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As filed with the Securities and Exchange
Commission on June 21, 2011
Registration No. 333-173035
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
to
Form S-4
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 exchange
offer: As soon as practicable after the effective date of
this Registration Statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, 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(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer x
(Do not check if a smaller
reporting company)
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Smaller reporting
company o
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If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender
Offer) o
Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender
Offer) o
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of Securities
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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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to be 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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$
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1,050,000,000
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100
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%
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$
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1,050,000,000
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$
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121,905
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Guarantees of 9.50% Senior Secured Notes due
December 15, 2016
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$
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1,050,000,000
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(2
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(2
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(2
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Total Registration Fee
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$
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121,905(3
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(1)
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Estimated solely for purposes of
calculating the registration fee pursuant to Rule 457(f)
under the Securities Act.
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(2)
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No separate filing fee is required
pursuant to Rule 457(n) under the Securities Act.
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(3)
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Previously paid.
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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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Incorporation or
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Classification Code
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Identification
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Exact Name of Registrant Guarantor 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
June 21, 2011
Prospectus
McJunkin
Red Man Corporation
Exchange Offer for
$1,050,000,000
9.50% Senior Secured Notes due December 15,
2016
We are offering to exchange up to $1,050,000,000 of our
9.50% senior secured notes due December 15, 2016,
which will be registered under the Securities Act of 1933, as
amended, for up to $1,050,000,000 of our outstanding
9.50% senior secured notes due December 15, 2016,
which we issued on December 21, 2009 and February 11,
2010. We are offering to exchange the exchange notes for the
outstanding notes to satisfy our obligations contained in the
exchange and registration rights agreements that we entered into
when the outstanding notes were sold pursuant to Rule 144A
and Regulation S under the Securities Act. The terms of the
exchange notes are identical to the terms of the outstanding
notes, except that the transfer restrictions, registration
rights and additional interest provisions relating to the
outstanding notes do not apply to the exchange notes.
There is no existing public market for the outstanding notes or
the exchange notes offered hereby. We do not intend to list the
exchange notes on any securities exchange or seek approval for
quotation through any automated trading system.
The exchange offer will expire at 12:00 a.m., New York City
time
on ,
2011, unless we extend it.
Broker-dealers receiving exchange notes in exchange for
outstanding notes acquired for their own account through
market-making or other trading activities must acknowledge that
they will deliver this prospectus in any resale of the exchange
notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act. This prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of the exchange notes
received in exchange for outstanding notes where such
outstanding notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities.
We have agreed that, for a period of 90 days after the
expiration date of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution.
You should consider carefully the Risk Factors
beginning on page 17 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.
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
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17
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F-1
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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 basic information about this
offering contained elsewhere in this prospectus. It does not
contain all the information that may be important to you. For a
more complete understanding of the exchange offer before making
an investment decision, 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. Our North America segment includes over
180 branches, 6 distribution centers in the U.S. and 1
in Canada, with 13 valve automation service centers and
over 180 pipe yards located in the most active oil and
natural gas regions in North America. Our International segment
includes over 30 branch locations throughout Europe, Asia
and Australasia with distribution centers in the United Kingdom
and Singapore.
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.
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
1
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.
Recent
Developments
On May 25, 2011, we signed an agreement to acquire 100% of
the outstanding common stock of Stainless Pipe and Fittings
Australia Pty Ltd (SPF). Headquartered in Perth,
Western Australia, SPF is a distributor of stainless steel
piping products generating annual revenues of approximately
US$100 million through its seven locations across Australia
as well as Korea, Italy, United Kingdom, and United Arab
Emirates. This transaction closed on June 9, 2011.
On June 14, 2011, we entered into a $1.05 billion
asset-based revolving credit facility. The proceeds of this
facility were used to repay outstanding indebtedness under our
previous asset-based revolving credit facility, the Midfield
revolving credit facility and the Midfield term loan facility
and will be used to fund the ongoing needs of our business
(collectively, the Refinancing). This facility has a
five year term maturing on June 14, 2016.
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Corporate
Structure
The following chart illustrates our simplified organization and
ownership structure:
3
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).
4
Summary
of the Exchange Offer
On December 21, 2009 and February 11, 2010,
respectively, we sold $1,000,000,000 and $50,000,000 aggregate
principal amount of our 9.50% senior secured notes due
2016, or the outstanding notes, in a transaction exempt from
registration under the Securities Act of 1933, as amended, or
the Securities Act. We are conducting this exchange offer to
satisfy our obligations contained in the exchange and
registration rights agreements that we entered into in
connection with the sales of the outstanding notes. You should
read the discussion under the headings The Exchange
Offer and Description of Exchange Notes for
further information regarding the exchange notes to be issued in
the exchange offer.
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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 registered under the
Securities Act, or the exchange notes and, together with the
outstanding notes, the notes. |
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The terms of the exchange notes offered in the exchange offer
are substantially identical to those of the outstanding notes,
except that the transfer restrictions, registration rights and
additional interest provisions relating to the outstanding notes
do not apply to the exchange notes. |
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The Exchange Offer |
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We are offering exchange notes in exchange for a like principal
amount of our outstanding notes. You may tender your outstanding
notes for exchange notes by following the procedures described
under the heading The Exchange Offer. |
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Tenders; Expiration Date; Withdrawal |
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The exchange offer will expire at 12:00 a.m., New York City
time,
on ,
2011, unless we extend it. You may withdraw any outstanding
notes that you tender for exchange at any time prior to the
expiration of this exchange offer. See The Exchange
Offer Terms of the Exchange Offer for a more
complete description of the tender and withdrawal period. |
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Condition to the Exchange Offer |
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The exchange offer is not subject to any conditions, other than
that the exchange offer does not violate any applicable law or
applicable interpretations of the staff of the SEC. |
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The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered in the
exchange. |
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Procedures for Tendering Outstanding Notes |
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To participate in this exchange offer, you must properly
complete and duly execute a letter of transmittal, which
accompanies this prospectus, and transmit it, along with all
other documents required by such letter of transmittal, to the
exchange agent on or before the expiration date at the address
provided on the cover page of the letter of transmittal. |
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In the alternative, you can tender your outstanding notes by
book-entry delivery following the procedures described in this
prospectus, whereby you will agree to be bound by the letter of
transmittal and we may enforce the letter of transmittal against
you. |
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If a holder of outstanding notes desires to tender such notes
and the holders outstanding notes are not immediately
available, or time will not permit the holders outstanding
notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be
effected pursuant to the guaranteed delivery procedures
described in this prospectus. |
5
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See The Exchange Offer How to Tender
Outstanding Notes for Exchange. |
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United States Federal Tax Considerations |
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The exchange of outstanding notes for exchange notes in the
exchange offer will not be a taxable event for United States
federal income tax purposes. See Material United States
Federal Tax Considerations. |
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Use of Proceeds |
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We will not receive any cash proceeds from the exchange offer. |
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Exchange Agent |
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U.S. Bank National Association, the trustee under the indenture
governing the notes, is serving as exchange agent in connection
with the exchange offer. The address and telephone number of the
exchange agent are set forth under the heading The
Exchange Offer Exchange Agent. |
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Consequences of Failure to Exchange Your Outstanding Notes |
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Outstanding notes not exchanged in the exchange offer will
continue to be subject to the restrictions on transfer that are
described in the legend on the outstanding notes. In general,
you may offer or sell your outstanding notes only if they are
registered under, or offered or sold under an exemption from,
the Securities Act and applicable state securities laws. We do
not currently intend to register the outstanding notes under the
Securities Act. If your outstanding notes are not tendered and
accepted in the exchange offer, it may become more difficult for
you to sell or transfer your outstanding notes. |
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Resales of the Exchange Notes |
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Based on interpretations of the staff of the SEC, we believe
that you may offer for sale, resell or otherwise transfer the
exchange notes that we issue in the exchange offer without
complying with the registration and prospectus delivery
requirements of the Securities Act if: |
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you are not a broker-dealer tendering notes acquired
directly from us;
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you acquire the exchange notes issued in the
exchange offer in the ordinary course of your business;
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you are not participating, do not intend to
participate, and have no arrangement or undertaking with anyone
to participate, in the distribution of the exchange notes issued
to you in the exchange offer; and
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you are not an affiliate of our company,
as that term is defined in Rule 405 of the Securities Act.
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If any of these conditions are not satisfied and you transfer
any exchange notes issued to you in the exchange offer without
delivering a proper prospectus or without qualifying for a
registration exemption, you may incur liability under the
Securities Act. We will not be responsible for, or indemnify you
against, any liability you incur. |
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Any broker-dealer that acquires exchange notes in the exchange
offer for its own account in exchange for outstanding notes
which it acquired through market-making or other trading
activities must acknowledge that it will deliver this prospectus
when it resells or transfers any exchange notes issued in the
exchange offer. See Plan of Distribution for a
description of the prospectus delivery obligations of
broker-dealers. |
6
Summary
of The Exchange Notes
The summary below describes the principal terms of the
exchange notes. Some of the terms and conditions described below
are subject to important limitations and exceptions. See
Description of Exchange Notes for a more detailed
description of the terms and conditions of the exchange
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. |
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Maturity Date |
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The exchange notes will mature on December 15, 2016. |
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Interest Payment Dates |
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Interest on the exchange notes will be payable in cash on June
15 and December 15 of each year. |
|
Guarantees |
|
The exchange 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 exchange 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 Exchange Notes Certain
Covenants Guarantees. |
|
Collateral |
|
The exchange 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 Exchange
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 Exchange 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 exchange notes and the holders of any other
Priority Lien Obligations. See Description of Exchange
Notes Security Collateral. |
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The exchange 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) together with the Existing Notes by
security interests granted to the collateral trustee in all ABL
Priority Collateral (as such term is defined in
Description of Exchange Notes Certain
Definitions) from time to time owned by the Issuer or the
Subsidiary Guarantors. |
7
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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 Exchange
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
exchange 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 exchange notes or our revolving credit facility.
See Description of Exchange Notes
Security and Risk Factors Risks Related
to the Collateral and the Guarantees. |
|
Ranking |
|
The exchange 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
exchange 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
exchange 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
exchange 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 exchange 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 exchange notes.
|
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As of March 31, 2011: |
|
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|
we and the Subsidiary Guarantors had
$245 million outstanding under our revolving credit
facility and outstanding letters of credit of approximately
$4.8 million (with $377 million of available
borrowings under our revolving credit facility), and, as of
March 31, 2011, on an as adjusted basis after giving effect
to the Refinancing, we would have had $255 million
outstanding under our revolving credit facility and outstanding
letters of credit of approximately
|
8
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$4.8 million (with $380 million of available borrowings
under our revolving credit facility), all of which would rank
senior to the exchange 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
$59 million and borrowing availability of an additional
$100 million, and, as of March 31, 2011, on an as
adjusted basis after giving effect to the Refinancing, our
non-guarantor subsidiaries would have had indebtedness of
$59 million and borrowing availability of an additional
$156 million, all of which would rank senior to the
exchange 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 exchange 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 Exchange Notes Brief
Description of the Notes and the Note Guarantees. |
|
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Intercreditor Agreement |
|
The collateral trustee has entered into an intercreditor
agreement with the Issuer, the Subsidiary Guarantors and Bank of
America, N.A., as collateral agent 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
Exchange Notes The Intercreditor Agreement. |
|
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|
Collateral Trust Agreement |
|
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 Exchange
Notes The Collateral Trust Agreement. |
|
Sharing of Liens and Collateral |
|
The liens securing the exchange notes secure the outstanding
notes on an equal and ratable basis with the exchange notes. 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 Exchange
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 Exchange
Notes Certain Definitions) permitted to be
incurred under the indenture governing the notes. |
|
Optional Redemption |
|
We may redeem the exchange notes, in whole or in part, at any
time on or after December 15, 2012 at the redemption prices
set forth in this |
9
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|
prospectus. In addition, at any time prior to December 15,
2012, we may redeem some or all of the exchange notes at a price
equal to 100% of the principal amount of the exchange 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 Exchange 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 offerings at the redemption price set forth in
this prospectus. See Description of Exchange
Notes Optional Redemption. |
|
Offers to Purchase |
|
If we sell certain assets without applying the proceeds in a
specified manner, or experience certain change of control
events, each holder of exchange 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
Exchange Notes Repurchase at the Option of
Holders. Our revolving credit facility or other agreements
may restrict us from repurchasing any of the exchange 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 Exchange
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. |
|
Covenants |
|
The indenture governing the exchange 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 exchange notes;
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make investments;
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sell assets;
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create restrictions on the payment of dividends or
other amounts to us from restricted subsidiaries;
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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
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designate our subsidiaries as unrestricted
subsidiaries.
|
10
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These covenants are subject to a number of important exceptions
and qualifications, which are described under Description
of Exchange Notes. |
|
Original Issue Discount |
|
The outstanding notes were issued with original issue discount
for United States federal income tax purposes, and the exchange
notes will be treated as issued with the same amount of original
issue discount as the outstanding notes exchanged therefor. 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 Material
United States Federal Tax Considerations Stated
Interest and Original Issue Discount. |
|
No Assurance of Active Trading Market |
|
The exchange 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 exchange
notes will exist or be maintained. If an active or liquid
trading market for the exchange notes is not maintained, the
market price and liquidity of the exchange notes may be
adversely affected. See Risk Factors Risks
Related to the Exchange Notes There is no Prior
Public Market for the Exchange Notes. If an Actual Trading
Market does Not Exist or is Not Maintained for the Exchange
Notes, You May Not Be Able To Resell Them Quickly, for the Price
That You Paid or at All. |
Risk
Factors
Despite our competitive strengths discussed elsewhere in this
prospectus, investing in our exchange 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 exchange notes. You should carefully
consider all the information in this prospectus, including
matters set forth under the heading Risk Factors.
11
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.
The summary consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the three months ended March 31, 2011
and 2010, and the summary consolidated financial information
presented below under the caption Balance Sheet Data as of
March 31, 2011 and March 31, 2010, have been derived
from the unaudited consolidated financial statements of McJunkin
Red Man Holding Corporation included elsewhere in this
prospectus. We have prepared the summary consolidated financial
information for the three months ended March 31, 2011 and
2010 on a basis consistent with our audited consolidated
financial statements for the year ended December 31, 2010,
and this information includes all adjustments (consisting of
only normal recurring adjustments unless otherwise disclosed
therein) that management considers necessary for a fair
presentation of our financial position and results of operations
for the periods indicated. Our results for the three months
ended March 31, 2011 are not necessarily indicative of our
results for the full fiscal year.
12
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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Successor
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|
Predecessor
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Eleven
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One Month
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Three Months Ended
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Months Ended
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Ended
|
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Year Ended
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March 31,
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Year Ended December 31,
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December 31,
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January 30,
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December 31,
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2011
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2010
|
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|
2010
|
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|
2009
|
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|
2008
|
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2007
|
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|
2007
|
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2006
|
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|
(Unaudited)
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(In millions, except per share information)
|
|
Statement of Operations Data:
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Sales
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|
$
|
991.8
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|
|
$
|
858.3
|
|
|
$
|
3,845.5
|
|
|
$
|
3,661.9
|
|
|
$
|
5,255.2
|
|
|
$
|
2,124.9
|
|
|
|
$
|
142.5
|
|
|
$
|
1,713.7
|
|
Cost of sales
|
|
|
844.8
|
|
|
|
728.8
|
|
|
|
3,327.0
|
|
|
|
3,067.4
|
|
|
|
4,273.1
|
|
|
|
1,761.9
|
|
|
|
|
114.9
|
|
|
|
1,398.5
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
46.5
|
|
|
|
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|
|
|
|
|
|
|
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|
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Gross margin
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147.0
|
|
|
|
129.5
|
|
|
|
518.1
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|
|
|
548.0
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|
|
|
982.1
|
|
|
|
363.0
|
|
|
|
|
27.6
|
|
|
|
315.2
|
|
Selling, general and administrative expenses
|
|
|
114.8
|
|
|
|
108.1
|
|
|
|
447.8
|
|
|
|
408.6
|
|
|
|
482.1
|
|
|
|
218.5
|
|
|
|
|
15.9
|
|
|
|
189.5
|
|
Goodwill and intangibles impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386.1
|
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Operating income (loss)
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|
32.2
|
|
|
|
21.4
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|
|
|
70.3
|
|
|
|
(246.7
|
)
|
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|
500.0
|
|
|
|
144.5
|
|
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|
11.7
|
|
|
|
125.7
|
|
Other (expense) income
|
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|
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Interest expense
|
|
|
(33.5
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)
|
|
|
(35.3
|
)
|
|
|
(139.6
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)
|
|
|
(116.5
|
)
|
|
|
(84.5
|
)
|
|
|
(61.7
|
)
|
|
|
|
(0.1
|
)
|
|
|
(2.8
|
)
|
Net gain on early extinguishment of debt
|
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|
|
|
|
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|
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1.3
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Change in fair value of derivative instruments
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1.9
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|
|
|
(4.1
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)
|
|
|
(4.9
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)
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|
8.9
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|
(6.2
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)
|
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|
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|
|
|
|
|
|
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Other, net
|
|
|
(2.4
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)
|
|
|
(0.4
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)
|
|
|
(1.0
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)
|
|
|
(1.8
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)
|
|
|
(2.6
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)
|
|
|
(0.8
|
)
|
|
|
|
(0.4
|
)
|
|
|
(5.0
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)
|
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|
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Total other (expense) income
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(34.0
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)
|
|
|
(39.8
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)
|
|
|
(145.5
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)
|
|
|
(108.1
|
)
|
|
|
(93.3
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)
|
|
|
(62.5
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)
|
|
|
|
(0.5
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)
|
|
|
(7.8
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)
|
|
|
|
|
|
|
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|
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|
|
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Income (loss) before income taxes
|
|
|
(1.8
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)
|
|
|
(18.4
|
)
|
|
|
(75.2
|
)
|
|
|
(354.8
|
)
|
|
|
406.7
|
|
|
|
82.0
|
|
|
|
|
11.2
|
|
|
|
117.9
|
|
Income taxes
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
|
|
(23.4
|
)
|
|
|
(15.0
|
)
|
|
|
153.2
|
|
|
|
32.1
|
|
|
|
|
4.6
|
|
|
|
48.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(51.8
|
)
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
|
$
|
49.9
|
|
|
|
$
|
6.6
|
|
|
$
|
69.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
5.8
|
|
|
|
6.4
|
|
|
|
112.5
|
|
|
|
505.5
|
|
|
|
(137.4
|
)
|
|
|
110.2
|
|
|
|
|
6.6
|
|
|
|
18.4
|
|
Net cash provided by (used in) investing activities
|
|
|
11.9
|
|
|
|
(4.4
|
)
|
|
|
(16.2
|
)
|
|
|
(66.9
|
)
|
|
|
(314.2
|
)
|
|
|
(1,788.9
|
)
|
|
|
|
(0.2
|
)
|
|
|
(3.3
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(30.8
|
)
|
|
|
(23.8
|
)
|
|
|
(97.9
|
)
|
|
|
(393.9
|
)
|
|
|
452.0
|
|
|
|
1,687.2
|
|
|
|
|
(8.3
|
)
|
|
|
(17.2
|
)
|
Adjusted Gross Margin(1)
|
|
|
173.5
|
|
|
|
154.2
|
|
|
|
663.2
|
|
|
|
493.5
|
|
|
|
1,164.0
|
|
|
|
400.6
|
|
|
|
|
27.9
|
|
|
|
331.6
|
|
Adjusted EBITDA(2)
|
|
|
59.6
|
|
|
|
48.5
|
|
|
|
224.2
|
|
|
|
218.5
|
|
|
|
744.4
|
|
|
|
344.9
|
|
|
|
|
26.0
|
|
|
|
141.7
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
|
|
|
|
|
Year
|
|
Year
|
|
Year
|
|
Year
|
|
Year
|
|
|
Three Months Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
March 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009(1)
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42.1
|
|
|
$
|
34.5
|
|
|
$
|
56.2
|
|
|
$
|
56.2
|
|
|
$
|
12.1
|
|
|
$
|
10.1
|
|
|
$
|
3.7
|
|
Working capital(3)
|
|
|
848.2
|
|
|
|
921.6
|
|
|
|
842.6
|
|
|
|
930.2
|
|
|
|
1,208.0
|
|
|
|
674.1
|
|
|
|
212.3
|
|
Total assets
|
|
|
2,969.5
|
|
|
|
3,024.4
|
|
|
|
2,991.2
|
|
|
|
3,083.2
|
|
|
|
3,919.7
|
|
|
|
3,083.8
|
|
|
|
481.0
|
|
Total debt(4)
|
|
|
1,333.0
|
|
|
|
1,430.2
|
|
|
|
1,360.2
|
|
|
|
1,452.6
|
|
|
|
1,748.6
|
|
|
|
868.4
|
|
|
|
13.0
|
|
Stockholders equity
|
|
|
700.6
|
|
|
|
727.3
|
|
|
|
689.8
|
|
|
|
743.9
|
|
|
|
987.2
|
|
|
|
1,262.7
|
|
|
|
258.2
|
|
|
|
|
(1) |
|
We define Adjusted Gross Margin as sales, less cost of sales,
plus depreciation and amortization, amortization of intangibles,
and plus or minus the impact of our last in first out
(LIFO) inventory costing methodology. We present
Adjusted Gross Margin because we believe it is a useful
indicator of our operating performance and facilitates a
meaningful comparison to our peers. We believe this for the
following reasons: |
|
|
|
|
|
Our management uses Adjusted Gross Margin for planning purposes,
including the preparation of our annual operating budget and
financial projections. This measure is also used to assess the
performance of our business.
|
|
|
|
|
|
Adjusted Gross Margin is used by investors to measure a
companys operating performance without regard to items,
such as depreciation and amortization, and amortization of
intangibles, that can vary substantially from company to company
depending upon the nature and extent of transactions they have
been involved in. Similarly, the impact of the LIFO inventory
costing method can cause results to vary substantially from
company to company depending upon whether those companies elect
to utilize the LIFO method and depending upon which LIFO method
they may elect.
|
|
|
|
|
|
Securities analysts can use Adjusted Gross Margin as a
supplemental measure to evaluate overall operating performance
of companies.
|
|
|
|
|
|
Particularly, we believe that Adjusted Gross Margin is a useful
indicator of our operating performance because Adjusted Gross
Margin measures our companys operating performance without
regard to acquisition transaction-related amortization expenses. |
|
|
|
However, Adjusted Gross Margin does not represent and should not
be considered an alternative to gross margin or any other
measure of financial performance calculated and presented in
accordance with GAAP. Our Adjusted Gross Margin may not be
comparable to similar measures reported by other companies
because other companies may not calculate Adjusted Gross Margin
in the same manner as we do. Although we use Adjusted Gross
Margin as a measure to assess the operating performance of our
business, Adjusted Gross Margin has significant limitations as
an analytical tool because it excludes certain material costs.
For example, it does not include depreciation and amortization
expense. 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 amortization expense
associated with our intangible assets further limits the
usefulness of this measure. Furthermore, Adjusted Gross Margin
does not account for our LIFO inventory costing methodology, and
therefore, to the extent that recently purchased inventory
accounts for a relatively large portion of our sales, Adjusted
Gross Margin may overstate our operating performance. Because
Adjusted Gross Margin does not account for certain expenses, its
utility as a measure of our operating performance has material
limitations. Because of these limitations, management does not
view Adjusted Gross Margin in isolation or as a primary
performance measure and also uses other measures, such as net
income and sales, to measure operating performance. |
14
|
|
|
|
|
The following table reconciles Adjusted Gross Margin to gross
margin (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
One Month
|
|
|
Year
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
147.0
|
|
|
$
|
129.5
|
|
|
$
|
518.1
|
|
|
$
|
548.0
|
|
|
$
|
982.1
|
|
|
$
|
363.0
|
|
|
$
|
27.6
|
|
|
$
|
315.2
|
|
Depreciation
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
16.6
|
|
|
|
14.5
|
|
|
|
11.3
|
|
|
|
5.4
|
|
|
|
0.3
|
|
|
|
3.9
|
|
Amortization of Intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
|
|
53.9
|
|
|
|
46.6
|
|
|
|
44.4
|
|
|
|
21.9
|
|
|
|
|
|
|
|
0.3
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
10.3
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
154.2
|
|
|
$
|
663.2
|
|
|
$
|
493.5
|
|
|
$
|
1,164.0
|
|
|
$
|
400.6
|
|
|
$
|
27.9
|
|
|
$
|
331.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
We define Adjusted EBITDA as net income plus interest, income
taxes, depreciation and amortization, amortization of
intangibles, 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 and goodwill impairment)
and plus or minus the impact of our LIFO inventory costing
methodology. 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 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 our intangible
assets further limits the usefulness of this measure. Adjusted
EBITDA also does not include the payment of certain taxes, which
is also a necessary element of our operations. Furthermore,
Adjusted EBITDA does not account for our LIFO inventory costing
methodology, 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. |
15
|
|
|
|
|
The following table reconciles Adjusted EBITDA with our net
income (loss), as derived from our financial statements (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
One Month
|
|
|
Year
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(51.8
|
)
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
|
$
|
49.9
|
|
|
$
|
6.6
|
|
|
$
|
69.6
|
|
Income taxes
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
|
|
(23.4
|
)
|
|
|
(15.0
|
)
|
|
|
153.2
|
|
|
|
32.1
|
|
|
|
4.6
|
|
|
|
48.3
|
|
Interest expense
|
|
|
33.5
|
|
|
|
35.3
|
|
|
|
139.6
|
|
|
|
116.5
|
|
|
|
84.5
|
|
|
|
61.7
|
|
|
|
0.1
|
|
|
|
2.8
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
16.6
|
|
|
|
14.5
|
|
|
|
11.3
|
|
|
|
5.4
|
|
|
|
0.3
|
|
|
|
3.9
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
|
|
53.9
|
|
|
|
46.6
|
|
|
|
44.4
|
|
|
|
21.9
|
|
|
|
|
|
|
|
0.3
|
|
Amortization of Purchase Price Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.7
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivative instruments
|
|
|
(1.9
|
)
|
|
|
4.1
|
|
|
|
4.9
|
|
|
|
(8.9
|
)
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed locations
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation
|
|
|
1.5
|
|
|
|
1.0
|
|
|
|
3.7
|
|
|
|
7.8
|
|
|
|
10.2
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
Franchise taxes
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangibles impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT system conversion costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M&A transaction & integration expenses
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
17.5
|
|
|
|
34.8
|
|
|
|
12.7
|
|
|
|
|
|
|
|
0.4
|
|
Midway-Tristate pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
1.0
|
|
|
|
|
|
Consulting fees
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
0.9
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Provision for uncollectible accounts
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(2.0
|
)
|
|
|
1.0
|
|
|
|
7.7
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
Red Man Pipe & Supply Co. pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142.2
|
|
|
|
13.1
|
|
|
|
|
|
Severance and related costs
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmark Fcx pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
10.3
|
|
|
|
|
|
|
|
12.2
|
|
Other non-recurring and non-cash expenses
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
(1.0
|
)
|
|
|
(2.1
|
)
|
|
|
6.7
|
|
|
|
2.5
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
59.6
|
|
|
$
|
48.5
|
|
|
$
|
224.2
|
|
|
$
|
218.5
|
|
|
$
|
744.4
|
|
|
$
|
344.9
|
|
|
$
|
26.0
|
|
|
$
|
141.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Working capital is defined as current assets less current
liabilities. |
|
(4) |
|
Includes current portion. |
16
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. 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 Exchange 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 Exchange
Notes.
We have substantial indebtedness. As of March 31, 2011, we
had $1.33 billion of total indebtedness and our revolving
credit facilities would permit additional borrowings of up to
$487 million. In addition, as of March 31, 2011, on an
as adjusted basis after giving effect to the Refinancing, we
would have had $1.34 billion of total indebtedness and our
revolving credit facilities would permit additional borrowings
of up to $536 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 exchange 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 exchange 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;
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|
|
|
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;
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|
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|
we may be vulnerable to economic downturns and adverse industry
conditions, including a downturn in pricing of the products we
distribute;
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|
|
|
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
exchange notes, may be limited.
|
We May
Be Unable to Service Our Indebtedness, Including the Exchange
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 exchange 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
17
and the indenture governing the exchange 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 March 31, 2011, we had $292 million of secured
indebtedness outstanding under our and our subsidiaries
revolving credit facilities and up to $487 million would
have been available for borrowing under our and our
subsidiaries revolving credit facilities. In addition, as
of March 31, 2011, on an as adjusted basis after giving
effect to the Refinancing, we would have had $302 million
of secured indebtedness outstanding under our and our
subsidiaries revolving credit facilities and up to
$536 million would have been available for borrowing under
our and our subsidiaries revolving credit facilities. The
terms of the indenture governing the exchange 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 exchange notes, the holders of that debt will be
entitled to share ratably with the holders of the exchange 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 exchange notes and is secured by the same collateral as the
exchange notes, including various amounts of debt permitted
under the definition of Permitted Liens in the
Description of Exchange Notes. See Description of Exchange
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 Exchange
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 Exchange 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 exchange 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 Exchange 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,
18
amendments or alternative or additional financings could be
obtained or, if obtained, would be on terms acceptable to us.
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 exchange notes
in full.
Your
Right to Receive Payments on the Exchange 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 exchange 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 exchange 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 exchange notes. As a result, holders of
exchange notes may receive less, ratably, than the lenders under
our revolving credit facility.
As of March 31, 2011, the notes and the related guarantees
were effectively subordinated to $245 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 $377 million was available for borrowing
as additional secured debt under our revolving credit facility.
As of March 31, 2011, on an as adjusted basis after giving
effect to the Refinancing, the notes and the related guarantees
would have been effectively subordinated to $255 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 $380 million would have been
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 Exchange Notes Will Be
Structurally Subordinated to the Liabilities of Our
Non-Guarantor Subsidiaries.
Not all of our subsidiaries will be required to guarantee the
exchange 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
exchange 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 exchange 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.
19
As of March 31, 2011, the notes and the related guarantees
were effectively subordinated to $245 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 $377 million was available for borrowing
as additional secured debt under our revolving credit facility.
As of March 31, 2011, on an as adjusted basis after giving
effect to the Refinancing, the notes and the related guarantees
would have been effectively subordinated to $255 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 $380 million would have been
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.
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 Exchange Notes.
Upon the occurrence of a change of control, as
defined in the indenture governing the exchange notes, we must
offer to buy back the exchange 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 exchange notes (or repay other
indebtedness in certain circumstances) at a price equal to 100%
of the principal amount of the exchange 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 exchange notes would be a default
under the indenture governing the exchange notes, which would
also trigger a cross default under our revolving credit
facility. See Description of Exchange 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 exchange notes, it is possible that we may
not have sufficient liquidity or assets to make the required
repurchase of exchange notes or to satisfy all obligations under
our revolving credit facility and the indenture governing the
exchange 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
exchange notes or obtain a waiver from the lenders or you as a
holder of the exchange 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 Exchange
Notes Will Be Suspended if Such Notes Achieve Investment Grade
Ratings.
Most of the restrictive covenants in the indenture governing the
exchange notes will not apply for so long as the exchange 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 exchange 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 exchange
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
20
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 an
exchange 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 exchange 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 exchange 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 Exchange Notes.
As a result of these relationships, the interests of the Goldman
Sachs Funds may not coincide with your interests as holders of
exchange 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.
You
May Have Difficulty Selling the Outstanding Notes Which You do
Not Exchange.
If you do not exchange your outstanding notes for the exchange
notes offered in this exchange offer, you will continue to be
subject to the restrictions on the transfer and exchange of your
outstanding notes. Those transfer restrictions are described in
the indenture relating to the exchange notes and in the legend
contained on the outstanding notes, and arose because we
originally issued the outstanding notes under exemptions from,
and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding notes only if
they are registered under the Securities Act and applicable
state securities laws, or if they are offered and sold under an
exemption from, or in a transaction not subject to, those
requirements. After completion of this exchange offer, we do not
intend to register the outstanding notes under the Securities
Act.
If a large number of outstanding notes are exchanged for notes
issued in the exchange offer, it may be more difficult for you
to sell your unexchanged outstanding notes. In addition, upon
completion of the exchange offer, holders of any remaining
outstanding notes will not be entitled to any further
registration rights under the exchange and registration rights
agreements, except under limited circumstances.
There
is no Prior Public Market for the Exchange Notes. If an Actual
Trading Market does Not Exist or is Not Maintained for the
Exchange Notes, You May Not Be Able To Resell Them Quickly, for
the Price That You Paid or at All.
We cannot assure you that an established trading market for the
exchange notes will exist or be maintained. Although the
exchange notes may be resold or otherwise transferred by the
holders without compliance with the registration requirements
under the Securities Act, they will constitute a new issue of
securities with no established trading market.
We do not intend to apply for the notes or the exchange notes to
be listed on any securities exchange or to arrange for quotation
of the notes on any automated dealer quotation systems. The
initial purchasers of the outstanding notes have advised us that
they intend to make a market in the exchange notes, but they are
not obligated
21
to do so. Each initial purchaser may discontinue any market
making in the exchange notes at any time, in its sole
discretion. As a result, we cannot assure you as to the
liquidity of any trading market for the notes or the exchange
notes. Because Goldman, Sachs & Co. may be construed
to be our affiliate, Goldman, Sachs & Co. may be
required to deliver a current market making
prospectus and otherwise comply with the registration
requirements of the Securities Act in any secondary market sale
of the exchange notes. Accordingly, the ability of Goldman,
Sachs & Co. to make a market in the exchange notes
may, in part, depend on our ability to maintain a current market
making prospectus.
We also cannot assure you that you will be able to sell your
exchange notes at a particular time or at all, or that the
prices that you receive when you sell them will be favorable. If
no active trading market exists or is maintained, you may not be
able to resell your exchange notes at their fair market value,
or at all. The liquidity of, and trading market for, the
exchange notes may also be adversely affected by, among other
things:
|
|
|
|
|
prevailing interest rates;
|
|
|
|
our operating performance and financial condition;
|
|
|
|
the interest of securities dealers in making a market; and
|
|
|
|
the market for similar securities.
|
Historically, the market for non-investment grade debt has been
subject to disruptions that have caused volatility in prices of
securities similar to the exchange notes. It is possible that
the market for the exchange notes will be subject to
disruptions. Any disruptions may have a negative effect on
holders of the exchange notes, regardless of our prospects and
financial performance.
Assuming
the Issuance of Outstanding 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 Exchange Notes
Issued in Exchange for Those Outstanding Notes Will Be Treated
As Issued with the Same Amount of Original Issue Discount as the
Exchange Notes Issued in Exchange for the Outstanding 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 outstanding December
notes) exceeded the issue price of the outstanding
December notes by an amount in excess of the statutory de
minimis amount. Accordingly, the outstanding December notes were
issued with original issue discount for United States federal
income tax purposes.
We have taken the position that the issuance of outstanding
notes on February 11, 2010 (the outstanding 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 outstanding February notes as having the
same issue price as the outstanding December notes and therefore
as having been issued with the same amount of original issue
discount as the outstanding 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 outstanding February
notes could be treated as a separate issue from the outstanding
December notes, with an issue price determined by the first
price at which a substantial amount of the outstanding 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 outstanding
February notes would have been issued with original issue
discount in an amount different from the amount of original
issue discount on the outstanding December notes, the
outstanding February notes would not have been fungible with the
outstanding December notes for United States federal income tax
purposes and the exchange notes received in exchange for the
outstanding February notes would not be fungible with the
exchange notes received in exchange for the outstanding December
notes for United States federal income tax purposes. See
Material United States Federal Tax
Considerations Qualified Reopening.
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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 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
exchange notes.
Risks
Related to the Collateral and the Guarantees
The
Value of the Collateral Securing the Exchange Notes May Not Be
Sufficient to Satisfy Our Obligations Under the Exchange
Notes.
No appraisal of the fair market value of the collateral securing
the exchange 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 exchange 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 exchange 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 exchange 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 exchange notes have a number
of significant exceptions pursuant to which we will be able to
sell Notes Priority Collateral (as such term is defined in the
indenture governing the exchange 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 exchange notes to repurchase the exchange notes.
The
Intercreditor Agreement Limits the Ability of Holders of
Exchange Notes to Exercise Rights and Remedies with Respect to
the ABL Priority Collateral.
The rights of the holders of the exchange notes with respect to
the ABL Priority Collateral (as such term is defined in the
indenture governing the exchange notes) securing the exchange
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
23
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 exchange notes may disagree
or that may be contrary to the interests of holders of the
exchange 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 Exchange Notes The
Intercreditor Agreement.
The
Rights of the Holders of Exchange 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 Exchange 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 exchange notes and guarantees are issued.
The indenture for the exchange notes and the related security
documents also permit the collateral for the exchange 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 exchange 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
exchange notes as well as the ability of the collateral agent to
realize or foreclose on such collateral.
The
Collateral Securing the Exchange Notes May Be Diluted Under
Certain Circumstances.
The loan agreement governing our revolving credit facility and
the indenture governing the exchange 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
exchange 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 exchange notes (and the outstanding notes) would be
shared by any additional notes the 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 exchange notes to the
collateral.
The
Rights of Holders of Exchange 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
24
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 exchange notes and the exchange 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 exchange notes.
For example, the collateral trustee for the exchange 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 exchange 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 exchange 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 exchange 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 exchange 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 exchange notes and the exchange 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 Exchange Notes Will Not Include Certain
Excluded Assets.
The collateral for the exchange 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 exchange 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 $1.0 million as of March 31, 2011,
will not be collateral for the exchange notes. The guarantee of
the exchange notes provided by McJunkin Red Man Holding
Corporation will be unsecured. See Description of Exchange
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 exchange 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 exchange notes
will lose the benefit of a particular guarantee if it is
released under certain circumstances described under
Description of Exchange Notes.
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Federal
and State Laws Allow Courts, Under Specific Circumstances, to
Void Guarantees and Grants of Security and Require Holders of
the Exchange Notes to Return Payments Received from
Guarantors.
The issuers creditors and the creditors of the guarantors
could challenge the exchange 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 exchange 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 exchange note
guarantee (1) delivered such exchange 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 exchange 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 exchange note
guarantee unless it benefited directly or indirectly from the
issuance of the exchange notes. If a court declares the issuance
of the exchange notes, any exchange note guarantee or the
related security agreements to be void, or if any exchange 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 exchange 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 exchange
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 exchange
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.
26
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 exchange
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 exchange notes to other
claims against us under the principle of equitable
subordination, if the court determines that: (i) the holder
of the exchange 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 exchange 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 exchange 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 exchange notes, we can give no assurance that any
insurance proceeds received by us will be sufficient to satisfy
all the secured obligations, including the exchange 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 exchange notes provides that certain
of our future subsidiaries will guarantee the exchange notes and
secure their exchange note guarantees with liens on their
assets. The indenture governing the exchange note also requires
the Issuer and the Subsidiary Guarantors to grant liens on
certain assets that they acquire. Any future exchange note
guarantee or additional lien in favor of the collateral trustee
for the benefit of the holders of the exchange 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 exchange 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 exchange note guarantee or lien is an
insider under the U.S. Bankruptcy Code), and
the granting of the future exchange 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.
The
Value of the Collateral Securing the Exchange Notes May Not Be
Sufficient to Secure Post-Petition Interest. Should the
Issuers Obligations Under the Exchange Notes Equal or
Exceed the Fair Market Value of the Collateral Securing the
Exchange Notes, Holders of Exchange 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 exchange 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. Exchange note holders
may be deemed to have an unsecured claim if the Issuers
obligations under the exchange notes equal or exceed the fair
market value of the collateral securing the exchange notes.
Exchange note holders that have a
27
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 exchange
notes on the date of the bankruptcy filing was less than the
then-current principal amount of the exchange notes. Upon a
finding by a bankruptcy court that the exchange notes are
under-collateralized, the claims in the bankruptcy proceeding
with respect to the exchange 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 exchange note holders to receive
post-petition interest and a lack of entitlement on the part of
the unsecured portion of the exchange 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 exchange notes. No
appraisal of the fair market value of the collateral securing
the exchange 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 exchange notes. We can give
no assurance that there will be sufficient collateral to satisfy
our and the Subsidiary Guarantors obligations under the
exchange notes.
U.S.
Federal Bankruptcy Laws May Significantly Impair the Ability of
Exchange Note Holders to Realize Value from the
Collateral.
The right of the collateral trustee to repossess and dispose of
the collateral securing the exchange notes upon the occurrence
of an event of default under the indenture governing the
exchange 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 exchange notes if, among other
possible reasons, the bankruptcy court determines that the fair
market value of the collateral with respect to the exchange
notes on the date of the bankruptcy filing was less than the
then-current principal amount of the exchange 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 exchange 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 exchange 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 on the
exchange 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 Exchange Notes
may not be Entitled to Recover the Principal Amount of the
Exchange 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 exchange notes are only
entitled to recover the amortized portion of the original issue
discount on the exchange notes. Accordingly,
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to the extent the original issue discount on the exchange notes
has not been amortized, holders of the exchange notes may not be
entitled to recover the full principal amount of the exchange
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, 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.
30
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.
31
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
32
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 $17.5 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
34
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
35
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 945
claims as of March 31, 2011 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 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 professionals from our competitors, our
customers and other companies operating in our industry. We may
be
36
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.
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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 negatively affect the local
economies in which we operate. Additionally, we may experience
communication
37
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 March 31, 2011, 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
$386 million during the year ended December 31, 2009.
This charge was based on the results of our annual impairment
tests for goodwill and intangible assets, which indicated that
the book value of these assets exceeded their 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.
38
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 Exchange 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,
39
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 Exchange 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.
In May 2011, we concluded that we had a material weakness in the
design and operations of controls and procedures for testing
impairment of indefinite lived intangible assets as of
December 31, 2010 and 2009. We remediated this material
weakness through the adoption of a formal policy governing our
intangible impairment analysis that has enhanced preventative
and detective controls, including multi-layered review
procedures and input validation.
40
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.
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.
41
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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months Ended
|
|
One Month Ended
|
|
Year Ended
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
December 31,
|
|
January 30,
|
|
December 31,
|
|
|
2011*
|
|
2010*
|
|
2010*
|
|
2009*
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
Ratio of earnings to fixed charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8x
|
|
|
|
2.3x
|
|
|
|
107.7x
|
|
|
|
38.2x
|
|
|
|
|
* |
|
Earnings were insufficient to cover fixed charges by
$2 million and $18 million for the three months ended
March 31, 2011 and 2010, respectively, and by
$75 million and $355 million for the years ended
December 31, 2010 and 2009, respectively. |
42
USE OF
PROCEEDS
This exchange offer is intended to satisfy certain of our
obligations under the exchange and registration rights
agreements entered into in connection with the issuance of the
outstanding notes. We will not receive any cash proceeds from
the issuance of the exchange notes and have agreed to pay the
expenses of the exchange offer. In consideration for issuing the
exchange notes, we will receive in exchange outstanding notes in
like principal amount. The outstanding notes surrendered in
exchange for the exchange notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the exchange notes
will not result in any increase in our outstanding indebtedness
or any change in our capitalization.
43
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2011 on a historical basis
and on an as adjusted basis after giving effect to our entry
into our new $1.05 billion asset-based revolving credit
facility and the repayment of our previous asset-based revolving
credit facility, the Midfield revolving credit facility and the
Midfield term loan facility. 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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|
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|
|
|
|
|
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As of
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(Dollars in millions)
|
|
|
Cash and cash equivalents
|
|
$
|
42
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
Total Debt (including current portion):
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|
|
|
|
|
|
|
|
Revolving credit facility(1)
|
|
$
|
245
|
|
|
$
|
283
|
|
Midfield revolving credit facility(2)
|
|
|
23
|
|
|
|
|
|
Midfield term loan facility
|
|
|
5
|
|
|
|
|
|
Transmark revolving credit facility(3)
|
|
|
23
|
|
|
|
23
|
|
Transmark factoring facility
|
|
|
8
|
|
|
|
8
|
|
Outstanding notes
|
|
|
1,029
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,333
|
|
|
|
1,343
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
701
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,034
|
|
|
$
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of March 31, 2011, we had availability of
$377 million under our revolving credit facility. As of
March 31, 2011, on an as adjusted basis after giving effect
to the Refinancing, we would have had availability of
$485 million under our new revolving credit facility. |
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|
(2) |
|
As of March 31, 2011, we had availability of
$59 million under the Midfield revolving credit facility. |
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|
|
(3) |
|
As of March 31, 2011, there was $51 million of
availability under the revolving portion of Transmarks
primary credit facility. As of March 31, 2011, on an as
adjusted basis after giving effect to the Refinancing, there
would have been $51 million of availability under the
revolving portion of Transmarks primary credit facility. |
44
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.
The selected consolidated financial information presented below
under the captions Statement of Operations Data and Other
Financial Data for the three months ended March 31, 2011
and 2010, and the selected consolidated financial information
presented below under the caption Balance Sheet Data as of
March 31, 2011 and March 31, 2010, have been derived
from the unaudited consolidated financial statements of McJunkin
Red Man Holding Corporation included elsewhere in this
prospectus. We have prepared the selected consolidated financial
information for the three months ended March 31, 2011 and
2010 on a basis consistent with our audited consolidated
financial statements for the year ended December 31, 2010,
and this information includes all adjustments (consisting of
only normal recurring adjustments unless otherwise disclosed
therein) that management considers necessary for a fair
presentation of our financial position and results of operations
for the periods indicated. Our results for the three months
ended March 31, 2011 are not necessarily indicative of our
results for the full fiscal year.
45
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Successor
|
|
|
|
Predecessor
|
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Eleven
|
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|
|
One Month
|
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|
Months Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
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|
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|
|
|
|
|
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|
|
|
|
|
|
(In millions, except per share information)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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Sales
|
|
$
|
991.8
|
|
|
$
|
858.3
|
|
|
$
|
3,845.5
|
|
|
$
|
3,661.9
|
|
|
$
|
5,255.2
|
|
|
$
|
2,124.9
|
|
|
|
$
|
142.5
|
|
|
$
|
1,713.7
|
|
Cost of sales
|
|
|
844.8
|
|
|
|
728.8
|
|
|
|
3,327.0
|
|
|
|
3,067.4
|
|
|
|
4,273.1
|
|
|
|
1,761.9
|
|
|
|
|
114.9
|
|
|
|
1,398.5
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
46.5
|
|
|
|
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|
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|
|
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|
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|
|
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|
|
|
|
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|
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|
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|
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|
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|
|
|
|
|
|
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|
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|
|
|
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|
|
Gross margin
|
|
|
147.0
|
|
|
|
129.5
|
|
|
|
518.1
|
|
|
|
548.0
|
|
|
|
982.1
|
|
|
|
363.0
|
|
|
|
|
27.6
|
|
|
|
315.2
|
|
Selling, general and administrative expenses
|
|
|
114.8
|
|
|
|
108.1
|
|
|
|
447.8
|
|
|
|
408.6
|
|
|
|
482.1
|
|
|
|
218.5
|
|
|
|
|
15.9
|
|
|
|
189.5
|
|
Goodwill and intangibles impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
32.2
|
|
|
|
21.4
|
|
|
|
70.3
|
|
|
|
(246.7
|
)
|
|
|
500.0
|
|
|
|
144.5
|
|
|
|
|
11.7
|
|
|
|
125.7
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(33.5
|
)
|
|
|
(35.3
|
)
|
|
|
(139.6
|
)
|
|
|
(116.5
|
)
|
|
|
(84.5
|
)
|
|
|
(61.7
|
)
|
|
|
|
(0.1
|
)
|
|
|
(2.8
|
)
|
Net gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
1.9
|
|
|
|
(4.1
|
)
|
|
|
(4.9
|
)
|
|
|
8.9
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(2.4
|
)
|
|
|
(0.4
|
)
|
|
|
(1.0
|
)
|
|
|
(1.8
|
)
|
|
|
(2.6
|
)
|
|
|
(0.8
|
)
|
|
|
|
(0.4
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(34.0
|
)
|
|
|
(39.8
|
)
|
|
|
(145.5
|
)
|
|
|
(108.1
|
)
|
|
|
(93.3
|
)
|
|
|
(62.5
|
)
|
|
|
|
(0.5
|
)
|
|
|
(7.8
|
)
|
Income (loss) before income taxes
|
|
|
(1.8
|
)
|
|
|
(18.4
|
)
|
|
|
(75.2
|
)
|
|
|
(354.8
|
)
|
|
|
406.7
|
|
|
|
82.0
|
|
|
|
|
11.2
|
|
|
|
117.9
|
|
Income taxes
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
|
|
(23.4
|
)
|
|
|
(15.0
|
)
|
|
|
153.2
|
|
|
|
32.1
|
|
|
|
|
4.6
|
|
|
|
48.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(51.8
|
)
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
|
$
|
49.9
|
|
|
|
$
|
6.6
|
|
|
$
|
69.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
1.63
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
1.63
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
3.05
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Eleven
|
|
|
|
One Month
|
|
|
|
|
|
|
|
|
|
|
|
|
Months Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
January 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share information)
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted, Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
376.70
|
|
|
$
|
3,972.08
|
|
Basic and diluted, Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
376.70
|
|
|
$
|
4,012.28
|
|
Dividends per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
40.00
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
80.00
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42.1
|
|
|
$
|
34.5
|
|
|
$
|
56.2
|
|
|
$
|
56.2
|
|
|
$
|
12.1
|
|
|
$
|
10.1
|
|
|
|
$
|
2.0
|
|
|
$
|
3.7
|
|
Working capital(1)
|
|
|
848.2
|
|
|
|
921.6
|
|
|
|
842.6
|
|
|
|
930.2
|
|
|
|
1,208.0
|
|
|
|
674.1
|
|
|
|
|
211.1
|
|
|
|
212.3
|
|
Total assets
|
|
|
2,969.5
|
|
|
|
3,024.4
|
|
|
|
2,991.2
|
|
|
|
3,083.2
|
|
|
|
3,919.7
|
|
|
|
3,083.8
|
|
|
|
|
474.2
|
|
|
|
481.0
|
|
Total debt(2)
|
|
|
1,333.0
|
|
|
|
1,430.2
|
|
|
|
1,360.2
|
|
|
|
1,452.6
|
|
|
|
1,748.6
|
|
|
|
868.4
|
|
|
|
|
4.8
|
|
|
|
13.0
|
|
Stockholders equity
|
|
|
700.6
|
|
|
|
727.3
|
|
|
|
689.8
|
|
|
|
743.9
|
|
|
|
987.2
|
|
|
|
1,262.7
|
|
|
|
|
245.2
|
|
|
|
258.2
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin(4)
|
|
|
173.5
|
|
|
|
154.2
|
|
|
|
663.2
|
|
|
|
493.5
|
|
|
|
1,164.0
|
|
|
|
400.6
|
|
|
|
|
27.9
|
|
|
|
331.6
|
|
Adjusted EBITDA(3)
|
|
$
|
59.6
|
|
|
$
|
48.5
|
|
|
$
|
224.2
|
|
|
$
|
218.5
|
|
|
$
|
744.4
|
|
|
$
|
344.9
|
|
|
|
$
|
26.0
|
|
|
$
|
141.7
|
|
Net cash provided by (used in) operations
|
|
|
5.8
|
|
|
|
6.4
|
|
|
|
112.5
|
|
|
|
505.5
|
|
|
|
(137.4
|
)
|
|
|
110.2
|
|
|
|
|
6.6
|
|
|
|
18.4
|
|
Net cash (used in) investing activities
|
|
|
11.9
|
|
|
|
(4.4
|
)
|
|
|
(16.2
|
)
|
|
|
(66.9
|
)
|
|
|
(314.2
|
)
|
|
|
(1,788.9
|
)
|
|
|
|
(0.2
|
)
|
|
|
(3.3
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(30.8
|
)
|
|
|
(23.8
|
)
|
|
|
(97.9
|
)
|
|
|
(393.9
|
)
|
|
|
452.0
|
|
|
|
1,687.2
|
|
|
|
|
(8.3
|
)
|
|
|
(17.2
|
)
|
|
|
|
(1) |
|
Working capital is defined as current assets less current
liabilities. |
|
(2) |
|
Includes current portion. |
|
|
|
(3) |
|
See footnote (2) on page 15 for a description of how
we define Adjusted EBITDA, why we present it and limitations on
its usefulness. |
47
|
|
|
|
|
The following table reconciles Adjusted EBITDA with our net
income (loss), as derived from our financial statements (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
One Month
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Three Months Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(51.8
|
)
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
|
$
|
49.9
|
|
|
$
|
6.6
|
|
|
$
|
69.6
|
|
Income taxes
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
|
|
(23.4
|
)
|
|
|
(15.0
|
)
|
|
|
153.2
|
|
|
|
32.1
|
|
|
|
4.6
|
|
|
|
48.3
|
|
Interest expense
|
|
|
33.5
|
|
|
|
35.3
|
|
|
|
139.6
|
|
|
|
116.5
|
|
|
|
84.5
|
|
|
|
61.7
|
|
|
|
0.1
|
|
|
|
2.8
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
16.6
|
|
|
|
14.5
|
|
|
|
11.3
|
|
|
|
5.4
|
|
|
|
0.3
|
|
|
|
3.9
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
|
|
53.9
|
|
|
|
46.6
|
|
|
|
44.4
|
|
|
|
21.9
|
|
|
|
|
|
|
|
0.3
|
|
Amortization of Purchase Price Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.7
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivative instruments
|
|
|
(1.9
|
)
|
|
|
4.1
|
|
|
|
4.9
|
|
|
|
(8.9
|
)
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed locations
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation
|
|
|
1.5
|
|
|
|
1.0
|
|
|
|
3.7
|
|
|
|
7.8
|
|
|
|
10.2
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
Franchise taxes
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangibles impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-down
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT system conversion costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M&A transaction & integration expenses
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
17.5
|
|
|
|
34.8
|
|
|
|
12.7
|
|
|
|
|
|
|
|
0.4
|
|
Midway-Tristate pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
1.0
|
|
|
|
|
|
Consulting fees
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
0.9
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Provision for uncollectible accounts
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(2.0
|
)
|
|
|
1.0
|
|
|
|
7.7
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
Red Man Pipe & Supply Co. pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142.2
|
|
|
|
13.1
|
|
|
|
|
|
Severance and related costs
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmark Fcx pre-acquisition contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
10.3
|
|
|
|
|
|
|
|
12.2
|
|
Other non-recurring and non-cash expenses
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
(1.0
|
)
|
|
|
(2.1
|
)
|
|
|
6.7
|
|
|
|
2.5
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
59.6
|
|
|
$
|
48.5
|
|
|
$
|
224.2
|
|
|
$
|
218.5
|
|
|
$
|
744.4
|
|
|
$
|
344.9
|
|
|
$
|
26.0
|
|
|
$
|
141.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
See footnote (1) on page 14 for a description of how
we define Adjusted Gross Margin, why we present it and
limitations on its usefulness. |
|
|
|
|
|
The following table reconciles Adjusted Gross Margin to gross
margin (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
One Month
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Three Months Ended March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
147.0
|
|
|
$
|
129.5
|
|
|
$
|
518.1
|
|
|
$
|
548.0
|
|
|
$
|
982.1
|
|
|
$
|
363.0
|
|
|
$
|
27.6
|
|
|
$
|
315.2
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
16.6
|
|
|
|
14.5
|
|
|
|
11.3
|
|
|
|
5.4
|
|
|
|
0.3
|
|
|
|
3.9
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
|
|
53.9
|
|
|
|
46.6
|
|
|
|
44.4
|
|
|
|
21.9
|
|
|
|
|
|
|
|
0.3
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
10.3
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
154.2
|
|
|
$
|
663.2
|
|
|
$
|
493.5
|
|
|
$
|
1,164.0
|
|
|
$
|
400.6
|
|
|
$
|
27.9
|
|
|
$
|
331.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
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 serve our customers through over 400 global
service locations. Our North America segment includes over
180 branches, 6 distribution centers in the U.S. and 1
in Canada, with 13 valve automation service centers and
over 180 pipe yards located in the most active oil and
natural gas regions in North America. Our International segment
includes over 30 branch locations throughout Europe, Asia
and Australasia with distribution centers in the United Kingdom
and Singapore. 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 2009 and 2010 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.
Approximately two-thirds of our sales are attributable to
multi-year maintenance, repair and operations (MRO)
arrangements. We consider MRO arrangements 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,
including underinvestment in global energy infrastructure,
production and capacity constraints, and anticipated
49
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 is currently
at near-record levels (West Texas Intermediate WTI)
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, along with the costs necessary tor produce oil and
gas, 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 the first three months of 2011, the industry has seen oil
prices escalate, while natural gas prices have remained
relatively flat. U.S. drilling activity has increased
modestly, primarily in the shale basin regions, as rigs continue
to shift from natural gas to oil. Oil drilling now represents
nearly 50% of the total rig count. In the United States, we have
seen activity levels remain strong across the major shale
regions, such as the Marcellus, Eagle Ford and Bakken, and we
have shipped approximately 18% more tons of energy carbon steel
tubular products in the first quarter of 2011 as compared to the
first three months of 2010. We continue to see limited major
capital projects in the downstream market and our major
customers are working from increasing, but still relatively
conservative, budgets. As a result, we anticipate that there
will be a time lag before we see a significant increase in our
downstream refining activity, but we have seen activity
increases in our petrochemical end markets.
Our upstream end market performance increased significantly in
the first three months of 2011, compared to the first three
months of 2010, 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
28% in the first three months of 2011 as compared to the
comparable period in 2010. In the first quarter of 2011, we
focused on higher margin OCTG opportunities, continuing our
right-sizing and rebalancing of OCTG inventories as stated in
the second half of 2010. In Canada, the average total rig count
was up 25% in the first three months of 2011 as compared to the
comparable period in 2010. We have seen an increase in
maintenance, repair and operations (MRO),
particularly
50
in the Canadian heavy oil and tar sands regions, which has
mitigated the downturn experienced in shallow gas drilling
elsewhere in Canada.
Our midstream end market performance has also improved in the
first three months of 2011 compared to the first three months of
2010. Our gathering and transmission pipeline revenues were up
significantly as a result of the increase in drilling activity,
primarily in the shale basins, and the need for additional
pipeline infrastructure. In the first quarter, we opened a new
distribution center in San Antonio, TX to support pipe and
project activity increases in South Texas. Revenues from our
natural gas utilities customers continued to improve compared to
the same period in 2010.
Our downstream and other industrials end market performance
continues to recover in the first quarter. 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 and forecasted oversupply of capacity in the United
States markets and high crude oil prices and relatively low
margins. Our maintenance and small capital projects activity to
the chemical and general industrials end markets has increased
in the first quarter of 2011 compared to the first quarter of
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 and carrying
over to the first quarter of 2011, which has impacted both MRO
and small project work. Late in the first quarter, we saw an
increase in intake of new projects that will be delivered in the
second half of 2011.
Australasian activity remains steady and significant capital
outlays have been announced for the liquefied natural gas
(LNG) green field development in this area.
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 March 31, 2011 was $704 million,
including $621 million in North America and
$83 million in our International segment.
From a supply perspective, pricing for the PVF products we sell
generally continued an upward trend during the first quarter of
2011. Key drivers affecting this were strong demand in the
upstream drilling and completions market and ongoing price
escalation for raw materials, especially iron ore, coke, scrap,
and nickel. Capacity utilization for the steel mills we utilize
trended up, which speaks to the increase in demand we saw in the
latter part of 2010 and early 2011. Pipe mills in the
U.S. are adding shifts to their production schedules and
were operating at approximately 75% of capacity at the end of
the first quarter. The Department of Labors Bureau of
Labor Statistics (BLS) indexes, and in particular
the BLSs Steel Pipe and Tube index, that we use to measure
our LIFO-based GAAP cost of sales are again experiencing
volatility and significant inflationary index increases. The
earthquake in Japan has temporarily taken a small percentage of
global tubular steel capacity off the market as Japanese
producers deal with issues ranging from interrupted power
supply, massive
clean-up
efforts and challenges associated with bringing damaged mills
back into production. It is not clear how long this interruption
might last, but we generally believe there is more than adequate
global capacity to cover extended shortfalls. We will continue
to monitor the situation closely.
51
Results
of Operations for the Three Months Ended March 31, 2011 and
2010
Our operating results by segment are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Change
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
932.4
|
|
|
$
|
780.7
|
|
|
$
|
151.7
|
|
|
|
19.4
|
%
|
|
$
|
976.0
|
|
|
$
|
(43.6
|
)
|
|
|
(4.5
|
)%
|
International
|
|
|
59.4
|
|
|
|
77.6
|
|
|
|
(18.2
|
)
|
|
|
(23.5
|
)%
|
|
|
58.9
|
|
|
|
0.5
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
991.8
|
|
|
$
|
858.3
|
|
|
$
|
133.5
|
|
|
|
15.6
|
%
|
|
$
|
1,034.9
|
|
|
$
|
(43.1
|
)
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
30.6
|
|
|
$
|
14.0
|
|
|
$
|
16.6
|
|
|
|
118.6
|
%
|
|
$
|
20.8
|
|
|
$
|
9.8
|
|
|
|
47.1
|
%
|
International
|
|
|
1.6
|
|
|
|
7.4
|
|
|
|
(5.8
|
)
|
|
|
(78.4
|
)%
|
|
|
(0.9
|
)
|
|
|
2.5
|
|
|
|
277.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
32.2
|
|
|
$
|
21.4
|
|
|
$
|
10.8
|
|
|
|
50.5
|
%
|
|
$
|
19.9
|
|
|
$
|
12.3
|
|
|
|
61.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows key industry indicators for the three
months ended March 31, 2011, March 31, 2010 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Change
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
Average Total Rig Count(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,716
|
|
|
|
1,345
|
|
|
|
371
|
|
|
|
27.6
|
%
|
|
|
1,691
|
|
|
|
25
|
|
|
|
1.5
|
%
|
Canada
|
|
|
587
|
|
|
|
470
|
|
|
|
117
|
|
|
|
24.9
|
%
|
|
|
405
|
|
|
|
182
|
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
2,303
|
|
|
|
1,815
|
|
|
|
488
|
|
|
|
26.9
|
%
|
|
|
2,096
|
|
|
|
207
|
|
|
|
9.9
|
%
|
International
|
|
|
1,166
|
|
|
|
1,063
|
|
|
|
103
|
|
|
|
9.7
|
%
|
|
|
1,116
|
|
|
|
50
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,469
|
|
|
|
2,878
|
|
|
|
591
|
|
|
|
20.5
|
%
|
|
|
3,212
|
|
|
|
257
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Natural Gas Rig Count(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
900
|
|
|
|
882
|
|
|
|
18
|
|
|
|
2.0
|
%
|
|
|
952
|
|
|
|
(52
|
)
|
|
|
(5.5
|
)%
|
Canada
|
|
|
184
|
|
|
|
213
|
|
|
|
(29
|
)
|
|
|
(13.6
|
)%
|
|
|
168
|
|
|
|
16
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
1,084
|
|
|
|
1,095
|
|
|
|
(11
|
)
|
|
|
(1.0
|
)%
|
|
|
1,120
|
|
|
|
(36
|
)
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Commodity Prices(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas ($/Mcf)
|
|
$
|
4.07
|
|
|
$
|
4.80
|
|
|
|
|
|
|
|
|
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
WTI crude (per barrel)
|
|
$
|
94.07
|
|
|
$
|
78.81
|
|
|
|
|
|
|
|
|
|
|
$
|
85.16
|
|
|
|
|
|
|
|
|
|
Brent crude (per barrel)
|
|
$
|
105.45
|
|
|
$
|
76.42
|
|
|
|
|
|
|
|
|
|
|
$
|
86.41
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Source Baker Hughes (www.bakerhughes.com) |
|
(2) |
|
Source Department of Energy, Energy Information
Administration (www.eia.doe.gov) |
52
The breakdown of our sales by end market for the three months
ended March 31, 2011, March 31, 2010, and
December 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
Upstream
|
|
|
46%
|
|
|
|
43%
|
|
|
|
48%
|
|
Midstream
|
|
|
23%
|
|
|
|
21%
|
|
|
|
23%
|
|
Downstream and other industrials
|
|
|
31%
|
|
|
|
36%
|
|
|
|
29%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of sales, our upstream activity increased to
approximately 46% of our sales during the first three months of
2011, compared to 43% of our sales during the first three months
of 2010. We saw an improvement of approximately 26% in our North
America upstream sales from the first quarter of 2010 to the
first quarter of 2011, primarily due to an increase in our MRO
activity. In OCTG, we are focused on improved profitability and
not sales growth. We also continue to rebalance our inventory as
we continue to focus on our key customers.
As a percentage of sales, our midstream activity, including
pipelines, well tie-ins and natural gas utilities, increased to
23% of sales during the first quarter of 2011 from 21% of sales
during the first quarter of 2010. Our gathering and transmission
pipeline sales increased approximately 47% in the first quarter
of 2011, primarily from increased activity in the major shale
plays. Our natural gas utilities MRO activity increased 10% due
to improved activity and pricing.
As a percentage of sales, our downstream and other industrials
sales decreased noticeably to 31% of sales in the first quarter
of 2011 from 36% of sales in the first quarter of 2010. Despite
some recent improvement, U.S. refineries continue to be
challenged by tight margins and overseas production capacity
additions. U.S. refinery utilization at the end of the
quarter was 84%, level with the comparable period in the prior
year, but continuing to decline from a high point of 91% at the
end of July 2010. In North America, limited major capital
projects have been noted, as customers seek to preserve capital
and delay capital and other expenditures until late 2011 or
beyond. Our sales to the chemicals and the general industrials
markets continued to improve in line with the general economy
during the first three months of 2011, increasing 17%
quarter-over-quarter.
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, capital investment constraints and
refineries being sold. In Asia and Australasia, activity has
decreased due to reductions in our customers capital
spending programs in our core end markets, primarily refining.
At the end of the first quarter, we saw an increase in intake of
new orders in both Europe and Asia.
53
Three
Months Ended March 31, 2011 Compared to the Three Months
Ended March 31, 2010
For the three months ended March 31, 2011, we generated
sales of $991.8 million and Adjusted EBITDA of
$59.6 million and had a net loss of $1.1 million. For
the three months ended March 31, 2010, we generated sales
of $858.3 million and Adjusted EBITDA of $48.5 million
and had a net loss of $11.9 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
932.4
|
|
|
$
|
780.7
|
|
|
$
|
151.7
|
|
|
|
19.4
|
%
|
International
|
|
|
59.4
|
|
|
|
77.6
|
|
|
|
(18.2
|
)
|
|
|
(23.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
991.8
|
|
|
$
|
858.3
|
|
|
$
|
133.5
|
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
129.3
|
|
|
$
|
106.3
|
|
|
$
|
23.0
|
|
|
|
21.6
|
%
|
International
|
|
|
17.7
|
|
|
|
23.2
|
|
|
|
(5.5
|
)
|
|
|
(23.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
147.0
|
|
|
$
|
129.5
|
|
|
$
|
17.5
|
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
98.7
|
|
|
$
|
92.3
|
|
|
$
|
6.4
|
|
|
|
6.9
|
%
|
International
|
|
|
16.1
|
|
|
|
15.8
|
|
|
|
0.3
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
114.8
|
|
|
$
|
108.1
|
|
|
$
|
6.7
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
30.6
|
|
|
$
|
14.0
|
|
|
$
|
16.6
|
|
|
|
118.6
|
%
|
International
|
|
|
1.6
|
|
|
|
7.4
|
|
|
|
(5.8
|
)
|
|
|
(78.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
32.2
|
|
|
$
|
21.4
|
|
|
$
|
10.8
|
|
|
|
50.5
|
%
|
Interest expense
|
|
|
33.5
|
|
|
|
35.3
|
|
|
|
(1.8
|
)
|
|
|
(5.1
|
)%
|
Other income (expense)
|
|
|
(0.5
|
)
|
|
|
(4.5
|
)
|
|
|
4.0
|
|
|
|
(88.9
|
)%
|
Income tax (benefit)
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
|
|
5.8
|
|
|
|
(89.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
10.8
|
|
|
|
90.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
59.6
|
|
|
$
|
48.5
|
|
|
$
|
11.1
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
154.2
|
|
|
$
|
19.3
|
|
|
|
12.5
|
%
|
Sales. Sales include the revenue recognized
from the sales of the products we distribute and services to
customers and freight billings to customers, less cash discounts
taken by customers in return for their early payment of our
invoices to them. Our sales were $991.8 million for the
three months ended March 31, 2011 as compared to
$858.3 million for the three months ended March 31,
2010. This $133.5 million increase in total sales includes
a 19.4% increase in North America sales driven by the improved
business environment, particularly the upstream and midstream
end markets. This increase was partially offset by a 23.5%
decrease in International sales where we have seen slow-downs in
capital expenditure projects in the European refining sector.
Gross Margin. Our gross margin was
$147.0 million (14.8% of sales) for the three months ended
March 31, 2011, as compared to $129.5 million (15.1%
of sales) for the three months ended March 31, 2010. The
$17.5 million increase in gross margin corresponds with the
increase in sales, while the reduction in gross margin
percentage reflects greater weighting of North American sales
where margins are typically lower due to differences in product
lines and channel delivery methods between North America and our
International segment.
Adjusted Gross Margin. Our Adjusted Gross
Margin was $173.5 million (17.5% of sales) for the three
months ended March 31, 2011, as compared to
$154.2 million (18.0% of sales) for the three months ended
March 31, 2010. The $19.3 million increase in Adjusted
Gross Margin and the reduction in Adjusted Gross Margin
percentage reflects the same drivers discussed under Gross
Margin above.
54
The following table reconciles Adjusted Gross Margin to gross
margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Gross Margin
|
|
$
|
147.0
|
|
|
$
|
129.5
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.0
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
154.2
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses. Costs, such as salaries, wages,
employee benefits, rent, utilities, communications, insurance,
fuel and taxes (other than state and federal income taxes) that
are necessary to operate our branch and corporate operations,
are included in selling, general and administrative expenses.
Also contained in this category are certain items that are
nonoperational in nature, including certain costs of acquiring
and integrating other businesses. Our selling, general and
administrative expenses were $114.8 million for the three
months ended March 31, 2011, as compared to
$108.1 million for the three months ended March 31,
2010. Selling, general and administrative expenses were 11.6% of
sales for the three months ended March 31, 2011, as
compared to 12.6% for the three months ended March 31,
2010. The $6.7 million increase in selling, general and
administrative expenses is primarily due to additional personnel
costs, such as overtime and incentives directly related to the
overall increase in business activity levels relative to the
first quarter of 2010.
Operating Income. Operating income was
$32.2 million for the three months ended March 31,
2011, as compared to operating income of $21.4 million for
the three months ended March 31, 2010, an improvement of
$10.8 million.
Interest Expense. Our interest expense was
$33.5 million for the three months ended March 31,
2011, as compared to $35.3 million for the three months
ended March 31, 2010, due to lower average indebtedness
outstanding during the first quarter of 2011.
Other Income (Expense). 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 resulted in earnings of
$1.9 million and losses of $4.1 million during the
three months ended March 31, 2011 and March 31, 2010,
respectively.
Income Tax (Benefit). Our income tax benefit
was $0.7 million for the three months ended March 31,
2011, as compared to $6.5 million for the three months
ended March 31, 2010. Our effective tax rate was 37.9% for
the three months ended March 31, 2011 and 35.3% for the
three months ended March 31, 2010. The rates differ from
the federal statutory rate of 35% principally as a result of the
impact of differing foreign income tax rates.
Net (Loss). Our net loss was $1.1 million
for the three months ended March 31, 2011, as compared to a
$11.9 million net loss for the three months ended
March 31, 2010, an increase of $10.8 million.
Adjusted EBITDA. Adjusted EBITDA (as
calculated for purposes of the indenture governing the exchange
notes) was $59.6 million for the three months ended
March 31, 2011, as compared to $48.5 million for the
three months ended March 31, 2010. Our Adjusted EBITDA
increased $11.1 million quarter over quarter primarily due
to the increase in Adjusted Gross Margin and operating income.
55
The following table reconciles Adjusted EBITDA with our net
(loss) income, as derived from our financial statements (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(11.9
|
)
|
Income tax (benefit)
|
|
|
(0.7
|
)
|
|
|
(6.5
|
)
|
Interest expense
|
|
|
33.5
|
|
|
|
35.3
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.0
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
13.8
|
|
Change in fair value of derivative instruments
|
|
|
(1.9
|
)
|
|
|
4.1
|
|
LIFO
|
|
|
10.1
|
|
|
|
6.9
|
|
Other non-recurring and non-cash expenses(1)
|
|
|
3.3
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
59.6
|
|
|
$
|
48.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 excludes the impact of our LIFO costing
methodology, which resulted in an increase in cost of sales of
$10 million in the first quarter of 2011 and an increase in
cost of sales of $7 million in the first quarter of 2010.
Such impact would be included in similar calculations for
purposes of the indenture governing the exchange notes. |
Three
Months Ended March 31, 2011 Compared to the Three Months
Ended December 31, 2010
For the three months ended March 31, 2011, we generated
sales of $991.8 million and Adjusted EBITDA of
$59.6 million and had a net loss of $1.1 million. For
the three months ended December 31, 2010, we generated
sales of $1,034.9 million and Adjusted EBITDA of
$56.7 million and had a net loss of $13.5 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
932.4
|
|
|
$
|
976.0
|
|
|
$
|
(43.6
|
)
|
|
|
(4.5
|
)%
|
International
|
|
|
59.4
|
|
|
|
58.9
|
|
|
|
0.5
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
991.8
|
|
|
$
|
1,034.9
|
|
|
$
|
(43.1
|
)
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
129.3
|
|
|
$
|
118.0
|
|
|
$
|
11.3
|
|
|
|
9.6
|
%
|
International
|
|
|
17.7
|
|
|
|
16.4
|
|
|
|
1.3
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
147.0
|
|
|
$
|
134.4
|
|
|
$
|
12.6
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
98.7
|
|
|
$
|
95.9
|
|
|
$
|
2.8
|
|
|
|
2.9
|
%
|
International
|
|
|
16.1
|
|
|
|
18.6
|
|
|
|
(2.5
|
)
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
114.8
|
|
|
$
|
114.5
|
|
|
$
|
0.3
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
30.6
|
|
|
$
|
20.8
|
|
|
$
|
9.8
|
|
|
|
47.1
|
%
|
International
|
|
|
1.6
|
|
|
|
(0.9
|
)
|
|
|
2.5
|
|
|
|
277.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
32.2
|
|
|
|
19.9
|
|
|
|
12.3
|
|
|
|
61.8
|
%
|
Interest expense
|
|
|
33.5
|
|
|
|
34.9
|
|
|
|
(1.4
|
)
|
|
|
(4.0
|
)%
|
Other expense, net
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
|
|
(0.6
|
)
|
|
|
(600.0
|
)%
|
Income tax (benefit)
|
|
|
(0.7
|
)
|
|
|
(1.4
|
)
|
|
|
0.7
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(13.5
|
)
|
|
$
|
12.3
|
|
|
|
91.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
169.4
|
|
|
$
|
4.1
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
59.6
|
|
|
$
|
56.7
|
|
|
$
|
2.9
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales. Sales include the revenue recognized
from the sales of the products we distribute and services to
customers and freight billings to customers, less cash discounts
taken by customers in return for their early payment of our
invoices to them. Our sales were $991.8 million for the
three months ended March 31, 2011, as compared to
$1,034.9 million for the three months ended
December 31, 2010. The 4% sequential reduction in sales is
typical of mild seasonality experienced during the winter months.
Gross Margin. Our gross margin was
$147.0 million (14.8% of sales) for the three months ended
March 31, 2011, as compared to $134.4 million (13.0%
of sales) for the three months ended December 31, 2010. The
$12.6 million increase in gross margin is largely
attributable to a $7.7 million reduction in cost of sales
resulting from our LIFO method of accounting for inventories.
The balance of the increase is the result of improved market
conditions offset by the 4% sequential reduction in sales noted
above.
Adjusted Gross Margin. Our Adjusted Gross
Margin was $173.5 million (17.5% of sales) for the three
months ended March 31, 2011, as compared to
$169.4 million (16.3% of sales) for the three months ended
December 31, 2010. The Adjusted Gross Margin increase of
$4.1 million is due to improved gross margin percentage,
offset by the overall reduction in sales noted above.
The following table reconciles Adjusted Gross Margin to gross
margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Gross Margin
|
|
$
|
147.0
|
|
|
$
|
134.5
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.2
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
12.9
|
|
LIFO
|
|
|
10.1
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
173.5
|
|
|
$
|
169.4
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
Expenses. Costs, such as salaries, wages,
employee benefits, rent, utilities, communications, insurance,
fuel and taxes (other than state and federal income taxes) that
are necessary to operate our branch and corporate operations,
are included in selling, general and administrative expenses.
Also contained in this category are certain items that are
nonoperational in nature, including certain costs of acquiring
and integrating other businesses. Our selling, general and
administrative expenses were $114.8 million for the three
months ended March 31, 2011, as compared to
$114.5 million for the three months ended December 31,
2010. Selling, general and administrative expenses were 11.6% of
sales for the three months ended March 31, 2011, as
compared to 11.1% for the three months ended December 31,
2010.
57
Operating Income. Operating income was
$32.2 million for the three months ended March 31,
2011, as compared to operating income of $19.9 million for
the three months ended December 31, 2010, an increase of
$12.3 million.
Interest Expense. Our interest expense was
$33.5 million for the three months ended March 31,
2011, as compared to $34.9 million for the three months
ended December 31, 2010.
Other Income (Expense). 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 resulted in increases to
earnings of $1.9 million and $1.8 million during the
three months ended March 31, 2011 and December 31,
2010.
Income Tax (Benefit). Our income tax benefit
was $0.7 million for the three months ended March 31,
2011, as compared to $1.4 million for the three months
ended December 31, 2010. Our effective tax rate was 37.9%
for the three months ended March 31, 2011 and 9.3% for the
three months ended December 31, 2010. The rates differ from
the federal statutory rate of 35% principally as a result of the
impact of differing foreign income tax rates, in addition to the
establishment of a valuation allowance related to certain
foreign net operating loss carryforwards in the fourth quarter
2010.
Net (Loss). Our net loss was $1.1 million
for the three months ended March 31, 2011, as compared to a
$13.5 million net loss for the three months ended
December 31, 2010, an improvement of $12.3 million.
Adjusted EBITDA. Adjusted EBITDA (as
calculated for purposes of the indenture governing the exchange
notes) was $59.6 million for the three months ended
March 31, 2011, as compared to $56.7 million for the
three months ended December 31, 2010. Our Adjusted EBITDA
increased quarter over quarter as a result of the slightly
higher Adjusted Gross Margin.
The following table reconciles Adjusted EBITDA with our net
(loss) income, as derived from our financial statements (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net (loss)
|
|
$
|
(1.1
|
)
|
|
$
|
(13.5
|
)
|
Income tax (benefit)
|
|
|
(0.7
|
)
|
|
|
(1.4
|
)
|
Interest expense
|
|
|
33.5
|
|
|
|
34.9
|
|
Depreciation and amortization
|
|
|
4.0
|
|
|
|
4.4
|
|
Amortization of intangibles
|
|
|
12.4
|
|
|
|
12.9
|
|
Change in fair value of derivative instruments
|
|
|
(1.9
|
)
|
|
|
(1.8
|
)
|
Other non-recurring and non-cash expenses(1)
|
|
|
3.3
|
|
|
|
3.4
|
|
LIFO
|
|
|
10.1
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
59.6
|
|
|
$
|
56.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 excludes the impact of our LIFO costing
methodology, which resulted in an increase in cost of sales of
$10 million in the first quarter of 2011 and an increase in
cost of sales of $18 million in the fourth quarter of 2010.
Such impact would be included in similar calculations for
purposes of the indenture governing the exchange notes. |
58
Results
of Operations for the Years Ended December 31, 2010, 2009
and 2008
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
|
|
|
$
|
(250.5
|
)
|
|
$
|
500.0
|
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
70.3
|
|
|
$
|
(246.7
|
)
|
|
$
|
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 |
59
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.
60
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
|
|
$
|
442.6
|
|
|
$
|
534.1
|
|
|
$
|
(91.5
|
)
|
|
|
(17.1
|
)%
|
International
|
|
|
75.4
|
|
|
|
13.9
|
|
|
|
61.5
|
|
|
|
442.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
518.1
|
|
|
$
|
548.0
|
|
|
$
|
(29.9
|
)
|
|
|
(5.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
382.8
|
|
|
$
|
397.9
|
|
|
$
|
(15.1
|
)
|
|
|
(4
|
)%
|
International
|
|
|
65.0
|
|
|
|
10.7
|
|
|
|
54.3
|
|
|
|
507
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
447.8
|
|
|
$
|
408.6
|
|
|
$
|
39.2
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangibles impairment charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
386.1
|
|
|
$
|
(386.1
|
)
|
|
|
(100
|
)%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
|
|
|
$
|
386.1
|
|
|
$
|
(386.1
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.9
|
|
|
$
|
(250.5
|
)
|
|
$
|
310.4
|
|
|
|
124
|
%
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
6.6
|
|
|
|
174
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
70.3
|
|
|
|
(246.7
|
)
|
|
$
|
317.0
|
|
|
|
128
|
%
|
Interest expense
|
|
|
(139.6
|
)
|
|
|
(116.5
|
)
|
|
|
23.1
|
|
|
|
20
|
%
|
Other, net
|
|
|
(5.9
|
)
|
|
|
8.4
|
|
|
|
(14.3
|
)
|
|
|
(170
|
)%
|
Income tax benefit (expense)
|
|
|
23.4
|
|
|
|
15.0
|
|
|
|
8.4
|
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(51.8
|
)
|
|
$
|
(339.8
|
)
|
|
$
|
288.0
|
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
|
663.2
|
|
|
|
493.5
|
|
|
|
169.7
|
|
|
|
34.4
|
%
|
Adjusted EBITDA
|
|
$
|
224.2
|
|
|
$
|
218.5
|
|
|
$
|
5.7
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, the inclusion of a full years results of
Transmark, as compared to only two months in 2009 following its
acquisition on October 31, 2009, drove the overall increase
we experienced in sales. However, our business environment
weakened in 2010 due to reduced capital and other expenditures
and project delays by our customers, especially in our
downstream end market.
61
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 North American gross margin
decreased to $443 million (12.3% of sales) in 2010, from
$534 million (14.8% of sales) 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 a $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.
Certain purchasing costs and warehousing activities (including
receiving, inspection, and stocking costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of costs of goods sold. Purchasing
and warehousing activities costs approximated $25.5 million
and $24.4 million for the years ended December 31,
2010 and 2009.
Adjusted Gross Margin. Our Adjusted Gross
Margin was $663 million (or 17.2% of sales) for the year
ended December 31, 2010, as compared to $494 million
(or 13.5% of sales) for the year ended December 31, 2009.
The following table reconciles Adjusted Gross Margin to gross
margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Gross margin
|
|
$
|
518.1
|
|
|
$
|
548.0
|
|
Depreciation and amortization
|
|
|
16.6
|
|
|
|
14.5
|
|
Amortization of intangibles
|
|
|
53.9
|
|
|
|
46.6
|
|
LIFO
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
663.2
|
|
|
$
|
493.5
|
|
|
|
|
|
|
|
|
|
|
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.
This increase is attributable to our International operations
where SG&A expenses increased $54 million as a result
of the inclusion of a full year of expenses of Transmark as
compared to only two months of activity in 2009 following its
October 31, 2009 acquisition. 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 and Intangibles 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
62
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. We
concluded that the carrying value of our North American goodwill
and our indefinite lived trade names exceeded their fair value
resulting in a non-cash goodwill and intangibles impairment
charge in the amount of $386 million during the year ended
December 31, 2009. There was no such goodwill and
intangibles 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 $247 million for the year
ended December 31, 2009, an improvement of
$317 million. The results of 2009 were negatively impacted
by the $386 million non-cash goodwill and intangibles
impairment charge, as well as the $46 million non-cash
inventory write-down. Excluding these non-cash items, operating
income declined by $116 million principally as a result of
reduced gross margins from North American operations.
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.
Other Income (Expense). 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 benefit of
$15 million for the year ended December 31, 2009. Our
effective tax rates were 31.1% for the year ended
December 31, 2010 and 4.2% 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
$340 million for the year ended December 31, 2009, an
improvement of $288 million, primarily as a result of the
non cash $386 million goodwill and intangibles impairment
charge and $46 million non-cash inventory write-down.
Excluding these non cash items and their related income tax
effects, net loss was lower by $99 million principally as a
result of reduced gross margins from North American operations
recorded in 2009.
Adjusted EBITDA. Adjusted EBITDA was
$224 million for the year ended December 31, 2010, as
compared to $219 million for the year ended
December 31, 2009.
63
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
|
)
|
|
$
|
(339.8
|
)
|
Income tax (benefit) expense
|
|
|
(23.4
|
)
|
|
|
(15.0
|
)
|
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
|
|
|
|
|
|
|
386.1
|
|
MRC Transmark pre-acquisition contribution
|
|
|
|
|
|
|
38.5
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
(1.3
|
)
|
LIFO
|
|
|
74.6
|
|
|
|
(115.6
|
)
|
Other non-recurring and non-cash expenses(1)
|
|
|
9.4
|
|
|
|
50.4
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
224.2
|
|
|
$
|
218.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 excludes 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. Such impact would be included for
similar calculations computed for purposes of the indenture
governing the exchange notes. |
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
|
|
$
|
534.1
|
|
|
$
|
982.1
|
|
|
$
|
(448.0
|
)
|
|
|
(46
|
)%
|
International
|
|
|
13.9
|
|
|
|
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
548.0
|
|
|
$
|
982.1
|
|
|
$
|
(434.1
|
)
|
|
|
(44
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and intangibles impairment charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
386.1
|
|
|
$
|
|
|
|
$
|
386.1
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
386.1
|
|
|
$
|
|
|
|
$
|
386.1
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(250.5
|
)
|
|
$
|
500.0
|
|
|
$
|
(750.5
|
)
|
|
|
(150
|
)%
|
International
|
|
|
3.8
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
(246.7
|
)
|
|
|
500.0
|
|
|
|
(746.7
|
)
|
|
|
(149
|
)%
|
Interest expense
|
|
|
(116.5
|
)
|
|
|
(84.5
|
)
|
|
|
(32.0
|
)
|
|
|
38
|
%
|
Other, net
|
|
|
8.4
|
|
|
|
(8.7
|
)
|
|
|
17.1
|
|
|
|
197
|
%
|
Income tax benefit (expense)
|
|
|
15.0
|
|
|
|
(153.3
|
)
|
|
|
168.3
|
|
|
|
(110
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
|
$
|
(593.3
|
)
|
|
|
(234
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
|
493.5
|
|
|
|
1,164.0
|
|
|
|
(670.5
|
)
|
|
|
(57.6
|
)%
|
Adjusted EBITDA
|
|
$
|
218.5
|
|
|
$
|
744.4
|
|
|
$
|
(525.9
|
)
|
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Internationally, sales for 2009 totaled $52 million
following our October 2009 acquisition of Transmark. We did not
operate an International segment prior to this acquisition.
Gross Margin. Our North American gross margin
decreased to $534 million (14.8% of sales) from
$982 million (18.7% of sales). 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 a
$126 million increase in cost of sales for the year ended
December 31, 2008. Excluding the impact of LIFO, North
American gross margin declined to 11.6% from 21.1%. This decline
reflected a difficult operating environment that included the
global economic recession, major spending cuts by our customers
and significant deflation in pricing for a significant portion
of our products.
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.
Certain purchasing costs and warehousing activities (including
receiving, inspection, and stocking costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of costs of goods sold. Purchasing
and warehousing activities costs approximated $24.4 million
and $20.3 million for the years ended December 31,
2009 and 2008.
Adjusted Gross Margin. Our Adjusted Gross
Margin was $494 million (or 13.5% of sales) for the year
ended December 31, 2009, as compared to $1,164 million
(or 22.1% of sales) for the year ended December 31, 2008.
65
The following table reconciles Adjusted Gross Margin to gross
margin (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Gross margin
|
|
$
|
548.0
|
|
|
$
|
982.1
|
|
Depreciation and amortization
|
|
|
14.5
|
|
|
|
11.3
|
|
Amortization of intangibles
|
|
|
46.6
|
|
|
|
44.4
|
|
LIFO
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
|
|
|
|
|
|
|
Adjusted Gross Margin
|
|
$
|
493.5
|
|
|
$
|
1,164.0
|
|
|
|
|
|
|
|
|
|
|
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 and Intangibles 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. We concluded that the carrying value of
our North American goodwill and our indefinite lived trade names
exceeded their fair value resulting in a non-cash goodwill and
intangibles impairment charge in the amount of $386 million
during the year ended December 31, 2009. There was no such
goodwill and intangibles impairment charge recorded during the
year ended December 31, 2008.
