14.1***
|
|
McJ Holding Corporation 2007 Restricted Stock Plan, as amended.
|
|
10
|
.14.2*
|
|
Form of McJunkin Red Man Holding Corporation Restricted Stock
Award Agreement.
|
|
10
|
.15.1*
|
|
McJunkin Red Man Holding Corporation 2007 Stock Option Plan
(Canada).
|
|
10
|
.15.2*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are parties
to non-competition agreements).
|
|
10
|
.15.3*
|
|
Form of McJunkin Red Man Holding Corporation Nonqualified Stock
Option Agreement (Canada) (for plan participants who are not
parties to non-competition agreements).
|
|
10
|
.16*
|
|
McJunkin Red Man Corporation Deferred Compensation Plan.
|
|
10
|
.17*
|
|
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
|
.18.1*
|
|
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
|
.18.2*
|
|
Amendment No. 1 to the Management Stockholders Agreement,
dated as of December 21, 2007, executed by PVF Holdings LLC.
|
|
10
|
.18.3*
|
|
Amendment No. 2 to the Management Stockholders Agreement,
dated as of December 26, 2007, executed by PVF Holdings LLC.
|
|
10
|
.19***
|
|
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC, dated as of October 31, 2007.
|
|
10
|
.20.1***
|
|
Amendment No. 1, dated as of December 18, 2007, to the
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC.
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
10
|
.20.2***
|
|
Amendment No. 2, dated as of October 31, 2009, to the
Amended and Restated Limited Liability Company Agreement of PVF
Holdings LLC.
|
|
10
|
.21.1***
|
|
Amended and Restated Registration Rights Agreement of PVF
Holdings LLC, dated as of October 31, 2007.
|
|
10
|
.21.2***
|
|
Amendment No. 1 to the Amended and Restated Registration
Rights Agreement of PVF Holdings LLC, dated as of
October 31, 2009.
|
|
10
|
.22*
|
|
Subscription Agreement, dated as of September 10, 2008, by
and among McJunkin Red Man Holding Corporation, Andrew R. Lane,
and PVF Holdings LLC.
|
|
10
|
.23.1*
|
|
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 R. Lane.
|
|
10
|
.23.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of June 1,
2009, by and among McJunkin Red Man Holding Corporation, PVF
Holdings LLC, and Andrew R. Lane.
|
|
10
|
.23.3***
|
|
Second Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of
September 10, 2009, by and among McJunkin Red Man Holding
Corporation, PVF Holdings LLC, and Andrew R. Lane.
|
|
10
|
.24.1***
|
|
McJunkin Red Man Holding Corporation Restricted Stock Award
Agreement, dated as of February 24, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and
Andrew R. Lane.
|
|
10
|
.24.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation Restricted
Stock Award Agreement, dated as of June 1, 2009, by and
among McJunkin Red Man Holding Corporation, PVF Holdings LLC,
and Andrew R. Lane.
|
|
10
|
.25***
|
|
Subscription Agreement, dated as of October 3, 2008, by and
among McJunkin Red Man Holding Corporation, Len Anthony, and PVF
Holdings LLC.
|
|
10
|
.26.1***
|
|
McJunkin Red Man Holding Corporation Nonqualified Stock Option
Agreement, dated as of October 3, 2008, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Len
Anthony.
|
|
10
|
.26.2***
|
|
Amendment to the McJunkin Red Man Holding Corporation
Nonqualified Stock Option Agreement, dated as of
September 10, 2009, by and among McJunkin Red Man Holding
Corporation, PVF Holdings LLC, and Len Anthony.
|
|
10
|
.27***
|
|
McJunkin Red Man Holding Corporation Restricted Stock Award
Agreement, dated as of September 10, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Len
Anthony.
|
|
10
|
.28***
|
|
Subscription Agreement, dated as of October 30, 2009, by
and among McJunkin Red Man Holding Corporation, John A. Perkins,
and PVF Holdings LLC.
|
|
10
|
.29***
|
|
McJunkin Red Man Holding Corporation Nonqualified Stock Option
Agreement, dated as of December 3, 2009, by and among
McJunkin Red Man Holding Corporation, PVF Holdings LLC, and John
A. Perkins.
|
|
10
|
.30***
|
|
Indemnification Agreement by and between the Company and Peter
C. Boylan, III dated August 11, 2010.
|
|
12
|
.1***
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
.1***
|
|
List of Subsidiaries of McJunkin Red Man Holding Corporation.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm.
|
|
23
|
.2
|
|
Consent of Fried, Frank, Harris, Shriver & Jacobson
LLP (included in Exhibit 5.1).
|
|
23
|
.3+
|
|
Consent of Jones, Walker, Waechter, Poitevent,
Carrère & Denègre L.L.P. (included in
Exhibit 5.2).
|
|
23
|
.4
|
|
Consent of Bowles Rice McDavid Graff & Love LLP
(included in Exhibit 5.3).