Operating (Loss) Income. Including the impact
of the $386 million goodwill and intangibles impairment
charge, $46 million write down and reduced North American
gross margins noted above, our operating loss was
$247 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 Income (Expense). 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
benefit was $15 million for the year ended
December 31, 2009, as compared to income tax expense of
$153 million for the year ended December 31, 2008. Our
effective tax
66
rates were (4.2%) and 37.7% for the years ended
December 31, 2009 and 2008, respectively. Excluding the
impact of our goodwill and intangible impairment charge, our
effective tax rate for the year ended December 31, 2009
would have been 47.8%. These rates differ from the federal
statutory rate of 35% principally as a result of our goodwill
and intangible impairment charge and state income taxes.
Net (Loss). Our net loss was $340 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 $589 million as a result of the items
noted above, including, in particular, the $386 million
goodwill and intangibles impairment charge.
Adjusted EBITDA. Adjusted EBITDA was
$219 million for the year ended December 31, 2009, as
compared to $744 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
|
|
|
|
(Restated)
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(339.8
|
)
|
|
$
|
253.5
|
|
Income tax (benefit) expense
|
|
|
(15.0
|
)
|
|
|
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 and intangible impairment charge
|
|
|
386.1
|
|
|
|
|
|
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
|
|
LIFO
|
|
|
(115.6
|
)
|
|
|
126.2
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
218.5
|
|
|
$
|
744.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 excludes 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. Such impact would be included for
similar calculations computed for purposes of the indenture
governing the exchange notes. |
Financial
Condition and Cash Flows
Financial
Condition
The following table sets forth selected balance sheet data for
the periods indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Inventory
|
|
$
|
783.6
|
|
|
$
|
765.4
|
|
|
$
|
871.7
|
|
Working capital
|
|
|
848.2
|
|
|
|
842.6
|
|
|
|
930.2
|
|
Long-term debt, including current portion
|
|
|
1,333.0
|
|
|
|
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
67
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% from 2009 to 2010, 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 from 2009 to
2010. We closely monitor our working capital position to ensure
that we have the appropriate flexibility for our operations.
Cash
Flows
The following table sets forth our cash flows for the periods
indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
5.8
|
|
|
$
|
6.4
|
|
|
$
|
84.4
|
|
|
$
|
112.5
|
|
|
$
|
505.5
|
|
|
$
|
(137.4
|
)
|
Investing activities
|
|
|
11.9
|
|
|
|
(4.4
|
)
|
|
|
1.7
|
|
|
|
(16.2
|
)
|
|
|
(66.9
|
)
|
|
|
(314.2
|
)
|
Financing activities
|
|
|
(30.8
|
)
|
|
|
(23.8
|
)
|
|
|
(85.8
|
)
|
|
|
(97.9
|
)
|
|
|
(393.9
|
)
|
|
|
452.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(13.1
|
)
|
|
$
|
(21.8
|
)
|
|
$
|
0.3
|
|
|
$
|
(1.6
|
)
|
|
$
|
44.7
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate on cash
|
|
$
|
(1.0
|
)
|
|
$
|
|
|
|
$
|
1.4
|
|
|
$
|
1.7
|
|
|
$
|
(0.6
|
)
|
|
$
|
1.7
|
|
Operating
Activities
Net cash provided by operating activities was $5.8 million
for the three months ended March 31, 2011, compared to
$6.4 million net cash provided for the three months ended
March 31, 2010 and $84.4 million net cash provided for
the three months ended December 31, 2010. Net cash provided
by operations was provided primarily from business operations,
offset by changes in our working capital.
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 provided by investing activities was $11.9 million
for the three months ended March 31, 2011, compared to
$4.4 million used for the three months ended March 31,
2010 and $1.7 million net cash provided for the three
months ended December 31, 2010. Our net capital
expenditures were down slightly, 0.2% of sales during the first
three months of 2011, compared to 0.4% of sales during the first
three months of 2010 and 0.2% for the fourth quarter of 2010.
The $16.3 million increase in cash provided by investing
activities is primarily due to the proceeds from the sale of our
measurement business and reduced capital expenditures in the
first quarter of 2011.
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.
68
Financing
Activities
Net cash used in financing activities was $30.8 million for
the three months ended March 31, 2011, compared to
$23.8 million used for the three months ended March 31,
2010.
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 products
and services to our customers at margins sufficient to cover our
fixed and variable expenses. As of March 31, 2011 and
December 31, 2010, we had cash and cash equivalents of
$42 million and $56 million, respectively. As of
March 31, 2011 and December 31, 2010, $35 million
and $51 million of our cash and cash equivalents was
maintained in 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, which would be recognized in our
financial statements in the period during which such decision
was made. Our intent is to permanently reinvest the cash held by
our foreign subsidiaries and there are currently no plans that
require the repatriation of such amounts to fund our
U.S. operations.
Our credit facilities currently consist of an asset-based
revolving credit facility with a $900 million U.S.
component and a CDN$150 million component available to our
Canadian subsidiary and a credit facility of our principal
international subsidiary. We maintain these facilities primarily
to finance our working capital, as well as pursue certain
mergers and acquisitions. As of March 31, 2011, we had
$487 million available under our then existing credit
facilities, which represented approximately a $12 million
increase from December 31, 2010. As of March 31, 2011,
on an as adjusted basis after giving effect to our entry into
our new asset-based revolving credit facility and the repayment
of our previous asset-based revolving credit facility, the
Midfield revolving credit facility and the Midfield term loan
facility, or the Refinancing, we would have had
$536 million available under our 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. We anticipate that we will incur a one-time
non-cash charge to expense of approximately $10 million for
certain capitalized fees relating to our previous facilities.
We also have $1.05 billion of 9.50% senior secured
notes due December 15, 2016 (the notes)
outstanding. In December 2009, we issued $1.0 billion of
notes and applied the net proceeds to pay all the outstanding
borrowings under our $575 million term loan facility and
our $450 million junior term loan facility. In February
2010, we issued an additional $50 million of notes and
applied the net proceeds to repay amounts outstanding under our
U.S. 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 the covenants contained in the
indenture governing the notes and various credit facilities as
of and during the three months ended March 31, 2011.
69
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. |
|
(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
On June 14, 2011, McJunkin Red Man Corporation (the
Company) and certain of its subsidiaries entered
into an ABL credit facility with Bank of America, N.A., as agent
and a lender, or the Agent, and other lenders from time to time
parties thereto, or the ABL Credit Facility. The ABL Credit
Facility consists of (1) a U.S. tranche, or the
U.S. Tranche, under which the Company and certain
U.S. subsidiaries of the Company, or the
U.S. Borrowers, may from time to time make borrowings in
U.S. Dollars up to a maximum amount of the lesser of the
U.S. Borrowing Base (as defined below) and
$900 million, or the Total U.S. Commitment, and
(2) a Canadian tranche, or the Canadian Tranche, under
which Midfield Supply ULC, a wholly-owned Canadian subsidiary of
the Company, or Midfield, may from time to time make borrowings
in Canadian Dollars of up to a maximum amount of the lesser of
its Canadian Borrowing Base (as defined below) and
CDN$150 million, or the Total Canadian Commitment. Up to
$80 million of the U.S. Tranche may be used for
letters of credit and up to $75 million may be used for
swingline loans. Up to CDN$20 million of the Canadian
Tranche may be used for letters of credit and up to
CDN$25 million may be used for swingline loans. The ABL
Credit Facility matures on June 14, 2016.
70
From time to time and subject to certain conditions, the Company
will have the power to designate other Canadian subsidiaries as
borrowers under the ABL Credit Facility, or, together with
Midfield, the Canadian Borrowers. Each Canadian Borrower will be
permitted to make borrowings under the Canadian Tranche in
Canadian Dollars of up to the maximum amount of the lesser of
its Canadian Borrowing Base (calculated separately from the
Canadian Borrowing Bases of the other Canadian Borrowers) and
the Total Canadian Commitment (less the borrowings of any other
Canadian Borrowers). Subject to certain conditions, the Total
U.S. Commitment and the Total Canadian Commitment may be
increased from time to time up to an amount which, in the
aggregate for all such increases, does not exceed
$250 million.
Borrowing Bases. The U.S. Borrowing
Base will be equal to the sum of:
|
|
|
|
|
the book value of eligible accounts of the U.S. Borrowers;
plus
|
|
|
|
|
|
the lesser of (i) 70% of the net book value of eligible
inventory (adding back the LIFO reserve calculated in accordance
with GAAP) of the U.S. Borrowers and (ii) net orderly
liquidation value of eligible inventory (net of current monthly
shrinkage reserve calculated in accordance with GAAP and valued
at cost) of the U.S. Borrowers multiplied by the advance
rate of 85%; minus
|
Each Canadian Borrowing Base will be equal to the
sum of:
|
|
|
|
|
the book value of eligible accounts of the applicable Canadian
Borrower; plus
|
|
|
|
|
|
the lesser of (i) 70% of the net book value of eligible
inventory (adding back the LIFO reserve calculated in accordance
with GAAP) of the applicable Canadian Borrower and (ii) net
orderly liquidation value of eligible inventory (net of current
monthly shrinkage reserve calculated in accordance with GAAP and
valued at cost) of the applicable Canadian Borrower multiplied
by the advance rate of 85%; minus
|
Guarantees and Security. Obligations under the
U.S. Tranche will be guaranteed by the U.S. Borrowers.
Obligations under the Canadian Tranche will be guaranteed by the
U.S. Borrowers and the Canadian Borrowers.
Obligations under the U.S. Tranche will be secured, subject
to certain exceptions, by a first-priority security interest in
the accounts and inventory of the U.S. Borrowers.
Obligations under the Canadian Tranche will be secured, subject
to certain exceptions, by (1) a first-priority security
interest in the accounts and inventory of the
U.S. Borrowers and the Canadian Borrowers and (2) a
pledge of indebtedness owing to the Canadian Borrowers and
capital stock of their wholly-owned subsidiaries. The security
interest in accounts and inventory of the U.S. Borrowers
ranks prior to the security interest in this collateral, which
secures the notes (as defined below).
Interest Rate and Fees. Borrowings under the
U.S. Tranche will bear interest at a rate per annum equal
to, at the Borrowers option, either (a) the adjusted
LIBOR rate plus an applicable margin or (b) a
U.S. base rate plus an applicable margin. Borrowings under
the Canadian Tranche will bear interest at a rate per annum
equal to, at the Borrowers option, either (a) the
adjusted Canadian BA Rate plus an applicable margin, (b) a
Canadian base rate plus an applicable margin or (c) a
Canadian prime rate plus an applicable margin. The applicable
margin will initially be 2.00% for LIBOR and Canadian BA Rate
borrowings and 1.00% for U.S. base rate, Canadian base rate
and Canadian prime rate borrowings, in each case subject to a
0.25%
step-up or
step-down based on a consolidated fixed charge coverage ratio as
of the end of the most recent fiscal quarter. The applicable
margin for U.S. base rate, Canadian base rate and Canadian
prime rate borrowings will be 100 basis points lower than
the applicable margin for LIBOR and Canadian BA Rate borrowings.
In addition to paying interest on outstanding principal under
the ABL Credit Facility, the Borrowers will be required to pay a
commitment fee in respect of unutilized commitments thereunder,
which will be equal to 0.375% per annum.
Voluntary Prepayments. The Borrowers will be
permitted to voluntarily prepay the principal of any advance at
any time in whole or in part.
71
Restrictive Covenants and Other Matters. The
ABL Credit Facility will require the Company and its restricted
subsidiaries, on a consolidated basis, to maintain a fixed
charge coverage ratio (defined as the ratio of EBITDA to the sum
of cash interest, principal payments on indebtedness, unfinanced
capital expenditures and accrued income taxes) of at least 1.0
to 1.0 when excess availability is less than or equal to the
greater of (a) 10% of the total commitments under the ABL
Credit Facility and (b) $75 million.
The ABL Credit Facility also contains restrictive covenants (in
each case, subject to exclusions) that limit, among other
things, the ability of the Borrowers and their restricted
subsidiaries to: (1) create, incur, assume, or suffer to
exist, any liens; (2) create, incur, assume or permit to
exist, directly or indirectly, any additional indebtedness;
(3) consolidate, merge, amalgamate, liquidate, wind up, or
dissolve themselves; (4) convey, sell, lease, license,
assign, transfer or otherwise dispose of the Borrowers or
their restricted subsidiaries assets; (5) make
certain restricted payments; (6) make certain investments;
(7) amend or otherwise alter the terms of documents related
to certain subordinated indebtedness; (8) enter into
transactions with affiliates; and (9) prepay certain
subordinated indebtedness. The facility also contains other
customary restrictive covenants. The covenants are subject to
various baskets and materiality thresholds, with many
restrictions on the repayment of subordinated indebtedness,
restricted payments and investments not being applicable when
the Borrowers excess availability exceeds a certain
threshold. The restriction on incurring unsecured indebtedness
is not applicable when the Borrowers and their restricted
subsidiaries total debt to EBITDA ratio is less than or
equal to 5.5:1.0 and the restriction on incurring secured
indebtedness is not applicable when, among other things, the
Borrowers and their restricted subsidiaries secured
debt to EBITDA ratio is less than or equal to 5.0:1.0.
The ABL Credit Facility contains certain customary
representations and warranties, affirmative covenants and events
of default, including, among other things, payment defaults,
breach of representations and warranties, covenant defaults,
cross-defaults to certain indebtedness, certain events of
bankruptcy, certain events under ERISA, judgment defaults,
actual or asserted failure of any material guaranty or security
document supporting the ABL Credit Facility to be in force and
effect and change of control. If such an event of default
occurs, the Agent under the ABL Credit Facility shall be
entitled to take various actions, including the acceleration of
amounts due under the ABL Credit Facility, the termination of
all revolver commitments and all other actions permitted to be
taken by a secured creditor.
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).
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
72
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.
In connection with issuing the notes, we entered into
registration rights agreements in which we agreed to file a
registration statement which will permit the Issuer to offer to
exchange the notes for a new issue of identical debt securities
registered under the Securities Act of 1933. We agreed to file a
registration statement for the exchange offer by April 5,
2011 (the Filing Deadline), and to use our
commercially reasonable efforts to cause the registration
statement to be declared effective within 110 days after
the Filing Deadline (the Effectiveness Deadline).
The exchange offer is required to be completed within 30
business days of the Effectiveness Deadline. We also agreed to
provide a shelf registration statement to cover resales of the
notes under certain circumstances.
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.
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 March 31, 2011,
USD$23 million was outstanding on the revolving credit
facility, and USD$51 million was available under the
facility and the weighted average interest rate on borrowings
was 2.57%.
73
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:
|
|
|
|
|
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 three months
ended March 31, 2011.
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 $15.1 million of
standby letters of credit, trade guarantees given by bankers and
bid, performance and surety bonds at March 31, 2011.
Management does not expect any material amounts to be drawn on
these instruments.
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
March 31, 2011, we are a defendant in lawsuits involving
approximately 945 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 March 31, 2011,
lawsuits involving over 11,750 claims have been brought
against us. No asbestos lawsuit has resulted in a judgment
against us to date, 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
74
pending claims, new claims, settled claims, dismissed claims,
and approximate total settlement payments, average settlement
amount and total defense costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
|
Settlement
|
|
Defense
|
|
|
Claims Pending
|
|
Claims
|
|
Claims
|
|
Claims
|
|
Payments
|
|
Amount
|
|
Costs
|
|
|
at End of Period
|
|
Filed
|
|
Settled
|
|
Dismissed
|
|
$
|
|
$
|
|
$
|
Fiscal year ended December 31, 2006
|
|
|
812
|
|
|
|
28
|
|
|
|
6
|
|
|
|
11
|
|
|
|
75,000
|
|
|
|
12,500
|
|
|
|
179,791
|
|
Fiscal year ended December 31, 2007
|
|
|
825
|
|
|
|
23
|
|
|
|
3
|
|
|
|
7
|
|
|
|
72,500
|
|
|
|
24,167
|
|
|
|
218,900
|
|
Fiscal year ended December 31, 2008
|
|
|
846
|
|
|
|
43
|
|
|
|
16
|
|
|
|
6
|
|
|
|
295,000
|
|
|
|
18,469
|
|
|
|
336,497
|
|
Fiscal year ended December 31, 2009
|
|
|
905
|
|
|
|
81
|
|
|
|
12
|
|
|
|
10
|
|
|
|
193,500
|
|
|
|
16,125
|
|
|
|
463,213
|
|
Fiscal year ended December 31, 2010
|
|
|
948
|
|
|
|
89
|
|
|
|
28
|
|
|
|
18
|
|
|
|
481,000
|
|
|
|
17,179
|
|
|
|
604,565
|
|
As the table above shows, there was an increase in the number of
claims filed during the fiscal years ending December 31,
2009 and December 31, 2010. We believe that this increase
is due to a recent increase in the marketing efforts by personal
injury law firms in West Virginia and Pennsylvania. Although we
do not know whether this is a trend that will continue in the
near term, in the long term, we anticipate that asbestos-related
litigation against us will decrease as the incidence of
asbestos-related disease in the general U.S. population
decreases.
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:
|
|
|
|
|
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;
|
75
|
|
|
|
|
That legal standards (and the interpretation of these standards)
applicable to asbestos litigation will not change in material
respects;
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|
|
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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.
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, 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.
Further, given the relatively small amounts we have paid in
recent periods and our expectations regarding future required
payments, we do not believe that the ultimate resolution of
these matters for any period will have a material impact on our
liquidity in any period on either a short term or long term
basis.
Off-Balance
Sheet Arrangements
We do not have any material 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 and unaudited 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 March 31, 2011 and
December 31, 2010 and 2009, the allowance for doubtful
accounts was $4.3 million, $4.5 million and
$8.8 million, or 0.7%, 0.7% and 1.7% of gross accounts
receivable, respectively.
Inventories: Our inventories are generally
valued at the lower of cost (principally using the
last-in,
first-out method (LIFO)) or market. We record an
estimate each quarter, 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 $154.7 million and
$140.0 million at March 31, 2011 and December 31,
2010, respectively, 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
76
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 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 21% 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. No indications of impairment were present at
March 31, 2011. 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 27% of our total assets
as of March 31, 2011. Goodwill is tested for impairment
annually or more frequently if circumstances indicate that
impairment may exist. Prior to the acquisition of Transmark,
which closed on October 30, 2009, we had only one reporting
unit. Following the Transmark acquisition, we began evaluating
goodwill for impairment at two reporting units that mirror our
two operating segments (North America and International). Within
each reporting unit, we have elected to aggregate the component
countries and regions into a single reporting unit based on
their similar economic characteristics, products, customers,
suppliers, methods of distribution and the manner in which we
operate each segment. We 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.
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
77
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 ended
December 31, 2010 as the estimated fair value of each of
our two reporting units substantially exceeded their carrying
values. While we believe that such assumptions and estimates are
reasonable, the actual results may differ materially from the
projected results.
Intangible assets with indefinite useful lives are tested for
impairment annually or more frequently if circumstances indicate
that impairment may exist. This test compares the carrying value
of the indefinite-lived intangible assets with their estimated
fair value. If the carrying value is more than the estimated
fair value, impairment losses are recognized in amount equal to
the excess of the carrying value over the estimated fair value.
Our impairment methodology uses discounted cash flow and
estimated royalty rate valuation techniques. These valuation
methods require us to make certain assumptions and estimates
regarding future operating results, sales prices, discount rates
and growth trends. As a result of our impairment test, we
recognized a $76.2 million pre-tax impairment charge during
the year ended December 31, 2009. No such impairment
charges were recognized during the year ended December 31,
2010, as the estimated fair value of our indefinite-lived
intangible assets substantially exceeded their carrying value.
No indications of impairment were present at March 31,
2011. 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
78
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 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.
In January 2011, FASB issued ASU
No. 2011-01,
Deferral of the Effective Date of Disclosures about Troubled
Debt Restructurings in Update
No. 2010-20,
an amendment to ASC Topic 310, Receivables. This
amendment temporarily delays the effective date of the
disclosures about troubled debt restructurings in Update
2010-20 for
public entities. The delay is intended to allow FASB time to
complete its deliberations on what constitutes a troubled debt
restructuring. The effective date of the new disclosures about
troubled debt restructurings for public entities and the
guidance for determining what constitutes a troubled debt
restructuring will then be coordinated. The guidance is
anticipated to be effective for interim and annual periods
ending after June 15, 2011. We do not believe that ASU
No. 2011-01
will have a material impact on our consolidated financial
statements.
Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk
As of March 31, 2011, all of our outstanding term and
revolving debt, except for the notes, was at floating rates.
These facilities prescribe the percentage point spreads from
LIBOR, Canadian prime and EURIBOR. Our facilities generally
allow us to fix the interest rate, at our option, for a period
of 30 to 180 days.
The risk inherent in our market risk sensitive instruments and
positions is the potential loss from adverse changes in interest
rates. Currently, we manage our interest rate risk through the
use of floating interest rate debt facilities and interest rate
contracts. As of March 31, 2011, we had 100% of our
floating interest rate debt hedged with interest rate contracts.
The counterparties to our interest rate swap agreements are
major financial institutions.
79
Foreign
Currency Exchange Rates
Our operations outside of the U.S. expose us to foreign
currency exchange rate risk, as these transactions are primarily
denominated in currencies other than the U.S. dollar, our
functional currency. Our exposure to changes in foreign exchange
rates is managed primarily through the use of forward foreign
exchange contracts. These contracts increase or decrease in
value as foreign exchange rates change, to protect the value of
the underlying transactions denominated in foreign currencies.
All currency contracts are entered into for the sole purpose of
hedging existing or anticipated currency exposure; we do not use
foreign currency contracts for trading or speculative purposes.
The terms of these contracts generally do not exceed one year.
We record all changes in the fair market value of forward
foreign exchange contracts in income.
Steel
Prices
Our business is sensitive to steel prices, which impact
substantially all of our products, with steel tubular prices
generally having the highest degree of sensitivity. While we
cannot predict steel prices, we manage this risk by managing our
inventory levels, including maintaining sufficient quantity on
hand to meet demand, while reducing the risk of overstocking.
80
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements 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. 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;
|
|
|
|
decreases in oil and natural gas prices;
|
|
|
|
decreases in oil and natural gas industry expenditure levels,
which may result from decreased oil and natural gas prices or
other factors;
|
|
|
|
increased usage of alternative fuels, which may negatively
affect oil and 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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a decline in demand for certain of the products we distribute if
import restrictions on these products are lifted;
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81
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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.
|
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,
except to the extent required by law.
82
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. Our North America segment includes over
180 branches, 6 distribution centers in the U.S. and 1
in Canada, with 13 valve automation service centers and
over 180 pipe yards located in the most active oil and
natural gas regions in North America. Our International segment
includes over 30 branch locations throughout Europe, Asia and
Australasia with distribution centers in the United Kingdom and
Singapore.
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.
The following chart summarizes our revenue by geography for the
three months ended March 31, 2011:
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|
Year Ended
|
|
|
December 31,
|
|
|
2010
|
|
United States
|
|
|
78
|
%
|
Canada
|
|
|
16
|
%
|
International
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
(International includes Europe, Asia and Australasia)
83
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 three months ended
March 31, 2011, we generated approximately 46% of our sales
in the upstream sector, 23% in the midstream sector, and 31% 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 three months ended December 31, 2010,
March 31, 2010 and March 31, 2011 and 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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|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
March 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2010
|
|
2011
|
|
Upstream
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
48
|
%
|
|
|
43
|
%
|
|
|
46
|
%
|
Midstream
|
|
|
22
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
21
|
%
|
|
|
23
|
%
|
Downstream and industrial
|
|
|
33
|
%
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
29
|
%
|
|
|
36
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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
84
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.
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.
85
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 visbility 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 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.
86
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.
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.
87
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 & 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
88
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 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
three months ended December 31, 2010, March 31, 2010
and March 31, 2011 and the years ended December 31,
2010, 2009 and 2008:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended December 31,
|
|
December 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010
|
|
2010
|
|
2011
|
|
Upstream
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
48
|
%
|
|
|
43
|
%
|
|
|
46
|
%
|
Midstream
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
21
|
%
|
|
|
23
|
%
|
Downstream and industrial
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
29
|
%
|
|
|
36
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
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
89
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011E
|
|
|
2010E
|
|
|
2009A
|
|
|
2008A
|
|
|
2007A
|
|
|
2006A
|
|
|
|
(In billions)
|
|
|
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.
90
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 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
91
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.
92
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.
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
93
corrosive and high abrasive environments. We are required to
carry significant amounts of inventory to meet the rapid
delivery requirements of our customers. 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 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
94
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 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
95
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 March 31, 2011 was
$621 million. At March 31, 2010, our backlog was
$578 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 March 31, 2011, 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:
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|
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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 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
96
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 March 31, 2011 and 2010 was $83 million
and $74 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
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 March 31, 2011, we had
approximately 500 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
97
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 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.
Legal
Proceedings
From time to time, we have been subject to various claims and
involved in legal proceedings incidental to the nature of our
businesses. We maintain insurance coverage to reduce financial
risk associated with certain of these claims and proceedings. It
is not possible to predict the outcome of these claims and
proceedings. However, in our opinion, there are no material
pending legal proceedings that are likely to have a material
effect on our business, financial condition or results of
operations, although it is possible that the resolution of
certain actual, threatened or anticipated claims or proceedings
could have a material adverse effect on our business, financial
condition or results of operation in the period of resolution.
For information regarding asbestos cases in which we are a
defendant, see Managements Discussion and Analysis
of Financial Condition and Results of Operations
Contractual Obligations, Commitments and
Contingencies Legal Proceedings,
Note 15 Commitments and
Contingencies
98
to the audited consolidated financial statements as of
December 31, 2010 and Note 8
Commitments and Contingencies to the unaudited
consolidated financial statements as of March 31, 2011.
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.
In the summer of 2010, our customer NiSource, Inc. notified
McJunkin Red Man Corporation that certain polyethylene pipe
manufactured by PolyPipe, Inc. may be defective. PolyPipe, Inc.
filed a petition in the District Court in Cooke County, Texas
against McJunkin Red Man Corporation and NiSource, Inc. seeking,
among other things, a declaratory judgment that PolyPipe, Inc.
is not responsible for certain costs relating to the
defendants alleged failure to track and record the
installation locations of the pipe and certain expenditures
implementing the potential remediation plan. PolyPipe, Inc.
subsequently filed a notice of non-suit without prejudice,
requesting that the Court dismiss PolyPipes claims without
prejudice to their re-filing the same claims. Because this
matter is in the early stages, we are unable to determine the
amount of liability, if any, that may result from the ultimate
resolution of this matter.
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.
99
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 (and the biographies following the table reflect the
positions held by each of the named individuals at McJunkin Red
Man Holding Corporation):
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Age
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Position
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Andrew R. Lane
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51
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Chairman, President and Chief Executive Officer
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James F. Underhill
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55
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Executive Vice President and Chief Financial Officer
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Stephen W. Lake
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47
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Executive Vice President and General Counsel
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Gary A. Ittner
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58
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Executive Vice President and Chief Administrative Officer
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Rory M. Isaac
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60
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Executive Vice President Business Development
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Scott A. Hutchinson
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55
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Executive Vice President North America Operations
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Neil P. Wagstaff
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47
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Executive Vice President International Operations
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Leonard M. Anthony
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56
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Director
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Rhys J. Best
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64
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Director
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Peter C. Boylan III
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46
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Director
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Henry Cornell
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54
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Director
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Christopher A.S. Crampton
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32
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Director
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John F. Daly
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44
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Director
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Craig Ketchum
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53
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Director
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Gerard P. Krans
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63
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Director
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Dr. Cornelis A. Linse
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61
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Director
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John A. Perkins
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63
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Director
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H.B. Wehrle, III
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59
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Director
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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 of
McJunkin Red Man Holding Corporation since September 2008.
Mr. Lane also serves as the sole director of McJunkin Red
Man Corporation. 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.
100
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 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.
Mr. Lake has announced his resignation, effective June 30,
2011.
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
101
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.
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
102
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, 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
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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 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. 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
105
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. 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 and goals for annual incentive awards to be
paid in respect of performance during 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
During the annual review of compensation plans, the Committee
approves performance metrics and goals for annual incentive
awards to be paid in respect of performance during the relevant
performance period, including to our named executive officers
and additional executive officers. As part of this review, the
Committee approves target bonus percentages for persons eligible
to receive annual incentive awards, subject to the terms of any
employment agreements between the Company and executives. 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. The
Committee determined that these target annual bonuses should
also remain in effect during 2010. The payment of annual
incentive awards for the 2010 performance year to our named
executive officers and additional executive officers depended on
the achievement of three weighted performance metrics. Those
metrics for the named executive officers and additional
executive officers 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). Achievement of goals with respect
to EBITDA, RONA and KPIs constituted 70%, 20% and 10% of annual
awards, respectively.
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 were
earned based on achievement of EBITDA, 20% were earned based on
achievement of RONA and 10% were 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. The 2010 EBITDA goal was $291,108,000
and the RONA goal was 24.4%. No awards 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 payable to our named executive officers and
additional executive officers 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. In
2010, the Company failed to reach its full EBITDA and RONA
goals, achieving actual results of $227,696,000 for EBITDA and
20.1% for RONA. The amount payable in respect of these two
metrics was 52% of the annual target bonus (prior to application
of performance attributable to KPIs). 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.
KPIs for the named executive officers and additional executive
officers are based on a set of projects and plans designed to
align the executives activities with the strategic plans
and financial goals of the Company for the relevant performance
period, which are related to the functional responsibility of
each executives position. As discussed above, KPIs for the
named executive officers and additional executive officers
normally comprise 10% of annual bonuses, but were capped at 5%
for 2010. The following is a summary of the achievements by the
named
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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 consolidated 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 in each of our two segments. 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 of
South Texas Supply Company and Dresser Oil Field Supply. 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 our international segment to integrate
global project and contract groups with the North American
segment and expanded the capabilities of our international
segment by opening a new facility in Singapore and a business
development office in London. Mr. Wagstaff also managed the
operational efficiency of our international segment by reducing
expenses and divesting of non-core operations while maintaining
attractive gross margin levels. Gary A. Ittner successfully
managed our North American segments 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 our North American
segments strategic growth by expanding operations in the
markets serving the oil and gas shale plays through target
acquisitions in key North American 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 operations management,
and close cooperation with the executive team including the
business development and administrative groups. Rory M. Isaac
successfully streamlined the business 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.
In respect of performance during 2010, Messrs. Lane,
Underhill, Wagstaff, Ittner, Hutchinson and Lake were paid 57%
of their target annual incentive bonus and Mr. Isaac was
paid 56% of this target annual incentive bonus. The amounts paid
to the named executive officers and additional executive
officers as a result of their respective levels of performance
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. Since that time,
the board of directors has approved grants of stock options and
restricted common stock to our executives periodically in its
discretion. The reasoning behind the board of directors
decision to grant equity awards to our named executive officers
and
110
additional executive officers is described in the discussion of
the relevant equity grants in the subsection titled Stock
Options and Restricted Stock below. We do not currently
have a formal policy regarding the timing of equity grants,
although we are currently considering whether to adopt such a
policy.
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). The grant of
stock options to Mr. Lane was made as part of the
Companys offer of employment to Mr. Lane.
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
111
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). This grant of restricted stock was made to Mr. Lane
to ensure the competitiveness of his total compensation package.
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). The stock option grants to
Messrs. Underhill, Ittner, Isaac and Hutchinson were
granted in efforts to achieve parity among executives with
similar duties and responsibilities, and also as an added
retention incentive. The grant of stock options to
Mr. Wagstaff was made as part of the Companys
employment offer to Mr. Wagstaff and also as a retention
incentive.
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.
112
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
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.
The aggregate value of perquisites and personal benefits
currently provided to each of Messrs. Hutchinson, Isaac, Ittner
and Underhill is less than $10,000. Messrs. Lane and Lake do not
currently receive any perquisites or 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.
113
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 incentive 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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Salary
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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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($)
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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,
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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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Chairman, President and Chief Executive Officer
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James F. Underhill,
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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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Executive Vice President and Chief Financial Officer
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Neil P. Wagstaff,
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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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Executive Vice President International Operations(4)
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Gary A. Ittner,
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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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Executive Vice President and Chief Administrative Officer
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Scott A. Hutchinson,
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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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Executive Vice President North American Operations
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Rory M. Isaac,
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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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Executive Vice President Business Development
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Stephen W. Lake,
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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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Executive Vice President and General Counsel
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(1) |
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The amounts in this column represent cash awards earned pursuant
to the annual incentive performance metrics and goals approved
by the Committee for the 2010 performance period. 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 |
114
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goals, including a discussion of the 5% maximum cap imposed on
the portion of bonus attributable to individual performance in
2010. |
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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 =
$1.5609 as of December 31, 2010. |
Grants of
Plan-Based Awards in Fiscal Year 2010
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All Other Option
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Estimated Future Payouts Under Non-
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Awards: Number of
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Equity Incentive Plan Awards
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Securities
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Exercise or Base
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Threshold
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Target
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Maximum
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Underlying Options
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Price of
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($)(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
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James F. Underhill
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10,000
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500,000
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575,000
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Neil P. Wagstaff
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6,633
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331,691
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381,445
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87,413
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11.44
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Gary A. Ittner
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7,500
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375,000
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431,250
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Scott A. Hutchinson
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6,900
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345,000
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396,750
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Rory M. Isaac
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7,500
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375,000
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431,250
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Stephen W. Lake
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7,500
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375,000
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|
431,250
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under the annual incentive performance metrics and goals
approved by the Committee for the 2010 performance period, 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 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. |
115
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 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.
116
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 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 $375,000.
Mr. Lake is subject to covenants prohibiting competition,
solicitation of customers and employees and interference with
business relationships during his employment and for twelve
months thereafter, and is also subject to perpetual restrictive
covenants regarding confidentiality, non-disparagement and
proprietary rights.
Annual
Incentive Awards
Please see the section of the Compensation Discussion and
Analysis titled Short-Term Incentive Compensation
for a discussion of the performance metrics and goals approved
by the Committee for the 2010 performance year.
Outstanding
Equity Awards at 2010 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards(2)
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Shares or Units
|
|
Market Value of
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
Option
|
|
Number of Shares
|
|
of Stock That
|
|
Shares or Units of
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
or Units That
|
|
Have Not
|
|
Stock That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable(1)
|
|
Price ($)
|
|
Date
|
|
Have 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, |
117
|
|
|
|
|
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. |
|
(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 $11.42. |
Option
Exercises and Stock Vested During 2010
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
|
|
|
That Became
|
|
Value Realized on
|
Name
|
|
Vested (#)(1)
|
|
Vesting ($)(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
$4,162.87 per unit. |
Nonqualified
Deferred Compensation for 2010
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
Aggregate Balance at
|
|
|
Contributions in
|
|
Last Fiscal Year End
|
Name
|
|
Last Fiscal Year ($)(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.
118
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 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
|
|
|
|
|
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
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;
|
119
|
|
|
|
|
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
|
|
|
|
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
|
|
Base Salary
|
|
Pro Rata
|
|
Value of
|
|
Accelerated
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Continuation
|
|
Incentive
|
|
Medical
|
|
Vesting
|
|
Account
|
|
|
|
|
($)(1)
|
|
($)
|
|
($)(2)
|
|
Benefits ($)
|
|
of 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 |
120
|
|
|
|
|
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 $11.44 for Mr. Wagstaff, there would be no value
realized upon this accelerated vesting. |
Termination
by Us for Cause
Upon a termination by us for Cause (as defined in the stock
option plan), pursuant to the applicable award agreements, stock
options held by Messrs. Lane, Underhill, Wagstaff, Ittner,
Hutchinson, Isaac and Lake and restricted stock held by
Mr. Lane, whether vested or unvested, would in each case be
forfeited immediately for no consideration. Under these
circumstances, the profits units held by Messrs. Underhill,
Ittner, Hutchinson, Isaac and Lake whether or not vested, would
also be forfeited immediately for no consideration.
In addition, as described in the narrative above following the
table titled Nonqualified Deferred Compensation for
2010, the fully vested accounts in the McJunkin Red Man
Corporation Nonqualified Deferred Compensation Plan would become
payable (subject to the requirements of Section 409A).
Each named executive officer and additional executive officer
would also be paid the value of any accrued but unused vacation
time as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
Accrued
|
|
Compensation
|
|
|
|
|
Obligations
|
|
Account
|
|
|
Name
|
|
($)(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.
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
122
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 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
$100,000. No additional cash fees are paid in respect of service
on board committees. In addition, many of our directors have
received equity compensation awards at the time of their
appointment to our board of directors and at such other times as
the Committee and the board of directors has deemed appropriate.
All directors are also
123
reimbursed for travel expenses and other
out-of-pocket
costs incurred in connection with their attendance at meetings.
Director
Compensation for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
Stock
|
|
|
|
|
|
|
|
|
or Paid
|
|
Awards
|
|
Option
|
|
All Other
|
|
|
Name
|
|
in Cash ($)
|
|
($)(1)
|
|
Awards ($)
|
|
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: |
|
|
|
|
|
|
|
|
|
Name
|
|
Stock Options (#)(a)
|
|
Stock Awards (#)
|
|
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
|
124
|
|
|
|
|
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
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.
|
|
|
|
(2) |
|
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.
125
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)
200 West Street
New York, New York 10282
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168,428,052
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99.7
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%
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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 |
126
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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 |
127
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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 |
128
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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) |
|
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. |
129
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
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Name of Beneficial Owner
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or Indirectly
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or 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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|
|
|
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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Henry Cornell
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Christopher A.S. Crampton
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John F. Daly
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|
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|
Craig Ketchum
|
|
|
11,219.8688
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|
|
|
381.3098
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|
Gerard P. Krans
|
|
|
21,055.1400
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|
|
|
|
|
Dr. Cornelis A. Linse
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|
|
|
|
|
|
|
|
John A. Perkins
|
|
|
|
|
|
|
|
|
H.B. Wehrle, III
|
|
|
5,128.1093
|
|
|
|
381.3098
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|
|
|
|
|
|
|
|
|
|
The Goldman Sachs Funds and all of our directors and executive
officers, as a group
|
|
|
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
|
|
|
90,001.8910
|
|
|
|
2,707.2994
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|
|
|
|
|
|
|
|
|
|
Total
|
|
|
334,538.9062
|
|
|
|
5,122.2614
|
|
|
|
|
|
|
|
|
|
|
130
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 new asset-based revolving credit facility and was a
lender under our prior revolving credit facility and our Term
Loan Facility and Junior Term Loan Facility. Goldman Sachs
Credit Partners was also a co-lead arranger and joint bookrunner
under our prior 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 prior 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 prior revolving
credit facility.
Notes
Offerings
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.
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
131
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.
We believe the rental amounts under our leases with Prideco, LLC
are generally comparable to market rates negotiable among
unrelated third parties.
132
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, 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.
133
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
|
|
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. |
134
|
|
|
(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. |
Transactions
Involving Europump
On July 1, 2007, Midfield acquired from Europump Systems
Inc. (Europump) its sales and distribution business
for oilfield service equipment in Western Canada (the
Europump Supply Business). As partial consideration
for this acquisition, Midfield entered into a profit-sharing
arrangement with Europump pursuant to which Europump was to
receive certain profit participation payments from Midfield in
respect of the Europump Supply Business. Midfield also agreed to
make profit participation payments to Europump in respect of
certain additional oilfield supply and service stores, either
owned or contemplated to be acquired by Midfield from
consignment vendors, and located in Western Canada. Certain
employees of Midfield own a portion of Europump. The expense we
recognized for the aggregate profit participation for Europump
was approximately $1.1 million in the year ended
December 31, 2010.
In connection with the acquisition of the Europump Supply
Business, we entered into a five-year distribution agreement
with Europump effective as of July 1, 2007. Under this
agreement, Midfield was appointed as a non-exclusive distributor
of certain Europump products in Western Canada. Our purchases
from Europump under this agreement were approximately
$23 million in the year ended December 31, 2008,
$10 million in the year ended December 31, 2009 and
$28 million in the year ended December 31, 2010. Under
this agreement, we also provide warranty services to Europump in
relation to Europump products sold by Midfield and any
consignees of Midfield. Further, we also provide warranty
services in relation to Europump product sold by other vendors
in our distribution area under the distribution agreement. We
are reimbursed for our expenses for providing these warranty
services, and in circumstances where the product was sold by a
vendor other than Midfield or a consignee thereof, we also earn
commissions. Midfield received an aggregate amount of
approximately $0.4 million in the year ended
December 31, 2008, $0.6 million in the year ended
December 31, 2009 and $0.8 million in the year ended
December 31, 2010 from Europump pursuant to this
distribution agreement.
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
135
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.
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 written 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
136
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 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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THE
EXCHANGE OFFER
Purpose
of the Exchange Offer
In connection with the sale of the outstanding notes on
December 21, 2009 and February 11, 2010, respectively,
we, the guarantors and the initial purchasers entered into
exchange and registration rights agreements. Pursuant to the
exchange and registration rights agreements, we and the
guarantors agreed to file with the SEC a registration statement
on the appropriate form under the Securities Act with respect to
publicly registered notes having identical terms to the
outstanding notes. Upon the effectiveness of the exchange offer
registration statement, we and the guarantors will, pursuant to
the exchange offer, offer to the holders of outstanding notes
who are able to make certain representations the opportunity to
exchange their notes for the exchange notes.
If we and the guarantors fail to file the exchange offer
registration statement within 470 days of the date of
original issuance of the outstanding notes, or by April 5,
2011, if the exchange offer registration statement is not
declared effective within 110 days of April 5, 2011,
or July 24, 2011, if the exchange offer has not been
completed within 30 business days of July 24, 2011, or
September 6, 2011, or if the exchange offer registration
statement is declared effective but thereafter ceases to be
effective or usable in connection with resales or exchanges of
the outstanding notes during the periods specified in the
exchange and registration rights agreements, then we will pay
additional interest to each holder of the outstanding notes,
with respect to the first
90-day
period immediately following the occurrence of the first
registration default in an amount equal to one-quarter of one
percent (0.25%) per annum on the principal amount of notes held
by such holder. The amount of the additional interest will
increase by an additional one-quarter of one percent (0.25%) per
annum on the principal amount of notes with respect to each
subsequent
90-day
period until all registration defaults have been cured, up to a
maximum amount of additional interest for all registration
defaults of 1.0% per annum. There can exist only one
registration default at any one time.
Each broker-dealer that receives the exchange notes for its own
account in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See Plan of
Distribution.
A copy of the registration rights agreement is attached as an
exhibit to the registration statement of which this prospectus
is a part.
Terms of
the Exchange Offer
This prospectus and the accompanying letter of transmittal
together constitute the exchange offer. Upon the terms and
subject to the conditions set forth in this prospectus and in
the letter of transmittal, we will accept for exchange
outstanding notes, which are properly tendered on or before the
expiration date and are not withdrawn as permitted below, for
exchange notes. The expiration date for this exchange offer is
12:00 a.m., New York City time,
on ,
2011, or such later date and time to which we, in our sole
discretion, extend the exchange offer.
The form and terms of the exchange notes are the same as the
form and terms of the outstanding notes, except that:
the exchange notes will have been registered under the
Securities Act;
the exchange notes will not bear the restrictive legends
restricting their transfer under the Securities Act; and
the exchange notes will not contain the registration rights and
additional interest provisions contained in the outstanding
notes.
Notes tendered in the exchange offer must be in minimum
denominations of $2,000 and integral multiples of $1,000 in
excess thereof.
We expressly reserve the right, in our sole discretion:
to extend the expiration date;
138
to delay accepting any outstanding notes due to an extension of
the exchange offer;
if the condition set forth below under
Condition to the Exchange Offer has not
been satisfied, to terminate the exchange offer and not accept
any outstanding notes for exchange; or
to amend the exchange offer in any manner.
We will give written notice of any extension, delay,
non-acceptance, termination or amendment as promptly as
practicable by a public announcement, and in the case of an
extension, no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration
date. Such notice will comply with
Rule 14e-1(d)
under the Securities Act and, in the case of an extension, will
disclose the number of securities tendered as of the date of the
notice. Without limiting the manner in which we may choose to
make a public announcement of any extension, delay,
non-acceptance, termination or amendment, we shall have no
obligation to publish, advertise or otherwise communicate any
such public announcement, other than by making a timely release
to an appropriate news agency, which may be an agency controlled
by us. Notwithstanding the foregoing, in the event of a material
change in the exchange offer, including our waiver of a material
condition, we will extend the exchange offer period if necessary
so that at least five business days remain in the exchange offer
following notice of the material change.
During an extension, all outstanding notes previously tendered
will remain subject to the exchange offer and may be accepted
for exchange by us. Any outstanding notes not accepted for
exchange for any reason will be returned without cost to the
holder that tendered them promptly after the expiration or
termination of the exchange offer.
How to
Tender Outstanding Notes for Exchange
When the holder of outstanding notes tenders, and we accept such
notes for exchange pursuant to that tender, a binding agreement
between us and the tendering holder is created, subject to the
terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a
holder of outstanding notes who wishes to tender such notes for
exchange must, on or prior to the expiration date:
transmit a properly completed and duly executed letter of
transmittal, including all other documents required by such
letter of transmittal, to U.S. Bank National Association,
which will act as the exchange agent, at the address set forth
below under the heading The Exchange
Agent;
comply with DTCs Automated Tender Offer Program, or ATOP,
procedures described below; or
if outstanding notes are tendered pursuant to the book-entry
procedures set forth below, the tendering holder must transmit
an agents message to the exchange agent as per DTC,
Euroclear Bank S.A./N.V., as operator of the Euroclear system
(Euroclear), or Clearstream Banking S.A.
(Clearstream) (as appropriate) procedures.
In addition, either:
the exchange agent must receive the certificates for the
outstanding notes and the letter of transmittal;
the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the
outstanding notes being tendered, along with the letter of
transmittal or an agents message; or
the holder must comply with the guaranteed delivery procedures
described below.
The term agents message means a message,
transmitted to DTC, Euroclear or Clearstream, as appropriate,
and received by the exchange agent and forming a part of a
book-entry transfer, or book-entry confirmation,
which states that DTC, Euroclear or Clearstream, as appropriate,
has received an express acknowledgement that the tendering
holder agrees to be bound by the letter of transmittal and that
we may enforce the letter of transmittal against such holder.
The method of delivery of the outstanding notes, the letters of
transmittal and all other required documents is at the election
and risk of the holders. If such delivery is by mail, we
recommend registered mail, properly insured,
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with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. No letters of
transmittal or outstanding notes should be sent directly to us.
Signatures on a letter of transmittal or a notice of withdrawal
must be guaranteed by an eligible institution unless the
outstanding notes surrendered for exchange are tendered:
by a registered holder of the outstanding notes; or
for the account of an eligible institution.
An eligible institution is a firm which is a member
of a registered national securities exchange or a member of the
Financial Industry Regulatory Authority or a commercial bank or
trust company having an office or correspondent in the United
States.
If outstanding notes are registered in the name of a person
other than the signer of the letter of transmittal, the
outstanding notes surrendered for exchange must be endorsed by,
or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us
in our sole discretion, duly executed by the registered holder
with the holders signature guaranteed by an eligible
institution.
We will determine all questions as to the validity, form,
eligibility (including time of receipt) and acceptance of
outstanding notes tendered for exchange in our sole discretion.
Our determination will be final and binding. We reserve the
absolute right to:
reject any and all tenders of any outstanding note improperly
tendered;
refuse to accept any outstanding note if, in our judgment or the
judgment of our counsel, acceptance of the outstanding note may
be deemed unlawful; and
waive any defects or irregularities or conditions of the
exchange offer as to any particular outstanding note based on
the specific facts or circumstances presented either before or
after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender outstanding
notes in the exchange offer.
Notwithstanding the foregoing, we do not expect to treat any
holder of outstanding notes differently from other holders to
the extent they present the same facts or circumstances.
Our interpretation of the terms and conditions of the exchange
offer as to any particular outstanding notes either before or
after the expiration date, including the letter of transmittal
and the instructions to it, will be final and binding on all
parties. Holders must cure any defects and irregularities in
connection with tenders of notes for exchange within such
reasonable period of time as we will determine, unless we waive
such defects or irregularities. Neither we, the exchange agent
nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any
tender of outstanding notes for exchange, nor shall any of us
incur any liability for failure to give such notification.
If a person or persons other than the registered holder or
holders of the outstanding notes tendered for exchange signs the
letter of transmittal, the tendered outstanding notes must be
endorsed or accompanied by appropriate powers of attorney, in
either case signed exactly as the name or names of the
registered holder or holders that appear on the outstanding
notes.
If trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in
a fiduciary or representative capacity sign the letter of
transmittal or any outstanding notes or any power of attorney,
these persons should so indicate when signing, and you must
submit proper evidence satisfactory to us of those persons
authority to so act unless we waive this requirement.
By tendering, each holder will represent to us that: (i) it
is not an affiliate of the Issuer, as defined in
Rule 405 of the Securities Act, or if it is such an
affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable; (ii) it is not engaged in and does not
intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the
exchange notes; (iii) it is acquiring the exchange notes in
its ordinary course of business; (iv) if it is a
broker-dealer that holds outstanding notes that were acquired
for its own account as a result of market-making activities or
other trading
140
activities (other than outstanding notes acquired directly from
the Issuer or any of our affiliates), it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resales of the exchange notes received by it
in the exchange offer; (v) if it is a broker-dealer, that
it did not purchase the outstanding notes to be exchanged in the
exchange offer from the Issuer or any of its affiliates; and
(vi) it is not acting on behalf of any person who could not
truthfully and completely make the representation contained in
the foregoing subclauses (i) through (v).
If any holder or any other person receiving exchange notes from
such holder is an affiliate, as defined under
Rule 405 of the Securities Act, of us, or is engaged in or
intends to engage in or has an arrangement or understanding with
any person to participate in a distribution (within the meaning
of the Securities Act) of the notes to be acquired in the
exchange offer in violation of the provisions of the Securities
Act, the holder or any other person:
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may not rely on applicable interpretations of the staff of the
SEC; and
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must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
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Each broker-dealer who acquired its outstanding notes as a
result of market-making activities or other trading activities,
and thereafter receives exchange notes issued for its own
account in the exchange offer, must acknowledge that it will
deliver this prospectus in connection with any resale of such
exchange notes issued in the exchange offer. The letter of
transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act. See Plan of Distribution for a
discussion of the exchange and resale obligations of
broker-dealers.
Acceptance
of Outstanding Notes for Exchange; Delivery of Exchange Notes
Issued in the Exchange Offer
Upon satisfaction or waiver of all the conditions to the
exchange offer, we will accept, promptly after the expiration
date, all outstanding notes properly tendered and will issue
exchange notes registered under the Securities Act in exchange
for the tendered outstanding notes. For purposes of the exchange
offer, we shall be deemed to have accepted properly tendered
outstanding notes for exchange when, as and if we have given
oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter,
and complied with the applicable provisions of the exchange and
registration rights agreements. See Condition
to the Exchange Offer for a discussion of the condition
that must be satisfied before we accept any outstanding notes
for exchange.
For each outstanding note accepted for exchange, the holder will
receive an exchange note registered under the Securities Act
having a principal amount equal to that of the surrendered
outstanding note. Registered holders of exchange notes issued in
the exchange offer on the relevant record date for the first
interest payment date following the consummation of the exchange
offer will receive interest accruing from the most recent date
to which interest has been paid. Under the exchange and
registration rights agreements, we may be required to make
payments of additional interest to the holders of the
outstanding notes under circumstances relating to the timing of
the exchange offer.
In all cases, we will issue exchange notes for outstanding notes
that are accepted for exchange only after the exchange agent
timely receives:
certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange
agents account at DTC, Euroclear or Clearstream, as
appropriate;
a properly completed and duly executed letter of transmittal or
an agents message; and
all other required documents.
If for any reason set forth in the terms and conditions of the
exchange offer we do not accept any tendered outstanding notes,
or if a holder submits outstanding notes for a greater principal
amount than the holder desires to exchange, we will return such
unaccepted or nonexchanged notes without cost to the tendering
holder. In the case of outstanding notes tendered by book-entry
transfer into the exchange agents account at DTC,
Euroclear or Clearstream, the nonexchanged notes will be
credited to an account maintained with DTC, Euroclear or
141
Clearstream,. We will return the outstanding notes or have them
credited to DTC, Euroclear or Clearstream accounts, as
appropriate, promptly after the expiration or termination of the
exchange offer.
Book-Entry
Transfer
The participant should transmit its acceptance to DTC, Euroclear
or Clearstream, as the case may be, on or prior to the
expiration date or comply with the guaranteed delivery
procedures described below. DTC, Euroclear or Clearstream, as
the case may be, will verify the acceptance and then send to the
exchange agent confirmation of the book-entry transfer. The
confirmation of the book-entry transfer will include an
agents message confirming that DTC, Euroclear or
Clearstream, as the case may be, has received an express
acknowledgment from the participant that the participant has
received and agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such
participant. Delivery of exchange notes issued in the exchange
offer may be effected through book-entry transfer at DTC,
Euroclear or Clearstream, as the case may be. However, the
letter of transmittal or facsimile thereof or an agents
message, with any required signature guarantees and any other
required documents, must:
be transmitted to and received by the exchange agent at the
address set forth below under The Exchange
Agent on or prior to the expiration date; or
comply with the guaranteed delivery procedures described below.
DTCs ATOP program is the only method of processing
exchange offers through DTC. To accept an exchange offer through
ATOP, participants in DTC must send electronic instructions to
DTC through DTCs communication system. In addition, such
tendering participants should deliver a copy of the letter of
transmittal to the exchange agent unless an agents message
is transmitted in lieu thereof. DTC is obligated to communicate
those electronic instructions to the exchange agent through an
agents message. To tender outstanding notes through ATOP,
the electronic instructions sent to DTC and transmitted by DTC
to the exchange agent must contain the character by which the
participant acknowledges its receipt of and agrees to be bound
by the letter of transmittal. Any instruction through ATOP is at
your risk and such instruction will be deemed made only when
actually received by the exchange agent.
In order for an acceptance of an exchange offer through ATOP to
be valid, an agents message must be transmitted to and
received by the exchange agent prior to the expiration date, or
the guaranteed delivery procedures below must be complied with.
Delivery of instructions to DTC does not constitute delivery to
the exchange agent.
Guaranteed
Delivery Procedures
If a holder of outstanding notes desires to tender such notes
and the holders outstanding notes are not immediately
available, or time will not permit the holders outstanding
notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be
effected if:
the holder tenders the outstanding notes through an eligible
institution;
prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed
notice of guaranteed delivery, acceptable to us, by mail, hand
delivery, overnight courier or facsimile transmission, setting
forth the name and address of the holder of the outstanding
notes tendered, the certificate number or numbers of such
outstanding notes and the amount of the outstanding notes being
tendered. The notice of guaranteed delivery shall state that the
tender is being made and guarantee that within three New York
Stock Exchange trading days after the expiration date, the
certificates for all physically tendered outstanding notes, in
proper form for transfer, or a book-entry confirmation, as the
case may be, together with a properly completed and duly
executed letter of transmittal or agents message with any
required signature guarantees and any other documents required
by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a
properly completed and
142
duly executed letter of transmittal or agents message with
any required signature guarantees and any other documents
required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
Withdrawal
Rights
You may withdraw tenders of your outstanding notes at any time
prior to the expiration of the offer.
For a withdrawal to be effective, you must send a written notice
of withdrawal to the exchange agent at the address set forth
below under The Exchange Agent. Any such
notice of withdrawal must:
specify the name of the person that has tendered the outstanding
notes to be withdrawn;
identify the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes; and
where certificates for outstanding notes are transmitted,
specify the name in which outstanding notes are registered, if
different from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or
otherwise identified to the exchange agent, then, prior to the
release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures
guaranteed by an eligible institution unless such holder is an
eligible institution. If outstanding notes have been tendered
pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number
of the account at DTC, Euroclear or Clearstream, as applicable,
to be credited with the withdrawn notes and otherwise comply
with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including
time of receipt) of notices of withdrawal and our determination
will be final and binding on all parties. Any tendered notes so
withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any outstanding
notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof
without cost to such holder. In the case of outstanding notes
tendered by book-entry transfer into the exchange agents
account at DTC, Euroclear or Clearstream, as applicable, the
outstanding notes withdrawn will be unlocked with DTC, Euroclear
or Clearstream, as applicable, for the outstanding notes. The
outstanding notes will be returned promptly after withdrawal,
rejection of tender or termination of the exchange offer.
Properly withdrawn outstanding notes may be re-tendered by
following one of the procedures described under
How to Tender Outstanding Notes for
Exchange above at any time on or prior to 12:00 a.m.,
New York City time, on the expiration date.
Condition
to the Exchange Offer
Notwithstanding any other provisions of this exchange offer, we
are not required to accept the outstanding notes in the exchange
offer or to issue the exchange notes, and we may terminate or
amend the exchange offer, if at any time before the expiration
of the exchange offer that acceptance or issuance would violate
any applicable law or any interpretations of the staff of the
SEC.
The preceding condition is for our sole benefit, and we may
assert it regardless of the circumstances giving rise to any
such condition. We may waive the preceding condition in whole or
in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise the foregoing
right shall not be deemed a waiver of such right, and such right
shall be deemed an ongoing right which we may assert at any time
and from time to time.
The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered in the
exchange.
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The
Exchange Agent
U.S. Bank National Association has been appointed as our
exchange agent for the exchange offer. All executed letters of
transmittal should be directed to our exchange agent at the
address set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed
delivery should be directed to the exchange agent addressed as
follows:
By registered mail, overnight carrier or hand delivery:
U.S. Bank National Association
Corporate Trust Services
Attn: Specialized Finance
60 Livingston Avenue
St. Paul, MN
55107-2292
Confirm by telephone:
(800) 934-6802
Delivery by facsimile:
(651) 495-8158
Originals of all documents sent by facsimile should be promptly
sent to the exchange agent by mail, by hand or by overnight
delivery service.
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE
A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Fees and
Expenses
We will not make any payment to brokers, dealers or others
soliciting acceptance of the exchange offer except for
reimbursement of mailing expenses.
The cash expenses to be incurred in connection with the exchange
offer will be paid by us.
Transfer
Taxes
Holders who tender their outstanding notes for exchange notes
will not be obligated to pay any transfer taxes in connection
with the exchange. If, however, exchange notes issued in the
exchange offer or substitute outstanding notes not tendered or
exchanged are to be delivered to, or are to be issued in the
name of, any person other than the holder of the outstanding
notes tendered, or if a transfer tax is imposed for any reason
other than the exchange of outstanding notes in connection with
the exchange offer, then the holder must pay any applicable
transfer taxes, whether imposed on the registered holder or on
any other person. If satisfactory evidence of payment of, or
exemption from, transfer taxes is not submitted with the letter
of transmittal, the amount of the transfer taxes will be billed
directly to the tendering holder.
Consequences
of Failure to Exchange Outstanding Notes
Holders who desire to tender their outstanding notes in exchange
for exchange notes registered under the Securities Act should
allow sufficient time to ensure timely delivery. Neither the
exchange agent nor we are under any duty to give notification of
defects or irregularities with respect to the tenders of
outstanding notes for exchange.
Outstanding notes that are not tendered or are tendered but not
accepted will, following the consummation of the exchange offer,
continue to accrue interest and to be subject to the provisions
in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set
forth in the legend on the outstanding notes and in the offering
circulars dated December 16, 2009 and February 8,
2010, respectively, relating
144
to the outstanding notes. After completion of this exchange
offer, we will have no further obligation to provide for the
registration under the Securities Act of those outstanding notes
except in limited circumstances with respect to specific types
of holders of outstanding notes, and we do not intend to
register the outstanding notes under the Securities Act. In
general, outstanding notes, unless registered under the
Securities Act, may not be offered or sold except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
Upon completion of the exchange offer, holders of any remaining
outstanding notes will not be entitled to any further
registration rights under the exchange and registration rights
agreements, except under limited circumstances.
Exchanging
Outstanding Notes
Based on interpretations of the staff of the SEC, as set forth
in no-action letters to third parties, we believe that the notes
issued in the exchange offer may be offered for resale, resold
or otherwise transferred by holders of such notes, other than by
any holder that is a broker-dealer who acquired outstanding
notes for its own account as a result of market-making or other
trading activities or by any holder which is an
affiliate of us within the meaning of Rule 405
under the Securities Act. The exchange notes may be offered for
resale, resold or otherwise transferred without compliance with
the registration and prospectus delivery provisions of the
Securities Act, if:
the holder is not a broker-dealer tendering notes acquired
directly from us;
the person acquiring the exchange notes in the exchange offer,
whether or not that person is a holder, is acquiring them in the
ordinary course of its business;
neither the holder nor that other person has any arrangement or
understanding with any person to participate in the distribution
of the exchange notes issued in the exchange offer; and
the holder is not our affiliate.
However, the SEC has not considered the exchange offer in the
context of a no-action letter, and we cannot guarantee that the
staff of the SEC would make a similar determination with respect
to the exchange offer as in these other circumstances.
Each holder must furnish a written representation, at our
request, that:
it is not an affiliate of us or, if an affiliate, that it will
comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable;
it is not engaged in, and does not intend to engage in, and has
no arrangement or understanding with any person to participate
in, a distribution of the exchange notes issued to be issued in
the exchange offer;
it is acquiring the exchange notes in the ordinary course of its
business
if it is a broker-dealer that hold outstanding notes that were
acquired for its own account as a result of market-making
activities or other trading activities (other than outstanding
securities acquired directly from us or any of our affiliates),
it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the exchange
notes received by it in the exchange offer;
if it is a broker-dealer, that it did not purchase the
outstanding notes to be exchanged in the exchange offer from us
or any of our affiliates; and
it is not acting on behalf of any person who could not
truthfully and completely make the foregoing representations.
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Each holder who cannot make such representations:
will not be able to rely on the interpretations of the staff of
the SEC in the above-mentioned interpretive letters;
will not be permitted or entitled to tender outstanding notes in
the exchange offer; and
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale
or other transfer of outstanding notes, unless the sale is made
under an exemption from such requirements.
In addition, each broker-dealer that receives exchange notes for
its own account in exchange for outstanding notes, where such
outstanding notes were acquired by that broker-dealer as a
result of market-making or other trading activities, must
acknowledge that it will deliver this prospectus in connection
with any resale of such notes issued in the exchange offer. See
Plan of Distribution for a discussion of the
exchange and resale obligations of broker-dealers in connection
with the exchange offer.
In addition, to comply with state securities laws of certain
jurisdictions, the exchange notes may not be offered or sold in
any state unless they have been registered or qualified for sale
in such state or an exemption from registration or qualification
is available and complied with by the holders selling the
exchange notes. We have not agreed to register or qualify the
exchange notes for offer or sale under state securities laws.
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DESCRIPTION
OF EXCHANGE NOTES
The outstanding notes were issued, and the exchange notes will
be 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 exchange notes offered hereby,
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 March 31, 2011, the Issuer 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
$245 million in aggregate principal amount of drawn ABL
Debt and outstanding letters of credit of approximately
$4.8 million (and $377 million of available borrowings
under the ABL Credit Facility) and no Subordinated Lien Debt. As
of March 31, 2011, on an as adjusted basis after giving
effect to the replacement of the ABL Credit Facility and the
transactions associated therewith, the Issuer would have 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
$255 million in aggregate principal amount of drawn ABL
Debt and outstanding letters of credit of approximately
$4.8 million (and $380 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 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 Exchange
Notes Your Right to Receive Payment on the Exchange
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, the exchange 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 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.
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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 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).
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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.
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 March 31, 2011, the Issuer had approximately
$245 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 $4.8 million. As of March 31, 2011, the
Issuer had approximately $377 million available for
borrowing under the ABL Credit Facility. As of March 31,
2011, on an as adjusted basis after giving effect to the
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replacement of the ABL Credit Facility and the transactions
associated therewith, the Issuer would have had approximately
$255 million in aggregate principal amount of drawn ABL
Debt outstanding and outstanding letters of credit of
approximately $4.8 million. As of March 31, 2011, on
an as adjusted basis after giving effect to the replacement of
the ABL Credit Facility and the transactions associated
therewith, the Issuer would have had approximately
$380 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 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
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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).
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.
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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 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
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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 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;
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(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
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
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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, 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
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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, 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
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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;
(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.
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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 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.
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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 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
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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
(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.
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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;
(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
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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
(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.
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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 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
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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 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
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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 exchange 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
Exchange Notes May Not Be Sufficient to Satisfy Our Obligations
Under the Exchange 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 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
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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;
(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
Exchange Notes to the extent that such provision in this
Description of Exchange 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,
168
(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 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;
169
(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.
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);
170
(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.
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.
171
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.
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 exchange 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
172
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 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
173
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.
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
Exchange 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
174
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 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;
175
(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 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.
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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
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 Exchange
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 Exchange
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;
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(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.
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
178
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 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);
179
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;
(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
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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 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;
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(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;
(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.
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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.
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 exchange notes and
related exchange 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;
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(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 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),
184
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;
(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
185
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 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.
186
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;
(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;
187
(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.
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.
188
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 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;
189
(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;
(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
190
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 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.
191
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
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
192
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 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
193
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 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;
194
(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;
(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
195
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
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.
196
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 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
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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;
(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;
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(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;
(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 Exchange Notes to the extent that such provision
in this
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Description of Exchange 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;
(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
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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 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 will be 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.
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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.
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
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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.
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
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(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 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
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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.
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
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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 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
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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).
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
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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.
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
208
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);
(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.
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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 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
210
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;
(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.
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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
(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
212
(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;
(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
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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.
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);
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(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 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
215
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;
(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
216
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 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
217
(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
(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;
218
(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.
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.
219
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.
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.
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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;
(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
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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 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
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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 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
223
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.
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;
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(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;
(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
225
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;
(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;
226
(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 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.
227
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 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
228
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.
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
229
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;
(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
230
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.
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.
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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
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
232
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
(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.
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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 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.
234
MATERIAL
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes the material United States
federal income tax consequences and, in the case of a
Non-U.S. Holder
(as defined below), the material United States federal estate
tax consequences, of exchanging outstanding notes for exchange
notes, and purchasing, owning and disposing of exchange notes.
This summary applies to you only if you are a beneficial owner
of an outstanding note or an exchange 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 outstanding notes or exchange 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
outstanding notes or exchange 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 exchanging outstanding
notes for exchange notes, and purchasing, owning and disposing
of exchange 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 exchanging outstanding notes for exchange
notes, and purchasing, owning and disposing of exchange notes.
Before you exchange your outstanding notes for exchange notes or
purchase exchange notes, you should consult your own tax advisor
regarding the particular United States federal, state and local
and
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non-U.S. income
and other tax consequences of exchanging outstanding notes for
exchange notes, and purchasing, owning and disposing of exchange
notes.
Exchange
Offer
The exchange of outstanding notes for exchange notes in the
exchange offer will not be a taxable event for United States
federal income tax purposes. Your tax basis in your exchange
notes immediately after the exchange will be the same as your
tax basis in your outstanding notes immediately before the
exchange, and your holding period for your exchange notes will
include your holding period for your outstanding notes.
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 outstanding notes on February 11, 2010
(the outstanding 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
outstanding February notes as having the same issue price as the
outstanding notes issued on December 21, 2009 (the
outstanding December notes) and therefore as having
been issued with the same amount of original issue discount
(OID) as the outstanding 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 outstanding February notes could be treated as
a separate issue from the outstanding December notes, with an
issue price determined by the first price at which a substantial
amount of the outstanding 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 outstanding February notes
would have been issued with OID in an amount different from the
amount of OID on the outstanding December notes, the outstanding
February notes would not have been fungible with the outstanding
December notes for United States federal income tax purposes and
the exchange notes received in exchange for the outstanding
February notes would not be fungible with the exchange notes
received in exchange for the outstanding December notes for
United States federal income tax purposes. The remainder of this
summary assumes that the issuance of the outstanding February
notes constituted a qualified reopening of our 9.50% senior
secured notes due December 15, 2016 for United States
federal income tax purposes.
Pre-Issuance
Accrued Interest
A portion of the offering price of the outstanding February
notes included interest accrued from December 21, 2009 (the
pre-issuance accrued interest). We have taken the
position that a portion of the first interest payment on the
outstanding February notes equal to the pre-issuance accrued
interest was a return of the pre-issuance accrued interest
rather than an amount payable on the outstanding February notes.
Assuming this treatment is respected, the portion of the first
interest payment on your outstanding February notes equal to the
pre-issuance accrued interest would not have been treated as
taxable interest income and your adjusted tax basis in the
outstanding February notes would have been reduced by a
corresponding amount. Holders of outstanding February notes
should consult their own tax advisors about the tax treatment of
the pre-issuance accrued interest on the outstanding February
notes.
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 an outstanding note
or an exchange note that is 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 exchange 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 outstanding 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
outstanding 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). The
exchange notes will be treated as issued with the same amount of
OID as the outstanding notes exchanged therefor and will have
the same issue date, issue price and adjusted issue price as the
outstanding notes exchanged therefor.
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 exchange notes
(including the sum of the daily portions of OID that accrue on
the outstanding notes exchanged therefor) for each day of the
taxable year during which you hold the exchange notes (and the
outstanding notes exchanged therefor). 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 exchange notes (or the adjusted issue price
of the outstanding notes exchanged therefor) at the beginning of
the accrual period multiplied by the yield to maturity of the
exchange 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 exchange notes (or, the
outstanding notes exchanged therefor) 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 exchange
notes (including the aggregate amount of OID that has accrued on
the outstanding notes exchanged therefor) 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 exchange notes, produces a present value
equal to the issue price. As explained above, we have treated
all of the outstanding notes (that is, both the outstanding
December notes and the outstanding February notes) as having the
same amount of OID for United States federal income tax
purposes, and we intend to treat all of the exchange 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 exchange 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 exchange notes.
Market
Discount
If you purchase an exchange note (or if you purchased an
outstanding note for which the exchange note was exchanged, as
the case may be) for an amount (in the case of an outstanding
February note, excluding any amount attributable to the
pre-issuance accrued interest described above) 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 exchange note
multiplied by the number of complete years to maturity from the
date you purchase the exchange note (or the date you purchased
the outstanding note for which the exchange note was exchanged,
as the case may be).
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Under the market discount rules of the Internal Revenue Code, if
you purchase an exchange note (or if you purchased an
outstanding note for which the exchange note was exchanged, as
the case may be) with market discount, you will generally be
required to include any gain realized on the sale, exchange,
retirement, redemption or other disposition of the exchange 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 exchange 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 exchange note (or
an outstanding note for which the exchange note was exchanged,
as the case may be). In general, market discount will be
considered to accrue ratably during the period from the date of
the purchase of the exchange note (or the date you purchased the
outstanding note for which the exchange note was exchanged, as
the case may be) to the maturity date of the exchange 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 exchange 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 an exchange note (or if you purchased an
outstanding note for which the exchange note was exchanged, as
the case may be) for an amount (in the case of an outstanding
February note, excluding any amount attributable to the
pre-issuance accrued interest described above) that exceeds the
exchange notes adjusted issue price as of the date of the
purchase and is less than or equal to the exchange notes
stated redemption price at maturity, you will be considered to
have purchased the exchange note with acquisition premium. Under
the acquisition premium rules, you are permitted to reduce your
OID accruals on such exchange note by a fraction, the numerator
of which is the excess of your adjusted tax basis in the
exchange note immediately after its purchase over the exchange
notes adjusted issue price at the time of purchase (or in
the case of an exchange note received in exchange for an
outstanding note pursuant to the exchange, the excess of your
adjusted tax basis in the outstanding note immediately after
purchase over the outstanding notes adjusted issue price
at the time of purchase) and the denominator of which is the
total amount of unaccrued OID remaining on the exchange note.
Bond
Premium
If you purchase an exchange note (or if you purchased an
outstanding note for which the exchange note was exchanged, as
the case may be) for an amount (in the case of an outstanding
February note, excluding any amount attributable to the
pre-issuance accrued interest described above) in excess of the
amount payable at maturity of the exchange note, you will be
considered to have purchased the exchange 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 exchange 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 exchange note (or on the outstanding note for
which the exchange note was exchanged, as the case may be)
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 exchange note
(or on the outstanding note for which the exchange note was
exchanged, as the case may be), and finally as a carryforward
allowable against your future interest inclusions on the
exchange note. If you make such an election, your tax basis in
the exchange note will be reduced by the amount 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 exchange 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.
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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 exchange 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 an exchange 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 an exchange 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 Exchange Notes
Upon the sale, redemption, exchange or other taxable disposition
of exchange 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 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 exchange notes.
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In the absence of a constant yield election, your adjusted tax
basis in an exchange note generally will be its cost (or in the
case of an exchange note received in exchange for an outstanding
note in the exchange offer, the cost of the outstanding note
which should, in the case of an outstanding February note,
exclude for this purpose the amount of any pre-issuance accrued
interest paid by you upon acquisition of the note) increased by
the amount of OID and any market discount on the exchange note
(and in the case of an exchange note received in exchange for an
outstanding note in the exchange offer, the outstanding 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
exchange note (and in the case of an exchange note received in
exchange for an outstanding note in the exchange offer, the
outstanding 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 exchange note for more than one year (taking into
account for this purpose, in the case of an exchange note
received in exchange for an outstanding note in the exchange
offer, the period of time you held such outstanding note). 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
exchange note, and
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to payment of the proceeds of a sale or other disposition of
your exchange 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.
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Non-U.S.
Holders
The following summary applies to you if you are a beneficial
owner of an outstanding note or an exchange 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 exchange
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
exchange 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
exchange 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 Material United States Federal Tax
Considerations Non-U.S. Holders
United States Federal Withholding Tax above) and backup
withholding tax (see 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 exchange notes,
or on any gain realized from (or accrued interest
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treated as received in connection with) the sale, redemption,
retirement at maturity or other taxable disposition of your
exchange 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 exchange 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 exchange 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 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 exchange 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 exchange 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 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
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 exchange 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.
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The gross proceeds from the disposition of your exchange notes
may be subject to information reporting and backup withholding
tax (currently at a rate of 28 percent). If you sell your
exchange notes outside the United States through a
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
exchange 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 exchange 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.
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PLAN OF
DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in
no-action letters issued to third parties, we believe that the
exchange notes issued pursuant to the exchange offer in exchange
for the outstanding notes may be offered for resale, resold and
otherwise transferred by holders thereof, other than any holder
which is (A) an affiliate of our company within
the meaning of Rule 405 under the Securities Act,
(B) a broker-dealer who acquired notes directly from our
company or (C) broker-dealers who acquired notes as a
result of market-making or other trading activities, without
compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such exchange
notes are acquired in the ordinary course of such holders
business, and such holders are not engaged in, and do not intend
to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such exchange notes.
However, broker-dealers receiving the exchange notes in the
exchange offer will be subject to a prospectus delivery
requirement with respect to resales of such exchange notes. To
date, the staff of the SEC has taken the position that these
broker-dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange
of securities such as the exchange pursuant to the exchange
offer, other than a resale of an unsold allotment from the sale
of the outstanding notes to the initial purchasers thereof, with
the prospectus contained in the exchange offer registration
statement. Pursuant to the exchange and registration rights
agreements, we have agreed to permit these broker-dealers to use
this prospectus in connection with the resale of such exchange
notes. We have agreed that, for a period of 90 days after
the expiration date of the exchange offer, we will make this
prospectus, and any amendment or supplement to this prospectus,
available to, and promptly send additional copies of this
prospectus, and any amendment or supplement to this prospectus,
to, any broker-dealer that requests such documents in the letter
of transmittal for use in connection with any such resale. In
addition,
until ,
all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
Each holder of the outstanding notes who wishes to exchange its
outstanding notes for exchange notes in the exchange offer will
be required to make certain representations to us as set forth
in The Exchange Offer.
Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were
acquired as a result of market-making activities or other
trading activities.
We will not receive any proceeds from any sale of exchange notes
by broker-dealers. Exchange notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated
prices. Any such resale may be directly to purchasers or to or
through brokers or dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer
or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own
account in the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be
deemed to be an underwriter within the meaning of
the Securities Act, and any profit on any such resale of
exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that,
by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
We have agreed to pay the expenses incident to the exchange
offer (including the expenses of one counsel for the holders of
the notes) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the exchange notes,
including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act, as set forth in
the exchange and registration rights agreements.
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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-4
under the Securities Act with respect to the exchange 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 exchange 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
To ensure timely delivery, please make your request as soon
as practicable and, in any event, no later
than ,
2011, which is five business days prior to the expiration of the
exchange offer.
244
LEGAL
MATTERS
The validity of the exchange 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.
245
INDEX TO
FINANCIAL STATEMENTS
|
|
|
Audited Consolidated Financial Statements of McJunkin Red Man
Holding Corporation and Subsidiaries:
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
Unaudited Condensed Consolidated Financial Statements of
McJunkin Red Man Holding Corporation and Subsidiaries:
|
|
|
|
|
F-48
|
|
|
F-49
|
|
|
F-50
|
|
|
F-51
|
|
|
F-52
|
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 operations, 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, except for Note 6,
as to which the date is May 6, 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
|
|
|
817,165
|
|
|
|
875,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,366,549
|
|
|
|
1,425,721
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,991,194
|
|
|
$
|
3,083,156
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
303,083
|
|
|
|
325,964
|
|
Payable to shareholders
|
|
|
2,028
|
|
|
|
16,665
|
|
Other liabilities
|
|
|
17,869
|
|
|
|
15,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683,221
|
|
|
|
1,801,809
|
|
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)
|
|
|
(565,790
|
)
|
|
|
(514,216
|
)
|
Accumulated other comprehensive loss
|
|
|
(19,856
|
)
|
|
|
(13,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
689,758
|
|
|
|
743,898
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,991,194
|
|
|
$
|
3,083,156
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
McJUNKIN
RED MAN HOLDING CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
3,327,072
|
|
|
|
3,067,437
|
|
|
|
4,273,104
|
|
Inventory write-down
|
|
|
362
|
|
|
|
46,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
518,102
|
|
|
|
547,994
|
|
|
|
982,062
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
447,808
|
|
|
|
408,564
|
|
|
|
482,084
|
|
Goodwill and intangible impairment
|
|
|
|
|
|
|
386,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
70,294
|
|
|
|
(246,670
|
)
|
|
|
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
|
)
|
|
|
(354,754
|
)
|
|
|
406,749
|
|
Income tax (benefit) expense
|
|
|
(23,353
|
)
|
|
|
(14,983
|
)
|
|
|
153,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(51,824
|
)
|
|
$
|
(339,771
|
)
|
|
$
|
253,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
1.63
|
|
Diluted (loss) earnings per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(339,771
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(298,027
|
)
|
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
|
|
|
|
(514,216
|
)
|
|
|
(13,345
|
)
|
|
|
|
|
|
|
743,898
|
|
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
|
|
|
$
|
(565,790
|
)
|
|
$
|
(19,856
|
)
|
|
$
|
|
|
|
$
|
689,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
$
|
(339,771
|
)
|
|
$
|
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
|
|
|
|
(49,237
|
)
|
|
|
(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
|
|
|
|
|
|
|
386,100
|
|
|
|
|
|
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
operations.
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 is
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 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).
Intangible assets with indefinite useful lives are tested for
impairment annually or more frequently if circumstances indicate
that impairment may exist. This test compares the carrying value
of the indefinite lived intangible assets with their estimated
fair value. If the carrying value is more than the estimated
fair value, impairment losses are recognized in an amount equal
to the excess of the carrying value over the estimated fair
value. Our impairment methodology uses discounted cash flow and
estimated royalty rate valuation techniques. These valuation
methods require us to make certain assumptions and estimates
regarding future operating results, sales prices, discount rates
and growth trends. No such impairment charges were recognized
during the year ended December 31, 2010. While we believe
that such assumptions and estimates are reasonable, the actual
results may differ materially from the projected results.
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 amortizable 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
F-9
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 operations.
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; 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.
In the area of first party auto collision, we do not have excess
coverage. In addition, we had no self-insurance accrued
liabilities in this area as of December 31, 2010 or 2009.
F-10
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the area of product recall, we do not have excess coverage.
However, manufacturers are liable for replacement under the
Uniform Commercial Code to the extent that they are identifiable
and have the financial wherewithal. The amount of self-insurance
accrued liabilities in North America was $0.8 million and
$0.3 million as of December 31, 2010 and 2009.
In the area of ocean cargo shipments, we do not have excess
coverage. In addition, there was no self-insurance accrued
liabilities as of December 31, 2010 and 2009.
In the area of asbestos claims, we have excess coverage to the
extent claims do not arise from entities acquired or exposures
dated after 1986. The net amount of self-insurance accrued
liabilities in North America was $0.8 million and
$0.6 million as of December 31, 2010 and 2009.
In the area of employee healthcare, we have excess stop loss
protection attaching after $300,000 per person per year. The
amount of self-insurance accrued liabilities in North America
were $2.4 million and $2.9 million as of
December 31, 2010 and 2009.
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 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
operations 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
F-11
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 operations.
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.
Certain purchasing and warehousing activities (including
receiving, inspection and stocking costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not cost of sales. As such, our
gross profit may not be comparable to others who may include
these expenses as a component of costs of goods sold. Purchasing
and warehousing activities costs approximated
$25.5 million, $24.4 million and $20.3 million
for the years ended December 31, 2010, 2009 and 2008,
respectively.
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 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 have two
operating 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. 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
F-12
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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
F-13
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 operations. 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
$9.3 million. Dresser operates five branches in North
Dakota and Montana, within the Bakken Shale region. The impact
of this acquisition was not material to our consolidated
financial statements.
The consideration paid for these acquisitions has been allocated
as follows (in millions):
|
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|
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|
|
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|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Acquisition of
|
|
|
Acquisition of
|
|
|
Acquisition of
|
|
|
|
South Texas Supply
|
|
|
Transmark Fcx
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LaBarge Pipe &
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and Dresser
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Group BV
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Steel Company
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Consideration:
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|
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|
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Cash consideration paid
|
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$
|
13.2
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|
|
$
|
98.5
|
|
|
$
|
150.4
|
|
Transaction costs(1)
|
|
|
|
|
|
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|
|
|
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3.8
|
|
|
|
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|
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|
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|
|
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|
Total cash consideration
|
|
|
13.2
|
|
|
|
98.5
|
|
|
|
154.2
|
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Common stock issued
|
|
|
|
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|
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49.4
|
|
|
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Total consideration
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$
|
13.2
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|
$
|
147.9
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$
|
154.2
|
|
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Number of shares issued
|
|
|
|
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|
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12.7
|
|
|
|
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|
Fair value of shares issued
|
|
$
|
|
|
|
$
|
49.4
|
|
|
$
|
|
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Net assets acquired:
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Cash
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$
|
0.7
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|
|
$
|
43.0
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$
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2.3
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Accounts receivable
|
|
|
7.1
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|
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71.9
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|
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21.7
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Inventory
|
|
|
7.3
|
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65.1
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138.6
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Other current assets
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|
|
|
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11.4
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Fixed assets
|
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0.9
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|
|
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11.1
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|
|
|
4.4
|
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Other assets
|
|
|
0.1
|
|
|
|
11.2
|
|
|
|
0.9
|
|
Customer base intangibles
|
|
|
|
|
|
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43.0
|
|
|
|
33.0
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|
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
|
|
|
(326
|
)
|
Loss per common share, basic
|
|
$
|
(2.06
|
)
|
Loss per common share, diluted
|
|
$
|
(2.06
|
)
|
|
|
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 goodwill impairment charge of $310 million and a
$76.2 million pre-tax impairment charge on indefinite lived
trade names. 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
|
|
Indefinite lived trade names
|
|
|
N/A
|
|
|
|
260,023
|
|
|
|
|
|
|
|
260,023
|
|
Noncompete agreements
|
|
|
5
|
|
|
|
970
|
|
|
|
(760
|
)
|
|
|
210
|
|
Sales order backlog
|
|
|
1
|
|
|
|
8,914
|
|
|
|
(8,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8
|
|
|
$
|
985,415
|
|
|
$
|
(168,250
|
)
|
|
$
|
817,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer base
|
|
|
16.2
|
|
|
$
|
696,489
|
|
|
$
|
(103,327
|
)
|
|
$
|
593,162
|
|
Amortizable trade names
|
|
|
5.9
|
|
|
|
22,643
|
|
|
|
(5,244
|
)
|
|
|
17,399
|
|
Indefinite lived trade names
|
|
|
N/A
|
|
|
|
260,023
|
|
|
|
|
|
|
|
260,023
|
|
Noncompete agreements
|
|
|
5
|
|
|
|
970
|
|
|
|
(566
|
)
|
|
|
404
|
|
Sales order backlog
|
|
|
1
|
|
|
|
9,526
|
|
|
|
(4,526
|
)
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8 years
|
|
|
$
|
989,651
|
|
|
$
|
(113,663
|
)
|
|
$
|
875,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
operations. 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 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
|
%
|
F-18
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Such interest would be computed at an annual rate of
0.25% for the first 90 days following a failed deadline, an
annual rate of 0.50% for the second 90 days, an annual rate
of 0.75% for the third 90 days, and an annual rate of 1.00%
thereafter. If we failed to meet all applicable deadlines, the
maximum total special interest would equate to $3.9 million
for the year ending December 31, 2011 and
$10.5 million for each succeeding year until the Notes
mature on December 15, 2016. No liability has been recorded
related to these special interest payments as we have deemed the
likelihood of noncompliance to be remote.
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 operations. 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 operations.
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.
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
F-19
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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
F-20
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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.
F-21
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 operations
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
operations. |
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
|
)
|
|
$
|
(273,416
|
)
|
|
$
|
385,338
|
|
Foreign
|
|
|
(15,802
|
)
|
|
|
(81,338
|
)
|
|
|
21,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75,177
|
)
|
|
$
|
(354,754
|
)
|
|
$
|
406,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes included in the consolidated statements of
operations 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
|
|
|
|
(44,214
|
)
|
|
|
(15,252
|
)
|
State
|
|
|
458
|
|
|
|
(3,443
|
)
|
|
|
(2,462
|
)
|
Foreign
|
|
|
(3,586
|
)
|
|
|
(1,580
|
)
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,673
|
|
|
|
(49,237
|
)
|
|
|
(18,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(23,353
|
)
|
|
$
|
(14,983
|
)
|
|
$
|
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
|
)
|
|
$
|
(124,246
|
)
|
|
$
|
142,362
|
|
State taxes
|
|
|
(813
|
)
|
|
|
6
|
|
|
|
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
|
)
|
|
$
|
(14,983
|
)
|
|
$
|
153,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
31.1
|
%
|
|
|
4.2
|
%
|
|
|
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
|
|
|
(266,437
|
)
|
|
|
(292,987
|
)
|
Debt
|
|
|
(5,745
|
)
|
|
|
(5,744
|
)
|
Other
|
|
|
(777
|
)
|
|
|
(1,329
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(381,798
|
)
|
|
|
(394,294
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(373,719
|
)
|
|
$
|
(377,948
|
)
|
|
|
|
|
|
|
|
|
|
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 jurisdictions.
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
|
)
|
|
$
|
(339,771
|
)
|
|
$
|
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
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
1.63
|
|
Diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
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. The effect of the
modifications were evaluated and accounted for in accordance
with Generally Accepted Accounting Principles, ASC 718
Compensation Stock Compensation. Expense associated
with the options continues to be recognized at a minimum at the
original grant date fair value.
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
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 and intangible impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
386.1
|
|
|
$
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible impairment
|
|
$
|
|
|
|
$
|
386.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
59.9
|
|
|
$
|
(250.5
|
)
|
|
$
|
500.0
|
|
International
|
|
|
10.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
70.3
|
|
|
|
(246.7
|
)
|
|
|
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
|
)
|
|
$
|
(354.8
|
)
|
|
$
|
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
|
|
$
|
2,748.7
|
|
|
$
|
2,772.3
|
|
International
|
|
|
242.5
|
|
|
|
310.9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,991.2
|
|
|
$
|
3,083.2
|
|
|
|
|
|
|
|
|
|
|
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 operating expenses of the
properties. Leases with escalation clauses based on an index,
such as the consumer price index, are expensed and projected
based on current rates. Leases with specified escalation steps
are expensed and projected based on the rate in effect in the
respective period which is not materially different than the
straight-line
F-39
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
method. 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.
There was an increase in the number of claims filed during the
fiscal years ending December 31, 2009 and December 31,
2010. We believe that this increase is due to a recent increase
in the marketing efforts by personal injury law firms in West
Virginia and Pennsylvania. Although we do not know whether this
is a trend that will continue in the near term, in the long
term, we anticipate that asbestos-related litigation against us
will decrease as the incidence of asbestos-related disease in
the general U.S. population decreases.
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
F-40
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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.
In the summer of 2010, our customer NiSource, Inc. notified
McJunkin Red Man Corporation that certain
1¢¢
polyethylene pipe manufactured by PolyPipe, Inc. may be
defective. PolyPipe, Inc. filed a petition in the District Court
in Cooke County, Texas against McJunkin Red Man Corporation and
NiSource, Inc. seeking, among other things, a declaratory
judgment that PolyPipe, Inc. is not responsible for certain
costs relating to the defendants alleged failure to track
and record the installation locations of the pipe and certain
expenditures implementing the potential remediation plan.
PolyPipe, Inc. subsequently filed a notice of non-suit without
prejudice, requesting that
F-41
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Court dismiss PolyPipes claims without prejudice to
their re-filing the same claims. Because this matter is in the
early stages, we are unable to determine the amount of
liability, if any, that may result from the ultimate resolution
this matter.
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, 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 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
|
In December 2009 and February 2010, McJunkin Red Man Corporation
(presented as Issuer in the following tables), a 100%-owned
subsidiary of McJunkin Red Man Holding Corporation (presented as
Parent in the following tables), issued senior secured notes due
December 15, 2016. The senior secured notes are fully and
unconditionally, and jointly and severally, guaranteed on a
senior basis by McJunkin Red Man Holding Corporation and
substantially all existing and future 100%-owned domestic
restricted subsidiaries of McJunkin Red Man Corporation
(collectively, the Guarantors). All other
subsidiaries of McJunkin Red Man Corporation, whether direct or
indirect, do not guarantee the senior secured notes (the
Non-Guarantors).
The following condensed consolidating financial statements
present the results of operations, financial position and cash
flows of (1) the Parent, (2) the Issuer, (3) the
Guarantors, (4) the Non-Guarantors, and
(5) eliminations to arrive at the information for McJunkin
Red Man Holding Corporation on a consolidated basis.
F-42
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Separate financial statements and other disclosures concerning
the Guarantors are not presented because management does not
believe such information is material to investors. Therefore,
each of the Guarantors is combined in the presentation below.
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
|
|
Investment in subsidiaries
|
|
|
686.6
|
|
|
|
478.3
|
|
|
|
|
|
|
|
|
|
|
|
(1,164.9
|
)
|
|
|
|
|
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
|
|
|
|
|
|
|
747.3
|
|
|
|
|
|
|
|
69.9
|
|
|
|
|
|
|
|
817.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
695.9
|
|
|
$
|
3,088.8
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,800.4
|
)
|
|
$
|
2,991.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
296.0
|
|
|
|
3.4
|
|
|
|
17.7
|
|
|
|
|
|
|
|
323.2
|
|
Shareholders equity
|
|
|
689.7
|
|
|
|
686.6
|
|
|
|
427.2
|
|
|
|
51.1
|
|
|
|
(1,164.9
|
)
|
|
|
689.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
695.9
|
|
|
$
|
3,088.8
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,800.4
|
)
|
|
$
|
2,991.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
740.8
|
|
|
|
451.0
|
|
|
|
|
|
|
|
|
|
|
|
(1,191.8
|
)
|
|
|
|
|
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
|
|
|
|
|
|
|
787.1
|
|
|
|
|
|
|
|
88.9
|
|
|
|
|
|
|
|
876.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
748.7
|
|
|
$
|
3,055.6
|
|
|
$
|
444.4
|
|
|
$
|
567.6
|
|
|
$
|
(1,733.1
|
)
|
|
$
|
3,083.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
329.1
|
|
|
|
4.4
|
|
|
|
20.6
|
|
|
|
|
|
|
|
358.5
|
|
Shareholders equity
|
|
|
743.9
|
|
|
|
740.8
|
|
|
|
384.1
|
|
|
|
66.9
|
|
|
|
(1,191.8
|
)
|
|
|
743.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
748.7
|
|
|
$
|
3,055.6
|
|
|
$
|
444.4
|
|
|
$
|
567.6
|
|
|
$
|
(1,733.1
|
)
|
|
$
|
3,083.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
2,742.1
|
|
|
|
3.8
|
|
|
|
587.5
|
|
|
|
(6.0
|
)
|
|
|
3,327.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
382.7
|
|
|
|
(3.8
|
)
|
|
|
139.2
|
|
|
|
|
|
|
|
518.1
|
|
Selling, general and administrative expenses
|
|
|
0.4
|
|
|
|
|
|
|
|
243.7
|
|
|
|
78.6
|
|
|
|
125.1
|
|
|
|
|
|
|
|
447.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
2,690.1
|
|
|
|
2.6
|
|
|
|
376.7
|
|
|
|
(2.0
|
)
|
|
|
3,067.4
|
|
Inventory write-down
|
|
|
|
|
|
|
44.1
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
481.4
|
|
|
|
(2.6
|
)
|
|
|
69.2
|
|
|
|
|
|
|
|
548.0
|
|
Selling, general and operating expenses
|
|
|
0.3
|
|
|
|
246.8
|
|
|
|
89.5
|
|
|
|
72.0
|
|
|
|
|
|
|
|
408.6
|
|
Goodwill and intangible impairment
|
|
|
|
|
|
|
317.1
|
|
|
|
|
|
|
|
69.0
|
|
|
|
|
|
|
|
386.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.3
|
)
|
|
|
(82.5
|
)
|
|
|
(92.1
|
)
|
|
|
(71.8
|
)
|
|
|
|
|
|
|
(246.7
|
)
|
Other (expense) income
|
|
|
(7.1
|
)
|
|
|
(385.0
|
)
|
|
|
293.6
|
|
|
|
(9.6
|
)
|
|
|
|
|
|
|
(108.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(7.4
|
)
|
|
|
(467.5
|
)
|
|
|
201.5
|
|
|
|
(81.4
|
)
|
|
|
|
|
|
|
(354.8
|
)
|
Equity in earnings of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
|
|
|
(334.7
|
)
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
286.8
|
|
|
|
|
|
Income tax (benefit)
|
|
|
(2.3
|
)
|
|
|
(84.9
|
)
|
|
|
75.8
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(339.8
|
)
|
|
$
|
(334.7
|
)
|
|
$
|
125.7
|
|
|
$
|
(77.8
|
)
|
|
$
|
286.8
|
|
|
$
|
(339.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
2,179.2
|
|
|
|
1,586.8
|
|
|
|
514.7
|
|
|
|
(7.6
|
)
|
|
|
4,273.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
474.0
|
|
|
|
390.8
|
|
|
|
118.0
|
|
|
|
(0.7
|
)
|
|
|
982.1
|
|
Selling, general and operating expenses
|
|
|
7.1
|
|
|
|
165.1
|
|
|
|
227.8
|
|
|
|
82.1
|
|
|
|
|
|
|
|
482.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
129.5
|
|
|
|
117.4
|
|
|
|
136.8
|
|
|
|
134.4
|
|
|
|
518.1
|
|
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
|
|
|
243.9
|
|
|
|
125.7
|
|
|
|
55.9
|
|
|
|
122.5
|
|
|
|
548.0
|
|
Net income (loss)
|
|
|
71.8
|
|
|
|
16.7
|
|
|
|
(361.7
|
)
|
|
|
(66.6
|
)
|
|
|
(339.8
|
)
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
$
|
(2.32
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(2.15
|
)
|
Diluted
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
$
|
(2.32
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(2.15
|
)
|
F-47
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Note 1
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
42,080
|
|
|
$
|
56,202
|
|
Accounts receivable, net
|
|
|
594,892
|
|
|
|
596,404
|
|
Inventories, net
|
|
|
783,554
|
|
|
|
765,367
|
|
Income taxes receivable
|
|
|
29,565
|
|
|
|
32,593
|
|
Other current assets
|
|
|
9,989
|
|
|
|
10,209
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,460,080
|
|
|
|
1,460,775
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Debt issuance costs, net
|
|
|
30,322
|
|
|
|
32,211
|
|
Assets held for sale
|
|
|
1,804
|
|
|
|
12,722
|
|
Other assets
|
|
|
13,408
|
|
|
|
14,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,534
|
|
|
|
59,145
|
|
Fixed assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
103,950
|
|
|
|
104,725
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
551,720
|
|
|
|
549,384
|
|
Other intangible assets, net
|
|
|
808,220
|
|
|
|
817,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,359,940
|
|
|
|
1,366,549
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,969,504
|
|
|
$
|
2,991,194
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
420,085
|
|
|
$
|
426,632
|
|
Accrued expenses and other liabilities
|
|
|
106,909
|
|
|
|
102,807
|
|
Deferred revenue
|
|
|
14,026
|
|
|
|
18,140
|
|
Deferred income taxes
|
|
|
70,825
|
|
|
|
70,636
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
611,845
|
|
|
|
618,215
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
|
1,333,008
|
|
|
|
1,360,241
|
|
Deferred income taxes
|
|
|
302,274
|
|
|
|
303,083
|
|
Other liabilities
|
|
|
21,797
|
|
|
|
19,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,657,079
|
|
|
|
1,683,221
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share;
800,000 shares authorized, issued and outstanding March
2011 168,836, issued and outstanding December
2010 168,808
|
|
|
1,688
|
|
|
|
1,688
|
|
Preferred stock, $0.01 par value per share;
150,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,275,199
|
|
|
|
1,273,716
|
|
Retained (deficit)
|
|
|
(566,918
|
)
|
|
|
(565,790
|
)
|
Accumulated other comprehensive (loss)
|
|
|
(9,389
|
)
|
|
|
(19,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
700,580
|
|
|
|
689,758
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,969,504
|
|
|
$
|
2,991,194
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed unaudited consolidated financial
statements.
F-48
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Sales
|
|
$
|
991,813
|
|
|
$
|
858,282
|
|
Cost of sales
|
|
|
844,847
|
|
|
|
728,810
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
146,966
|
|
|
|
129,472
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
114,812
|
|
|
|
108,088
|
|
Operating income
|
|
|
32,154
|
|
|
|
21,384
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(33,500
|
)
|
|
|
(35,339
|
)
|
Change in fair value of derivative instruments
|
|
|
1,868
|
|
|
|
(4,063
|
)
|
Other, net
|
|
|
(2,340
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,972
|
)
|
|
|
(39,762
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes
|
|
|
(1,818
|
)
|
|
|
(18,378
|
)
|
Income tax (benefit)
|
|
|
(690
|
)
|
|
|
(6,478
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(1,128
|
)
|
|
$
|
(11,900
|
)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.95
|
%
|
|
|
35.25
|
%
|
Basic (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Diluted (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Weighted-average common shares, basic
|
|
|
168,826
|
|
|
|
168,755
|
|
Weighted-average common shares, diluted
|
|
|
168,826
|
|
|
|
168,755
|
|
See notes to condensed unaudited consolidated financial
statements.
F-49
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(Dollars and shares in thousands)
|
|
|
Balance at December 31, 2009
|
|
|
168,735
|
|
|
$
|
1,687
|
|
|
$
|
1,269,772
|
|
|
$
|
(514,216
|
)
|
|
$
|
(13,345
|
)
|
|
$
|
743,898
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,900
|
)
|
|
|
|
|
|
|
(11,900
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,814
|
)
|
|
|
(5,814
|
)
|
Pension adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,551
|
)
|
Restricted stock vested during period
|
|
|
31
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
168,766
|
|
|
$
|
1,688
|
|
|
$
|
1,270,746
|
|
|
$
|
(526,116
|
)
|
|
$
|
(18,996
|
)
|
|
$
|
727,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
168,808
|
|
|
$
|
1,688
|
|
|
$
|
1,273,716
|
|
|
$
|
(565,790
|
)
|
|
$
|
(19,856
|
)
|
|
$
|
689,758
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,128
|
)
|
|
|
|
|
|
|
(1,128
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,541
|
|
|
|
10,541
|
|
Pension Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,339
|
|
Restricted stock vested during period
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
168,836
|
|
|
$
|
1,688
|
|
|
$
|
1,275,199
|
|
|
$
|
(566,918
|
)
|
|
$
|
(9,389
|
)
|
|
$
|
700,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed unaudited consolidated financial
statements.
F-50
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
|
(Dollars in thousands)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(1,128
|
)
|
|
$
|
(11,900
|
)
|
Adjustments to reconcile net (loss) to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
4,003
|
|
|
|
4,021
|
|
Amortization of debt issuance costs
|
|
|
2,990
|
|
|
|
3,001
|
|
Equity-based compensation expense
|
|
|
1,483
|
|
|
|
974
|
|
Deferred income tax (benefit)
|
|
|
(1,127
|
)
|
|
|
(1,464
|
)
|
Amortization of intangibles
|
|
|
12,443
|
|
|
|
13,766
|
|
Increase in LIFO reserve
|
|
|
10,065
|
|
|
|
6,872
|
|
Change in fair value of derivative instruments
|
|
|
(1,868
|
)
|
|
|
4,063
|
|
Provision for uncollectible accounts
|
|
|
(278
|
)
|
|
|
(460
|
)
|
Nonoperating losses and other items not using cash
|
|
|
2,264
|
|
|
|
683
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,257
|
|
|
|
(48,344
|
)
|
Inventories
|
|
|
(24,706
|
)
|
|
|
38,040
|
|
Income taxes
|
|
|
2,983
|
|
|
|
16,099
|
|
Other current assets
|
|
|
539
|
|
|
|
(2,332
|
)
|
Accounts payable
|
|
|
(10,685
|
)
|
|
|
(4,574
|
)
|
Deferred revenue
|
|
|
(4,137
|
)
|
|
|
7,117
|
|
Accrued expenses and other current liabilities
|
|
|
4,714
|
|
|
|
(19,118
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
5,812
|
|
|
|
6,444
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,824
|
)
|
|
|
(5,095
|
)
|
Proceeds from the disposition of property, plant and equipment
|
|
|
10,933
|
|
|
|
1,366
|
|
Other investment and notes receivable transactions
|
|
|
2,830
|
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
11,939
|
|
|
|
(4,396
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Net payments on revolving credit facilities
|
|
|
(30,830
|
)
|
|
|
(69,921
|
)
|
Proceeds from issuance of senior secured notes
|
|
|
|
|
|
|
48,572
|
|
Debt issuance costs paid
|
|
|
|
|
|
|
(2,477
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(30,830
|
)
|
|
|
(23,826
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease) in cash
|
|
|
(13,079
|
)
|
|
|
(21,778
|
)
|
Effect of foreign exchange rate on cash
|
|
|
(1,043
|
)
|
|
|
58
|
|
Cash beginning of period
|
|
|
56,202
|
|
|
|
56,244
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
42,080
|
|
|
$
|
34,524
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash (received) for income taxes
|
|
$
|
(2,753
|
)
|
|
$
|
(19,893
|
)
|
Cash paid for interest
|
|
|
5,470
|
|
|
|
7,295
|
|
See notes to condensed unaudited consolidated financial
statements.
F-51
McJUNKIN
RED MAN HOLDING CORPORATION
NOTE
1 SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation: Our unaudited
condensed consolidated financial statements have been prepared
in accordance with
Rule 10-01
of
Regulation S-X
for interim financial statements and do not include all
information and footnotes required by generally accepted
accounting principles for complete annual financial statements.
However, the information furnished herein reflects all normal
recurring adjustments which are, in our opinion, necessary for a
fair presentation of the results for the interim periods. The
results of operations for the three months ended March 31,
2011 are not necessarily indicative of the results that will be
realized for the fiscal year ending December 31, 2011. The
condensed consolidated balance sheet as of December 31,
2010 has been derived from audited financial statements for the
year ended December 31, 2010. These condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year
ended December 31, 2010.
The condensed 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.
Use of Estimates: The preparation of
financial statements in conformity with 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 uncollectible accounts
receivable, realizable value of excess and obsolete inventories,
inventory valuation
(last-in,
first-out), goodwill, other intangible assets, deferred taxes
and self-insurance programs. Actual results could materially
differ from those estimates.
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.
Certain purchasing costs and warehousing activities (including
receiving, inspection and stocking costs), as well as general
warehousing expenses, are included in selling, general and
administrative expenses and not in the cost of sales. As such,
our gross profit may not be comparable to others who may include
these expenses as a component of costs of goods sold. Purchasing
and warehousing activities costs approximated $6.2 million
and $6.3 million for the three months ended March 31,
2011 and 2010, respectively.
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
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.
Deposits held with banks may exceed insurance limits. We believe
the likelihood of loss associated with our cash equivalents is
remote.
We have a broad customer base doing business throughout North
America, as well as internationally. During the three months
ended March 31, 2011 and March 31, 2010, we did not
have sales to any one customer that exceeded 10% of our gross
sales. At March 31, 2011 and December 31, 2010, no
individual customer balances exceeded 10% of our gross accounts
receivable. Accordingly, no significant concentration of
customer credit risk is considered to exist.
Income Taxes: We estimate the tax that
will be provided for the fiscal year stated as a percentage of
income before taxes. This estimated annual effective tax rate is
applied to the
year-to-date
income before taxes at the end of each quarter to compute the
year-to-date
tax. The tax effects of significant, unusual or infrequently
occurring items are recognized as discrete items in the interim
period in which the events occur. This quarterly determination
of the
F-52
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
annual effective tax rate is based upon a number of significant
estimates and judgments, including estimating the annual income
before taxes in each tax jurisdiction in which we operate.
Segment Reporting: We have two
operating segments, one consisting of our North American
operations and one consisting of our International operations.
Our North American segment consists of our operations in the
United States and Canada. Our International segment has
operations in Europe, Asia and Australasia. These segments
represent our 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 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) markets, through our
distribution operations located throughout the world.
Recent Accounting Pronouncements: In
January 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU
No. 2011-01),
Deferral of the Effective Date of Disclosures about Troubled
Debt Restructurings in Update
No. 2010-20,
an amendment to ASC Topic 310, Receivables. This
amendment temporarily delays the effective date of the
disclosures about troubled debt restructurings in Update
2010-20 for
public entities. The delay is intended to allow the FASB time to
complete its deliberations on what constitutes a troubled debt
restructuring. The effective date of the new disclosures about
troubled debt restructurings for public entities and the
guidance for determining what constitutes a troubled debt
restructuring will then be coordinated. The guidance is
anticipated to be effective for interim and annual periods
ending after June 15, 2011. We do not believe that ASU
No. 2011-01
will have a material impact on our consolidated financial
statements.
NOTE
2 INVENTORIES
The composition of our inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
Finished goods inventory at average cost:
|
|
|
|
|
|
|
|
|
Energy carbon steel tubular products
|
|
$
|
428,698
|
|
|
$
|
396,611
|
|
Valves, fittings, flanges and all other products
|
|
|
480,565
|
|
|
|
481,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
909,263
|
|
|
|
877,748
|
|
Less: Excess of average cost over LIFO cost (LIFO reserve)
|
|
|
(111,474
|
)
|
|
|
(101,419
|
)
|
Less: Other inventory reserves
|
|
|
(14,235
|
)
|
|
|
(10,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
783,554
|
|
|
$
|
765,367
|
|
|
|
|
|
|
|
|
|
|
During 2010, 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. The effect of this
LIFO decrement decreased cost of sales by approximately
$0.2 million during the three months ended March 31,
2011 and increased cost of sales by approximately
$1.6 million during the three months ended March 31,
2010.
F-53
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
NOTE
3 LONG-TERM DEBT
The significant components of our long-term debt are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
9.50% senior secured notes due 2016, net of discount
|
|
$
|
1,028,864
|
|
|
$
|
1,027,938
|
|
Asset-based revolving credit facility
|
|
|
245,479
|
|
|
|
286,398
|
|
Midfield revolving credit facility
|
|
|
23,463
|
|
|
|
1,297
|
|
Midfield term loan facility
|
|
|
4,507
|
|
|
|
14,415
|
|
MRC Transmark revolving credit facility
|
|
|
23,112
|
|
|
|
23,214
|
|
MRC Transmark factoring facility
|
|
|
7,583
|
|
|
|
6,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333,008
|
|
|
|
1,360,241
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,333,008
|
|
|
$
|
1,360,241
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011, availability under our revolving credit
facilities was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eligible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral (up
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment
|
|
|
to Commitment
|
|
|
Amount
|
|
|
Letters of
|
|
|
|
|
|
|
Amount
|
|
|
Amount)
|
|
|
Outstanding
|
|
|
Credit
|
|
|
Availability
|
|
|
Asset-based revolving credit facility
|
|
$
|
900,000
|
|
|
$
|
627,353
|
|
|
$
|
245,479
|
|
|
$
|
4,809
|
|
|
$
|
377,065
|
|
Midfield revolving credit facility
|
|
|
82,288
|
|
|
|
82,288
|
|
|
|
23,463
|
|
|
|
|
|
|
|
58,825
|
|
MRC Transmark revolving credit facility
|
|
|
84,594
|
|
|
|
84,594
|
|
|
|
23,112
|
|
|
|
10,282
|
|
|
|
51,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,066,882
|
|
|
$
|
794,235
|
|
|
$
|
292,054
|
|
|
$
|
15,091
|
|
|
$
|
487,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on hand:
|
|
|
42,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity at March 31, 2011:
|
|
$
|
529,170
|
|
|
|
|
|
|
|
|
|
|
|
|
We were in compliance with the covenants contained in our
indenture and each of our credit facilities as of and for the
three months ended March 31, 2011.
On April 29, 2011, we engaged certain financial
institutions to arrange a new $1 billion senior revolving
credit facility. This facility will replace and the proceeds
will be used to repay existing indebtedness under our
Asset-based revolving credit facility, Midfield revolving credit
facility and Midfield term loan facility and to fund the ongoing
operational needs of the business. The facility will have a five
year maturity and terms substantially similar to our existing
Asset-based revolving credit facility. This refinancing
transaction was completed on June 14, 2011. We anticipate
that we will incur a one-time non-cash charge to expense of
approximately $10 million for certain capitalized fees
relating to our previous facilities.
F-54
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
Interest on Borrowings: Our
weighted-average effective interest rates on borrowings
outstanding at March 31, 2011 and December 31, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
9.50% senior secured notes due 2016, net of discount
|
|
|
9.88
|
%
|
|
|
9.88
|
%
|
Asset-based revolving credit facility
|
|
|
3.50
|
%
|
|
|
3.34
|
%
|
Midfield revolving credit facility
|
|
|
4.75
|
%
|
|
|
5.00
|
%
|
Midfield term loan facility
|
|
|
5.75
|
%
|
|
|
5.86
|
%
|
MRC Transmark revolving credit facility
|
|
|
2.57
|
%
|
|
|
2.61
|
%
|
MRC Transmark factoring facility
|
|
|
1.63
|
%
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
8.43
|
%
|
|
|
8.29
|
%
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps and Forward Foreign Exchange
Contracts: We use derivative financial
instruments to help manage our exposure to interest rate risk
and fluctuations in foreign currencies.
Effective March 31, 2009, we entered into a freestanding
$500 million interest rate swap derivative 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 have several additional interest rate
swap derivatives, with notional amounts approximating
$19.1 million in the aggregate. All of our derivative
instruments are freestanding and, accordingly, changes in their
fair market value are recorded in earnings.
We did not have any derivatives designated as hedging
instruments at March 31, 2011 or December 31, 2010.
The table below provides data about the fair value of our
derivative instruments that are recorded in our condensed
consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts(1)
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
209
|
|
Interest rate contracts(1)
|
|
|
|
|
|
|
7,414
|
|
|
|
|
|
|
|
8,975
|
|
|
|
|
(1) |
|
Included in Accrued expenses and other current
liabilities in our condensed consolidated balance sheets.
The total notional amount of our interest rate swaps was
approximately $0.5 billion at March 31, 2011 and
December 31, 2010. The total notional amount of our forward
foreign exchange contracts was approximately $23 million
and $8 million at March 31, 2011 and December 31,
2010. |
The table below provides data about the amount of gains and
(losses) recognized in our condensed consolidated statements of
operations on our derivative instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
278
|
|
|
$
|
157
|
|
Interest rate contracts
|
|
|
1,590
|
|
|
|
(4,220
|
)
|
F-55
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
NOTE
4 STOCKHOLDERS
EQUITY
Accumulated
Other Comprehensive Loss
Accumulated other comprehensive loss in the accompanying
condensed consolidated balance sheets consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
Currency translation adjustments
|
|
$
|
(8,162
|
)
|
|
$
|
(18,703
|
)
|
Pension-related adjustments
|
|
|
(1,227
|
)
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(9,389
|
)
|
|
$
|
(19,856
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per Share
Earnings per share are calculated as follows (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Net (loss)
|
|
$
|
(1,128
|
)
|
|
$
|
(11,900
|
)
|
|
|
|
|
|
|
|
|
|
Average basic shares outstanding
|
|
|
168,826
|
|
|
|
168,755
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive shares outstanding
|
|
|
168,826
|
|
|
|
168,755
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
Stock options and restricted stock are disregarded in this
calculation if they are determined to be antidilutive. For the
quarters ended March 31, 2011 and March 31, 2010, our
anti-dilutive stock options totaled approximately
3.9 million and our anti-dilutive restricted stock totaled
approximately 0.2 million.
NOTE
5 EMPLOYEE BENEFIT PLANS
Restricted
Stock and Stock Option 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.
F-56
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
A summary of the status of stock option grants under the stock
option plan for the three months ended March 31, 2011 and
March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
(thousands)
|
|
|
Outstanding at December 31, 2009
|
|
|
3,979,210
|
|
|
$
|
9.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(45,118
|
)
|
|
$
|
7.44
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
3,934,092
|
|
|
$
|
9.80
|
|
|
|
8.3
|
|
|
$
|
5,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
3,937,122
|
|
|
$
|
9.95
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(13,345
|
)
|
|
$
|
4.81
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
3,923,777
|
|
|
$
|
9.96
|
|
|
|
7.4
|
|
|
$
|
2,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information regarding stock options outstanding at
March 31, 2011 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
(thousands)
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
943,879
|
|
|
$
|
8.40
|
|
|
|
6.8
|
|
|
$
|
1,356
|
|
Options outstanding and vested
|
|
|
943,879
|
|
|
$
|
8.40
|
|
|
|
6.8
|
|
|
$
|
1,356
|
|
Options outstanding, vested and expected to vest
|
|
|
3,743,112
|
|
|
$
|
10.02
|
|
|
|
7.4
|
|
|
$
|
2,803
|
|
Under the terms of the 2007 Restricted Stock Plan, restricted
stock may be granted at the direction of our 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.
F-57
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
The following table summarizes restricted stock activity under
the restricted stock plan during the three months ended
March 31, 2011 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Grant-Date
|
|
|
Shares
|
|
Fair Value
|
|
Beginning balance at December 31, 2009
|
|
|
227,885
|
|
|
|
5.57
|
|
Vested
|
|
|
(30,191
|
)
|
|
|
4.71
|
|
Forfeited
|
|
|
(4,764
|
)
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
Ending balance at March 31, 2010
|
|
|
192,930
|
|
|
|
5.73
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at December 31, 2010
|
|
|
155,465
|
|
|
|
5.97
|
|
Vested
|
|
|
(28,584
|
)
|
|
|
4.71
|
|
Forfeited
|
|
|
(953
|
)
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
Ending balance at March 31, 2011
|
|
|
125,928
|
|
|
|
6.27
|
|
|
|
|
|
|
|
|
|
|
Restricted Common Units: Certain of our
key employees received restricted common units of our parent
company, PVF Holdings LLC, that vest over a
three-to-five-year
requisite service period. At March 31, 2011, 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 profits units in PVF Holdings LLC that vest
over a five-year requisite service period. The holders of these
units are entitled to their pro rata share of any distributions
made by PVF Holdings LLC once common unit holders have received
a return of all capital contributed to PVF Holdings LLC (for
purposes of the limited liability company agreement of PVF
Holdings LLC). Expense is being recognized on a straight-line
basis over the vesting period.
Recognized compensation expense under our equity-based
compensation plans is set forth in the table below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Equity-based compensation expense:
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,022
|
|
|
$
|
784
|
|
Restricted stock
|
|
|
108
|
|
|
|
77
|
|
Restricted common units
|
|
|
|
|
|
|
(339
|
)
|
Profit units
|
|
|
353
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation expense
|
|
$
|
1,483
|
|
|
$
|
974
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense under our equity-based
compensation plans is set forth in the table below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Unrecognized equity-based compensation expense:
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
8,880
|
|
|
$
|
11,466
|
|
Restricted stock
|
|
|
497
|
|
|
|
886
|
|
Profit units
|
|
|
1,658
|
|
|
|
3,874
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized equity-based compensation expense
|
|
$
|
11,035
|
|
|
$
|
16,226
|
|
|
|
|
|
|
|
|
|
|
F-58
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
NOTE
6 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
natural gas), midstream (gathering and transmission of oil and
natural gas, natural gas utilities, and the storage and
distribution of oil and gas) and downstream (crude oil refining,
petrochemical processing and general industrials) markets
through our distribution operations located throughout the world.
The following table presents financial information for each
segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Sales:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
932.4
|
|
|
$
|
780.7
|
|
International
|
|
|
59.4
|
|
|
|
77.6
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
991.8
|
|
|
$
|
858.3
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3.5
|
|
|
$
|
3.5
|
|
International
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Amortization of intangibles:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
11.0
|
|
|
$
|
11.0
|
|
International
|
|
|
1.4
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
12.4
|
|
|
$
|
13.8
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
30.6
|
|
|
$
|
14.0
|
|
International
|
|
|
1.6
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
32.2
|
|
|
$
|
21.4
|
|
Interest expense
|
|
$
|
33.5
|
|
|
$
|
35.3
|
|
Other expense
|
|
|
0.5
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes
|
|
$
|
(1.8
|
)
|
|
$
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
|
F-59
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
509.2
|
|
|
$
|
509.5
|
|
International
|
|
|
42.5
|
|
|
|
39.9
|
|
|
|
|
|
|
|
|
|
|
Consolidated goodwill
|
|
$
|
551.7
|
|
|
$
|
549.4
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,714.1
|
|
|
$
|
2,748.7
|
|
International
|
|
|
255.4
|
|
|
|
242.5
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
2,969.5
|
|
|
$
|
2,991.2
|
|
|
|
|
|
|
|
|
|
|
The percentages of our sales and assets relating to certain
geographic areas are listed below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Sales:
|
|
|
|
|
|
|
|
|
United States
|
|
|
78
|
%
|
|
|
76
|
%
|
Canada
|
|
|
16
|
%
|
|
|
15
|
%
|
International
|
|
|
6
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2011
|
|
2010
|
|
Assets:
|
|
|
|
|
|
|
|
|
United States
|
|
|
81
|
%
|
|
|
83
|
%
|
Canada
|
|
|
10
|
%
|
|
|
9
|
%
|
International
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The percentages of our net sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
Type
|
|
2011
|
|
2010
|
|
Energy carbon steel tubular products
|
|
|
34
|
%
|
|
|
33
|
%
|
Valves, fittings, flanges and other products
|
|
|
66
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
NOTE
7 FAIR VALUE MEASUREMENTS
We used the following methods and significant assumptions to
estimate fair value for assets and liabilities recorded at fair
value.
Derivatives: Derivatives 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.
F-60
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
Forward Foreign Exchange
Contracts: Forward foreign exchange 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.
The following table presents assets and liabilities measured at
fair value on a recurring basis as of March 31, 2011 and
December 31, 2010, and the basis for that measurement (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
57
|
|
|
|
|
|
|
$
|
57
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
7,414
|
|
|
|
|
|
|
|
7,414
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
209
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
8,975
|
|
|
|
|
|
|
|
8,975
|
|
|
|
|
|
The following table presents the carrying value and estimated
fair value of our financial instruments that are carried at
adjusted historical cost (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
Cash
|
|
$
|
42,080
|
|
|
$
|
42,080
|
|
|
$
|
56,202
|
|
|
$
|
56,202
|
|
Accounts receivable, net
|
|
|
594,892
|
|
|
|
594,892
|
|
|
|
596,404
|
|
|
|
596,404
|
|
Trade accounts payable
|
|
|
420,085
|
|
|
|
420,085
|
|
|
|
426,632
|
|
|
|
426,632
|
|
Accrued expenses and other liabilities
|
|
|
106,909
|
|
|
|
106,909
|
|
|
|
102,807
|
|
|
|
102,807
|
|
Long-term debt
|
|
|
1,333,008
|
|
|
|
1,328,962
|
|
|
|
1,360,241
|
|
|
|
1,292,826
|
|
The carrying values of our financial instruments, including cash
and cash equivalents, accounts receivable, trade accounts
payable and accrued expenses and other liabilities, approximate
fair value because of the short maturity of these financial
instruments.
We estimated the fair value of the senior secured notes using
dealer quotations as of March 31, 2011 and
December 31, 2010.
We estimated the fair value of our asset-based revolving credit
facility (ABL) by discounting scheduled future
payments (principal and interest) at current rates available on
borrowings with similar terms as of March 31, 2011. The
carrying values of the remaining portions of our long-term debt
approximate their fair values.
NOTE
8 COMMITMENTS AND
CONTINGENCIES
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 March 31, 2011,
we are a defendant in lawsuits involving approximately 945 such
claims. Each claim involves allegations of exposure to
asbestos-containing materials by a single individual or an
individual, his
F-61
McJUNKIN
RED MAN HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
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 March 31, 2011,
lawsuits involving over 11,750 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 March 31, 2011, approximately
$1.4 million has been paid to asbestos claimants in
connection with settlements of claims against us without regard
to insurance recoveries.
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.
In the summer of 2010, our customer NiSource, Inc. notified
McJunkin Red Man Corporation that certain polyethylene pipe
manufactured by PolyPipe, Inc. may be defective. PolyPipe, Inc.
filed a petition in the District Court in Cooke County, Texas
against McJunkin Red Man Corporation and NiSource, Inc. seeking,
among other things, a declaratory judgment that PolyPipe, Inc.
is not responsible for certain costs relating to the
defendants alleged failure to track and record the
installation locations of the pipe and certain expenditures
implementing the potential remediation plan. PolyPipe, Inc.
subsequently filed a notice of non-suit without prejudice,
requesting that the Court dismiss PolyPipes claims without
prejudice to their re-filing the same claims. Because this
matter is in the early stages, we are unable to determine the
amount of liability, if any, that may result from the ultimate
resolution this matter.
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 or liquidity, 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 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.
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.
F-62
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9
GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
In December 2009 and February 2010, McJunkin Red Man Corporation
(presented as Issuer in the following tables), a 100%-owned
subsidiary of McJunkin Red Man Holding Corporation (presented as
Parent in the following tables), issued senior secured notes due
December 15, 2016. The senior secured notes are fully and
unconditionally, and jointly and severally, guaranteed on a
senior basis by McJunkin Red Man Holding Corporation and
substantially all existing and future 100%-owned domestic
restricted subsidiaries of McJunkin Red Man Corporation
(collectively, the Guarantors). All other
subsidiaries of McJunkin Red Man Corporation, whether direct or
indirect, do not guarantee the senior secured notes (the
Non-Guarantors).
The following condensed consolidating financial statements
present the results of operations, financial position and cash
flows of (1) the Parent, (2) the Issuer, (3) the
Guarantors, (4) the Non-Guarantors, and
(5) eliminations to arrive at the information for McJunkin
Red Man Holding Corporation on a consolidated basis. Separate
financial statements and other disclosures concerning the
Guarantors are not presented because management does not believe
such information is material to investors. Therefore, each of
the Guarantors is combined in the presentation below.
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash
|
|
$
|
0.9
|
|
|
$
|
6.3
|
|
|
$
|
|
|
|
$
|
34.9
|
|
|
$
|
|
|
|
$
|
42.1
|
|
Accounts receivable, net
|
|
|
0.7
|
|
|
|
405.4
|
|
|
|
|
|
|
|
188.8
|
|
|
|
|
|
|
|
594.9
|
|
Inventory, net
|
|
|
|
|
|
|
628.8
|
|
|
|
|
|
|
|
154.8
|
|
|
|
|
|
|
|
783.6
|
|
Income taxes receivable
|
|
|
0.1
|
|
|
|
60.6
|
|
|
|
|
|
|
|
5.1
|
|
|
|
(36.2
|
)
|
|
|
29.6
|
|
Other current assets
|
|
|
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
5.8
|
|
|
|
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1.7
|
|
|
|
1,103.2
|
|
|
|
2.0
|
|
|
|
389.4
|
|
|
|
(36.2
|
)
|
|
|
1,460.1
|
|
Investment in subsidiaries
|
|
|
697.7
|
|
|
|
395.8
|
|
|
|
|
|
|
|
|
|
|
|
(1,093.5
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
7.3
|
|
|
|
|
|
|
|
363.6
|
|
|
|
|
|
|
|
(370.9
|
)
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
129.6
|
|
|
|
0.2
|
|
|
|
8.4
|
|
|
|
(92.7
|
)
|
|
|
45.5
|
|
Fixed assets, net
|
|
|
|
|
|
|
45.5
|
|
|
|
19.5
|
|
|
|
39.0
|
|
|
|
|
|
|
|
104.0
|
|
Goodwill
|
|
|
|
|
|
|
509.2
|
|
|
|
|
|
|
|
42.5
|
|
|
|
|
|
|
|
551.7
|
|
Other intangible assets, net
|
|
|
|
|
|
|
737.4
|
|
|
|
|
|
|
|
70.8
|
|
|
|
|
|
|
|
808.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
706.7
|
|
|
$
|
2,920.7
|
|
|
$
|
385.3
|
|
|
$
|
550.1
|
|
|
$
|
(1,593.3
|
)
|
|
$
|
2,969.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
|
|
|
$
|
295.3
|
|
|
$
|
0.8
|
|
|
$
|
124.0
|
|
|
$
|
|
|
|
$
|
420.1
|
|
Accrued expenses
|
|
|
0.2
|
|
|
|
83.4
|
|
|
|
7.8
|
|
|
|
22.8
|
|
|
|
(7.3
|
)
|
|
|
106.9
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
33.6
|
|
|
|
2.6
|
|
|
|
(36.2
|
)
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
14.0
|
|
Deferred income taxes
|
|
|
|
|
|
|
70.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
0.2
|
|
|
|
462.1
|
|
|
|
42.2
|
|
|
|
150.8
|
|
|
|
(43.5
|
)
|
|
|
611.8
|
|
Long-term debt, net
|
|
|
|
|
|
|
1,274.3
|
|
|
|
|
|
|
|
177.2
|
|
|
|
(118.5
|
)
|
|
|
1,333.0
|
|
Intercompany payable
|
|
|
|
|
|
|
190.3
|
|
|
|
|
|
|
|
148.1
|
|
|
|
(338.4
|
)
|
|
|
|
|
Other liabilities
|
|
|
5.9
|
|
|
|
296.3
|
|
|
|
2.5
|
|
|
|
18.8
|
|
|
|
0.6
|
|
|
|
324.1
|
|
Shareholders equity
|
|
|
700.6
|
|
|
|
697.7
|
|
|
|
340.6
|
|
|
|
55.2
|
|
|
|
(1,093.5
|
)
|
|
|
700.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
706.7
|
|
|
$
|
2,920.7
|
|
|
$
|
385.3
|
|
|
$
|
550.1
|
|
|
$
|
(1,593.3
|
)
|
|
$
|
2,969.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Investment in subsidiaries
|
|
|
686.6
|
|
|
|
478.3
|
|
|
|
|
|
|
|
|
|
|
|
(1,164.9
|
)
|
|
|
|
|
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
|
|
|
|
|
|
|
747.3
|
|
|
|
|
|
|
|
69.9
|
|
|
|
|
|
|
|
817.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
695.9
|
|
|
$
|
3,088.8
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,800.4
|
)
|
|
$
|
2,991.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
296.0
|
|
|
|
3.4
|
|
|
|
17.7
|
|
|
|
|
|
|
|
323.2
|
|
Shareholders equity
|
|
|
689.7
|
|
|
|
686.6
|
|
|
|
427.2
|
|
|
|
51.1
|
|
|
|
(1,164.9
|
)
|
|
|
689.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
695.9
|
|
|
$
|
3,088.8
|
|
|
$
|
502.3
|
|
|
$
|
504.6
|
|
|
$
|
(1,800.4
|
)
|
|
$
|
2,991.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Condensed
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Sales
|
|
$
|
|
|
|
|
|
|
|
$
|
771.5
|
|
|
$
|
|
|
|
$
|
220.3
|
|
|
$
|
|
|
|
$
|
991.8
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
667.1
|
|
|
|
0.9
|
|
|
|
176.8
|
|
|
|
|
|
|
|
844.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
104.4
|
|
|
|
(0.9
|
)
|
|
|
43.5
|
|
|
|
|
|
|
|
147.0
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
60.9
|
|
|
|
20.5
|
|
|
|
33.4
|
|
|
|
|
|
|
|
114.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
43.5
|
|
|
|
(21.4
|
)
|
|
|
10.1
|
|
|
|
|
|
|
|
32.2
|
|
Other (expense) income
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(94.4
|
)
|
|
|
68.8
|
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
(34.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(50.9
|
)
|
|
|
47.4
|
|
|
|
1.9
|
|
|
|
|
|
|
|
(1.8
|
)
|
Equity in earnings of subsidiary
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
(29.0
|
)
|
|
|
|
|
Income tax (benefit)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(19.9
|
)
|
|
|
17.6
|
|
|
|
1.7
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1.1
|
)
|
|
|
|
|
|
$
|
(1.0
|
)
|
|
$
|
29.8
|
|
|
$
|
0.2
|
|
|
$
|
(29.0
|
)
|
|
$
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Sales
|
|
$
|
|
|
|
|
|
|
|
$
|
656.2
|
|
|
$
|
|
|
|
$
|
202.1
|
|
|
$
|
|
|
|
$
|
858.3
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
565.2
|
|
|
|
0.9
|
|
|
|
162.7
|
|
|
|
|
|
|
|
728.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
91.0
|
|
|
|
(0.9
|
)
|
|
|
39.4
|
|
|
|
|
|
|
|
129.5
|
|
Operating expenses
|
|
|
0.2
|
|
|
|
|
|
|
|
57.0
|
|
|
|
18.3
|
|
|
|
32.6
|
|
|
|
|
|
|
|
108.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
34.0
|
|
|
|
(19.2
|
)
|
|
|
6.8
|
|
|
|
|
|
|
|
21.4
|
|
Other (expense) income
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(106.3
|
)
|
|
|
73.0
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
(39.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(72.3
|
)
|
|
|
53.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(18.4
|
)
|
Equity in earnings of subsidiary
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
(21.5
|
)
|
|
|
|
|
Income tax (benefit)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(27.8
|
)
|
|
|
20.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(11.9
|
)
|
|
|
|
|
|
$
|
(11.5
|
)
|
|
$
|
33.0
|
|
|
$
|
|
|
|
$
|
(21.5
|
)
|
|
$
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(0.1
|
)
|
|
$
|
33.8
|
|
|
$
|
3.6
|
|
|
$
|
(31.5
|
)
|
|
$
|
|
|
|
$
|
5.8
|
|
Investing activities
|
|
|
(0.1
|
)
|
|
|
12.7
|
|
|
|
(3.6
|
)
|
|
|
2.9
|
|
|
|
|
|
|
|
11.9
|
|
Financing activities
|
|
|
|
|
|
|
(43.3
|
)
|
|
|
|
|
|
|
12.5
|
|
|
|
|
|
|
|
(30.8
|
)
|
Effect of exchange rate on cash
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(0.2
|
)
|
|
|
1.9
|
|
|
|
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
(14.1
|
)
|
Cash beginning of period
|
|
|
1.1
|
|
|
|
4.4
|
|
|
|
|
|
|
|
50.7
|
|
|
|
|
|
|
|
56.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
0.9
|
|
|
$
|
6.3
|
|
|
$
|
|
|
|
$
|
34.9
|
|
|
$
|
|
|
|
$
|
42.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
McJUNKIN
RED MAN HOLDING CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Elim
|
|
|
Total
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
0.4
|
|
|
$
|
(5.7
|
)
|
|
$
|
4.3
|
|
|
$
|
7.4
|
|
|
$
|
|
|
|
$
|
6.4
|
|
Investing activities
|
|
|
(0.6
|
)
|
|
|
1.2
|
|
|
|
(4.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(4.4
|
)
|
Financing activities
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
(27.1
|
)
|
|
|
|
|
|
|
(23.7
|
)
|
Effect of exchange rate on cash
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(0.2
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(19.6
|
)
|
|
|
|
|
|
|
(21.7
|
)
|
Cash beginning of period
|
|
|
0.5
|
|
|
|
5.1
|
|
|
|
|
|
|
|
50.6
|
|
|
|
|
|
|
|
56.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
0.3
|
|
|
$
|
3.2
|
|
|
$
|
|
|
|
$
|
31.0
|
|
|
$
|
|
|
|
$
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
Until ,
2011, all dealers that effect transactions in the exchange notes
may be
required to deliver a prospectus.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 20.
|
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.
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
II-1
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, 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.
II-2
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
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.
II-3
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 21.
|
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 &U 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.
|
II-4
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
II-5
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
II-6
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
II-7
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.31
|
|
Loan, Security and Guarantee Agreement between McJunkin Red Man
Corporation, Midfield Supply ULC and the other parties thereto.
|
|
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.
|
|
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.
|
|
99
|
.1***
|
|
Form of Letter of Transmittal, with respect to outstanding notes
and exchange notes.
|
|
99
|
.2***
|
|
Form of Notice of Guaranteed Delivery, with respect to
outstanding notes and exchange notes.
|
|
99
|
.3***
|
|
Form of Instructions to Registered Holder Beneficial Owners.
|
|
99
|
.4***
|
|
Form of Letter to Clients.
|
|
99
|
.5***
|
|
Form of Letter to Registered Holders
|
|
|
|
* |
|
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. |
|
*** |
|
Previously filed with Registration Statement on
Form S-4
of McJunkin Red Man Corporation
(No. 333-173035). |
|
|
|
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
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;
II-8
(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.
(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-9
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 21st
day of June, 2011.
MCJUNKIN RED MAN CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-10
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 21st day of June, 2011.
MCJUNKIN RED MAN HOLDING CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
|
|
|
|
|
*
Leonard
M. Anthony
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Rhys
J. Best
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Peter
C. Boylan III
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Henry
Cornell
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Christopher
A.S. Crampton
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
John
F. Daly
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Craig
Ketchum
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
Gerard
P. Krans
|
|
Director
|
|
June 21, 2011
|
II-11
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Dr. Cornelis
A. Linse
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
John
A. Perkins
|
|
Director
|
|
June 21, 2011
|
|
|
|
|
|
*
H.B.
Wehrle, III
|
|
Director
|
|
June 21, 2011
|
Andrew R. Lane,
Attorney-in-Fact
II-12
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 21st day of June, 2011.
MCJUNKIN RED MAN DEVELOPMENT CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-13
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
21st day of June, 2011.
MCJUNKIN NIGERIA LIMITED
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-14
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 21st day of June, 2011.
MCJUNKIN-PUERTO RICO CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-15
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 21st day of June, 2011.
MCJUNKIN-WEST AFRICA CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-16
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 21st day of June, 2011.
MILTON OIL & GAS COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-17
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
21st day of June, 2011.
RUFFNER REALTY COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-18
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 21st day of June, 2011.
GREENBRIER PETROLEUM CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-19
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 21st day of June, 2011.
MIDWAY-TRISTATE CORPORATION
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-20
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
21st day of June, 2011.
MRC MANAGEMENT COMPANY
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-21
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 21st day of June, 2011.
THE SOUTH TEXAS SUPPLY COMPANY, INC.
Andrew R. Lane
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Andrew
R. Lane
Andrew
R. Lane
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer and Sole Director)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ James
F. Underhill
James
F. Underhill
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
June 21, 2011
|
|
|
|
|
|
/s/ Elton
Bond
Elton
Bond
|
|
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
June 21, 2011
|
II-22
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 &U 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.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
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.
|
|
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.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.31
|
|
Loan, Security and Guarantee Agreement between McJunkin Red Man
Corporation, Midfield Supply ULC and the other parties thereto.
|
|
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.
|
|
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.
|
|
99
|
.1***
|
|
Form of Letter of Transmittal, with respect to outstanding notes
and exchange notes.
|
|
99
|
.2***
|
|
Form of Notice of Guaranteed Delivery, with respect to
outstanding notes and exchange notes.
|
|
99
|
.3***
|
|
Form of Instructions to Registered Holder Beneficial Owners.
|
|
99
|
.4***
|
|
Form of Letter to Clients.
|
|
99
|
.5***
|
|
Form of Letter to Registered Holders
|
|
|
|
* |
|
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. |
|
*** |
|
Previously filed with Registration Statement on
Form S-4
of McJunkin Red Man Corporation
(No. 333-173035). |
|
|
|
Management contract or compensatory plan or arrangement required
to be posted as an exhibit to this report. |
exv10w31
Exhibit 10.31
LOAN, SECURITY AND GUARANTEE AGREEMENT
Dated as of June 14, 2011
among
MCJUNKIN RED MAN CORPORATION,
GREENBRIER PETROLEUM CORPORATION,
MCJUNKIN NIGERIA LIMITED,
MCJUNKIN PUERTO RICO CORPORATION,
MCJUNKIN RED MAN DEVELOPMENT CORPORATION,
MCJUNKIN WEST AFRICA CORPORATION,
MIDWAY TRISTATE CORPORATION,
MILTON OIL & GAS COMPANY,
MRC MANAGEMENT COMPANY,
MRM OKLAHOMA MANAGEMENT LLC,
RUFFNER REALTY COMPANY
and
THE SOUTH TEXAS SUPPLY COMPANY, INC.,
as U.S. Borrowers and Canadian Facility Guarantors,
MIDFIELD SUPPLY ULC,
as a Canadian Borrower,
any other U.S. Borrowers and Canadian Borrowers party hereto from time to time
and
certain other U.S. Subsidiaries of U.S. Borrowers
party hereto from time to time as U.S. Facility Guarantors and Canadian Facility Guarantors,
CERTAIN FINANCIAL INSTITUTIONS,
as Lenders,
BANK OF AMERICA, N.A.,
as Administrative Agent and Collateral Agent,
BARCLAYS CAPITAL
and
WELLS FARGO CAPITAL FINANCE LLC,
as Co-Syndication Agents,
GOLDMAN SACHS LENDING PARTNERS LLC
and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Documentation Agents and Managing Agents
and
SUNTRUST BANK
and
TD BANK, N.A.,
as Managing Agents
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
as Lead Arranger and Book Manager
and
BARCLAYS CAPITAL
and
WELLS FARGO CAPITAL FINANCE, LLC,
as Joint Lead Arrangers and as Joint Book Managers
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page |
|
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION |
|
|
1 |
|
1.1 Definitions |
|
|
1 |
|
1.2 Accounting Terms |
|
|
62 |
|
1.3 Uniform Commercial Code/PPSA |
|
|
63 |
|
1.4 Certain Matters of Construction |
|
|
63 |
|
1.5 Interpretation (Quebec) |
|
|
64 |
|
SECTION 2. CREDIT FACILITIES |
|
|
64 |
|
2.1 Commitment |
|
|
64 |
|
2.2 Letter of Credit Facilities |
|
|
71 |
|
2.3 Canadian Borrowers Sublimit |
|
|
77 |
|
2.4 Obligations of the Canadian Domiciled Loan Party |
|
|
77 |
|
SECTION 3. INTEREST, FEES AND CHARGES |
|
|
77 |
|
3.1 Interest |
|
|
77 |
|
3.2 Fees |
|
|
80 |
|
3.3 Computation of Interest, Fees, Yield Protection |
|
|
81 |
|
3.4 Reimbursement Obligations |
|
|
81 |
|
3.5 Illegality |
|
|
82 |
|
3.6 Inability to Determine Rates |
|
|
82 |
|
3.7 Increased Costs; Capital Adequacy |
|
|
83 |
|
3.8 Mitigation |
|
|
84 |
|
3.9 Funding Losses |
|
|
84 |
|
3.10 Maximum Interest |
|
|
85 |
|
SECTION 4. LOAN ADMINISTRATION |
|
|
86 |
|
4.1 Manner of Borrowing and Funding Loans |
|
|
86 |
|
4.2 Defaulting Lender |
|
|
88 |
|
4.3 Number and Amount of Interest Period Loans; Determination of Rate |
|
|
89 |
|
4.4 Loan Party Agent |
|
|
89 |
|
4.5 One Obligation |
|
|
90 |
|
4.6 Effect of Termination |
|
|
90 |
|
SECTION 5. PAYMENTS |
|
|
90 |
|
5.1 General Payment Provisions |
|
|
90 |
|
5.2 Repayment of Obligations |
|
|
90 |
|
5.3 Payment of Other Obligations |
|
|
91 |
|
5.4 Marshaling; Payments Set Aside |
|
|
91 |
|
5.5 Post-Default Allocation of Payments |
|
|
91 |
|
5.6 Application of Payments |
|
|
93 |
|
5.7 Loan Account; Account Stated |
|
|
93 |
|
5.8 Taxes |
|
|
94 |
|
5.9 Lender Tax Information |
|
|
95 |
|
5.10 Guarantee by U.S. Facility Loan Parties |
|
|
96 |
|
5.11 Currency Matters |
|
|
99 |
|
SECTION 6. CONDITIONS PRECEDENT |
|
|
100 |
|
i
|
|
|
|
|
|
|
Page |
|
6.1 Conditions Precedent to Initial Loans |
|
|
100 |
|
6.2 Conditions Precedent to All Credit Extensions |
|
|
103 |
|
SECTION 7. COLLATERAL |
|
|
104 |
|
7.1 Grant of Security Interest |
|
|
104 |
|
7.2 Lien on Deposit Accounts; Cash Collateral |
|
|
104 |
|
7.3 Pledged Collateral |
|
|
105 |
|
7.4 Other Collateral |
|
|
109 |
|
7.5 Limitation on Permitted Discretion |
|
|
109 |
|
7.6 No Assumption of Liability |
|
|
110 |
|
7.7 Further Assurances |
|
|
110 |
|
SECTION 8. COLLATERAL ADMINISTRATION |
|
|
111 |
|
8.1 Administration of Accounts |
|
|
111 |
|
8.2 Administration of Inventory |
|
|
112 |
|
8.3 Administration of Deposit Accounts |
|
|
112 |
|
8.4 General Provisions |
|
|
112 |
|
8.5 Power of Attorney |
|
|
113 |
|
SECTION 9. REPRESENTATIONS AND WARRANTIES |
|
|
114 |
|
9.1 General Representations and Warranties |
|
|
114 |
|
SECTION 10. COVENANTS AND CONTINUING AGREEMENTS |
|
|
120 |
|
10.1 Affirmative Covenants |
|
|
120 |
|
10.2 Negative Covenants |
|
|
130 |
|
10.3 Financial Covenants |
|
|
147 |
|
SECTION 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT |
|
|
147 |
|
11.1 Events of Default |
|
|
147 |
|
11.2 License |
|
|
151 |
|
11.3 Setoff |
|
|
151 |
|
11.4 Remedies Cumulative; No Waiver |
|
|
151 |
|
11.5 Judgment Currency |
|
|
152 |
|
SECTION 12. AGENT |
|
|
152 |
|
12.1 Appointment, Authority and Duties of Agent |
|
|
152 |
|
12.2 Agreements Regarding Collateral and Field Examination Reports |
|
|
154 |
|
12.3 Reliance By Agent |
|
|
155 |
|
12.4 Action Upon Default |
|
|
155 |
|
12.5 Ratable Sharing |
|
|
156 |
|
12.6 Indemnification of Agent Indemnitees |
|
|
156 |
|
12.7 Limitation on Responsibilities of Agent |
|
|
156 |
|
12.8 Successor Agent and Co-Agents |
|
|
157 |
|
12.9 Due Diligence and Non-Reliance |
|
|
157 |
|
12.10 Remittance of Payments and Collections |
|
|
158 |
|
12.11 Agent in its Individual Capacity |
|
|
158 |
|
12.12 Agent Titles |
|
|
159 |
|
12.13 Bank Product Providers |
|
|
159 |
|
12.14 No Third Party Beneficiaries |
|
|
159 |
|
ii
|
|
|
|
|
|
|
Page |
|
SECTION 13. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS |
|
|
159 |
|
13.1 Successors and Assigns |
|
|
159 |
|
13.2 Participations |
|
|
160 |
|
13.3 Assignments |
|
|
161 |
|
SECTION 14. MISCELLANEOUS |
|
|
162 |
|
14.1 Consents, Amendments and Waivers |
|
|
162 |
|
14.2 Indemnity |
|
|
164 |
|
14.3 Notices and Communications |
|
|
164 |
|
14.4 Performance of Loan Parties Obligations |
|
|
165 |
|
14.5 Credit Inquiries |
|
|
165 |
|
14.6 Severability |
|
|
166 |
|
14.7 Cumulative Effect; Conflict of Terms |
|
|
166 |
|
14.8 Counterparts |
|
|
166 |
|
14.9 Entire Agreement |
|
|
166 |
|
14.10 Relationship with Lenders |
|
|
166 |
|
14.11 No Advisory or Fiduciary Responsibility |
|
|
166 |
|
14.12 Confidentiality |
|
|
167 |
|
14.13 Certifications Regarding Indentures |
|
|
167 |
|
14.14 GOVERNING LAW |
|
|
167 |
|
14.15 Consent to Forum |
|
|
168 |
|
14.16 Waivers by Loan Parties |
|
|
168 |
|
14.17 Patriot Act Notice |
|
|
168 |
|
14.18 Canadian Anti-Money Laundering Legislation |
|
|
169 |
|
14.19 Reinstatement |
|
|
169 |
|
14.20 Nonliability of Lenders |
|
|
169 |
|
iii
LIST OF EXHIBITS AND SCHEDULES
|
|
|
Exhibit A-1
|
|
Form of Assignment and Acceptance |
Exhibit A-2
|
|
Form of Assignment Notice |
Exhibit B-1
|
|
Form of Canadian Borrowing Base Certificate |
Exhibit B-2
|
|
Form of U.S. Borrowing Base Certificate |
Exhibit C-1
|
|
Form of Canadian Revolver Note |
Exhibit C-2
|
|
Form of U.S. Revolver Note |
Exhibit D
|
|
Form of Compliance Certificate |
Exhibit E
|
|
Form of Notice of Borrowing |
Exhibit F
|
|
Form of Notice of Conversion/Continuation |
Exhibit G-1
|
|
Form of Canadian Perfection Certificate |
Exhibit G-2
|
|
Form of U.S. Perfection Certificate |
Exhibit H-1
|
|
Form of Canadian Closing Certificate |
Exhibit H-2
|
|
Form of U.S. Closing Certificate |
Exhibit I
|
|
Form of Joinder Agreement |
Exhibit J-1
|
|
Form of Non-Bank Certificate for Non-Partnership |
Exhibit J-2
|
|
Form of Non-Bank Certificate for Partnership |
Schedule 1.1(a)
|
|
Consolidated Interest Expense |
Schedule 1.1(b)
|
|
Existing Letters of Credit |
Schedule 2.1.1(a)
|
|
U.S. Revolver Commitment |
Schedule 2.1.1(b)
|
|
Canadian Revolver Commitment |
Schedule 7.3
|
|
Pledged Stock/Pledged Debt Securities |
Schedule 8.3
|
|
Deposit Accounts |
Schedule 8.4.1
|
|
Location of Collateral |
Schedule 9.1.12
|
|
Subsidiaries/Excluded Subsidiaries |
Schedule 10.1.11
|
|
Permitted Transactions with Affiliates |
Schedule 10.1.16(c)
|
|
Post-Closing Actions |
Schedule 10.2.1
|
|
Existing Indebtedness |
Schedule 10.2.2
|
|
Existing Liens |
Schedule 10.2.4
|
|
Non-Core Assets |
Schedule 10.2.5
|
|
Permitted Investments |
Schedule 10.2.10
|
|
Permitted Burdensome Agreements |
Schedule 13.3.3
|
|
Permitted Assignees |
iv
LOAN, SECURITY AND GUARANTEE AGREEMENT
THIS LOAN, SECURITY AND GUARANTEE AGREEMENT is dated as of June 14, 2011, among MCJUNKIN
RED MAN CORPORATION, a Delaware corporation (MRC), GREENBRIER PETROLEUM CORPORATION,
a West Virginia corporation (Greenbrier), MCJUNKIN NIGERIA LIMITED, a Delaware
corporation (McJunkin Nigeria), MCJUNKIN PUERTO RICO CORPORATION, a Delaware
corporation (McJunkin Puerto Rico), MCJUNKIN RED MAN DEVELOPMENT CORPORATION, a Delaware
corporation (McJunkin Development), MCJUNKIN WEST AFRICA CORPORATION, a Delaware
corporation (McJunkin West Africa), MIDWAY TRISTATE CORPORATION, a New York
corporation (Midway), MILTON OIL & GAS COMPANY, a West Virginia corporation
(Milton), MRC MANAGEMENT COMPANY, a Delaware corporation (Management), MRM
OKLAHOMA MANAGEMENT LLC, a Delaware limited liability company (MRM Oklahoma), RUFFNER
REALTY COMPANY, a West Virginia corporation (Ruffner), and THE SOUTH TEXAS SUPPLY
COMPANY, INC., a Texas corporation (South Texas and, together with MRC, Greenbrier,
McJunkin Nigeria, McJunkin Puerto Rico, McJunkin Development, McJunkin West Africa, Midway, Milton,
Management, MRM Oklahoma and Ruffner, the Initial U.S. Borrowers), and MIDFIELD SUPPLY
ULC, an Alberta unlimited liability company (the Initial Canadian Borrower and, together
with the other Canadian Borrowers (as defined herein) and the U.S. Borrowers (as defined herein),
the Borrowers and each, a Borrower), the other U.S. Subsidiaries (as defined
herein) of the U.S. Borrowers which may hereafter become party to this Agreement as U.S. Facility
Guarantors and Canadian Facility Guarantors (each as defined herein), the financial institutions
party to this Agreement from time to time as lenders (collectively, Lenders), BANK OF
AMERICA, N.A., a national banking association, in its capacity as collateral agent and
administrative agent for itself and the other Secured Parties (as defined herein) (together with
any successor agent appointed pursuant to Section 12.8, the Agent), Barclays Capital, the
investment banking division of Barclays Bank PLC, and Wells Fargo Capital Finance LLC, as
Co-Syndication Agents, Goldman Sachs Lending Partners LLC and U.S. Bank National Association, as
Co-Documentation Agents and Managing Agents, and SunTrust Bank and TD Bank, N.A., as Managing
Agents.
R E C I T A L S:
The Borrowers have requested that Lenders provide a senior secured revolving credit facility
to the Borrowers to finance their mutual and collective business enterprise consisting of a
Canadian tranche in the initial maximum facility amount of Cdn$150,000,000 and a U.S. tranche in
the initial maximum facility amount of $900,000,000. Lenders are willing to provide the senior
secured revolving credit facility on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. As used herein, the following terms have the meanings set forth
below:
1
Account: as defined in the UCC or the PPSA, as applicable, including all rights to
payment for goods sold or leased, or for services rendered, whether or not they have been earned by
performance.
Account Debtor: any Person who is obligated under an Account, Chattel Paper or
General Intangible.
Accounting Change: as defined in Section 1.2.
Acquired EBITDA: with respect to any Acquired Entity or Business or any Converted
Restricted Subsidiary (any of the foregoing, a Pro Forma Entity) for any period, the
amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined using such
definitions as if references to the Borrowers and their Subsidiaries therein were to such Pro Forma
Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro Forma Entity
in accordance with GAAP.
Acquired Entity or Business: as defined in the term Consolidated EBITDA.
Additional Lender: as defined in Section 2.1.7(a).
Affiliate: with respect to any Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under common Control with
the Person specified. Control means the possession, directly or indirectly, of the power
(a) to vote 20% or more of the securities having ordinary voting power for the election of
directors, in the case of a corporation, or equivalent governing body, in the case of any other
type of legal entity, of a Person or (b) to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by contract or
otherwise. Controlling and Controlled have correlative meanings.
Agent: as defined in the preamble to this Agreement.
Agent Indemnitees: the Agent and its officers, directors, employees, Affiliates and
agents.
Agent Professionals: attorneys, accountants, appraisers, auditors, business valuation
experts, environmental engineers or consultants, turnaround consultants, and other professionals
and experts retained by Agent.
Agreement: this Loan, Security and Guarantee Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
Allocable Amount: as defined in Section 5.10.3(b).
AML Legislation: as defined in Section 14.17.
Applicable Canadian Borrower: (a) the Initial Canadian Borrower or (b) any other
Canadian Borrower, as the context requires.
2
Applicable Canadian Borrower Commitment: with respect to any Canadian Borrower, the
amount of Canadian Revolver Commitments up to which such Canadian Borrower may borrow Canadian
Revolver Loans or request the issuance of Canadian Letters of Credit, as designated by the Loan
Party Agent from time to time, and in an aggregate amount for all Canadian Borrowers not to exceed
the total Canadian Revolver Commitments.
Applicable Canadian Borrower Secured Obligations: (a) if the Initial Canadian
Borrower is the only Canadian Borrower, the Canadian Facility Secured Obligations of the Initial
Canadian Borrower and (b) if there is more than one Canadian Borrower, the Secured Obligations of
the Applicable Canadian Borrower.
Applicable Law: all laws, rules, regulations and legally binding governmental
guidelines applicable to the Person, conduct, transaction, agreement or matter in question,
including all applicable statutory law and common law, and all provisions of constitutions,
treaties, statutes, rules, regulations, orders and decrees of Governmental Authorities (having the
force of law).
Applicable Lenders: with respect to the U.S. Borrowers, the U.S. Lenders, and with
respect to the Canadian Borrowers, the Canadian Lenders.
Applicable Margin: with respect to any Type of Loan and such other Obligations
specified below, the respective margin set forth below, as determined by reference to the
Consolidated Fixed Charge Coverage Ratio as calculated as of the last day of the fiscal quarter
then most recently ended:
|
|
|
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|
|
|
|
|
U.S. Base |
|
|
|
|
LIBOR Loans, |
|
Rate Loans, |
|
|
|
|
Canadian BA Rate |
|
Canadian Base |
|
|
Consolidated |
|
Loans, U.S. Letter of |
|
Rate Loans and |
|
|
Fixed Charge |
|
Credit Fees, Canadian |
|
Canadian Prime |
Level |
|
Coverage Ratio |
|
Letter of Credit Fees |
|
Rate Loans |
I |
|
£ 1.50: 1.00 |
|
2.25% |
|
1.25% |
II |
|
> 1.50: 1.00 |
|
2.00% |
|
1.00% |
|
|
but |
|
|
|
|
|
|
£ 2.25: 1.00 |
|
|
|
|
III |
|
> 2.25: 1.00 |
|
1.75% |
|
.75% |
Until December 1, 2011, margins shall be determined as if Level II were applicable. Thereafter,
the margins shall be subject to increase or decrease upon receipt by the Agent pursuant to Sections
10.1.1(a) and (b) of the financial statements and corresponding Compliance Certificate, which
change shall be effective on the first day of the calendar month immediately following receipt.
If, by the first day of a month, any financial statement or Compliance Certificate due in the
preceding month has not been received, then, at the option of the Agent or Required Lenders, the
margins shall be determined as if Level I were applicable, from such day until the first day of the
calendar month immediately following actual receipt.
3
Approved Fund: any Person (other than a natural person) that is engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in
its ordinary course of activities, has the capacity to fund Revolver Loans hereunder and is
administered or managed by a Lender, an entity that administers or manages a Lender, or an
Affiliate of either.
Assignment and Acceptance: an assignment agreement between a Lender and Eligible
Assignee (and, to the extent required by the definition of Eligible Assignee, consented to by the
Loan Party Agent), in the form of Exhibit A-1.
ATB Financial Debt: a fixed asset revolving term loan facility made by Alberta
Treasury Branches in favor of the Initial Canadian Borrower and its Subsidiaries, in the aggregate
amount of $15,000,000 pursuant to the Amended and Restated Commitment Letter, dated as of November
13, 2009, as amended, modified, supplemented or restated to the Closing Date.
Bank of America: Bank of America, N.A., a national banking association, and its
successors and assigns.
Bank of America (Canada): Bank of America, N.A. (acting through its Canada branch).
Bank of America Indemnitees: Bank of America, Bank of America (Canada) and their
respective officers, directors, employees, Affiliates and agents.
Bank Product: any of the following products, services or facilities extended to any
Borrower or Subsidiary by a Lender or any of its Affiliates: (a) Cash Management Services; (b)
products under Hedge Agreements (other than Hedge Agreements that constitute Notes Priority Lien
Debt for purposes of the Intercreditor Agreement); (c) commercial credit card, purchase card and
merchant card services; and (d) other banking products or services as may be requested by any
Borrower or Subsidiary, other than loans and letters of credit.
Bank Product Debt: Indebtedness and other obligations of a Loan Party relating to
Bank Products.
Bank Product Document: any agreement, instrument or other document entered into in
connection with any Bank Product Debt.
Board of Governors: the Board of Governors of the Federal Reserve System.
Borrower and Borrowers: as defined in the preamble to this Agreement.
Borrower Group: a group consisting of (i) the U.S. Borrowers or (ii) the Canadian
Borrowers, as the context requires.
Borrower Group Commitment: with respect to the commitment of a U.S. Lender, its U.S.
Revolver Commitment and, with respect to the commitment of a Canadian Lender, its Canadian Revolver
Commitment; and the term Borrower Group Commitments means, collectively, the Borrower
Group Commitments of U.S. Lenders and the Borrower Group Commitments of Canadian Lenders. To the
extent any Lender has both a U.S. Revolver Commitment and a
4
Canadian Revolver Commitment, such Commitments shall be considered as separate Commitments for
purposes of this definition.
Borrowing: a group of Loans of one Type that are made on the same day or are
converted into Loans of one Type on the same day.
Borrowing Base: the Total Canadian Borrowing Base, the Canadian Borrowing Base and/or
the U.S. Borrowing Base, as the context requires.
Borrowing Base Certificate: a certificate, executed by a Senior Officer of the Loan
Party Agent, in the form of Exhibit B-1 with respect to any Canadian Borrowing Base, and in the
form of Exhibit B-2 with respect to the U.S. Borrowing Base, in each case, with such changes as may
be agreed to by Loan Party Agent and Agent, setting forth the Borrowers calculation of the
Borrowing Base.
Business Day: any day excluding Saturday, Sunday and any other day that is a legal
holiday under the laws of the State of North Carolina or the State of New York or is a day on which
banking institutions located in such state are closed; and when used with reference to (i) a LIBOR
Loan, the term shall also exclude any day on which banks are not open for the transaction of
banking business in London, United Kingdom and (ii) a Canadian Revolver Loan, shall also exclude a
day on which banks in Toronto, Ontario, Canada are not open for the transaction of banking
business.
Canadian Availability: as of any date of determination, (a) the lesser of (i) the
Canadian Revolver Commitments minus all Canadian LC Obligations as of such date of determination
and (ii) the Total Canadian Borrowing Base as of such date of determination, minus (b) the
principal balance of all Canadian Revolver Loans.
Canadian Availability Reserves: the sum (without duplication) of (a) the aggregate
amount of the Canadian Rent Reserve, if any, established pursuant to clause (h) of the definition
of Canadian Eligible Inventory; (b) the Canadian LC Reserve; (c) the Canadian Bank Product Reserve;
(d) the Canadian Priority Payables Reserve; and (e) such additional reserves, in such amounts and
with respect to such matters, as the Agent may establish in its Permitted Discretion.
Canadian BA Rate: with respect to each Interest Period for a Canadian BA Rate Loan,
the rate of interest per annum equal to the average rate applicable to Canadian Dollar Bankers
Acceptances having an identical or comparable term as the proposed Canadian BA Rate Loan displayed
and identified as such on the display referred to as the CDOR Page (or any display substituted
therefor) of Reuter Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on
such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto time on the immediately
preceding Business Day), plus five (5) basis points, provided that if such rate does not appear on
the CDOR Page at such time on such date, the rate for such date will be the annual discount rate
(rounded upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 a.m. Eastern time on
such day at which a Canadian chartered bank listed on Schedule 1 of the Bank Act (Canada) as
selected by Agent is then offering to purchase Canadian Dollar Bankers Acceptances accepted by it
having such specified term (or a term as closely as possible comparable to such specified term),
plus five (5) basis points.
5
Canadian BA Rate Loan: a Canadian Revolver Loan, or portion thereof, funded in
Canadian Dollars and bearing interest calculated by reference to the Canadian BA Rate.
Canadian Bank Product Reserve: the aggregate amount of reserves, as established by
the Agent from time to time in its Permitted Discretion and in consultation with Loan Party Agent,
to reflect the reasonably anticipated liabilities in respect of the then outstanding Secured Bank
Product Obligations of the Canadian Domiciled Loan Parties and their Subsidiaries.
Canadian Base Rate: on any date, the highest of (i) a fluctuating rate of interest
per annum equal to the rate of interest in effect for such day as publicly announced from time to
time by Bank of America (Canada) as its Base Rate, (ii) the sum of 0.50% plus the Federal Funds
Rate for such day, and (iii) the sum of 1.00% plus the LIBOR rate for a thirty (30) day Interest
Period as determined on such day. The Base Rate is a rate set by Bank of America (Canada) based
upon various factors including Bank of America (Canada)s costs and desired return, general
economic conditions and other factors, and is used as a reference point for pricing some loans made
in Dollars in Canada, which may be priced at, above, or below such announced rate. Any change in
such rate shall take effect at the opening of business on the day of such change. In the event
Bank of America (Canada) (including any successor or assignee) does not at any time announce a
Base Rate, clause (i) of Canadian Base Rate shall mean the Base Rate (being the rate for loans
made in Dollars in Canada) publicly announced by a Canadian Schedule 1 Chartered Bank selected by
Agent.
Canadian Base Rate Loan: a Canadian Revolver Loan, or portion thereof, funded in
Dollars and bearing interest calculated by reference to the Canadian Base Rate.
Canadian Borrowers: (a) the Initial Canadian Borrower and (b) each other Canadian
Subsidiary that, after the date hereof, has executed a supplement or joinder to this Agreement in
accordance with Section 10.1.13(a) or (b), as applicable, and has satisfied the other requirements
set forth in Section 10.1.13(a) or (b), as applicable, in order to become a Canadian Borrower.
Canadian Borrowing Base: at any time, with respect to the Applicable Canadian
Borrower, an amount equal to the sum of, without duplication:
(a) the book value of Canadian Eligible Accounts of the Applicable Canadian Borrower
multiplied by the advance rate of 85%, plus
(b) the lesser of (i) 70% of the net book value of Canadian Eligible Inventory of the
Applicable Canadian Borrower (adding back the LIFO reserve calculated in accordance with
GAAP) and (ii) Net Orderly Liquidation Value of Canadian Eligible Inventory of the
Applicable Canadian Borrower (which shall be (A) net of the current monthly shrinkage
reserve calculated in accordance with GAAP and (B) valued at Cost) multiplied by the advance
rate of 85%, minus
(c) subject to Section 7.5, effective (i) immediately upon or (ii) five (5) Business
Days after, in the case of Canadian Availability Reserves allocable to the Applicable
Canadian Borrower which would cause the aggregate amount of the Canadian Revolver Loans
allocable to the Applicable Canadian Borrower at such time to exceed the lesser of the
Applicable Canadian Borrowers Applicable Canadian Borrower
6
Commitment and the Applicable Canadian Borrowers Canadian Borrowing Base then in
effect, in each case, notification thereof to the Applicable Canadian Borrower by the Agent,
any and all such Canadian Availability Reserves.
The Canadian Borrowing Base at any time shall be determined by reference to the most recent
Borrowing Base Certificate theretofore delivered to the Agent with such adjustments as the Agent
deems appropriate in its Permitted Discretion to assure that the Canadian Borrowing Base is
calculated in accordance with the terms of this Agreement.
Canadian Cash Collateral Account: a demand deposit, money market or other account
established by Agent at Bank of America (Canada) or such other financial institution as Agent may
select in its discretion with the consent of Loan Party Agent (not to be unreasonably withheld or
delayed), which account shall be for the benefit of the Canadian Facility Secured Parties and shall
be subject to Agents Liens securing the Canadian Facility Secured Obligations; provided that the
foregoing consent of Loan Party Agent to the selection by Agent in its discretion of a financial
institution other than Bank of America (Canada) shall not be required if an Event of Default has
occurred and is continuing.
Canadian Dollars or Cdn$: the lawful currency of Canada.
Canadian Domiciled Loan Party: any Canadian Borrower and each Canadian Subsidiary now
or hereafter party hereto as a Loan Party, and Canadian Domiciled Loan Parties means all
such Persons, collectively.
Canadian Dominion Account: a special account established by the Canadian Domiciled
Loan Parties at Bank of America (Canada) or another bank acceptable to Agent, over which Agent has
exclusive control for withdrawal purposes.
Canadian Eligible Accounts: at any time, the Accounts of the Applicable Canadian
Borrower at such date except any Account:
(a) which is not subject to a duly perfected and opposable Lien in favor of the Agent;
(b) which is subject to any Lien (including Liens permitted by Section 10.2.2) other
than (i) a Lien in favor of the Agent and (ii) a Permitted Lien which does not have priority
over the Lien in favor of the Agent; provided that, with respect to any tax Lien having such
priority, eligibility of Accounts shall be reduced by the amount of such tax Lien having
such priority;
(c) owing by any Account Debtor with respect to which more than 120 days have elapsed
since the date of the original invoice therefor or which is more than 60 days past the due
date for payment;
(d) which is owing by an Account Debtor for which more than 50% of the Accounts owing
from such Account Debtor and its Affiliates are ineligible pursuant to clause (c) above;
7
(e) which is owing (i) by Canadian Natural Resources Limited and its Affiliates to the
extent the aggregate amount of Accounts owing from Canadian Natural Resources Limited and
its Affiliates to Canadian Borrowers exceeds 30% of the aggregate Canadian Eligible Accounts
or (ii) by any other Account Debtor to the extent the aggregate amount of Accounts owing
from such Account Debtor and its Affiliates to Canadian Borrowers exceeds 20% of the
aggregate Canadian Eligible Accounts (or such higher percentage as the Agent may establish
for the Account Debtor from time to time), in each case, only to the extent of such excess;
(f) with respect to which any covenant, representation, or warranty relating to such
Account contained in this Agreement has been breached or is not true in any material
respect;
(g) which (i) does not arise from the sale of goods or performance of services in the
Ordinary Course of Business, (ii) is not evidenced by an invoice, or other documentation
satisfactory to the Agent, which has been sent to the Account Debtor, (iii) represents a
progress billing, (iv) is contingent upon the Applicable Canadian Borrowers completion of
any further performance, or (v) represents a sale on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment which is billed prior to actual sale to the
end user, cash-on-delivery or any other repurchase or return basis, except with respect to
up to $10,000,000 of such Accounts in the aggregate for the U.S. Borrowing Base and the
Total Canadian Borrowing Base on a combined basis as described in this clause (v) and
paragraph (g)(v) of the U.S. Eligible Accounts;
(h) for which the goods giving rise to such Account (other than Accounts described in
the foregoing paragraph (g)(v)) have not been shipped to the Account Debtor or for which the
services giving rise to such Account have not been performed by the Applicable Canadian
Borrower;
(i) with respect to which any check or other instrument of payment has been returned
uncollected for any reason;
(j) which is owed by an Account Debtor in respect of which an Insolvency Proceeding has
been commenced or which is otherwise a debtor or a debtor in possession under any bankruptcy
law or any other federal, state or foreign (including any province or territory)
receivership, insolvency relief or other law or laws for the relief of debtors, including
the Bankruptcy and Insolvency Act (Canada) and the CCAA, unless the payment of Accounts from
such Account Debtor is secured by assets of, or guaranteed by, in either case, in a manner
reasonably satisfactory to the Agent, a Person that is reasonably acceptable to the Agent
or, if the Account from such Account Debtor arises subsequent to a decree or order for
relief with respect to such Account Debtor under the Bankruptcy and Insolvency Act (Canada)
or the CCAA, as now or hereafter in effect, the Agent shall have reasonably determined that
the timely payment and collection of such Account will not be impaired;
(k) which is owed by an Account Debtor which has failed, has suspended or ceased doing
business, is liquidating, dissolving or winding up its affairs or is not solvent;
8
(l) which is owed by an Account Debtor which is not organized under applicable law of
the U.S. or Canada, any state of the U.S. or any province or territory of Canada and does
not have its principal place of business in the U.S. or Canada unless such Account is backed
by a letter of credit or other credit support reasonably acceptable to the Agent and which
is in the possession of the Agent;
(m) which is owed in any currency other than Dollars or Canadian Dollars;
(n) which is owed by any Governmental Authority, unless (i) the Account Debtor is the
United States or any department, agency or instrumentality thereof, and the Account has been
assigned to the Agent in compliance with the U.S. Assignment of Claims Act, and any other
steps necessary to perfect or render opposable the Lien of the Agent in such Account have
been complied with to the Agents reasonable satisfaction, (ii) the Account Debtor is the
government of Canada or a province or territory thereof, and the Account has been assigned
to the Agent in compliance with the Financial Administration Act (or similar Applicable Law
of such province or territory), and any other steps necessary to perfect or render opposable
the Lien of the Agent in such Account have been complied with to the Agents reasonable
satisfaction, or (iii) such Account is backed by a letter of credit reasonably acceptable to
the Agent and which is in the possession of the Agent;
(o) which is owed by any Affiliate, employee, director, or officer of any Loan Party;
provided that portfolio companies of the Sponsor that do business with the Applicable
Canadian Borrower in the Ordinary Course of Business will not be treated as Affiliates for
purposes of this clause (o);
(p) which is owed by an Account Debtor or any Affiliate of such Account Debtor which is
the holder of Indebtedness issued or incurred by any Loan Party; provided, that any such
Account shall only be ineligible as to that portion of such Account which is less than or
equal to the amount owed by the Loan Party to such Person;
(q) which is subject to any counterclaim, deduction, defense, setoff, right of
compensation or dispute, but only to the extent of the amount of such counterclaim,
deduction, defense, setoff, right of compensation or dispute, unless (i) the Agent, in its
Permitted Discretion, has established Canadian Availability Reserves and determines to
include such Account as a Canadian Eligible Account or (ii) such Account Debtor has entered
into an agreement reasonably acceptable to the Agent to waive such rights;
(r) which is evidenced by any promissory note, Chattel Paper or Instrument (in each
case, other than any such items that are delivered to the Agent);
(s) which is owed by an Account Debtor located in any jurisdiction that requires, as a
condition to access to the courts of such jurisdiction, that a creditor qualify to transact
business, file a business activities report or other report or form, or take one or more
other actions, unless the Applicable Canadian Borrower has so qualified, filed such reports
or forms, or taken such actions (and, in each case, paid any required fees or other
9
charges), except to the extent the Applicable Canadian Borrower may qualify
subsequently as a foreign entity authorized to transact business in such jurisdiction and
gain access to such courts, without incurring any cost or penalty reasonably viewed by the
Agent to be material in amount, and such later qualification cures any access to such courts
to enforce payment of such Account;
(t) with respect to which the Applicable Canadian Borrower has made any agreement with
the Account Debtor for any reduction thereof, but only to the extent of such reduction,
other than discounts and adjustments given in the Ordinary Course of Business; or
(u) which the Agent determines is ineligible in its Permitted Discretion.
Subject to Sections 14.1 and 7.5 and the definition of Canadian Borrowing Base, the Agent may
modify the foregoing criteria in its Permitted Discretion.
Canadian Eligible Inventory: at any date of determination thereof, the aggregate
amount of all Inventory owned by the Applicable Canadian Borrower at such date except any
Inventory:
(a) which is not subject to a duly perfected and opposable Lien in favor of the Agent;
(b) which is subject to any Lien (including Liens permitted by Section 10.2.2) other
than (i) a Lien in favor of the Agent and (ii) a Permitted Lien which does not have priority
over the Lien in favor of the Agent (other than any bailee, warehouseman, landlord or
similar non-consensual Liens having priority by operation of law to the extent either
subclause (i) or (ii) of clauses (h) or (i) below of Canadian Eligible Inventory is
satisfied with respect to the relevant Inventory); provided that, with respect to any tax
Lien having such priority, eligibility of Inventory shall be reduced by the amount of such
tax Lien having such priority;
(c) which is, in the Agents Permitted Discretion, slow moving, obsolete,
unmerchantable, defective, unfit for sale, not salable at prices approximating at least the
cost of such Inventory in the Ordinary Course of Business or unacceptable due to age, type,
category and/or quantity;
(d) with respect to which any covenant, representation, or warranty contained in this
Agreement has been breached or is not true in any material respect;
(e) which does not conform in all material respects to all standards imposed by any
applicable Governmental Authority (except that any standard that is qualified as to
materiality shall have been conformed to in all respects);
(f) which constitutes packaging and shipping material, manufacturing supplies, display
items, bill-and-hold goods (other than bill-and-hold goods, the sale of which has been
excluded from Canadian Eligible Accounts pursuant to clause (g)(v) of the definition
thereof), returned or repossessed goods (other than goods that are undamaged and able to be
resold in the Ordinary Course of Business), defective goods,
10
goods held on consignment, goods to be returned to the Applicable Canadian Borrowers
suppliers or goods which are not of a type held for sale in the Ordinary Course of Business;
(g) which is not located in Canada or the United States or is not at a location listed
on Schedule 8.4.1 (as updated from time to time in accordance with the provisions hereof)
other than goods in transit between locations of the Loan Parties;
(h) which is located, at any time after the Temporary Eligibility Period, in any
location leased by the Applicable Canadian Borrower unless (i) the lessor has delivered to
the Agent a Collateral Access Agreement or (ii) a Canadian Rent Reserve has been established
by the Agent;
(i) which is located, at any time after the Temporary Eligibility Period, in any third
party warehouse or is in the possession of a bailee, processor or other Person and is not
evidenced by a Document, unless (i) such warehouseman, bailee, processor or other Person has
delivered to the Agent a Collateral Access Agreement and/or such other documentation as the
Agent may reasonably require or (ii) appropriate Canadian Availability Reserves have been
established by the Agent in its Permitted Discretion;
(j) which is the subject of a consignment by the Applicable Canadian Borrower as
consignor unless (i) a protective PPSA financing statement has been properly filed against
the consignee (as assigned to the Agent), and (ii) there is a written agreement
acknowledging that such Inventory is held on consignment, that the Applicable Canadian
Borrower or retains title to such Inventory, that no Lien arising by, through or under such
consignment has attached or will attach to such Inventory (and proceeds thereof) and
requiring consignee to segregate the consigned Inventory from the consignees other personal
or movable property;
(k) which is perishable as determined in accordance with GAAP; or
(l) which contains or bears any intellectual property rights licensed to the Applicable
Canadian Borrower unless the Agent is satisfied that it may sell or otherwise dispose of
such Inventory without (i) infringing the rights of such licensor in any material respect or
(ii) incurring any material liability with respect to payment of royalties other than
royalties incurred pursuant to sale of such Inventory under the current licensing agreement.
Subject to Sections 14.1 and 7.5 and the definition of Canadian Borrowing Base, the Agent may
modify the foregoing criteria in its Permitted Discretion.
Canadian Employee Plan: any employee benefit plan, policy, program, agreement or
arrangement, including retirement, pension, profit sharing, employment, bonus or other incentive
compensation, retention, stock purchase, equity or equity-based compensation, deferred
compensation, change in control, severance, sick leave, vacation, loans, salary continuation,
hospitalization, health, life insurance, educational assistance or other fringe benefit or
perquisite plan, policy, agreement which is or was sponsored, maintained or contributed to by, or
required to be contributed to by, a Canadian Domiciled Loan Party, or with respect to which a
Canadian
11
Domiciled Loan Party has, or could reasonably be expected to have, any obligation or
liability, contingent or otherwise, but excluding the Canada Pension Plan, Quebec Pension Plan and
any provincial or federal program providing health benefits, employment insurance or workers
compensation benefits.