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages).
|
|
25
|
.1***
|
|
Form T-1
Statement of Eligibility under the Trust Indenture Act of
1939 with respect to the Indenture governing the
9.50% Senior Secured Notes due December 15, 2016.
|
|
|
|
+ |
|
To be filed by amendment. |
|
* |
|
Incorporated by reference to Amendment No. 1 to the
Registration Statement on
Form S-1
of McJunkin Red Man Holding Corporation
(No. 333-153091),
filed with the SEC on September 26, 2008. |
|
** |
|
Incorporated by reference to Amendment No. 2 to the
Registration Statement on
Form S-1
of McJunkin Red Man Holding Corporation
(No. 333-153091),
filed with the SEC on October 31, 2008. |
|
*** |
|
Incorporated by reference to the Registration Statement on
Form S-4
of McJunkin Red Man Corporation
(No. 333-173035),
filed with the SEC on March 24, 2011. |
|
|
|
Management contract or compensatory plan or arrangement required
to be posted as an exhibit to this report. |
exv5w1
Exhibit 5.1
[Fried Frank letterhead]
March 24, 2011
McJunkin Red Man Corporation
2 Houston Center
909 Fannin, Suite 3100
Houston, TX 77010
Ladies and Gentlemen:
We have acted as special counsel to McJunkin Red Man Corporation, a Delaware corporation (the
Company), and each of the guarantors listed on Schedule A hereto (the
Guarantors) in connection with the registration of $1,050,000,000 in aggregate principal
amount of the Companys 9.50% Senior Secured Notes due December 15, 2016 (the Notes),
which are being registered under the Securities Act of 1933, as amended (the Securities
Act), and which may be offered and sold from time to time by certain affiliates of the Company
in market-making transactions pursuant to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 24, 2011 (the Registration Statement).
Pursuant to the Indenture (as defined below) the Notes are unconditionally guaranteed, jointly and
severally, on the terms and subject to the conditions set forth in the Indenture (the Note
Guarantees). All capitalized terms used herein that are defined in, or by reference in, the
Indenture have the meanings assigned to such terms therein or by reference therein, unless
otherwise defined herein. With your permission, all assumptions and statements of reliance 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
originals or certified, conformed, facsimile, electronic, photostatic or reproduction copies of such agreements,
instruments, documents and records of the Company and the Guarantors, such certificates of public
officials and such other documents and (iii) received such information from officers and
representatives of the Company and the Guarantors and others, in each
case, as we have deemed necessary or
appropriate for the purposes of this opinion. We have examined, among other documents, the
following:
|
(a) |
|
the Indenture, dated as of December 21, 2009, among the
Company, the Guarantors and U.S. Bank National Association, as trustee (as
supplemented, the Indenture); |
|
|
(b) |
|
the Notes; and |
|
(c) |
|
the Notation of Guarantee. |
The documents referred to in items (a) through (c) above are collectively referred to as the
Documents.
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,
facsimile, electronic or reproduction copies. As to various questions of fact relevant to the
opinions expressed herein, we have relied upon, and assume the
accuracy of, any representations and
warranties contained in the Documents and certificates and oral or written statements and other
information of or from public officials, officers or other
appropriate representatives of the Company, the Guarantors and others and assume
compliance on the part of all parties to the Documents with their covenants and agreements
contained therein.
To the extent it may be relevant to the opinions expressed herein, we have assumed that
(i) the Notes have been duly authenticated and delivered by the Trustee
in accordance with the terms of the Indenture, (ii) that all of the parties
to the Documents (other than the Company and the Guarantors organized in Delaware or New York) are
validly existing and in good standing under the laws of their respective jurisdictions of
organization and have the power and authority to (a) execute and deliver the Documents, (b) perform
their obligations thereunder and (c) consummate the transactions contemplated thereby, (iii) that
the Documents have been duly authorized, executed and delivered by all of the parties thereto
(other than the Company and the Guarantors organized in Delaware or New York), the execution thereof does not violate the charter, the by-laws or any other organizational
document of any such parties (other than the Company and the Guarantors organized in Delaware or
New York) or the laws of the jurisdiction of incorporation of any such parties (other than the
Company and the Guarantors organized in Delaware or New York) and each of the Documents constitutes valid
and binding obligations of all the parties thereto (other than the Company and the Guarantors),
enforceable against such parties in accordance with their respective terms, and (iv) that all of
the parties to the Documents will comply with all laws applicable thereto.