Canadian Facility Collateral: Collateral that now or hereafter secures (or is
intended to secure) any of the Canadian Facility Secured Obligations, including Property of the
U.S. Domiciled Loan Parties pledged to secure their Secured Obligations under their guarantee of
the Canadian Facility Secured Obligations.
Canadian Facility Guarantee: each guarantee agreement (including this Agreement) at
any time executed by a Canadian Facility Guarantor in favor of the Agent guaranteeing all or any
portion of the Canadian Facility Secured Obligations.
Canadian Facility Guarantor: each U.S. Borrower, each U.S. Facility Guarantor and
each other Person (if any) who guarantees payment and performance of any Canadian Facility Secured
Obligations.
Canadian Facility Loan Party: a Canadian Borrower or a Canadian Facility Guarantor.
Canadian Facility Obligations: all Obligations of the Canadian Facility Loan Parties
(excluding, for the avoidance of doubt, the Obligations of the U.S. Domiciled Loan Parties as
guarantors of any U.S. Facility Obligations).
Canadian Facility Secured Obligations: all Secured Obligations of the Canadian
Facility Loan Parties.
Canadian Facility Secured Parties: Agent, any Canadian Fronting Bank, Canadian
Lenders and Secured Bank Product Providers of Bank Products to Canadian Facility Loan Parties.
Canadian Fronting Bank: Bank of America (Canada) or any Affiliate thereof that agrees
to issue Canadian Letters of Credit or, if reasonably acceptable to Loan Party Agent, any other
Canadian Lender or Affiliate thereof that agrees to issue Canadian Letters of Credit.
Canadian Fronting Bank Indemnitees: any Canadian Fronting Bank and its officers,
directors, employees, Affiliates and agents.
Canadian LC Application: an application by any Canadian Borrower on behalf of itself
or any other Canadian Borrower to a Canadian Fronting Bank for issuance of a Canadian Letter of
Credit, in form and substance reasonably satisfactory to such Canadian Fronting Bank.
Canadian LC Conditions: the following conditions necessary for issuance of a Canadian
Letter of Credit: (a) each of the conditions set forth in Section 6 being satisfied or waived; (b)
after giving effect to such issuance, total Canadian LC Obligations do not exceed the Canadian
Letter of Credit Sublimit and no Canadian Overadvance exists or would result therefrom; (c) the
expiration date of such Canadian Letter of Credit is (i) no more than 365 days from issuance
(provided that each Canadian Letter of Credit may, upon the request of the Initial Canadian
12
Borrower, include a provision whereby such Letter of Credit shall be renewed automatically for
additional consecutive periods of twelve (12) months or less (but no later than 20 Business Days
prior to the Facility Termination Date)), and (ii) unless the Canadian Fronting Bank and the Agent
otherwise consent (subject to the satisfaction of the Cash Collateral requirements set forth in
Section 2.2.6), at least 20 Business Days prior to the Facility Termination Date; (d) the Canadian
Letter of Credit and payments thereunder are denominated in Canadian Dollars or Dollars; (e) the
form of the proposed Canadian Letter of Credit is reasonably satisfactory to the Agent and the
applicable Canadian Fronting Bank; and (f) the proposed use of the Canadian Letter of Credit is for
a lawful purpose.
Canadian LC Documents: all documents, instruments and agreements (including Canadian
LC Requests and Canadian LC Applications) delivered by any Canadian Borrower or by any other Person
to Canadian Fronting Bank or the Agent in connection with issuance, amendment or renewal of, or
payment under, any Canadian Letter of Credit.
Canadian LC Obligations: with respect to the Applicable Canadian Borrower, the sum
(without duplication) of (a) all amounts owing by such Applicable Canadian Borrower for any
drawings under Canadian Letters of Credit; (b) the stated amount of all outstanding Canadian
Letters of Credit issued for the account of such Applicable Canadian Borrower; and (c) all fees and
other amounts owing with respect to such Canadian Letters of Credit.
Canadian LC Request: a request for issuance of a Canadian Letter of Credit, to be
provided by a Canadian Borrower to Canadian Fronting Bank, in form reasonably satisfactory to Agent
and Canadian Fronting Bank.
Canadian LC Reserve: with respect to the Applicable Canadian Borrower, the aggregate
of all Canadian LC Obligations of such Applicable Canadian Borrower, other than (a) those that have
been Cash Collateralized; and (b) if no Event of Default exists, those constituting charges owing
to the Canadian Fronting Bank.
Canadian Lenders: Bank of America (Canada) and each other Lender that has issued a
Canadian Revolver Commitment (provided that such Person or an Affiliate of such Person also has a
U.S. Revolver Commitment).
Canadian Letter of Credit: any standby or documentary letter of credit issued by
Canadian Fronting Bank for the account of a Canadian Borrower, or any indemnity, guarantee,
exposure transmittal memorandum or similar form of credit support issued by Agent or Canadian
Fronting Bank for the benefit of a Canadian Borrower.
Canadian Letter of Credit Sublimit: Cdn$20,000,000.
Canadian Multi-Employer Plan: each multi-employer plan, within the meaning of the
Regulations under the Income Tax Act (Canada).
Canadian Overadvance: as defined in Section 2.1.5.
Canadian Overadvance Loan: a Loan made to a Canadian Borrower when a Canadian
Overadvance exists or is caused by the funding thereof.
13
Canadian Overadvance Loan Balance: on any date, the amount by which the aggregate
Canadian Revolver Loans of the Applicable Canadian Borrower or all Canadian Borrowers, as the case
may be, exceed the amount of the Canadian Borrowing Base of such Applicable Canadian Borrower or
the Total Canadian Borrowing Base on such date.
Canadian Pension Plan: a registered pension plan, as defined in the Income Tax Act
(Canada) and any other pension plan maintained or contributed to by, or to which there is or may be
an obligation to contribute by, any Loan Party in respect of its Canadian employees or former
employees, excluding, for greater certainty, a Canadian Multi-Employer Plan.
Canadian Prime Rate: on any date, the highest of (i) a fluctuating rate of interest
per annum equal to the rate of interest in effect for such day as publicly announced from time to
time by Bank of America (Canada) as its Prime Rate, (ii) the sum of 0.50% plus the Bank of Canada
overnight rate, which is the rate of interest charged by the Bank of Canada on one-day loans to
financial institutions, for such day, and (iii) the sum of 1.00% plus the Canadian BA Rate for a 30
day Interest Period as determined on such day. The Prime Rate is a rate set by Bank of America
(Canada) based upon various factors including the costs and desired return of Bank of America
(Canada), general economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced rate. Any change in
such rate shall take effect at the opening of business on the day specified in the public
announcement of such change. Each interest rate based on the Canadian Prime Rate hereunder shall
be adjusted simultaneously with any change in the Canadian Prime Rate. In the event Bank of
America (Canada) (including any successor or assignee) does not at any time announce a Prime
Rate, the clause (i) of Canadian Prime Rate shall mean the Prime Rate (being the rate for loans
made in Canadian Dollars in Canada) publicly announced by a Canadian Schedule 1 Chartered Bank
selected by Agent.
Canadian Prime Rate Loan: a Canadian Revolver Loan, or portion thereof, funded in
Canadian Dollars and bearing interest calculated by reference to the Canadian Prime Rate.
Canadian Priority Payables Reserve: on any date of determination, a reserve in such
amount as Agent may determine in its Permitted Discretion which reflects amounts secured by any
Liens, choate or inchoate, which rank or are capable of ranking in priority to the Agents and/or
the Secured Parties Liens and/or for amounts which may represent costs relating to the enforcement
of the Agents Liens including, without limitation, in the Permitted Discretion of the Agent, any
such amounts due and not paid for wages or vacation pay (including amounts protected by the Wage
Earner Protection Program Act (Canada)), amounts due and not paid under any legislation relating to
workers compensation or to employment insurance, all amounts deducted or withheld and not paid and
remitted when due under the Income Tax Act (Canada), amounts currently or past due and not paid for
realty, municipal or similar taxes (to the extent impacting any Collateral), all amounts currently
or past due and not contributed, remitted or paid to any Canadian Pension Plan or under the Canada
Pension Plan or the PBA, and any amounts representing any unfunded liability, solvency deficiency
or wind up deficiency with respect to any Canadian Employee Plan.
Canadian Protective Advances: as defined in Section 2.1.6(a).
14
Canadian Reimbursement Date: as defined in Section 2.2.5(a).
Canadian Rent Reserve: the aggregate of (a) all past due rent and other past due
charges owing by any Canadian Borrower to any landlord or other Person who possesses any Canadian
Facility Collateral or could assert a Lien on such Canadian Facility Collateral; plus (b) a
reserve in an amount not to exceed rent and other charges that could be payable to any such Person
for the time period used to determine the Net Orderly Liquidation Value.
Canadian Revolver Commitment: for any Canadian Lender, its obligation to make
Canadian Revolver Loans and to issue Canadian Letters of Credit, in the case of the Canadian
Fronting Bank, or participate in Canadian LC Obligations, in the case of the other Canadian
Lenders, to the Canadian Borrowers up to the maximum principal amount shown on Schedule 2.1.1(b),
or as hereafter determined pursuant to each Assignment and Acceptance to which it is a party, as
such Canadian Revolver Commitment may be adjusted from time to time in accordance with the
provisions of Sections 2.1.4, 2.1.7 or 11.1. Canadian Revolver Commitments means the
aggregate amount of such commitments of all Canadian Lenders.
Canadian Revolver Commitment Increase: as defined in Section 2.1.7(a).
Canadian Revolver Commitment Termination Date: the earliest of (a) the U.S. Revolver
Commitment Termination Date (without regard to the reason therefor), (b) the date on which the Loan
Party Agent terminates or reduces to zero all of the Canadian Revolver Commitments pursuant to
Section 2.1.4, and (c) the date on which the Canadian Revolver Commitments are terminated pursuant
to Section 11.1. From and after the Canadian Revolver Commitment Termination Date, the Canadian
Borrowers shall no longer be entitled to request a Canadian Revolver Commitment Increase pursuant
to Section 2.1.7 hereof.
Canadian Revolver Exposure: on any date, an amount equal to the sum of (a) the
Canadian Revolver Loans outstanding on such date and (b) the Canadian LC Obligations on such date.
Canadian Revolver Loan: a Revolver Loan made by Canadian Lenders to a Canadian
Borrower pursuant to Section 2.1.1(b), which Revolver Loan shall, if denominated in Canadian
Dollars, be either a Canadian BA Rate Loan or a Canadian Prime Rate Loan and, if denominated in
Dollars, shall be either a Canadian Base Rate Loan or a LIBOR Loan, in each case as selected by the
Initial Canadian Borrower, and including any Canadian Swingline Loan, Canadian Overadvance Loan or
Canadian Protective Advance.
Canadian Revolver Notes: the promissory notes, if any, executed by Canadian Borrowers
in favor of each Canadian Lender to evidence the Canadian Revolver Loans funded from time to time
by such Canadian Lender, which shall be in the form of Exhibit C-1 to this Agreement, together with
any replacement or successor notes therefor.
Canadian Schedule 1 Chartered Bank: any of Royal Bank of Canada, Bank of Montreal,
The Toronto-Dominion Bank, The Bank of Nova Scotia or Canadian Imperial Bank of Commerce.
15
Canadian Security Agreement: this Agreement, each general security agreement and each
Deed of Movable Hypothec among any Canadian Domiciled Loan Party and Agent.
Canadian Subsidiary: Wholly-Owned Subsidiary of MRC incorporated or organized under
the laws of the Canada or any province or territory of Canada.
Canadian Swingline Commitment: Cdn$25,000,000.
Canadian Swingline Commitment Termination Date: with respect to any Canadian
Swingline Loan, the date that is five Business Days prior to the Canadian Revolver Commitment
Termination Date.
Canadian Swingline Lender: Bank of America (Canada) or an Affiliate of Bank of
America (Canada).
Canadian Swingline Loan: a Swingline Loan made by the Canadian Swingline Lender to a
Canadian Borrower pursuant to Section 2.1.8(b), which Swingline Loan shall, if denominated in
Canadian Dollars, be a Canadian Prime Rate Loan and, if denominated in Dollars, shall be a Canadian
Base Rate Loan, in each case as selected by the Initial Canadian Borrower.
Capital Lease: as applied to any Person, any lease of any property (whether real,
personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is required to
be, accounted for as a capital lease on the balance sheet of that Person.
Capitalized Lease Obligations: as applied to any Person, all obligations under
Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount thereof
accounted for as liabilities in accordance with GAAP.
Cash Collateral: cash or Permitted Investments (other than the Permitted Investments
described in clauses (h) and (i) of the definition thereof), and any interest or other income
earned thereon, that is delivered to Agent to Cash Collateralize any Secured Obligations.
Cash Collateral Account: the Canadian Cash Collateral Account and/or the U.S. Cash
Collateral Account, as the context may require.
Cash Collateralize: the delivery of cash or Permitted Investments (other than the
Permitted Investments described in clauses (h) and (i) of the definition thereof) to Agent, as
security for the payment of Secured Obligations, in an amount equal to (a) with respect to LC
Obligations, 105% of the aggregate LC Obligations, and (b) with respect to any inchoate, contingent
or other Secured Obligations, Agents good faith estimate of the amount due or to become due,
including all fees and other amounts relating to such Secured Obligations. Cash
Collateralization and Cash Collateralized have correlative meanings.
Cash Dominion Event: the occurrence of any one of the following events: (i) Excess
Availability shall be less than the greater of (A) 10% of the Commitments or (B) $75,000,000 or
(ii) (A) an Event of Default pursuant to Sections 11.1.1 or 11.1.5 shall have occurred and be
continuing or (B) any other Event of Default pursuant to Section 11.1 shall have occurred and be
continuing and the Agent or the Required Lenders shall have reasonably determined (by written
16
notice to the Borrowers) to effect a Cash Dominion Event as a result of such breach; provided,
that, to the extent that the Cash Dominion Event has occurred due to clause (i) of this definition,
if Excess Availability shall have exceeded the greater of (x) 10% of the Commitments and (y)
$75,000,000 for at least thirty (30) consecutive days, the Cash Dominion Event shall be deemed to
be over. At any time that a Cash Dominion Event shall be deemed to be over or otherwise cease to
exist, Agent shall take such actions as may reasonably be required by Loan Party Agent to terminate
the cash sweeps and other transfers existing pursuant to Section 5.6 as a result of any notice or
direction given by Agent during the existence of a Cash Dominion Event.
Cash Management Services: any services provided from time to time by any Lender or
any of its Affiliates to any Borrower or Subsidiary 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,
depository, information reporting, lockbox and stop payment services.
CCAA: Companies Creditors Arrangement Act (Canada), (or any successor statute), as
amended from time to time, and includes all regulations thereunder.
Change in Law: the occurrence, after the date hereof, of (a) the adoption, taking
effect or phasing in of any law, rule, regulation or treaty; (b) any change in any law, rule,
regulation or treaty or in the administration, interpretation or application thereof; or (c) the
making, issuance or application of any request, guideline, requirement or directive (whether or not
having the force of law) by any Governmental Authority; provided that notwithstanding anything
herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all
requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all
requests, rules, guidelines or directives promulgated by the Bank for International Settlements,
the Basel Committee on Banking Supervision (or any successor or similar authority) or the United
States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be
deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Change in Tax Law: the enactment, promulgation, execution or ratification of, or any
change in or amendment to, any law (including the Code), treaty, regulation or rule (or in the
official application or interpretation of any law, treaty, regulation or rule, including a holding,
judgment or order by a court of competent jurisdiction) relating to taxation.
Change of Control: shall mean and be deemed to have occurred if (a) prior to a
Qualified IPO, the Sponsor shall at any time not own, in the aggregate, directly or indirectly,
beneficially and of record, at least 35% of the voting power of the outstanding Voting Stock of
MRC; or (b) at any time on or after a Qualified IPO, any person, entity or group (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended), other than
Sponsor, shall at any time have acquired direct or indirect beneficial ownership of both (x) 35% or
more of the voting power of the outstanding Voting Stock of MRC and (y) more than the percentage of
the voting power of such Voting Stock then beneficially owned, directly or indirectly, in the
aggregate, by the Sponsor, unless, in the case of either clause (a) or (b) above, the Sponsor has,
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 MRC; or (c) Continuing Directors
shall not constitute at least a majority of the board of directors of MRC.
17
Civil Code: the Civil Code of Québec, or any successor statute, as amended from time
to time, and includes all regulations thereunder.
Claims: all claims, liabilities, obligations, losses, damages, penalties, judgments,
proceedings, interest and costs and expenses of any kind (including remedial response costs,
reasonable attorneys fees (which shall be limited to the fees, disbursements and other charges of
one primary counsel and one local counsel in each relevant jurisdiction for the Indemnitees (unless
there is an actual or perceived conflict of interest or the availability of different claims or
defenses in which case each such Indemnitee may retain its own counsel) and Extraordinary Expenses)
at any time (including after Full Payment of the Obligations, replacement of Agent or any Lender)
incurred by any Indemnitee or asserted against any Indemnitee by any Loan Party or other Person, in
any way relating to (a) any Loans, Letters of Credit, Loan Documents, or the use thereof or
transactions relating thereto, (b) any action taken or omitted in connection with any Loan
Documents, (c) the existence or perfection of any Liens, or realization upon any Collateral, (d)
exercise of any rights or remedies under any Loan Documents or Applicable Law or (e) failure by any
Loan Party to perform or observe any terms of any Loan Document, in each case, including all costs
and expenses relating to any investigation, litigation, arbitration or other proceeding (including
an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a
party thereto.
Closing Date: as defined in Section 6.1.
Code: the Internal Revenue Code of 1986 and the regulations promulgated and rulings
issued thereunder.
Collateral: all Property described in Section 7.1, all Property described in any
Security Document as security for any Secured Obligation, and all other Property that now or
hereafter secures (or is intended to secure) any Secured Obligations.
Collateral Access Agreement: a landlord waiver, bailee letter, warehouse letter,
agreement regarding processing arrangements or other access agreement reasonably acceptable to the
Agent.
Commitment: for any Lender, the aggregate amount of such Lenders Borrower Group
Commitments. Commitments means the aggregate amount of all Borrower Group Commitments,
which amount shall on the Closing Date be equal to the sum of (a) Cdn$150,000,000 in respect of the
Canadian Revolver Commitments and (b) $900,000,000 in respect of the U.S. Revolver Commitments.
Commodity Agreement: any commodity swap agreement, futures contract, option contract
or other similar agreement or arrangement, each of which is for the purpose of hedging the
commodity price exposure associated with any Borrowers and its Subsidiaries operations and not
for speculative purposes.
Compliance Certificate: a certificate, in the form of Exhibit D with such changes as
may be agreed to by Loan Party Agent and Agent, by which the Borrowers certify to the matters set
forth in Section 10.1.1(e).
18
Confidential Information Memorandum: the Confidential Information Memorandum of the
Borrowers dated May 2011, delivered to the Lenders in connection with this Agreement, and the
financial statements and other attachments delivered to the Lenders in connection therewith.
Consolidated EBITDA: shall mean, for any period, Consolidated Net Income for such
period, plus:
(a) without duplication and to the extent already deducted (and not added back) in
arriving at such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and to the extent not reflected in such total
interest expense, any losses on hedging obligations or other derivative instruments
entered into for the purpose of hedging interest rate risk, net of interest income
and gains on such hedging obligations, and costs of surety bonds in connection with
financing activities,
(ii) provision for taxes based on income, profits or capital of the Borrowers
and the Restricted Subsidiaries, including state, franchise and similar taxes and
foreign withholding taxes paid or accrued during such period,
(iii) depreciation and amortization,
(iv) (a) losses on asset sales (other than asset sales in the Ordinary Course
of Business), disposals or abandonments, (b) any impairment charge or asset
write-off related to intangible assets (including good-will), long-lived assets, and
investments in debt and equity securities pursuant to GAAP, (c) all losses from
investments recorded using the equity method, (d) stock-based awards compensation
expense, and (e) other non-cash charges (provided that if any non-cash charges
referred to in this clause (e) represent an accrual or reserve for potential cash
items in any future period, the cash payment in respect thereof in such future
period shall be subtracted from Consolidated EBITDA to such extent, and excluding
amortization of a prepaid cash item that was paid in a prior period),
(v) extraordinary losses and unusual or non-recurring charges, severance,
relocation costs and curtailments or modifications to pension and post-retirement
employee benefit plans,
(vi) restructuring charges or reserves (including restructuring costs related
to acquisitions after the date hereof and to closure and/or consolidation of
facilities),
(vii) any deductions attributable to minority interests (including the minority
interest portion of the Initial Canadian Borrowers employee profit sharing plans),
(viii) the amount, if any, of management, monitoring, consulting and advisory
fees and related expenses paid to the Sponsor,
19
(ix) LIFO expense, and
(x) any costs or expenses incurred by any Borrower or a Restricted Subsidiary
pursuant to any management equity plan or stock option plan or any other management
or employee benefit plan or agreement or any stock subscription or shareholder
agreement, to the extent that such costs or expenses are funded with cash proceeds
contributed to the capital of any Borrower or net cash proceeds of an issuance of
Stock or Stock Equivalents of any Borrower, less
(b) without duplication and to the extent included in arriving at such Consolidated Net
Income, the sum of the following amounts for such period:
(i) extraordinary gains and unusual or non-recurring gains,
(ii) non-cash gains (excluding any non-cash gain to the extent it represents
the reversal of an accrual or reserve for a potential cash item that reduced
Consolidated Net Income in any prior period),
(iii) gains on asset sales (other than asset sales in the Ordinary Course of
Business),
(iv) any net after-tax income from the early extinguishment of Indebtedness or
hedging obligations or other derivative instruments,
(v) LIFO income, and
(vi) all gains from investments recorded using the equity method,
in each case, as determined on a consolidated basis for the Borrowers and the Restricted
Subsidiaries in accordance with GAAP; provided that, to the extent included in Consolidated Net
Income,
(A) there shall be excluded in determining Consolidated EBITDA currency translation
gains and losses related to currency remeasurements of Indebtedness or intercompany balances
(including the net loss or gain resulting from Hedge Agreements for currency exchange risk),
(B) there shall be excluded in determining Consolidated EBITDA for any period any
adjustments resulting from the application of Statement of Financial Accounting Standards
No. 133, and
(C) there shall be included in determining Consolidated EBITDA for any period, without
duplication, (1) the Acquired EBITDA of any Person, property, business or asset acquired by
any Borrower or any Restricted Subsidiary during such period to the extent not subsequently
sold, transferred, abandoned or otherwise disposed by such Borrower or such Restricted
Subsidiary (each such Person, property, business or asset acquired and not subsequently so
disposed of, an Acquired Entity or Business) and the Acquired EBITDA of any
Unrestricted Subsidiary that is converted into a Restricted
20
Subsidiary during such period (each, a Converted Restricted Subsidiary),
based on the actual Acquired EBITDA of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion), (2) an adjustment in respect of each Acquired Entity or Business
equal to the amount of the Pro Forma Adjustment with respect to such Acquired Entity or
Business for such period (including the portion thereof occurring prior to such acquisition)
as specified in a Pro Forma Adjustment Certificate and delivered to the Lenders and the
Agent, and (3) there shall be excluded in determining Consolidated EBITDA for any period the
Disposed EBITDA of any Person, property, business or asset (other than an Unrestricted
Subsidiary) sold, transferred, abandoned or otherwise disposed of, closed or classified as
discontinued operations by any Borrower or any Restricted Subsidiary during such period
(each such Person, property, business or asset so sold or disposed of, a Sold Entity or
Business), and the Acquired EBITDA of any Restricted Subsidiary that is converted into
an Unrestricted Subsidiary during such period (each, a Converted Unrestricted
Subsidiary) based on the actual Disposed EBITDA of such Sold Entity or Business or
Converted Unrestricted Subsidiary for such period (including the portion thereof occurring
prior to such sale, transfer or disposition or conversion).
Consolidated Fixed Charge Coverage Ratio: for any Test Period, the ratio of (a)
Consolidated EBITDA for such Test Period to (b) Consolidated Fixed Charges for such Test Period.
Consolidated Fixed Charges: for any period, the sum, without duplication, of (a)
Consolidated Interest Expense, (b) scheduled payments of principal on Consolidated Total Debt, (c)
the aggregate of all unfinanced capital expenditures of Borrowers and their respective Restricted
Subsidiaries during such period determined on a consolidated basis and (d) the portion of taxes
attributable to Borrowers and their respective Restricted Subsidiaries based on income actually
paid in cash and provisions for cash income taxes.
Consolidated Interest Expense: for any period, the sum of (i) the cash interest
expense (including that attributable to Capital Leases in accordance with GAAP), net of cash
interest income, of the Borrowers and the Restricted Subsidiaries on a consolidated basis in
accordance with GAAP with respect to all outstanding Indebtedness of the Borrowers and the
Restricted Subsidiaries, including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance financing and net costs under Hedge Agreements
(other than currency swap agreements, currency future or option contracts and other similar
agreements) and (ii) any cash payments made during such period in respect of obligations referred
to in clause (b) below relating to Funded Debt that were amortized or accrued in a previous period
(other than any such obligations resulting from the discounting of Indebtedness in connection with
the application of purchase accounting in connection with any Permitted Acquisition), but
excluding, however, (a) amortization of deferred financing costs and any other amounts of non-cash
interest, (b) the accretion or accrual of discounted liabilities during such period, and (c) all
non-recurring cash interest expense consisting of liquidated damages for failure to timely comply
with registration rights obligations and financing fees, all as calculated on a consolidated basis
in accordance with GAAP and excluding, for the avoidance of doubt, any interest in respect of items
excluded from Indebtedness in the proviso to the definition thereof,
21
provided that (x) except as provided in clause (y) below, there shall be excluded from
Consolidated Interest Expense for any period the cash interest expense (or cash interest income) of
all Unrestricted Subsidiaries for such period to the extent otherwise included in Consolidated
Interest Expense, (y) there shall be included in determining Consolidated Interest Expense for any
period the cash interest expense (or income) of any Acquired Entity or Business acquired during
such period and of any Converted Restricted Subsidiary converted during such period, in each case
based on the cash interest expense (or income) of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof occurring prior to such
acquisition or conversion) assuming any Indebtedness incurred or repaid in connection with any such
acquisition or conversion had been incurred or prepaid on the first day of such period, and (z)
there shall be excluded from determining Consolidated Interest Expense for any period the cash
interest expense (or income) of any Sold Entity or Business disposed of during such period, based
on the cash interest expense (or income) relating to any Indebtedness relieved, retired or repaid
in connection with any such disposition of such Sold Entity or Business for such period (including
the portion thereof occurring prior to such disposal) assuming such debt relieved, retired or
repaid in connection with such disposition had been relieved, retired or repaid on the first day of
such period. Notwithstanding the foregoing, for purposes of determining Consolidated Interest
Expense for any period prior to the first anniversary of the Closing Date, the monthly Consolidated
Interest Expense shall be as set forth on Schedule 1.1(a).
Consolidated Net Income: for any period, the net income (loss) of the Borrowers and
the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with
GAAP, excluding, without duplication, (a) extraordinary items for such period, (b) the cumulative
effect of a change in accounting principles during such period to the extent included in
Consolidated Net Income, (c) any fees and expenses incurred during such period, or any amortization
thereof for such period, in connection with any acquisition, investment, recapitalization, asset
disposition, issuance or repayment of debt, issuance of equity securities, refinancing transaction
or amendment or other modification of any debt instrument (in each case, including any such
transaction consummated prior to the Closing Date and any such transaction undertaken but not
completed) and any charges or non-recurring merger costs incurred during such period as a result of
any such transaction and (d) any income (loss) for such period attributable to the early
extinguishment of Indebtedness. There shall be excluded from Consolidated Net Income for any
period the purchase accounting effects of adjustments to inventory, property and equipment,
software and other intangible assets and deferred revenue in component amounts required or
permitted by GAAP and related authoritative pronouncements (including the effects of such
adjustments pushed down to the Borrower and the Restricted Subsidiaries), as a result of any
acquisition whether consummated before or after the Closing Date, any Permitted Acquisition or
other Investment, or the amortization or write-off of any amounts hereof.
Consolidated Secured Debt: as of any date of determination, (a) the aggregate
principal amount of Indebtedness of the Borrowers and the Restricted Subsidiaries outstanding on
such date, determined on a consolidated basis in accordance with GAAP (but excluding the effects of
any discounting of Indebtedness resulting from the application of purchase accounting in connection
with any Permitted Acquisition), consisting of Indebtedness for borrowed money, Capitalized Lease
Obligations and debt obligations evidenced by promissory notes or similar instruments, in each case
secured by Liens, minus (b) the aggregate amount of cash and
22
Permitted Investments held in accounts on the consolidated balance sheet of the Borrowers and
the Restricted Subsidiaries as at such date to the extent the use thereof for application to
payment of Indebtedness is not prohibited by law or any contract to which any Borrower or any of
the Restricted Subsidiaries is a party.
Consolidated Total Assets: as of any date of determination, the amount that would, in
conformity with GAAP, be set forth opposite the caption total assets (or any like caption) on a
consolidated balance sheet of the Borrowers and the Restricted Subsidiaries at such date.
Consolidated Total Debt: as of any date of determination, (a) the aggregate principal
amount of Indebtedness of the Borrowers and the Restricted Subsidiaries outstanding on such date,
determined on a consolidated basis in accordance with GAAP (but excluding the effects of any
discounting of Indebtedness resulting from the application of purchase accounting in connection
with any Permitted Acquisition), consisting of Indebtedness for borrowed money, Capitalized Lease
Obligations and debt obligations evidenced by promissory notes or similar instruments, minus (b)
the aggregate amount of cash and Permitted Investments held in accounts on the consolidated balance
sheet of the Borrowers and the Restricted Subsidiaries as at such date to the extent the use
thereof for application to payment of Indebtedness is not prohibited by law or any contract to
which any Borrower or any of the Restricted Subsidiaries is a party.
Consolidated Total Debt to Consolidated EBITDA Ratio: as of any date of
determination, the ratio of (a) Consolidated Total Debt as of the last day of the most recent Test
Period for which financial statements have been delivered pursuant to Section 10.1.1 to (b)
Consolidated EBITDA for such Test Period.
Continuing Director: at any date, an individual (a) who is a member of the board of
directors of MRC on the date hereof, (b) who, as at such date, has been a member of such board of
directors for at least the twelve preceding months, (c) who has been nominated to be a member of
such board of directors, directly or indirectly, by Sponsor or Persons nominated by Sponsor or (d)
who has been nominated to be a member of such board of directors by a majority of the other
Continuing Directors then in office.
Converted Restricted Subsidiary: as defined in the term Consolidated EBITDA.
Converted Unrestricted Subsidiary: as defined in the term Consolidated EBITDA.
Cost: with respect to Inventory, the weighted average cost thereof, as determined in
the same manner and consistent with the most recent Inventory Appraisal which has been received and
approved by Agent in its reasonable discretion.
Credit Documents: the Loan Documents and the Bank Product Documents.
Credit Party: Agent, a Lender or any Fronting Bank; and Credit Parties
means Agent, Lenders and Fronting Banks.
Creditor Representative: under any Applicable Law, a receiver, interim receiver,
receiver and manager, trustee (including any trustee in bankruptcy), custodian, conservator,
administrator,
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examiner, sheriff, monitor, assignee, liquidator, provisional liquidator, sequestrator or
similar officer or fiduciary.
Currency Agreement: any foreign exchange contract, currency swap agreement, futures
contract, option contract, synthetic cap or other similar agreement or arrangement, each of which
is for the purpose of hedging the foreign currency risk associated any Borrowers and its
Subsidiaries operations and not for speculative purposes.
Default: an event or condition that, with the lapse of time or giving of notice,
would constitute an Event of Default.
Default Rate: for any Obligation (including, to the extent permitted by law, interest
not paid when due), 2.00% plus the interest rate otherwise applicable thereto, or if such
Obligation does not bear interest, a rate equal to the U.S. Base Rate plus 2.00%.
Defaulting Lender: any Lender that, as reasonably determined by the Agent, (a) has
failed to perform any funding obligations hereunder, and such failure is not cured within three
Business Days, unless such Lender notifies the Agent and the Loan Party Agent in writing that such
failure is the result of such Lenders determination that one or more conditions precedent to
funding (which conditions precedent, together with the applicable Default, if any, shall be
specifically identified in such writing) have not been satisfied; (b) has notified the Agent or any
Borrower that such Lender does not intend to comply with its funding obligations hereunder or has
made a public statement to the effect that it does not intend to comply with its funding
obligations hereunder or generally under other credit facilities (unless such notice or public
statement relates to such Lenders obligation to fund a Loan hereunder and states that such
position is based on such Lenders determination that a condition precedent to funding cannot be
satisfied); (c) has failed, within three Business Days following written request by the Agent, to
confirm in a manner reasonably satisfactory to the Agent that such Lender will comply with its
funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender
pursuant to this clause (c) upon receipt by the Agent of such confirmation); or (d) has, or has a
direct or indirect parent company that has, become the subject of an Insolvency Proceeding or taken
any action in furtherance thereof; provided, however, that a Lender shall not be a
Defaulting Lender solely by virtue of a Governmental Authoritys ownership of an equity interest in
such Lender or parent company.
Deposit Account: (i) any deposit account as such term is defined in Article 9 of
the UCC and in any event shall include all accounts and sub-accounts relating to any of the
foregoing and (ii) with respect to any such Deposit Account located in Canada, any bank account
with a deposit function.
Deposit Account Control Agreements: the deposit account control agreements, in form
and substance reasonably satisfactory to Agent and Loan Party Agent, executed by each lockbox
servicer and financial institution maintaining a lockbox and/or Deposit Account other than an
Excluded Deposit Account for a Loan Party, in favor of Agent, for the benefit of the Secured
Parties, as security for the Secured Obligations.
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Designated Non-Cash Consideration: the fair market value of non-cash consideration
received by any Borrower or a Restricted Subsidiary in connection with a Disposition pursuant to
Section 10.2.4(b) and Section 10.2.4(c) that is designated as Designated Non-Cash Consideration
pursuant to a certificate of a Senior Officer of the Loan Party Agent, setting forth the basis of
such valuation (which amount will be reduced by the fair market value of the portion of the
non-cash consideration converted to cash within 180 days following the consummation of the
applicable Disposition).
Disposed EBITDA: with respect to any Sold Entity or Business or any Converted
Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA of such
Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references to the
Borrowers and the Restricted Subsidiaries in the definition of Consolidated EBITDA were references
to such Sold Entity or Business or Converted Unrestricted Subsidiary and its Subsidiaries), all as
determined on a consolidated basis for such Sold Entity or Business or Converted Unrestricted
Subsidiary.
Disposition: as defined in Section 10.2.4(b).
dividends: as defined in Section 10.2.6.
Document: as defined in the UCC (and/or with respect to any Document of a Canadian
Domiciled Loan Party, a document of title as defined in the PPSA).
Dollar Equivalent: on any date, with respect to any amount denominated in Dollars,
such amount in Dollars, and with respect to any stated amount in a currency other than Dollars, the
amount of Dollars that Agent determines (which determination shall be conclusive and binding absent
manifest error) would be necessary to be sold on such date at the applicable Exchange Rate to
obtain the stated amount of the other currency.
Dollars or $: lawful money of the United States.
Domestic Subsidiary: in the case of a Canadian Borrower, each Canadian Subsidiary,
and in the case of a U.S. Borrower, each U.S. Subsidiary.
Dominion Account: with respect to the Canadian Domiciled Loan Parties, the Canadian
Dominion Account, and with respect to the U.S. Facility Loan Parties, the U.S. Dominion Account.
Eligible Accounts: the Canadian Eligible Accounts and/or the U.S. Eligible Accounts,
as the context requires.
Eligible Assignee: subject to the requirements of Section 13.3.3, a Person that is
(a) a Lender or a U.S.-based Affiliate of a Lender, (b) if such Person is to hold U.S. Facility
Obligations, an Approved Fund; (c) if such Person is to hold Canadian Facility Obligations, a
Person who holds or is acquiring, or whose Affiliate holds or is acquiring, a U.S. Revolver
Commitment; (d) any other financial institution approved by Agent and Loan Party Agent (which
approval by Loan Party Agent shall not be unreasonably withheld or delayed, and shall be deemed
given if no objection is made within five Business Days after notice of the proposed
25
assignment), that is organized under the laws of the United States or Canada or any state or
district thereof, extends asset-based lending facilities in its Ordinary Course of Business and
whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of the
Code or any other Applicable Law, or would, immediately following any such assignment, result in
increased costs or Taxes payable by the Loan Parties pursuant to Section 5.8; and (e) during any
Event of Default, any Person acceptable to Agent in its discretion, which acceptance shall not be
unreasonably withheld or delayed.
Eligible Inventory: the Canadian Eligible Inventory and/or the U.S. Eligible
Inventory, as the context requires.
Enforcement Action: any action to enforce any Obligations or Loan Documents or to
exercise any rights or remedies relating to any Collateral (whether by judicial action, self-help,
notification of Account Debtors, exercise of setoff or recoupment, exercise of any right or vote to
act in a Loan Partys Insolvency Proceeding, or otherwise).
Environment: shall mean ambient air, indoor air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or subsurface strata,
natural resources or as otherwise defined in any Environmental Law.
Environmental Claims: any and all actions, suits, orders, decrees, demands, demand
letters, claims, liens, notices of noncompliance, violation or potential responsibility or
investigation (other than internal reports prepared by any Borrower or any of the Subsidiaries (a)
in the ordinary course of such Persons business or (b) as required in connection with a financing
transaction or an acquisition or disposition of real estate) or proceedings relating in any way to
any Environmental Law or any permit issued, or any approval given, under any such Environmental
Law, including, (i) any and all such claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all such claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief relating to the
presence, release or threatened release of Hazardous Materials or arising from alleged injury or
threat of injury to health or safety (to the extent relating to human exposure to Hazardous
Materials), or the environment including, ambient air, surface water, groundwater, land surface and
subsurface strata and natural resources such as wetlands.
Environmental Law: any applicable Federal, state, foreign or local statute, law,
rule, regulation, ordinance, code and rule of common law now or hereafter in effect and in each
case as amended, and any binding judicial or administrative interpretation thereof, including any
binding judicial or administrative order, consent decree or judgment, relating to the protection of
environment, including, ambient air, surface water, groundwater, land surface and subsurface strata
and natural resources such as wetlands, or human health or safety (to the extent relating to human
exposure to Hazardous Materials), or Hazardous Materials.
ERISA: the Employee Retirement Income Security Act of 1974.
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ERISA Affiliate: any trade or business (whether or not incorporated) under common
control with a Loan Party or treated as a single employer with a Loan Party, in each case within
the meaning of Section 414 of the Code.
Event of Default: as defined in Section 11.1.
Excess Availability: at any time, an amount equal to (a) the lesser of (i) the
Commitments minus all LC Obligations and (ii) the sum of the (1) U.S. Borrowing Base as of any date
of determination and (2) Total Canadian Borrowing Base as of any date of determination, minus (b)
the principal balance of all Revolver Loans.
Exchange Rate: on any date, (a) with respect to Canadian Dollars in relation to
Dollars, the spot rate as quoted by Bank of America as its noon spot rate at which Dollars are
offered on such date for Canadian Dollars, and (b) with respect to Dollars in relation to Canadian
Dollars, the spot rate as quoted by Bank of America as its noon spot rate at which Canadian Dollars
are offered on such date for such Dollars
Excluded Deposit Accounts: (a) Deposit Accounts that are zero balance disbursement
accounts, (b) Deposit Accounts used solely to fund payroll, payroll taxes and similar employment
taxes or employee benefits in the Ordinary Course of Business, (c) other Deposit Accounts with an
amount on deposit of less than $1,000,000 at any time in the aggregate for all such Deposit
Accounts and (d) the Net Available Cash Account.
Excluded Loan Party: (a) each Loan Party that is a controlled foreign corporation
within the meaning of Section 957 of the Code; (b) any direct or indirect Subsidiary of a Person
described in clause (a) of this definition; and (c) any U.S. Subsidiary, substantially all of the
assets of which are Stock of one or more controlled foreign corporations within the meaning of
Section 957 of the Code.
Excluded Subsidiary: (a) each U.S. Subsidiary listed on Schedule 9.1.12 hereto as an
Excluded Subsidiary, (b) any Subsidiary that is not a Wholly-Owned Subsidiary, (c) any Subsidiary
that is prohibited by any applicable Requirement of Law from guaranteeing the Secured Obligations,
(d) in respect of the U.S. Domiciled Loan Parties, (i) any Subsidiary of a non-U.S. Subsidiary
(that is a controlled foreign corporation within the meaning of Section 957 of the Code) and (ii)
any U.S. Subsidiary, substantially all of the assets of which are Stock of one or more controlled
foreign corporations within the meaning of Section 957 of the Code, (e) any Restricted Subsidiary
acquired pursuant to a Permitted Acquisition financed with secured Indebtedness incurred pursuant
to Section 10.2.1(b)(ix) or Section 10.2.1(b)(x) and each Restricted Subsidiary thereof that
guarantees such Indebtedness to the extent and so long as the financing documentation relating to
such Permitted Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted
Subsidiary from guaranteeing, or granting a Lien on any of its assets to secure, the Secured
Obligations; provided that after such time that such prohibitions on guarantees or granting of
Liens lapses or terminates, such Restricted Subsidiary shall no longer be an Excluded Subsidiary,
(f) any other Subsidiary with respect to which, in the reasonable judgment of the Agent (confirmed
in writing by notice to the applicable Borrower), the cost or other consequences (including any
adverse tax consequences) of providing a Guarantee shall be excessive in view of the benefits to be
obtained by the Lenders therefrom, (g)
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each Unrestricted Subsidiary and (h) any Restricted Subsidiary that the Loan Party Agent
elects by notice to the Agent to treat as an Excluded Subsidiary pursuant to this clause (h),
provided that (i) any such Restricted Subsidiary shall cease to be so treated as an Excluded
Subsidiary pursuant to this clause (h) upon written notice from the Loan Party Agent to the Agent,
and (ii) at any time, the total assets of all Restricted Subsidiaries that are Excluded
Subsidiaries solely as a result of this clause (h), as reflected on their most recent balance
sheets prepared in accordance with GAAP, do not in the aggregate at any time exceed $1,000,000, and
(iii) the total revenues of all Restricted Subsidiaries that are Excluded Subsidiaries solely as a
result of this clause (h) for the twelve-month period ending on the last day of the most recent
Test Period for which financial statements have been delivered pursuant to Section 10.1.1 do not in
the aggregate exceed $5,000,000.
Excluded Tax: with respect to Agent, any Lender, any Fronting Bank or any other
recipient of a payment to be made by or on behalf of any Loan Party on account of any Obligation,
(a) taxes imposed on or measured by its net income (however denominated), and franchise taxes
imposed on it (i) by the jurisdiction (or any political subdivision thereof) under the laws of
which such recipient is organized or in which its principal office is located or, in the case of
any Lender, in which its applicable Lending Office is located or (ii) as the result of any other
present or former connection between such recipient and the jurisdiction imposing such tax (other
than connections arising from such recipient having executed, delivered, become a party to,
performed its obligations under, received payments under, received or perfected a security interest
under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or
assigned an interest in any Loan, Letter of Credit or Loan Document); (b) any branch profits taxes
imposed by the United States or any similar tax imposed by any other jurisdiction in which such
recipient has a branch; (c) in the case of a Foreign Lender (within the meaning of clause (b) of
the definition thereof), any United States withholding tax that is imposed on amounts payable to
such Foreign Lender pursuant to laws in force at the time such Foreign Lender becomes a Lender (or
designates a new Lending Office) hereunder, or any additional United States withholding tax that is
imposed on amounts payable to a Foreign Lender after the time such Foreign Lender becomes a Lender
(or designates a new Lending Office) hereunder, except that taxes in this clause (c) shall
not include (i) additional United States withholding tax that may be imposed on amounts payable to
a Foreign Lender after the time such Foreign Lender becomes a party to the Agreement (or designates
a new Lending Office), as a result of a Change in Tax Law after such time and (ii) any amount with
respect to United States withholding tax that such Foreign Lender (or its assignor, if any) was
previously entitled to receive pursuant to Section 5.8 of this Agreement, if any, with respect to
such United States withholding tax at the time such Foreign Lender designates a new Lending Office
(or at the time of the assignment); (d) any United States withholding tax imposed under FATCA, or
(e) any withholding tax that is attributable to such recipients failure or inability (other than
as a result of a Change in Tax Law) to comply with Section 5.9.
Existing Canadian Credit Agreement: that certain Amended and Restated Loan and
Security Agreement dated as of November 18, 2009, among the Initial Canadian Borrower, Mega
Production Testing Inc. and Hagan Oilfield Supply Ltd., as guarantors, the lenders party thereto
and Bank of America, N.A. (acting through its Canada branch), as agent for such lenders.
Existing Letters of Credit: the letters of credit set forth on Schedule 1.1(b).
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Existing U.S. Credit Agreement: that certain Revolving Loan Credit Agreement dated as
of October 31, 2007, among MRC, as borrower, the lenders party thereto, The CIT Group/Business
Credit, Inc., as administrative agent and co-collateral agent for such lenders and the other agents
and parties referred to therein, as amended by that certain First Amendment to Revolving Loan
Credit Agreement dated as of December 21, 2009.
Extraordinary Expenses: all costs, expenses or advances that Agent may incur during
an Event of Default, or during the pendency of any Insolvency Proceeding of any Borrower or any
Specified Subsidiary, including those relating to (a) any audit, inspection, repossession, storage,
repair, appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection,
or other preservation of or realization upon any Collateral; (b) any action, arbitration or other
proceeding (whether instituted by or against Agent, any Lender, any Loan Party, any representative
of creditors of any Loan Party or any other Person) in any way relating to any Collateral
(including the validity, perfection, priority or avoidability of Agents Liens with respect to any
Collateral), Loan Documents, Letters of Credit or Obligations, including any lender liability or
other Claims; (c) the exercise, protection or enforcement of any rights or remedies of Agent in, or
the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges
or Liens with respect to any Collateral; (e) any Enforcement Action; (f) negotiation and
documentation of any modification, waiver, workout, restructuring or forbearance with respect to
any Loan Documents or Obligations; and (g) Protective Advances. Such costs, expenses and advances
include transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility reservation
and standby fees, appraisal fees, brokers fees and commissions, auctioneers fees and commissions,
accountants fees, environmental study fees, wages and salaries paid to employees of any Loan Party
or independent contractors in liquidating any Collateral, travel expenses and legal fees (which
shall be limited to the reasonable fees, disbursements and other charges of one primary counsel and
one local counsel in each relevant jurisdiction for the Agent and the Lenders (unless there is an
actual or perceived conflict of interest or the availability of different claims or defenses in
which case the Agent may retain its own counsel).
Facility Termination Date: June 14, 2016.
FATCA: Sections 1471 through 1474 of the Code, as of the date of this Agreement (or
any amended version that is substantively comparable), and any current or future regulations or
official interpretations thereof.
FCCR Test Event: the occurrence of any one of the following events: (i) Excess
Availability shall be less than the greater of (A) 10% of the Commitments or (B) $75,000,000 or
(ii) an Event of Default shall have occurred and be continuing; provided, that, to the extent that
the FCCR Test Event has occurred due to clause (i) of this definition, if Excess Availability shall
have exceeded the greater of (x) 10% of the Commitments and (y) $75,000,000 for at least thirty
(30) consecutive days, the FCCR Test Event shall be deemed to be over.
Federal Funds Rate: (a) the weighted average of interest rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by federal funds brokers on
the applicable Business Day (or on the preceding Business Day, if the applicable day is not a
Business Day), as published by the Federal Reserve Bank of New York on the next Business
29
Day; or (b) if no such rate is published on the next Business Day, the average rate (rounded
up, if necessary, to the nearest 1/8 of 1%) charged to Bank of America on the applicable day on
such transactions, as determined by Agent.
Fee Letter: collectively, (a) the fee letter agreement among Agent, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, MRC and the Initial Canadian Borrower dated as of April 29,
2011, (b) the fee letter agreement among Barclays Capital, the investment banking division of
Barclays Bank PLC, MRC and the Initial Canadian Borrower dated as of April 29, 2011 and (c) the fee
letter agreement among Wells Fargo Capital Finance, LLC, MRC and the Initial Canadian Borrower
dated as of April 29, 2011.
Financial Administration Act: Financial Administration Act (Canada) and all
regulations and schedules thereunder.
Floating Rate Loan: a U.S. Base Rate Loan, a Canadian Prime Rate Loan or a Canadian
Base Rate Loan.
FLSA: the Fair Labor Standards Act of 1938.
Foreign Lender: a Lender that is (a) in the case of the Canadian Borrowers, resident
in a jurisdiction other than Canada or a province or territory thereof, and (b) in the case of the
U.S. Borrowers, not a United States person within the meaning of section 7701(a)(30) of the Code.
Foreign Plan: any employee benefit plan, program, policy, arrangement or agreement
maintained or contributed to by a Borrower or any of its Subsidiaries with respect to employees
employed outside the United States or Canada.
Foreign Subsidiary: a Subsidiary of a Borrower that is not a Domestic Subsidiary.
Fronting Bank: a U.S. Fronting Bank and/or the Canadian Fronting Bank, as the context
requires.
Fronting Bank Indemnitees: U.S. Fronting Bank Indemnitees and/or Canadian Fronting
Bank Indemnitees, as the context requires.
FSCO: The Financial Services Commission of Ontario or like body in Canada or in any
other province or territory or jurisdiction of Canada with whom a Canadian Pension Plan is required
to be registered in accordance with Requirements of Law and any other Governmental Authority
succeeding to the functions thereof.
Full Payment: with respect to any Obligations (other than unasserted contingent
indemnity claims), (a) the full cash payment thereof in the applicable currency required hereunder,
including any interest and documented fees and other charges accruing during an Insolvency
Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations,
Bank Product Debt or inchoate or contingent in nature, Cash Collateralization thereof (or delivery
of a standby letter of credit acceptable to Agent in its discretion, in the amount of required Cash
Collateral); and (c) a release of any Claims of Loan Parties against Agent, Lenders and any
Fronting Bank arising on or before the payment date. No Loans shall be
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deemed to have been paid in full until all Commitments related to such Loans have expired or
been terminated.
Funded Debt: all consolidated indebtedness of the Borrowers and the Restricted
Subsidiaries for borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the option of any
Borrower or any Restricted Subsidiary, to a date more than one year from such date or arises under
a revolving credit or similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including all amounts of Funded Debt required
to be paid or prepaid within one year from the date of its creation and, in the case of the
Borrowers, Indebtedness in respect of the Loans.
GAAP: generally accepted accounting principles in effect in the United States, from
time to time, applied consistently, subject to Section 1.2 hereof; provided that capital leases and
operating leases shall be subject to generally accepted accounting principles in effect in the
United States on the date hereof.
General Intangibles: as defined in the UCC (and/or with respect to any General
Intangible of a Canadian Facility Loan Party, an intangible as defined in the PPSA).
Governmental Approval: all authorizations, consents, approvals, licenses and
exemptions of, registrations and filings with, and required reports to, all Governmental
Authorities.
Governmental Authority: any federal, state, provincial, municipal, foreign or other
governmental department, agency, commission, board, bureau, court, tribunal, instrumentality,
political subdivision, or other entity or officer exercising executive, legislative, judicial,
regulatory or administrative functions for or pertaining to any government or court, in each case
whether it is or is not associated with the United States, a state, district or territory thereof,
Canada, a province or territory thereof or any other foreign entity or government.
Guarantee: each guarantee agreement (including this Agreement) executed by a
Guarantor in favor of Agent guaranteeing all or any portion of the Canadian Facility Secured
Obligations or the U.S. Facility Secured Obligations.
Guarantee Obligations: as to any Person, any obligation of such Person guaranteeing
or intended to guarantee any Indebtedness of any other Person (the primary obligor) in any
manner, whether directly or indirectly, including any obligation of such Person, whether or not
contingent, (a) to purchase any such Indebtedness or any property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such
Indebtedness or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any such Indebtedness of
the ability of the primary obligor to make payment of such Indebtedness or (d) otherwise to assure
or hold harmless the owner of such Indebtedness against loss in respect thereof; provided, however,
that the term Guarantee Obligations shall not include endorsements of instruments for deposit or
collection in the Ordinary Course of Business or customary and reasonable indemnity obligations in
effect on the Closing Date or entered into in connection with any
31
acquisition or disposition of assets permitted under this Agreement (other than such
obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be deemed
to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which
such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
Guarantor Payment: as defined in Section 5.10.3(b).
Guarantors: Canadian Facility Guarantors, U.S. Facility Guarantors, and each other
Person who guarantees payment or performance of any Secured Obligations.
Hazardous Materials: (a) any petroleum or petroleum products, radioactive materials,
friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon gas; (b) any
chemicals, materials or substances defined as or included in the definition of hazardous
substances, hazardous waste, hazardous materials, extremely hazardous waste, restricted
hazardous waste, toxic substances, toxic pollutants, contaminants, or pollutants, or words
of similar import, under any applicable Environmental Law; and (c) any other chemical, material or
substance, which is prohibited, limited or regulated by any Environmental Law.
Hedge Agreement: an Interest Rate Agreement, Currency Agreement or Commodity
Agreement entered into in the ordinary course of any Borrowers or any of its Subsidiaries
businesses.
Historical Financial Statements: as of the Closing Date, (a) the audited consolidated
financial statements of the Parent and its Subsidiaries for the fiscal year ended December 31,
2010, (b) the unaudited financial statements of the Parent and its Subsidiaries for the fiscal
quarter ended March 31, 2011 and (c) the unaudited financial statements of the Parent and its
Subsidiaries for the fiscal month ended April 30, 2011.
Increase Date: as defined in Section 2.1.7(a).
Indebtedness: with respect to any Person shall mean (a) all indebtedness of such
Person for borrowed money, (b) the deferred purchase price of assets or services that in accordance
with GAAP would be included as liabilities in the balance sheet of such Person, (c) the face amount
of all letters of credit issued for the account of such Person and, without duplication, all drafts
drawn thereunder, (d) all Indebtedness of a second Person secured by any Lien on any property owned
by such first Person, whether or not such Indebtedness has been assumed, (e) all Capitalized Lease
Obligations of such Person, (f) all obligations of such Person under interest rate swap, cap or
collar agreements, interest rate future or option contracts, currency swap agreements, currency
future or option contracts, commodity price protection agreements or other commodity price hedging
agreements and other similar agreements and (g) without duplication, all Guarantee Obligations of
such Person, provided that Indebtedness shall not include (i) trade payables and accrued expenses,
in each case payable directly or through a bank clearing arrangement and arising in the Ordinary
Course of Business, (ii) deferred or prepaid revenue, (iii) purchase price holdbacks in respect of
a portion of the purchase price of an asset to satisfy
32
warranty or other unperformed obligations of the respective seller and (iv) all intercompany
Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of
terms) and made in the Ordinary Course of Business.
Indemnified Taxes: Taxes other than Excluded Taxes and Other Taxes.
Indemnitees: Agent Indemnitees, Lender Indemnitees, Fronting Bank Indemnitees and
Bank of America Indemnitees.
Information: as defined on Section 14.12.
Initial Canadian Borrower: as defined in the preamble to this Agreement.
Initial U.S. Borrowers: as defined in the preamble to this Agreement.
Insolvency Proceeding: any case or proceeding or proposal commenced by or against a
Person under any state, provincial, federal or foreign law for, or any agreement of such Person to,
(a) the entry of an order for relief under the U.S. Bankruptcy Code, or any other insolvency,
debtor relief, bankruptcy, receivership, debt adjustment law or other similar law (whether state,
provincial, federal or foreign), including the Bankruptcy and Insolvency Act (Canada) and the CCAA;
(b) the appointment of a Creditor Representative or other custodian for such Person or any part of
its Property; or (c) an assignment or trust mortgage for the benefit of creditors.
Insurance Assignment: each collateral assignment of insurance pursuant to which a
Loan Party assigns to the Agent, for the benefit of the Secured Parties, such Loan Partys rights
under business interruption policies, as security for the Secured Obligations.
Intercreditor Agreement: that certain Second Amended and Restated Intercreditor
Agreement dated as of December 21, 2009, among MRC, certain of its subsidiaries, The CIT
Group/Business Credit, Inc., as co-collateral agent for the Revolving Credit Lenders (as defined
therein), Bank of America, N.A., as co-collateral agent for the Revolving Credit Lenders, and U.S.
Bank National Association, as collateral trustee for itself and the Senior Secured Notes Secured
Parties (as defined therein), the Additional Senior Secured Notes Secured Parties (as defined
therein) and the Subordinated Lien Secured Parties (as defined therein), as the same may be
amended, supplemented or otherwise modified from time to time.
Interest Period: as defined in Section 3.1.4.
Interest Period Loan: a LIBOR Loan or a Canadian BA Rate Loan.
Interest Rate Agreement: any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedging agreement or other similar
agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure
associated with any Borrowers and its Subsidiaries operations and not for speculative purposes.
Inventory: as defined in the UCC or the PPSA, as applicable, including all goods
intended for sale, lease, display or demonstration; all work in process; and all raw materials, and
other materials and supplies of any kind that are or could be used in connection with the
33
manufacture, transformation, printing, packing, shipping, advertising, sale, lease or
furnishing of such goods, or otherwise used or consumed in a Borrowers business (but excluding
Equipment).
Inventory Appraisal: (a) on the Closing Date, the appraisals prepared by HILCO
Appraisal Services, LLC dated February 25, 2011 for the U.S. Borrowers and dated May 6, 2011 for
the Initial Canadian Borrower and (b) thereafter, the most recent inventory appraisal conducted by
an independent appraisal firm and delivered pursuant to Section 10.1.15 hereof.
Investment: for any Person: (a) the acquisition (whether for cash, property, services
or securities or otherwise) of Stock, Stock Equivalents, bonds, notes, debentures, partnership or
other ownership interests or other securities of any other Person (including any short sale or
any sale of any securities at a time when such securities are not owned by the Person entering into
such sale); (b) the making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to such Person), but
excluding any such advance, loan or extension of credit having a term not exceeding 364 days
arising in the Ordinary Course of Business; or (c) the entering into of any guarantee of, or other
contingent obligation with respect to, Indebtedness.
IRS: the United States Internal Revenue Service.
Joint Lead Arrangers: Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays
Capital, the investment banking division of Barclays Bank PLC, and Wells Fargo Capital Finance,
LLC.
LC Document: any of the Canadian LC Documents or the U.S. LC Documents.
LC Obligations: U.S. LC Obligations and/or Canadian LC Obligations, as the context
requires.
Lender Indemnitees: Lenders, Affiliates of Lenders and their respective officers,
directors, members, partners, employees and agents.
Lenders: as defined in the preamble to this Agreement, including the Agent in its
capacity as U.S. Swingline Lender, the Canadian Swingline Lender, the U.S. Lenders and the Canadian
Lenders and their respective permitted successors and assigns and, where applicable, any Fronting
Bank, and any other Person who hereafter becomes a Lender pursuant to an Assignment and
Acceptance.
Lending Office: the office designated as such by the Applicable Lender at the time it
becomes party to this Agreement or thereafter by notice to Agent and Loan Party Agent.
Letter-of-Credit Right: as defined in the UCC, and in any event shall mean a right to
payment or performance under a letter of credit, whether or not the beneficiary has demanded or is
at the time entitled to demand payment of performance.
Letters of Credit: the U.S. Letters of Credit and/or the Canadian Letters of Credit,
as the context requires.
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LIBOR: for any Interest Period with respect to a LIBOR Loan, the per annum rate of
interest (rounded up, if necessary, to the nearest 1/8th of 1%), determined by Agent at
approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest
Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association
LIBOR Rate (BBA LIBOR), as published by Reuters (or other commercially available source
designated by Agent); or (b) if BBA LIBOR is not available for any reason, the interest rate at
which Dollar deposits in the approximate amount of the LIBOR Loan would be offered by Bank of
Americas London branch to major banks in the London interbank Eurodollar market. If the Board of
Governors imposes a Reserve Percentage with respect to LIBOR deposits, then LIBOR shall be the
foregoing rate, divided by 1 minus the Reserve Percentage.
LIBOR Loan: each set of LIBOR Revolver Loans having a common length and commencement
of Interest Period.
LIBOR Revolver Loan: a Revolver Loan that bears interest based on LIBOR; provided,
however, that a Canadian Base Rate Loan bearing interest as set forth in clause (c) of the
definition of Canadian Base Rate, or a U.S. Base Rate Loan bearing interest as set forth in clause
(c) of the definition of U.S. Base Rate, shall not constitute a LIBOR Revolver Loan.
Lien: any mortgage, pledge, security interest, hypothecation, assignment, statutory
trust, deemed trust, privilege, lien or similar encumbrance, whether statutory, based on common
law, contract or otherwise, and including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any reservation of ownership or any lease in
the nature thereof.
Loan: a Revolver Loan.
Loan Account: as defined in Section 5.7.1.
Loan Documents: this Agreement, the Other Agreements and the Security Documents.
Loan Parties: the Canadian Facility Loan Parties and the U.S. Facility Loan Parties,
collectively, and Loan Party means any of the Loan Parties, individually.
Loan Party Agent: as defined in Section 4.4.
Loan Party Group: a group consisting of (a) Canadian Facility Loan Parties or (b)
U.S. Facility Loan Parties.
Loan Party Group Obligations: with respect to the Canadian Borrower Group and the
other Canadian Facility Loan Parties, the Canadian Facility Obligations, and with respect to the
U.S. Borrower Group and the other U.S. Facility Loan Parties, U.S. Facility Obligations.
Material Adverse Change: any event or circumstance which has resulted or is
reasonably likely to result in a material adverse change in the business, assets, operations,
properties or financial condition of MRC and its Subsidiaries, taken as a whole or that would
materially adversely affect the ability of the Loan Parties, taken as a whole, to perform their
respective payment obligations under this Agreement or any of the other Loan Documents.
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Material Adverse Effect: a circumstance or condition affecting the business, assets,
operations, properties or financial condition of MRC and its Subsidiaries, taken as a whole, that
would materially adversely affect (a) the business, assets, operations, properties, or financial
condition of the Borrowers and their Subsidiaries, taken as a whole, (b) the ability of the Loan
Parties, taken as a whole, to perform their respective payment obligations under this Agreement or
any of the other Loan Documents or (c) the rights and remedies of the Agent and the Lenders under
this Agreement or any of the other Loan Documents.
Material Subsidiary: at any date of determination, each Restricted Subsidiary of MRC
(a) whose total assets at the last day of the Test Period ending on the last day of the most recent
fiscal period for which financial statements have been delivered pursuant to Section 10.1.1 were
equal to or greater than 5% of the Consolidated Total Assets of MRC and its Restricted Subsidiaries
at such date or (b) whose gross revenues for such Test Period were equal to or greater than 5% of
the consolidated gross revenues of MRC and its Restricted Subsidiaries for such period, in each
case determined in accordance with GAAP.
Maximum Canadian Facility Amount: on any date of determination, the lesser of (a) the
Canadian Revolver Commitments on such date and (b) Cdn$150,000,000 (or such greater or lesser
amount after giving effect to any reductions in the Commitments pursuant to Section 2.1.4 and/or to
any Canadian Revolver Commitment Increase made pursuant to and in accordance with Section 2.1.7);
it being acknowledged and agreed that at no time can the sum of the Dollar Equivalent of the
Maximum Canadian Facility Amount plus the Maximum U.S. Facility Amount exceed the Maximum Facility
Amount in effect at such time.
Maximum Facility Amount: the sum of the (a) Dollar Equivalent of the Maximum Canadian
Facility Amount and (b) Maximum U.S. Facility Amount but, in any event, not to exceed
$1,300,000,000.
Maximum U.S. Facility Amount: on any date of determination, the lesser of (a) the
U.S. Revolver Commitments on such date and (b) $900,000,000 (or such greater or lesser amount after
giving effect to any reductions in the Commitments pursuant to Section 2.1.4 and/or to any U.S.
Revolver Commitment Increase made pursuant to and in accordance with Section 2.1.7); it being
acknowledged and agreed that at no time can the sum of the Maximum U.S. Facility Amount plus the
Dollar Equivalent of the Maximum Canadian Facility Amount exceed the Maximum Facility Amount in
effect at such time.
Moodys: Moodys Investors Service, Inc., and its successors.
MRC: as defined in the preamble to this Agreement.
Multiemployer Plan: any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which any Loan Party or ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or been obligated to make
contributions, but excluding, for greater certainty, any Canadian Multi-Employer Plan.
Net Available Cash Account: as defined in Section 8.3.
36
Net Orderly Liquidation Value: the orderly liquidation value (net of costs and
expenses estimated to be incurred in connection with such liquidation) of the Eligible Inventory
that is estimated to be recoverable in an orderly liquidation of such Eligible Inventory, as
determined from time to time by reference to the most recent Inventory Appraisal.
Non-Bank Certificate: as defined in Section 5.9.2.
Non-Core Assets: the assets described on Schedule 10.2.4.
Notes: each Revolver Note or other promissory note executed by a Borrower to evidence
any Obligations.
Notes Priority Lien Collateral: as defined in the Intercreditor Agreement.
Notes Priority Lien Debt: as defined in the Intercreditor Agreement.
Notes Priority Liens: as defined in the Intercreditor Agreement.
Notice of Borrowing: a Notice of Borrowing to be provided by Loan Party Agent to
request a Borrowing of Loans, in the form attached hereto as Exhibit E or otherwise in form
reasonably satisfactory to Agent and Loan Party Agent.
Notice of Conversion/Continuation: a Notice of Conversion/Continuation to be provided
by Loan Party Agent to request a conversion or continuation of any Loans as LIBOR Loans or Canadian
BA Rate Loans, in the form attached hereto as Exhibit F or otherwise in form reasonably
satisfactory to Agent and Loan Party Agent.
Obligations: all (a) principal of and premium, if any, on the Loans, (b) LC
Obligations and other obligations of the Loan Parties with respect to Letters of Credit, (c)
interest, expenses, fees, indemnification obligations, Extraordinary Expenses and other amounts
payable by the Loan Parties under the Loan Documents and (d) other Indebtedness, obligations and
liabilities of any kind owing by the Loan Parties pursuant to the Loan Documents, whether now
existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any
Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit,
acceptance, loan, guarantee, indemnification or otherwise, and whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary, or joint or several.
Ordinary Course of Business: with respect to any Person, the ordinary course of
business of such Person, consistent with past practices or, with respect to actions taken by such
Person for which no past practice exists, consistent with past practices of similarly situated
companies, and, in each case, undertaken in good faith.
Organic Documents: with respect to any Person, its charter, certificate or articles
of incorporation, continuation or amalgamation, bylaws, articles of organization, limited liability
agreement, operating agreement, members agreement, shareholders agreement, partnership agreement,
certificate of partnership, certificate of formation, memorandum of association, voting trust
agreement, or similar agreement or instrument governing the formation or operation of such Person.
37
Other Agreement: each: Note; LC Document; Fee Letter; Intercreditor Agreement;
Borrowing Base Certificate; Compliance Certificate; Subordination Agreement; or other document,
instrument, certificate, notice, report or agreement (other than this Agreement or a Security
Document) now or hereafter delivered by or on behalf of a Loan Party to Agent or a Lender in
connection with any transactions relating hereto.
Other Taxes: all present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies arising from any payment made under any Loan Document or
from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.
Overadvance: a Canadian Overadvance or U.S. Overadvance, as the context requires.
Overadvance Loan: a Canadian Overadvance Loan and/or a U.S. Overadvance Loan, as the
context requires.
Parent: McJunkin Red Man Holding Corporation, a Delaware corporation.
Participant: as defined in Section 13.2.1.
Participant Register: as defined in Section 13.2.1.
Passive Entity: a Person that conducts no business activity other than the ownership
of Stock and has no Indebtedness other than Guarantee Obligations relating to its Subsidiaries.
Patriot Act: the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).
Payment Item: each check, draft or other item of payment payable to a Loan Party,
including those constituting proceeds of any Collateral.
PBA: the Pensions Benefits Act (Ontario) or any other Canadian federal or provincial
or territorial pension benefit standards legislation pursuant to which any Canadian Pension Plan is
required to be registered.
PBGC: the Pension Benefit Guaranty Corporation.
Perfection Certificate: shall mean a certificate disclosing information regarding the
Loan Parties in the form of Exhibit G-1 with respect to the Canadian Facility Loan Parties, and in
the form of Exhibit G-2 with respect to the U.S. Facility Loan Parties or any other form approved
by the Agent and Loan Party Agent.
Permitted Acquisition: the acquisition, by merger or otherwise, by any Borrower or
any of the Restricted Subsidiaries of assets or Stock or Stock Equivalents, so long as (a) such
acquisition and all transactions related thereto shall be consummated in accordance with Applicable
Law; (b) such acquisition shall result in the issuer of such Stock or Stock Equivalents becoming a
Restricted Subsidiary and a Guarantor, to the extent required by Section 10.1.13; (c)
38
such acquisition shall result in the Agent, for the benefit of the Secured Parties, being
granted a Lien in any Stock, Stock Equivalent or any assets so acquired, to the extent required by
Sections 10.1.13 and/or 10.1.16; (d) after giving effect to such acquisition, no Default or Event
of Default shall have occurred and be continuing; (e) after giving effect to such acquisition,
either (1) both (A) Excess Availability shall be greater than the higher of (x) 10% of the
Commitments and (y) $75,000,000 and (B) the Consolidated Fixed Charge Coverage Ratio determined as
of the most recent Test Period for which financial statements have been delivered pursuant to
Section 10.1.1 shall be greater than 1.0 to 1.0 or (2) Excess Availability shall be greater than
the higher of (x) 15% of the Commitments and (y) $125,000,000 and (f) any Indebtedness incurred to
finance the acquisition is permitted to be incurred by the Senior Secured Notes Indenture;
provided, that if (x) such acquisition satisfies all of the conditions set forth above except for
the conditions set forth in clause (e) above and (y) after giving effect to such acquisition,
either (1) Excess Availability is greater than the higher of (A) 10% of the Commitments and (B)
$75,000,000 or (2) the Consolidated Fixed Charge Coverage Ratio shall be greater than 1.0 to 1.0,
such acquisition shall be permitted provided that it, together with all other acquisitions
permitted under this proviso, do not exceed $50,000,000 in the aggregate.
Notwithstanding the definition of U.S. Borrowing Base and Canadian Borrowing Base, in
connection with and subsequent to any Permitted Acquisition, the Accounts and Inventory acquired by
the Borrowers, or, subject to compliance with Section 10.1.13 of this Agreement, of the Person so
acquired, may be included in the calculation of the Borrowing Base and thereafter if all criteria
set forth in the definitions of Eligible Accounts and Eligible Inventory have been satisfied and,
if the aggregate value (or Cost in the case of Inventory) of such Accounts and Inventory is in
excess of $40,000,000 and only to the extent reasonably requested by the Agent, the Agent shall
have received a collateral audit and appraisal of such Accounts and Inventory acquired by the
applicable Borrower or Borrowers or owned by such Person acquired by the applicable Borrower or
Borrowers which shall be reasonably satisfactory in scope, form and substance to the Agent;
provided, that if no collateral audit and appraisal is delivered to and approved by the Agent with
respect to such Accounts and Inventory, then the lowest recovery rates from the current Inventory
Appraisal shall apply to such Accounts and Inventory.
Permitted Additional Debt: senior unsecured or subordinated Indebtedness issued by a
Borrower or a Guarantor and, to the extent permitted by Section 10.2.1(b)(x), any Indebtedness
incurred by any other Restricted Subsidiary of MRC, (a) the terms of which (i) do not provide for
any scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is
180 days following the U.S. Revolver Commitment Termination Date (other than customary offers to
purchase upon a change of control, asset sale or event of loss and customary acceleration rights
after an event of default) and (ii) to the extent subordinated provide for customary subordination
to the Obligations under the Loan Documents, (b) the covenants, events of default, guarantees and
other terms of which (other than interest rate and redemption premiums), taken as a whole, are not
more restrictive to such Borrower and the Subsidiaries than those in this Agreement or the Senior
Secured Notes Indenture; provided that a certificate of a Senior Officer of such Borrower is
delivered to the Agent at least five Business Days (or such shorter period as the Agent may
reasonably agree) prior to the incurrence of such Indebtedness, together with a reasonably detailed
description of the material terms and conditions of such Indebtedness or drafts of the
documentation relating thereto, stating that such Borrower has determined in good faith that such
terms and conditions satisfy the foregoing requirement shall
39
be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless
the Agent notifies such Borrower within such period that it disagrees with such determination
(including a reasonable description of the basis upon which it disagrees), and (c) of which, except
to the extent permitted by Section 10.2.1(b)(x), no Subsidiary of MRC (other than a Loan Party) is
an obligor.
Permitted Discretion: a determination made by Agent, in the exercise of its
reasonable credit judgment (from the perspective of a secured asset-based lender), exercised in
good faith and subject to Section 7.5.
Permitted Investments: shall mean:
(a) securities issued or unconditionally guaranteed by the United States of America or the
Canadian government or any agency or instrumentality thereof, in each case having maturities of not
more than 12 months from the date of acquisition thereof;
(b) securities issued by any state of the United States of America or any province or
territory of Canada, or any political subdivision of any such state, province or territory, or any
public instrumentality thereof or any political subdivision of any such state, province or
territory, or any public instrumentality thereof having maturities of not more than 12 months from
the date of acquisition thereof and, at the time of acquisition, having an investment grade rating
generally obtainable from either S&P or Moodys (or, if at any time neither S&P nor Moodys shall
be rating such obligations, then from another nationally recognized rating service);
(c) commercial paper issued by any Lender or any bank holding company owning any Lender;
(d) commercial paper maturing no more than 12 months after the date of creation thereof and,
at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moodys (or,
if at any time neither S&P nor Moodys shall be rating such obligations, an equivalent rating from
another nationally recognized rating service);
(e) domestic and LIBOR certificates of deposit or bankers acceptances maturing no more than
two years after the date of acquisition thereof issued by any Lender or any other bank having
combined capital and surplus of not less than $250,000,000 in the case of domestic banks;
(f) repurchase agreements with a term of not more than 30 days for underlying securities of
the type described in clauses (a), (b) and (e) above entered into with any bank meeting the
qualifications specified in clause (e) above or securities dealers of recognized national standing;
(g) marketable short-term money market and similar funds (x) either having assets in excess of
$250,000,000 or (y) having a rating of at least A-1 or P-1 from either S&P or Moodys (or, if at
any time neither S&P nor Moodys shall be rating such obligations, an equivalent rating from
another nationally recognized rating service);
40
(h) shares of investment companies that are registered under the Investment Company Act of
1940 and substantially all the investments of which are one or more of the types of securities
described in clauses (a) through (g) above; and
(i) in the case of Investments by any Restricted Foreign Subsidiary or Investments made in a
country outside the United States of America or Canada, Permitted Investments shall also include
(i) direct obligations of the sovereign nation (or any agency thereof) in which such Restricted
Foreign Subsidiary is organized and is conducting business or where such Investment is made, or in
obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof),
in each case maturing within a two years after such date and having, at the time of the acquisition
thereof, a rating equivalent to at least A-1 from S&P and at least P-1 from Moodys, (ii)
investments of the type and maturity described in clauses (a) through (h) above of foreign
obligors, which Investments or obligors (or the parents of such obligors) have ratings described in
such clauses or equivalent ratings from comparable foreign rating agencies, (iii) shares of money
market mutual or similar funds which invest exclusively in assets otherwise satisfying the
requirements of this definition (including this proviso) and (iv) other short-term investments
utilized by Foreign Restricted Subsidiaries in accordance with normal investment practices for cash
management in investments analogous to the foregoing investments in clauses (a) through (i).
Permitted Liens: shall mean:
(a) Liens for taxes, assessments or governmental charges or claims not yet due or which are
being contested in good faith and by appropriate proceedings for which appropriate reserves have
been established in accordance with GAAP;
(b) Liens in respect of property or assets of any Borrower or any of the Subsidiaries imposed
by law, such as carriers, warehousemens and mechanics Liens and other similar Liens arising in
the Ordinary Course of Business, in each case so long as such Liens arise in the Ordinary Course of
Business and do not individually or in the aggregate have a Material Adverse Effect;
(c) Liens arising from judgments or decrees in circumstances not constituting an Event of
Default under Section 11.1;
(d) Liens incurred or deposits made in connection with workers compensation, unemployment
insurance and other types of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the Ordinary Course of Business or
otherwise constituting Investments permitted by Section 10.2.5;
(e) ground leases in respect of real property on which facilities owned or leased by a
Borrower or any of its Subsidiaries are located;
(f) easements, rights-of-way, servitudes, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances not interfering in any material respect with the
business of any Borrower and its Subsidiaries, taken as a whole;
41
(g) any interest or title of a lessor or secured by a lessors interest under any lease
permitted by this Agreement;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;
(i) Liens on goods the purchase price of which is financed by a documentary letter of credit
issued for the account of a Borrower or any of its Subsidiaries, provided that such Lien secures
only the obligations of such Borrower or such Subsidiaries in respect of such letter of credit to
the extent permitted under Section 10.2.1(b);
(j) leases or subleases granted to others not interfering in any material respect with the
business of any Borrower and its Subsidiaries, taken as a whole;
(k) Liens arising from precautionary Uniform Commercial Code financing statements, PPSA
financing statements or similar filings made in respect of operating leases entered into by any
Borrower or any of its Subsidiaries; and
(l) Liens created in the Ordinary Course of Business in favor of banks and other financial
institutions over credit balances of any bank accounts of any Borrower and the Restricted
Subsidiaries held at such banks or financial institutions, as the case may be, to facilitate the
operation of cash pooling and/or interest set-off arrangements in respect of such bank accounts in
the Ordinary Course of Business.
Permitted Sale Leaseback: any Sale Leaseback consummated by any Borrower or any of
the Restricted Subsidiaries after the Closing Date, provided that any such Sale Leaseback not
between a Borrower and any Guarantor or any Guarantor and another Guarantor is consummated for fair
value as determined at the time of consummation in good faith by such Borrower or such Restricted
Subsidiary and, in the case of any Sale Leaseback (or series of related Sales Leasebacks) the
aggregate proceeds of which exceed $25,000,000, the board of directors of such Borrower or such
Restricted Subsidiary (which such determination may take into account any retained interest or
other Investment of such Borrower or such Restricted Subsidiary in connection with, and any other
material economic terms of, such Sale Leaseback).
Person: any individual, corporation, limited liability company, unlimited liability
company, partnership, joint venture, joint stock company, land trust, business trust,
unincorporated organization, Governmental Authority or other entity.
Plan: any employee benefit plan (as defined in Section 3(3) of ERISA), and any
payroll practice and other employee benefit plan, policy, program, agreement or arrangement,
including retirement, pension, profit sharing, employment, individual consulting or other
compensation agreement, collective bargaining agreement, bonus or other incentive compensation,
retention, stock purchase, equity or equity-based compensation, deferred compensation, change in
control, severance, sick leave, vacation, loans, salary continuation, hospitalization, health, life
insurance, educational assistance, or other fringe benefit or perquisite plan, policy, agreement
which is or was sponsored, maintained or contributed to by, or required to be contributed to by,
any Loan Party or Affiliate thereof or with respect to which a Loan Party
42
or ERISA Affiliate has or could have any obligation or liability, contingent or otherwise, but
excluding, for greater certainty, a Canadian Employee Plan.
Pledged Collateral: as defined in Section 7.3.1.
Pledged Debt Securities: as defined in Section 7.3.1.
Pledged Stock: as defined in Section 7.3.1.
Post-Acquisition Period: with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of the
fourth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
PPSA: the Personal Property Security Act (Alberta), (or any successor statute) and
the regulations thereunder; provided, however, if validity, perfection and effect of perfection and
non-perfection and opposability of the Agents security interest in and Lien on any Collateral of
any Loan Party are governed by the personal property security laws of any jurisdiction other than
Alberta, PPSA shall mean those personal property security laws (including the Civil Code) in such
other jurisdiction for the purposes of the provisions hereof relating to such validity, perfection,
and effect of perfection and non-perfection and for the definitions related to such provisions, as
from time to time in effect.
Proceeds of Crime Act: the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act (Canada) (or any successor statute), as amended from time to time, and includes all
regulations thereunder.
Pro Forma Adjustment: for any Test Period that includes all or any part of a fiscal
quarter included in any Post-Acquisition Period, with respect to the Acquired EBITDA of the
applicable Acquired Entity or Business or the Consolidated EBITDA of the Borrowers, the pro forma
increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be,
projected by the Borrowers in good faith as a result of (a) actions taken or expected to be taken
during such Post-Acquisition Period for the purposes of realizing reasonably identifiable and
factually supportable cost savings or (b) any additional costs incurred during such
Post-Acquisition Period, in each case in connection with the combination of the operations of such
Acquired Entity or Business with the operations of the Borrowers and the Restricted Subsidiaries;
provided that, so long as such actions are taken or expected to be taken during such
Post-Acquisition Period or such costs are incurred during such Post-Acquisition Period, as
applicable, it may be assumed, for purposes of projecting such pro forma increase or decrease to
such Acquired EBITDA or such Consolidated EBITDA, as the case may be, that such cost savings will
be realizable during the entirety of such Test Period, or such additional costs, as applicable,
will be incurred during the entirety of such Test Period; provided further that any such pro forma
increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall
be without duplication for cost savings or additional costs already included in such Acquired
EBITDA or such Consolidated EBITDA, as the case may be, for such Test Period.
43
Pro Forma Adjustment Certificate: any certificate of a Senior Officer of the Loan
Party Agent delivered pursuant to Section 10.1.1(e).
Pro Forma Basis and Pro Forma Compliance: with respect to compliance with any
test or covenant hereunder, that (A) to the extent applicable, the Pro Forma Adjustment shall have
been made and (B) all Specified Transactions and the following transactions in connection therewith
shall be deemed to have occurred as of the first day of the applicable period of measurement in
such test or covenant: (a) income statement items (whether positive or negative) attributable to
the property or Person subject to such Specified Transaction, (i) in the case of a sale, transfer
or other disposition of all or substantially all Stock in any Subsidiary of any Loan Party or any
division, product line, or facility used for operations of any Loan Party or any of its
Subsidiaries, shall be excluded, and (ii) in the case of a Permitted Acquisition or Investment
described in the definition of Specified Transaction, shall be included, (b) any retirement of
Indebtedness, and (c) any Indebtedness incurred or assumed by any Loan Party or any of the
Restricted Subsidiaries in connection therewith and if such Indebtedness has a floating or formula
rate, shall have an implied rate of interest for the applicable period for purposes of this
definition determined by utilizing the rate which is or would be in effect with respect to such
Indebtedness as at the relevant date of determination; provided that, without limiting the
application of the Pro Forma Adjustment pursuant to (A) above, the foregoing pro forma adjustments
may be applied to any such test or covenant solely to the extent that such adjustments are
consistent with the definition of Consolidated EBITDA and give effect to events (including
operating expense reductions) that are (i) (x) directly attributable to such transaction, (y)
expected to have a continuing impact on the Loan Parties and the Restricted Subsidiaries and (z)
factually supportable or (ii) otherwise consistent with the definition of Pro Forma Adjustment.
Pro Forma Consolidated Fixed Charge Coverage Ratio: with respect to compliance with
any covenant or test hereunder, the Consolidated Fixed Coverage Ratio as calculated on the assumed
basis that the applicable dividend or payment in respect of Subordinated Indebtedness was included
as one of the Consolidated Fixed Charges.
Pro Forma Entity: as defined in Acquired EBITDA.
Property: any interest in any kind of property or asset, whether real (immovable),
personal (movable) or mixed, or tangible (corporeal) or intangible (incorporeal).
Pro Rata: (a) when used with reference to a Lenders (i) share on any date of the
total Borrower Group Commitments to a Borrower Group, (ii) participating interest in LC Obligations
(if applicable) to the members of such Borrower Group, (iii) share of payments made by the members
of such Borrower Group with respect to such Borrower Groups Obligations, (iv) increases or
reductions to the Canadian Revolver Commitments or the U.S. Revolver Commitments pursuant to
Section 2.1.4 or 2.1.7, and (v) obligation to pay or reimburse Agent for Extraordinary Expenses
owed by or in respect of such Borrower Group or to indemnify any Indemnitees for Claims relating to
such Borrower Group, a percentage (expressed as a decimal, rounded to the ninth decimal place)
derived by dividing the amount of the Borrower Group Commitment of such Lender to such Borrower
Group on such date by the aggregate amount of the Borrower Group Commitments of all Lenders to such
Borrower Group on such date (or if such Borrower Group Commitments have been terminated, by
reference to the respective
44
Borrower Group Commitments as in effect immediately prior to the termination thereof) or (b)
when used for any other reason, a percentage (expressed as a decimal, rounded to the ninth decimal
place) derived by dividing the aggregate amount of the Lenders Commitments on such date by the
aggregate amount of the Commitments of all Lenders on such date (or if any such Commitments have
been terminated, such Commitments as in effect immediately prior to the termination thereof).
Protective Advances: Canadian Protective Advances and/or U.S. Protective Advances, as
the context requires.
Qualified IPO: any underwritten sale to the public of MRCs, Parents or any direct
or indirect parent of Parents (or its successors) Stock pursuant to an effective registration
statement filed with the SEC on Form S-1 or Form S-3 (or any successor forms adopted by the SEC)
after which MRCs, Parents or any direct or indirect parent of Parents (or its successors) Stock
is listed on a United States national securities exchange or the NASDAQ stock market; provided that
a Qualified IPO shall not include any issuance of Stock in any merger or other business
combination, and shall not include any registration of the issuance of Stock to existing
securityholders or employees of MRC, Parent or any direct or indirect parent of Parent and their
respective Subsidiaries on Form S-4 or Form S-8 (or any successor form adopted by the SEC).
Real Estate: as defined in Section 10.1.1(i).
Records: as defined in the UCC, and in any event means information that is inscribed
on a tangible medium or which is stored in an electronic or other medium and is retrievable in
perceivable form, including, all books and records, customer lists, files, correspondence, tapes,
computer programs, print outs and computer records.
Register: as defined in Section 13.1.
Report: as defined in Section 12.2.3.
Reportable Event: the occurrence of any of the events set forth in Section 4043(b) or
(c) of ERISA and regulations thereunder with respect to a Plan (other than an event for which the
30-day notice period is waived).
Required Borrower Group Lenders: at any date of determination thereof, Lenders having
Borrower Group Commitments to a Borrower Group representing more than 50% of the aggregate Borrower
Group Commitments to such Borrower Group at such time; provided, however, that if and for so long
as any such Lender shall be a Defaulting Lender, the term Required Borrower Group Lenders shall
mean Lenders (excluding such Defaulting Lender) having Borrower Group Commitments to such Borrower
Group representing more than 50% of the aggregate Borrower Group Commitments to such Borrower Group
(excluding the Borrower Group Commitments of each Defaulting Lender) at such time; provided
further, however, that if all of the Borrower Group Commitments to such Borrower Group have been
terminated, the term Required Borrower Group Lenders shall mean Lenders to such Borrower Group
holding Revolver Loans to, and (if applicable) participating interest in LC Obligations owing by,
such Borrower Group representing more than 50% of the aggregate outstanding principal amount of
Revolver Loans and (if applicable) LC Obligations owing by such Borrower Group at such time.
45
Required Lenders: at any date of determination thereof, Lenders having Borrower Group
Commitments representing more than 50% of the aggregate Borrower Group Commitments at such time;
provided, however, that for so long as any Lender shall be a Defaulting Lender, the term Required
Lenders shall mean Lenders (excluding such Defaulting Lender) having Commitments representing more
than 50% of the aggregate Commitments (excluding the Commitments of each Defaulting Lender) at such
time; provided further, however, that if any of the Borrower Group Commitments have been
terminated, the term Required Lenders shall be calculated using (a) in lieu of such Lenders
terminated Borrower Group Commitment, the outstanding principal amount of the Revolver Loans by
such Lender to, and (if applicable) participation interests in LC Obligations owing by, such
Borrower Group and (b) in lieu of the aggregate Commitments under such terminated Borrower Group
Commitment, the aggregate outstanding Revolver Loans to, and (if applicable) LC Obligations owing
by such Borrower Group.
Requirement of Law: as to any Person, the Organic Documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
Reserves: U.S. Availability Reserves and/or Canadian Availability Reserves, as the
context requires.
Restricted Foreign Subsidiary: a Foreign Subsidiary that is a Restricted Subsidiary.
Restricted Subsidiary: any Subsidiary of any Borrower other than an Unrestricted
Subsidiary.
Reserve Percentage: the reserve percentage (expressed as a decimal, rounded up to the
nearest 1/8th of 1%) applicable to member banks under regulations issued by the Board of Governors
for determining the maximum reserve requirement for Eurocurrency liabilities.
Revolver Commitment Increase and Revolver Commitment Increases: as defined in
Section 2.1.7(a).
Revolver Loan: a loan made pursuant to Section 2.1.1, and any Overadvance Loan,
Swingline Loan or Protective Advance.
Revolver Notes: collectively, the U.S. Revolver Notes and the Canadian Revolver
Notes.
S&P: Standard & Poors Ratings Services, a division of The McGraw-Hill Companies,
Inc., and its successors.
Sale Leaseback: any transaction or series of related transactions pursuant to which
any Borrower or any of the Restricted Subsidiaries (a) sells, transfers or otherwise disposes of
any property, real or personal, whether now owned or hereafter acquired, and (b) as part of such
transaction, thereafter rents or leases such property or other property that it intends to use for
substantially the same purpose or purposes as the property being sold, transferred or disposed.
46
SEC: means the Securities and Exchange Commission or any successor thereto and, as
the context may require, any analogous Governmental Authority in any other relevant jurisdiction of
the Parent or any Subsidiary.
Secured Bank Product Obligations: Bank Product Debt owing to a Secured Bank Product
Provider and evidenced by one or more Bank Product Documents that the Loan Party Agent, in a
written notice to Agent, has expressly requested be treated as Secured Bank Product Obligations for
purposes hereof, up to the maximum amount (in the case of any Secured Bank Product Provider other
than Bank of America and its Affiliates) specified by such provider in writing to Agent, which
amount may be established and increased or decreased by further written notice to Agent from time
to time.
Secured Bank Product Provider: (a) Bank of America or any of its Affiliates; and (b)
any other Lender or Affiliate of a Lender that is providing a Bank Product; provided that such
provider shall deliver a written notice to Agent, in form and substance reasonably satisfactory to
Agent and Loan Party Agent, by the later of the Closing Date or 10 Business Days (or such later
time as Agent and Loan Party Agent may agree in their reasonable discretion) following creation of
the Bank Product, (i) describing the Bank Product and setting forth the maximum amount to be
secured by the Collateral and the methodology to be used in calculating such amount, and (ii) if
such provider is not a Lender, agreeing to be bound by Section 12.13.
Secured Leverage Ratio: as of any date of determination, the ratio of (a)
Consolidated Secured Debt as of the most recent Test Period for which financial statements have
been delivered pursuant to Section 10.1.1 to (b) Consolidated EBITDA for such Test Period.
Secured Obligations: Obligations and Secured Bank Product Obligations, including in
each case those under all Credit Documents.
Secured Parties: Canadian Facility Secured Parties, U.S. Facility Secured Parties and
Secured Bank Product Providers.
Securities Account Control Agreement: the securities account control agreements, in
form and substance reasonably satisfactory to Agent and Loan Party Agent, executed by each
financial institution maintaining a Securities Account for a Loan Party, in favor of Agent.
Securities Accounts: all present and future securities accounts (as defined in
Article 8 of the UCC or the PPSA, as applicable), including all monies, uncertificated
securities, securities entitlements and other financial assets (as defined in Article 8 of the
UCC or the PPSA, as applicable) contained therein.
Security Documents: this Agreement, the Guarantees, Insurance Assignments, Canadian
Security Agreements, the Deposit Account Control Agreements, the Securities Account Control
Agreements and all other documents, instruments and agreements now or hereafter securing (or given
with the intent to secure) any Secured Obligations.
Senior Officer: the President, the Chief Financial Officer, the Principal Accounting
Officer, the Treasurer, the Controller or any other senior officer of a Person designated as such
in writing to the Agent by such Person.
47
Senior Secured Notes: the senior secured notes of MRC issued from time to time
pursuant to the Senior Secured Notes Indenture and any registered notes issued by MRC in exchange
for, and as contemplated by, such notes with substantially identical terms as such notes, as any
such notes may be amended, restated, supplemented, replaced, increased, refinanced or otherwise
modified from time to time in accordance with the terms of the Intercreditor Agreement.
Senior Secured Notes Indenture: that certain Indenture, dated as of December 21,
2009, by and among MRC, Parent, the Credit Support Parties (as defined therein) party thereto, and
U.S. Bank National Association, as trustee, as the same may be amended, restated, supplemented,
replaced, increased, refinanced or otherwise modified from time to time in accordance with the
terms of the Intercreditor Agreement.
Settlement Report: a report delivered by the Agent to the Applicable Lenders
summarizing the Revolver Loans and, if applicable, participations in LC Obligations of the
applicable Borrower Group outstanding as of a given settlement date, allocated to the Applicable
Lenders on a Pro Rata basis in accordance with their Revolver Commitments.
Sold Entity or Business: as defined in the definition of the term Consolidated
EBITDA.
Solidary Claim: as defined in Section 12.1.1(b).
Solvent: as it relates to (a) the Loan Parties, taken as a whole, (w) are adequately
capitalized, (x) own assets, the value of which, on a going concern basis, exceed their
liabilities, (y) will have sufficient working capital to pay their debts as they become due and (z)
have not incurred (by way of assumption or otherwise) any obligations or liabilities (contingent or
otherwise), or made any conveyance in connection therewith, in each case, with actual intent to
hinder, delay or defraud either present or future creditors of such Persons or any of their
Affiliates; and (b) (i) as to any other Person (other than a Person incorporated or organized under
the laws of the Canada or any province or territory of Canada), such Person (u) owns Property whose
fair salable value is greater than the amount required to pay all of its debts (including
contingent, subordinated, unmatured and unliquidated liabilities); (v) owns Property whose present
fair salable value (as defined below) is greater than the probable total liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities) of such Person as they become
absolute and matured; (w) is able to pay all of its debts as they mature; (x) has capital that is
not unreasonably small for its business and is sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage; (y) is not insolvent within the
meaning of Section 101(32) of the U.S. Bankruptcy Code; and (z) has not incurred (by way of
assumption or otherwise) any obligations or liabilities (contingent or otherwise) or made any
conveyance in connection therewith, with actual intent to hinder, delay or defraud either present
or future creditors of such Person or any of its Affiliates and (ii) as to any other Person
incorporated or organized under the laws of the Canada or any province or territory of Canada, is
not an insolvent person as defined in the Bankruptcy and Insolvency Act (Canada). Fair salable
value means the amount that could be obtained for assets within a reasonable time, either through
collection or through sale under ordinary selling conditions by a
48
capable and diligent seller to an interested buyer who is willing (but under no compulsion) to
purchase.
Specified Revolving Credit Collateral: all Letter-of-Credit Rights, Chattel Paper,
Instruments, Investment Property and General Intangibles pertaining to the property described in
clauses (i) and (ii) of Section 7.1 of this Agreement.
Specified Subsidiary: at any date of determination (a) any Material Subsidiary or (b)
any Unrestricted Subsidiary (i) whose total assets at the last day of the Test Period ending on the
last day of the most recent fiscal period for which financial statements pursuant to Section 10.1.1
have been delivered were equal to or greater than 15% of the Consolidated Total Assets of the
Parent and the Subsidiaries at such date or (ii) whose gross revenues for such Test Period were
equal to or greater than 15% of the consolidated gross revenues of the Parent and the Subsidiaries
for such period, in each case determined in accordance with GAAP and (c) each other Subsidiary
that, when such Subsidiarys total assets or gross revenues are aggregated with the total assets or
gross revenues, as applicable, of each other Subsidiary that is the subject of an Event of Default
described in Section 11.1.5 would constitute a Specified Subsidiary under clause (a) or (b) above.
Specified Transaction: with respect to any period, any Investment, sale, transfer or
other disposition of assets, incurrence or repayment of Indebtedness, Dividend, Subsidiary
designation, Revolver Commitment Increase or other event that by the terms of this Agreement
requires Pro Forma Compliance with a test or covenant hereunder or requires such test or
covenant to be calculated on a Pro Forma Basis.
Sponsor: GS Capital Partners V Fund, L.P. and its respective Affiliates.
Stock: shares of capital stock or shares in the capital, as the case may be (whether
denominated as common stock or preferred stock or ordinary shares or preferred shares, as the case
may be), beneficial, partnership or membership interests, participations or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited liability company or
equivalent entity, whether voting or non-voting.
Stock Equivalents: all securities convertible into or exchangeable for Stock and all
warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently
convertible, exchangeable or exercisable.
Subordinated Indebtedness: Indebtedness of any Loan Party that is expressly
subordinate and junior in right of payment to the Obligations of such Loan Party under this
Agreement and is on subordination terms no less favorable to the Lenders than as is customary for
senior subordinated notes issued in a public or Rule 144A high yield debt offering, it being
understood that delivery to the Agent at least ten Business Days prior to the incurrence of such
Indebtedness of a certificate of a Senior Officer of a Borrower (together with a reasonably
detailed description of the subordination terms and conditions of such Indebtedness or drafts of
the documentation relating thereto) certifying that such Borrower has determined in good faith that
such subordination terms and conditions satisfy the foregoing requirements shall be conclusive
evidence that such terms and conditions satisfy such requirement unless the Agent notifies such
49
Borrower within such ten Business Day period that it disagrees with such determination
(including a reasonable description of the basis upon which it disagrees)
Subordination Agreement: that certain Postponement and Subordination Agreement dated
as of June 14, 2011, among McJunkin Red Man Canada Ltd., an Alberta corporation, Midfield Holdings
(Alberta) Ltd., an Alberta corporation, the Initial Canadian Borrower and Bank of America, as Agent
and Lender.
Subsidiary: with respect to any Person shall mean and include (a) any corporation
more than 50% of whose Stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation (irrespective of whether or not at
the time Stock of any class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (b) any partnership, association, joint venture or other entity
in which such Person directly or indirectly through Subsidiaries has more than a 50% equity
interest at the time. Unless otherwise expressly provided, all references herein to a Subsidiary
shall mean a Subsidiary of any Borrower.
Successor Borrower: as defined in Section 10.2.3(a).
Super-Majority Borrower Group Lenders: at any date of determination thereof, Lenders
having Borrower Group Commitments to a Borrower Group representing more than 75% of the aggregate
Borrower Group Commitments to such Borrower Group at such time; provided, however, that if and for
so long as any such Lender shall be a Defaulting Lender, the term Super-Majority Borrower Group
Lenders shall mean Lenders (excluding such Defaulting Lender) having Borrower Group Commitments to
such Borrower Group representing more than 75% of the aggregate Borrower Group Commitments to such
Borrower Group (excluding the Borrower Group Commitments of each Defaulting Lender) at such time;
provided further, however, that if all of the Borrower Group Commitments to such Borrower Group
have been terminated, the term Super-Majority Borrower Group Lenders shall mean Lenders to such
Borrower Group holding Revolver Loans to, and (if applicable) participating interest in LC
Obligations owing by, such Borrower Group representing more than 75% of the aggregate outstanding
principal amount of Revolver Loans and (if applicable) LC Obligations owing by such Borrower Group
at such time.
Super-Majority Lenders: at any date of determination thereof, Lenders having Borrower
Group Commitments representing more than 75% of the aggregate Borrower Group Commitments at such
time; provided, however, that for so long as any Lender shall be a Defaulting Lender, the term
Super-Majority Lenders shall mean Lenders (excluding such Defaulting Lender) having Commitments
representing more than 75% of the aggregate Commitments (excluding the Commitments of each
Defaulting Lender) at such time; provided further, however, that if any of the Borrower Group
Commitments have been terminated, the term Super-Majority Lenders shall be calculated using (a)
in lieu of such Lenders terminated Borrower Group Commitment, the outstanding principal amount of
the Revolver Loans by such Lender to, and (if applicable) participation interests in LC Obligations
owing by, such Borrower Group and (b) in lieu of the aggregate Commitments under such terminated
Borrower Group
50
Commitment, the aggregate outstanding Revolver Loans to, and (if applicable) LC Obligations
owing by such Borrower Group.
Supporting Obligations: as defined in the UCC, and in any event means a
Letter-of-Credit Right or secondary obligation that supports the payment or performance of an
Account, Chattel Paper, Document, General Intangible, Instrument or Investment Property,
including, but not limited to, securities, Investment Property, bills, notes, lien notes,
judgments, chattel mortgages, mortgages, security interests, hypothecs, assignments, guarantees,
suretyships, accessories, bills of exchange, negotiable instruments, invoices and all other rights,
benefits and documents now or hereafter taken, vested in or held by a Person in respect of or as
security for the same and the full benefit and advantage thereof, and all rights of action or
claims which a Person now has or may at any time hereafter have against any other Person in respect
thereof, including rights in its capacity as seller of any property or assets returned, repossessed
or recovered, under an installment or conditional sale or otherwise.
Swingline Commitment: U.S. Swingline Commitment and/or Canadian Swingline Commitment,
as the context requires.
Swingline Commitment Termination Date: U.S. Swingline Commitment Termination Date
and/or Canadian Swingline Commitment Termination Date, as the context requires.
Swingline Lender: U.S. Swingline Lender and/or Canadian Swingline Lender, as the
context requires.
Swingline Loan: a loan made pursuant to Section 2.1.8.
Taxes: all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other similar charges imposed in the nature of taxation by any
Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Temporary Eligibility Period: the period of sixty (60) days after the Closing Date,
or such longer period as the Agent shall approve; provided, such period shall not exceed one
hundred twenty (120) days after the Closing Date without the approval of the Required Lenders.
Termination Event: (a) the voluntary full or partial wind up of a Canadian Pension
Plan that is a registered pension plan by a Canadian Facility Loan Party; (b) the institution of
proceedings by any Governmental Authority to terminate in whole or in part or have a trustee
appointed to administer such a plan; or (c) any other event or condition which might constitute
grounds for the termination of, winding up or partial termination of winding up or the appointment
of trustee to administer, any such plan.
Test Period: for any determination under this Agreement, the four consecutive fiscal
quarters of MRC then last ended.
Total Canadian Borrowing Base: at any time, an amount equal to the sum of, without
duplication:
51
(a) the book value of Canadian Eligible Accounts of all Canadian Borrowers multiplied
by the advance rate of 85%, plus
(b) the lesser of (i) 70% of the net book value of Canadian Eligible Inventory of all
Canadian Borrowers (adding back the LIFO reserve calculated in accordance with GAAP) and
(ii) Net Orderly Liquidation Value of Canadian Eligible Inventory of all Canadian Borrowers
(which shall be (A) net of the current monthly shrinkage reserve calculated in accordance
with GAAP and (B) valued at Cost) multiplied by the advance rate of 85%, minus
(c) subject to Section 7.5, effective (i) immediately upon or (ii) five (5) Business
Days after, in the case of Canadian Availability Reserves which would cause the aggregate
amount of the Canadian Revolver Loans of all Canadian Borrowers at such time to exceed the
lesser of the Canadian Revolver Commitments and the Total Canadian Borrowing Base then in
effect, in each case, notification thereof to the Canadian Borrowers by the Agent, any and
all Canadian Availability Reserves.
The Total Canadian Borrowing Base at any time shall be determined by reference to the most recent
Borrowing Base Certificate theretofore delivered to the Agent with such adjustments as the Agent
deems appropriate in its Permitted Discretion to assure that the Total Canadian Borrowing Base is
calculated in accordance with the terms of this Agreement.
Total Revolver Exposure: as of any date of determination the sum of the Dollar
Equivalent of the Canadian Revolver Exposure and the U.S. Revolver Exposure on such date of
determination.
Transaction Expenses: any fees or expenses incurred or paid by any Borrower or any of
its Subsidiaries in connection with this Agreement, the other Loan Documents and the transactions
contemplated hereby and thereby.
Transfer: as defined in Section 2.1.6(b).
Transfer Date: as defined in Section 2.1.6(b).
Transferee: any actual or potential Eligible Assignee, Participant or other Person
acquiring an interest in any Obligations.
Type: any type of a Loan (i.e., U.S. Base Rate Loan, LIBOR Loan, Canadian BA Rate
Loan, Canadian Base Rate Loan, or Canadian Prime Rate Loan) and which shall be either an Interest
Period Loan or a Floating Rate Loan.
UCC: the Uniform Commercial Code as in effect in the State of New York or, when the
laws of any other jurisdiction govern the creation, perfection, priority or enforcement of any
Lien, the Uniform Commercial Code of such jurisdiction.
Unfunded Current Liability: of any (i) Plan shall mean the amount, if any, by which
the present value of the accrued benefits under the Plan as of the close of its most recent plan
year, determined in accordance with Statement of Financial Accounting Standards No. 87 as in effect
52
on the date hereof, based upon the actuarial assumptions that would be used by the Plans
actuary in a termination of the Plan, exceeds the fair market value of the assets allocable
thereto, and (ii) Canadian Pension Plan shall mean the excess of the present value of the benefit
liabilities determined on a plan termination basis in accordance with actuarial assumptions over
the current value of the assets, and in any event includes any unfunded liability, solvency
liability or wind up deficiency in respect of any Canadian Pension Plan.
Unrestricted Subsidiary: (a) any Subsidiary of any Borrower that is formed or
acquired after the Closing Date, provided that at such time (or promptly thereafter) such Borrower
designates such Subsidiary an Unrestricted Subsidiary in a written notice to the Agent, (b) any
Restricted Subsidiary subsequently re-designated as an Unrestricted Subsidiary by the applicable
Borrower in a written notice to the Agent, provided that in the case of (a) and (b), (x) such
designation or re-designation shall be deemed to be an Investment on the date of such designation
or re-designation in an Unrestricted Subsidiary in an amount equal to the sum of (i) such
Borrowers direct or indirect equity ownership percentage of the net worth of such designation or
re-designated Restricted Subsidiary immediately prior to such designation or re-designation (such
net worth to be calculated without regard to any guarantee provided by such designated or
re-designated Restricted Subsidiary) and (ii) the aggregate principal amount of any Indebtedness
owed by such designated or re-designated Restricted Subsidiary to such Borrower or any other
Restricted Subsidiary immediately prior to such designated or re-designation, all calculated,
except as set forth in the parenthetical to clause (i), on a consolidated basis in accordance with
GAAP and (y) no Default or Event of Default would result from such designation or re-designation
and (c) each Subsidiary of an Unrestricted Subsidiary; provided, however, that at the time of any
written designation or re-designation by the applicable Borrower to the Agent that any Unrestricted
Subsidiary shall no longer constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary
shall cease to be an Unrestricted Subsidiary to the extent no Default or Event of Default would
result from such designation or re-designation. On or promptly after the date of its formation,
acquisition, designation or re-designation, as applicable, each Unrestricted Subsidiary (other than
an Unrestricted Subsidiary that is (x) a Foreign Subsidiary, (y) any Domestic Subsidiary of a
non-U.S. Subsidiary (that is a controlled foreign corporation within the meaning of Section 957
of the Code) or (z) any U.S. Subsidiary, substantially all of the assets of which are Stock of one
or more controlled foreign corporations within the meaning of Section 957 of the Code) shall have
entered into a tax sharing agreement containing terms that, in the reasonable judgment of the
Agent, provide for an appropriate allocation of tax liabilities and benefits. An Unrestricted
Subsidiary which has been re-designated as a Restricted Subsidiary may not be subsequently
re-designated as an Unrestricted Subsidiary.
U.S. Assignment of Claims Act: Assignment of Claims Act of 1940, 31 U.S.C. § 3727, 41
U.S.C. § 15, as amended.
U.S. Availability: as of any date of determination, (a) the lesser of (i) the U.S.
Revolver Commitments minus all U.S. LC Obligations as of such date of determination and (ii) the
U.S. Borrowing Base as of such date of determination, minus (b) the principal balance of all U.S.
Revolver Loans.
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U.S. Availability Reserves: the sum (without duplication) of (a) the aggregate amount
of the U.S. Rent Reserve, if any, established pursuant to clause (h) of the definition of U.S.
Eligible Inventory; (b) the U.S. LC Reserve, (c) the U.S. Bank Product Reserve; (d) the Canadian
Overadvance Loan Balance, if any, outstanding on such date; and (e) such additional reserves, in
such amounts and with respect to such matters, as Agent may establish in its Permitted Discretion.
U.S. Bank Product Reserve: the aggregate amount of reserves, as established by the
Agent from time to time in its Permitted Discretion and in consultation with Loan Party Agent, to
reflect the reasonably anticipated liabilities in respect of the then outstanding Secured Bank
Product Obligations of the U.S. Facility Loan Parties and their Subsidiaries.
U.S. Bankruptcy Code: Title 11 of the United States Code.
U.S. Base Rate: for any day, a per annum rate equal to the greater of (a) the U.S.
Prime Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or (c) LIBOR for a 30
day interest period as determined on such day, plus 1.0%.
U.S. Base Rate Loan: any Loan that bears interest based on the U.S. Base Rate.
U.S. Borrowers: (a) the Initial U.S. Borrowers and (b) each other U.S. Subsidiary
that, after the date hereof, has executed a supplement or joinder to this Agreement in accordance
with Section 10.1.13(c) specifying that it wishes to be a U.S. Borrower.
U.S. Borrowing Base: at any time, an amount equal to the sum of, without duplication:
(a) the book value of U.S. Eligible Accounts multiplied by the advance rate of 85%,
plus
(b) the lesser of (i) 70% of the net book value of U.S. Eligible Inventory (adding back
the LIFO reserve calculated in accordance with GAAP) and (ii) Net Orderly Liquidation Value
of U.S. Eligible Inventory (which shall be (A) net of the current monthly shrinkage reserve
calculated in accordance with GAAP and (B) valued at Cost) multiplied by the advance rate of
85%, minus
(c) subject to Section 7.5, effective (i) immediately upon or (ii) five (5) Business
Days after, in the case of U.S. Availability Reserves which would cause the aggregate amount
of the U.S. Revolver Loans at such time to exceed the lesser of the U.S. Revolver
Commitments and the U.S. Borrowing Base then in effect, in each case, notification thereof
to the U.S. Borrowers by the Agent, any and all U.S. Availability Reserves.
The U.S. Borrowing Base at any time shall be determined by reference to the most recent Borrowing
Base Certificate theretofore delivered to the Agent with such adjustments as the Agent deems
appropriate in its Permitted Discretion to assure that the U.S. Borrowing Base is calculated in
accordance with the terms of this Agreement.
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U.S. Cash Collateral Account: a demand deposit, money market or other account
established by Agent at Bank of America or such other financial institution as Agent may select in
its discretion with the consent of Loan Party Agent (not to be unreasonably withheld or delayed),
which account shall be for the benefit of the U.S. Facility Secured Parties and shall be subject to
Agents Liens securing the Secured Obligations; provided that the foregoing consent of Loan Party
Agent to the selection by Agent in its discretion of a financial institution other than Bank of
America shall not be required if an Event of Default has occurred and is continuing.
U.S. Domiciled Loan Party: any U.S. Borrower and each U.S. Facility Guarantor, and
U.S. Domiciled Loan Parties means all such Persons, collectively.
U.S. Dominion Account: a special account established by the U.S. Facility Loan
Parties at Bank of America or another bank acceptable to Agent, over which Agent has exclusive
control for withdrawal purposes.
U.S. Eligible Accounts: at any time, the Accounts of the U.S. Borrowers at such date
except any Account:
(a) which is not subject to a duly perfected security interest in favor of the Agent;
(b) which is subject to any Lien (including Liens permitted by Section 10.2.2) other
than (i) a Lien in favor of the Agent and (ii) a Permitted Lien which does not have priority
over the Lien in favor of the Agent; provided that, with respect to any tax Lien having such
priority, eligibility of Accounts shall be reduced by the amount of such tax Lien having
such priority;
(c) (i) owing by General Electric Company with respect to which more than 150 days have
elapsed since the date of the original invoice therefor (provided, that the aggregate amount
of all Accounts eligible under this clause (i) does not exceed $3,000,000 at any time) or
(ii) owing by any other Account Debtor with respect to which more than 120 days have elapsed
since the date of the original invoice therefor or which is more than 60 days past the due
date for payment;
(d) which is owing by an Account Debtor for which more than 50% of the Accounts owing
from such Account Debtor and its Affiliates are ineligible pursuant to clause (c) above;
(e) which is owing by an Account Debtor to the extent the aggregate amount of Accounts
owing from such Account Debtor and its Affiliates to U.S. Borrowers exceeds 20% of the
aggregate U.S. Eligible Accounts (or such higher percentage as the Agent may establish for
the Account Debtor from time to time), in each case, only to the extent of such excess;
(f) with respect to which any covenant, representation, or warranty relating to such
Account contained in this Agreement has been breached or is not true in any material
respect;
55
(g) which (i) does not arise from the sale of goods or performance of services in the
Ordinary Course of Business, (ii) is not evidenced by an invoice, or other documentation
satisfactory to the Agent, which has been sent to the Account Debtor, (iii) represents a
progress billing, (iv) is contingent upon such U.S. Borrowers completion of any further
performance, or (v) represents a sale on a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment which is billed prior to actual sale to the end user,
cash-on-delivery or any other repurchase or return basis, except with respect to up to
$10,000,000 of such Accounts in the aggregate for the U.S. Borrowing Base and the Total
Canadian Borrowing Base on a combined basis as described in this clause (v) and paragraph
(g)(v) of the Canadian Eligible Accounts;
(h) for which the goods giving rise to such Account (other than Accounts described in
the foregoing paragraph (g)(v)) have not been shipped to the Account Debtor or for which the
services giving rise to such Account have not been performed by such U.S. Borrower;
(i) with respect to which any check or other instrument of payment has been returned
uncollected for any reason;
(j) which is owed by an Account Debtor in respect of which an Insolvency Proceeding has
been commenced or which is otherwise a debtor or a debtor in possession under any bankruptcy
law or any other federal, state or foreign (including any province or territory)
receivership, insolvency relief or other law or laws for the relief of debtors, including
the U.S. Bankruptcy Code, unless the payment of Accounts from such Account Debtor is secured
by assets of, or guaranteed by, in either case in a manner reasonably satisfactory to the
Agent, a Person that is reasonably acceptable to the Agent or, if the Account from such
Account Debtor arises subsequent to a decree or order for relief with respect to such
Account Debtor under the federal bankruptcy laws, as now or hereafter in effect, the Agent
shall have reasonably determined that the timely payment and collection of such Account will
not be impaired;
(k) which is owed by an Account Debtor which has failed, has suspended or ceased doing
business, is liquidating, dissolving or winding up its affairs or is not Solvent;
(l) which is owed by an Account Debtor which is not organized under applicable law of
the U.S. or Canada, any state of the U.S. or any province or territory of Canada and does
not have its principal place of business in the U.S. or Canada unless such Account is backed
by a letter of credit or other credit support reasonably acceptable to the Agent and which
is in the possession of the Agent;
(m) which is owed in any currency other than Dollars or Canadian Dollars;
(n) which is owed by any Governmental Authority, unless (i) the Account Debtor is the
United States or any department, agency or instrumentality thereof, and the Account has been
assigned to the Agent in compliance with the U.S. Assignment of Claims Act, and any other
steps necessary to perfect or render opposable the Lien of the
56
Agent in such Account have been complied with to the Agents reasonable satisfaction,
(ii) the Account Debtor is the government of Canada or a province or territory thereof, and
the Account has been assigned to the Agent in compliance with the Financial Administration
Act (or similar Applicable Law of such province or territory), and any other steps necessary
to perfect or render opposable the Lien of the Agent in such Account have been complied with
to the Agents reasonable satisfaction, or (iii) such Account is backed by a letter of
credit reasonably acceptable to the Agent and which is in the possession of the Agent;
(o) which is owed by any Affiliate, employee, director, or officer of any Loan Party;
provided that portfolio companies of the Sponsor that do business with a U.S. Borrower in
the Ordinary Course of Business will not be treated as Affiliates for purposes of this
clause (o);
(p) which is owed by an Account Debtor or any Affiliate of such Account Debtor which is
the holder of Indebtedness issued or incurred by any Loan Party; provided, that any such
Account shall only be ineligible as to that portion of such Account which is less than or
equal to the amount owed by the Loan Party to such Person;
(q) which is subject to any counterclaim, deduction, defense, setoff or dispute, but
only to the extent of the amount of such counterclaim, deduction, defense, setoff or
dispute, unless (i) the Agent, in its Permitted Discretion, has established appropriate U.S.
Availability Reserves and determines to include such Account as a U.S. Eligible Account or
(ii) such Account Debtor has entered into an agreement reasonably acceptable to the Agent to
waive such rights;
(r) which is evidenced by any promissory note, Chattel Paper, or instrument (in each
case, other than any such items that are delivered to the Agent);
(s) which is owed by an Account Debtor located in any jurisdiction that requires, as a
condition to access to the courts of such jurisdiction, that a creditor qualify to transact
business, file a business activities report or other report or form, or take one or more
other actions, unless such U.S. Borrower has so qualified, filed such reports or forms, or
taken such actions (and, in each case, paid any required fees or other charges), except to
the extent such U.S. Borrower may qualify subsequently as a foreign entity authorized to
transact business in such state or jurisdiction and gain access to such courts, without
incurring any cost or penalty reasonably viewed by the Agent to be material in amount, and
such later qualification cures any access to such courts to enforce payment of such Account;
(t) with respect to which such U.S. Borrower has made any agreement with the Account
Debtor for any reduction thereof, but only to the extent of such reduction, other than
discounts and adjustments given in the Ordinary Course of Business; or
(u) which the Agent determines is ineligible in its Permitted Discretion.
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Subject to Sections 14.1 and 7.5 and the definition of U.S. Borrowing Base, the Agent may modify
the foregoing criteria in its Permitted Discretion.
U.S. Eligible Inventory: at any date of determination thereof, the aggregate amount
of all Inventory owned by U.S. Borrowers at such date except any Inventory:
(a) which is not subject to a duly perfected Lien in favor of the Agent;
(b) which is subject to any Lien (including Liens permitted by Section 10.2.2) other
than (i) a Lien in favor of the Agent and (ii) a Permitted Lien which does not have priority
over the Lien in favor of the Agent (other than any bailee, warehouseman, landlord or
similar non-consensual Liens having priority of operation of law to the extent either
subclause (i) or (ii) of clauses (h) or (i) below of U.S. Eligible Inventory is satisfied
with respect to the relevant Inventory); provided that, with respect to any tax Lien having
such priority, eligibility of Inventory shall be reduced by the amount of such tax Lien
having such priority;
(c) which is, in the Agents Permitted Discretion, slow moving, obsolete,
unmerchantable, defective, unfit for sale, not salable at prices approximating at least the
cost of such Inventory in the Ordinary Course of Business unacceptable due to age, type,
category and/or quantity;
(d) with respect to which any covenant, representation, or warranty contained in this
Agreement has been breached or is not true in any material respect;
(e) which does not conform in all material respects to all standards imposed by any
applicable Governmental Authority (except that any standard that is qualified as to
materiality shall have been conformed to in all respects);
(f) which constitutes packaging and shipping material, manufacturing supplies, display
items, bill-and-hold goods (other than bill-and-hold goods, the sale of which been excluded
from U.S. Eligible Accounts, pursuant to clause (g)(v) of the definition thereof), returned
or repossessed goods (other than goods that are undamaged and able to be resold in the
Ordinary Course of Business), defective goods, goods held on consignment, goods to be
returned to the such U.S. Borrowers suppliers or goods which are not of a type held for
sale in the Ordinary Course of Business;
(g) which is not located in the United States or Canada or is not at a location listed
on Schedule 8.4.1 (as updated from time to time in accordance with the provisions hereof)
other than goods in transit between locations of the Loan Parties;
(h) which is located, at any time after the Temporary Eligibility Period, in any
location leased by such U.S. Borrower unless (i) the lessor has delivered to the Agent a
Collateral Access Agreement or (ii) a U.S. Rent Reserve has been established by the Agent;
(i) which is located, at any time after the Temporary Eligibility Period, in any third
party warehouse or is in the possession of a bailee, processor or other Person and is
58
not evidenced by a Document, unless (i) such warehouseman, bailee, processor or other
Person has delivered to the Agent a Collateral Access Agreement and/or such other
documentation as the Agent may reasonably require or (ii) appropriate U.S. Availability
Reserves have been established by the Agent in its Permitted Discretion;
(j) which is the subject of a consignment by such U.S. Borrower as consignor unless (i)
a protective UCC-1 financing statement has been properly filed against the consignee (as
assigned to the Agent), and (ii) there is a written agreement acknowledging that such
Inventory is held on consignment, that such U.S. Borrower retains title to such Inventory,
that no Lien arising by, through or under such consignee has attached or will attach to such
Inventory and requiring consignee to segregate the consigned Inventory from the consignees
other personal or movable property and having other terms consistent with such U.S.
Borrowers past practices for consigned Inventory;
(k) which is perishable as determined in accordance with GAAP; or
(l) which contains or bears any intellectual property rights licensed to such U.S.
Borrower unless the Agent is satisfied that it may sell or otherwise dispose of such
Inventory without (i) infringing the rights of such licensor in any material respect or (ii)
incurring any material liability with respect to payment of royalties other than royalties
incurred pursuant to sale of such Inventory under the current licensing agreement.
Subject to Sections 14.1 and 7.5 and the definition of U.S. Borrowing Base, the Agent may modify
the foregoing criteria in its Permitted Discretion.
U.S. Facility Collateral: Collateral that now or hereafter secures (or is intended to
secure) any of the U.S. Facility Secured Obligations.
U.S. Facility Guarantee: each guarantee agreement (including this Agreement) at any
time executed by a U.S. Facility Guarantor in favor of Agent guaranteeing all or any portion of the
U.S. Facility Secured Obligations.
U.S. Facility Guarantor: each U.S. Subsidiary that, after the date hereof, has
executed a supplement or joinder to this Agreement in accordance with Section 10.1.13(c) specifying
that it wishes to be a U.S. Facility Guarantor.
U.S. Facility Loan Party: a U.S. Borrower or a U.S. Facility Guarantor.
U.S. Facility Obligations: all Obligations of the U.S. Facility Loan Parties
(including, for the avoidance of doubt, the Obligations of the U.S. Domiciled Loan Parties as
guarantors of the Canadian Facility Obligations).
U.S. Facility Secured Obligations: all Secured Obligations of the U.S. Facility Loan
Parties (including, for the avoidance of doubt, the Secured Obligations of the U.S. Domiciled Loan
Parties as guarantors of the Canadian Facility Secured Obligations).
U.S. Facility Secured Parties: the Agent, any U.S. Fronting Bank, U.S. Lenders and
Secured Bank Product Providers of Bank Products to U.S. Facility Loan Parties.
59
U.S. Fronting Bank: Bank of America or any Affiliate thereof that agrees to issue
U.S. Letters of Credit or, if reasonably acceptable to Loan Party Agent, any other U.S. Lender or
Affiliate thereof that agrees to issue U.S. Letters of Credit.
U.S. Fronting Bank Indemnitees: any U.S. Fronting Bank and its officers, directors,
employees, Affiliates and agents.
U.S. LC Application: an application by Loan Party Agent on behalf of a U.S. Borrower
to a U.S. Fronting Bank for issuance of a U.S. Letter of Credit, in form and substance reasonably
satisfactory to such U.S. Fronting Bank.
U.S. LC Conditions: the following conditions necessary for issuance of a U.S. Letter
of Credit: (a) each of the conditions set forth in Section 6 being satisfied or waived; (b) after
giving effect to such issuance, total U.S. LC Obligations do not exceed the U.S. Letter of Credit
Sublimit and no U.S. Overadvance exists or would result therefrom; (c) the expiration date of such
U.S. Letter of Credit is (i) no more than 365 days from issuance (provided that each U.S. Letter of
Credit may, upon request of the applicable U.S. Borrower, include a provision whereby such Letter
of Credit shall be renewed automatically for additional consecutive periods of twelve (12) months
or less (but no later than 20 Business Days prior to the Facility Terminations Date), and (ii)
unless the U.S. Fronting Bank and Agent otherwise consent (subject to the satisfaction of the Cash
Collateral requirements set forth in Section 2.2.3), at least 20 Business Days prior to the
Facility Termination Date; (d) the U.S. Letter of Credit and payments thereunder are denominated in
Dollars; (e) the form of the proposed U.S. Letter of Credit is reasonably satisfactory to Agent and
the applicable U.S. Fronting Bank; and (f) the proposed use of the U.S. Letter of Credit is for a
lawful purpose.
U.S. LC Documents: all documents, instruments and agreements (including U.S. LC
Requests and U.S. LC Applications) delivered by Loan Party Agent on behalf a U.S. Borrower or by
any other Person to U.S. Fronting Bank or Agent in connection with issuance, amendment or renewal
of, or payment under, any U.S. Letter of Credit.
U.S. LC Obligations: the sum (without duplication) of (a) all amounts owing by U.S.
Borrowers for any drawings under U.S. Letters of Credit; (b) the stated amount of all outstanding
U.S. Letters of Credit; and (c) all fees and other amounts owing with respect to U.S. Letters of
Credit.
U.S. LC Request: a request for issuance of a U.S. Letter of Credit, to be provided by
Loan Party Agent on behalf of a U.S. Borrower to U.S. Fronting Bank, in form reasonably
satisfactory to Agent and U.S. Fronting Bank.
U.S. LC Reserve: the aggregate of all U.S. LC Obligations, other than (a) those that
have been Cash Collateralized; and (b) if no Event of Default exists, those constituting charges
owing to the U.S. Fronting Bank.
U.S. Lenders: Bank of America and each other Lender (other than Canadian Lenders)
party hereto.
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U.S. Letter of Credit: any standby or documentary letter of credit issued by U.S.
Fronting Bank for the account of a U.S. Borrower, or any indemnity, guarantee, exposure transmittal
memorandum or similar form of credit support issued by Agent or U.S. Fronting Bank for the benefit
of a U.S. Borrower, including any Existing Letter of Credit.
U.S. Letter of Credit Sublimit: $80,000,000.
U.S. Overadvance: as defined in Section 2.1.5.
U.S. Overadvance Loan: a U.S. Base Rate Loan made to a U.S. Borrower when a U.S.
Overadvance exists or is caused by the funding thereof.
U.S. Prime Rate: the rate of interest announced by Bank of America from time to time
as its prime rate. Such rate is set by Bank of America on the basis of various factors, including
its costs and desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above or below such rate. Any
change in such rate announced by Bank of America shall take effect at the opening of business on
the day specified in the public announcement of such change.
U.S. Protective Advances: as defined in Section 2.1.6(a).
U.S. Reimbursement Date: as defined in Section 2.2.2(a).
U.S. Rent Reserve: the aggregate of (a) all past due rent and other past due charges
owing by any U.S. Borrower to any landlord or other Person who possesses any U.S. Facility
Collateral or could assert a Lien on any U.S. Facility Collateral; plus (b) a reserve in an
amount not to exceed rent and other charges that could be payable to any such Person for the time
period used to determine the Net Orderly Liquidation Value.
U.S. Revolver Commitment Increase: as defined in Section 2.1.7(a).
U.S. Revolver Commitment: for any U.S. Lender, its obligation to make U.S. Revolver
Loans and to issue U.S. Letters of Credit, in the case of any U.S. Fronting Bank, or participate in
U.S. LC Obligations, in the case of the other U.S. Lenders, to the U.S. Borrowers up to the maximum
principal amount, in each case, shown on Schedule 2.1.1(a), or as hereafter determined pursuant to
each Assignment and Acceptance to which it is a party, as such U.S. Revolver Commitment may be
adjusted from time to time in accordance with the provisions of Section 2.1.4, 2.1.7 or 11.1.
U.S. Revolver Commitments means the aggregate amount of such commitments of all U.S.
Lenders.
U.S. Revolver Commitment Termination Date: the earliest of (a) the Facility
Termination Date, (b) the date on which the Loan Party Agent terminates or reduces to zero the U.S.
Revolver Commitments pursuant to Section 2.1.4, and (c) the date on which the U.S. Revolver
Commitments are terminated pursuant to Section 11.1.
U.S. Revolver Exposure: on any date, an amount equal to the sum of the (a) U.S.
Revolver Loans outstanding on such date and (b) U.S. LC Obligations on such date.
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U.S. Revolver Loan: a Revolver Loan made by a U.S. Lender to a U.S. Borrower pursuant
to Section 2.1.1(a), which Loan shall be denominated in Dollars and shall be either a U.S. Base
Rate Loan or a LIBOR Loan, in each case as selected by Loan Party Agent, and including any U.S.
Swingline Loan, U.S. Overadvance Loan or U.S. Protective Advance.
U.S. Revolver Notes: the promissory notes, if any, executed by U.S. Borrowers in
favor of each U.S. Lender to evidence the U.S. Revolver Loans funded from time to time by such U.S.
Lender, which shall be in the form of Exhibit C-2 to this Agreement, together with any replacement
or successor notes therefor.
U.S. Subsidiary: a Wholly-Owned Subsidiary of any U.S. Borrower that is organized
under the laws of the United States, any state of the United States or the District of Columbia.
U.S. Swingline Commitment: $75,000,000.
U.S. Swingline Commitment Termination Date: with respect to any U.S. Swingline Loan,
the date that is five Business Days prior to the U.S. Revolver Commitment Termination Date.
U.S. Swingline Lender: Bank of America or an Affiliate of Bank of America.
U.S. Swingline Loan: a Swingline Loan made by the U.S. Swingline Lender to a U.S.
Borrower pursuant to Section 2.1.8(a), which Swingline Loan shall be denominated in Dollars and
shall be a U.S. Base Rate Loan.
Voting Stock: with respect to any Person, any class or classes of equity interests
pursuant to which the holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors of such Person.
Wholly-Owned: with respect to any Person at any time, any Subsidiary, 100% of whose
Stock (other than, in the case of any Foreign Subsidiary, nominal directors qualifying shares) are
at such time owned, directly or indirectly, by such Person.
1.2 Accounting Terms. Under the Loan Documents (except as otherwise specified
herein), all accounting terms shall be interpreted, all accounting determinations shall be made,
and all financial statements shall be prepared, in accordance with GAAP applied on a basis
consistent with the most recent audited financial statements of the Loan Parties delivered to Agent
before the Closing Date. In the event that any Accounting Changes (as defined below) shall occur
and such change results in a change in the method of calculation of financial covenants, standards
or terms in this Agreement, then at the Loan Party Agents request, Agent and the Lenders shall
enter into negotiations with Loan Party Agent in order to amend such provisions of this Agreement
so as to reflect equitably such Accounting Changes with the desired result that the criteria for
evaluating the financial condition of the Loan Parties shall be the same after such Accounting
Changes as if such Accounting Changes had not been made. Until such time as such an amendment
shall have been executed and delivered by the Loan Parties, the Agent and the Required Lenders, all
financial covenants, standards and terms in this Agreement shall continue to be calculated or
construed as if such Accounting Changes had not occurred. Accounting Changes refers to
changes in accounting principles (i) required by the
62
promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants or, if applicable, the
SEC or (ii) otherwise proposed by the Loan Party Agent to, and approved by, Agent.
1.3 Uniform Commercial Code/PPSA. As used herein, the following terms are defined in
accordance with the UCC in effect in the State of New York from time to time: Chattel Paper,
Commercial Tort Claim, Equipment, Instrument, Investment Property and, as such terms relate
to any such Property of any Canadian Domiciled Loan Party, such terms shall refer to such Property
as defined in the PPSA to the extent applicable. In addition, other terms relating to Collateral
used and not otherwise defined herein that are defined in the UCC and/or the PPSA shall have the
meanings set forth in the UCC and/or the PPSA, as applicable and as the context requires.
1.4 Certain Matters of Construction. The terms herein, hereof, hereunder and
other words of similar import refer to this Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. In the
computation of periods of time from a specified date to a later specified date, from means from
and including, and to and until each mean to but excluding. The terms including and
include shall mean including, without limitation and, for purposes of each Loan Document, the
parties agree that the rule of ejusdem generis shall not be applicable to limit any provision.
Section titles appear as a matter of convenience only and shall not affect the interpretation of
any Loan Document. All references to (a) laws or statutes include all related rules, regulations,
interpretations, amendments and successor provisions; (b) any reference to any Loan Document shall
be deemed to include any amendments, waivers and other modifications, extensions or renewals of
such Loan Document; (c) section means, unless the context otherwise requires, a section of this
Agreement; (d) any exhibits or schedules mean, unless the context otherwise requires, exhibits and
schedules attached hereto, which are hereby incorporated by reference; (e) any Person include
successors and assigns of such Person; (f) time of day means time of day in Dallas, Texas (Central
Time); or (g) discretion of the Agent, any Fronting Bank or any Lender means the sole and absolute
discretion of such Person exercised in a manner consistent with its duties of good faith and fair
dealing. Except as expressly otherwise provided herein, all fundings of Loans, issuances of
Letters of Credit and payments of Obligations shall be in Dollars and, unless the context otherwise
requires, all determinations (including calculations of Borrowing Base and financial covenants)
made from time to time under the Loan Documents shall be made in light of the circumstances
existing at such time. To the extent not otherwise specified herein, Borrowing Base calculations
shall be consistent with historical methods of valuation and calculation, and otherwise reasonably
satisfactory to Agent (and not necessarily calculated in accordance with GAAP). Loan Parties shall
have the burden of establishing any alleged negligence, misconduct or lack of good faith by Agent,
Fronting Bank or any Lender under any Loan Documents. No provision of any Loan Documents shall be
construed against any party by reason of such party having, or being deemed to have, drafted the
provision. Whenever any payment, certificate, notice or other delivery shall be stated to be due
on a day other than a Business Day, the due date for such payment or delivery shall be extended to
the next succeeding Business Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be; provided, however, that if such extension
would cause payment of interest on or principal of any LIBOR Loan to be made in the next calendar
month, such payment shall be made on the immediately preceding Business Day.
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1.5 Interpretation (Quebec). For purposes of any Collateral located in the Province
of Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other
purposes pursuant to which the interpretation or construction of a Loan Document may be subject to
the laws of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province
of Québec, (a) personal property shall be deemed to include movable property, (b) real
property shall be deemed to include immovable property, (c) tangible property shall be deemed
to include corporeal property, (d) intangible property shall be deemed to include incorporeal
property, (e) security interest, mortgage and lien shall be deemed to include a hypothec,
prior claim and a resolutory clause, (f) all references to filing, registering or recording
under the UCC or the PPSA shall be deemed to include publication under the Civil Code, (g) all
references to perfection of or perfected Liens shall be deemed to include a reference to an
opposable or set up Liens as against third parties, (h) any right of offset, right of
setoff or similar expression shall be deemed to include a right of compensation, (i) goods
shall be deemed to include corporeal movable property other than chattel paper, documents of
title, instruments, money and securities, (j) an agent shall be deemed to include a mandatary,
(k) construction liens shall be deemed to include legal hypothecs, (l) joint and several
shall be deemed to include solidary, (m) gross negligence or willful misconduct shall be deemed
to be intentional or gross fault, (n) beneficial ownership shall be deemed to include
ownership on behalf of another as mandatary, (o) servitude shall be deemed to include
easement, (p) priority shall be deemed to include prior claim, (q) survey shall be deemed
to include certificate of location and plan, and (r) fee simple title shall be deemed to
include absolute ownership. The parties hereto confirm that it is their wish that this Agreement
and any other document executed in connection with the transactions contemplated herein be drawn up
in the English language only and that all other documents contemplated thereunder or relating
thereto, including notices, may also be drawn up in the English language only. Les parties aux
présentes confirment que cest leur volonté que cette convention et les autres documents de crédit
soient rédigés en langue anglaise seulement et que tous les documents, y compris tous avis,
envisagés par cette convention et les autres documents peuvent être rédigés en la langue anglaise
seulement.
SECTION 2. CREDIT FACILITIES
2.1 Commitment.
2.1.1 Revolver Loans.
(a) U.S. Revolver Loans to U.S. Borrowers. Each U.S. Lender agrees, severally and not
jointly with the other U.S. Lenders, upon the terms and subject to the conditions set forth herein,
to make U.S. Revolver Loans to any of the U.S. Borrowers on any Business Day during the period from
the Closing Date to the U.S. Revolver Commitment Termination Date, not to exceed in aggregate
principal amount outstanding at any time, together with such U.S. Lenders portion of the U.S. LC
Obligations, such U.S. Lenders U.S. Revolver Commitment at such time, which U.S. Revolver Loans
may be repaid and reborrowed in accordance with the provisions of this Agreement; provided,
however, that such U.S. Lenders shall have no obligation to U.S. Borrowers whatsoever to honor any
request for a U.S. Revolver Loan on or after the U.S. Revolver Commitment Termination Date or if
the amount of the proposed U.S. Revolver Loan exceeds U.S. Availability on the proposed funding
date for such
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U.S. Revolver Loan. Each Borrowing of U.S. Revolver Loans shall be funded by U.S. Lenders on
a Pro Rata basis. The U.S. Revolver Loans shall bear interest as set forth in Section 3.1. Each
U.S. Revolver Loan shall, at the option of the Loan Party Agent, be made or continued as, or
converted into, part of one or more Borrowings that, unless specifically provided herein, shall
consist entirely of U.S. Base Rate Loans or LIBOR Loans. The U.S. Revolver Loans shall be repaid
in accordance with the terms of this Agreement and shall be secured by all of the U.S. Facility
Collateral. U.S. Borrowers shall be jointly and severally liable to pay all of the U.S. Revolver
Loans. Each U.S. Revolver Loan shall be funded and repaid in Dollars.
(b) Canadian Revolver Loans to Canadian Borrowers. Each Canadian Lender agrees,
severally and not jointly with the other Canadian Lenders, upon the terms and subject to the
conditions set forth herein, to make Canadian Revolver Loans to any of the Canadian Borrowers on
any Business Day during the period from the Closing Date to the Canadian Revolver Commitment
Termination Date, not to exceed in aggregate principal amount outstanding at any time, together
with such Canadian Lenders portion of the Canadian LC Obligations, such Canadian Lenders Canadian
Revolver Commitment at such time, which Canadian Revolver Loans may be repaid and reborrowed in
accordance with the provisions of this Agreement; provided, however, that Canadian Lenders shall
have no obligation to the Canadian Borrowers whatsoever to honor any request for a Canadian
Revolver Loan on or after the Canadian Revolver Commitment Termination Date or if the amount of the
proposed Canadian Revolver Loan exceeds Canadian Availability on the proposed funding date for such
Canadian Revolver Loan or, in the case of any Canadian Borrower, the limit contained in Section
2.3. Each Borrowing of Canadian Revolver Loans shall be funded by Canadian Lenders on a Pro Rata
basis. The Canadian Revolver Loans shall bear interest as set forth in Section 3.1. Each Canadian
Revolver Loan shall, at the option of the Initial Canadian Borrower, be made or continued as, or
converted into, part of one or more Borrowings that, unless specifically provided herein, shall
consist entirely of Canadian Prime Rate Loans or Canadian BA Rate Loans if denominated in Canadian
Dollars, or Canadian Base Rate Loans or LIBOR Loans if denominated in Dollars. The Canadian
Revolver Loans shall be repaid in accordance with the terms of this Agreement and shall be secured
by all of the Canadian Facility Collateral. Each Canadian Revolver Loan shall be funded in
Canadian Dollars or, at the option of the Initial Canadian Borrower, Dollars and repaid in the same
currency as the underlying Canadian Revolver Loan was made.
(c) Cap on Total Revolver Exposure. Notwithstanding anything to the contrary
contained in this Section 2.1.1, in no event shall any Borrower be entitled to receive a Revolver
Loan if at the time of the proposed funding of such Loan (and after giving effect thereto and all
pending requests for Loans), the Total Revolver Exposure exceeds (or would exceed) the lesser of
the (a) the Maximum Facility Amount and (b) the Commitments.
2.1.2 Revolver Notes. The Revolver Loans made by each Lender and interest accruing
thereon shall be evidenced by the records of the Agent and such Lender. At the request of any
Lender, the Borrowers within the Borrower Group to which such Lender has extended Commitments shall
deliver a Revolver Note to such Lender in the amount of such Lenders aggregate U.S. Revolver
Commitment or Canadian Revolver Commitment, as applicable.
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2.1.3 Use of Proceeds. The proceeds of Loans shall be used by Borrowers solely to (a)
refinance MRCs Indebtedness under the Existing U.S. Credit Agreement, (b) to refinance the Initial
Canadian Borrowers Indebtedness under the Existing Canadian Credit Agreement and the ATB Financial
Debt, (c) to issue Letters of Credit, (d) to finance ongoing working capital needs and (e) for
other general corporate purposes of the Borrowers and their Subsidiaries, including to fund
permitted distributions.
2.1.4 Reduction or Termination of Commitments.
(a) The Canadian Revolver Commitments shall terminate on the Canadian Revolver Commitment
Termination Date and the U.S. Revolver Commitments shall terminate on the U.S. Revolver Commitment
Termination Date, in each case, unless sooner terminated in accordance with this Agreement. The
Swingline Commitment shall terminate at 5:00 p.m. on the Swingline Commitment Termination Date.
Upon at least 30 days prior written notice to the Agent from the Loan Party Agent, (i) U.S.
Borrowers may, at their option, terminate the U.S. Revolver Commitments and/or (ii) the Canadian
Borrowers may, at their option, terminate the Canadian Revolver Commitments, in each case, without
premium or penalty (other than funding losses payable pursuant to Section 3.9). If the U.S.
Borrowers elect to reduce to zero or terminate the U.S. Revolver Commitments pursuant to the
previous sentence, the Canadian Revolver Commitments shall automatically terminate concurrently
with the termination of the U.S. Revolver Commitments. Any notice of termination given by the
Borrowers pursuant to this Section 2.1.4 shall be irrevocable; provided, however, that notice may
be contingent on the occurrence of a financing or refinancing or the consummation of a sale,
transfer, lease or other disposition of assets or the occurrence of a Change of Control and may be
revoked or the termination date deferred if the financing or refinancing or sale, transfer, lease
or other disposition of assets or Change of Control does not occur. On the Canadian Revolver
Commitment Termination Date, the Canadian Facility Loan Parties shall make Full Payment of all
Canadian Facility Obligations. On the U.S. Revolver Commitment Termination Date, the U.S. Facility
Loan Parties shall make Full Payment of all U.S. Facility Obligations.
(b) So long as no Default or Event of Default then exists or would result therefrom and after
giving effect thereto, the Loan Party Agent may permanently and irrevocably reduce the Maximum
Facility Amount by giving the Agent at least 10 Business Days prior irrevocable written notice
thereof (or such lesser time as Agent may consent to) from a Senior Officer of the Loan Party
Agent, which notice shall (1) specify the date (which shall be a Business Day) and amount of such
reduction (which shall, in the case of the Maximum U.S. Facility Amount, be in a minimum amount of
$10,000,000 and increments of $10,000,000 in excess thereof and, in the case of the Maximum
Canadian Facility Amount, be in a minimum amount of Cdn$1,000,000 and increments of Cdn$1,000,000
in excess thereof), and (2) specify the allocation of such reduction to, and the corresponding
reductions of, each of the Maximum Canadian Facility Amount and/or the Maximum U.S. Facility Amount
(and the respective Canadian Revolver Commitments and the U.S. Revolver Commitments in respect
thereof, each of which shall be allocated to the Lenders among the Borrower Groups on a Pro Rata
basis at the time of such reduction). Without limiting the foregoing, (i) each reduction in the
Maximum U.S. Facility Amount shall in no event exceed U.S Availability, and (ii) each reduction in
the Maximum Canadian Facility Amount shall in no event exceed Canadian Availability.
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2.1.5 Overadvances. If at any time (i) the aggregate principal balance of all
Canadian Revolver Loans owing by a Canadian Borrower exceeds the Canadian Borrowing Base of such
Canadian Borrower (a Canadian Overadvance) or (ii) the aggregate principal balance of all
U.S. Revolver Loans exceeds the U.S. Borrowing Base (a U.S. Overadvance), the excess
amount shall, subject to Section 5.2, be payable by the Applicable Canadian Borrower or the U.S.
Borrowers, as applicable on demand by Agent. Agent may require Applicable Lenders to honor
requests for Overadvance Loans and to forbear from requiring the applicable Borrower(s) to cure an
Overadvance, (a) when no other Event of Default is known to Agent, as long as (i) such Overadvance
does not continue for more than 30 consecutive days (and no Overadvance may exist for at least five
consecutive days thereafter before further Overadvance Loans are required), (ii) such Overadvance
is not known by Agent to exceed ten percent (10%) of the Total Canadian Borrowing Base, with
respect to all Canadian Borrowers, or ten percent (10%) of the U.S. Borrowing Base, with respect to
U.S. Borrowers and (iii) the aggregate amount of the Overadvances existing at any time, together
with the Protective Advances outstanding at any time pursuant to Section 2.1.6 below, do not exceed
fifteen percent (15%) of the Commitments then in effect; and (b) regardless of whether an Event of
Default exists, if Agent discovers an Overadvance not previously known by it to exist, as long as
from the date of such discovery the Overadvance does not continue for more than 30 consecutive
days. In no event shall Overadvance Loans be required that would cause(i) the Canadian Revolver
Exposure to exceed the aggregate Canadian Revolver Commitments or (ii) the U.S. Revolver Exposure
to exceed the aggregate U.S. Revolver Commitments. All Canadian Overadvance Loans shall constitute
Canadian Facility Obligations secured by the Canadian Facility Collateral and shall be entitled to
all benefits of the Loan Documents. All U.S. Overadvance Loans shall constitute U.S. Facility
Obligations secured by the U.S. Facility Collateral and shall be entitled to all benefits of the
Loan Documents. Required Borrower Group Lenders may at any time revoke Agents authority to make
further Overadvance Loans to the Borrower or Borrowers of the applicable Borrower Group by written
notice to the Agent. Any funding of an Overadvance Loan or sufferance of an Overadvance shall not
constitute a waiver by Agent or Lenders of the Event of Default caused thereby. In no event shall
any Borrower or other Loan Party be deemed a beneficiary of this Section 2.1.5 nor authorized to
enforce any of its terms.
2.1.6 Protective Advances.
(a) The Agent shall be authorized by each Borrower and the Applicable Lenders, from time to
time in the Agents sole discretion (but shall have absolutely no obligation to), to make U.S. Base
Rate Loans to the U.S. Borrowers on behalf of the U.S. Lenders (any of such Loans are herein
referred to as U.S. Protective Advances) and Canadian Base Rate Loans or Canadian Prime
Rate Loans to any Canadian Borrower on behalf of the Canadian Lenders (any of such Loans are herein
referred to as Canadian Protective Advances) which the Agent, in its Permitted
Discretion, deems necessary or desirable to (i) preserve or protect Collateral or any portion
thereof or (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and
other Obligations; provided that no U.S. Protective Advance shall cause the aggregate amount of the
U.S. Revolver Exposure at such time to exceed the Borrower Group Commitment then in effect, and no
Canadian Protective Advance shall cause the aggregate amount of the Canadian Revolver Exposure at
such time to exceed the Borrower Group Commitment (or any Applicable Canadian Borrower Commitment)
then in effect; provided further that, the aggregate amount of U.S. Protective Advances and
Canadian Protective
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Advances outstanding at any time pursuant to clauses (i) and (ii) above shall not exceed seven
and a half percent (7.5%) of the Commitments then in effect; provided further that, the aggregate
amount of U.S. Protective Advances and Canadian Protective Advances outstanding at any time
pursuant to clauses (i) and (ii) above, together with the Overadvances existing at any time
pursuant to Section 2.1.5 above, shall not exceed fifteen percent (15%) of the Commitments then in
effect. Protective Advances may be made even if the conditions set forth in Section 6 have not
been satisfied. Each Applicable Lender shall participate in each Protective Advance on a Pro Rata
basis. Required Borrower Group Lenders may at any time revoke Agents authority to make further
Protective Advances to the Borrower or Borrowers of the applicable Borrower Group by written notice
to the Agent. Absent such revocation, the Agents determination that funding of a Protective
Advance is appropriate shall be conclusive. All U.S. Protective Advances made by the Agent with
respect to U.S. Facility Loan Parties shall be U.S. Facility Obligations, secured by the U.S.
Facility Collateral and shall be treated for all purposes as U.S. Base Rate Loans; and all Canadian
Protective Advances made by the Agent with respect to Canadian Facility Loan Parties shall be
Canadian Facility Obligations, secured by the Canadian Facility Collateral and, if denominated in
Canadian dollars, shall be treated for all purposes as a Canadian Prime Rate Loan and, if
denominated in Dollars, shall be treated for all purposes as a Canadian Base Rate Loan. At any
time that there is sufficient Excess Availability and the conditions precedent set forth in Section
6 have been satisfied, the Agent may request the Applicable Lenders to make a U.S. Revolver Loan or
a Canadian Revolver Loan, as applicable, to repay a Protective Advance. At any other time, the
Agent may require the Applicable Lenders to fund their risk participations described in Section
2.1.6(b).
(b) Upon the making of a Protective Advance by the Agent (whether before or after the
occurrence of a Default or Event of Default), each Lender shall be deemed, without further action
by any party hereto, to have unconditionally and irrevocably purchased from the Agent without
recourse or warranty, an undivided interest and participation in such Protective Advance in
proportion to its Pro Rata share of such Protective Advance. Each Lender shall transfer (a
Transfer) the amount of such Lenders Pro Rata share of the outstanding principal amount
of the applicable Protective Advance with respect to such purchased interest and participation
promptly when requested to the Agent, to such account of the Agent as the Agent may designate, but
in any case not later than 3:00 p.m. on the Business Day notified (if notice is provided by the
Agent prior to 12:00 p.m. and otherwise on the immediately following Business Day (the
Transfer Date). Transfers may occur during the existence of a Default or Event of
Default and whether or not the applicable conditions precedent set forth in Section 6 have then
been satisfied. Such amounts transferred to the Agent shall be applied against the amount of the
Protective Advance and, together with Lenders Pro Rata share of such Protective Advance, shall
constitute Loans of such Lenders, respectively. If any such amount is not transferred to the Agent
by any Lender on such Transfer Date, the Agent shall be entitled to recover such amount on demand
from such Lender together with interest thereon as specified in Section 3.1. From and after the
date, if any, on which any Lender is required to fund, and funds, its participation in any
Protective Advance purchased hereunder, the Agent shall promptly distribute to such Lender, such
Lenders Pro Rata share of all payments of principal and interest and all proceeds of Collateral
received by the Agent in respect of such Protective Advance.
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2.1.7 Increase in Revolver Commitments.
(a) (i) The Loan Party Agent may by written notice to the Agent elect to increase the Maximum
Canadian Facility Amount then in effect (a Canadian Revolver Commitment Increase) and
(ii) the Loan Party Agent may by written notice to the Agent elect to increase the Maximum U.S.
Facility Amount then in effect (a U.S. Revolver Commitment Increase and together with the
Canadian Revolver Commitment Increase, the Revolver Commitment Increases and each, a
Revolver Commitment Increase), in each case, by increasing the Commitment of an
Applicable Lender or by causing a Person reasonably acceptable to the Agent that at such time is
not a Lender to become a Lender (an Additional Lender). Each such notice shall specify
the proposed date (each, an Increase Date) for the effectiveness of the Revolver
Commitment Increase, which date shall be not less than ten Business Days after the date on which
such notice is delivered to Agent. Any increase in the Maximum Canadian Facility Amount or the
Maximum U.S. Facility Amount shall be subject to the following additional conditions: (i) no
Default or Event of Default shall have occurred and be continuing as of the date of such notice or
both immediately before and after giving effect thereto as of the Increase Date; (ii) no Lender
shall be obligated or have a right to participate in the Revolver Commitment Increase by increasing
its Commitment; (iii) the Revolver Commitment Increase, to the extent arising from the admission of
an Additional Lender, shall be effected pursuant to one or more joinder agreements executed and
delivered by the Borrowers and the Agent, and each of which shall be in form and substance
reasonably satisfactory to the Agent; (iv) the Loan Party Agent shall deliver or cause to be
delivered any officers certificates, board resolutions, legal opinions or other documents
reasonably requested by Agent in connection with the Revolver Commitment Increase; (v) the
Borrowers shall pay all reasonable and documented fees and expenses in connection with the Revolver
Commitment Increase, including payments required pursuant to Section 3.9 in connection with the
Revolver Commitment Increase; (vi) such increase shall be in a minimum amount of $25,000,000 or, in
the case of the Canadian Revolver Commitments, in a minimum amount of Cdn$25,000,000; and (vii) the
Agent shall have received a certification from a Senior Officer of the Loan Party Agent, or other
evidence reasonably satisfactory to the Agent, that such increase is permitted under the Senior
Secured Notes Indenture. Any Revolver Commitment Increase shall concurrently increase, as
applicable, (1) the U.S. Revolver Commitments then in effect Pro Rata among the U.S. Lenders
(including any Additional Lenders who become U.S. Lenders as a result of such Revolver Commitment
Increase) and (2) the Canadian Revolver Commitments then in effect Pro Rata among the Canadian
Lenders (including any Additional Lenders who become Canadian Lenders as a result of such Revolver
Commitment Increase). After giving effect to any Canadian Revolver Commitment Increase, the
Canadian Revolver Commitment of each Canadian Lender (and the percentage of each Canadian Revolver
Loan that each Participant must purchase a Canadian Revolver Loan participation in) shall be equal
to such Canadian Lenders (or Participants) Pro Rata share of the amount of the increased Canadian
Revolver Commitments. After giving effect to any U.S. Revolver Commitment Increase, the U.S.
Revolver Commitment of each U.S. Lender (and the percentage of each U.S. Revolver Loan that each
Participant must purchase a U.S. Revolver Loan participation in) shall be equal to such U.S.
Lenders (or Participants) Pro Rata share of the amount of the increased U.S. Revolver
Commitments. Notwithstanding the foregoing, in no
event shall the aggregate amount of all Revolver
Commitment Increases made under this Section 2.1.7 exceed $250,000,000, including the Dollar
Equivalent of Canadian Revolver Commitment Increases.
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(b) The Agent shall promptly inform the Lenders of any request for a Revolver Commitment
Increase made by the Loan Party Agent. If the conditions set forth in clause (a) above are not
satisfied on the applicable Increase Date (or, to the extent such conditions relate to an earlier
date, such earlier date), the Agent shall notify the Loan Party Agent in writing that the requested
Revolver Commitment Increase will not be effectuated. On each Increase Date, the Agent shall
notify the Lenders and the Loan Party Agent, on or before 3:00 p.m., by telecopier, e-mail or
telex, of the occurrence of the Revolver Commitment Increase to be effected on such Increase Date,
the amount of Revolver Loans held by each Lender as a result thereof, the amount of the U.S.
Revolver Commitment of each U.S. Lender (and the percentage of each U.S. Revolver Loan, if any,
that each Participant must purchase a participation interest in) and the amount of the Canadian
Revolver Commitment of each Canadian Lender (and the percentage of each Canadian Revolver Loan, if
any, that each Participant must purchase a participation interest in) as a result thereof.
2.1.8 Swingline Loans.
(a) U.S. Swingline Loans to U.S. Borrowers. The U.S. Swingline Lender shall make U.S.
Swingline Loans to any of the U.S. Borrowers on any Business Day during the period from the Closing
Date to the U.S. Swingline Commitment Termination Date, not to exceed the U.S. Swingline Commitment
in aggregate principal amount outstanding at any time, which U.S. Swingline Loans may be repaid and
reborrowed in accordance with the provisions of this Agreement; provided, however, that the U.S.
Swingline Lender shall not honor any request for a U.S. Swingline Loan on or after the U.S.
Swingline Commitment Termination Date or if the amount of the proposed U.S. Swingline Loan exceeds
U.S. Availability on the proposed funding date for such U.S. Swingline Loan. The U.S. Swingline
Loans shall be U.S. Base Rate Loans and bear interest as set forth in Section 3.1. Each U.S.
Swingline Loan shall constitute a Revolver Loan for all purposes except that payments thereon shall
be made to the U.S. Swingline Lender for its own account. The U.S. Swingline Loans shall be repaid
in accordance with the terms of this Agreement and shall be secured by all of the U.S. Facility
Collateral. The U.S. Borrowers shall be jointly and severally liable to pay all of the U.S.
Swingline Loans. Each U.S. Swingline Loan shall be funded and repaid in Dollars.
(b) Canadian Swingline Loans to Canadian Borrowers. The Canadian Swingline Lender
shall make Canadian Swingline Loans to any of the Canadian Borrowers on any Business Day during the
period from the Closing Date to the Canadian Swingline Commitment Termination Date, not to exceed
the Canadian Swingline Commitment in aggregate principal amount outstanding at any time, which
Canadian Swingline Loans may be repaid and reborrowed in accordance with the provisions of this
Agreement; provided, however, that the Canadian Swingline Lender shall not honor any request for a
Canadian Swingline Loan on or after the Canadian Swingline Commitment Termination Date, if the
amount of the proposed Canadian Swingline Loan exceeds Canadian Availability of the Applicable
Canadian Borrower on the proposed funding date for such Canadian Swingline Loan or if the
requirements of Section 2.3 are not satisfied. The Canadian Swingline Loans shall be Canadian
Prime Rate Loans if denominated in Canadian Dollars and Canadian Base Rate Loans if denominated in
Dollars and bear interest as set forth in Section 3.1. Each Canadian Swingline Loan shall
constitute a Revolver Loan for all purposes except that payments thereon shall be made to the
Canadian Swingline Lender for its own account. The Canadian Swingline Loans shall be repaid
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in accordance with the terms of this Agreement and shall be secured by all of the Canadian
Facility Collateral. Each Canadian Swingline Loan shall be funded in Canadian Dollars or, at the
option of the Initial Canadian Borrower, Dollars and repaid in the same currency as the underlying
Canadian Swingline Loan was made.
(c) The Swingline Loans made by each Swingline Lender and interest accruing thereon shall be
evidenced by the records of the Agent and such Swingline Lender and need not be evidenced by any
promissory note.
2.2 Letter of Credit Facilities.
2.2.1 Issuance of U.S. Letters of Credit. U.S. Fronting Bank agrees to issue U.S.
Letters of Credit for the account of any U.S. Borrower or its U.S. Subsidiaries that are Restricted
Subsidiaries (provided that a U.S. Borrower shall be a co-applicant, and jointly and severally
liable with respect to, any U.S. Letter of Credit issued for the account of a Restricted
Subsidiary) from time to time until the Facility Termination Date (or until the U.S. Revolver
Commitment Termination Date, if earlier), on the terms set forth herein, including the following:
(a) Each U.S. Borrower acknowledges that U.S. Fronting Banks willingness to issue any
U.S. Letter of Credit is conditioned upon U.S. Fronting Banks receipt of a U.S. LC
Application with respect to the requested U.S. Letter of Credit, as well as such other
instruments and agreements as U.S. Fronting Bank may customarily require for issuance of a
letter of credit of similar type and amount. U.S. Fronting Bank shall have no obligation to
issue any U.S. Letter of Credit unless (i) U.S. Fronting Bank receives a U.S. LC Request and
U.S. LC Application at least three Business Days prior to the requested date of issuance;
(ii) each U.S. LC Condition is satisfied; and (iii) if a Defaulting Lender that is a U.S.
Lender exists, U.S. Borrowers have entered into arrangements reasonably satisfactory to
Agent and U.S. Fronting Bank to eliminate any funding risk associated with such Defaulting
Lender. If U.S. Fronting Bank receives written notice from a U.S. Lender at least three
Business Days before issuance of a U.S. Letter of Credit that any U.S. LC Condition has not
been satisfied, U.S. Fronting Bank shall have no obligation to issue the requested U.S.
Letter of Credit (or any other) until such notice is withdrawn in writing by the Required
Lenders or until the Required Lenders have waived such condition in accordance with this
Agreement. Prior to receipt of any such notice, U.S. Fronting Bank shall not be deemed to
have knowledge of any failure of U.S. LC Conditions. All Existing Letters of Credit shall
be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be
subject to and governed by the terms and conditions hereof.
(b) The renewal or extension of any U.S. Letter of Credit shall be treated as the issuance of
a new U.S. Letter of Credit, except that delivery of a new U.S. LC Application shall be required at
the discretion of U.S. Fronting Bank. No U.S. Fronting Bank shall renew or extend any U.S. Letter
of Credit if it receives written notice from the Agent or the Required Lenders of the existence of
a Default or Event of Default.
(c) U.S. Borrowers assume all risks of the acts, omissions or misuses of any U.S. Letter of
Credit by the beneficiary. In connection with issuance of any U.S. Letter of
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Credit, none of Agent, U.S. Fronting Bank or any Lender shall be responsible for the
existence, character, quality, quantity, condition, packing, value or delivery of any goods
purported to be represented by any Documents; any differences or variation in the character,
quality, quantity, condition, packing, value or delivery of any goods from that expressed in any
Documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any Documents
or of any endorsements thereon; the time, place, manner or order in which shipment of goods is
made; partial or incomplete shipment of, or failure to ship, any goods referred to in a U.S. Letter
of Credit or Documents; any deviation from instructions, delay, default or fraud by any shipper or
other Person in connection with any goods, shipment or delivery; any breach of contract between a
shipper or vendor and a U.S. Borrower; errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or
otherwise; errors in interpretation of technical terms; the misapplication by a beneficiary of any
U.S. Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the
control of U.S. Fronting Bank, Agent or any U.S. Lender, including any act or omission of a
Governmental Authority. The rights and remedies of U.S. Fronting Bank under the Loan Documents
shall be cumulative. U.S. Fronting Bank shall be fully subrogated to the rights and remedies of
each beneficiary whose claims against Borrowers are discharged with proceeds of any U.S. Letter of
Credit.
(d) In connection with its administration of and enforcement of rights or remedies under any
U.S. Letters of Credit or U.S. LC Documents, U.S. Fronting Bank shall be entitled to act, and shall
be fully protected in acting, upon any certification, documentation or communication in whatever
form believed by U.S. Fronting Bank, in good faith, to be genuine and correct and to have been
signed, sent or made by a proper Person. U.S. Fronting Bank may consult with and employ legal
counsel, accountants and other experts to advise it concerning its obligations, rights and
remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in
good faith reliance upon, any advice given by such experts. U.S. Fronting Bank may employ agents
and attorneys-in-fact in connection with any matter relating to U.S. Letters of Credit or U.S. LC
Documents, and shall not be liable for the negligence or misconduct of agents and attorneys-in-fact
selected with reasonable care.
2.2.2 U.S. Reimbursement; U.S. Participations.
(a) If U.S. Fronting Bank honors any request for payment under a U.S. Letter of Credit, U.S.
Borrowers shall pay to U.S. Fronting Bank, on the same day (U.S. Reimbursement Date), the
amount paid by U.S. Fronting Bank under such U.S. Letter of Credit, together with interest at the
interest rate for U.S. Base Rate Loans from the U.S. Reimbursement Date until payment by U.S.
Borrowers. The obligation of U.S. Borrowers to reimburse U.S. Fronting Bank for any payment made
under a U.S. Letter of Credit shall be absolute, unconditional, irrevocable, and joint and several,
and shall be paid without regard to any lack of validity or enforceability of any U.S. Letter of
Credit or the existence of any claim, setoff, defense or other right that U.S. Borrowers or Loan
Parties may have at any time against the beneficiary. Whether or not Loan Party Agent submits a
Notice of Borrowing, U.S. Borrowers shall be deemed to have requested a Borrowing of U.S. Base Rate
Loans in an amount necessary to pay all amounts due U.S. Fronting Bank on any U.S. Reimbursement
Date and each U.S. Lender agrees to fund its Pro Rata share of such Borrowing whether or not the
Commitments
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have terminated, an Overadvance exists or is created thereby, or the conditions in Section 6
are satisfied.
(b) Upon issuance of a U.S. Letter of Credit, each U.S. Lender shall be deemed to have
irrevocably and unconditionally purchased from U.S. Fronting Bank, without recourse or warranty, an
undivided Pro Rata interest and participation in all U.S. LC Obligations relating to the U.S.
Letter of Credit. If U.S. Fronting Bank makes any payment under a U.S. Letter of Credit and U.S.
Borrowers do not reimburse such payment on the U.S. Reimbursement Date, Agent shall promptly notify
U.S. Lenders and each U.S. Lender shall promptly (within one Business Day) and unconditionally pay
to Agent, for the benefit of U.S. Fronting Bank, the U.S. Lenders Pro Rata share of such payment.
Upon request by a U.S. Lender, U.S. Fronting Bank shall furnish copies of any U.S. Letters of
Credit and U.S. LC Documents in its possession at such time.
(c) The obligation of each U.S. Lender to make payments to Agent for the account of U.S.
Fronting Bank in connection with U.S. Fronting Banks payment under a U.S. Letter of Credit shall
be absolute, unconditional and irrevocable, not subject to any counterclaim, setoff, qualification
or exception whatsoever, and shall be made in accordance with this Agreement under all
circumstances, irrespective of any lack of validity or unenforceability of any Loan Documents; any
draft, certificate or other document presented under a U.S. Letter of Credit having been determined
to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; or the existence of any setoff or defense that any Loan Party
may have with respect to any Obligations. U.S. Fronting Bank does not assume any responsibility
for any failure or delay in performance or any breach by any U.S. Borrower or other Person of any
obligations under any U.S. LC Documents. U.S. Fronting Bank does not make any express or implied
warranty, representation or guarantee to U.S. Lenders with respect to the U.S. Facility Collateral,
U.S. LC Documents or any U.S. Facility Loan Party. U.S. Fronting Bank shall not be responsible to
any U.S. Lender for any recitals, statements, information, representations or warranties contained
in, or for the execution, validity, genuineness, effectiveness or enforceability of any U.S. LC
Documents; the validity, genuineness, enforceability, collectability, value or sufficiency of any
U.S. Facility Collateral or the perfection of any Lien therein; or the assets, liabilities,
financial condition, results of operations, business, creditworthiness or legal status of any U.S.
Facility Loan Party.
(d) No U.S. Fronting Bank Indemnitee shall be liable to any Loan Party or other Person for any
action taken or omitted to be taken in connection with any U.S. LC Documents except as a result of
the U.S. Fronting Banks actual gross negligence, willful misconduct or bad faith, as determined by
a final, nonappealable judgment of a court of competent jurisdiction. U.S. Fronting Bank shall not
have any liability to any Lender if U.S. Fronting Bank refrains from any action under any U.S.
Letter of Credit or U.S. LC Documents until it receives written instructions from Required Borrower
Group Lenders of the Borrower Group consisting of the U.S. Borrowers.
2.2.3 U.S. Cash Collateral. If any U.S. LC Obligations, whether or not then due or
payable, shall for any reason be outstanding at any time (a) that an Event of Default exists, (b)
that a U.S. Overadvance exists, (c) after the U.S. Revolver Commitment Termination Date, or (d)
within five Business Days prior to the Facility Termination Date, then U.S.
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Borrowers shall, within one Business Day of U.S. Fronting Banks or Agents request, Cash
Collateralize the stated amount of all outstanding U.S. Letters of Credit and pay to U.S. Fronting
Bank the amount of all other U.S. LC Obligations. U.S. Borrowers shall, within one Business Day of
demand by U.S. Fronting Bank or Agent from time to time, Cash Collateralize the U.S. LC Obligations
of any Defaulting Lender that is a U.S. Lender. If U.S. Borrowers fail to provide any Cash
Collateral as required hereunder, Lenders may (and shall upon direction of Agent) advance, as U.S.
Revolver Loans, the amount of the Cash Collateral required (whether or not the U.S. Revolver
Commitments have terminated, any U.S. Overadvance exists or would result therefrom or the
conditions in Section 6 are satisfied).
2.2.4 Issuance of Canadian Letters of Credit. Canadian Fronting Bank agrees to issue
Canadian Letters of Credit for the account of any Canadian Borrower from time to time until the
Facility Termination Date (or until the Canadian Revolver Commitment Termination Date, if earlier),
on the terms set forth herein, including the following:
(a) Each Canadian Borrower acknowledges that Canadian Fronting Banks willingness to issue any
Canadian Letter of Credit is conditioned upon Canadian Fronting Banks receipt of a Canadian LC
Application with respect to the requested Canadian Letter of Credit, as well as such other
instruments and agreements as Canadian Fronting Bank may customarily require for issuance of a
letter of credit of similar type and amount. Canadian Fronting Bank shall have no obligation to
issue any Canadian Letter of Credit unless (i) Canadian Fronting Bank receives a Canadian LC
Request and Canadian LC Application at least three Business Days prior to the requested date of
issuance; (ii) each Canadian LC Condition is satisfied; and (iii) if a Defaulting Lender that is a
Canadian Lender exists, such Lender or Canadian Borrowers have entered into arrangements reasonably
satisfactory to Agent and Canadian Fronting Bank to eliminate any funding risk associated with such
Defaulting Lender. If Canadian Fronting Bank receives written notice from a Canadian Lender at
least three Business Days before issuance of a Canadian Letter of Credit that any Canadian LC
Condition has not been satisfied, Canadian Fronting Bank shall have no obligation to issue the
requested Canadian Letter of Credit (or any other) until such notice is withdrawn in writing by the
Required Lenders or until the Required Lenders have waived such condition in accordance with this
Agreement. Prior to receipt of any such notice, Canadian Fronting Bank shall not be deemed to have
knowledge of any failure of Canadian LC Conditions.
(b) The renewal or extension of any Canadian Letter of Credit shall be treated as the issuance
of a new Canadian Letter of Credit, except that delivery of a new Canadian LC Application shall be
required at the discretion of Canadian Fronting Bank. No Canadian Fronting Bank shall renew or
extend any Canadian Letter of Credit if it receives written notice from the Agent or the Required
Lenders of the existence of a Default or Event of Default.
(c) Canadian Borrowers assume all risks of the acts, omissions or misuses of any Canadian
Letter of Credit by the beneficiary. In connection with issuance of any Canadian Letter of Credit,
none of Agent, Canadian Fronting Bank or any Lender shall be responsible for the existence,
character, quality, quantity, condition, packing, value or delivery of any goods purported to be
represented by any Documents; any differences or variation in the character, quality, quantity,
condition, packing, value or delivery of any goods from that expressed in any Documents; the form,
validity, sufficiency, accuracy, genuineness or legal effect of any
74
Documents or of any endorsements thereon; the time, place, manner or order in which shipment
of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a
Canadian Letter of Credit or Documents; any deviation from instructions, delay, default or fraud by
any shipper or other Person in connection with any goods, shipment or delivery; any breach of
contract between a shipper or vendor and a Canadian Borrower; errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy,
e-mail, telephone or otherwise; errors in interpretation of technical terms; the misapplication by
a beneficiary of any Canadian Letter of Credit or the proceeds thereof; or any consequences arising
from causes beyond the control of Canadian Fronting Bank, Agent or any Canadian Lender, including
any act or omission of a Governmental Authority. The rights and remedies of Canadian Fronting Bank
under the Loan Documents shall be cumulative. Canadian Fronting Bank shall be fully subrogated to
the rights and remedies of each beneficiary whose claims against Borrowers are discharged with
proceeds of any Canadian Letter of Credit.
(d) In connection with its administration of and enforcement of rights or remedies under any
Canadian Letters of Credit or Canadian LC Documents, Canadian Fronting Bank shall be entitled to
act, and shall be fully protected in acting, upon any certification, documentation or communication
in whatever form believed by Canadian Fronting Bank, in good faith, to be genuine and correct and
to have been signed, sent or made by a proper Person. Canadian Fronting Bank may consult with and
employ legal counsel, accountants and other experts to advise it concerning its obligations, rights
and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken
in good faith reliance upon, any advice given by such experts. Canadian Fronting Bank may employ
agents and attorneys-in-fact in connection with any matter relating to Canadian Letters of Credit
or Canadian LC Documents, and shall not be liable for the negligence or misconduct of agents and
attorneys-in-fact selected with reasonable care.
2.2.5 Canadian Reimbursement; Canadian Participations.
(a) If Canadian Fronting Bank honors any request for payment under a Canadian Letter of
Credit, the Applicable Canadian Borrower shall pay to Canadian Fronting Bank, on the same day
(Canadian Reimbursement Date), the amount paid by Canadian Fronting Bank under such
Letter of Credit, together with interest at the interest rate for Canadian Prime Rate Loans (if the
Canadian Letter of Credit was denominated in Canadian Dollars) and Canadian Base Rate Loans (if the
Canadian Letter of Credit was denominated in Dollars), in each case, from the Canadian
Reimbursement Date until payment by Canadian Borrower. The obligation of the Applicable Canadian
Borrower to reimburse Canadian Fronting Bank for any payment made under a Canadian Letter of Credit
shall be absolute, unconditional, irrevocable, and joint and several, and shall be paid without
regard to any lack of validity or enforceability of any Canadian Letter of Credit or the existence
of any claim, setoff, defense or other right that the Applicable Canadian Borrower or Loan Parties
may have at any time against the beneficiary. Whether or not the Initial Canadian Borrower submits
a Notice of Borrowing, the Applicable Canadian Borrower shall be deemed to have requested a
Borrowing of Canadian Prime Rate Loans or Canadian Base Rate Loans, as applicable, in an amount
necessary to pay all amounts due Canadian Fronting Bank in the applicable currency on any Canadian
Reimbursement Date and each Canadian Lender agrees to fund its Pro Rata share of such Borrowing
whether or not
75
the Commitments have terminated, an Overadvance exists or is created thereby, or the
conditions in Section 6 are satisfied.
(b) Upon issuance of a Canadian Letter of Credit, each Canadian Lender shall be deemed to have
irrevocably and unconditionally purchased from Canadian Fronting Bank, without recourse or
warranty, an undivided Pro Rata interest and participation in all Canadian LC Obligations relating
to the Canadian Letter of Credit. If Canadian Fronting Bank makes any payment under a Canadian
Letter of Credit and the Applicable Canadian Borrower does not reimburse such payment on the
Canadian Reimbursement Date, Agent shall promptly notify Canadian Lenders and each Canadian Lender
shall promptly (within one Business Day) and unconditionally pay to Agent, for the benefit of
Canadian Fronting Bank, the Canadian Lenders Pro Rata share of such payment. Upon request by a
Canadian Lender, Canadian Fronting Bank shall furnish copies of any Canadian Letters of Credit and
Canadian LC Documents in its possession at such time.
(c) The obligation of each Canadian Lender to make payments to Agent for the account of
Canadian Fronting Bank in connection with Canadian Fronting Banks payment under a Canadian Letter
of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim,
setoff, qualification or exception whatsoever, and shall be made in accordance with this Agreement
under all circumstances, irrespective of any lack of validity or unenforceability of any Loan
Documents; any draft, certificate or other document presented under a Canadian Letter of Credit
having been determined to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or the existence of any setoff or
defense that any Loan Party may have with respect to any Obligations. Canadian Fronting Bank does
not assume any responsibility for any failure or delay in performance or any breach by any Canadian
Borrower or other Person of any obligations under any Canadian LC Documents. Canadian Fronting
Bank does not make to Canadian Lenders any express or implied warranty, representation or guarantee
with respect to the Canadian Facility Collateral, Canadian LC Documents or any Canadian Domiciled
Loan Party. Canadian Fronting Bank shall not be responsible to any Canadian Lender for any
recitals, statements, information, representations or warranties contained in, or for the
execution, validity, genuineness, effectiveness or enforceability of any Canadian LC Documents; the
validity, genuineness, enforceability, collectability, value or sufficiency of any Canadian
Facility Collateral or the perfection of any Lien therein; or the assets, liabilities, financial
condition, results of operations, business, creditworthiness or legal status of any Canadian
Facility Loan Party.
(d) No Canadian Fronting Bank Indemnitee shall be liable to any Loan Party or other Person for
any action taken or omitted to be taken in connection with any Canadian LC Documents except as a
result of the Canadian Fronting Banks actual gross negligence, willful misconduct or bad faith, as
determined by a final, nonappealable judgment of a court of competent jurisdiction. Canadian
Fronting Bank shall not have any liability to any Lender if Canadian Fronting Bank refrains from
any action under any Canadian Letter of Credit or Canadian LC Documents until it receives written
instructions from Required Borrower Group Lenders of Canadian Borrowers.