Based upon the foregoing, and subject to the limitations, qualifications and assumptions set
forth herein, we are of the opinion that:
|
1. |
|
The Notes, when executed, issued and delivered in accordance
with the terms of the Indenture, will constitute valid and binding obligations of
the Company, enforceable against the Company in accordance with their
terms. |
|
|
2. |
|
The Guarantees, when the Notes have been duly executed,
issued and delivered in accordance with the terms of the Indenture,
will constitute a valid and binding obligation
of each of the Guarantors, enforceable against each of the Guarantors in
accordance with their terms. |
|
|
The opinions set forth above are subject to the following qualifications: |
(A) We express no opinion as to the validity, binding effect or enforceability of any
provision of the Documents relating to indemnification, contribution or exculpation.
(B) We express no opinion as to the validity, binding effect or enforceability
of any provision of the Documents:
- 2 -
(i) (a) containing any purported waiver, release, variation, disclaimer, consent or other
agreement of similar effect (all of the foregoing, collectively, a Waiver) by the Company or the
Guarantors under any of such Documents to the extent limited by provisions of applicable law
(including judicial decisions), or to the extent that such a Waiver applies to a right, claim,
duty, defense or ground for discharge otherwise existing or occurring as a matter of law (including
judicial decisions), except to the extent that such a Waiver is effective under, and is not
prohibited by or void or invalid under provisions of applicable law (including judicial decisions);
or (b) with respect to any Waiver in the Note Guarantees insofar as it relates to causes or
circumstances that would operate as a discharge or release of, or defense available to, the
Guarantors thereunder as a matter of law (including judicial decisions), except to the extent such
Waiver is effective under and is not prohibited by or void or invalid under applicable law
(including judicial decisions)
(ii) related to (I) forum selection or submission to jurisdiction (including, without
limitation, any waiver of any objection to venue in any court or of any objection that a court is
an inconvenient forum) to the extent the validity, binding effect or enforceability of any
provision is to be determined by any court other than a court of the State of New York, or (II)
choice of governing law to the extent that the validity, binding effect or enforceability of any
such provision is to be determined by any court other than a court of the State of New York or a
federal district court sitting in the State of New York, in each case, applying the law and choice
of law principles of the State of New York;
(iii) specifying that provisions thereof may be waived only in writing, to the extent that an
oral agreement or an implied agreement by trade practice or course of conduct has been created that
modifies any provision of such agreement;
(iv) purporting to give any person or entity the power to accelerate obligations without any
notice to the obligor; and
(v) which may be considered to be in the nature of a penalty.
(C) Our opinions are subject to the following:
(i) bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in
effect affecting creditors rights generally;
(ii) general equitable principles (including, without limitation, standards of materiality,
good faith, fair dealing and reasonableness, equitable defenses and limits on the availability of
equitable remedies) whether such principles are considered in a proceeding in equity or at law; and
(iii) the application of any applicable fraudulent conveyance,
fraudulent transfer, fraudulent obligation, or preferential transfer law or any law governing
the distribution of assets of any person now or hereafter in effect affecting creditors rights and
remedies generally.
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(D) Provisions in the Notation of Guarantee and the Indenture that provide that the
Guarantors liability thereunder shall not be affected by
(i) actions or failures to act on the part of the recipient, the
holders or the Trustee, (ii) amendments or waivers of
provisions of documents governing the guaranteed obligations or (iii) other actions, events or
circumstances that make more burdensome or otherwise change the obligations and liabilities of the
Guarantors might not be
enforceable under certain circumstances and in the event of actions
that change
the essential nature of the terms and conditions of the guaranteed
obligations. With respect to each Guarantor, we have assumed that
consideration that is sufficient to support the agreements of each
Guarantor under the Documents has been received by each Guarantor.
The opinions expressed herein are limited to the laws of the State of New York and, to the
extent relevant, the General Corporation Law of the State of Delaware, each 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. Insofar as the opinions expressed herein involve the laws
of the State of Texas, we have relied with your permission solely on the opinion of Jones, Walker,
Waechter, Poitevent, Carrère & Denègre L.L.P., addressed to you on March 24, 2011 and filed as
Exhibit 5.2 to the Registration Statement. Insofar as the opinions expressed herein involve the
laws of the State of West Virginia, we have relied with your permission solely on the opinion of
Bowles Rice McDavid Graff & Love LLP, addressed to you on March 24, 2011 and filed as Exhibit 5.3
to the Registration Statement.