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2.2.6 Canadian Cash Collateral. If any Canadian LC Obligations, whether or not then
due or payable, shall for any reason be outstanding at any time (a) that an Event of Default
exists, (b) that a Canadian Overadvance exists, (c) after the Canadian Revolver Commitment
Termination Date, or (d) within five Business Days prior to the Facility Termination Date, then
Canadian Borrowers shall, within one Business Day of Canadian Fronting Banks or Agents request,
Cash Collateralize the stated amount of all outstanding Canadian Letters of Credit and pay to
Canadian Fronting Bank the amount of all other Canadian LC Obligations. Canadian Borrowers shall,
within one Business Day of demand by Canadian Fronting Bank or Agent from time to time, Cash
Collateralize the LC Obligations of any Defaulting Lender that is a Canadian Lender. If Canadian
Borrowers fail to provide any Cash Collateral as required hereunder, Canadian Lenders may (and
shall upon direction of Agent) advance, as Canadian Revolver Loans, the amount of the Cash
Collateral required (whether or not the Canadian Revolver Commitments have terminated, any Canadian
Overadvance exists or would result therefrom or the conditions in Section 6 are satisfied).
2.3 Canadian Borrowers Sublimit. Notwithstanding anything to the contrary contained
in this Section 2, in no event shall any Canadian Borrower be entitled to receive a Canadian
Revolver Loan or the issuance of a Canadian Letter of Credit if at the time of the proposed funding
of such Canadian Revolver Loan or the issuance of such Canadian Letter of Credit (and after giving
effect thereto and all pending requests for Canadian Revolver Loans and Canadian Letters of Credit
by or on behalf of such Canadian Borrower), the sum of (a) the outstanding amount of all Canadian
Revolver Loans made to such Canadian Borrower on such date and (b) the Canadian LC Obligations of
such Canadian Borrower on such date exceeds the lesser of such Canadian Borrowers Canadian
Borrowing Base (without giving effect to its allocable portion of the Canadian LC Reserve) or
Applicable Canadian Borrower Commitment. In no event shall the aggregate Applicable Canadian
Borrower Commitments for all Canadian Borrowers exceed the Canadian Revolver Commitments.
2.4 Obligations of the Canadian Domiciled Loan Party. Notwithstanding anything in
this Agreement or any other Loan Document to the contrary, except as otherwise expressly agreed by
the Agent and the Loan Party Agent, no Excluded Loan Party shall be liable or in any manner
responsible for, or be deemed to have guaranteed, directly or indirectly, whether as a primary
obligor, guarantor, indemnitor, or otherwise, and none of their assets shall secure, directly or
indirectly, any U.S. Facility Secured Obligations (including, without limitation, principal,
interest, fees, penalties, premiums, expenses, charges, reimbursements, indemnities or any other
U.S. Facility Secured Obligations) under this Agreement or any other Loan Document.
SECTION 3. INTEREST, FEES AND CHARGES
3.1 Interest.
3.1.1 Rates and Payment of Interest.
(a) The Obligations shall bear interest (i) if a U.S. Base Rate Loan, at the U.S. Base Rate in
effect from time to time, plus the Applicable Margin; (ii) if a LIBOR Loan, at LIBOR for the
applicable Interest Period, plus the Applicable Margin; (iii) if a Canadian Prime
77
Rate Loan, at the Canadian Prime Rate in effect from time to time, plus the Applicable Margin,
(iv) if a Canadian Base Rate Loan, at the Canadian Base Rate in effect from time to time, plus the
Applicable Margin, (v) if a Canadian BA Rate Loan, at the Canadian BA Rate for the applicable
Interest Period, plus the Applicable Margin, (vi) if any other U.S. Facility Obligation that is
then due and payable (including, to the extent permitted by law, interest not paid when due), at
the U.S. Base Rate in effect from time to time, plus the Applicable Margin for U.S. Base Rate
Loans; and (vii) if any other Canadian Facility Obligation that is then due and payable (including,
to the extent permitted by law, interest not paid when due), at the Canadian Prime Rate in effect
from time to time, plus the Applicable Margin for Canadian Prime Rate Loans. Interest shall accrue
from the date the Loan is advanced or the Obligation becomes payable, until paid by the applicable
Borrower(s). If a Loan is repaid on the same day made, one days interest shall accrue.
(b) Interest on the Revolver Loans shall be payable in the currency (i.e., Dollars or Canadian
Dollars, as the case may be) of the underlying Revolver Loan.
(c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable
thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest (including post-petition interest during the pendency of
any Insolvency Proceeding) at a rate per annum that is (x) in the case of overdue principal, the
Default Rate or (y) in the case of any overdue interest, to the extent permitted by applicable law,
the Default Rate from and including the date of such non-payment to but excluding the date on which
such amount is paid in full (after as well as before judgment). Payment or acceptance of the
increased rates of interest provided for in this Section 3.1.1 is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or
limit any rights or remedies of the Agent or any Lender.
(d) Interest accrued on the Loans shall be due and payable in arrears, (i) for any U.S. Base
Rate Loan, Canadian Base Rate Loan or Canadian Prime Rate Loan, quarterly on the first day of each
January, April, July and October; (ii) for any LIBOR Loan or Canadian BA Rate Loan, on the last day
of its Interest Period (and, if its Interest Period exceeds three months, at the end of each period
of three months) and (iii) on any date of prepayment, with respect to the principal amount of Loans
being prepaid. In addition, interest accrued on the Canadian Revolver Loans shall be due and
payable in arrears on the Canadian Revolver Commitment Termination Date, and interest accrued on
the U.S. Revolver Loans shall be due and payable in arrears on the U.S. Revolver Commitment
Termination Date. Interest accrued on any other Obligations shall be due and payable as provided
in the Loan Documents and, if no payment date is specified, shall be due and payable on demand.
Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on
demand.
3.1.2 Application of LIBOR to Outstanding Loans.
(a) Borrowers may on any Business Day, subject to delivery of a Notice of
Conversion/Continuation and the other terms hereof, elect to convert any portion of the U.S. Base
Rate Loans or the Canadian Base Rate Loans, as applicable to, or to continue any LIBOR Loan at the
end of its Interest Period as, a LIBOR Loan. During any Event of Default, Agent
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may (and shall at the direction of Required Borrower Group Lenders of the applicable Borrower
Group) declare that no Loan may be made, converted or continued as a LIBOR Loan.
(b) Whenever Borrowers within a Borrower Group desire to convert or continue Loans as LIBOR
Loans, Loan Party Agent shall give Agent a Notice of Conversion/Continuation, no later than 1:00
p.m. at least three Business Days prior to the requested conversion or continuation date. Promptly
after receiving any such notice, Agent shall notify each Applicable Lender thereof. Each Notice of
Conversion/Continuation shall be irrevocable, and shall specify the amount of Loans to be converted
or continued, the conversion or continuation date (which shall be a Business Day), and the duration
of the Interest Period (which shall be deemed to be one month if not specified). If, upon the
expiration of any Interest Period in respect of any LIBOR Loans, Loan Party Agent shall have failed
to deliver a Notice of Conversion/Continuation with respect thereto as required above, Borrowers
shall be deemed to have elected to convert such Loans into U.S. Base Rate Loans (if owing by the
U.S. Borrowers) or Canadian Base Rate Loans (if owing by any Canadian Borrower).
3.1.3 Application of Canadian BA Rate to Outstanding Loans.
(a) The Initial Canadian Borrower may on any Business Day, subject to delivery of a Notice of
Conversion/Continuation and the other terms hereof, elect to convert any portion of the Canadian
Prime Rate Loans, or to continue any Canadian BA Rate Loan at the end of its Interest Period as a
Canadian BA Rate Loan; provided, however, that such Canadian BA Rate Loans may only be so converted
at the end of the Interest Period applicable thereto. During any Event of Default, Agent may (and
shall at the direction of Required Borrower Group Lenders of the Borrower Group that consists of
the Canadian Borrowers) declare that no Loan may be made, converted or continued as a Canadian BA
Rate Loan.
(b) Whenever the Initial Canadian Borrower desires to convert or continue Loans as Canadian BA
Rate Loans, Loan Party Agent shall give Agent a Notice of Conversion/Continuation, no later than
1:00 p.m. at least three Business Days prior to the requested conversion or continuation date.
Promptly after receiving any such notice, Agent shall notify each Canadian Lender thereof. Each
Notice of Conversion/Continuation shall be irrevocable, and shall specify the amount of Loans to be
converted or continued, the conversion or continuation date (which shall be a Business Day), and
the duration of the Interest Period (which shall be deemed to be one month if not specified). If,
upon the expiration of any Interest Period in respect of any Canadian BA Rate Loans, Loan Party
Agent shall have failed to deliver a Notice of Conversion/Continuation with respect thereto as
required above, the Initial Canadian Borrower shall be deemed to have elected to convert such Loans
into Canadian Prime Rate Loans.
3.1.4 Interest Periods. In connection with the making, conversion or continuation of
any LIBOR Loans or Canadian BA Rate Loans, Loan Party Agent, on behalf of the applicable
Borrower(s), shall select an interest period to apply (the Interest Period), which
interest period shall be a one, two, three, six (or if available to all Lenders as determined by
such Lenders in good faith based upon prevailing market conditions) nine or twelve month period;
provided, however, that:
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(a) the Interest Period shall commence on the date the Loan is made or continued as, or
converted into, a LIBOR Loan or Canadian BA Rate Loan, and shall expire on the numerically
corresponding day in the calendar month at its end;
(b) if any Interest Period commences on a day for which there is no corresponding day in the
calendar month at its end or if such corresponding day falls after the last Business Day of such
month, then the Interest Period shall expire on the last Business Day of such month;
(c) if any Interest Period would expire on a day that is not a Business Day, the period shall
expire on the next Business Day; and
(d) no Interest Period shall extend beyond the Facility Termination Date (or, in the case of
any Loan owing by any Canadian Borrower, the Canadian Revolver Commitment Termination Date, if
earlier).
3.2 Fees.
3.2.1 Unused Line Fee.
(a) Canadian Borrowers shall pay to Agent, for the Pro Rata benefit of Canadian Lenders, a fee
equal to .375% per annum times the average daily amount by which the Canadian Revolver Commitments
exceed the Canadian Revolver Exposure during any month. Such fee shall be payable in arrears, on
the first day of each month and on the Canadian Revolver Commitment Termination Date.
(b) U.S. Borrowers shall pay to Agent, for the Pro Rata benefit of U.S. Lenders, a fee equal
to .375% per annum times the average daily amount by which the U.S. Revolver Commitments exceed the
daily balance of U.S. Revolver Loans and stated amount of Letters of Credit during any month. Such
fee shall be payable in arrears, on the first day of each month and on the U.S. Revolver Commitment
Termination Date.
3.2.2 U.S. Letters of Credit Fees. U.S. Borrowers shall pay (a) to Agent, for the Pro
Rata benefit of U.S. Lenders, a fee equal to the per annum rate of the Applicable Margin in effect
for LIBOR Loans times the average daily stated amount of U.S. Letters of Credit, which fee shall be
payable monthly in arrears, on the first day of each month; (b) to U.S. Fronting Bank, for its own
account, a fronting fee equal to .125% per annum on the stated amount of each U.S. Letter of
Credit, which fee shall be payable upon the issuance of such U.S. Letter of Credit and at the time
of each renewal or extension of each U.S. Letter of Credit; and (c) to U.S. Fronting Bank, for its
own account, all customary charges associated with the issuance, amending, negotiating, payment,
processing, transfer and administration of U.S. Letters of Credit, which charges shall be paid as
and when incurred.
3.2.3 Canadian Letters of Credit Fees. Each Applicable Canadian Borrower shall pay
(a) to Agent, for the Pro Rata benefit of Canadian Lenders, a fee equal to the per annum rate of
the Applicable Margin in effect for LIBOR Loans times the average daily stated amount of such
Applicable Canadian Borrowers Canadian Letters of Credit, which fee shall be payable monthly in
arrears, on the first day of each month; (b) to Canadian Fronting Bank, for its own
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account, a fronting fee equal to .125% per annum on the stated amount of each Canadian Letter
of Credit, which fee shall be payable upon the issuance of such Canadian Letter of Credit and at
the time of each renewal or extension of each Canadian Letter of Credit; and (c) to Canadian
Fronting Bank, for its own account, all customary charges associated with the issuance, amending,
negotiating, payment, processing, transfer and administration of Canadian Letters of Credit, which
charges shall be paid as and when incurred.
3.2.4 Other Fees. Borrowers shall pay such other fees as described in the Fee Letter.
3.3 Computation of Interest, Fees, Yield Protection. All interest, as well as fees
and other charges calculated on a per annum basis, shall be computed for the actual days elapsed,
based on a year of 360 days, or, in the case of interest based on the Canadian Prime Rate or
Canadian BA Rate, on the basis of a 365 day year. Each determination by Agent of any interest,
fees or interest rate hereunder shall be final, conclusive and binding for all purposes, absent
manifest error. All fees shall be fully earned when due and shall not be subject to rebate, refund
or proration. All fees payable under Section 3.2 are compensation for services and are not, and
shall not be deemed to be, interest or any other charge for the use, forbearance or detention of
money, except to the extent such treatment is inconsistent with any Requirement of Law. A
certificate setting forth in reasonable detail amounts payable by any Borrower under Section 3.4,
3.7 or 3.9 and the basis therefor, submitted to Loan Party Agent by Agent or the affected Lender or
U.S. Fronting Bank or Canadian Fronting Bank, as applicable, shall be final, conclusive and binding
for all purposes, absent manifest error, and Borrowers shall pay such amounts to the appropriate
party within 10 Business Days following receipt of the certificate. For the purposes of the
Interest Act (Canada), the yearly rate of interest to which any rate calculated on the basis of a
period of time different from the actual number of days in the year (360 days, for example) is
equivalent is the stated rate multiplied by the actual number of days in the year (365 or 366, as
applicable) and divided by the number of days in the shorter period (360 days, in the example), and
the parties hereto acknowledge that there is a material distinction between the nominal and
effective rates of interest and that they are capable of making the calculations necessary to
compare such rates and that the calculations herein are to be made using the nominal rate method
and not on any basis that gives effect to the principle of deemed reinvestment of interest.
3.4 Reimbursement Obligations. Borrowers within each Borrower Group shall reimburse
Agent for all Extraordinary Expenses incurred by Agent in reference to such Borrower Group or its
related Loan Party Group Obligations or Collateral of its related Loan Party Group. In addition to
such Extraordinary Expenses, such Borrowers shall also reimburse Agent for all reasonable and
documented legal, accounting, appraisal, and other reasonable and documented fees, costs and
expenses, without duplication, incurred by it in connection with (a) negotiation and preparation of
any Loan Documents, including any amendment or other modification thereof; (b) administration of
and actions relating to any Collateral, including any actions taken to perfect or maintain priority
of Agents Liens on any such Collateral, to maintain any insurance required hereunder or to verify
such Collateral; and (c) each inspection, audit or appraisal with respect to any Loan Party within
such Borrowers related Loan Party Group or Collateral securing such Loan Party Groups
Obligations, whether prepared by Agents personnel or a third party (subject to the limitations of
Section 10.1.15). All legal and accounting fees incurred by Agent Professionals in reference to a
Borrowers related Loan Party Group or its related Loan
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Party Group Obligations or Collateral of such Borrowers related Loan Party Group shall be
charged to Borrowers within such Borrower Group at the actual rate charged by such Agent
Professionals; provided that Borrowers obligation to reimburse Agent for legal fees shall be
limited to the reasonable and documented legal fees and expenses of Vinson & Elkins LLP, counsel to
Agent and Ogilvy Renault LLP, Canadian counsel to Agent and, if necessary, of one local counsel in
each other relevant jurisdiction (which may include a local counsel acting in multiple
jurisdictions). In addition to the Extraordinary Expenses of Agent, upon the occurrence and during
the continuance of an Event Default, Borrowers shall reimburse Fronting Banks and Lenders for the
reasonable and documented fees, charges and disbursements of one counsel for the Fronting Banks and
Lenders, as a whole, in connection with the enforcement, collection or protection of their
respective rights under the Loan Documents, including all such expenses incurred during any
workout, restructuring or Insolvency Proceeding. If, for any reason (including
inaccurate reporting on financial statements), it is determined that a higher Applicable Margin
should have applied to a period than was actually applied, then the proper margin shall be applied
retroactively and Borrowers shall pay to Agent, for the Pro Rata benefit of Lenders, an amount
equal to the difference between the amount of interest and fees that would have accrued using the
proper margin and the amount actually paid. All amounts payable by Borrowers under this Section
3.4 shall be due and payable in accordance with Section 3.3.
3.5 Illegality. If any Lender determines that any Applicable Law has made it
unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or
its applicable Lending Office to make, maintain or fund Interest Period Loans, or to determine or
charge interest rates based upon LIBOR or the Canadian BA Rate, or any Governmental Authority has
imposed material restrictions on the authority of such Lender to purchase or sell, or to take
deposits of, Dollars in the London interbank market, or Canadian Dollars through bankers
acceptances then, on notice thereof by such Lender to Agent, any obligation of such Lender to make
or continue Interest Period Loans or to convert Floating Rate Loans to Interest Period Loans shall
be suspended until such Lender notifies Agent that the circumstances giving rise to such
determination no longer exist. Upon delivery of such notice, Borrowers of the affected Borrower
Group shall prepay or, if applicable, convert all Interest Period Loans of such Lender to Floating
Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully
continue to maintain such Interest Period Loans to such day, or immediately, if such Lender may not
lawfully continue to maintain such Interest Period Loans. Upon any such prepayment or conversion,
Borrowers of the affected Borrower Group shall also pay accrued interest on the amount so prepaid
or converted. If any Lender invokes this Section 3.5, such Lender shall use reasonable efforts to
notify Loan Party Agent and Agent when the conditions giving rise to such action no longer exists,
provided, however, that such Lender shall have no liability to Borrowers or to any other Person for
its failure to provide such notice.
3.6 Inability to Determine Rates. If Required Lenders notify Agent for any reason in
connection with a request for a Borrowing of, or conversion to or continuation of, an Interest
Period Loan that (a) Dollar deposits or bankers acceptances are not being offered to, as regards
LIBOR, banks in the London interbank Eurodollar market or, as regards Canadian BA Rate, Persons in
Canada, for the applicable amount and Interest Period of such Loan, (b) adequate and reasonable
means do not exist for determining LIBOR or the Canadian BA Rate for the requested Interest Period,
or (c) LIBOR or the Canadian BA Rate for the requested Interest Period does not adequately and
fairly reflect the cost to such Lenders of funding such Loan, then
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Agent will promptly so notify Loan Party Agent and each Applicable Lender. Thereafter, the
obligation of the Applicable Lenders to make or maintain affected Interest Period Loans, shall be
suspended until Agent (upon instruction by Required Lenders) revokes such notice. Upon receipt of
such notice, Loan Party Agent may revoke any pending request for a Borrowing of, conversion to or
continuation of an Interest Period Loan or, failing that, will be deemed to have submitted a
request for a Floating Rate Loan. If any Lender invokes this Section 3.6, such Lender shall use
reasonable efforts to notify Loan Party Agent and Agent when the conditions giving rise to such
action no longer exists, provided, however, that such Lender shall have no liability to Borrowers
or to any other Person for its failure to provide such notice.
3.7 Increased Costs; Capital Adequacy.
3.7.1 Change in Law. If any Change in Law shall:
(a) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance
charge or similar requirement against assets of, deposits with or for the account of, or credit
extended or participated in by, any Lender (except any reserve requirement reflected in LIBOR or
the Canadian BA Rate), U.S. Fronting Bank or Canadian Fronting Bank; or
(b) impose on any Lender, U.S. Fronting Bank or Canadian Fronting Bank or the London interbank
market any other condition, cost or expense affecting any Loan, Loan Document, U.S. Letter of
Credit or participation in U.S. LC Obligations or Canadian Letter of Credit or participation in
Canadian LC Obligations;
and the result thereof shall be to increase the cost to such Lender of making or maintaining any
Interest Period Loan (or of maintaining its obligation to make any such Loan), or to increase the
cost to such Lender, U.S. Fronting Bank or Canadian Fronting Bank of participating in, issuing or
maintaining any U.S. Letter of Credit or Canadian Letter of Credit (or of maintaining its
obligation to participate in or to issue any U.S. Letter of Credit or Canadian Letter of Credit, as
applicable), or to reduce the amount of any sum received or receivable by such Lender, U.S.
Fronting Bank or Canadian Fronting Bank hereunder (whether of principal, interest or any other
amount) then, upon request of such Lender, U.S. Fronting Bank or Canadian Fronting Bank, the
Borrower Group to which such Lenders, U.S. Fronting Bank or Canadian Fronting Bank has a Commitment
shall pay to such Lender, U.S. Fronting Bank or Canadian Fronting Bank such additional amount or
amounts as will compensate such Lender, U.S. Fronting Bank or Canadian Fronting Bank for such
additional costs incurred or reduction suffered, in each case, in accordance with Section 3.3. For
the avoidance of doubt, this Section 3.7.1 shall not apply to any Taxes.
3.7.2 Capital Adequacy. If any Lender, U.S. Fronting Bank or Canadian Fronting Bank
determines that any Change in Law affecting such Lender, U.S. Fronting Bank or Canadian Fronting
Bank or any Lending Office of such Lender or such Lenders, U.S. Fronting Banks or Canadian
Fronting Banks holding company, if any, regarding capital requirements has or would have the
effect of reducing the rate of return on such Lenders, U.S. Fronting Banks, Canadian Fronting
Banks or holding companys capital as a consequence of this Agreement, or such Lenders, U.S.
Fronting Banks or Canadian Fronting Banks Commitments,
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Loans, U.S. Letters of Credit or participations in U.S. LC Obligations, Canadian Letters of
Credit or participations in Canadian LC Obligations to a level below that which such Lender, U.S.
Fronting Bank, Canadian Fronting Bank or holding company could have achieved but for such Change in
Law (taking into consideration such Lenders, U.S. Fronting Banks, Canadian Fronting Banks and
holding companys policies with respect to capital adequacy), then from time to time the Borrower
Group to which such Lender, U.S. Fronting Bank or Canadian Fronting Bank has a Commitment will pay
to such Lender, U.S. Fronting Bank or Canadian Fronting Bank, as the case may be, such additional
amount or amounts as will compensate it or its holding company for any such reduction suffered, in
each case, in accordance with Section 3.3.
3.7.3 Compensation. Failure or delay on the part of any Lender, U.S. Fronting Bank or
Canadian Fronting Bank to demand compensation pursuant to this Section 3.7 shall not constitute a
waiver of its right to demand such compensation, but Borrowers of a Borrower Group shall not be
required to compensate a Lender to such Borrower Group, U.S. Fronting Bank or Canadian Fronting
Bank for any increased costs incurred or reductions suffered more than six months prior to the date
that the Lender, U.S. Fronting Bank or Canadian Fronting Bank notifies Loan Party Agent of the
Change in Law giving rise to such increased costs or reductions and of such Lenders, U.S. Fronting
Banks or Canadian Fronting Banks intention to claim compensation therefor (except that, if the
Change in Law giving rise to such increased costs or reductions is retroactive, then the six month
period referred to above shall be extended to include the period of retroactive effect thereof).
3.8 Mitigation. If any Lender gives a notice under Section 3.5 or requests
compensation under Section 3.7, or if any Borrower is required to pay additional amounts or
indemnity payments with respect to a Lender under Section 5.8, then such Lender shall use
reasonable efforts to designate a different Lending Office or to assign its rights and obligations
hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender,
such designation or assignment (a) would eliminate the need for such notice or reduce amounts
payable or to be withheld in the future, as applicable; and (b) in each case, would not subject
such Lender to any unreimbursed cost or expense and would not otherwise be materially
disadvantageous to such Lender or unlawful. The Borrower or Borrowers of each affected Borrower
Group shall pay all reasonable costs and expenses incurred by any Lender that has issued a
Commitment to such Borrower Group in connection with any such designation or assignment.
3.9 Funding Losses. If for any reason (other than default by a Lender) (a) any
Borrowing of, or conversion to or continuation of, an Interest Period Loan does not occur on the
date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or
not withdrawn), (b) any repayment or conversion of an Interest Period Loan occurs on a day other
than the end of its Interest Period, or (c) any Borrower of either Borrower Group fails to repay an
Interest Period Loan when required hereunder, then Borrowers of such Borrower Group shall pay to
Agent its customary administrative charge and to each Lender all losses and expenses that it
sustains as a consequence thereof, including any loss or expense arising from liquidation or
redeployment of funds or from fees payable to terminate deposits of matching funds, but excluding
loss of margin. All amounts payable by Borrowers under this Section 3.9 shall be due and payable
in accordance with Section 3.3. Lenders shall not be required to
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purchase Dollar deposits in the London interbank market or any other offshore Dollar market to
fund any LIBOR Loan, but the provisions hereof shall be deemed to apply as if each Lender had
purchased such deposits to fund its LIBOR Loans.
3.10 Maximum Interest. Notwithstanding anything to the contrary contained in any Loan
Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the
maximum rate of non-usurious interest permitted by Applicable Law (maximum rate). If
Agent or any Lender shall receive interest in an amount that exceeds the maximum rate, the excess
interest shall be applied to the principal of the Obligations of the Borrower Group to which such
excess interest relates or, if it exceeds such unpaid principal, refunded to such Borrower Group.
In determining whether the interest contracted for, charged or received by Agent or a Lender
exceeds the maximum rate, such Person may, to the extent permitted by Applicable Law, (a)
characterize any payment that is not principal as an expense, fee or premium rather than interest;
(b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and
spread in equal or unequal parts the total amount of interest throughout the contemplated term of
the Obligations hereunder. Without limiting the generality of the foregoing provisions of Section
3.10, if any provision of any of the Loan Documents would obligate any Canadian Domiciled Loan
Party to make any payment of interest with respect to the Canadian Facility Obligations in an
amount or calculated at a rate which would be prohibited by Applicable Law or would result in the
receipt of interest with respect to the Canadian Facility Obligations at a criminal rate (as such
terms are construed under the Criminal Code (Canada)), then notwithstanding such provision, such
amount or rates shall be deemed to have been adjusted with retroactive effect to the maximum amount
or rate of interest, as the case may be, as would not be so prohibited by law or so result in a
receipt by the applicable recipient of interest with respect to the Canadian Facility Obligations
at a criminal rate, such adjustment to be effected, to the extent necessary, as follows: (i)
first, by reducing the amount or rates of interest required to be paid by the Canadian Facility
Loan Parties to the applicable recipient under the Loan Documents; and (ii) thereafter, by reducing
any fees, commissions, premiums and other amounts required to be paid by the Canadian Facility Loan
Parties to the applicable recipient which would constitute interest with respect to the Canadian
Facility Obligations for purposes of Section 347 of the Criminal Code (Canada). Notwithstanding
the foregoing, and after giving effect to all adjustments contemplated thereby, if the applicable
recipient shall have received an amount in excess of the maximum permitted by that section of the
Criminal Code (Canada), then Canadian Facility Loan Parties shall be entitled, by notice in writing
to Agent, to obtain reimbursement from the applicable recipient in an amount equal to such excess,
and pending such reimbursement, such amount shall be deemed to be an amount payable by the
applicable recipient to the applicable Canadian Facility Loan Party. Any amount or rate of
interest with respect to the Canadian Facility Obligations referred to in this Section 3.10 shall
be determined in accordance with generally accepted actuarial practices and principles as an
effective annual rate of interest over the term that any Canadian Revolver Loans to any Canadian
Borrower remains outstanding on the assumption that any charges, fees or expenses that fall within
the meaning of interest (as defined in the Criminal Code (Canada)) shall, if they relate to a
specific period of time, be pro rated over that period of time and otherwise be pro rated over the
period from the Closing Date to the date of Full Payment of the Canadian Facility Obligations, and,
in the event of a dispute, a certificate of a Fellow of the Canadian Institute of Actuaries
appointed by Agent shall be conclusive for the purposes of such determination.
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SECTION 4. LOAN ADMINISTRATION
4.1 Manner of Borrowing and Funding Loans.
4.1.1 Notice of Borrowing.
(a) Whenever any Borrower within a Borrower Group desires funding of a Borrowing of Revolver
Loans, the Loan Party Agent shall give Agent a Notice of Borrowing. Such notice must be received
by Agent no later than 11:00 a.m. (i) on the Business Day of the requested funding date, in the
case of Floating Rate Loans, (ii) at least three Business Days prior to the requested funding date,
in the case of LIBOR Loans, and (iii) at least three Business Days prior to the requested funding
date, in the case of Canadian BA Rate Loans. Notices received after 11:00 a.m. shall be deemed
received on the next Business Day. Each Notice of Borrowing shall be irrevocable and shall specify
(A) the amount of the Borrowing, (B) the requested funding date (which must be a Business Day), (C)
whether the Borrowing is to be made as a U.S. Base Rate Loan or a LIBOR Revolver Loan, in the case
of a U.S. Borrower, or a Canadian Base Rate Loan, LIBOR Revolver Loan, Canadian Prime Rate Loan or
Canadian BA Rate Loan, in the case of a Canadian Borrower, (D) in the case of Interest Period
Loans, the duration of the applicable Interest Period (which shall be deemed to be one month if not
specified) and (E) the Borrower Group Commitment under which such Borrowing is proposed to be made
and, if such Borrowing is requested for a Canadian Borrower, the name of the Applicable Canadian
Borrower and whether such Loan is to be denominated in Dollars or Canadian Dollars.
(b) Whenever any Borrower within a Borrower Group desires funding of a Borrowing of Swingline
Loans, the Initial Canadian Borrower, in the case of Canadian Swingline Loans, or the Loan Party
Agent, in the case of U.S. Swingline Loans shall give the Agent a Notice of Borrowing. Such notice
must be received by the Agent no later than 11:00 a.m. on the Business Day of the requested funding
date. Notices received after 11:00 a.m. shall be deemed received on the next Business Day. Each
Notice of Borrowing shall be irrevocable and shall specify (A) the amount of the Borrowing, (B) the
requested funding date (which must be a Business Day), (C) whether the Borrowing is to be made as a
Canadian Base Rate Loan or Canadian Prime Rate Loan, in the case of a Canadian Borrower, and (D)
the Borrower Group Commitment under which such Borrowing is proposed to be made and, if such
Borrowing is requested for a Canadian Borrower, the name of the Applicable Canadian Borrower and
whether such Loan is to be denominated in Dollars or Canadian Dollars.
(c) Unless payment is otherwise timely made by each Borrower within a Borrower Group, the
becoming due of any amount required to be paid with respect to any of the Obligations of the Loan
Party Group to which such Borrower Group belongs (whether principal, interest, fees or other
charges, including Extraordinary Expenses, U.S. LC Obligations, Canadian LC Obligations and Cash
Collateral) shall be deemed to be a request for Revolver Loans by such Borrower Group on the due
date, in the amount of such Obligations and shall bear interest at the per annum rate applicable
hereunder to U.S. Base Rate Loans, in the case of such Obligations owing by any U.S. Facility Loan
Party, or to Canadian Prime Rate Loans, in the case of such Obligations owing by a Canadian
Domiciled Loan Party. The proceeds of such Revolver Loans shall be disbursed as direct payment of
the relevant Obligation.
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(d) If any Borrower within a Borrower Group establishes a controlled disbursement account with
Bank of America or any branch or Affiliate of Bank of America, then the presentation for payment of
any check, ACH or electronic debit or other payment item drawn on such account at a time when there
are insufficient funds to cover it shall be deemed to be a request for Revolver Loans by such
Borrower Group on the date of such presentation, in the amount of such payment item, and shall bear
interest at the per annum rate applicable hereunder to U.S. Base Rate Loans, in the case of
insufficient funds owing by any U.S. Facility Loan Party, or to Canadian Prime Rate Loans, in the
case of insufficient funds owing by a Canadian Facility Loan Party. The proceeds of such Revolver
Loans may be disbursed directly to the controlled disbursement account or other appropriate
account.
4.1.2 Fundings by Lenders; Settlement.
(a) Each Applicable Lender shall timely honor its Borrower Group Commitment by funding its Pro
Rata share of each Borrowing of Revolver Loans under such Borrower Group Commitment that is
properly requested hereunder; provided, however, that no Lender shall be required to honor its
Borrower Group Commitment by funding its Pro Rata share of any Borrowing that would cause the U.S.
Revolver Loans to exceed the U.S. Borrowing Base or the Canadian Revolver Loans to exceed the Total
Canadian Borrowing Base, as applicable. Agent shall endeavor to notify the Applicable Lenders of
each Notice of Borrowing (or deemed request for a Borrowing) by 12:00 noon on the proposed funding
date for Floating Rate Loans or by 11:00 a.m. at least two Business Days before any proposed
funding of Interest Period Loans. Each Applicable Lender shall fund to Agent such Lenders Pro
Rata share of the Borrowing to the account specified by Agent in immediately available funds not
later than 2:00 p.m. on the requested funding date, unless Agents notice is received after the
times provided above, in which event each Applicable Lender shall fund its Pro Rata share by 11:00
a.m. on the next Business Day. Subject to its receipt of such amounts from the Applicable Lenders,
Agent shall disburse the proceeds of the Revolver Loans as directed by Loan Party Agent. Unless
Agent shall have received (in sufficient time to act) written notice from an Applicable Lender that
it does not intend to fund its Pro Rata share of a Borrowing, Agent may assume that such Applicable
Lender has deposited or promptly will deposit its share with Agent, and Agent may disburse a
corresponding amount to the Borrower or Borrowers within such Borrower Group. If an Applicable
Lenders share of any Borrowing is not received by Agent, then the Borrower or Borrowers within the
Borrower Group agree to repay to Agent on demand the amount of such share, together with interest
thereon from the date disbursed until repaid, at the rate applicable to such Borrowing.
Notwithstanding the foregoing, the Agent may, in its discretion, fund any request for a Borrowing
of Canadian Revolver Loans or U.S. Revolver Loans as Canadian Swingline Loans or U.S. Swingline
Loans, as applicable.
(b) To facilitate administration of the Revolver Loans, the Lenders, the Swingline Lenders and
the Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by
any Borrower or any other Loan Party) that settlement among them with respect to Swingline Loans
and other Revolver Loans may take place on a date determined from time to time by the Agent, which
shall occur at least once every five Business Days with respect to Swingline Loans and any other
Revolver Loans. On each settlement date, settlement shall be made with each Lender in accordance
with the Settlement Report delivered by the Agent to the Lenders. Between settlement dates, the
Agent may in its discretion apply payments on
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Revolver Loans to Swingline Loans, regardless of any designation by Loan Party Agent or any
Borrower or any provision herein to the contrary. Each Lenders obligation to make settlements
with the Agent is absolute and unconditional, without offset, counterclaim or other defense, and
whether or not the Commitments have terminated, an Overadvance exists or the conditions in Section
6 are satisfied. If, due to an Insolvency Proceeding with respect to any Borrower or any other
Loan Party or otherwise, any Swingline Loan may not be settled among the Lenders hereunder, then
each Applicable Lender shall be deemed to have purchased from the applicable Swingline Lender a Pro
Rata participation in each unpaid U.S. Swingline Loan or Canadian Swingline Loan, as applicable,
and shall transfer the amount of such participation to the applicable Swingline Lender, in
immediately available funds, within one Business Day after the Agents request therefor.
4.1.3 Notices. Each Borrower authorizes the Agent and Lenders to extend Loans,
convert or continue Revolver Loans, effect selections of interest rates, and transfer funds to or
on behalf of applicable Borrowers based on telephonic or e-mailed instructions by the Loan Party
Agent to the Agent. The Loan Party Agent shall confirm each such request by reasonably prompt
delivery to the Agent of a Notice of Borrowing or Notice of Conversion/Continuation, if applicable,
but if it differs in any material respect from the action taken by the Agent or Lenders, the
records of the Agent and Lenders shall govern. Neither the Agent nor any Lender shall have any
liability for any loss suffered by a Borrower as a result of the Agent or any Lender acting upon
its understanding of telephonic or e-mailed instructions from a person believed in good faith by
the Agent or any Lender to be a person authorized to give such instructions on the Loan Party
Agents behalf.
4.2 Defaulting Lender.
4.2.1 Reallocation of Pro Rata Share; Amendments. For purposes of determining Lenders obligations to fund or participate in Loans or Letters of
Credit, the Agent may exclude the Commitments and Loans of any Defaulting Lender from the
calculation of Pro Rata shares. A Defaulting Lender shall have no right to vote on any amendment,
waiver or other modification of a Loan Document, except as provided in Section 14.1.1(c).
4.2.2 Payments; Fees. The Agent may, in its discretion, receive and retain any amounts payable to a Defaulting
Lender under the Loan Documents, and a Defaulting Lender shall be deemed to have assigned to the
Agent such amounts until all Obligations owing to the Agent, non-Defaulting Lenders and other
Secured Parties have been paid in full. The Agent may apply such amounts to the Defaulting
Lenders defaulted obligations, use the funds to Cash Collateralize such Lenders LC Obligations,
or readvance the amounts to Borrowers hereunder. A Lender shall not be entitled to receive any
fees accruing hereunder during the period in which it is a Defaulting Lender, and the unfunded
portion of its Commitment shall be disregarded for purposes of calculating the unused line fee
under Section 3.2.1. If any LC Obligations owing to a Defaulting Lender are reallocated to other
Lenders, fees attributable to such LC Obligations under Section 3.2.2 or Section 3.2.3 shall be
paid to such Lenders. Notwithstanding anything to the contrary in
this Section 4.2.2, the LC Obligations owing to a Defaulting Lender may be reallocated to the
other Lenders only to the extent that such reallocation does not cause the U.S. Revolver Exposure
and/or the Canadian Revolver Exposure, as applicable, of any non-Defaulting Lender to exceed such
non-Defaulting Lenders
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Commitment The Agent shall be paid all fees attributable to LC Obligations
that are not reallocated.
4.2.3 Cure. Borrowers, the Agent and each Fronting Bank may agree in writing that a Lender is no longer a
Defaulting Lender. At such time, Pro Rata shares shall be reallocated without exclusion of such
Lenders Commitment and Loans, and all outstanding Revolver Loans, LC Obligations and other
exposures under the Commitments shall be reallocated among Lenders and settled by the Agent (with
appropriate payments by the reinstated Lender) in accordance with the readjusted Pro Rata shares.
Unless expressly agreed by Borrowers, the Agent and each Fronting Bank, no reinstatement of a
Defaulting Lender shall constitute a waiver or release of claims against such Lender. The failure
of any Lender to fund a Loan, to make a payment in respect of LC Obligations or otherwise to
perform its obligations hereunder shall not relieve any other Lender of its obligations, and no
Lender shall be responsible for default by another Lender.
4.3 Number and Amount of Interest Period Loans; Determination of Rate. For ease of
administration, all Interest Period Loans of the same Type to a Borrower Group having the same
length and beginning date of their Interest Periods and the same currency shall be aggregated
together, and such Loans shall be allocated among the Applicable Lenders on a Pro Rata basis. With
respect to U.S. Borrowers, no more than six (6) Borrowings of LIBOR Loans may be outstanding at any
time, and each Borrowing of LIBOR Loans when made, continued or converted shall be in a minimum
amount of $1,000,000, or an increment of $100,000 in excess thereof. With respect to Canadian
Borrowers, no more than six (6) Borrowings of Interest Period Loans may be outstanding at any time,
and each Borrowing of Interest Period Loans when made, continued or converted shall be in a minimum
amount of $1,000,000 in the case of LIBOR Loans, or an increment of $100,000 in excess thereof, or
Cdn$1,000,000 in the case of Canadian BA Rate Loans, or an increment of Cdn$100,000 in excess
thereof. Upon determining LIBOR or the Canadian BA Rate for any Interest Period requested by
Borrowers within a Borrower Group, Agent shall promptly notify Loan Party Agent thereof by
telephone or electronically and, if requested by Loan Party Agent, shall confirm any telephonic
notice in writing.
4.4 Loan Party Agent. Each Loan Party hereby designates MRC (Loan Party
Agent) as its representative and agent for all purposes under the Loan Documents, including
requests for Loans and Letters of Credit, designation of interest rates, delivery or receipt of
communications, preparation and delivery of any Borrowing Base and financial reports, receipt and
payment of Obligations, requests for waivers, amendments or other accommodations, actions under the
Loan Documents (including in respect of compliance with covenants), and all other dealings with
Agent, any U.S. Fronting Bank, any Canadian Fronting Bank or any Lender. Loan Party Agent hereby
accepts such appointment. Agent and any Lender shall be entitled to rely upon, and shall be fully
protected in relying upon, any notice or communication (including any Notice of Borrowing)
delivered by Loan Party Agent on behalf of any Loan Party. Agent and any Lender may give any
notice or communication with a Loan Party hereunder to Loan Party Agent on behalf of such Loan
Party. Each of Agent, any U.S. Fronting Bank, any Canadian
Fronting Bank and any Lender shall have the right, in its discretion, to deal exclusively with
Loan Party Agent for any or all purposes under the Loan Documents. Each Loan Party agrees that any
notice, election, communication, representation, agreement or undertaking made on its behalf by
Loan Party Agent shall be binding upon and enforceable against it.
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4.5 One Obligation. Without in any way limiting any Guarantee of the Secured
Obligations, the U.S. Facility Secured Obligations owing by each U.S. Facility Loan Party shall
constitute one general obligation of the U.S. Facility Loan Parties and (unless otherwise expressly
provided in any Credit Document) shall be secured by Agents Lien upon all Collateral of each U.S.
Facility Loan Party; provided, however, that each Credit Party shall be deemed to be a creditor of,
and the holder of a separate claim against, each U.S. Facility Loan Party to the extent of any U.S.
Facility Secured Obligations owed by such U.S. Facility Loan Party to such Credit Party.
4.6 Effect of Termination. On the effective date of any termination of the
Commitments, all Obligations shall be immediately due and payable, and any Lender may terminate its
and its Affiliates Bank Products (including, only with the consent of Agent, any Cash Management
Services). All undertakings of Loan Parties contained in the Loan Documents shall survive, and
Agent shall retain its Liens in the Collateral and all of its rights and remedies under the Loan
Documents until Full Payment of the Secured Obligations. Notwithstanding Full Payment of the
Secured Obligations, Agent shall not be required to terminate its Liens in any Collateral unless,
with respect to any damages Agent may incur as a result of the dishonor or return of Payment Items
applied to Secured Obligations, Agent receives (a) a written agreement, executed by the Loan Party
Agent and any Person whose advances are used in whole or in part to satisfy the Secured
Obligations, indemnifying Agent and Lenders from any such damages; or (b) such Cash Collateral as
Agent, in its reasonable discretion, deems necessary to protect against any such damages. Sections
2.2, 3.4, 3.6, 3.7, 3.9, 5.4, 5.8, 5.9, 12, 14.2 and this Section 4.6, and the obligation of each
Loan Party and Lender with respect to each indemnity given by it in any Loan Document, shall
survive Full Payment of the Secured Obligations and any release relating to this credit facility.
SECTION 5. PAYMENTS
5.1 General Payment Provisions. All payments of Obligations shall be made without
offset, counterclaim or defense of any kind, and in immediately available funds, not later than
1:00 p.m. on the due date. Any payment after such time shall be deemed made on the next Business
Day. If any payment under the Loan Documents shall be stated to be due on a day other than a
Business Day, the due date shall be extended to the next Business Day and such extension of time
shall be included in any computation of interest and fees. Any payment of an Interest Period Loan
prior to the end of its Interest Period shall be accompanied by all amounts due under Section 3.9.
Any prepayment of Loans to a Borrower Group shall be applied first to Floating Rate Loans of such
Borrower Group and then to Interest Period Loans of such Borrower Group; provided, however, that as
long as no Default or Event of Default exists, prepayments of Interest Period Loans may, at the
option of Borrowers of the applicable Borrower Group and Agent, be held by Agent as Cash Collateral
and applied to such Loans at the end of their Interest Periods. All payments with respect to any
U.S. Facility Obligations shall be made in Dollars and all payments with respect to any Canadian
Facility Obligations shall be made in Canadian Dollars or, if any portion of such Canadian Facility Obligations is denominated in Dollars,
then in Dollars.
5.2 Repayment of Obligations. All Canadian Facility Obligations shall be immediately
due and payable in full on the Canadian Revolver Commitment Termination Date
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and all U.S. Facility
Obligations shall be immediately due and payable in full on the U.S. Revolver Commitment
Termination Date, in each case, unless payment of such Obligations is sooner required hereunder.
Revolver Loans may be prepaid from time to time, without penalty or premium, subject to, in the
case of Interest Period Loans, the payment of costs set forth in Section 3.9. Notwithstanding
anything herein to the contrary, if an Overadvance exists, Borrowers of the Borrower Group owing
such Overadvance shall, on the sooner of Agents demand or the first Business Day after any
Borrower of such Borrower Group has knowledge thereof, repay the outstanding Loans in an amount
sufficient to reduce the principal balance of the related Overadvance Loan to zero.
5.3 Payment of Other Obligations. Obligations shall be paid by Borrowers as provided
in the Loan Documents or, if no payment date is specified, within 10 Business Days of demand by
Agent therefor.
5.4 Marshaling; Payments Set Aside. None of Agent or Lenders shall be under any
obligation to marshal any assets in favor of any Loan Party or against any Obligations. If any
payment by or on behalf of any Borrower or Borrowers is made to Agent, U.S. Fronting Bank, Canadian
Fronting Bank or any Lender, or Agent, U.S. Fronting Bank, Canadian Fronting Bank or any Lender
exercises a right of setoff, and such payment or the proceeds of such setoff or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by Agent, U.S. Fronting Bank, Canadian Fronting
Bank or such Lender in its discretion) to be repaid to a Creditor Representative or any other
Person, then to the extent of such recovery, the Obligation originally intended to be satisfied,
and all Liens, rights and remedies relating thereto, shall be revived and continued in full force
and effect as if such payment had not been made or such setoff had not occurred.
5.5 Post-Default Allocation of Payments.
5.5.1 Allocation. Notwithstanding anything herein to the contrary, during an Event of
Default, monies to be applied to the Secured Obligations, whether arising from payments by or on
behalf of any Loan Party, realization on Collateral, setoff or otherwise, shall be allocated as
follows:
(a) with respect to monies, payments, Property or Collateral of or from any U.S. Facility Loan
Parties:
(i) first, to all costs and expenses, including Extraordinary Expenses, owing to Agent,
to the extent owing by any U.S. Domiciled Loan Party;
(ii) second, to all amounts owing to U.S. Swingline Lender on U.S. Swingline Loans;
(iii) third, to all amounts owing to any U.S. Fronting Bank on U.S. LC Obligations;
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(iv) fourth, to all U.S. Facility Obligations constituting fees owing by the U.S.
Facility Loan Parties (exclusive of any such amounts owing by the Canadian Domiciled Loan
Parties which are guaranteed by the U.S. Domiciled Loan Parties);
(v) fifth, to all U.S. Facility Obligations constituting interest owing by the U.S.
Facility Loan Parties (exclusive of any such amounts owing by the Canadian Domiciled Loan
Parties which are guaranteed by the U.S. Domiciled Loan Parties);
(vi) sixth, to Cash Collateralization of U.S. LC Obligations;
(vii) seventh, to all U.S. Revolver Loans;
(viii) eighth, to all other U.S. Facility Secured Obligations (exclusive of any such
amounts owing by the Canadian Domiciled Loan Parties which are guaranteed by the U.S.
Domiciled Loan Parties); and
(ix) ninth, to be applied in accordance with clause (b) below, to the extent there are
insufficient funds for the Full Payment of all Secured Obligations owing by the Canadian
Domiciled Loan Parties.
(b) with respect to monies, payments, Property or Collateral of or from any Canadian Domiciled
Loan Parties, together with any allocations pursuant to subclause (ix) of clause (a) above:
(i) first, to all costs and expenses, including Extraordinary Expenses, owing to Agent,
to the extent owing by any Canadian Domiciled Loan Party;
(ii) second, to all amounts owing to Canadian Swingline Lender on Canadian Swingline
Loans;
(iii) third, to all amounts owing to any Canadian Fronting Bank on Canadian LC
Obligations;
(iv) fourth, to all Canadian Facility Obligations constituting fees;
(v) fifth, to all Canadian Facility Obligations constituting interest;
(vi) sixth, to Cash Collateralization of Canadian LC Obligations
(vii) seventh, to all Canadian Revolver Loans; and
(viii) eighth, to all other Canadian Facility Secured Obligations.
Amounts shall be applied to each category of Secured Obligations set forth within subsection (a) or
(b) above, as applicable, until Full Payment thereof and then to the next category. If amounts are
insufficient to satisfy a category, they shall be applied on a pro rata basis among the Secured
Obligations in the category. Amounts distributed with respect to any Secured Bank Product
Obligations shall be the lesser of the maximum Secured Bank Product Obligations last reported
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to Agent or the actual Secured Bank Product Obligations as calculated by the methodology reported to
Agent for determining the amount due. Agent shall have no obligation to calculate the amount to be
distributed with respect to any Secured Bank Product Obligations, and may request a reasonably
detailed calculation of such amount from the applicable Secured Party. If a Secured Party fails to
deliver such calculation within five days following request by Agent, Agent may assume the amount
to be distributed is zero. The allocations set forth in this Section 5.5.1 are solely to determine
the rights and priorities of Agent and Secured Parties as among themselves, and any allocation
within subsection (a) or (b) of proceeds of the realization of Collateral may be changed by
agreement among them without the consent of any Loan Party. This Section 5.5.1 is not for the
benefit of or enforceable by any Borrower. Notwithstanding the preceding two sentences and
anything else to the contrary set forth in any of the Loan Documents, (i) all payments by or on
behalf of any Canadian Facility Loan Party or in respect of any Canadian Facility Secured
Obligations shall be applied only to the Canadian Facility Secured Obligations, and (ii) all
payments by or on behalf of any U.S. Facility Loan Party or in respect of any U.S. Facility Secured
Obligations shall be applied first to U.S. Facility Secured Obligations then due until paid in full
and then to all other Secured Obligations until paid in full.
5.5.2 Erroneous Application. Agent shall not be liable for any application of amounts
made by it in good faith and, if any such application is subsequently determined to have been made
in error, the sole recourse of any Lender or other Person to which such amount should have been
made shall be to recover the amount from the Person that actually received it (and, if such amount
was received by any Lender, such Lender hereby agrees to return it).
5.6 Application of Payments. The ledger balance in the main Dominion Account of each
Borrower Group as of the end of a Business Day shall be applied to the Loan Party Group Obligations
of such Borrower Group at the beginning of the next Business Day during the existence of any Cash
Dominion Event. If, as a result of such application, a credit balance exists, the balance shall
not accrue interest in favor of Borrowers and shall be made available to Borrowers of the
applicable Borrower Group as long as no Event of Default exists. Each Borrower irrevocably waives
the right to direct the application of any payments or Collateral proceeds, and agrees that Agent
shall have the continuing, exclusive right to apply and reapply same against the Obligations, in
such manner as Agent deems advisable; provided, however, that, unless an Event of Default has
occurred and is continuing, Agent shall not apply any payments to any Interest Period Loans prior
to the last day of the applicable Interest Period.
5.7 Loan Account; Account Stated.
5.7.1 Loan Account. Agent shall maintain in accordance with its usual and customary
practices an account or accounts (Loan Account) evidencing the Obligations of Borrowers
within each Borrower Group resulting from each Loan made to such Borrowers or issuance of a Letter
of Credit for the account of Borrowers from time to time. Any failure of Agent to record anything
in the Loan Account, or any error in doing so, shall not limit or otherwise affect the obligation
of any Borrower to pay any amount owing hereunder. Agent may maintain a single Loan Account in the
name of Loan Party Agent, and each U.S. Borrower confirms that such arrangement shall have no
effect on the joint and several character of its liability for the Secured Obligations including its guarantee of the Secured Obligations of
the Canadian Borrowers.
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5.7.2 Entries Binding. Entries made in the Loan Account shall constitute presumptive
evidence of the information contained therein. If any information contained in the Loan Account is
provided to or inspected by any Person, then such information shall be conclusive and binding on
such Person for all purposes absent manifest error, except to the extent such Person notifies Agent
in writing within 45 days after receipt or inspection that specific information is subject to
dispute.
5.8 Taxes.
5.8.1 Payments Free of Taxes. All payments by or on behalf of any Loan Party of
Obligations shall be free and clear of and without deduction or withholding for any Indemnified
Taxes or Other Taxes, unless required by Applicable Law. If Applicable Law requires any Loan Party
or Agent to withhold or deduct any Indemnified Taxes or Other Taxes, the withholding or deduction
shall be based on Applicable Law and the information provided pursuant to Section 5.9, and the
applicable Loan Party or Agent shall pay the amount withheld or deducted to the relevant
Governmental Authority. If the withholding or deduction is made on account of Indemnified Taxes or
Other Taxes, the sum payable by Borrowers shall be increased so that Agent, Lender, U.S. Fronting
Bank or Canadian Fronting Bank, as applicable, receives an amount equal to the sum it would have
received if no such withholding or deduction (including deductions applicable to additional sums
payable under this Section 5.8.1) had been made. Without limiting the foregoing, Borrowers shall
timely pay all Other Taxes to the relevant Governmental Authorities.
5.8.2 Payment. Borrowers shall indemnify, hold harmless and reimburse (within 10 days
after written demand therefor) Agent, Applicable Lenders and, in the case of U.S. Borrowers, U.S.
Fronting Bank, and, in the case of each Canadian Borrower, Canadian Fronting Bank, for the full
amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes and Other Taxes
attributable to amounts payable under this Section 5.8.2) paid by Agent, any Applicable Lender or,
in the case of the U.S. Borrowers, U.S. Fronting Bank, or, in the case of each Canadian Borrower,
Canadian Fronting Bank, with respect to any Obligations of such Borrowers Borrower Group, U.S.
Letters of Credit (in the case of U.S. Borrowers), Canadian Letters of Credit (in the case of
Canadian Borrowers) or Loan Documents (to the extent relating to Obligations), whether or not such
Taxes were properly asserted by the relevant Governmental Authority, and including all penalties,
interest and reasonable expenses relating thereto. A certificate setting forth in reasonable
detail the amount and basis for calculation of any such payment or liability delivered to Loan
Party Agent by Agent, or by an Applicable Lender, U.S. Fronting Bank or Canadian Fronting Bank
(with a copy to Agent), shall be conclusive, absent manifest error and all amounts payable by
Borrowers under this Section 5.8.2 shall be due in accordance with Section 3.3. As soon as
reasonably practicable after any payment of Indemnified Taxes or Other Taxes by a Borrower, Loan
Party Agent shall deliver to Agent a receipt from the Governmental Authority or other evidence of
payment reasonably satisfactory to Agent.
5.8.3 Treatment of Certain Refunds. If Agent, any Lender, U.S. Fronting Bank or
Canadian Fronting Bank shall become aware that it is entitled to claim a refund or credit from a
Governmental Authority in respect of any Indemnified Tax or Other Taxes as to which is has been
indemnified by any Borrower or with respect to which any Borrower has paid
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additional amounts pursuant to this Section 5.8, the Agent, such Lender, U.S. Fronting Bank or
Canadian Fronting Bank, as applicable, shall promptly notify such Borrower of the availability of
such refund claim and, if the Agent, such Lender, U.S. Fronting Bank or Canadian Fronting Bank
determines in good faith that making a claim for refund will not have a material adverse effect on
its Taxes or business operations, shall, within 60 days after receipt of a request by such
Borrower, make a claim to such Governmental Authority for such refund. If Agent, a Lender, any
U.S. Fronting Bank or Canadian Fronting Bank determines, in its sole discretion, that it has
received a refund of any Indemnified Tax or Other Taxes as to which it has been indemnified by any
Borrower or with respect to which any Borrower has paid additional amounts pursuant to this Section
5.8, it shall pay to such Borrower an amount equal to such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by Borrowers under this Section 5.8 with
respect to the Indemnified Tax or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Agent, such Lender, U.S. Fronting Bank or Canadian Fronting Bank, as the case may
be, and without interest (other than any interest paid by the relevant Governmental Authority with
respect to such refund); provided that Borrowers agree in writing to repay the amount paid over to
Borrowers (plus interest attributable to the period during which the Borrowers held such funds) to
Agent, such Lender, U.S. Fronting Bank or Canadian Fronting Bank in the event that Agent, such
Lender, U.S. Fronting Bank or Canadian Fronting Bank is required to repay such refund to such
Governmental Authority. This paragraph shall not be construed to require Agent, any Lender, U.S.
Fronting Bank or Canadian Fronting Bank to make available its tax returns (or any other information
relating to its taxes) to any Borrower or any other Person.
5.9 Lender Tax Information.
5.9.1 Generally. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which an Loan Party is resident
for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments
under any Loan Document shall deliver to Agent and Loan Party Agent, at the time or times
prescribed by Applicable Law or reasonably requested by Agent or Loan Party Agent, such properly
completed and executed documentation prescribed by Applicable Law as will permit such payments to
be made without withholding or at a reduced rate of withholding. In addition, any Lender, if
requested by Agent or Loan Party Agent, shall deliver such other documentation prescribed by
Applicable Law or reasonably requested by Agent or Loan Party Agent as will enable Agent and Loan
Party Agent to determine whether or not such Lender is subject to backup withholding or information
reporting requirements.
5.9.2 U.S. Borrowers. If a Borrower is resident for tax purposes in the United
States, any Lender that is a United States person within the meaning of section 7701(a)(30) of
the Code shall deliver to Agent and Loan Party Agent IRS Form W-9 or such other documentation or
information prescribed by Applicable Law or reasonably requested by Agent or Loan Party Agent to
determine whether such Lender is subject to information reporting requirements and to establish
that such Lender is not subject to backup withholding. If any Foreign Lender is entitled to any
exemption from or reduction of withholding tax for payments with respect to the U.S. Facility
Obligations, it shall deliver to Agent and Loan Party Agent, on or prior to the date on which it
becomes a Lender hereunder (and from time to time thereafter upon request by Agent or Loan Party
Agent, but only if such Foreign Lender is legally entitled to
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do so) two original executed copies of, (a) IRS Form W-8BEN claiming eligibility for benefits
of an income tax treaty to which the United States is a party; (b) IRS Form W-8ECI; (c) IRS Form
W-8IMY and all required supporting documentation (including, a certificate in the form of Exhibit
J-2 (a Non-Bank Certificate) applicable to a partnership, if applicable); (d) in the case
of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section
871(h) or section 881(c) of the Code, IRS Form W-8BEN and a Non-Bank Certificate in the form of
Exhibit J-1 or Exhibit J-2, as applicable; and/or (e) any other form prescribed by Applicable Law
as a basis for claiming exemption from or a reduction in withholding tax, together with such
supplementary documentation as may be necessary to allow Agent and U.S. Borrowers to determine the
withholding or deduction required to be made.
5.9.3 Lender Obligations. Each Applicable Lender, U.S. Fronting Bank and Canadian
Fronting Bank shall promptly notify Loan Party Agent and Agent of any change in circumstances that
would change any claimed Tax exemption or reduction. Each Applicable Lender, U.S. Fronting Bank
and Canadian Fronting Bank, in each case, severally and not jointly with any other Applicable
Lender, U.S. Fronting Bank and/or Canadian Fronting Bank, shall indemnify, hold harmless and
reimburse (within 10 days after demand therefor) affected Borrowers of the Borrower Group to which
such Lender, U.S. Fronting Bank or Canadian Fronting Bank has issued a Commitment and Agent for any
Taxes, losses, claims, liabilities, penalties, interest and expenses (including reasonable and
documented attorneys fees limited to the fees, disbursements and other charges or one primary
counsel and one local counsel in each relevant jurisdiction) incurred by or asserted against such
affected Borrower of such Borrower Group or Agent by any Governmental Authority due to such
Applicable Lenders, U.S. Fronting Banks or Canadian Fronting Banks failure to deliver, or
inaccuracy or deficiency in, any documentation required to be delivered by it pursuant to this
Section. Each Applicable Lender, U.S. Fronting Bank and Canadian Fronting Bank authorizes Agent to
set off any amounts due to Agent under this Section against any amounts payable to such Applicable
Lender, U.S. Fronting Bank or Canadian Fronting Bank under any Loan Document. If a payment made to
Agent, a Lender or a Fronting Bank under any Loan Document would be subject to United States
withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable
reporting requirements of FATCA, Agent, such Lender or such Fronting Bank shall deliver to the
Borrowers and the Agent at the time or times prescribed by Applicable Law and at such time or times
reasonably requested by the Borrowers or Agent such documentation prescribed by Applicable Law and
such additional documentation reasonably requested by the Borrowers or Agent as may be necessary
for the Borrowers and Agent to comply with their obligations under FATCA and to determine that such
Lender has complied with its obligations under such sections, or to determine the amount to deduct
and withhold from such payment. Solely for purposes of this Section 5.9.3, FATCA shall include
any amendments made to FATCA after the date of this Agreement.
5.10 Guarantee by U.S. Facility Loan Parties.
5.10.1 Joint and Several Liability. Each U.S. Domiciled Loan Party agrees that it is
jointly and severally liable for, and absolutely and unconditionally guarantees to Agent and
Lenders the prompt payment and performance of, all Secured Obligations and all agreements of each
other Loan Party under the Credit Documents. Each U.S. Domiciled Loan Party agrees that its
guarantee obligations as a U.S. Facility Guarantor and as a Canadian Facility Guarantor
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hereunder constitute a continuing guarantee of payment and not of collection, that such
guarantee obligations shall not be discharged until Full Payment of the Secured Obligations, and
that such guarantee obligations are absolute and unconditional, irrespective of (a) the
genuineness, validity, regularity, enforceability, subordination or any future modification of, or
change in, any Secured Obligations or Credit Document, or any other document, instrument or
agreement to which any Loan Party is or may become a party or be bound; (b) the absence of any
action to enforce this Agreement (including this Section 5.10) or any other Credit Document, or any
waiver, consent or indulgence of any kind by Agent or any Lender with respect thereto; (c) the
existence, value or condition of, or failure to perfect a Lien or to preserve rights against, any
security or guarantee for the Secured Obligations or any action, or the absence of any action, by
Agent or any Lender in respect thereof (including the release of any security or guarantee); (d)
the insolvency of any Loan Party; (e) any election by Agent or any Lender in an Insolvency
Proceeding for the application of Section 1111(b)(2) of the U.S. Bankruptcy Code; (f) any borrowing
or grant of a Lien by any other Loan Party, as debtor-in-possession under Section 364 of the U.S.
Bankruptcy Code or otherwise; (g) the disallowance of any claims of Agent or any Lender against any
Loan Party for the repayment of any Secured Obligations under Section 502 of the U.S. Bankruptcy
Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor, except Full Payment of all Secured
Obligations.
5.10.2 Waivers.
(a) Each U.S. Domiciled Loan Party hereby expressly waives all rights that it may have now or
in the future under any statute, at common law, in equity or otherwise, to compel Agent or Lenders
to marshal assets or to proceed against any Loan Party, other Person or security for the payment or
performance of any Secured Obligations before, or as a condition to, proceeding against such Loan
Party. To the extent permitted by Applicable Law, each U.S. Domiciled Loan Party waives all
defenses available to a surety, guarantor or accommodation co-obligor other than Full Payment of
all Secured Obligations. It is agreed among each U.S. Domiciled Loan Party, Agent and Lenders that
the provisions of this Section 5.10 are of the essence of the transaction contemplated by the
Credit Documents and that, but for such provisions, Agent and Lenders would decline to make Loans
and issue Letters of Credit. Each U.S. Domiciled Loan Party acknowledges that its guarantee
pursuant to this Section is necessary to the conduct and promotion of its business, and can be
expected to benefit such business.
(b) Agent and Lenders may, in their discretion, pursue such rights and remedies as they deem
appropriate, including realization upon the Collateral by judicial foreclosure or non judicial sale
or enforcement, to the extent permitted under Applicable Law, without affecting any rights and
remedies under this Section 5.10. If, in taking any action in connection with the exercise of any
rights or remedies, Agent or any Lender shall forfeit any other rights or remedies, including the
right to enter a deficiency judgment against any U.S. Domiciled Party or other Person, whether
because of any Applicable Laws pertaining to election of remedies or otherwise, each U.S.
Domiciled Loan Party consents to such action and, to the extent permitted under Applicable Law,
waives any claim based upon it, even if the action may result in loss of any rights of subrogation
that any U.S. Domiciled Loan Party might otherwise have had. To the extent permitted under
Applicable Law, any election of remedies that results in denial or impairment of the right of Agent
or any Lender to seek a deficiency
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judgment against any U.S. Domiciled Loan Party shall not impair any other U.S. Domiciled Loan
Partys obligation to pay the full amount of the Secured Obligations. To the extent permitted
under Applicable Law, each U.S. Domiciled Loan Party waives all rights and defenses arising out of
an election of remedies, such as nonjudicial foreclosure with respect to any security for the
Secured Obligations, even though that election of remedies destroys such U.S. Domiciled Loan
Partys rights of subrogation against any other Person. To the extent permitted under Applicable
Law, Agent may bid all or a portion of the Secured Obligations at any foreclosure or trustees sale
or at any private sale, and the amount of such bid need not be paid by Agent but shall be credited
against the Secured Obligations in accordance with the terms of this Agreement. To the extent
permitted under Applicable Law, the amount of the successful bid at any such sale, whether Agent or
any other Person is the successful bidder, shall be conclusively deemed to be the fair market value
of the Collateral, and the difference between such bid amount and the remaining balance of the
Secured Obligations shall be conclusively deemed to be the amount of the Secured Obligations
guaranteed under this Section 5.10, notwithstanding that any present or future law or court
decision may have the effect of reducing the amount of any deficiency claim to which Agent or any
Lender might otherwise be entitled but for such bidding at any such sale.
5.10.3 Extent of Liability; Contribution.
(a) Notwithstanding anything herein to the contrary, each U.S. Domiciled Loan Partys
liability under this Section 5.10 shall be limited to the greater of (i) all amounts for which such
U.S. Domiciled Loan Party is primarily liable, as described below, and (ii) such U.S. Domiciled
Loan Partys Allocable Amount.
(b) If any U.S. Domiciled Loan Party makes a payment under this Section 5.10 of any Secured
Obligations (other than amounts for which such U.S. Domiciled Loan Party is primarily liable) (a
Guarantor Payment) that, taking into account all other Guarantor Payments previously or
concurrently made by any other U.S. Domiciled Loan Party, exceeds the amount that such U.S.
Domiciled Loan Party would otherwise have paid if each U.S. Domiciled Loan Party had paid the
aggregate Secured Obligations satisfied by such Guarantor Payments in the same proportion that such
U.S. Domiciled Loan Partys Allocable Amount bore to the total Allocable Amounts of all U.S.
Domiciled Loan Parties, then such U.S. Domiciled Loan Party shall be entitled to receive
contribution and indemnification payments from, and to be reimbursed by, each other U.S. Domiciled
Loan Party for the amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment. The Allocable Amount for any U.S.
Domiciled Loan Party shall be the maximum amount that could then be recovered from such U.S.
Domiciled Loan Party under this Section 5.10 without rendering such payment voidable under Section
548 of the U.S. Bankruptcy Code or under any applicable state fraudulent transfer or conveyance
act, or similar statute or common law.
(c) Nothing contained in this Section 5.10 shall limit the liability of any Loan Party to pay
Loans made directly or indirectly to that Loan Party (including Loans advanced to any other Loan
Party and then re-loaned or otherwise transferred to, or for the benefit of, such Loan Party), U.S.
LC Obligations relating to U.S. Letters of Credit issued to support such Loan Partys business (in
the case of a U.S. Borrower), Canadian LC Obligations relating to Canadian
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Letters of Credit issued to support such Loan Partys business (in the case of a Canadian
Borrower), and all accrued interest, fees, expenses and other related Secured Obligations with
respect thereto, for which such Loan Party shall be primarily liable for all purposes hereunder.
5.10.4 Joint Enterprise. Each Borrower has requested that Agent and Lenders make this
credit facility available to Borrowers on a combined basis, in order to finance Borrowers business
most efficiently and economically. Borrowers and Guarantors make up a related organization of
various entities constituting a single economic and business enterprise so that Borrowers and
Guarantors share an identity of interests such that any benefit received by any one of them
benefits the others. Borrowers and Guarantors render services to or for the benefit of the other
Borrowers and/or Guarantors, as the case may be, purchase or sell and supply goods to or from or
for the benefit of the others, make loans, advances and provide other financial accommodations to
or for the benefit of the other Borrowers and Guarantors (including inter alia, the payment by
Borrowers and Guarantors of creditors of the other Borrowers or Guarantors and guarantees by
Borrowers and Guarantors of indebtedness of the other Borrowers and Guarantors and provide
administrative, marketing, payroll and management services to or for the benefit of the other
Borrowers and Guarantors). Borrowers and Guarantors have centralized accounting and legal
services, certain common officers and directors and generally do not provide consolidating
financial statements to creditors. Borrowers acknowledge and agree that Agents and Lenders
willingness to extend credit to Borrowers and to administer the Collateral on a combined basis, as
set forth herein, is done solely as an accommodation to Borrowers and at Borrowers request.
5.10.5 Subordination. Each Loan Party hereby subordinates any claims, including any
rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution,
indemnification or set off, that it may have at any time against any other Loan Party, howsoever
arising, to the Full Payment of all Secured Obligations.
5.11 Currency Matters. Dollars are the currency of account and payment for each and
every sum at any time due from Borrowers hereunder unless otherwise specifically provided in this
Agreement, any other Loan Document or otherwise agreed to by Agent.
5.11.1 Each repayment of a Revolver Loan, U.S. LC Obligation or Canadian LC Obligation or a
part thereof shall be made in the currency in which such Revolver Loan, U.S. LC Obligation or
Canadian LC Obligation is denominated at the time of that repayment;
5.11.2 Each payment of interest shall be made in the currency in which the principal or other
sum in respect of which such interest is denominated;
5.11.3 Each payment of fees by a U.S. Borrower pursuant to Section 3.2 shall be in Dollars;
5.11.4 Each payment of fees by a Canadian Borrower pursuant to Section 3.2 shall be in
Canadian Dollars;
5.11.5 Each payment in respect of Extraordinary Expenses and any other costs, expenses and
indemnities shall be made in the currency in which the same were incurred by the party to whom
payment is to be made; and
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5.11.6 Any amount expressed to be payable in Canadian Dollars shall be paid in Canadian
Dollars.
No payment to any Credit Party (whether under any judgment or court order or otherwise) shall
discharge the obligation or liability of the Loan Party in respect of which it was made unless and
until such Credit Party shall have received Full Payment in the currency in which such obligation
or liability is payable pursuant to the above provisions of this Section 5.11. To the extent that
the amount of any such payment shall, on actual conversion into such currency, fall short of such
obligation or liability actual or contingent expressed in that currency, such Loan Party (together
with the other Loan Parties within its Loan Party Group or other obligors pursuant to any Guarantee
of the Obligations of such Loan Party Group) agrees to indemnify and hold harmless such Credit
Party, with respect to the amount of the shortfall with respect to amounts payable by such Loan
Party hereunder, with such indemnity surviving the termination of this Agreement and any legal
proceeding, judgment or court order pursuant to which the original payment was made which resulted
in the shortfall. To the extent that the amount of any such payment to a Credit Party shall, upon
an actual conversion into such currency, exceed such obligation or liability, actual or contingent,
expressed in that currency, such Credit Party shall return such excess to the members of the
affected Borrower Group.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Loans. In addition to the conditions set forth in
Section 6.2, Lenders shall not be required to fund any requested Loan, issue any Letter of Credit,
or otherwise extend credit to Borrowers hereunder, until the date (Closing Date) on which
each of the following conditions has been satisfied (and with respect to deliveries of Loan
Documents, each such delivery shall be fully-executed (where applicable) and in form and substance
reasonably satisfactory to the Agent and its counsel):
(a) Loan Documents. Notes shall have been executed by each Borrower within a Borrower
Group and delivered to each Applicable Lender that requests issuance of a Note at least three
Business Days prior to the Closing Date. Each other Loan Document shall have been duly executed
(where applicable) by each of the signatories thereto and delivered to the Agent, and each Loan
Party shall be in compliance with all terms thereof.
(b) Deposit Account Control Agreements. Except as provided for on Schedule
10.1.16(c), Agent shall have received evidence of the establishment of each Dominion Account and
related lockboxes, together with fully-executed Deposit Account Control Agreements with respect
thereto and covering the Deposit Accounts listed on Schedule 5 to the Perfection Certificate (other
than Excluded Deposit Accounts).
(c) Securities Account Control Agreements. Agent shall have received fully-executed
Securities Account Control Agreements covering the Securities Accounts listed on Schedule 5 to the
Perfection Certificate.
(d) Joinder to Intercreditor Agreement. The Agent shall have entered into a joinder
or amendment to the Intercreditor Agreement, in form and substance reasonably satisfactory to the
Agent, and the Intercreditor Agreement shall be in full force and effect.
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(e) Perfected First-Priority Liens. The Agent shall have received (i) reasonably
satisfactory evidence that the Agent shall have a valid and perfected first priority (except as
otherwise permitted hereunder) Lien, security interest and hypothecation in the Collateral
(including acknowledgments of all filings or recordations necessary to perfect its Liens in the
Collateral) and (ii) releases, satisfactions and payoff letters terminating all Liens on the
Collateral arising under the Existing U.S. Credit Agreement, the Existing Canadian Credit Agreement
and the ATB Financial Debt and all other Liens not permitted under Section 10.2.2.
(f) Lien Searches. The Agent shall have received UCC, PPSA, title and Lien searches
and other evidence reasonably satisfactory to Agent that its Liens are the only Liens upon the
Collateral, except Liens permitted under Section 10.2.2 and Liens being terminated under Section
6.1(e).
(g) Payment of Recording Costs. All filing and recording fees and taxes shall have
been duly paid or arrangements satisfactory to the Agent shall have been made for the payment
thereof.
(h) Closing Certificates. The Agent shall have received a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit H-1 with respect to the
Canadian Facility Loan Parties, and in the form of Exhibit H-2 with respect to the U.S. Facility
Loan Parties, with appropriate insertions, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of such Loan Party, and attaching the documents referred to in
Section 6.1(i).
(i) Organic Documents; Incumbency. The Agent shall have received a copy of (i) each
Organic Document of each Loan Party certified, to the extent applicable, as of a recent date by the
applicable Governmental Authority, (ii) signature and incumbency certificates of the Senior
Officers of each Loan Party executing the Loan Documents to which it is a party; (iii) resolutions
of the Board of Directors or similar governing body of each Loan Party (A) approving and
authorizing the execution, delivery and performance of the Loan Documents to which it is a party
and (B) in the case of each Borrower, the extensions of credit contemplated hereunder, certified as
of the Closing Date by its secretary or an assistant secretary as being in full force and effect
without modification or amendment and (d) a good standing certificate (or other similar instrument)
from the applicable Governmental Authority of each Loan Partys jurisdiction of incorporation,
organization or formation.
(j) Fees. The Joint Lead Arrangers and the Agent shall have received the fees to be
received on the Closing Date set forth in the Fee Letter. The Lenders shall have received the fees
in the amounts previously agreed in writing by the Agent, the Borrowers and such Lenders to be
received on the Closing Date, and all reasonable and documented out-of-pocket expenses of the Agent
(including the reasonable and documented fees, disbursements and other charges of counsel (which
shall be limited to the reasonable and documented out-of-pocket legal fees and expenses of Vinson &
Elkins LLP, counsel to Agent, Ogilvy Renault LLP, Canadian counsel to Agent, and, if necessary, of
one local counsel in each other relevant jurisdiction (which may include a local counsel acting in
multiple jurisdictions)) for which invoices have been presented prior to the Closing Date shall
have been paid.
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(k) Solvency Certificate. On the Closing Date, the Agent shall have received a
certificate from a Senior Officer of the Loan Party Agent, with appropriate attachments and
demonstrating that after giving effect to the consummation of the transactions contemplated by this
Agreement, the Borrowers and the Guarantors, taken as a whole, are Solvent.
(l) Historical Financial Statements. Lenders shall have received the Historical
Financial Statements.
(m) Financial Projections. The Agent shall have received financial projections of the
Borrowers, which shall be reasonably acceptable to the Agent (and the Agent hereby acknowledges
that it has received the same prior to the date hereof).
(n) Insurance. Certificates of insurance evidencing the existence of insurance to be
maintained by the Loan Parties pursuant to Section 10.1.5 and, if applicable, the designation of
the Agent as loss payee as its interest may appear thereunder, in each case, in form and substance
satisfactory to the Agent.
(o) Borrowing Base Certificate. The Agent shall have received a Borrowing Base
Certificate setting forth the Canadian Borrowing Base and the U.S. Borrowing Base, in each case,
effective as of April 30, 2011.
(p) Perfection Certificate. The Loan Party Agent shall deliver to the Agent a
completed Perfection Certificate, executed and delivered by a Senior Officer of the Loan Party
Agent, together with all attachments contemplated thereby.
(q) Legal Opinions. The Agent shall have received reasonably satisfactory opinions of
counsel to the Loan Parties, in each case, customary for transactions of this type (which shall
cover, among other things, authority, legality, validity, binding effect and enforceability of the
Loans and the creation and perfection of Liens in the Collateral) and of appropriate local counsel
(including Canadian counsel of applicable jurisdictions).
(r) No Material Adverse Change. There shall not have occurred since December 31, 2010
any Material Adverse Change or any event or condition that has had or could be reasonably expected,
either individually or in the aggregate, to have a Material Adverse Effect.
(s) Excess Availability. Upon giving effect to the initial funding of Loans and
issuance of Letters of Credit, and the payment by the Borrowers of all fees and expenses incurred
in connection herewith and due on the Closing Date, as well as the amount of any payables stretched
beyond their customary payment practices, Excess Availability shall be at least $300,000,000.
(t) No Litigation. There shall be no action, suit, investigation litigation or
proceeding pending or threatened in any court or before any arbitrator or Governmental Authority
that could reasonably be expected to have a Material Adverse Effect.
(u) Third-Party Consents. The Agent shall have received a certificate of a Senior
Officer of each Loan Party either (i) attaching copies of all consents, licenses and
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approvals required or appropriate to be obtained from any Governmental Authority or other
third-party in connection with the execution, delivery and performance by and the validity against
each Loan Party of the Loan Documents to which it is a party, and such consents, licenses and
approvals shall be in full force and effect, or (ii) stating that no such consents, licenses or
approvals are so required.
(v) Payment of Existing Indebtedness. The ATB Financial Debt and all Indebtedness
arising under the Existing Canadian Credit Agreement and the Existing U.S. Credit Agreement shall
have been repaid in full or shall be repaid in full with the proceeds of the initial Loans, and the
Agent shall have received payoff letters or similar agreements which evidence the foregoing.
6.2 Conditions Precedent to All Credit Extensions. The Agent, Fronting Bank and
Lenders shall not be required to fund any Loans, arrange for issuance of any Letters of Credit or
grant any other accommodation to or for the benefit of Borrowers (including the initial Loans on
the Closing Date), unless the following conditions are satisfied:
(a) No Default or Event of Default shall exist at the time of, or result from, such funding,
issuance or grant;
(b) The representations and warranties of each Loan Party in the Loan Documents shall be true
and correct in all material respects (or, with respect to representations and warranties qualified
by materiality, in all respects) as of the date of such extension of credit (it being understood
and agreed that any representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of such specified date);
(c) Excess Availability of not less than the amount of the proposed Borrowing shall exist;
(d) Both immediately before and immediately after giving effect thereto, no Canadian
Overadvance or U.S. Overadvance shall exist or would result therefrom and the Total Revolver
Exposure would not exceed the Maximum Facility Amount;
(e) With respect to the issuance of a Letter of Credit, the Canadian LC Conditions or the U.S.
LC Conditions, as applicable, shall be satisfied; and
(f) With respect to the funding of any Canadian Revolver Loan, arrangement for issuance of any
Canadian Letter of Credit or grant any other accommodation to or for the benefit of any Canadian
Borrower, the requirements of Section 2.3 are satisfied.
Each request (or any deemed request, except a deemed request in connection with a Protective
Advance or pursuant to Sections 2.2.2(a) or 2.2.5(a)) by Loan Party Agent or any Borrower for
funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a
representation by all Borrowers that the foregoing conditions are satisfied on the date of such
request and on the date of such funding, issuance or grant.
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SECTION 7. COLLATERAL
7.1 Grant of Security Interest. (a) To secure the prompt payment and performance of
all Secured Obligations (including all Secured Obligations of the Guarantors) whether arising under
the Credit Documents or otherwise, each U.S. Domiciled Loan Party hereby grants to the Agent, for
the benefit of the Secured Parties, and (b) to secure the prompt payment and performance of its
Applicable Canadian Borrower Secured Obligations, each Canadian Domiciled Loan Party hereby grants
to the Agent, for the benefit of the Canadian Facility Secured Parties, in each case, a continuing
security interest in and Lien upon all of the following Property of such Loan Party, whether now
owned or hereafter acquired, and wherever located:
(i) all Accounts;
(ii) all Inventory or Documents, customs receipts, insurance certificates, shipping
documents and other written materials related to the purchase or import of any Inventory;
(iii) all Specified Revolving Credit Collateral;
(iv) all Deposit Accounts (other than the Net Available Cash Account, 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;
(v) monies, cash and deposits;
(vi) all Records, Supporting Obligations and related Letter-of-Credit Rights,
Commercial Tort Claims or other claims and causes of action, in each case, to the extent not
primarily related to Notes Priority Lien Collateral; and
(vii) to the extent not otherwise included, all substitutions, replacements,
accessions, products and proceeds (including, insurance proceeds, investment property,
licenses, royalties, income, payments, claims, damages and proceeds of suit) of any or all
of the foregoing.
7.2 Lien on Deposit Accounts; Cash Collateral.
7.2.1 Deposit Accounts. (a) To further secure the prompt payment and performance of
all Secured Obligations, each U.S. Domiciled Loan Party hereby grants to the Agent, for the benefit
of the Secured Parties, and (b) to further secure the prompt payment and performance of all
Canadian Facility Secured Obligations, each Canadian Domiciled Loan Party hereby grants to Agent,
for the benefit of the Canadian Facility Secured Parties, in each case, a continuing security
interest in and Lien on all amounts credited to any Deposit Account and Dominion Account of such
Loan Party, including any sums in any blocked or lockbox accounts or in any accounts into which
such sums are swept. Each Loan Party hereby authorizes and directs each bank or other depository
to deliver to the Agent, upon request, all balances (other than the minimum balances required to be
retained therein by the related depository bank and
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agreed to by the Agent) in any Deposit Account and Dominion Account maintained by such Loan
Party, without inquiry into the authority or right of Agent to make such request.
7.2.2 Cash Collateral. Any Cash Collateral may be invested, at Agents discretion, in
Permitted Investments, but Agent shall have no duty to do so, regardless of any agreement or course
of dealing with any Loan Party, and shall have no responsibility for any investment or loss. To
further secure the prompt payment and performance of all Secured Obligations, each U.S. Domiciled
Loan Party hereby grants to Agent, for the benefit of the Secured Parties, and to further secure
the prompt payment and performance of all Canadian Facility Secured Obligations, each Canadian
Domiciled Loan Party hereby grants to Agent, for the benefit of the Canadian Facility Secured
Parties, in each case, a continuing security interest in and Lien on all Cash Collateral held by
such Loan Party from time to time and all proceeds thereof, whether such Cash Collateral is held in
a Cash Collateral Account or otherwise. Agent may apply Cash Collateral of a U.S. Domiciled Loan
Party to the payment of any Secured Obligations, and may apply Cash Collateral of a Canadian
Domiciled Loan Party to the payment of any Canadian Facility Secured Obligations, in each case, in
such order as Agent may elect, as they become due and payable. Each Cash Collateral Account and
all Cash Collateral shall be under the sole dominion and control of Agent. No U.S. Domiciled Loan
Party or other Person claiming through or on behalf of any U.S. Domiciled Loan Party shall have any
right to any Cash Collateral, until Full Payment of all Secured Obligations. No Canadian Domiciled
Loan Party or other Person claiming through or on behalf of any Canadian Domiciled Loan Party shall
have any right to any Cash Collateral, until Full Payment of all Canadian Facility Secured
Obligations.
7.3 Pledged Collateral.
7.3.1 Pledged Stock and Debt Securities. As security for the payment or performance,
as the case may be, in full of its Applicable Canadian Borrower Secured Obligations, each Canadian
Borrower hereby assigns and pledges to Agent, its successors and assigns, for the benefit of the
Canadian Facility Secured Parties, and hereby grants to Agent, its successors and assigns, for the
benefit of the Canadian Facility Secured Parties, a security interest in, all of such Canadian
Borrowers right, title and interest in, to and under (a) the Stock now owned or at any time
hereafter acquired by such Canadian Borrower (except for any Stock which such Canadian Borrower
owns in an entity that is not a Subsidiary of such Canadian Borrower or that is a Subsidiary of
such Canadian Borrower and for which such Canadian Borrowers pledge hereunder would require
third-party consent that is not reasonably obtainable), including the Stock set forth opposite the
name of such Canadian Borrower on Schedule 7.3, and all certificates and other instruments
representing such Stock (collectively, the Pledged Stock); (b) the debt securities now
owned or at any time hereafter acquired by such Canadian Borrower, including the debt securities
set forth opposite the name of such Canadian Borrower on Schedule 7.3, and all promissory notes and
other instruments evidencing such debt securities (collectively, the Pledged Debt
Securities); (c) all other property that may be delivered to and held by the Agent pursuant to
the terms of this Section; (d) subject to Section 7.3.5, all payments of principal or interest,
dividends, cash, instruments and other property from time to time received, receivable or otherwise
distributed in respect of, in exchange for or upon the conversion of, and all other proceeds
received in respect of, the securities and instruments referred to in clauses (a) and (b) above;
(e) subject to Section 7.3.5, all rights and privileges of such Canadian Borrower with respect to
the securities, instruments and
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other property referred to
in clauses (a), (b), (c) and (d) above; and (f) all proceeds of any and all of the foregoing
(the items referred to in clauses (a) through (f) above being collectively referred to as the
Pledged Collateral).
7.3.2 Delivery of the Pledged Collateral.
(a) Each Canadian Borrower agrees to deliver or cause to be delivered to the Agent any and all
Pledged Collateral at every time owned by such Canadian Borrower promptly following its acquisition
thereof.
(b) Each Canadian Borrower will cause (i) all Indebtedness of any Subsidiary or any other of
its Affiliates and (ii) all Debt of any other person in a principal amount of $1,000,000 or more
that, in each case, is owing to such Canadian Borrower to be evidenced by a duly executed
promissory note that is pledged and delivered to Agent pursuant to the terms hereof.
(c) Upon delivery to Agent, (i) any Pledged Stock shall be accompanied by undated stock powers
duly executed by the Applicable Canadian Borrower in blank or other instruments of transfer
satisfactory to Agent and by such other instruments and documents as Agent may reasonably request
and (ii) all other property comprising part of the Pledged Collateral shall be accompanied by
undated proper instruments of assignment duly executed by the Applicable Canadian Borrower in blank
and by such other instruments and documents as Agent may reasonably request. Each delivery of
Pledged Collateral after the date hereof shall be accompanied by a schedule describing the Pledged
Collateral so delivered, which schedule shall be attached to Schedule 7.3 and made a part hereof;
provided that failure to attach any such schedule hereto or any error in a schedule so attached
shall not affect the validity of the pledge of any Pledged Collateral.
7.3.3 Pledge Related Representations, Warranties and Covenants. Each Canadian
Borrower hereby represents, warrants and covenants to the Agent and the Secured Parties that:
(a) Schedule 7.3 sets forth a true and complete list of (i) all the Stock owned by such
Canadian Borrower and the percentage of the issued and outstanding units of each class of the Stock
of the issuer thereof represented by the Pledged Stock owned by such Canadian Borrower and required
to be pledged hereunder and (ii) all debt securities owned by such Canadian Borrower, and all
promissory notes and other instruments evidencing such debt securities which are required to be
pledged hereunder. Schedule 7.3 sets forth all Stock, debt securities and promissory notes
required to be pledged hereunder.
(b) The Pledged Stock and Pledged Debt Securities have been duly and validly authorized and
issued by the issuers thereof and (i) in the case of Pledged Stock, are fully paid and
nonassessable and (ii) in the case of Pledged Debt Securities, are legal, valid and binding
obligations of the issuers thereof, subject to applicable bankruptcy, reorganization, insolvency,
fraudulent conveyance and transfer, moratorium or similar laws affecting creditors rights
generally and subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at law).