The opinions expressed herein are given as of the date hereof, and we undertake no obligation
to supplement this letter if any applicable laws change after the date hereof 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 opinion 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.
- 4 -
Very truly yours,
/s/ Fried, Frank, Harris, Shriver & Jacobson LLP
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
- 5 -
SCHEDULE A
Greenbrier Petroleum Corporation, a West Virginia corporation
McJunkin Nigeria Limited, a Delaware corporation
McJunkin-Puerto Rico Corporation, a Delaware corporation
McJunkin Red Man Development Corporation, a Delaware corporation
McJunkin Red Man Holding Corporation, a Delaware corporation
McJunkin-West Africa Corporation, a Delaware corporation
Midway-Tristate Corporation, a New York corporation
Milton Oil & Gas Company, a West Virginia corporation
MRC Management Company, a Delaware corporation
Ruffner Realty Company, a West Virginia corporation
The South Texas Supply Company, Inc., a Texas corporation
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exv5w3
Exhibit 5.3
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Amy J. Tawney
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March 24, 2011
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E-Mail Address: |
Telephone (304) 347-1123
Facsimile (304) 343-3058
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atawney@bowlesrice.com |
McJunkin Red Man Corporation
2 Houston Center
909 Fannin, Suite 3100
Houston, Texas 77010
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Re: |
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Registration of 9.50% Senior Secured Notes
Due 2016 of McJunkin Red Man Corporation |
Ladies and Gentlemen:
We have acted as special West Virginia counsel to Milton Oil & Gas Company, Ruffner Realty
Company and Greenbrier Petroleum Corporation, each a West Virginia corporation (collectively, the
WV Guarantors), in connection with the registration by McJunkin Red Man Corporation, a
Delaware corporation (the Issuer) of $1,050,000,000 in aggregate principal amount of its
9.50% Senior Secured Notes due December 15, 2016 (the Notes), which have been registered
under the Securities Act of 1933, as amended (the Securities Act), and which may be
offered and sold from time to time by certain affiliates of the Company in market-making
transactions pursuant to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on March 24, 2011 (the Registration Statement). Pursuant to the
Indenture, dated as of December 21, 2009, among the Issuer, the guarantors named therein and U.S.
Bank National Association, as trustee (as supplemented, the Indenture), the Notes will be
unconditionally guaranteed, jointly and severally, on the terms and subject to the conditions set
forth in the Indenture. All capitalized terms used herein that are defined in, or by reference in,
the Indenture have the meanings assigned to such terms therein or by reference therein, unless
otherwise defined herein.
In arriving at the opinions expressed below, we have examined and relied on the following
documents:
(a) Registration Statement;
(b) The Indenture relating to the Securities dated December 21, 2009, by and among the Issuer,
the Guarantors and U.S. Bank National Association, as trustee (the Trustee);
March 24, 2011
Page 2
(c) The Notation of Guarantee to be executed by each of the WV Guarantors upon consummation of
the Issuers exchange offer for the Notes (the Note Guarantees);
(d) Unanimous Written Consent of Sole Director of Milton Oil & Gas Company dated December 11,
2009;
(e) Unanimous Written Consent of Sole Director of Ruffner Realty Company, dated December 11,
2009;
(f) Unanimous Written Consent of Sole Director of Greenbrier Petroleum Corporation, dated
December 11, 2009;
(g) Unanimous Written Consent of Sole Director of Milton Oil & Gas Company dated February 8,
2010;
(h) Unanimous Written Consent of Sole Director of Ruffner Realty Company, dated February 8,
2010;
(i) Unanimous Written Consent of Sole Director of Greenbrier Petroleum Corporation, dated
February 8, 2010;
(j) Articles of Incorporation, dated November 13, 1974, as certified by the Office of the
Secretary of State of West Virginia on March 18, 2011, and Bylaws for Milton Oil & Gas Company;
(k) Articles of Incorporation, dated November 13, 1974, as certified by the Office of the
Secretary of State of West Virginia on March 18, 2011, and Bylaws for Ruffner Realty Company;
(l) Articles of Incorporation, dated May 24, 1976, as amended on August 5, 1976, as certified
by the Office of the Secretary of State of West Virginia on March 18, 2011, and Bylaws for
Greenbrier Petroleum Company; and
(m) Certificates of Existence for the WV Guarantors issued by the Office of the Secretary of
State of West Virginia on March 14, 2011.