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(c) Except for the security interests granted hereunder, the Applicable Canadian Borrower (i)
is and, subject to any transfers or dispositions made in compliance with this Agreement, will
continue to be the direct owner, beneficially and of record, of the Pledged Collateral listed on
Schedule 7.3, (ii) holds the same free and clear of all Liens (other than the Liens permitted
pursuant to Section 10.2.2 and other Liens or transfers or dispositions permitted under this
Agreement), (iii) will make no assignment, pledge, hypothecation or transfer of, or create or
permit to exist any security interest in or other Lien on, the Pledged Collateral (other than the
Liens permitted pursuant to Section 10.2.2 and other Liens or transfers or dispositions permitted
under this Agreement) and (iv) will defend its title or interest thereto or therein against any and
all Liens (other than the Liens permitted pursuant to Section 10.2.2 and other Liens or transfers
or dispositions permitted under this Agreement), however arising, of all persons whomsoever.
(d) Each Canadian Borrower has the power and authority to pledge the Pledged Collateral
pledged by it hereunder in the manner hereby done or contemplated.
(e) No Governmental Approval or any other action by any Governmental Authority and no consent
or approval of any securities exchange or any other person (including stockholders, partners,
members or creditors of the Applicable Canadian Borrower) is or will be required for the validity
of the pledge effected hereby (other than such as have been obtained and are in full force and
effect).
(f) By virtue of the execution and delivery by each Canadian Borrower of this Agreement (or a
supplement or joinder to this Agreement, substantially in the form of Exhibit I) or, when any
Pledged Collateral of such Canadian Borrower is delivered to Agent (or its gratuitous bailee) in
accordance with this Agreement, Agent will obtain a legal, valid and perfected lien upon and
security interest in such Pledged Collateral as security for the payment and performance of its
Applicable Canadian Borrower Secured Obligations.
7.3.4 Registration in Nominee Name; Denominations. Agent shall have the right (in its
sole and absolute discretion) to hold the Pledged Collateral in its own name as pledgee, in the
name of its nominee (as pledgee or as sub-agent) or in the name of the Applicable Canadian
Borrower, endorsed or assigned in blank or in favor of Agent. Each Canadian Borrower will promptly
give to Agent copies of any notices or other communications received by it with respect to its
Pledged Collateral. Agent shall at all times have the right to exchange the certificates
representing Pledged Collateral for certificates of smaller or larger denominations for any purpose
consistent with this Agreement.
7.3.5 Voting Rights; Dividends and Interest.
(a) Unless and until an Event of Default shall have occurred and be continuing and Agent shall
have notified the Applicable Canadian Borrower that its rights under this Section are being
suspended:
(i) The Applicable Canadian Borrower shall be entitled to exercise any and all voting
and other consensual rights and powers inuring to an owner of Pledged Collateral or any part
thereof for any purpose consistent with the terms of this Agreement
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and the other Loan Documents; provided that such rights and powers shall not be
exercised in any manner that could materially and adversely affect the rights inuring to a
holder of any Pledged Collateral or the rights and remedies of Agent or any other Secured
Party under this Agreement or any other Loan Document or the ability of the Secured Parties
to exercise the same.
(ii) Agent shall execute and deliver to the Applicable Canadian Borrower, or cause to
be executed and delivered to the Applicable Canadian Borrower, all such proxies, powers of
attorney and other instruments as the Applicable Canadian Borrower may reasonably request
for the purpose of enabling the Applicable Canadian Borrower to exercise the voting and
other consensual rights and powers it is entitled to exercise pursuant to paragraph (i)
above.
(iii) The Applicable Canadian Borrower shall be entitled to receive and retain any and
all dividends, interest, principal and other distributions paid on or distributed in respect
of its Pledged Collateral to the extent and only to the extent that such dividends,
interest, principal and other distributions are permitted by, and otherwise paid or
distributed in accordance with, the terms and conditions of this Agreement, the other Loan
Documents and applicable laws; provided that any noncash dividends, interest, principal or
other distributions that would constitute Pledged Stock or Pledged Debt Securities, whether
resulting from a subdivision, combination or reclassification of the outstanding Stock of
the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any
part thereof, or in redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party or otherwise,
shall be and become part of the Pledged Collateral and, if received by the Applicable
Canadian Borrower, shall be held in trust for the benefit of the Agent, shall be segregated
from other property or funds of the Applicable Canadian Borrower and shall be forthwith
delivered to the Agent upon demand in the same form as so received (with any necessary
endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default, after Agent shall
have notified the Applicable Canadian Borrower of the suspension of its rights under paragraph
(a)(iii) of this Section, all rights of the Applicable Canadian Borrower to dividends, interest,
principal or other distributions that the Applicable Canadian Borrower is authorized to receive
pursuant to paragraph (a)(iii) of this Section shall cease, and all such rights shall thereupon
become vested in Agent, which shall have the sole and exclusive right and authority to receive and
retain such dividends, interest, principal or other distributions. All dividends, interest,
principal or other distributions received by the Applicable Canadian Borrower contrary to the
provisions of this Section shall be held in trust for the benefit of Agent, shall be segregated
from other property or funds of the Applicable Canadian Borrower and shall be forthwith delivered
to Agent upon demand in the same form as so received (with any necessary endorsement). Any and all
money and other property paid over to or received by Agent pursuant to the provisions of this
paragraph shall be retained by Agent in an account to be established by Agent upon receipt of such
money or other property, shall be held as security for the Applicable Canadian Borrower Secured
Obligations and shall be applied in accordance with the provisions of Section 5.6. After all
Events of Default have been cured or waived and Agent shall have received a certificate from a
Senior Officer of Loan Party Agent to that effect, Agent
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shall promptly remit to the Applicable Canadian Borrower (without interest) all dividends,
interest, principal or other distributions that the Applicable Canadian Borrower would otherwise be
permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section and that remain in
such account.
(c) Upon the occurrence and during the continuance of an Event of Default, after Agent shall
have notified the Applicable Canadian Borrower of the suspension of its rights under paragraph
(a)(i) of this Section, all rights of the Applicable Canadian Borrower to exercise the voting and
other consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this
Section, and the obligations of Agent under paragraph (a)(ii) of this Section, shall cease, and all
such rights shall thereupon become vested in Agent, which shall have the sole and exclusive right
and authority to exercise such voting and other consensual rights and powers; provided that, unless
otherwise directed by the Required Lenders, Agent shall have the right from time to, in its sole
discretion, notwithstanding the continuance of an Event of Default, to permit the Applicable
Canadian Borrower to exercise such rights and powers.
7.4 Other Collateral.
7.4.1 Commercial Tort Claims. Loan Party Agent shall within 10 days of a Senior
Officer becoming aware thereof notify Agent in writing if any Loan Party has a Commercial Tort
Claim (other than, as long as no Default or Event of Default exists, Commercial Tort Claims
reasonably expected to result in awarded damages (net of anticipated legal expenses relating
thereto) of less than $1,000,000 in aggregate) and, upon Agents request, shall promptly take such
actions as Agent deems appropriate to confer upon Agent (for the benefit of Secured Parties) a duly
perfected, first priority Lien upon such claim.
7.4.2 Certain After-Acquired Collateral. Loan Party Agent shall notify Agent in
writing within 30 days if, after the Closing Date, any Loan Party obtains any interest in any
Property consisting of (a) Deposit Accounts other than Excluded Deposit Accounts, (b) Chattel
Paper, (c) negotiable Documents, (d) promissory notes and other Instruments (other than checks) or
(d) Investment Property consisting of any Securities Account and, upon Agents reasonable request,
shall promptly take such actions as Agent reasonably deems appropriate to effect Agents duly
perfected, first priority Lien upon such Collateral (so long as it does not constitute Notes
Priority Lien Collateral), including obtaining any appropriate possession, control agreement or
lien waiver (it being understood that there shall be no requirement to obtain lien waivers not
obtainable with commercially reasonable efforts), as appropriate and/or executing such additional
Security Documents as may be reasonably requested by Agent. If any Collateral is in the possession
of a third party, at Agents request, the applicable Loan Party having rights in such Collateral
shall use commercially reasonable efforts to obtain a Collateral Access Agreement in favor of the
Agent in each case to the extent the Cost of Inventory held by such third person exceeds $1,000,000
in the aggregate.
7.5 Limitation on Permitted Discretion.
(a) The Agent shall have the right to establish, modify or eliminate Reserves against Eligible
Accounts and Eligible Inventory from time to time in its Permitted Discretion. In addition, the
Agent reserves the right, at any time and from time to time after the Closing
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Date, to adjust any of the applicable criteria, to establish new criteria and to adjust
advance rates with respect to Eligible Accounts and Eligible Inventory, in its Permitted
Discretion, subject to Section 14.1.1.
(b) Notwithstanding the foregoing or any provision in this Agreement to the contrary,
circumstances, conditions, events or contingencies arising prior to the Closing Date and disclosed
to the Agent prior to the Closing Date shall not be the basis for any establishment or modification
of Reserves, eligibility criteria or advance rates unless (i) in the case of Reserves and
eligibility criteria, such Reserves or eligibility criteria were established on the Closing Date or
(ii) such circumstances, conditions, events or contingencies shall have changed in any material
respect since the Closing Date.
(c) Any exercise of Permitted Discretion with respect to Reserves shall be based on a good
faith reasonable determination of the Agent that (i) the circumstances, conditions, events or
contingencies giving rise thereto will or reasonably could be expected to adversely affect a
material portion of the value of the Eligible Accounts or Eligible Inventory in either the Canadian
Borrowing Base or the U.S. Borrowing Base, the enforceability or priority of the Agents Liens
thereon or the amount the Secured Parties would likely receive in the liquidation of any material
portion of Eligible Accounts or Eligible Inventory in either the Canadian Borrowing Base or the
U.S. Borrowing Base and (ii) the proposed action to be taken by the Agent to mitigate the effects
described in clause (i) (including the amount of any Reserves) bears a reasonable relationship to
the circumstance, condition, event or other contingency that is the basis therefor.
(d) Upon delivery of notice to the Loan Party Agent by the Agent of its intent to establish or
increase Reserves, the Agent shall be available to discuss the proposed Reserves or increase, and
Borrowers may take such action as may be required so that the circumstance, condition, event or
other contingency that is the basis for such Reserves or increase no longer exists, in a manner and
to the extent reasonably satisfactory to the Agent in the exercise of its Permitted Discretion. In
no event shall such notice and opportunity limit the right of the Agent to establish or change such
Reserves, unless the Agent shall have determined in its Permitted Discretion that the circumstance,
condition, event or other contingency that is the basis for such new Reserves or such change no
longer exists or has otherwise been adequately addressed by Borrowers.
7.6 No Assumption of Liability. The Lien on Collateral granted hereunder is given as
security only and shall not subject Agent or any Lender to, or in any way modify, any obligation or
liability of Loan Parties relating to any Collateral.
7.7 Further Assurances. Promptly upon Agents request, and subject to the other
provisions of this Section 7, Loan Party Agent shall deliver such instruments, assignments, title
certificates, or other documents or agreements, and shall take such actions, as Agent reasonably
deems appropriate under Applicable Law to evidence or perfect its Lien on any Collateral, or
otherwise to give effect to the intent of this Agreement.
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SECTION 8. COLLATERAL ADMINISTRATION
8.1 Administration of Accounts.
8.1.1 Records and Schedules of Accounts. Each Loan Party shall keep accurate and
complete records of its Accounts, including all payments and collections thereon, and shall submit
to Agent sales, collection, reconciliation and other reports in form reasonably satisfactory to
Agent in accordance with Section 10.1.1(g). If the collectability of Accounts of any Borrower
Group in an aggregate face amount exceeding $10,000,000 is impaired, Loan Party Agent shall notify
Agent of such occurrence promptly (and in any event within one Business Day) after any Loan Party
has knowledge thereof.
8.1.2 Taxes. If an Account of any Loan Party includes a charge for any Taxes, Agent
is authorized, in its discretion, if the applicable Loan Party has not paid such Taxes when due, to
pay the amount thereof to the proper Governmental Authority for the account of such Loan Party and
to charge the Loan Parties therefor; provided, however, that neither Agent nor Lenders shall be
liable for any Taxes that may be due from the Loan Parties or with respect to any Collateral.
8.1.3 Account Verification. During a Default, Event of Default or Cash Dominion
Event, Agent shall have the right, in the name of Agent, any designee of Agent or any Loan Party,
to verify the validity, amount or any other matter relating to any Accounts of the Loan Parties by
mail, telephone or otherwise. Loan Parties shall cooperate fully with Agent in an effort to
facilitate and promptly conclude any such verification process.
8.1.4 Maintenance of Dominion Accounts. Borrowers shall maintain Dominion Accounts
pursuant to lockbox or other arrangements reasonably acceptable to Agent. Borrowers shall obtain a
Deposit Account Control Agreement from each lockbox servicer and Dominion Account bank,
establishing Agents control over and Lien in the lockbox or Dominion Account, requiring immediate
deposit of all remittances received in the lockbox to a Dominion Account and waiving offset rights
of such servicer or bank, except for customary administrative charges. If a Dominion Account is
not maintained with Bank of America, Agent may, during the existence of any Cash Dominion Event,
require immediate transfer of all funds in such account to a Dominion Account maintained with Bank
of America. Agent and Lenders assume no responsibility to Borrowers for any lockbox arrangement or
Dominion Account, including any claim of accord and satisfaction or release with respect to any
Payment Items accepted by any bank.
8.1.5 Proceeds of Collateral. Borrowers shall request in writing and otherwise take
all necessary steps to ensure that all payments on Accounts or otherwise relating to Collateral are
made directly to a Dominion Account (or a lockbox relating to a Dominion Account). If any Borrower
or Subsidiary receives cash or Payment Items with respect to any Collateral, it shall hold same in
trust for Agent and within one (1) Business Day deposit same into a Dominion Account.
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8.2 Administration of Inventory.
8.2.1 Records and Reports of Inventory. Each Loan Party shall keep accurate and
complete records of its Inventory, including costs and daily withdrawals and additions, and shall
submit to Agent inventory and reconciliation reports (which reports shall set forth the Inventory
information by location) in form reasonably satisfactory to Agent in accordance with Section
10.1.1(g).
8.2.2 Returns of Inventory. No Loan Party shall return any Inventory to a supplier,
vendor or other Person, whether for cash, credit or otherwise, unless (a) such return is in the
Ordinary Course of Business; (b) no Default, Event of Default or Overadvance exists or would result
therefrom; (c) Agent is promptly notified if the aggregate value of all Inventory returned in any
month exceeds $25,000,000, in aggregate; and (d) any payment received by a Loan Party for a return
is promptly remitted to Agent for application to the Obligations in accordance with Section 5.5 or
5.6, as applicable.
8.2.3 Storage and Maintenance. Loan Parties shall use, store and maintain all
Inventory with reasonable care and caution, in accordance with applicable standards of any
insurance and in conformity in all material respects with all Applicable Law, including the FLSA,
if applicable, and shall make current rent payments (within applicable grace periods provided for
in leases) at all locations where any Collateral is located.
8.3 Administration of Deposit Accounts. Schedule 8.3 sets forth all Deposit Accounts
maintained by Borrowers as of the date hereof, including all Dominion Accounts. Each Borrower
shall take all actions necessary to establish Agents control of each such Deposit Account through
a Deposit Account Control Agreement (other than Excluded Deposit Accounts). A Borrower shall be
the sole account holder of each Deposit Account and shall not allow any other Person (other than
Agent) to have control over a Deposit Account or any Property deposited therein. Notwithstanding
the preceding sentence, a U.S. Facility Loan Party may establish a deposit account that does not
contain proceeds of Loans, Inventory, Accounts or Specified Revolving Credit Collateral, which
deposit account shall be (a) identified as such in writing to the Agent and (b) solely for the
deposit of proceeds from the sale of Notes Priority Collateral pending final application thereof to
the Senior Secured Notes (such account, the Net Available Cash Account). Loan Party
Agent shall promptly notify Agent of any opening or closing of a Deposit Account and, with the
consent of Agent, will amend Schedule 8.3 to reflect same.
8.4 General Provisions.
8.4.1 Location of Collateral. All tangible items of Collateral, other than Inventory
in transit, shall at all times be kept by Loan Parties at the Borrowers business locations set
forth in Schedule 8.4.1, except that Loan Parties may (a) make sales or other dispositions of
Collateral in accordance with Section 10.2.4; (b) in the case of any U.S. Facility Loan Party, move
Collateral to another location in the United States and (c) in the case of a Canadian Domiciled
Loan Party, move Collateral to another location in Canada set forth on Schedule 8.4.1 or, (i) upon
15 Business Days prior written notice to Agent, and (ii) so long as all
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actions shall have been taken prior to such move to ensure that the Agent has a perfected
first priority security interest in and Lien on such Collateral, any other location in Canada.
(a) Each Borrower shall maintain insurance with respect to the Collateral, covering casualty,
hazard, theft, malicious mischief, flood and other risks, in amounts, with endorsements and with
insurers (having a Bests Financial Strength Rating of at least VII, unless otherwise approved by
Agent) as are reasonably satisfactory to Agent. From time to time upon request, Borrowers shall
deliver to Agent the originals or certified copies of their insurance policies and updated flood
plain searches. Unless Agent shall agree otherwise, each policy shall include satisfactory
endorsements (i) showing Agent as loss payee or additional insured, as appropriate; (ii) requiring
10 days prior written notice to Agent (or such shorter period as agreed to by Agent) in the event
of cancellation of the policy for any reason whatsoever; and (iii) specifying that the interest of
Agent shall not be impaired or invalidated by any act or neglect of any Borrower or the owner of
the Property, nor by the occupation of the premises for purposes more hazardous than are permitted
by the policy. If any Borrower fails to provide and pay for any insurance, Agent may, at its
option, but shall not be required to, procure the insurance and charge such Borrower therefor.
Each Borrower agrees to deliver to Agent, promptly upon the request of Agent, copies of all reports
made to insurance companies. While no Event of Default exists, Borrowers may settle, adjust or
compromise any insurance claim, as long as the proceeds are delivered to Agent. If an Event of
Default has occurred and is continuing, only Agent shall be authorized to settle, adjust and
compromise such claims.
8.4.2 Protection of Collateral. All expenses of protecting, storing, warehousing,
insuring, handling, maintaining and shipping any Collateral of a Loan Party Group, all Taxes
payable with respect to any Collateral of a Loan Party Group (including any sale thereof), and all
other payments required to be made by Agent to any Person to realize upon any Collateral of a Loan
Party Group, shall be borne and paid by Loan Parties of such Loan Party Group. Agent shall not be
liable or responsible in any way for the safekeeping of any Collateral, for any loss or damage
thereto (except for reasonable care in its custody while Collateral is in Agents actual
possession), for any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency or other Person whatsoever, but the same shall be at Loan
Parties sole risk.
8.4.3 Defense of Title to Collateral. Each Loan Party shall at all times (a) defend
its title to Collateral and Agents Liens therein against all Persons, claims and demands
whatsoever, except Permitted Liens.
8.5 Power of Attorney. Each Loan Party hereby irrevocably constitutes and appoints
Agent (and all Persons designated by Agent) as such Loan Partys true and lawful attorney (and
agent-in-fact), coupled with an interest, for the purposes provided in this Section. Agent, or
Agents designee, may, without notice and in either its or a Loan Partys name, but at the cost and
expense of Loan Parties within such Loan Partys Loan Party Group:
(a) Endorse a Loan Partys name on any Payment Item or other proceeds of Collateral (including
proceeds of insurance) that come into Agents possession or control; and
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(b) During an Event of Default, (i) notify any Account Debtors of the assignment of their
Accounts, demand and enforce payment of Accounts by legal proceedings or otherwise, and generally
exercise any rights and remedies with respect to Accounts; (ii) settle, adjust, modify, compromise,
discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect
Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for
such amounts and at such times as Agent deems advisable; (iv) collect, liquidate and receive
balances in Deposit Accounts or Securities Accounts, and take control, in any manner, of proceeds
of Collateral; (v) prepare, file and sign a Loan Partys name to a proof of claim or other document
in a bankruptcy of an Account Debtor, or to any notice, assignment or satisfaction of Lien or
similar document; (vi) receive, open and dispose of mail addressed to a Loan Party, and notify
postal authorities to deliver any such mail to an address designated by Agent; (vii) endorse any
Chattel Paper, Document, Instrument, bill of lading, or other document or agreement relating to any
Accounts, Inventory or other Collateral; (viii) use a Loan Partys stationery and sign its name to
verifications of Accounts and notices to Account Debtors; (ix) use information contained in any
data processing, electronic or information systems relating to Collateral; (x) make and adjust
claims under insurance policies; (xi) take any action as may be necessary or appropriate to obtain
payment under any letter of credit, bankers acceptance or other instrument for which a Loan Party
is a beneficiary; and (xii) take all other actions as Agent reasonably deems appropriate to fulfill
any Loan Partys obligations under the Loan Documents.
SECTION 9. REPRESENTATIONS AND WARRANTIES
9.1 General Representations and Warranties. In order to induce the Lenders to enter
into this Agreement, to make the Loans and issue or participate in Letters of Credit as provided
for herein, each Borrower (with respect to itself and its subsidiaries) makes the following
representations and warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans and the issuance of the
Letters of Credit:
9.1.1 Corporate Status. Each Borrower and each Material Subsidiary (a) is a duly
organized and validly existing corporation or other entity in good standing under the laws of the
jurisdiction of its organization and has the corporate or other organizational power and authority
to own its property and assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and in good standing in all jurisdictions where it is
required to be so qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
9.1.2 Corporate Power and Authority. Each Loan Party has the corporate or other
organizational power and authority to execute, deliver and carry out the terms and provisions of
the Loan Documents to which it is a party and has taken all necessary corporate or other
organizational action to authorize the execution, delivery and performance of the Loan Documents to
which it is a party. Each Loan Party has duly executed and delivered each Loan Document to which
it is a party and each such Loan Document constitutes the legal, valid and binding obligation of
such Loan Party enforceable in accordance with is terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting creditors rights generally and
subject to general principles of equity. Each Loan Party is in
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compliance with all laws, orders, writs and injunctions except to the extent that failure to
do so could not reasonably be expected to have a Material Adverse Effect.
9.1.3 No Violation. Neither the execution, delivery or performance by any Loan Party
of the Loan Documents to which it is a party nor compliance with the terms and provisions thereof
nor the consummation of the transactions contemplated hereby or thereby will (a) contravene any
applicable provision of any material law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality applicable to such Loan Party, (b) result in
any breach of any of the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create or impose) any Lien
upon any of the property or assets of such Loan Party or any of the Restricted Subsidiaries (other
than Liens created under the Loan Documents) pursuant to, the terms of any material indenture, loan
agreement, lease agreement, mortgage, deed of trust, agreement or other material instrument to
which such Loan Party or any of the Restricted Subsidiaries is a party or by which it or any of its
property or assets is bound or (c) violate any provision of the Organic Documents of such Loan
Party or any of the Restricted Subsidiaries.
9.1.4 Litigation. There are no actions, suits or proceedings (including Environmental
Claims) pending or, to the knowledge of such Borrower, threatened with respect to such Borrower or
any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect or
a Material Adverse Change.
9.1.5 Margin Regulations. Neither such Borrower nor any of its Subsidiaries is
engaged principally, as one or more of its important activities, in the business of extending
credit for the purpose of purchasing any margin stock as defined in Regulation U. Neither the
making of any Loan hereunder nor the use of the proceeds thereof will violate the provisions of
Regulation T, U or X of the Board of Governors.
9.1.6 Governmental Approvals. The execution, delivery and performance of each Loan
Document does not require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except for (a) such as have been obtained or made and are in
full force and effect, (b) filings and recordings in respect of the Liens created pursuant to the
Loan Documents and (c) such licenses, approvals, authorizations or consents the failure to obtain
or make could not reasonably be expected to have a Material Adverse Effect.
9.1.7 Investment Company Act. No Loan Party is an investment company, or a company
controlled by an investment company, within the meaning of the Investment Company Act of 1940,
as amended.
9.1.8 True and Complete Disclosure.
(a) None of the factual information and data (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of such Borrower, any of such Borrowers Subsidiaries
or any of their respective authorized representatives in writing to the Agent and/or any Lender on
or before the Closing Date (including (i) the Confidential Information Memorandum and (ii) all
information contained in the Loan Documents) for purposes of or in connection with this Agreement
or any transaction contemplated herein contained any untrue
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statement or omitted to state any material fact necessary to make such information and data
(taken as a whole) not misleading at such time in light of the circumstances under which such
information or data was furnished, it being understood and agreed that for purposes of this Section
9.1.8(a), such factual information and data shall not include projections.
(b) The projections and pro forma financial information contained in the information and data
referred to in paragraph (a) above were based on good faith estimates and assumptions believed by
such Persons to be reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected results.
9.1.9 Financial Condition; Financial Statements. The (a) unaudited historical
consolidated financial information of the Parent as set forth in the Confidential Information
Memorandum, (b) Historical Financial Statements and (c) the financial statements delivered pursuant
to Section 10.1.1, in each case present or will, when provided, present fairly in all material
respects the consolidated financial position of the Parent and its Subsidiaries at the respective
dates of said information, statements and the consolidated results of operations for the respective
periods covered thereby. The financial statements referred to in clauses (b) and (c) of this
Section 9.1.9 have been prepared in accordance with GAAP, consistently applied (except to the
extent provided in the notes to said financial statements), and the audit reports accompanying such
financial statements are not subject to any qualification as to the scope of the audit or the
status of the Parent as a going concern. There has been no Material Adverse Change since December
31, 2010.
9.1.10 Tax Returns and Payments. Such Borrower and each of its Subsidiaries have
filed all federal and provincial income tax returns and all other material tax returns, domestic
and foreign, required to be filed by any of them and have paid all income and other material Taxes
payable by them that have become due, other than those (a) not yet delinquent or (b) contested in
good faith as to which adequate reserves have been provided in accordance with GAAP and which could
not reasonably be expected to result in a Material Adverse Effect. Such Borrower and each of its
Subsidiaries have paid, or have provided adequate reserves (in the good faith judgment of the
management of such Borrower) in accordance with GAAP for the payment of, all material federal,
state, provincial and foreign income taxes applicable for all prior fiscal years and for the
current fiscal year to the Closing Date.
9.1.11 Compliance with ERISA.
(a) Each Plan is in compliance with ERISA, the Code and any applicable Requirement of Law; no
Reportable Event has occurred (or is reasonably likely to occur) with respect to any Plan; no Plan
is insolvent or in reorganization (or is reasonably likely to be insolvent or in reorganization),
and no written notice of any such insolvency or reorganization has been given to such Borrower, any
Subsidiary or any ERISA Affiliate; no Plan (other than a multiemployer plan) has an accumulated or
waived funding deficiency (or is reasonably likely to have such a deficiency); none of such
Borrower, any Subsidiary or any ERISA Affiliate has incurred (or is reasonably likely expected to
incur) any liability to or on account of a Plan
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pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or
Section 4971 or 4975 of the Code or has been notified in writing that it will incur any liability
under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted
(or are reasonably likely to be instituted) to terminate or to reorganize any Plan or to appoint a
trustee to administer any Plan, and no written notice of any such proceedings has been given to
such Borrower, any Subsidiary or any ERISA Affiliate; and no lien imposed under the Code or ERISA
on the assets of such Borrower or any Subsidiary or any ERISA Affiliate exists (or is reasonably
likely to exist) nor has such Borrower, any Subsidiary or any ERISA Affiliate been notified in
writing that such a lien will be imposed on the assets of such Borrower, any Subsidiary or any
ERISA Affiliate on account of any Plan, except to the extent that a breach of any of the
representations, warranties or agreements in this Section 9.1.11 would not result, individually or
in the aggregate, in an amount of liability that would be reasonably likely to have a Material
Adverse Effect. No Plan (other than a multiemployer plan) has an Unfunded Current Liability that
would, individually or when taken together with any other liabilities referenced in this Section
9.1.11, be reasonably likely to have a Material Adverse Effect. With respect to Plans that are
Multiemployer Plans, the representations and warranties in this Section 9.1.11(a), other than any
made with respect to (i) liability under Section 4201 or 4204 of ERISA or (ii) liability for
termination or reorganization of such Plans under ERISA, are made to the best knowledge of such
Borrower.
(b) Canadian Employee Plans.
(i) No Canadian Employee Plan enacted or adopted after the Closing Date
provides for medical, life or other welfare benefits (through insurance or
otherwise), with respect to any current or former employee of any Canadian Domiciled
Loan Party or any Affiliate thereof after retirement or other termination of service
(other than coverage mandated by Requirements of Law or coverage provided through
the end of the month containing the date of termination from service or otherwise
where part of a severance package or with respect to injured or disabled employees).
Except as could not reasonably be expected to give rise, individually or in the
aggregate, to Material Adverse Effect (it being acknowledged that, for purposes of
this Section 9.1.11(b), funding deficiencies, other benefit liabilities and events,
conditions and circumstances that could give rise to liabilities, as such
deficiencies, liabilities and circumstances exist as of the Closing Date, to the
extent that they remain applicable at the relevant determination date, and any
future obligations arising therefrom shall be included or considered in the
determination of whether as of any date a Material Adverse Effect has occurred,
exists or could reasonably be expected to occur):
(ii) Canadian Domiciled Loan Parties are in compliance in all material respects
with the requirements of the PBA and any binding FSCO requirements of general
application with respect to each Canadian Pension Plan and in compliance with any
FSCO directive or order directed specifically at a Canadian Pension Plan. No
Canadian Pension Plan has any Unfunded Pension Liability. No fact or situation that
may reasonably be expected to result in a Material Adverse Effect exists in
connection with any Canadian Pension Plan. No Canadian Domiciled Loan Party or
Subsidiary contributes to or participates in a Canadian Multi-
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Employer Plan. No Canadian Domiciled Loan Party or an Affiliate thereof
maintains, contributes or has any liability with respect to a Canadian Pension Plan
which provides benefits on a defined benefit basis. No Termination Event has
occurred. All contributions required to be made by any Canadian Domiciled Loan
Party or Subsidiary to any Canadian Pension Plan have been made in a timely fashion
in accordance with the terms of such Canadian Pension Plan and the PBA. No Lien has
arisen, choate or inchoate, in respect of any Canadian Domiciled Loan Party or their
property in connection with any Canadian Pension Plan (save for contribution amounts
not yet due).
(c) All Foreign Plans are in compliance with, and have been established, administered and
operated in accordance with, the terms of such Foreign Plans and applicable law, except for any
failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably be
expected to have a Material Adverse Effect. All contributions or other payments which are due with
respect to each Foreign Plan have been made in full and there are no funding deficiencies
thereunder, except to the extent any such events would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.1.12 Subsidiaries. Schedule 9.1.12 lists each Subsidiary of such Borrower (and the
direct and indirect ownership interest of such Borrower therein), in each case existing on the
Closing Date. To the knowledge of such Borrower, after due inquiry, each Material Subsidiary as of
the Closing Date has been so designated on Schedule 9.1.12.
9.1.13 Intellectual Property. Such Borrower and each of the Restricted Subsidiaries
have obtained all rights to intellectual property, free from burdensome restrictions, that are
necessary for the operation of their respective businesses as currently conducted and as proposed
to be conducted, except where the failure to obtain any such rights could not reasonably be
expected to have a Material Adverse Effect.
9.1.14 Environmental Laws.
(a) Except as could not reasonably be expected to have a Material Adverse Effect: (i) such
Borrower and each of the Subsidiaries and all Real Estate are, and have been, in compliance with,
and possess all permits, licenses and registrations required pursuant to, all Environmental Laws;
(ii) neither such Borrower, nor any of the Subsidiaries is subject to any Environmental Claim or
any other liability under any Environmental Law; (iii) such Borrower and its Subsidiaries are not
conducting, or required to conduct, any investigation, removal, remedial or other corrective action
pursuant to any Environmental Law at any location, including any Real Estate currently owned or
leased by such Borrower or any of its Subsidiaries, and any real property to which such Borrower or
any of its Subsidiaries may have sent Hazardous Materials; and (iv) no underground storage tank or
related piping, or any impoundment or other disposal area containing Hazardous Materials is located
at, on or under any Real Estate currently owned or leased by such Borrower or any of its
Subsidiaries.
(b) Neither such Borrower, nor any of the Subsidiaries has treated, stored, transported,
released or disposed or arranged for disposal or transport for disposal of Hazardous
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Materials at, on, under or from any currently or formerly owned or leased Real Estate or
facility in a manner that could reasonably be expected to have a Material Adverse Effect.
9.1.15 Properties. Such Borrower and each of the Subsidiaries have good and
marketable title to or leasehold interest in all properties that are necessary for the operation of
their respective businesses as currently conducted and as proposed to be conducted, free and clear
of all Liens (other than any Liens permitted by this Agreement or the Senior Secured Notes
Indenture) and except where the failure to have such good title or such leasehold interest could
not reasonably be expected to have a Material Adverse Effect. All Liens of Agent in the Collateral
are duly perfected, opposable and first priority Liens, subject only to Liens permitted pursuant to
Section 10.2.2 that are expressly allowed to have priority over Agents Liens.
9.1.16 Solvency. On the Closing Date, immediately following the making of each Loan
and after giving effect to the application of the proceeds of such Loans, the Borrowers and the
Guarantors, taken as a whole, are Solvent.
9.1.17 Accounts. Agent may rely, in determining which Accounts are Eligible Accounts,
on all statements and representations made by Borrowers with respect thereto. Each Borrower
warrants with respect to each of its Accounts at the time it is shown as an Eligible Account in a
Borrowing Base Certificate, that, to such Borrowers knowledge, in all material respects:
(a) it is genuine and what it purports to be, and is not evidenced by a judgment;
(b) it arises out of a completed, bona fide sale and delivery of goods or rendition of
services in the Ordinary Course of Business, and substantially in accordance with any purchase
order, contract or other document relating thereto;
(c) it is for a sum certain, maturing as stated in the invoice covering such sale or rendition
of services, a copy of which has been furnished or is available to Agent on request;
(d) it is not subject to any offset, Lien (other than those Liens permitted pursuant to
Section 10.2.2), deduction, defense, dispute, counterclaim or other adverse condition except as
arising in the Ordinary Course of Business and disclosed to Agent; and it is absolutely owing by
the Account Debtor, without contingency in any respect;
(e) no purchase order, agreement, document or Applicable Law restricts assignment of the
Account to Agent (regardless of whether, under the UCC, the PPSA or the Civil Code, the restriction
is ineffective), and the applicable Borrower is the sole payee or remittance party shown on the
invoice;
(f) no extension, compromise, settlement, modification, credit, deduction or return has been
authorized with respect to the Account, except discounts or allowances granted in the Ordinary
Course of Business for prompt payment that are reflected on the face of the invoice related thereto
and in the reports submitted to Agent hereunder; and
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(g) (i) there are no facts or circumstances that are reasonably likely to impair the
enforceability or collectability of such Account; (ii) the Account Debtor had the capacity to
contract when the Account arose, continues to meet the applicable Borrowers customary credit
standards, is Solvent, is not contemplating or subject to an Insolvency Proceeding, and has not
failed, or suspended or ceased doing business; and (iii) there are no proceedings or actions
threatened or pending against any Account Debtor that could reasonably be expected to have a
material adverse effect on the Account Debtors financial condition.
SECTION 10. COVENANTS AND CONTINUING AGREEMENTS
10.1 Affirmative Covenants. The Borrowers, jointly and severally, hereby covenant and
agree that on the Closing Date and thereafter, until the Commitments, the Swingline Commitments and
each Letter of Credit have terminated and the Loans, together with interest, Fees and all other
Obligations, are paid in full:
10.1.1 Financial and Other Information. The Borrowers will furnish to the Agent:
(a) as soon as available and in any event on or before the date on which such financial
statements are required to be filed with the SEC (or, if such financial statements are not required
to be filed with the SEC, on or before the date that is 105 days after the end of each such fiscal
year), (i) the consolidated balance sheet of MRC and its Subsidiaries (or, so long as the Parent is
a Passive Entity which owns MRC, the Parent and its Subsidiaries) as at the end of such fiscal
year, and the related consolidated statement of operations and consolidated statement of cash flows
for such fiscal year, setting forth comparative consolidated figures for the preceding fiscal year,
and certified by independent certified public accountants of recognized national standing whose
opinion shall not be qualified as to the scope of audit or as to the status of MRC or the Parent,
as applicable, or any of the Material Subsidiaries (or group of Subsidiaries that together would
constitute a Material Subsidiary) as a going concern, together in any event with a certificate of
such accounting firm stating that in the course of its regular audit of the business of MRC or the
Parent, as applicable, and the Material Subsidiaries, which audit was conducted in accordance with
generally accepted auditing standards, such accounting firm has obtained no knowledge of any
Default or Event of Default that has occurred and is continuing or, if in the opinion of such
accounting firm such a Default or Event of Default has occurred and is continuing, a statement as
to the nature thereof which shall be certified by a Senior Officer of MRC or the Parent, as
applicable, and (ii) the unaudited consolidating financial statements of MRC and its Subsidiaries
(or, so long as the Parent is a Passive Entity which owns MRC, the Parent and its Subsidiaries)
containing a balance sheet as of the end of such fiscal year and a statement of operations for such
fiscal year prepared in reasonable detail;
(b) as soon as available and in any event on or before the date on which such financial
statements are required to be filed with the SEC with respect to each of the first three quarterly
accounting periods in each fiscal year of MRC (or, if such financial statements are not required to
be filed with the SEC, on or before the date that is sixty (60) days after the end of each such
quarterly accounting period), the consolidated balance sheet of MRC and its Subsidiaries (or, so
long as the Parent is a Passive Entity which owns MRC, Parent and its Subsidiaries), in each case
as at the end of such quarterly period and the related consolidated
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statement of operations for such quarterly accounting period and for the elapsed portion of
the fiscal year ended with the last day of such quarterly period, and the related consolidated
statement of cash flows for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and setting forth comparative consolidated figures for the related periods in the
prior fiscal year or, in the case of such consolidated balance sheet, for the last day of the prior
fiscal year, all of which shall be certified by a Senior Officer of MRC or the Parent, as
applicable, subject to changes resulting from audit and normal year-end audit adjustments;
(c) as soon as available and in any event on or before the date that is thirty (30) days after
the end of each fiscal month of MRC, the consolidated balance sheet of MRC and its Subsidiaries
(or, so long as the Parent is a Passive Entity which owns MRC, the Parent and its Subsidiaries), in
each case as at the end of such fiscal month and the related consolidated statement of operations
for such fiscal month and for the elapsed portion of the fiscal year ended with the last day of
such fiscal month, and the related consolidated statement of cash flows for the elapsed portion of
the fiscal year ended with the last day of such fiscal month, and setting forth comparative
consolidated figures for the related periods in the prior fiscal year or, in the case of such
consolidated balance sheet, for the last day of the prior fiscal year, all of which shall be
certified by a Senior Officer of MRC or the Parent, as applicable, subject to changes resulting
from audit and normal year-end audit adjustments;
(d) not more than sixty (60) days after the commencement of each fiscal year of MRC, a budget
of the Borrowers in reasonable detail for such fiscal year on a quarterly basis and as customarily
prepared by management of the Borrowers for their internal use consistent in scope with the
financial statements provided pursuant to Section 10.1.1(a), setting forth the principal
assumptions upon which such budgets are based;
(e) at the time of the delivery of the financial statements provided for in Sections 10.1.1(a)
and (b), a certificate of a Senior Officer of MRC to the effect that no Default or Event of Default
exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof,
which certificate shall set forth (i) the Consolidated Fixed Charge Coverage Ratio (and
accompanying calculations) as at the end of such fiscal year or period, as the case may be, (ii) a
specification of any change in the identity of the Restricted Subsidiaries and Unrestricted
Subsidiaries as at the end of such fiscal year or period, as the case may be, from the Restricted
Subsidiaries and Unrestricted Subsidiaries, respectively, provided to the Lenders on the Closing
Date or the most recent fiscal year or period, as the case may be, (iii) the then applicable level
of the Applicable Margin and (iv) the amount of any Pro Forma Adjustment not previously set forth
in a Pro Forma Adjustment Certificate or any change in the amount of a Pro Forma Adjustment set
forth in any Pro Forma Adjustment Certificate previously provided and, in either case, in
reasonable detail, the calculations and basis therefor. At the time of the delivery of the
financial statements provided for in Section 10.1.1(a), a certificate of a Senior Officer of Loan
Party Agent setting forth the information required pursuant to Section 1(a) of the Perfection
Certificate or confirming that there has been no change in such information since the Closing Date
or the date of the most recent certificate delivered pursuant to this subsection (e), as the case
may be;
(f) as soon as available but in any event within twenty-five (25) days of the end of each
calendar month, a Borrowing Base Certificate (which shall be calculated in a
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consistent manner with the most recently delivered Borrowing Base Certificate) and supporting
information in connection therewith, provided that the Borrowers will be required to furnish a
Borrowing Base Certificate and supporting information in connection therewith within four (4) days
of the end of each calendar week as of the end of such calendar week during which a FCCR Test Event
is continuing;
(g) as soon as available but in any event within twenty-five (25) days of the end of each
calendar month (or, if requested by Agent, on a weekly basis if a FCCR Test Event has occurred and
is continuing), in each case, as of the period then ended:
(i) a schedule detailing the Borrowers Inventory, in form reasonably satisfactory to
Agent, (1) by Borrower and by location (showing Inventory located with a third party under
any consignment, bailee arrangement, or warehouse agreement, in each case, to the extent the
Cost of Inventory at such location exceeds $1,000,000 in the aggregate), (2) including a
report of material variances or other results of Inventory counts performed by the Borrowers
since the last Inventory schedule and (3) reconciled to the Borrowing Base Certificate
delivered as of such date.
(ii) a worksheet of calculations prepared by the Borrowers to determine Eligible
Accounts and Eligible Inventory, such worksheets detailing the Accounts and Inventory
excluded from Eligible Accounts and Eligible Inventory and the reason for such exclusion;
(iii) a schedule and aging of each Borrowers and each Guarantors accounts payable
presented at the vendor level; and
(iv) a detailed aged trial balance of all Accounts of each Borrower as of the end of
the preceding month (or shorter applicable period), specifying each Accounts Account Debtor
name and address (if requested), amount, invoice date and due date and, at the Agents
reasonable request, showing any discount, allowance, credit, authorized return or dispute,
and including such proof of delivery, copies of invoices and invoice registers, copies of
related documents, repayment histories, status reports and other information as Agent may
reasonably request.
(h) promptly after a Senior Officer of any Borrower or any Subsidiary obtains knowledge
thereof, notice of (i) the occurrence of any event that constitutes a Default or Event of Default,
which notice shall specify the nature thereof, the period of existence thereof and what action the
applicable Borrower proposes to take with respect thereto and (ii) any litigation or governmental
proceeding pending against any Borrower or any Subsidiary that could reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change;
(i) any Borrower will promptly advise the Agent in writing after obtaining knowledge of any
one or more of the following environmental matters, unless such environmental matters could not,
individually or when aggregated with all other such matters, be reasonably expected to result in a
Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against any Loan Party or any current
or former Real Estate;
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(ii) Any condition or occurrence on or otherwise related to any current or former Real
Estate that (A) could reasonably be expected to result in noncompliance by any Loan Party
with any applicable Environmental Law or (B) could reasonably be anticipated to form the
basis of an Environmental Claim against any Loan Party or any current or former Real Estate;
(iii) Any condition or occurrence on or otherwise related to any current or former Real
Estate that could reasonably be anticipated to cause such Real Estate to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real Estate under
any Environmental Law; and
(iv) The conduct of, or need to conduct, any investigation, or any removal, remedial or
other corrective action in response to the actual or alleged presence, release or threatened
release of any Hazardous Material on, at, under or from any current or former Real Estate or
otherwise related to Environmental Law.
All such notices shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the response thereto. The term Real
Estate shall mean land, buildings and improvements owned or leased by any Loan Party, but
excluding all operating fixtures and equipment, whether or not incorporated into improvements.
(j) promptly upon filing thereof, copies of any filings (including on Form 10-K, 10-Q or 8-K)
or registration statements with, and reports to, the SEC or any analogous Governmental Authority in
any relevant jurisdiction by the Parent or any Subsidiary (other than amendments to any
registration statement (to the extent such registration statement, in the form it becomes
effective, is delivered to the Lenders and the Agent), exhibits to any registration statement and,
if applicable, any registration statements on Form S-8) and copies of all financial statements,
proxy statements, notices and reports that the Parent or any Subsidiary shall send to the holders
of any publicly issued debt of the Parent and/or any Subsidiary in their capacity as such holders
(in each case to the extent not theretofore delivered to the Lenders and the Agent pursuant to this
Agreement) and, with reasonable promptness, such other information (financial or otherwise) as the
Agent on its own behalf or on behalf of any Lender (acting through the Agent) may reasonably
request in writing from time to time;
(k) not later than any date on which financial statements are delivered with respect to any
Test Period in which a Pro Forma Adjustment is made as a result of the consummation of the
acquisition of any Acquired Entity or Business by any Borrower or any Restricted Subsidiary for
which there shall be a Pro Forma Adjustment, a Pro Forma Adjustment Certificate;
(l) reasonably promptly but not later than sixty (60) days following the occurrence of any
change referred to in subclauses (i) through (iv) below, written notice of any change (i) in the
legal name of any Loan Party, (ii) in the jurisdiction of organization or location of any Loan
Party for purposes of the Uniform Commercial Code or PPSA, (iii) in the identity or type of
organization of any Loan Party or (iv) in the Federal Taxpayer Identification Number or
organizational identification number of any Loan Party. The applicable Borrower or Borrowers
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shall also promptly provide the Agent with certified Organic Documents reflecting any of the
changes described in the first sentence of this clause (l).
(m) promptly after the sending or filing thereof, copies of any annual information report
(including all actuarial reports and other schedules and attachments thereto) required to be filed
with a Governmental Authority in connection with each Plan, any Foreign Plan that is required by
Requirements of Laws to be funded or any Canadian Pension Plan; promptly upon receipt, copies of
any notice, demand, inquiry or subpoena received in connection with any Plan or Canadian Pension
Plan from a Governmental Authority (other than routine inquiries in the course of application for a
favorable IRS determination letter); and at Agents request, copies of any annual report required
to be filed with a Governmental Authority in connection with any other Plan or Canadian Pension
Plan.
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section
10.1.1 may be satisfied with respect to financial information of the Parent and the Subsidiaries by
furnishing (A) the applicable financial statements of any direct or indirect parent of the Parent
or (B) the Parents (or any direct or indirect parent thereofs), as applicable, Form 10-K or 10-Q,
as applicable, filed with the SEC (provided that, to the extent such information relates to a
parent of the Parent, such information is accompanied by consolidating information that explains in
reasonable detail the differences between the information relating to such parent, on the one hand,
and the information relating to the Parent and the Restricted Subsidiaries, taken together on a
standalone basis, on the other hand); and any documentation required to be delivered pursuant to
this Section 10.1.1 may be delivered electronically and if so delivered, shall be deemed to be
delivered on the date (i) on which the Loan Party Agent posts the materials containing such
documents or information, or provides a link thereto, on the Loan Part Agents website on the
Internet, or (ii) on which such documents are posted on an Internet or intranet website, if any, to
which each Lender and Agent have access (including www.sec.gov (or other website of the SEC), a
commercial third-party website or a website sponsored by Agent), provided that, in any case, the
Loan Party Agent shall provide written notice to Agent of any documents being delivered in
accordance with clauses (i) or (ii) above on the date such documents are posted, and paper copies
of such documents shall be delivered to Agent upon its written request.
10.1.2 Books, Records and Inspections. The Borrowers will, and will cause each of
their respective Subsidiaries to, permit officers and designated representatives of the Agent or
the Required Lenders to visit and inspect any of their properties or assets in whomsoevers
possession to the extent that it is within such partys control to permit such inspection, and to
examine their books and records and discuss their affairs, finances and accounts with, and be
advised as to the same by, its and their officers and independent accountants, all at such
reasonable times and intervals and to such reasonable extent as the Agent or the Required Lenders
may desire; provided that, excluding any such visits and inspections during the continuation of an
Event of Default, only the Agent (or any of its representatives or independent contractors) on
behalf of the Required Lenders may exercise rights of the Agent and the Lenders under this Section
10.1.2 and the Agent shall not exercise such rights more often than two times during any calendar
year absent the existence of an Event of Default and only one such time shall be at the Borrowers
expense unless a Cash Dominion Event has occurred and is continuing, in which case the second time
shall also be at the Borrowers expense; provided
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further that when an Event of Default exists, the Agent (or any of its representatives or
independent contractors) or any representative of the Required Lenders may do any of the
foregoing at the expense of the Borrowers at any time during normal business hours and upon
reasonable advance notice. The Agent and the Required Lenders shall give any Borrower the
opportunity to participate in any discussions with such Borrowers independent public accountants.
10.1.3 Collateral Access Agreements. Each Borrower and each Guarantor shall use
commercially reasonable efforts to obtain a Collateral Access Agreement with respect to Inventory
which is located in any location leased by such Loan Party, located in any third-party warehouse or
otherwise in the possession of a bailee or other third-party, in each case, to the extent the Cost
of Inventory at such location, or held by such bailee or third person exceeds $1,000,000 in the
aggregate. For purposes of determining Canadian Eligible Inventory and U.S. Eligible Inventory
under the Borrowing Base, until the expiration of the Temporary Eligibility Period, the Borrowers
shall be deemed to have obtained such Collateral Access Agreements at all such locations.
10.1.4 Payment of Taxes. Each Loan Party will pay and discharge, and will cause each
Subsidiary to pay and discharge, all material taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the
date on which material penalties attach thereto, and all lawful material claims that, if unpaid,
could reasonably be expected to become a material Lien upon any properties of such Loan Party or
any Restricted Subsidiary, provided that no Loan Party, nor any Subsidiary shall be required to pay
any such tax, assessment, charge, levy or claim that is being contested in good faith and by proper
proceedings if it has maintained adequate reserves (in the good faith judgment of the management of
such Loan Party) with respect thereto in accordance with GAAP and the failure to pay could not
reasonably be expected to result in a Material Adverse Effect.
10.1.5 Maintenance of Insurance. The Borrowers will, and will cause each Material
Subsidiary to, at all times maintain in full force and effect, with insurance companies that each
Borrower believes (in the good faith judgment of the management of such Borrower) are financially
sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least
such amounts (after giving effect to any self-insurance which such Borrower believes (in the good
faith judgment of management of such Borrower) is reasonable and prudent in light of the size and
nature of its business) and against at least such risks (and with such risk retentions) as such
Borrower believes (in the good faith judgment of management of such Borrower) is reasonable and
prudent in light of the size and nature of its business; and will furnish to the Agent (for
delivery to the Lenders), upon written request from the Agent, information presented in reasonable
detail as to the insurance so carried.
10.1.6 Consolidated Corporate Franchises. Each Borrower will do, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full
force and effect its existence, corporate rights and authority, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse Effect; provided,
however, that any Borrower and its Subsidiaries may consummate any transaction permitted under
Section 10.2.3, 10.2.4 or 10.2.5.
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10.1.7 Compliance with Statutes, Regulations, etc. Each Borrower will, and will cause
each Subsidiary to, comply with all applicable laws, rules, regulations and orders applicable to it
or its property, including all governmental approvals or authorizations required to conduct its
business, and to maintain all such governmental approvals or authorizations in full force and
effect, in each case except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
10.1.8 ERISA. Promptly after any Borrower or any Subsidiary or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following events that, individually or
in the aggregate (including in the aggregate such events previously disclosed or exempt from
disclosure hereunder, to the extent the liability therefor remains outstanding), would be
reasonably likely to have a Material Adverse Effect, the Loan Party Agent will deliver to each
Lender a certificate of a Senior Officer of the applicable Borrower setting forth details as to
such occurrence and the action, if any, that such Borrower, such Subsidiary or such ERISA Affiliate
is required or proposes to take, together with any notices (required, proposed or otherwise) given
to or filed with or by such Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant (other than notices relating to an individual participants benefits) or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that an accumulated
funding deficiency has been incurred or an application is to be made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section 412 of the Code with
respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be
terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the
giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will
result in a lien under ERISA or the Code; that proceedings will be or have been instituted to
terminate a Plan having an Unfunded Current Liability (including the giving of written notice
thereof); that a proceeding has been instituted against a Borrower, a Subsidiary or an ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
PBGC has notified any Borrower, any Subsidiary or any ERISA Affiliate of its intention to appoint a
trustee to administer any Plan; that any Borrower, any Subsidiary or any ERISA Affiliate has failed
to make a required installment or other payment pursuant to Section 412 of the Code with respect to
a Plan; or that any Borrower, any Subsidiary or any ERISA Affiliate has incurred or will incur (or
has been notified in writing that it will incur) any liability (including any contingent or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
10.1.9 Canadian Pension Plans.
(a) Promptly after any Canadian Domiciled Loan Party or any Subsidiary or any Affiliate
knows or has reason to know of the occurrence of any of the following events, the applicable
Canadian Domiciled Loan Party will deliver to the Agent a certificate of a Senior Officer of
the applicable Canadian Domiciled Loan Party setting forth details as to such occurrence and
the action, if any, that such Canadian Domiciled Loan Party, such Subsidiary or such
Affiliate is required or proposes to take, together with any notices (required, proposed or
otherwise) given to or filed with or by such Canadian Domiciled Loan Party, such Subsidiary,
such Affiliate, the FSCO, a Canadian
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Employee Plan participant (other than notices relating to an individual participants
benefits) or the Canadian Employee Plan administrator with respect thereto: any violation or
asserted violation of any Requirements of Law (including PBA), for which there is a
reasonable likelihood that there will be an adverse determination, and such adverse
determination would have or could reasonably be expected to have a Material Adverse Effect;
the occurrence of any Termination Event.
(b) Each Canadian Domiciled Loan Partys and its Subsidiaries Canadian Pension Plans
shall be duly registered and administered in all respects in material compliance with, as
applicable, the PBA, the Income Tax Act (Canada) and all other Requirements of Law
(including regulations, orders and directives), and the terms of the Canadian Pension Plans
and any agreements relating thereto. Each Canadian Domiciled Loan Party shall ensure that
it and its Subsidiaries: (a) has no Unfunded Current Liability in respect of any Canadian
Pension Plan, including any Canadian Pension Plan to be established and administered by it
or them; (b) pay all amounts required to be paid by it or them in respect of such Canadian
Pension Plan when due; (c) has no Lien on any of its or their property that arises or exists
in respect of any Canadian Pension Plan except as disclosed in Schedule 10.2.2; (d) do not
engage in a prohibited transaction or breach any applicable laws with respect to any
Canadian Pension Plan that could reasonably be expected to result in a Material Adverse
Effect in respect of such Canadian Pension Plan; (e) do not permit to occur or continue any
Termination Event; and (f) not maintain, contribute or have any liability in respect of a
Canadian Pension Plan which provides benefits on a defined benefit basis during the term of
this Agreement.
10.1.10 Maintenance of Properties. Each Borrower will, and will cause each Restricted
Subsidiary to, keep and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, except to the extent that the failure
to do so could reasonably be expected to have a Material Adverse Effect.
10.1.11 Transactions with Affiliates. Each Borrower will conduct, and cause each
Restricted Subsidiary to conduct, all transactions with any of its Affiliates (other than the
Borrowers or the Restricted Subsidiaries) on terms that are substantially as favorable to such
Borrower or such Restricted Subsidiary as it would obtain in a comparable arms-length transaction
with a Person that is not an Affiliate, provided that the foregoing restrictions shall not apply to
(a) the payment of customary investment banking fees paid to the Sponsor for services rendered to
the Borrowers and the Subsidiaries in connection with divestitures, acquisitions, financings and
other transactions, (b) transactions permitted by Section 10.2.6, (c) Transaction Expenses, (d) the
issuance of Stock or Stock Equivalents of any Borrower to the management of such Borrower (or any
direct or indirect parent thereof) or any of its Subsidiaries pursuant to arrangements described in
clause (f) of this Section 10.1.11, (e) loans and other transactions by the Borrowers and the
Restricted Subsidiaries to the extent permitted under Section 10.2, (f) employment and severance
arrangements between the Borrowers and the Restricted Subsidiaries and their respective officers
and employees in the Ordinary Course of Business, (g) payments by any Borrower (and any direct or
indirect parent thereof) and the Restricted Subsidiaries pursuant to the tax sharing agreements
among such Borrower (and any such parent) and the Restricted Subsidiaries on customary terms to the
extent attributable to the ownership or operation of such Borrower and the Restricted Subsidiaries,
(h) the payment of customary fees
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and reasonable out
of pocket costs to, and indemnities provided on behalf of, directors, managers, consultants,
officers and employees of the Borrowers and the Restricted Subsidiaries in the Ordinary Course of
Business to the extent attributable to the ownership or operation of the Borrowers and the
Restricted Subsidiaries, (i) transactions pursuant to permitted agreements in existence on the
Closing Date and set forth on Schedule 10.1.11 or any amendment thereto to the extent such an
amendment is not adverse, taken as a whole, to the Lenders in any material respect, and (j)
customary payments by any Borrower and any Restricted Subsidiary to the Sponsor made for any
financial advisory, financing, underwriting or placement services or in respect of other investment
banking activities (including in connection with acquisitions or divestitures), which payments are
approved by the majority of the members of the board of directors or a majority of the
disinterested members of the board of directors of such Borrower (or any direct or indirect parent
thereof), in good faith.
10.1.12 End of Fiscal Years; Fiscal Quarters. Each Borrower will, for financial
reporting purposes, cause (a) each of Parents, its, and each of its Subsidiaries, fiscal years to
end on December 31 of each year and (b) each of Parents, its, and each of its Subsidiaries,
fiscal quarters to end on dates consistent with such fiscal year-end and such Borrowers past
practice; provided, however, that such Borrower may, upon written notice to the Agent, change the
financial reporting convention specified above to any other financial reporting convention
reasonably acceptable to the Agent, in which case such Borrower and the Agent will, and are hereby
authorized by the Lenders to, make any adjustments to this Agreement that are necessary in order to
reflect such change in financial reporting.
10.1.13 Additional Canadian Domiciled Loan Parties and U.S. Domiciled Loan Parties.
(a) Within 30 days of the date on which the book value of Inventory and Accounts of any direct
or indirect Canadian Subsidiary exceeds $20,000,000, (i) the Initial Canadian Borrower will cause
such Canadian Subsidiary to execute and deliver to Agent a supplement or joinder to this Agreement,
substantially in the form of Exhibit I, in order for such Canadian Subsidiary to become a Canadian
Borrower hereunder and (ii) a Senior Officer of the Loan Party Agent will execute and deliver to
Agent a (A) Borrowing Base Certificate for such Canadian Subsidiary effective as of not more than
25 days preceding the date on which such Canadian Subsidiary becomes a Canadian Borrower and (B)
written notice of such Canadian Subsidiarys Applicable Canadian Borrower Commitment; provided
that, prior to permitting such Canadian Subsidiary to borrow any Canadian Revolver Loans or obtain
the issuance of any Canadian Letters of Credit hereunder, the Agent, in its discretion, shall have
the right to conduct an appraisal and field examinations with respect to such Canadian Subsidiary,
including, without limitation, of (x) such Canadian Subsidiarys practices in the computation of
its Canadian Borrowing Base and (y) the assets included in such Canadian Subsidiarys Canadian
Borrowing Base and related financial information such as, but not limited to, sales, gross margins,
payables, accruals and reserves, in each case, prepared on a basis reasonably satisfactory to Agent
and at the sole expense of such Canadian Subsidiary.
(b) Any Canadian Subsidiary may become a Canadian Borrower hereunder upon the execution and
delivery to Agent (i) by such Canadian Subsidiary of a supplement or joinder to this Agreement,
substantially in the form of Exhibit I, and (ii) by a Senior Officer of
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the Loan Party Agent, of a (A) Borrowing Base Certificate for such Canadian Subsidiary
effective as of not more than 25 days preceding the date on which such Canadian Subsidiary becomes
a Canadian Borrower and (B) written notice of such Canadian Subsidiarys Applicable Canadian
Borrower Commitment; provided that, prior to permitting such Canadian Subsidiary to borrow any
Canadian Revolver Loans or obtain the issuance of any Canadian Letters of Credit hereunder, the
Agent, in its discretion, shall have the right to conduct an appraisal and field examination with
respect to such Canadian Subsidiary, including, without limitation, of (x) such Canadian
Subsidiarys practices in the computation of its Canadian Borrowing Base and (y) the assets
included in such Canadian Subsidiarys Canadian Borrowing Base and related financial information
such as, but not limited to, sales, gross margins, payables, accruals and reserves, in each case,
prepared on a basis reasonably satisfactory to Agent and at the sole expense of such Canadian
Subsidiary.
(c) Except as set forth in Section 10.2.1(b)(ix) and 10.2.1(b)(x) and subject to any
applicable limitations set forth in the Security Documents, each Borrower will cause each direct or
indirect U.S. Subsidiary of MRC (other than any Excluded Subsidiary) formed or otherwise purchased
or acquired after the date hereof (including pursuant to a Permitted Acquisition) or that has
ceased to be an Excluded Subsidiary pursuant to clause (e), (f) or (h) of the definition of
Excluded Subsidiary, in each case within 30 days of such date, to execute a supplement or joinder
to this Agreement, substantially in the form of Exhibit I, in order for such Subsidiary to become a
U.S. Borrower and/or a U.S. Facility Guarantor under Section 5.10 and a grantor under Section 7.1
or, to the extent reasonably requested by the Agent, enter into a new Security Document in form and
substance reasonably satisfactory to the Agent and Loan Party Agent.
10.1.14 Use of Proceeds.
(a) The Borrowers will use the proceeds of all Revolver Loans made on the Closing Date to (a)
refinance MRCs Indebtedness under the Existing U.S. Credit Agreement, (b) to refinance the Initial
Canadian Borrowers Indebtedness under the Existing Canadian Credit Agreement and the ATB Financial
Debt and (c) to pay Transaction Expenses.
(b) The Borrowers will use Letters of Credit and the proceeds of all other Revolver Loans and
Swingline Loans (a) to finance ongoing working capital needs, (b) for other general corporate
purposes of any Borrower, including to fund permitted distributions and Permitted Acquisitions and
(c) to pay Transaction Expenses.
10.1.15 Appraisals; Field Examinations. At any time that the Agent reasonably
requests, each Borrower will, and will cause each Guarantor to, permit the Agent or professionals
(including consultants, accountants, lawyers and appraisers) retained by the Agent, on reasonable
prior notice and during normal business hours and with reasonable frequency, to conduct appraisals
and commercial finance examinations or updates thereof including, without limitation, of (a) such
Borrowers practices in the computation of the Borrowing Base and (b) the assets included in the
Borrowing Base and related financial information such as, but not limited to, sales, gross margins,
payables, accruals and reserves, in each case, prepared on a basis reasonably satisfactory to the
Agent and at the sole expense of the Borrowers; provided, however, if no Default or Event of
Default shall have occurred and be continuing, only one (1)
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such appraisal and one (1) such examination or update per fiscal year shall be conducted at
the Borrowers expense (exclusive of any appraisals and field examinations conducted pursuant to
Section 10.1.13); provided, further, however, that if a Cash Dominion Event has occurred and is
continuing, one (1) additional appraisal and one (1) additional examination or update per fiscal
year may be conducted at the Borrowers expense (exclusive of any appraisals and field examinations
conducted pursuant to Section 10.1.13). The foregoing shall not limit the Agents ability to
perform additional appraisals, examinations and updates at the sole expense of the Borrowers upon
the occurrence and continuance of a Default or Event of Default.
10.1.16 Further Assurances.
(a) Each Borrower will, and will cause each other Loan Party to, execute any and all further
documents, financing statements, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements and other documents), which may be
required under any applicable law, or which the Agent or the Required Lenders may reasonably
request, in order to grant, preserve, protect and perfect the validity and priority of the Liens
created or intended to be created by the Security Documents, all at the expense of the Loan
Parties.
(b) If any assets are acquired by any Loan Party after the Closing Date (other than assets
constituting Collateral under the Security Documents that become subject to the perfected Lien of
the Security Documents upon acquisition thereof) that are of the nature secured by the Security
Documents, the Loan Party Agent will notify the Agent, and, if requested by the Agent, such Loan
Party will cause such assets to be subjected to a Lien securing the applicable Secured Obligations
and will take, and cause the other Loan Parties to take, such actions as shall be necessary or
reasonably requested by the Agent to grant and perfect such Liens consistent with the applicable
requirements of the Security Documents, including actions described in clause (a) of this Section
10.1.16, all at the expense of the Loan Parties.
(c) Each Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete
each of the actions described on Schedule 10.1.16(c) as soon as commercially reasonable and by no
later than the date set forth in Schedule 10.1.16(c) with respect to such action or such later date
as the Agent may reasonably agree.
10.2 Negative Covenants. The Borrowers (for themselves and each of their respective
Restricted Subsidiaries), jointly and severally, hereby covenant and agree that on the Closing Date
and thereafter, until the Commitments, the Swingline Commitment and each Letter of Credit have
terminated and the Loans, together with interest, fees and all other Obligations, are paid in full:
10.2.1 Limitation on Indebtedness.
(a) The Borrowers will not, and will not permit any of the Restricted Subsidiaries to, incur,
create, assume or permit to exist, directly or indirectly (collectively, incur and
collectively, an incurrence), any Indebtedness; provided, however, that the Borrowers and
the Restricted Subsidiaries will be entitled to incur Indebtedness if the Consolidated Total Debt
to Consolidated EBITDA Ratio at the time such additional Indebtedness
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is incurred would have been no greater than 5.50 to 1.0 determined on a Pro Forma Basis
(including a pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred and the application of proceeds therefrom had occurred at the
beginning of the most recent Test Period for which financial statements have been delivered
pursuant to Section 10.1.1; provided, that such additional Indebtedness shall not be secured
Indebtedness unless (i) the Secured Leverage Ratio at the time such additional Indebtedness is
incurred would have been no greater than 5.0 to 1.0, determined on a Pro Forma Basis in the manner
set forth above, (ii) such secured Indebtedness has a final maturity date no earlier than the date
that is 180 days following the Facility Termination Date, (iii) the Liens securing such
Indebtedness shall constitute Notes Priority Liens for purposes of the Intercreditor Agreement.
(b) The limitation set forth in clause (a) of this Section 10.2.1 will not prohibit any of the
following:
(i) (A) Indebtedness arising under the Loan Documents and (B) Indebtedness arising
under the Senior Secured Notes Indenture; provided, however, that with respect to any such
Indebtedness specified in this subclause (i)(B) that is incurred after the Closing Date,
such Indebtedness satisfies the terms set forth in the proviso at the end of Section
10.2.1(a);
(ii) Indebtedness of (A) any Loan Party owing to any Borrower or any Restricted
Subsidiary, (B) any Subsidiary who is not a Loan Party owing to any other Subsidiary who is
not a Loan Party and (C) subject to compliance with Section 10.2.5 at the time of the
incurrence thereof, any Subsidiary who is not a Loan Party owing to any Loan Party;
(iii) Indebtedness in respect of any bankers acceptance, bank guarantees, letter of
credit, warehouse receipt or similar facilities entered into in the Ordinary Course of
Business (including in respect of workers compensation claims, health, disability or other
employee benefits or property, casualty or liability insurance or self-insurance or other
Indebtedness with respect to reimbursement-type obligations regarding workers compensation
claims);
(iv) subject to compliance with Section 10.2.5, Guarantee Obligations incurred by (A)
Restricted Subsidiaries in respect of Indebtedness of any Borrower or other Restricted
Subsidiaries that is permitted to be incurred under this Agreement and (B) any Borrower in
respect of Indebtedness of Restricted Subsidiaries that is permitted to be incurred under
this Agreement, provided that, except as provided in clauses (ix) and (x) below, there shall
be no Guarantee (1) by a Restricted Subsidiary that is not a Guarantor of any Indebtedness
of any Borrower and (2) in respect of any Permitted Additional Debt, unless such Guarantee
is made by a Guarantor and, in the case of Permitted Additional Debt that is subordinated,
is subordinated;
(v) Guarantee Obligations (A) incurred in the Ordinary Course of Business in respect of
obligations of (or to) suppliers, customers, franchisees, lessors and licensees or (B)
otherwise constituting Investments permitted by Section 10.2.5;
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(vi) (A) Indebtedness (including Indebtedness arising under Capital Leases existing on
the date hereof) incurred within 270 days of the acquisition, construction or improvement of
fixed or capital assets to finance the acquisition, construction or improvement of such
fixed or capital assets, (B) Indebtedness arising under Capital Leases entered into in
connection with Permitted Sale Leasebacks and (C) Indebtedness arising under Capital Leases,
other than Capital Leases in effect on the date hereof and Capital Leases entered into
pursuant to subclauses (A) and (B) above, provided, that the aggregate amount of
Indebtedness incurred pursuant to this subclause (C) shall not exceed $20,000,000 at any
time outstanding, and (D) any modification, replacement, refinancing, refunding, renewal or
extension of any Indebtedness specified in subclause (A), (B) or (C) above, provided that,
except to the extent otherwise expressly permitted hereunder, the principal amount thereof
(including pursuant to clause (C)) does not exceed the principal amount thereof outstanding
immediately prior to such modification, replacement, refinancing, refunding, renewal or
extension, except by an amount equal to the unpaid accrued interest and premium thereon plus
other reasonable amounts paid and fees and expenses incurred in connection with such
modification, replacement, refinancing, refunding, renewal or extension;
(vii) Indebtedness outstanding on the date hereof (A) listed on Schedule 10.2.1 and any
modification, replacement, refinancing, refunding, renewal or extension thereof, provided
that, except to the extent otherwise expressly permitted hereunder, (1) the principal amount
thereof does not exceed the principal amount thereof outstanding immediately prior to such
modification, replacement, refinancing, refunding, renewal or extension, except by an amount
equal to the unpaid accrued interest and premium thereon plus other reasonable amounts paid
and fees and expenses incurred in connection with such modification, replacement,
refinancing, refunding, renewal or extension plus an amount equal to any existing commitment
unutilized and letters of credit undrawn thereunder and (2) the direct and contingent
obligors with respect to such Indebtedness are not changed and (B) owing by any Borrower to
any Restricted Subsidiary or by any Restricted Subsidiary to any Borrower or any other
Restricted Subsidiary;
(viii) Indebtedness in respect of Hedge Agreements;
(ix) (A) Indebtedness of a Person or Indebtedness attaching to assets of a Person that,
in either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives
a merger with such Person) or Indebtedness attaching to assets that are acquired by any
Borrower or any Restricted Subsidiary, in each case, after the Closing Date as the result of
a Permitted Acquisition, provided, that (1) such Indebtedness existed at the time such
Person became a Restricted Subsidiary or at the time such assets were acquired and, in each
case, was not created in anticipation thereof, (2) such Indebtedness is not guaranteed in
any respect by any Borrower or any Restricted Subsidiary (other than by any such Person that
so becomes a Restricted Subsidiary or is the survivor of a merger with such Person and any
of its Subsidiaries) and (3) to the extent required under Section 10.1.13, such Person
executes a supplement or joinder to this Agreement, substantially in the form of Exhibit I,
in order to become a Loan Party, a Guarantor under Section 5.10 (if applicable) and a
grantor under Section 7.1 or, to the
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extent reasonably requested by the Agent, enters into a new Security Document in form
and substance reasonably satisfactory to the Agent and the Loan Party Agent, provided
that the requirements of this subclause (3) shall not apply to (I) an aggregate amount at
any time outstanding of up to the greater of (A) $300,000,000 or (B) 10% of Consolidated
Total Assets at the time of the incurrence of such Indebtedness (less all Indebtedness as to
which the proviso to clause (x)(A)(2) below then applies) at such time of such Indebtedness
(and modifications, replacements, refinancings, refundings, renewals and extensions thereof
pursuant to subclause (B) below) and (II) any Indebtedness of the type that could have been
incurred under Section 10.2.1(b)(vi), and (B) any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause (A) above,
provided that, except to the extent otherwise expressly permitted hereunder, (X) the
principal amount of any such Indebtedness does not exceed the principal amount thereof
outstanding immediately prior to such modification, replacement, refinancing, refunding,
renewal or extension except by an amount equal to the unpaid accrued interest and premium
thereon plus other reasonable amounts paid and fees and expenses incurred in connection with
such modification, replacement, refinancing, refunding, renewal or extension plus an amount
equal to any existing commitment unutilized and letters of credit undrawn thereunder and (Y)
the direct and contingent obligors with respect to such Indebtedness are not changed;
(x) (A) Permitted Additional Debt of MRC or any Restricted Subsidiary incurred to
finance a Permitted Acquisition, provided that (1) if such Indebtedness is incurred by a
Restricted Subsidiary that is not a Guarantor, such Indebtedness is not guaranteed by any
Loan Party unless such Guarantee would be permitted at such time under Section 10.2.5(g) and
(2) to the extent required under Section 10.1.13, such acquired Person executes a supplement
or joinder to this Agreement, substantially in the form of Exhibit I, in order to become a
Loan Party, a Guarantor under Section 5.10 (if applicable) and a grantor under Section 7.1
or, to the extent reasonably requested by the Agent, enters into a new Security Document in
form and substance reasonably satisfactory to the Agent and the Loan Party Agent, provided
that the requirements of this subclause (2) shall not apply to an aggregate amount at any
time outstanding of up to the greater of (A) $300,000,000 or (B) 10% of Consolidated Total
Assets at the time of the incurrence of such Indebtedness (less all Indebtedness as to which
clause (I) of the proviso to clause (ix)(A)(3) above then applies) at such time of the
aggregate of such Indebtedness (and modifications, replacements, refinancings, refundings,
renewals and extensions thereof pursuant to subclause (B) below), and (B) any modification,
replacement, refinancing, refunding, renewal or extension of any Indebtedness specified in
subclause (A) above, provided that, except to the extent otherwise expressly permitted
hereunder, (1) the principal amount of any such Indebtedness does not exceed the principal
amount thereof outstanding immediately prior to such modification, replacement, refinancing,
refunding, renewal or extension except by an amount equal to the unpaid accrued interest and
premium thereon plus other reasonable amounts paid and fees and expenses incurred in
connection with such modification, replacement, refinancing, refunding, renewal or extension
plus an amount equal to any existing commitment unutilized and letters of credit undrawn
thereunder and (2) the direct and contingent obligors with respect to such Indebtedness are
not changed;
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(xi) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety
bonds and completion guarantees and similar obligations not in connection with money
borrowed, in each case, provided in the Ordinary Course of Business, including those
incurred to secure health, safety and environmental obligations in the Ordinary Course of
Business;
(xii) (A) Indebtedness incurred in connection with any Permitted Sale Leaseback,
provided that the Net Cash Proceeds thereof are promptly applied to the prepayment of the
Senior Secured Notes to the extent required by the Senior Secured Notes Indenture; 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, (1) 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 (2) the direct and contingent obligors with respect to such Indebtedness are not
changed;
(xiii) (A) additional Indebtedness of MRC and its Restricted Subsidiaries and (B) any
refinancing, refunding, renewal or extension of any Indebtedness specified in subclause (A)
above; provided that the aggregate amount of Indebtedness incurred and remaining outstanding
pursuant to this clause (xiii) shall not at any time exceed the greater of (1) $300,000,000
and (2) 10% of Consolidated Total Assets at the time of the incurrence of such Indebtedness;
provided, however, not more than the greater of (X) $50,000,000 and (Y) 1.5% of Consolidated
Total Assets at the time of the incurrence of such Indebtedness in aggregate principal
amount of Indebtedness of any Borrower or any Guarantor incurred under this clause (xiii)
shall be secured;
(xiv) Indebtedness in respect of Permitted Additional Debt to the extent that the Net
Cash Proceeds therefrom are, immediately after the receipt thereof, applied to the
prepayment of the Senior Secured Notes in accordance with the Senior Secured Notes
Indenture;
(xv) Indebtedness in respect of overdraft facilities, employee credit card programs and
other cash management arrangements in the Ordinary Course of Business;
(xvi) unsecured Indebtedness in respect of obligations of any Borrower or any
Restricted Subsidiary to pay the deferred purchase price of goods or services or progress
payments in connection with such goods and services, provided that such obligations are
incurred in connection with open accounts extended by suppliers on customary trade terms
(which require that all such payments be made within 60 days after the incurrence of the
related obligation) in the Ordinary Course of Business and not in connection with the
borrowing of money or Hedge Agreements;
(xvii) Indebtedness arising from agreements of any Borrower or any Restricted
Subsidiary providing for indemnification, adjustment of purchase price or similar
obligations, in each case, entered into in connection with Permitted Acquisitions, other
Investments and the disposition of any business, assets or capital stock permitted
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hereunder, other than Guarantee Obligations incurred by any Person acquiring all or any
portion of such business, assets or capital stock for the purpose of financing such
acquisition, provided that (A) such Indebtedness is not reflected on the balance sheet of
any Borrower or any Restricted Subsidiary (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the balance sheet will not be deemed
to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum
assumable liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds, including non-cash proceeds (the fair market value of such non-cash proceeds being
measured at the time received and without giving effect to any subsequent changes in value),
actually received by the Borrowers and the Restricted Subsidiaries in connection with such
disposition;
(xviii) Indebtedness of any Borrower or any Restricted Subsidiary consisting of (A)
obligations to pay insurance premiums or (B) take or pay obligations contained in supply
agreements, in each case, arising in the Ordinary Course of Business and not in connection
with the borrowing of money or Hedge Agreements;
(xix) Indebtedness representing deferred compensation to employees of the Borrowers (or
any direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the
Ordinary Course of Business;
(xx) unsecured, Subordinated Indebtedness consisting of promissory notes in an
aggregate principal amount of not more than $10,000,000 issued by any Borrower or any
Guarantor to current or former officers, managers, consultants, directors and employees (or
their respective spouses, former spouses, successors, executors, administrators, heirs,
legatees or distributees) to finance the purchase or redemption of Stock or Stock
Equivalents of such Borrower (or any direct or indirect parent thereof) permitted by Section
10.2.6;
(xxi) Indebtedness consisting of obligations of the Borrowers or the Restricted
Subsidiaries under deferred compensation or other similar arrangements incurred by such
Person in connection with Permitted Acquisitions or any other Investment expressly permitted
hereunder;
(xxii) cash management obligations and other Indebtedness in respect of netting
services, automatic clearinghouse arrangements, overdraft protections and similar
arrangements in each case in connection with deposit accounts; and
(xxiii) all premiums (if any), interest (including post-petition interest), fees,
expenses, charges and additional or contingent interest on obligations described in clauses
(i) through (xxii) above.
10.2.2 Limitation on Liens. The Borrowers will not, and will not permit any of the
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or
assets of any kind (real or personal, tangible or intangible) of such Borrower or any Restricted
Subsidiary, whether now owned or hereafter acquired, except:
(a) Liens arising under the Credit Documents;
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(b) Permitted Liens;
(c) (i) Liens securing Indebtedness permitted pursuant to Section 10.2.1 (b)(vi), provided
that (A) such Liens attach at all times only to the assets so financed except for accessions to
such property and the proceeds and the products thereof and (B) that individual financings of
equipment provided by one lender may be cross collateralized to other financings of equipment
provided by such lender, and (ii) Liens on the assets of Restricted Subsidiaries that are not Loan
Parties securing Indebtedness permitted pursuant to Section 10.2.1 (b)(xiii) and (xv);
(d) Liens existing on the date hereof and listed on Schedule 10.2.2;
(e) The replacement, extension or renewal of any Lien permitted by clauses (a) through (d)
above and clause (f) of this Section 10.2.2 upon or in the same assets (other than after acquired
property that is affixed or incorporated into the property covered by such Lien or financed by
Indebtedness permitted under Section 10.2.1(b) and proceeds and products thereof) theretofore
subject to such Lien or the replacement, extension or renewal (without increase in the amount or
change in any direct or contingent obligor except to the extent otherwise permitted hereunder) of
the Indebtedness secured thereby;
(f) Liens existing on the assets of any Person that becomes a Restricted Subsidiary (or is a
Restricted Subsidiary that survives a merger with such Person), or existing on assets acquired,
pursuant to a Permitted Acquisition or other Investment to the extent the Liens on such assets
secure Indebtedness permitted by Section 10.2.1(b)(ix) or other obligations permitted by this
Agreement, provided that such Liens attach at all times only to the same assets that such Liens
(other than after acquired property that is affixed or incorporated into the property covered by
such Lien or financed by Indebtedness permitted under Section 10.2.1(b) and proceeds and products
thereof) attached to, and secure only the same Indebtedness or obligations (or any modifications,
refinancings, extensions, renewals, refundings or replacements of such Indebtedness permitted by
Section 10.2.1(b)) that such Liens secured, immediately prior to such Permitted Acquisition or
other Investment, as applicable;
(g) (i) Liens placed upon the Stock and Stock Equivalents of any Restricted Subsidiary that is
not a Loan Party acquired pursuant to a Permitted Acquisition to secure Indebtedness incurred
pursuant to Section 10.2.1(x) in connection with such Permitted Acquisition and (ii) Liens placed
upon the assets of any Restricted Subsidiary that is not a Loan Party to secure a guarantee by, or
Indebtedness of, such Restricted Subsidiary of any Indebtedness of any Borrower or any other
Restricted Subsidiary incurred pursuant to Section 10.2.1(x);
(h) Liens securing Indebtedness or other obligations of any Loan Party or a Subsidiary in
favor of any Loan Party or any Subsidiary that is a Loan Party and Liens securing Indebtedness or
other obligations of any Subsidiary that is not a Loan Party in favor of any Subsidiary that is not
a Loan Party;
(i) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code
on items in the course of collection, (ii) attaching to commodity trading
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accounts or other commodities brokerage accounts incurred in the Ordinary Course of Business;
and (iii) in favor of a banking institution arising as a matter of law encumbering deposits
(including the right of set-off) and which are within the general parameters customary in the
banking industry;
(j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to Section 10.2.5 to be applied against the purchase price for such
Investment, and (ii) consisting of an agreement to sell, transfer, lease or otherwise dispose of
any property in a transaction permitted under Section 10.2.4, in each case, solely to the extent
such Investment or sale, disposition, transfer or lease, as the case may be, would have been
permitted on the date of the creation of such Lien;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by any Borrower or any Restricted Subsidiary in the
Ordinary Course of Business permitted by this Agreement;
(l) Liens deemed to exist in connection with Investments in repurchase agreements permitted
under Section 10.2.5;
(m) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens attaching to commodity trading accounts or other brokerage accounts incurred in the Ordinary
Course of Business and not for speculative purposes;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks not given in connection with the issuance of Indebtedness, (ii)
relating to pooled deposit or sweep accounts of any Borrower or any Restricted Subsidiary to permit
satisfaction of overdraft or similar obligations incurred in the Ordinary Course of Business of
such Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and other
agreements entered into with customers of any Borrower or any Restricted Subsidiary in the Ordinary
Course of Business;
(o) Liens solely on any cash earnest money deposits made by any Borrower or any Restricted
Subsidiary in connection with any letter of intent or purchase agreement permitted hereunder;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) Liens securing the Senior Secured Notes; provided, that with respect to any such Senior
Secured Notes issued after December 21, 2009, such Indebtedness is permitted to be secured in
accordance with the proviso at the end of Section 10.2.1(a);
(r) Liens securing Indebtedness permitted under Section 10.2.1(a), to the extent permitted in
accordance with the proviso at the end of such Section 10.2.1(a);
(s) Liens securing obligations under Hedge Agreements that are not Secured Bank Product
Obligations; provided, that such Liens constitute Notes Priority Liens for purposes of the
Intercreditor Agreement;
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(t) additional Liens so long as (i) the aggregate principal amount of the obligations so
secured does not exceed the greater of (y) $50,000,000 at any time outstanding and (z) 1.5% of
Consolidated Total Assets at the time of the incurrence of such obligations and (ii) to the extent
such additional Liens attach to any Accounts or Inventory of any Borrower, such Liens are
subordinated to the Lien of Agent, for the benefit of the Secured Parties, pursuant to an
intercreditor agreement in form and substance reasonably satisfactory to Agent and Loan Party
Agent; and
(u) Liens on Stock in joint ventures held by any Borrower provided such joint venture is not a
Guarantor.
10.2.3 Limitation on Fundamental Changes. Except as expressly permitted by Section
10.2.4 or 10.2.5, each Borrower will not, and will not permit any of the Restricted Subsidiaries
to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise
dispose of, all or substantially all its business units, assets or other properties, except that:
(a) so long as no Default or Event of Default would result therefrom, any Subsidiary of any
Borrower or any other Person may be merged or consolidated with or into a Borrower, provided that
(i) a Borrower shall be the continuing or surviving entity or (ii) if the Person formed by or
surviving any such merger or consolidation is not a Borrower (such Person, the Successor
Borrower), (A) in the case of a merger or consolidation by a U.S. Person, the Successor
Borrower shall be an entity organized or existing under the laws of the United States, any state
thereof or the District of Columbia and, in the case of a merger or consolidation by a Canadian
Person, the Successor Borrower shall be an entity organized or existing under the laws of Canada or
any province thereof, (B) the Successor Borrower shall expressly assume all the obligations of a
U.S. Borrower or a Canadian Borrower, as applicable, under this Agreement and the other Loan
Documents pursuant to a supplement hereto or thereto in form reasonably satisfactory to the Agent,
(C) each applicable Guarantor, unless it is the other party to such merger or consolidation, shall
have by a supplement hereto confirmed that its Guarantee shall apply to the Successor Borrowers
obligations under this Agreement, (D) each U.S. Domiciled Loan Party and each Canadian Domiciled
Loan Party, as applicable, unless it is the other party to such merger or consolidation, shall have
by a supplement to this Agreement confirmed that its obligations thereunder shall apply to the
Successor Borrowers obligations under this Agreement, and (E) the Borrower shall have delivered to
the Agent (1) an officers certificate stating that such merger or consolidation and such
supplements to this Agreement preserve the enforceability of the Guarantee and the perfection and
priority of the Liens under the Security Documents and (2) if reasonably requested by the Agent, an
opinion of counsel to the effect that such merger or consolidation does not violate this Agreement
or any other Loan Document, and provided further that if the foregoing are satisfied, the Successor
Borrower will succeed to, and be substituted for, such Borrower under this Agreement;
(b) any Subsidiary of a Borrower (other than another Borrower) or any other Person may be
merged, amalgamated or consolidated with or into any one or more Subsidiaries of such Borrower,
provided that (i) in the case of any merger, amalgamation or consolidation involving one or more
Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the
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continuing or surviving entity or (B) such Borrower shall take all steps necessary to cause
the Person formed by or surviving any such merger, amalgamation or consolidation (if other than a
Restricted Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger,
amalgamation or consolidation involving one or more Guarantors, a Guarantor shall be the continuing
or surviving entity or the Person formed by or surviving any such merger, amalgamation or
consolidation (if other than a Guarantor) shall execute a supplement or joinder to this Agreement,
substantially in the form of Exhibit I, in order to become a Guarantor under Section 5.10 and a
grantor under Section 7.1 to the extent required under Section 10.1.13, (iii) no Default or Event
of Default would result from the consummation of such merger, amalgamation or consolidation, (iv)
any Indebtedness incurred to finance such merger, amalgamation or consolidation is permitted to be
incurred by the Senior Secured Notes Indenture, and (v) such Borrower shall have delivered to the
Agent an officers certificate stating that such merger, amalgamation or consolidation and such
supplements and/or joinders to any Security Document preserve the enforceability of the Guarantee
and the perfection and priority of the Liens under the Security Documents;
(c) any Restricted Subsidiary that is not a Guarantor may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to any Borrower, a
Guarantor or any other Restricted Subsidiary;
(d) any Guarantor may sell, lease, transfer or otherwise dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to any Borrower or any other Guarantor; and
(e) any Restricted Subsidiary may liquidate or dissolve if (i) the Loan Party Agent determines
in good faith that such liquidation or dissolution is in the best interests of the Borrowers and is
not materially disadvantageous to the Lenders and (ii) to the extent such Restricted Subsidiary is
a Loan Party, any assets or business not otherwise disposed of or transferred in accordance with
Section 10.2.4 or 10.2.5, or, in the case of any such business, discontinued, shall be transferred
to, or otherwise owned or conducted by, another Loan Party after giving effect to such liquidation
or dissolution.