The documents listed in items (a) through (m), inclusive, of the preceding paragraph are
hereinafter referred to as the Transaction Documents.
As to questions of fact material to the opinions set forth below, we have also relied on
documents, instruments and certificates of public officials, and of the officers and
representatives of the Issuer and the WV Guarantors, and we have made such investigations of law,
as we have deemed appropriate as a basis for the opinions expressed below. We have made no
independent investigation of the records of the Issuer or the WV Guarantors or any other party to
any of the Transaction Documents other than the review of the Organizational Documents and written
March 24, 2011
Page 3
consents listed above. We have made no independent investigation as to whether the
representations and warranties and other statements in the Transaction Documents and in such other
documents, instruments and certificates are accurate or complete.
In rendering the opinions expressed below, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents submitted to us as
originals, the conformity to the originals of all documents submitted to us as copies and the
authenticity of the originals of such copies.
For purposes of this opinion, we have, with your permission, assumed without independent
investigation that:
(i) the documents submitted to us as originals are authentic and the documents submitted to us
as copies conform to the original documents;
(ii) there has been no mutual mistake of fact, misunderstanding, fraud, duress or undue
influence; and
(iii) Each certificate issued by any government official, office or agency is accurate,
complete and authentic, and all official public records (including their indexing and filing) are
accurate and complete.
Based on the foregoing, and subject to the additional assumptions, qualifications and
limitations set forth below, we are of the opinion that:
1. Each of the WV Guarantors is duly organized and validly existing as a corporation under the
laws of the State of West Virginia.
2. Each of the WV Guarantors has the full corporate power and authority to execute, deliver
and perform its obligations under the Note Guarantees.
3. The Note Guarantees have been duly authorized by each of the WV Guarantors.
Our opinion is further subject to the following qualifications:
A. We express no opinion regarding the laws of any jurisdiction other than the laws of the
State of West Virginia. The opinions expressed herein concern only the effect of the laws
(excluding the principles of conflict of laws as applied by courts in other states) of the State of
West Virginia. We assume no obligation to supplement this opinion letter if any applicable laws
change after the date hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof.
B. For purposes of our opinion in paragraph 1, we have relied exclusively upon certificates of
existence from the Office of the Secretary of State of West Virginia.
March 24, 2011
Page 4
C. Our opinions as to laws, statutes, rules or regulations are based upon a review of those
laws, statutes, rules or regulations which are normally applicable to transactions of the type
contemplated by the Transaction Documents. We have not examined and we express no opinion with
regard to the applicability of, compliance with, or liability under, any federal, State or local
law, ordinance or regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos or the like, or subdivision, land development, land use or zoning, or
construction, building or occupancy, fire safety or disabilities. We express no opinion as to
whether any of the Transaction Documents and the transactions contemplated hereunder are subject to
the application of, or whether the parties are in compliance with, Federal or State securities laws
or tax laws, or antitrust and unfair competition laws, or patent, trademark or copyright laws, or
pension, employee benefit, health, safety or labor laws.
D. Any provisions of the Transaction Documents providing for the acceleration of any
indebtedness and enforcement of collateral security may be limited by statutes or judicial
decisions which give the WV Guarantors the right to reinstate any promissory note and deed of trust
or mortgage before or after any foreclosure sale by paying all delinquent payments due, and by
paying certain other costs and expenses.
We hereby consent to the filing of this opinion 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 or the rules and regulations of the SEC promulgated thereunder. This opinion letter may be
relied upon by Fried, Frank, Harris, Shriver & Jacobson LLP, as if it were addressed to it, in
rendering its opinions in connection with the registration of the offer and sale of the Notes as
described in the Registration Statement.
The opinions expressed in this letter are limited to the matters set forth in this opinion
letter, and no other opinions should be inferred beyond the matters expressly herein stated.
Very truly yours,
/s/ Bowles Rice McDavid Graff & Love LLP
BOWLES RICE MCDAVID GRAFF & LOVE LLP
AJT/jam
Enclosures
exv23w1
Exhibit 23.1
Consent of
Independent Registered Public Accounting Firm
We consent to the
reference to our firm under the caption Experts and
to the use of our report dated March 23, 2011, included in
the Registration Statement
(Form S-1
No. 333- )
and related Prospectus of McJunkin Red Man Holding Corporation
dated March 23, 2011.
/s/
Ernst & Young LLP
Charleston, West
Virginia
March 23, 2011