10.2.4 Limitation on Sale of Assets. Each Borrower will not, and will not permit any
of the Restricted Subsidiaries to, (x) convey, sell, lease, assign, transfer or otherwise dispose
of any of its property, business or assets (including receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment or other
disposition resulting from any casualty or condemnation, of any assets of such Borrower or the
Restricted Subsidiaries) or (y) sell to any Person (other than a Borrower or a Guarantor) any
shares owned by it of any Restricted Subsidiarys Stock and Stock Equivalents, except that:
(a) any Borrower and the Restricted Subsidiaries may sell, transfer or otherwise dispose of
(i) inventory in the Ordinary Course of Business, (ii) used or surplus equipment, vehicles and
other assets in the Ordinary Course of Business and (iii) Permitted Investments;
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(b) any Borrower and the Restricted Subsidiaries may sell, transfer or otherwise dispose of
other assets (other than accounts receivable) (each a Disposition) for fair value,
provided that:
(i) with respect to any Disposition pursuant to this clause (b) for a purchase price in
excess of $10,000,000, such Borrower or a Restricted Subsidiary shall receive not less than
75% of such consideration in the form of cash or Permitted Investments; provided that for
the purposes of this clause (i):
(A) any liabilities (as shown on such Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the footnotes
thereto) of such Borrower or such Restricted Subsidiary, other than liabilities that
are by their terms subordinated to the payment in cash of the Obligations, that are
assumed by the transferee with respect to the applicable Disposition and for which
such Borrower and all of the Restricted Subsidiaries shall have been validly
released by all applicable creditors in writing,
(B) any securities received by such Borrower or such Restricted Subsidiary from
such transferee that are converted by such Borrower or such Restricted Subsidiary
into cash (to the extent of the cash received) within 180 days following the closing
of the applicable Disposition, and
(C) any Designated Non-Cash Consideration received by such Borrower or such
Restricted Subsidiary in respect of such Disposition having an aggregate fair market
value, taken together with all other Designated Non-Cash Consideration received
pursuant to this Section 10.2.4(b) and Section 10.2.4(c) that is at that time
outstanding, not in excess of 6% of Consolidated Total Assets at the time of the
receipt of such Designated Non-Cash Consideration, with the fair market value of
each item of Designated Non-Cash Consideration being measured at the time received
and without giving effect to subsequent changes in value,
shall in each case under this clause (i) be deemed to be cash; and
(ii) after giving effect to any such sale, transfer or disposition, no Default or Event
of Default shall have occurred and be continuing;
(c) each Borrower and the Restricted Subsidiaries may make sales of assets to any Borrower or
to any Restricted Subsidiary, provided that with respect to any such sales to Restricted
Subsidiaries that are not Guarantors:
(i) such sale, transfer or disposition shall be for fair value;
(ii) with respect to any Disposition pursuant to this clause (c) for a purchase price
in excess of $10,000,000, such Borrower or a Restricted Subsidiary shall receive not less
than 75% of such consideration in the form of cash or Permitted Investments; provided that
for the purposes of this clause (ii):
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(A) any liabilities (as shown on such Borrowers or such Restricted
Subsidiarys most recent balance sheet provided hereunder or in the footnotes
thereto) of such Borrower or such Restricted Subsidiary, other than liabilities that
are by their terms subordinated to the payment in cash of the Obligations, that are
assumed by the transferee with respect to the applicable Disposition and for which
such Borrower and all of the Restricted Subsidiaries shall have been validly
released by all applicable creditors in writing,
(B) any securities received by such Borrower or such Restricted Subsidiary from
such transferee that are converted by such Borrower or such Restricted Subsidiary
into cash (to the extent of the cash received) within 180 days following the closing
of the applicable Disposition,
(C) any Designated Non-Cash Consideration received by such Borrower or such
Restricted Subsidiary in respect of such Disposition having an aggregate fair market
value, taken together with all other Designated Non-Cash Consideration received
pursuant to this Section 10.2.4(c) and Section 10.2.4(b) that is at that time
outstanding, not in excess of 6% of Consolidated Total Assets at the time of the
receipt of such Designated Non-Cash Consideration, with the fair market value of
each item of Designated Non-Cash Consideration being measured at the time received
and without giving effect to subsequent changes in value,
shall in each case under this clause (ii) be deemed to be cash.
(d) any Borrower and any Restricted Subsidiary may effect any transaction permitted by Section
10.2.3, 10.2.5 or 10.2.6;
(e) in addition to selling or transferring accounts receivable pursuant to the other
provisions hereof, MRC and the Restricted Subsidiaries may sell or discount without recourse
accounts receivable arising in the Ordinary Course of Business in connection with the
compromise or collection thereof consistent with such Persons current credit and collection
practices;
(f) any Borrower and any Restricted Subsidiary may lease, sublease, license or sublicense (on
a non-exclusive basis with respect to any intellectual property) real, personal or intellectual
property in the Ordinary Course of Business;
(g) any Borrower and any Restricted Subsidiary may make sales, transfers and other
dispositions of property to the extent that (i) such property is exchanged for credit against the
purchase price of similar replacement property or (ii) the proceeds of such Disposition are
promptly applied to the purchase price of such replacement property;
(h) any Borrower and any Restricted Subsidiary may make sales, transfers and other
dispositions of property pursuant to Permitted Sale Leaseback transactions;
(i) any Borrower and any Restricted Subsidiary may make Dispositions of Non-Core Assets; and
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(j) any Borrower and any Restricted Subsidiary may make sales, transfers and other
dispositions of Investments in joint ventures to the extent required by, or made pursuant to
customary buy/sell arrangements between, the joint venture parties set forth in joint venture
arrangements and similar binding arrangements.
10.2.5 Limitation on Investments. Each Borrower will not, and will not permit any of
the Restricted Subsidiaries to, make any advance, loan, extensions of credit or capital
contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any
assets of, or make any other Investment in, any Person, except:
(a) extensions of trade credit and asset purchases in the Ordinary Course of Business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of any Borrower (or any direct or
indirect parent thereof) or any of its Subsidiaries (i) for reasonable and customary
business-related travel, entertainment, relocation and analogous ordinary business purposes
(including employee payroll advances), (ii) in connection with such Persons purchase of Stock or
Stock Equivalents of such Borrower (or any direct or indirect parent thereof) to the extent that
the amount of such loans and advances are contributed to such Borrower in cash and (iii) for
purposes not described in the foregoing clauses (i) and (ii), in an aggregate principal amount
outstanding not to exceed $5,000,000;
(d) Investments existing on, or contemplated as of, the date hereof and listed on Schedule
10.2.5 and any extensions, renewals or reinvestments thereof, so long as the aggregate amount of
all Investments pursuant to this clause (d) is not increased at any time above the amount of such
Investments existing on the date hereof;
(e) Investments received in connection with the bankruptcy or reorganization of suppliers or
customers and in settlement of delinquent obligations of, and other disputes with, customers
arising in the Ordinary Course of Business or upon foreclosure with respect to any secured
Investment or other transfer of title with respect to any secured Investment;
(f) Investments to the extent that payment for such Investments is made solely with Stock or
Stock Equivalents of any Borrower;
(g) Investments in any Persons provided that after giving effect to such Investments, either
(i) both (A) Excess Availability is greater than the higher of (1) 10% of the Commitments and (2)
$75,000,000 and (B) the Consolidated Fixed Charge Coverage Ratio for the most recent Test Period
for which financial statements have been delivered pursuant to Section 10.1.1 is greater than 1.0
to 1.0 or (ii) Excess Availability is greater than the higher of (A) 15% of the Commitments and (B)
$125,000,000; provided that if the test set forth in clause (g)(i) or (g)(ii) above is not
satisfied, then any Borrower shall be permitted to make Investments in an amount not to exceed
$50,000,000 in the aggregate (net of repayments) since the last calculation date on which the
Borrowers most recently met the test in clause (g)(i) or (g)(ii) above if, after giving effect to
such Investments, either (1) the Consolidated Fixed Charge Coverage Ratio for the most recent Test
Period for which financial statements have been
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delivered pursuant to Section 10.1.1 is greater than 1.0 to 1.0 or (2) Excess Availability is
greater than the higher of (x) 10% of the Commitments and (y) $75,000,000;
(h) Investments constituting Permitted Acquisitions;
(i) Investments constituting non-cash proceeds of sales, transfers and other dispositions of
assets to the extent permitted by Section 10.2.4;
(j) Investments made to repurchase or retire Stock of any Borrower or any direct or indirect
parent thereof owned by any employee stock ownership plan or key employee stock ownership plan of
such Borrower (or any direct or indirect parent thereof);
(k) Investments permitted under Section 10.2.6;
(l) loans and advances to any direct or indirect parent of any Borrower in lieu of, and not in
excess of the amount of, dividends to the extent permitted to be made to such parent in accordance
with Section 10.2.6;
(m) Investments consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the Ordinary Course of Business, and
Investments received in satisfaction or partial satisfaction thereof from financially troubled
account debtors and other credits to suppliers in the Ordinary Course of Business;
(n) Investments in the Ordinary Course of Business consisting of Article 3 endorsements for
collection or deposit and Article 4 customary trade arrangements with customers consistent with
past practices;
(o) advances of payroll payments to employees in the Ordinary Course of Business;
(p) Guarantee Obligations of any Borrower or any Restricted Subsidiary of leases (other than
Capital Leases) or of other obligations that do not constitute Indebtedness, in each case entered
into in the Ordinary Course of Business;
(q) Investments made to repurchase or retire equity interests of any Borrower (or any direct
or indirect parent thereof) owned by any employee stock ownership plan or key employee stock
ownership plan of any Borrower (or any direct or indirect parent thereof);
(r) Investments of a Restricted Subsidiary acquired after the Closing Date or of any Person
merged into any Borrower or merged or consolidated with a Restricted Subsidiary in accordance with
Section 10.2.3 after the Closing Date to the extent that such Investments were not made in
contemplation of or in connection with such acquisition, merger or consolidation and were in
existence on the date of such acquisition, merger or consolidation; and
(s) Investments constituting Guarantee Obligations of Indebtedness permitted under Section
10.2.1.
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10.2.6 Limitation on Dividends. MRC will not declare or pay any dividends (other than
dividends payable solely in its Stock) or return any capital to its stockholders or make any other
distribution, payment or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for consideration, any shares of any
class of its Stock or Stock Equivalents or the Stock or Stock Equivalents of any direct or indirect
parent now or hereafter outstanding, or set aside any funds for any of the foregoing purposes, or
permit any of its Restricted Subsidiaries to purchase or otherwise acquire for consideration (other
than in connection with an Investment permitted by Section 10.2.5) any Stock or Stock Equivalents
of MRC, now or hereafter outstanding (all of the foregoing dividends), provided that, (x)
to the extent that a dividend, distribution or any other return of capital pursuant to clause (c)
below is funded with a Borrowing hereunder, Excess Availability is not less than $100,000,000 after
giving effect to such dividend, distribution or other return of capital and (y) so long as no
Default or Event of Default exists or would exist after giving effect thereto:
(a) MRC may redeem in whole or in part any of its Stock or Stock Equivalents for another class
of its Stock or Stock Equivalents or with proceeds from substantially concurrent equity
contributions or issuances of new Stock or Stock Equivalents, provided that such new Stock or Stock
Equivalents contain terms and provisions at least as advantageous to the Lenders in all respects
material to their interests as those contained in the Stock or Stock Equivalents redeemed thereby;
(b) MRC may (or may make dividends to permit any direct or indirect parent thereof to)
repurchase shares of its (or such parents) Stock or Stock Equivalents held by officers, directors
and employees of MRC and its Subsidiaries, so long as such repurchase is pursuant to, and in
accordance with the terms of, management and/or employee stock plans, stock subscription agreements
or shareholder agreements; provided, that the aggregate amount of all cash paid in respect of all
such shares so repurchased in any calendar year does not exceed the sum of (i) $10,000,000 plus
(ii) all amounts obtained by MRC during such calendar year from the sale of such Stock or Stock
Equivalents to other officers, directors and employees of MRC and its Subsidiaries in connection
with any permitted compensation and incentive arrangements plus (iii) all amounts obtained from any
key-man life insurance policies received during such calendar year; provided further that the
aggregate amount permitted by the foregoing proviso with respect to any calendar year commencing
with 2012 shall be increased by 100% of the amount of unused share repurchases for the immediately
preceding year (such amount, a carry-over amount) without giving effect to any carryover
amount that was added in such preceding calendar year and assuming any such carry-over amount is
utilized first and so long as the aggregate amount of cash paid in respect of all such shares so
repurchased in any calendar year does not exceed $20,000,000; and provided still further the
aggregate amount of all cash paid in respect of all such shares so repurchased in any calendar year
may exceed the aggregate amount permitted by the foregoing provisos if Excess Availability is not
less than $100,000,000 after giving effect to such dividend, distribution or other return of
capital;
(c) MRC may pay dividends on its Stock or Stock Equivalents, provided that after giving effect
to such payment, either (i) both (A) Excess Availability is greater than the higher of (1) 15% of
the Commitments and (2) $125,000,000 and (B) the Pro Forma Consolidated Fixed Charge Coverage Ratio
is greater than 1.0 to 1.0 or (ii) Excess Availability is
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greater than the higher of (A) 20% of the Commitments and (B) $175,000,000, and provided
further that the foregoing test shall not apply to any dividends paid with proceeds arising from a
Qualified IPO; and
(d) MRC may pay dividends:
(i) to its direct or indirect parent in amounts sufficient for any such parent to pay
its income tax obligations for so long as MRC or any Restricted Subsidiary is a member of a
group filing a consolidated, combined, unitary, affiliated or other similar tax return with
such parent; provided the amount of dividends paid under this clause (i) in respect of
income tax obligations is limited to the extent such tax liability is directly attributable
to the taxable income of MRC or its Subsidiaries (that are included in such consolidated,
combined, unitary, affiliated or other similar tax return), determined as if MRC and such
Subsidiaries filed a separate consolidated, combined, unitary, affiliated or other similar
tax return as a stand-alone group and will be used to pay (or to make dividends to allow any
direct or indirect parent to pay), within 30 days of the receipt thereof, the tax liability
to each relevant jurisdiction in respect of such consolidated, combined, unitary, affiliated
or other similar returns;
(ii) the proceeds of which shall be used to allow any direct or indirect parent of MRC
to pay (A) its operating expenses incurred in the Ordinary Course of Business and other
corporate overhead costs and expenses (including administrative, legal, accounting and
similar expenses provided by third parties), which are reasonable and customary and incurred
in the Ordinary Course of Business, in an aggregate amount not to exceed $2,000,000 in any
fiscal year of MRC plus any reasonable and customary indemnification claims made by
directors or officers of MRC (or any parent thereof) attributable to the ownership or
operations of MRC and its Subsidiaries or (B) fees and expenses otherwise (1) due and
payable by MRC or any of its Subsidiaries and (2) permitted to be paid by MRC or such
Subsidiary under this Agreement;
(iii) without duplication of clause (i), above, the proceeds of which shall be used to
pay franchise taxes and other fees, taxes and expenses required to maintain the corporate
existence of any direct or indirect parent of MRC or its Restricted Subsidiaries, within
thirty (30) days of the receipt thereof;
(iv) to any direct or indirect parent of MRC to finance any Investment permitted to be
made pursuant to Section 10.2.5; provided that (A) such dividend shall be made substantially
concurrently with the closing of such Investment and (B) such parent shall, immediately
following the closing thereof, cause (1) all property acquired (whether assets, Stock or
Stock Equivalents) to be contributed to MRC or its Restricted Subsidiaries or (2) the merger
(to the extent permitted in Section 10.2.5) of the Person formed or acquired into MRC or its
Restricted Subsidiaries in order to consummate such Permitted Acquisition.
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10.2.7 Limitations on Debt Payments and Amendments.
(a) Each Borrower will not, and will not permit any Restricted Subsidiary to, prepay,
repurchase or redeem or otherwise defease any Subordinated Indebtedness; provided, however, that so
long as no Default or Event of Default shall have occurred and be continuing at the date of such
prepayment, repurchase, redemption or other defeasance or would result after giving effect thereto,
any Borrower or any Restricted Subsidiary may prepay, repurchase or redeem Subordinated
Indebtedness if either (A) both (1) Excess Availability is greater than the higher of (x) 15% of
the Commitments and (y) $125,000,000 and (2) the Pro Forma Consolidated Fixed Charge Coverage Ratio
is greater than 1.0 to 1.0 or (B) Excess Availability is greater than the higher of (1) 20% of the
Commitments and (2) $175,000,000, in each case after giving effect to such prepayment, repurchase,
redemption or other defeasance, with the proceeds of Subordinated Indebtedness that (A) is
permitted by Section 10.2.1(b) (other than Section 10.2.1(b)(xiv)) and (B) has terms not materially
less advantageous to the Lenders than those of such Subordinated Indebtedness being refinanced.
(b) Each Borrower will not waive, amend, modify, terminate or release any Subordinated
Indebtedness to the extent that any such waiver, amendment, modification, termination or release
would be adverse to the Lenders in any material respect.
(c) The Initial Canadian Borrower will not, and will not permit any Restricted Subsidiary to,
make any payment with respect to the Subordinated Indebtedness covered by the Subordination
Agreement except for the discharge of such Subordinated Indebtedness as permitted under the
Subordination Agreement.
10.2.8 Limitations on Sale Leasebacks. Each Borrower will not, and will not permit
any Restricted Subsidiary to, enter into or effect any Sale Leasebacks, other than Permitted Sale
Leasebacks.
10.2.9 Changes in Business. The Borrowers and the Subsidiaries, taken as a whole,
will not fundamentally and substantively alter the character of their business, taken as a whole,
from the business conducted by the Borrowers and the Subsidiaries, taken as a whole, on the Closing
Date and other business activities incidental or related to any of the foregoing.
10.2.10 Burdensome Agreements. Each Borrower will not, and will not permit any
Restricted Subsidiary to, enter into or permit to exist any contractual obligation (other than this
Agreement or any other Loan Document) that limits the ability of (a) any Restricted Subsidiary that
is not a Borrower or Guarantor to make dividends to any Borrower or any Guarantor or (b) such
Borrower or any Guarantor to create, incur, assume or suffer to exist Liens on property of such
Person for the benefit of the Lenders with respect to the Secured Obligations; provided that the
foregoing clauses (a) and (b) shall not apply to contractual obligations which (i)(A) exist on the
date hereof and (to the extent not otherwise permitted by this Section 10.2.10) are listed on
Schedule 10.2.10 and (B) to the extent contractual obligations permitted by clause (A) are set
forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any
permitted renewal, extension or refinancing of such Indebtedness so long as such renewal, extension
or refinancing does not expand the scope of such contractual obligation, (ii) are binding on a
Restricted Subsidiary at the time such Restricted Subsidiary first becomes a
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Restricted Subsidiary of such Borrower, so long as such contractual obligations were not
entered into solely in contemplation of such Person becoming a Restricted Subsidiary of such
Borrower; (iii) represent Indebtedness of a Restricted Subsidiary of such Borrower which is not a
Loan Party which is permitted by Section 10.2.1, (iv) arise in connection with any Disposition
permitted by Section 10.2.4, (v) are customary provisions in joint venture agreements and other
similar agreements applicable to joint ventures permitted under Section 10.2.5 and applicable
solely to such joint venture entered into in the Ordinary Course of Business, (vi) are negative
pledges and restrictions on Liens in favor of any holder of Indebtedness permitted under Section
10.2.1 but solely to the extent any negative pledge relates to the property financed by or the
subject of such Indebtedness, (vii) are customary restrictions on leases, subleases, licenses or
asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets
subject thereto, (viii) comprise restrictions imposed by any agreement relating to secured
Indebtedness permitted pursuant to Section 10.2.1 to the extent that such restrictions apply only
to the property or assets securing such Indebtedness or, in the case of secured Indebtedness
incurred pursuant to Section 10.2.1(b)(ix) or Section 10.1.(b)(x) only, to the Restricted
Subsidiaries incurring or guaranteeing such Indebtedness, (ix) are customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of such Borrower or any
Restricted Subsidiary, (x) are customary provisions restricting assignment of any agreement entered
into in the Ordinary Course of Business, (xi) are restrictions on cash or other deposits imposed by
customers under contracts entered into in the Ordinary Course of Business, and (xii) exist under
the Senior Secured Notes Indenture or any documentation relating to such debt.
10.3 Financial Covenants. As long as any Commitments or Obligations are outstanding:
10.3.1 Consolidated Fixed Charge Coverage Ratio. The Parent and its Subsidiaries
shall maintain, as of the last day of each fiscal quarter during the occurrence and continuance of
a FCCR Test Event, a Consolidated Fixed Charge Coverage Ratio of at least 1.0 to 1.0 for the Test
Period ending on the last day of such fiscal quarter.
SECTION 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT
11.1 Events of Default. Upon the occurrence of any of the following specified events
(each, an Event of Default), if the same shall occur for any reason whatsoever, whether
voluntary or involuntary, by operation of law or otherwise:
11.1.1 Payments. Any Borrower shall (a) default in the payment when due of any
principal of the Loans or (b) default in the payment when due of any interest on the Loans or any
Fees or any other amounts owing hereunder or under any other Loan Document and, so long as no Cash
Dominion Event exists, such default shall continue for five or more days; or
11.1.2 Representations, etc. Any representation, warranty or statement made or deemed
made by any Loan Party herein or in any Security Document or any certificate, statement, report or
other document delivered or required to be delivered pursuant hereto or thereto shall prove to be
untrue in any material respect on the date as of which made or deemed made; or
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11.1.3 Covenants. Any Loan Party shall:
(a) default in the due performance or observance by it of any term, covenant or agreement
contained in Section 10.1.1(h), Section 10.1.14, Section 10.2 or Section 10.3;
(b) default in the due performance or observance by it of any term, covenant or agreement
contained in Section 10.1.1(f) and such default shall continue unremedied for a period of at least
ten (10) Business Days (which period is shortened to four (4) Business Days if an FCCR Test Event
is continuing) after the earlier of the date on which a Senior Officer of such Loan Party has
knowledge of such default and the date of receipt of written notice by such Loan Party from the
Agent or the Required Lenders; or
(c) default in the due performance or observance by it of any term, covenant or agreement
(other than those referred to in Section 11.1.1 or 11.1.2 or clauses (a) or (b) of this Section
11.1.3) contained in this Agreement, any Security Document or the Fee Letter and such default shall
continue unremedied for a period of at least thirty (30) days after receipt of written notice by
such Loan Party from the Agent or the Required Lenders; or
11.1.4 Default Under Other Agreements. (a) Any of the Borrowers or any of the
Restricted Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other
than the Obligations) in excess of $30,000,000 in the aggregate, for such Borrowers and such
Restricted Subsidiaries, beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created or (ii) default in the observance or
performance of any agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or
condition exist (other than, with respect to Indebtedness consisting of any Hedge Agreements,
termination events or equivalent events pursuant to the terms of such Hedge Agreements), the effect
of which default or other event or condition is to cause, or to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) without limiting the provisions of
clause (a) above, any such Indebtedness shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (and,
with respect to Indebtedness consisting of any Hedge Agreements, other than due to a termination
event or equivalent event pursuant to the terms of such Hedge Agreements), prior to the stated
maturity thereof; or
11.1.5 Bankruptcy, etc. (a) Any Borrower or any Specified Subsidiary shall commence a
voluntary Insolvency Proceeding (b) any Foreign Subsidiary that is a Specified Subsidiary, shall
commence a voluntary case, proceeding or action under domestic or foreign law relating to
bankruptcy, judicial management, insolvency reorganization or relief of debtors legislation of its
jurisdiction of incorporation, in each case as now or hereafter in effect, or any successor
thereto, (c) an involuntary Insolvency Proceeding is commenced against any Borrower or any
Specified Subsidiary and the petition is not controverted within 10 days after commencement
thereof; (d) an involuntary Insolvency Proceeding is commenced against any Borrower or any
Specified Subsidiary and the petition is not dismissed within 60 days after commencement thereof;
(e) a Creditor Representative or similar Person is appointed for, or takes charge of, all or
substantially all of the property of any Borrower or any Specified Subsidiary; (f)
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any Borrower or any Specified Subsidiary commences any other proceeding or action under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to any
Borrower or any Specified Subsidiary; (g) there is commenced against any Borrower or any Specified
Subsidiary any such proceeding or action that remains undismissed for a period of 60 days; (h) any
Borrower or any Specified Subsidiary is adjudicated insolvent or bankrupt; (i) any order of relief
or other order approving any such case or proceeding or action is entered; (j) any Borrower or any
Specified Subsidiary suffers any appointment of any Creditor Representative or the like for it or
any substantial part of its Property to continue undischarged or unstayed for a period of 60 days;
(k) any Borrower or any Specified Subsidiary makes a general assignment for the benefit of
creditors; (l) any corporate action is taken by any Borrower or any Specified Subsidiary for the
purpose of effecting any of the foregoing; or
11.1.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have
been terminated or is the subject of termination proceedings under ERISA (including the giving of
written notice thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer any Plan (including
the giving of written notice thereof); any Plan shall have an accumulated funding deficiency
(whether or not waived); any Borrower or any Subsidiary or any ERISA Affiliate has incurred or is
likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code (including the
giving of written notice thereof); (b) there could result from any event or events set forth in
clause (a) of this Section 11.1.6 the imposition of a lien, the granting of a security interest, or
a liability, or the reasonable likelihood of incurring a lien, security interest or liability; and
(c) such lien, security interest or liability will or would be reasonably likely to have a Material
Adverse Effect; or
11.1.7 Canadian Pension Plan. (a) A Termination Event shall occur or any Canadian
Multi-Employer Plan shall be terminated, in each case, in circumstances which would result or could
reasonably be expected to result in a Canadian Facility Loan Party being required to make a
contribution to or in respect of a Canadian Pension Plan or a Canadian Multi-Employer Plan or
results in the appointment, by FSCO, of an administrator to wind up a Canadian Pension Plan, (b)
any Canadian Domiciled Loan Party is in default with respect to any required contributions to a
Canadian Pension Plan; or (c) any Lien arises (save for contribution amounts not yet due) in
connection with any Canadian Pension Plan, provided the events set forth in clauses (a), (b) and
(c), individually or in the aggregate, could reasonably be expected to result in a Material Adverse
Effect (it being acknowledged that, for purposes of this Section, funding deficiencies and other
benefit liabilities existing as of the Closing Date shall be included in the determination of
whether a Material Adverse Effect has occurred or exists); or
11.1.8 Guarantee. Any Guarantee provided by any Material Subsidiary or any material
provision thereof shall cease to be in full force or effect or any such Guarantor thereunder or any
Loan Party shall deny or disaffirm in writing any such Guarantors obligations under the Guarantee
(or any of the foregoing shall occur with respect to a Guarantee provided by a Subsidiary that is
not a Material Subsidiary and shall continue unremedied for a period of at
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least 5 Business Days after receipt of written notice to the Loan Party Agent from the Agent
or the Required Lenders); or
11.1.9 Security Documents. Any Security Document pursuant to which the assets of any
Borrower or any Material Subsidiary are pledged as Collateral or any material provision thereof
shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof or as
a result of acts or omissions of the Agent or any Lender) or any grantor thereunder or any Loan
Party shall deny or disaffirm in writing any grantors obligations under such Security Document (or
any of the foregoing shall occur with respect to Collateral provided by a Subsidiary that is not a
Material Subsidiary and shall continue unremedied for a period of at least 5 Business Days after
receipt of written notice to the Loan Party Agent from the Agent or the Required Lenders); or
11.1.10 Judgments. One or more judgments or decrees shall be entered against any
Borrower or any of the Restricted Subsidiaries involving a liability of $30,000,000 or more in the
aggregate for all such judgments and decrees for the Borrowers and the Restricted Subsidiaries (to
the extent not paid or fully covered by insurance provided by a carrier not disputing coverage) and
any such judgments or decrees shall not have been satisfied, vacated, discharged or stayed or
bonded pending appeal within 60 days from the entry thereof; or
11.1.11 Change of Control. A Change of Control shall occur; or
11.1.12 Intercreditor; Subordination. The Intercreditor Agreement shall be
invalidated or otherwise cease to constitute the legal, valid and binding obligations of the Senior
Secured Notes Secured Parties (as defined therein) and the Subordinated Lien Secured Parties (as
defined therein), enforceable in accordance with its terms or the subordination provisions of any
document or instrument evidencing any Permitted Additional Debt or other Subordinated Indebtedness
having a principal amount in excess of $15,000,000 that are subordinated shall be invalidated or
otherwise cease to be legal, valid and binding obligations of the holders of such Permitted
Additional Debt or other Subordinated Indebtedness, enforceable in accordance with their terms;
then, (1) upon the occurrence of any Event of Default described in Section 11.1.5, automatically,
and (2) upon the occurrence of any other Event of Default, at the request of (or with the consent
of) Required Lenders, upon notice to the Borrowers by the Agent, (A) the Commitment of each Lender
and the obligation of any Fronting Bank to issue any Letter of Credit shall immediately terminate;
(B) each of the following shall immediately become due and payable, in each case without
presentment, demand, protest or other requirements of any kind, all of which are hereby expressly
waived by each Loan Party: (I) the unpaid principal amount of and accrued interest on the Loans,
(II) an amount equal to the maximum amount that may at any time be drawn under all Letters of
Credit then outstanding (regardless of whether any beneficiary under any such Letter of Credit
shall have presented, or shall be entitled at such time to present, the drafts or other documents
or certificates required to draw under such Letters of Credit), and (III) all other Obligations;
provided, the foregoing shall not affect in any way the obligations of Lenders under Section 2.2.2
or 2.2.5; (C) the Agent may enforce any and all Liens and security interests created pursuant to
Security Documents; and (D) the Agent shall direct the Borrowers to pay (and each Borrower hereby
agrees upon receipt of such notice, or upon the occurrence of any Event of
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Default specified in Section 11.1.5 to pay) to the Agent such additional amounts of cash as
reasonably requested by any Fronting Bank, to be held as security for the Borrowers reimbursement
Obligations in respect of Letters of Credit then outstanding.
11.2 License. Agent is hereby granted an irrevocable (during the continuance of an
Event of Default), non-exclusive license or other right to use, license or sub-license (without
payment of royalty or other compensation to any Loan Party) any or all intellectual property of
Loan Parties, computer hardware and software, trade secrets, brochures, customer lists, promotional
and advertising materials, labels, packaging materials and other Property, in advertising for sale,
marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or
remedies with respect to, any Collateral. Each Loan Partys rights and interests under
intellectual property shall inure to Agents benefit.
11.3 Setoff. At any time during the continuation of an Event of Default, each of the
Agent, any Fronting Bank, any Lender, and any of their Affiliates is authorized, to the fullest
extent permitted by Applicable Law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held and other obligations
(in whatever currency) at any time owing by the Agent, Fronting Bank, such Lender or such Affiliate
to or for the credit or the account of a Loan Party against any Obligations, irrespective of
whether or not the Agent, such Fronting Bank, such Lender or such Affiliate shall have made any
demand under this Agreement or any other Loan Document and although such Obligations may be
contingent or unmatured or are owed to a branch or office of the Agent, such Fronting Bank, such
Lender or such Affiliate different from the branch or office holding such deposit or obligated on
such indebtedness. The rights of the Agent, each Fronting Bank, each Lender and each such
Affiliate under this Section 11.3 are in addition to other rights and remedies (including other
rights of setoff) that such Person may have.
11.4 Remedies Cumulative; No Waiver.
11.4.1 Cumulative Rights. All agreements, warranties, guaranties, indemnities and
other undertakings of Loan Parties under the Credit Documents are cumulative and not in derogation
of each other. The rights and remedies of the Agent and Lenders are cumulative, may be exercised
at any time and from time to time, concurrently or in any order, and are not exclusive of any other
rights or remedies available by agreement, by law, at equity or otherwise. All such rights and
remedies shall continue in full force and effect until Full Payment of all Obligations.
11.4.2 Waivers. No waiver or course of dealing shall be established by (a) the
failure or delay of the Agent or any Lender to require strict performance by Loan Parties with any
terms of the Loan Documents, or to exercise any rights or remedies with respect to Collateral or
otherwise; (b) the making of any Loan or issuance of any Letter of Credit during a Default, Event
of Default or other failure to satisfy any conditions precedent; or (c) acceptance by the Agent or
any Lender of any payment or performance by a Loan Party under any Loan Documents in a manner other
than that specified therein. It is expressly acknowledged by Loan Parties that any failure to
satisfy a financial covenant on a measurement date shall not be cured or remedied by satisfaction
of such covenant on a subsequent date.
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11.5 Judgment Currency. If, for the purpose of obtaining judgment in any court or
obtaining an order enforcing a judgment, it becomes necessary to convert any amount due under this
Agreement in Dollars or in any other currency (hereinafter in this Section 11.5 called the
first currency) into any other currency (hereinafter in this Section 11.5 called the
second currency), then the conversion shall be made at the Agents spot rate of exchange
for buying the first currency with the second currency prevailing at the Agents close of business
on the Business Day next preceding the day on which the judgment is given or (as the case may be)
the order is made. Any payment made by an Loan Party to any Credit Party pursuant to this
Agreement in the second currency shall constitute a discharge of the obligations of any applicable
Loan Parties to pay to such Credit Party any amount originally due to the Credit Party in the first
currency under this Agreement only to the extent of the amount of the first currency which such
Credit Party is able, on the date of the receipt by it of such payment in any second currency, to
purchase, in accordance with such Credit Partys normal banking procedures, with the amount of such
second currency so received. If the amount of the first currency falls short of the amount
originally due to such Credit Party in the first currency under this Agreement, Loan Parties agree
that they will indemnify each Credit Party against and save such Credit Party harmless from any
shortfall so arising. This indemnity shall constitute an obligation of each such Loan Party
separate and independent from the other obligations contained in this Agreement, shall give rise to
a separate and independent cause of action and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum or sums in respect of amounts due to any
Credit Party under any Loan Documents or under any such judgment or order. Any such shortfall
shall be deemed to constitute a loss suffered by such Credit Party and Loan Parties shall not be
entitled to require any proof or evidence of any actual loss. If the amount of the first currency
exceeds the amount originally due to a Credit Party in the first currency under this Agreement,
such Credit Party shall promptly remit such excess to Loan Parties. The covenants contained in
this Section 11.5 shall survive the Full Payment of the Obligations under this Agreement.
SECTION 12. AGENT
12.1 Appointment, Authority and Duties of Agent.
12.1.1 Appointment and Authority.
(a) Each Secured Party appoints and designates Bank of America as the Agent under all Loan
Documents. The Agent may, and each Secured Party authorizes the Agent to, enter into all Loan
Documents to which the Agent is intended to be a party and accept all Security Documents, for the
Agents benefit and the Pro Rata benefit of the Secured Parties. Each Secured Party agrees that
any action taken by the Agent, Required Borrower Group Lenders or Required Lenders in accordance
with the provisions of the Loan Documents, and the exercise by the Agent or Required Lenders of any
rights or remedies set forth therein, together with all other powers reasonably incidental thereto,
shall be authorized by and binding upon all Secured Parties. Without limiting the generality of
the foregoing, the Agent shall have the sole and exclusive authority to (i) act as the disbursing
and collecting agent for Lenders with respect to all payments and collections arising in connection
with the Loan Documents; (ii) execute and deliver as the Agent each Loan Document, including any
intercreditor or subordination agreement (or joinder thereto), and accept delivery of each Loan
Document from any Loan Party
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or other Person; (iii) act as collateral agent for Secured Parties for purposes of perfecting
and administering Liens under the Loan Documents, and for all other purposes stated therein; (iv)
manage, supervise or otherwise deal with Collateral; and (v) take any Enforcement Action or
otherwise exercise any rights or remedies with respect to any Collateral under the Loan Documents,
Applicable Law or otherwise. The duties of the Agent shall be ministerial and administrative in
nature, and the Agent shall not have a fiduciary relationship with any Secured Party, Participant
or other Person, by reason of any Loan Document or any transaction relating thereto. The Agent
alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible
Accounts or Eligible Inventory, whether to impose or release any reserve, or whether any conditions
to funding or to issuance of a Letter of Credit have been satisfied, which determinations and
judgments, if exercised in good faith, shall exonerate the Agent from liability to any Lender or
other Person for any error in judgment.
(b) For the purposes of creating a solidarité active in accordance with Article 1541 of the
Civil Code of Québec between each Secured Party, taken individually, on the one hand, and the
Agent, on the other hand, each Loan Party and each such Secured Party acknowledge and agree with
the Agent that such Secured Party and the Agent are hereby conferred the legal status of solidary
creditors of each such Loan Party in respect of all Obligations owed by each such Loan Party to the
Agent and such Secured Party hereunder and under the other Loan Documents (collectively, the
Solidary Claim) and that, accordingly, but subject (for the avoidance of doubt) to
Article 1542 of the Civil Code of Québec, each such Loan Party is irrevocably bound towards the
Agent and each Secured Party in respect of the entire Solidary Claim of the Agent and such Secured
Party. As a result of the foregoing, the parties hereto acknowledge that the Agent and each
Secured Party shall at all times have a valid and effective right of action for the entire Solidary
Claim of the Agent and such Secured Party and the right to give full acquittance for it.
Accordingly, and without limiting the generality of the foregoing, the Agent, as solidary creditor
with each Secured Party, shall at all times have a valid and effective right of action in respect
of the Solidary Claim and the right to give a full acquittance for same. By its execution of the
Loan Documents to which it is a party, each such Loan Party not a party hereto shall also be deemed
to have accepted the stipulations hereinabove provided. The parties further agree and acknowledge
that such Liens (hypothecs) under the Security Documents and the other Loan Documents shall be
granted to the Agent, for its own benefit and for the benefit of the Secured Parties, as solidary
creditor as hereinabove set forth.
12.1.2 Duties. The Agent shall not have any duties except those expressly set forth
in the Loan Documents. The conferral upon the Agent of any right shall not imply a duty to
exercise such right, unless instructed to do so by Lenders in accordance with this Agreement.
12.1.3 Agent Professionals. The Agent may perform its duties through agents and
employees. The Agent may consult with and employ Agent Professionals, and shall be entitled to act
upon, and shall be fully protected in any action taken in good faith reliance upon, any advice
given by an Agent Professional. The Agent shall not be responsible for the negligence or
misconduct of any agents, employees or Agent Professionals selected by it with reasonable care.
12.1.4 Instructions of Required Lenders. The rights and remedies conferred upon the
Agent under the Loan Documents may be exercised without the necessity of joinder of
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any other party, unless required by Applicable Law. The Agent may request instructions from
Required Lenders, Required Borrower Group Lenders or other Secured Parties with respect to any act
(including the failure to act) in connection with any Loan Documents, and may seek assurances to
its satisfaction from the Secured Parties of their indemnification obligations against all Claims
that could be incurred by the Agent in connection with any act. The Agent shall be entitled to
refrain from any act until it has received such instructions or assurances, and the Agent shall not
incur liability to any Person by reason of so refraining. Instructions of Required Lenders or
Required Borrower Group Lenders shall be binding upon all Secured Parties, and no Secured Party
shall have any right of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting in accordance with the instructions of Required Lenders or Required Borrower
Group Lenders. Notwithstanding the foregoing, instructions by and consent of specific parties
shall be required to the extent provided in Section 14.1.1. In no event shall the Agent be
required to take any action that, in its opinion, is contrary to Applicable Law or any Loan
Documents or could subject any Agent Indemnitee to personal liability.
12.2 Agreements Regarding Collateral and Field Examination Reports.
12.2.1 Lien Releases; Care of Collateral.
(a) Canadian Facility Secured Parties authorize the Agent to release any Lien with respect to
any Canadian Facility Collateral (i) upon Full Payment of the Canadian Facility Obligations; (ii)
that the Loan Party Agent certifies in writing to the Agent is permitted under Section 10.2.4 or a
Lien which Loan Party Agent certifies is permitted under Section 10.2.2 and entitled to priority
over the Agents Liens (and the Agent may rely conclusively on any such certificate without further
inquiry); (iii) that does not constitute a material part of the Canadian Facility Collateral; or
(iv) with the written consent of all Canadian Lenders.
(b) U.S. Facility Secured Parties authorize the Agent to release any Lien with respect to any
U.S. Facility Collateral (i) upon Full Payment of the U.S. Facility Obligations; (ii) that the Loan
Party Agent certifies in writing to the Agent is permitted under Section 10.2.4 or a Lien which
Loan Party Agent certifies is permitted to be sold under Section 10.2.2 and entitled to priority
over the Agents Liens (and the Agent may rely conclusively on any such certificate without further
inquiry); (iii) that does not constitute a material part of the U.S. Facility Collateral; or (iv)
with the written consent of all U.S. Lenders.
(c) The Agent shall have no obligation to assure that any Collateral exists or is owned by a
Loan Party, or is cared for, protected or insured, nor to assure that the Agents Liens have been
properly created, perfected or enforced, or are entitled to any particular priority, nor to
exercise any duty of care with respect to any Collateral.
12.2.2 Possession of Collateral.
(a) The Agent and Canadian Facility Secured Parties appoint each Canadian Lender as agent (for
the benefit of Canadian Facility Secured Parties) for the purpose of perfecting Liens in any
Canadian Facility Collateral held or controlled by such Canadian Lender, to the extent such Liens
are perfected by possession or control.
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(b) The Agent and U.S. Facility Secured Parties appoint each U.S. Lender as agent (for the
benefit of U.S. Facility Secured Parties) for the purpose of perfecting Liens in any U.S. Facility
Collateral held or controlled by such U.S. Lender, to the extent such Liens are perfected by
possession or control.
(c) If any Lender obtains possession or control of any Collateral, it shall notify the Agent
thereof and, promptly upon the Agents request, deliver such Collateral to the Agent or otherwise
deal with it in accordance with the Agents instructions.
12.2.3 Reports. The Agent shall promptly forward to each Applicable Lender, when
complete, copies of any field audit, examination or appraisal report prepared by or for the Agent
with respect to any Loan Party or Collateral (Report). Each Lender agrees (a) that
neither Bank of America nor the Agent makes any representation or warranty as to the accuracy or
completeness of any Report, and shall not be liable for any information contained in or omitted
from any Report; (b) that the Reports are not intended to be comprehensive audits or examinations,
and that the Agent or any other Person performing any audit or examination will inspect only
specific information regarding Obligations or the Collateral and will rely significantly upon the
applicable Loan Parties books and records as well as upon representations of the applicable Loan
Parties officers and employees; and (c) to keep all Reports confidential and strictly for such
Lenders internal use, and not to distribute any Report (or the contents thereof) to any Person
(except to such Lenders Participants, attorneys and accountants) or use any Report in any manner
other than administration of the Loans and other Obligations. Each Lender shall indemnify and hold
harmless the Agent and any other Person preparing a Report from any action such Lender may take as
a result of or any conclusion it may draw from any Report, as well as from any Claims arising as a
direct or indirect result of the Agent furnishing a Report to such Lender.
12.3 Reliance By Agent. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any certification, notice or other communication (including those by
telephone, telex, telegram, telecopy or e-mail) believed by it in good faith to be genuine and
correct and to have been signed, sent or made by the proper Person, and upon the advice and
statements of Agent Professionals. The Agent shall have a reasonable and practicable amount of
time to act upon any instruction, notice or other communication under any Loan Document, and shall
not be liable for any delay in acting.
12.4 Action Upon Default. The Agent shall not be deemed to have knowledge of any
Default or Event of Default, or of any failure to satisfy any conditions in Section 6, unless it
has received written notice from a the Loan Party Agent, Required Lenders or Required Borrower
Group Lenders specifying the occurrence and nature thereof. If any Lender acquires knowledge of a
Default, Event of Default or of such conditions, it shall promptly notify the Agent and the other
Lenders thereof in writing. Each Secured Party agrees that, except as otherwise provided in any
Credit Documents or with the written consent of the Agent and Required Lenders, it will not take
any Enforcement Action, accelerate Obligations (other than Secured Bank Product Obligations), or
exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure
sales, UCC or PPSA sales or other similar dispositions of Collateral or to assert any rights
relating to any Collateral.
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12.5 Ratable Sharing. If any Lender shall obtain any payment or reduction of any
Obligation, whether through set-off or otherwise, in excess of its share of such Obligation,
determined on a Pro Rata basis or in accordance with Section 5.5.1, as applicable, such Lender
shall forthwith purchase from the Agent, any Fronting Bank and the other Applicable Lenders such
participations in the affected Obligation as are necessary to cause the purchasing Lender to share
the excess payment or reduction on a Pro Rata basis or in accordance with Section 5.5.1, as
applicable. If any of such payment or reduction is thereafter recovered from the purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the extent of such
recovery, but without interest. Notwithstanding the foregoing, if a Defaulting Lender obtains a
payment or reduction of any Obligation, it shall immediately turn over the amount thereof to the
Agent for application under Section 4.2 and it shall provide a written statement to the Agent
describing the Obligation affected by such payment or reduction. No Lender shall setoff against
any Dominion Account without the prior consent of the Agent.
12.6 Indemnification of Agent Indemnitees. EACH LENDER SHALL INDEMNIFY AND HOLD
HARMLESS AGENT INDEMNITEES, TO THE EXTENT NOT REIMBURSED BY LOAN PARTIES (BUT WITHOUT LIMITING THE
INDEMNIFICATION OBLIGATIONS OF LOAN PARTIES UNDER ANY CREDIT DOCUMENTS), ON A PRO RATA BASIS,
AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY SUCH AGENT INDEMNITEE, PROVIDED
THE ANY CLAIM AGAINST AN AGENT INDEMNITEE RELATES TO OR ARISES FROM ITS ACTING AS OR FOR THE AGENT
(IN THE CAPACITY OF THE AGENT). In no event shall any Lender have any obligation hereunder to
indemnify or hold harmless an Agent Indemnitee with respect to a Claim that is determined in a
final, non-appealable judgment by a court of competent jurisdiction to result from the gross
negligence or willful misconduct of such Agent Indemnitee. In the Agents discretion, it may
reserve for any Claims made against an Agent Indemnitee, and may satisfy any judgment, order or
settlement relating thereto, from proceeds of Collateral prior to making any distribution of
Collateral proceeds to the Secured Parties. If the Agent is sued by any Creditor Representative,
debtor-in-possession or other Person for any alleged preference or fraudulent transfer, then any
monies paid by the Agent in settlement or satisfaction of such proceeding, together with all
interest, costs and expenses (including attorneys fees) incurred in the defense of same, shall be
promptly reimbursed to the Agent by each Lender to the extent of its Pro Rata share.
12.7 Limitation on Responsibilities of Agent. The Agent shall not be liable to any
Secured Party for any action taken or omitted to be taken under the Credit Documents, except for
losses directly and solely caused by the Agents gross negligence or willful misconduct. The Agent
does not assume any responsibility for any failure or delay in performance or any breach by any
Loan Party, Lender or other Secured Party of any obligations under the Credit Documents. The Agent
does not make any express or implied warranty, representation or guarantee to the Secured Parties
with respect to any Obligations, Collateral, Credit Documents or Loan Party. No Agent Indemnitee
shall be responsible to the Secured Parties for any recitals, statements, information,
representations or warranties contained in any Credit Documents; the execution, validity,
genuineness, effectiveness or enforceability of any Credit Documents; the genuineness,
enforceability, collectability, value, sufficiency, location or existence of any Collateral, or the
validity, extent, perfection or priority of any Lien therein; the validity, enforceability or
collectability of any Obligations; or the assets, liabilities, financial condition,
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results of operations, business, creditworthiness or legal status of any Loan Party or Account
Debtor. No Agent Indemnitee shall have any obligation to any Secured Party to ascertain or inquire
into the existence of any Default or Event of Default, the observance or performance by any Loan
Party of any terms of the Credit Documents, or the satisfaction of any conditions precedent
contained in any Credit Documents.
12.8 Successor Agent and Co-Agents.
12.8.1 Resignation; Successor Agent. Subject to the appointment and acceptance of a
successor Agent as provided below, Agent may resign at any time by giving at least 30 days written
notice thereof to Lenders and Loan Party Agent Upon receipt of such notice, Required Lenders shall
have the right to appoint a successor Agent which shall be (a) a U.S. Lender or an Affiliate of a
U.S. Lender; or (b) a commercial bank that is organized under the laws of the United States or any
state or district thereof, has a combined capital surplus of at least $200,000,000 and (provided no
Event of Default exists) is reasonably acceptable to Loan Party Agent. Upon acceptance by a
successor Agent of an appointment to serve as the Agent hereunder, or upon appointment of Required
Lenders as successor Agent, such successor Agent shall thereupon succeed to and become vested with
all the powers and duties of the retiring Agent without further act, and the retiring Agent shall
be discharged from its duties and obligations hereunder but shall continue to have the benefits of
the indemnification set forth in Sections 12.6 and 14.2. Notwithstanding any Agents resignation,
the provisions of this Section 12 shall continue in effect for its benefit with respect to any
actions taken or omitted to be taken by it while the Agent. Any successor to Bank of America by
merger or acquisition of stock or this loan shall continue to be the Agent hereunder without
further act on the part of the parties hereto, unless such successor resigns as provided above.
12.8.2 Separate Collateral Agent. It is the intent of the parties that there shall be
no violation of any Applicable Law denying or restricting the right of financial institutions to
transact business in any jurisdiction. If the Agent believes that it may be limited in the
exercise of any rights or remedies under the Credit Documents due to any Applicable Law, the Agent
may appoint an additional Person who is not so limited, as a separate collateral agent or
co-collateral agent. If the Agent so appoints a collateral agent or co-collateral agent, each
right and remedy intended to be available to the Agent under the Credit Documents shall also be
vested in such separate agent. The Secured Parties shall execute and deliver such documents as the
Agent deems appropriate to vest any rights or remedies in such agent. If any collateral agent or
co-collateral agent shall die or dissolve, become incapable of acting, resign or be removed, then
all the rights and remedies of such agent, to the extent permitted by Applicable Law, shall vest in
and be exercised by the Agent until appointment of a new agent.
12.9 Due Diligence and Non-Reliance. Each Lender acknowledges and agrees that it has,
independently and without reliance upon the Agent or any other Lenders, and based upon such
documents, information and analyses as it has deemed appropriate, made its own credit analysis of
each Loan Party and its own decision to enter into this Agreement and to fund Loans and participate
in LC Obligations hereunder. Each Secured Party has made such inquiries as it deems necessary
concerning the Credit Documents, the Collateral and each Loan Party. Each Secured Party further
acknowledges and agrees that the other Secured Parties and the Agent have made no representations
or warranties concerning any Loan Party, any Collateral or the legality,
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validity, sufficiency or enforceability of any Credit Documents or Obligations. Each Secured
Party will, independently and without reliance upon any other Secured Party or the Agent, and based
upon such financial statements, documents and information as it deems appropriate at the time,
continue to make and rely upon its own credit decisions in making Loans and participating in LC
Obligations, and in taking or refraining from any action under any Credit Documents. Except for
notices, reports and other information expressly requested by a Lender, the Agent shall have no
duty or responsibility to provide any Secured Party with any notices, reports or certificates
furnished to the Agent by any Loan Party or any credit or other information concerning the affairs,
financial condition, business or Properties of any Loan Party (or any of its Affiliates) which may
come into possession of the Agent or any of Agents Affiliates.
12.10 Remittance of Payments and Collections.
12.10.1 Remittances Generally. All payments by any Lender to the Agent shall be made
by the time and on the day set forth in this Agreement, in immediately available funds. If no time
for payment is specified or if payment is due on demand by the Agent and request for payment is
made by the Agent by 11:00 a.m. on a Business Day, payment shall be made by Lender not later than
2:00 p.m. on such day, and if request is made after 11:00 a.m., then payment shall be made by 11:00
a.m. on the next Business Day. Payment by the Agent to any Secured Party shall be made by wire
transfer, in the type of funds received by the Agent. Any such payment shall be subject to the
Agents right of offset for any amounts due from such payee under the Loan Documents.
12.10.2 Failure to Pay. If any Secured Party fails to pay any amount when due by it
to the Agent pursuant to the terms hereof, such amount shall bear interest from the due date until
paid at the rate determined by the Agent as customary in the banking industry for interbank
compensation. In no event shall Loan Parties be entitled to receive credit for any interest paid
by a Secured Party to the Agent, nor shall any Defaulting Lender be entitled to interest on any
amounts held by Agent pursuant to Section 4.2.
12.10.3 Recovery of Payments. If the Agent pays any amount to a Secured Party in the
expectation that a related payment will be received by the Agent from a Loan Party and such related
payment is not received, then Agent may recover such amount from each Secured Party that received
it. If the Agent determines at any time that an amount received under any Loan Document must be
returned to a Loan Party or paid to any other Person pursuant to Applicable Law or otherwise, then,
notwithstanding any other term of any Loan Document, the Agent shall not be required to distribute
such amount to any Lender. If any amounts received and applied by the Agent to any Obligations are
later required to be returned by the Agent pursuant to Applicable Law, each Lender shall pay to the
Agent, on demand, such Lenders Pro Rata share of the amounts required to be returned.
12.11 Agent in its Individual Capacity. As a Lender, Bank of America shall have the
same rights and remedies under the other Credit Documents as any other Lender, and the terms
Lenders, Required Lenders, Required Borrower Group Lenders or any
similar term shall include Bank of America in its capacity as a Lender. Each of Bank of America
and its Affiliates may accept deposits from, lend money to, provide Bank Products to, act as
financial or other advisor to, and generally engage in any kind of business with, the Loan Parties
and their
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Affiliates, as if Bank of America was not Agent hereunder, without any duty to account
therefor to Lenders. In their individual capacities, Bank of America and its Affiliates may
receive information regarding the Loan Parties, their Affiliates and their Account Debtors
(including information subject to confidentiality obligations), and each Secured Party agrees that
Bank of America and its Affiliates shall be under no obligation to provide such information to any
Secured Party, if acquired in such individual capacity.
12.12 Agent Titles. Each Lender, other than Bank of America, that is designated (on
the cover page of this Agreement or otherwise) by Bank of America as an Agent or
Arranger of any type shall not have any right, power, responsibility or duty under any
Loan Documents other than those applicable to all Lenders, and shall in no event be deemed to have
any fiduciary relationship with any other Lender.
12.13 Bank Product Providers. Each Secured Bank Product Provider that is not a
Lender, by delivery of a joinder agreement in form and substance reasonably satisfactory to Agent
and Loan Party Agent, or as otherwise agreed by Agent and Loan Party Agent, shall agree to be bound
by Section 5.5 and this Section 12. Each Secured Bank Product Provider shall indemnify and hold
harmless Agent Indemnitees, to the extent not reimbursed by Loan Parties, against all Claims that
may be incurred by or asserted against any Agent Indemnitee in connection with such providers
Secured Bank Product Obligations (except those Claims determined in a final, non-appealable
judgment by a court of competent jurisdiction to result from the gross negligence or willful
misconduct of such Agent Indemnitee).
12.14 No Third Party Beneficiaries. This Section 12 is an agreement solely among the
Secured Parties and the Agent, and shall survive Full Payment of the Obligations. This Section 12
does not confer any rights or benefits upon Loan Parties or any other Person. As between Loan
Parties and the Agent, any action that the Agent may take under any Credit Documents or with
respect to any Obligations shall be conclusively presumed to have been authorized and directed by
the Secured Parties.
SECTION 13. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
13.1 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of Loan Parties, the Agent, Secured Parties, and their respective successors and assigns,
except that (a) no Loan Party shall have the right to assign its rights or delegate its obligations
under any Loan Documents; and (b) any assignment by a Lender must be made in compliance with
Section 13.3. The Agent may treat the Person which made any Loan as the owner thereof for all
purposes until such Person makes an assignment in accordance with Section 13.3. Any authorization
or consent of a Lender shall be conclusive and binding on any subsequent transferee or assignee of
such Lender. The Agent, acting solely for this purpose as a non-fiduciary agent of the Borrowers,
shall maintain a copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and Fronting Banks, and the Commitments of,
and principal amounts (and stated interest) of the Loans, Letters of Credit and other obligations
owing to, each Lender or Fronting Bank pursuant to the terms hereof from time to time (the
Register). The entries in the Register shall be conclusive absent manifest error
(provided, that a failure to make any such recordation, or any
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error in such recordation, shall not affect the Borrowers obligations in respect of such
Loans, Letters of Credit or other obligations), and the Borrowers, the Agent, the Lenders and the
Fronting Banks shall treat each Person whose name is recorded in the Register pursuant to the terms
hereof as the owner of the Commitments, Loans, Letters of Credit and other obligations recorded in
the Register as owing to such Person, for all purposes of this Agreement. The Register shall be
available for inspection by the Borrowers and any Lender or Fronting Bank, at any reasonable time
and from time to time upon reasonable prior notice.
13.2 Participations.
13.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary course of its
business and in accordance with Applicable Law, at any time sell to a financial institution
(Participant) a participating interest in the rights and obligations of such Lender under
any Loan Documents. Despite any sale by a Lender of participating interests to a Participant, such
Lenders obligations under the Loan Documents shall remain unchanged, such Lender shall remain
solely responsible to the other parties hereto for performance of such obligations, such Lender
shall remain the holder of its Loans and Borrower Group Commitments for all purposes, all amounts
payable by Loan Parties within the applicable Loan Party Group shall be determined as if such
Lender had not sold such participating interests, and Loan Parties within the applicable Loan Party
Group and the Agent shall continue to deal solely and directly with such Lender in connection with
the Loan Documents. Each Lender shall be solely responsible for notifying its Participants of any
matters under the Loan Documents, and the Agent and the other Lenders shall not have any obligation
or liability to any such Participant. A Participant of U.S. Facility Obligations or Canadian
Facility Obligations that would be a Foreign Lender if it were a Lender shall not be entitled to
the benefits of Section 5.8 unless Loan Party Agent agrees otherwise in writing. Each Lender that
sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the
applicable Borrower, maintain a register on which it enters the name and address of each
Participant and the principal amounts (and stated interest) of each Participants interest in the
Loans, Letters of Credit or other obligations under the Loan Documents (the Participant
Register); provided that no Lender shall have any obligation to disclose all or any portion of
the Participant Register to any Person (including the identity of any Participant or any
information relating to a Participants interest in any Commitments, Loans, Letters of Credit or
its other obligations under any Loan Document) except to the extent that such disclosure is
necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in
registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries
in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat
each Person whose name is recorded in the Participant Register as the owner of such participation
for all purposes of this Agreement notwithstanding any notice to the contrary.
13.2.2 Voting Rights. Each Lender shall retain the sole right to approve, without the
consent of any Participant, any amendment, waiver or other modification of any Loan Documents other
than that which forgives principal, interest or fees, reduces the stated interest rate or fees
payable with respect to any Loan or Borrower Group Commitment in which such Participant has an
interest, postpones the Canadian Revolver Commitment Termination Date, the U.S. Facility Revolver
Commitment Termination Date or the Swingline Commitment Termination Date, as applicable, or any
date fixed for any regularly scheduled payment of
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principal, interest or fees on such Loan or Commitment, or releases any Loan Party, Guarantor
or substantial portion of the Collateral.
13.2.3 Benefit of Set-Off. Loan Parties agree that each Participant shall have a
right of set-off in respect of its participating interest to the same extent as if such interest
were owing directly to a Lender, and each Lender shall also retain the right of set-off with
respect to any participating interests sold by it. By exercising any right of set-off, a
Participant agrees to share with Lenders all amounts received through its set-off, in accordance
with Section 12.5 as if such Participant were a Lender.
13.3 Assignments.
13.3.1 Permitted Assignments. Subject to Section 13.3.3 below, a Lender may assign to
an Eligible Assignee any of its rights and obligations under the Loan Documents, as long as (a)
each assignment is of a constant, and not a varying, percentage of the transferor Lenders rights
and obligations under the Loan Documents (unless otherwise agreed by the Agent) and, in the case of
a partial assignment, is in a minimum principal amount of $5,000,000 or Cdn$5,000,000, as
applicable (unless otherwise agreed by the Agent in its discretion), and integral multiples of
$1,000,000 or Cdn$1,000,000, as applicable, in excess of that amount; (b) except in the case of an
assignment in whole of a Lenders rights and obligations, the aggregate amount of the Commitments
retained by the transferor Lender is at least $5,000,000 or Cdn$5,000,000, as applicable (unless
otherwise agreed by the Agent in its discretion); and (c) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording, an Assignment and Acceptance.
Nothing herein shall limit the right of a Lender to pledge or assign any rights under the Loan
Documents to (i) any Federal Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors and any Operating Circular issued by such
Federal Reserve Bank, or (ii) counterparties to swap agreements relating to any Loans; provided,
however, (i) such Lender shall remain the holder of its Loans and owner of its interest in any
Letter of Credit for all purposes hereunder, (ii) Borrowers, the Agent, the other Lenders and
Fronting Bank shall continue to deal solely and directly with such Lender in connection with such
Lenders rights and obligations under this Agreement, (iii) any payment by Loan Parties to the
assigning Lender in respect of any Obligations assigned as described in this sentence shall satisfy
Loan Parties obligations hereunder to the extent of such payment, and no such assignment shall
release the assigning Lender from its obligations hereunder.
13.3.2 Effect; Effective Date. Upon delivery to the Agent of an assignment notice in
the form of Exhibit A-2 and a processing fee of $3,500 (unless otherwise agreed by the Agent in its
discretion), the assignment shall become effective as specified in the notice, if it complies with
this Section 13.3.2. From such effective date, the Eligible Assignee shall for all purposes be a
Lender under the Loan Documents, and shall have all rights and obligations of a Lender thereunder.
Upon consummation of an assignment, the transferor Lender, the Agent and Loan Parties shall make
appropriate arrangements for issuance of replacement and/or new Notes, as applicable. The
transferee Lender shall comply with Section 5.9 and deliver, upon request, an administrative
questionnaire satisfactory to Agent.
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13.3.3 Certain Assignees. No assignment or participation may be made to any Borrower,
Affiliate of any Borrower, Defaulting Lender or natural person except as described in Schedule
13.3.3. In connection with any assignment by a Defaulting Lender, such assignment shall be
effective only upon payment by the Eligible Assignee or Defaulting Lender to the Agent of an
aggregate amount sufficient, upon distribution (through direct payment, purchases of participations
or other compensating actions as the Agent deems appropriate), (a) to satisfy all funding and
payment liabilities then owing by the Defaulting Lender hereunder, and (b) to acquire its Pro Rata
share of all Loans and LC Obligations. If an assignment by a Defaulting Lender shall become
effective under Applicable Law for any reason without compliance with the foregoing sentence, then
the assignee shall be deemed a Defaulting Lender for all purposes until such compliance occurs.
13.3.4 Replacement of Certain Lenders. If (x) a Lender (a) fails to give its consent
to any amendment, waiver or action for which consent of all Lenders was required and Required
Lenders consented, (b) is a Defaulting Lender, or (c) gives a notice under Section 3.5 or requests
compensation under Section 3.7, or (y) if any Borrower is required to pay additional amounts with
respect to a Lender under Section 5.8, then, in addition to any other rights and remedies that any
Person may have, the Agent or Loan Party Agent may, by notice to such Lender within 120 days after
such event, require such Lender to assign all of its rights and obligations under the Loan
Documents to one or more Eligible Assignees, pursuant to appropriate Assignment and Acceptances,
within 20 days after the notice. The Agent is irrevocably appointed as attorney-in-fact to execute
any such Assignment and Acceptance if the Lender fails to execute it. Such Lender shall be
entitled to receive, in cash, concurrently with such assignment, all amounts owed to it under the
Loan Documents at par, including all principal, interest and fees through the date of assignment
(but excluding any prepayment charge).
SECTION 14. MISCELLANEOUS
14.1 Consents, Amendments and Waivers.
14.1.1 Amendment. No modification of any Loan Document, including any extension or
amendment of a Loan Document or any waiver of a Default or Event of Default, shall be effective
without the prior written agreement of the Agent (with the consent of Required Lenders) and each
Loan Party party to such Loan Document; provided, however, that:
(a) without the prior written consent of the Agent, no modification shall be effective with
respect to any provision in a Loan Document that relates to any rights, duties or discretion of the
Agent;
(b) (i) without the prior written consent of each U.S. Fronting Bank, no modification shall be
effective with respect to any U.S. LC Obligations or Sections 2.2.1, 2.2.2 or 2.2.3 or any other
provision in a Loan Document that relates to any rights, duties or discretion of any U.S. Fronting
Bank and (ii) without the prior written consent of Canadian Fronting Bank, no modification shall be
effective with respect to any Canadian LC Obligations or Sections 2.2.4, 2.2.5 or 2.2.6 or any
other provision in a Loan Document that relates to any rights, duties or discretion of Canadian
Fronting Bank;
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(c) without the prior written consent of each affected Lender, including a Defaulting Lender,
no modification shall be effective that would (i) increase the Borrower Group Commitment of such
Lender; (ii) reduce the amount of, or waive or delay payment of, any principal, interest or fees
payable to such Lender (except as provided in Section 4.2); or (iii) increase the aggregate amount
of all Commitments other than as provided in Section 2.1.7;
(d) without the prior written consent of all Lenders (except any Defaulting Lender as provided
in Section 4.2), no modification shall be effective that would (i) extend the U.S. Revolver
Commitment Termination Date, the Canadian Revolver Commitment Termination Date, the Swingline
Commitment Termination Date or Facility Termination Date; (ii) alter Section 5.5 or 7.1 (except to
add Collateral); (iii) amend the definitions of Pro Rata, Required Lenders, Required Borrower Group
Lenders, Super-Majority Borrower Group Lenders or Super-Majority Lenders; (iv) amend this Section
14.1.1; or (v) increase the Maximum Facility Amount;
(e) without the prior written consent of the Super-Majority Borrower Group Lenders having
commitments to a Borrower Group, no amendment or waiver shall be effective that would (i) with
respect to Lenders having Borrower Group Commitments to the Canadian Borrowers, (A) amend the
definitions of Canadian Borrowing Base or Total Canadian Borrowing Base (and the defined terms used
in such definition) if the effect of such amendment is to increase the advance rates contained
therein, to make more credit available or to add new types of Collateral thereunder, (B) increase
the advance rates applicable to the Canadian Borrowers, (C) release a material portion (but less
than all or substantially all) of the Canadian Facility Collateral, except as currently
contemplated by Section 12.2.1(a), provided that a release of all or substantially all of the
Canadian Facility Collateral requires the prior written consent of all Canadian Lenders, (D)
release any Canadian Facility Loan Party from liability for any Canadian Facility Obligations
except as otherwise provided in this Agreement, (E) except as permitted under Section 10.2.2,
subordinate Agents Lien on any Canadian Facility Collateral or subordinate any Canadian Facility
Obligations in right of payment to any other Indebtedness or (F) amend the definition of Canadian
Availability; or (ii) with respect to Lenders having Borrower Group Commitments to the U.S.
Borrowers, (A) amend the definition of U.S. Borrowing Base (and the defined terms used in such
definition) if the effect of such amendment is to increase the advance rates contained therein, to
make more credit available or to add new types of Collateral thereunder, (B) increase the advance
rates applicable to the U.S. Borrowers, (C) release any material portion (but less than all or
substantially all) of the U.S. Facility Collateral, except as currently contemplated by Section
12.2.1(b), provided that a release of all or substantially all of the U.S. Facility Collateral
requires the prior written consent of all U.S. Lenders, (D) release any U.S. Facility Loan Party
from liability for any U.S. Facility Obligations except as otherwise provided in this Agreement,
(E) except as permitted under Section 10.2.2, subordinate Agents Lien on any U.S. Facility
Collateral or subordinate any U.S. Facility Obligations in right of payment to any other
Indebtedness or (F) amend the definition of U.S. Availability;
(f) without the prior written consent of the Super-Majority Lenders, no amendment or waiver
shall be effective that would amend the definition of Excess Availability; and
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(g) notwithstanding anything in this Section 14.1.1 to the contrary, if the Agent and the Loan
Party Agent shall have jointly identified an obvious error or any error or omission of a technical
nature, in each case, in any provision of the Loan Documents, then the Agent and the Loan Party
Agent shall be permitted to amend such provision, and, in each case, such amendment shall become
effective without any further action or consent of any other party to any Loan Document if the same
is not objected to in writing by the Required Lenders to the Agent within ten Business Days
following receipt of notice thereof.
14.1.2 Limitations. The agreement of Loan Parties shall not be necessary to the
effectiveness of any modification of a Loan Document that deals solely with the rights and duties
of Lenders, the Agent and/or any Fronting Bank as among themselves. Only the consent of the
parties to the Fee Letter or any agreement relating to a Bank Product shall be required for any
modification of such agreement, and any non-Lender that is a party to a Bank Product agreement
shall have no right to participate in any manner in modification of any other Loan Document. The
making of any Loans during the existence of a Default or Event of Default shall not be deemed to
constitute a waiver of such Default or Event of Default, nor to establish a course of dealing. Any
waiver or consent granted by the Agent or Lenders hereunder shall be effective only if in writing
and only for the matter specified.
14.1.3 Payment for Consents. After the Closing Date, no Loan Party will, directly or
indirectly, pay any remuneration or other thing of value, whether by way of additional interest,
fee or otherwise, to any Lender (in its capacity as a Lender hereunder) as consideration for
agreement by such Lender with any modification of any Loan Documents, unless such remuneration or
value is concurrently paid, on the same terms, on a Pro Rata basis to all Lenders providing their
consent.
14.2 Indemnity. IN ADDITION TO THE INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION
5.8.2, EACH LOAN PARTY SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT
MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ASSERTED BY ANY LOAN PARTY
OR OTHER PERSON OR ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE. In no event shall any party to a
Loan Document have any obligation thereunder to indemnify or hold harmless an Indemnitee with
respect to a Claim that is determined in a final, non-appealable judgment by a court of competent
jurisdiction to result from the gross negligence, willful misconduct or bad faith of such
Indemnitee, and no Loan Party shall have any obligation to indemnify or hold harmless an Indemnitee
for disputes solely among Indemnitees and not relating to any act or omission of any Loan Party or
its Affiliates (other than any action involving the Agent, any Fronting Bank or any Swingline
Lender, in each case in its capacity as such, in which case this indemnity shall apply with respect
to each such Person, as applicable, to the extent otherwise available).
14.3 Notices and Communications.
14.3.1 Notice Address. Subject to Section 4.4, all notices and other communications
by or to a party hereto shall be in writing and shall be given to any Loan Party, at Loan Party
Agents address shown on the signature pages hereof, and to any other Person at its address shown
on the signature pages hereof (or, in the case of a Person who becomes a Lender
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after the Closing Date, at the address shown on its Assignment and Acceptance), or at such
other address as a party may hereafter specify by notice in accordance with this Section 14.3.
Each such notice or other communication shall be effective only (a) if given by facsimile
transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is
received; (b) if given by mail, three Business Days after deposit in the U.S. mail (or, in the case
of a Canadian Domiciled Loan Party, the Canadian mail system), with first-class postage pre-paid,
addressed to the applicable address; or (c) if given by personal delivery, when duly delivered to
the notice address with receipt acknowledged. Notwithstanding the foregoing, no notice to Agent
pursuant to Section 2.1.4, 2.2, 3.1.1, 3.1.2 or 4.1.1 shall be effective until actually received by
the individual to whose attention at Agent such notice is required to be sent. Any written notice
or other communication that is not sent in conformity with the foregoing provisions shall
nevertheless be effective on the date actually received by the noticed party. Any notice received
by Loan Party Agent shall be deemed received by all Loan Parties.
14.3.2 Electronic Communications; Voice Mail. Electronic mail and internet websites
may be used only for routine communications, such as financial statements, Borrowing Base
Certificates and other information required by Section 10.1.1, administrative matters, distribution
of Loan Documents for execution, and matters permitted under Section 4.1.3. The Agent and Lenders
make no assurances as to the privacy and security of electronic communications. Electronic mail
and voice mail may not be used as effective notice under the Loan Documents.
14.3.3 Non-Conforming Communications. The Agent and Lenders may rely upon any notices
purportedly given by or on behalf of any Loan Party even if such notices were not made in a manner
specified herein, were incomplete or were not confirmed, or if the terms thereof, as understood by
the recipient, varied from a later confirmation. Each Loan Party shall indemnify and hold harmless
each Indemnitee from any liabilities, losses, costs and expenses arising from any telephonic
communication purportedly given by or on behalf of a Loan Party.
14.4 Performance of Loan Parties Obligations. The Agent may, in its discretion at
any time and from time to time, at the expense of the Loan Parties of the applicable Loan Party
Group, pay any amount or do any act required of a Loan Party under any Loan Documents or otherwise
lawfully requested by the Agent to (a) enforce any Loan Documents or collect any Obligations; (b)
protect, insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity or
priority of the Agents Liens in any Collateral, including any payment of a judgment, insurance
premium, warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a
Lien. All payments, costs and expenses (including Extraordinary Expenses) of the Agent under this
Section 14.4 shall be reimbursed to the Agent by Loan Parties, on demand, with interest from the
date incurred to the date of payment thereof at the Default Rate applicable to U.S. Base Rate
Loans. Any payment made or action taken by Agent under this Section 14.4 shall be without
prejudice to any right to assert an Event of Default or to exercise any other rights or remedies
under the Loan Documents.
14.5 Credit Inquiries. Each Loan Party hereby authorizes the Agent and Lenders (but
they shall have no obligation) to respond to usual and customary credit inquiries from third
parties concerning any Loan Party or Subsidiary.
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14.6 Severability. Wherever possible, each provision of the Loan Documents shall be
interpreted in such manner as to be valid under Applicable Law. If any provision is found to be
invalid under Applicable Law, it shall be ineffective only to the extent of such invalidity and the
remaining provisions of the Loan Documents shall remain in full force and effect.
14.7 Cumulative Effect; Conflict of Terms. The provisions of the Loan Documents are
cumulative. The parties acknowledge that the Loan Documents may use several limitations, tests or
measurements to regulate similar matters, and they agree that these are cumulative and that each
must be performed as provided. Except as otherwise provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in
direct conflict with any provision in another Loan Document, the provision herein shall govern and
control.
14.8 Counterparts. Any Loan Document may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall constitute a single
contract. This Agreement shall become effective when the Agent has received counterparts bearing
the signatures of all parties hereto. Delivery of a signature page of any Loan Document by
telecopy or other electronic means shall be effective as delivery of a manually executed
counterpart of such agreement.
14.9 Entire Agreement. Time is of the essence of the Loan Documents. The Loan
Documents constitute the entire contract among the parties relating to the subject matter hereof,
and supersede any and all previous agreements and understandings, oral or written, relating to the
subject matter hereof.
14.10 Relationship with Lenders. The obligations of each Lender hereunder are
several, and no Lender shall be responsible for the obligations or Commitments of any other Lender.
Amounts payable hereunder to each Lender shall be a separate and independent debt. It shall not
be necessary for the Agent or any other Lender to be joined as an additional party in any
proceeding for such purposes. Nothing in this Agreement and no action of the Agent, Lenders or any
other Secured Party pursuant to the Credit Documents shall be deemed to constitute the Agent and
any Secured Party to be a partnership, association, joint venture or any other kind of entity, nor
to constitute control of any Loan Party.
14.11 No Advisory or Fiduciary Responsibility. In connection with all aspects of each
transaction contemplated by any Credit Document, Loan Parties acknowledge and agree that (a)(i)
this credit facility and any related arranging or other services by the Agent, any Lender, any of
their Affiliates or any arranger are arms-length commercial transactions between Loan Parties and
such Person; (ii) Loan Parties have consulted their own legal, accounting, regulatory and tax
advisors to the extent they have deemed appropriate; and (iii) Loan Parties are capable of
evaluating, and understand and accept, the terms, risks and conditions of the transactions
contemplated by the Credit Documents; (b) each of the Agent, Lenders, their Affiliates and any
arranger is and has been acting solely as a principal and, except as expressly agreed in writing by
the relevant parties, has not been, is not, an will not be acting as an advisor, agent or fiduciary
for Loan Parties, any of their Affiliates or any other Person, and has no obligation with respect
to the transactions contemplated by the Credit Documents except as expressly set forth therein; and
(c) the Agent, Lenders, their Affiliates and any arranger may be
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engaged in a broad range of transactions that involve interests that differ from those of Loan
Parties and their Affiliates, and have no obligation to disclose any of such interests to Loan
Parties or their Affiliates. To the fullest extent permitted by Applicable Law, each Loan Party
hereby waives and releases any claims that it may have against the Agent, Lenders, their Affiliates
and any arranger with respect to any breach of agency or fiduciary duty in connection with any
transaction contemplated by a Loan Document.
14.12 Confidentiality. Each of the Agent, Lenders and each Fronting Bank shall
maintain the confidentiality of all Information (as defined below), except that Information may be
disclosed (a) to its Affiliates, and to its and their partners, members, directors, officers,
employees, agents, advisors and representatives (provided such Persons are informed of the
confidential nature of the Information and instructed to keep it confidential); (b) to the extent
requested by any governmental, regulatory or self-regulatory authority purporting to have
jurisdiction over it or its Affiliates; (c) to the extent required by Applicable Law or by any
subpoena or other legal process; (d) to any other party hereto; (e) in connection with any action
or proceeding, or other exercise of rights or remedies, relating to any Loan Documents or
Obligations; (f) subject to an agreement containing provisions substantially the same (or at least
as restrictive) as this Section 14.12, to any Transferee or any actual or prospective party (or its
advisors) to any Bank Product; (g) with the consent of Loan Party Agent; (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of this Section 14.12
or (ii) is available to the Agent, any Lender, Fronting Bank or any of their Affiliates on a
nonconfidential basis from a source other than Loan Parties or (i) on a confidential basis to any
rating agency in connection with rating any Borrower or its Subsidiaries. Notwithstanding the
foregoing, the Agent and Lenders may publish or disseminate general information describing this
credit facility, including the names and addresses of Loan Parties and a general description of
Loan Parties businesses, and may use Loan Parties logos, trademarks or product photographs in
advertising materials. As used herein, Information means all information received from a
Loan Party or Subsidiary relating to it or its business that is identified as confidential when
delivered. Any Person required to maintain the confidentiality of Information pursuant to this
Section 14.12 shall be deemed to have complied if it exercises the same degree of care that it
accords its own confidential information. Each of the Agent, Lenders and each Fronting Bank
acknowledges that (A) Information may include material non-public information concerning a Loan
Party or Subsidiary; (B) it has developed compliance procedures regarding the use of material
non-public information; and (C) it will handle such material non-public information in accordance
with Applicable Law, including federal, state, provincial and territorial securities laws.
14.13 Certifications Regarding Indentures. Borrowers certify to the Agent and Lenders
that neither the execution or performance of the Loan Documents nor the incurrence of any
Obligations by Borrowers violates the Senior Secured Notes Indenture. Borrowers further certify
that the Commitments and Obligations constitute Permitted Debt under the Senior Secured Notes
Indenture. Agent may condition Borrowings, Letters of Credit and other credit accommodations under
the Loan Documents from time to time upon Agents receipt of evidence that the Commitments and
Obligations continue to constitute Permitted Debt at such time.
14.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE
SPECIFIED, SHALL BE GOVERNED BY THE
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LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT
GIVING EFFECT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW AND FEDERAL LAWS RELATING TO
NATIONAL BANKS).
14.15 Consent to Forum.
14.15.1 Forum. EACH PARTY HERETO HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER THE STATE OF NEW YORK, IN ANY
PROCEEDING OR DISPUTE RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES THAT ANY SUCH
PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT. EACH PARTY IRREVOCABLY WAIVES ALL
CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY HAVE REGARDING SUCH COURTS PERSONAL OR SUBJECT MATTER
JURISDICTION, VENUE OR INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.3.1. Nothing herein shall limit the right
of the Agent or any Lender to bring proceedings against any Loan Party in any other court, nor
limit the right of any party to serve process in any other manner permitted by Applicable Law.
Nothing in this Agreement shall be deemed to preclude enforcement by the Agent of any judgment or
order obtained in any forum or jurisdiction.
14.16 Waivers by Loan Parties. To the fullest extent permitted by Applicable Law,
each Loan Party waives (a) the right to trial by jury (which the Agent and each Lender hereby also
waives) in any proceeding or dispute of any kind relating in any way to any Loan Documents,
Obligations or Collateral; (b) presentment, demand, protest, notice of presentment, default,
non-payment, maturity, release, compromise, settlement, extension or renewal of any commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any time held by the Agent
on which a Loan Party may in any way be liable, and hereby ratifies anything the Agent may do in
this regard; (c) notice prior to taking possession or control of any Collateral; (d) any bond or
security that might be required by a court prior to allowing the Agent to exercise any rights or
remedies; (e) the benefit of all valuation, appraisement and exemption laws; (f) any claim against
any Indemnitee, on any theory of liability, for special, indirect, consequential, exemplary or
punitive damages (as opposed to direct or actual damages) in any way relating to any Enforcement
Action, Obligations, Loan Documents or transactions relating thereto; and (g) notice of acceptance
hereof. Each Loan Party acknowledges that the foregoing waivers are a material inducement to the
Agent, each Fronting Bank and Lenders entering into this Agreement and that the Agent, each
Fronting Bank and Lenders are relying upon the foregoing in their dealings with Loan Parties. Each
Loan Party has reviewed the foregoing waivers with its legal counsel and has knowingly and
voluntarily waived its jury trial and other rights following consultation with legal counsel. In
the event of litigation, this Agreement may be filed as a written consent to a trial by the court.
14.17 Patriot Act Notice. The Agent and Lenders hereby notify Loan Parties that
pursuant to the requirements of the Patriot Act, the Proceeds of Crime Act and other applicable
anti-money laundering, anti-terrorist financing, government sanction and know your client
168
policies, regulations, laws or rules (the Proceeds of Crime Act and such other applicable
policies, regulations, laws or rules, collectively, including any guidelines or orders thereunder,
AML Legislation), the Agent and Lenders are required to obtain, verify and record
information that identifies each Loan Party, including its legal name, address, tax ID number and
other information that will allow the Agent and Lenders to identify it in accordance with the
Patriot Act and the AML Legislation. The Agent and Lenders may require information regarding Loan
Parties management and owners, such as legal name, address, social security number and date of
birth. Each Loan Party shall promptly provide all such information, including supporting
documentation and other evidence, as may be reasonably requested by any Lender or any prospective
assignee or participant of a Lender, in order to comply with the Patriot Act and/or the AML
Legislation.
14.18 Canadian Anti-Money Laundering Legislation. If the Agent has ascertained the
identity of any Canadian Facility Loan Party or any authorized signatories of any Canadian Facility
Loan Party for the purposes of applicable AML Legislation, then the Agent:
(a) shall be deemed to have done so as an agent for each Canadian Lender, and this Agreement
shall constitute a written agreement in such regard between each Canadian Lender and the Agent
within the meaning of the applicable AML Legislation; and
(b) shall provide to each Canadian Lender copies of all information obtained in such regard
without any representation or warranty as to its accuracy or completeness.
Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, each of
the Canadian Lenders agrees that the Agent has no obligation to ascertain the identity of the
Canadian Loan Parties or any authorized signatories of the Canadian Loan Parties on behalf of any
Canadian Lender, or to confirm the completeness or accuracy of any information it obtains from any
Canadian Facility Loan Party or any such authorized signatory in doing so.
14.19 Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against any Loan Party for liquidation
or reorganization, should any Loan Party become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any significant part of such Loan
Partys assets, and shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the Obligations, or any part thereof, is, pursuant to Applicable
Law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of
the Obligations, whether as a voidable preference, fraudulent conveyance, or otherwise, all as
though such payment or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
14.20 Nonliability of Lenders. Neither the Agent, any Fronting Bank nor any Lender
undertakes any responsibility to any Loan Party to review or inform any Loan Party of any matter in
connection with any phase of any Loan Partys business or operations. Each Loan Party agrees, on
behalf of itself and each other Loan Party, that neither the Agent, any Fronting Bank nor any
Lender shall have liability to any Loan Party (whether sounding in tort, contract or
169
otherwise) for losses suffered by any Loan Party in connection with, arising out of, or in any
way related to the transactions contemplated and the relationship established by the Loan
Documents, or any act, omission or event occurring in connection therewith, unless it is determined
in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted
from the gross negligence, willful misconduct or bad faith of the party from which recovery is
sought. NO LENDER SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY
INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION
TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT.
[Remainder of page intentionally left blank; signatures begin on following page]
170
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set
forth above.
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MCJUNKIN RED MAN CORPORATION, as a U.S. Borrower and Canadian
Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
2 Houston Center
909 Fannin, Suite 3100
Houston, TX 77010-1011
Attn: James F. Underhill
Telecopy: (304) 348-1816
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GREENBRIER PETROLEUM CORPORATION as a U.S. Borrower and Canadian
Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MCJUNKIN NIGERIA LIMITED, as a U.S. Borrower and Canadian Facility
Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MCJUNKIN PUERTO RICO CORPORATION, as a U.S. Borrower and Canadian
Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MCJUNKIN RED MAN DEVELOPMENT CORPORATION, as a U.S. Borrower and
Canadian Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
Signature Page to Loan, Security and Guarantee Agreement
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MCJUNKIN WEST AFRICA CORPORATION, as a U.S. Borrower and
Canadian Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MIDWAY TRISTATE CORPORATION, as a U.S. Borrower and Canadian
Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MILTON OIL & GAS COMPANY, as a U.S. Borrower and Canadian Facility
Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MRC MANAGEMENT COMPANY, as a U.S. Borrower and Canadian Facility
Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MRM OKLAHOMA MANAGEMENT LLC, as a U.S. Borrower and Canadian Facility
Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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RUFFNER REALTY COMPANY, as a U.S. Borrower and Canadian Facility
Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
Signature Page to Loan, Security and Guarantee Agreement
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THE SOUTH TEXAS SUPPLY COMPANY, INC. as a U.S. Borrower and Canadian
Facility Guarantor |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
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MIDFIELD SUPPLY ULC, as a Canadian Borrower |
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By:
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/s/ James F. Underhill |
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Name:
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James F. Underhill |
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Title:
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Executive Vice President and Chief Financial Officer |
Signature Page to Loan, Security and Guarantee Agreement
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AGENT AND LENDERS: |
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BANK OF AMERICA, N.A., as Agent and U.S. Lender |
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By:
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/s/ Mark Porter |
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Name:
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Mark Porter |
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Title:
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SVP |
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Bank of America, N.A., as Agent |
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901 Main Street, Floor 11 |
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Mail Code TX1-492-11-23 |
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Dallas, Texas 75202 |
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Attn: Mark Porter |
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Telecopy: 214-209-4766 |
Signature Page to Loan, Security and Guarantee Agreement
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BANK OF AMERICA, N.A. (acting through its Canada Branch), as a
Canadian Lender |
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By:
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/s/ Medina Sales De Andrade |
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Name:
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Medina Sales De Andrade |
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Title:
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Vice President |
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Attn: Medina Sales De Andrade
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Telecopy: 416-369-7647 |
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Signature Page to Loan, Security and Guarantee Agreement
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as U.S. Lender |
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By:
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/s/ Brant Murdock |
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Name:
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Brant Murdock |
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Title:
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Vice President |
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301 South College Street, 22nd Floor |
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Charlotte, NC 28202 |
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Attn: Dave Warga |
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Telecopy: 704-715-0016 |
Signature Page to Loan, Security and Guarantee Agreement
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Canadian Lender |
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By:
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/s/ Domenic Cosentino |
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Name:
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Domenic Cosentino |
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Title:
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Vice President |
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301 South College Street, 22nd Floor |
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Charlotte, NC 28202 |
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Attn: Dave Warga |
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Telecopy: 704-715-0016 |
Signature Page to Loan, Security and Guarantee Agreement
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BARCLAYS BANK PLC, as a U.S. Lender and Canadian Lender |
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By:
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/s/ Kevin Cullen |
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Name:
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Kevin Cullen |
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Title:
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Director |
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745 Seventh Avenue |
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New York, NY 10019 |
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Attn: Michael Mozer |
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Telecopy: (212) 526-1456 |
Signature Page to Loan, Security and Guarantee Agreement
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GOLDMAN SACHS LENDING PARTNERS LLC, as a U.S. Lender and Canadian
Lender |
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By:
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/s/ Mark Walton |
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Name:
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Mark Walton |
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Title:
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Authorized Signatory |
Signature Page to Loan, Security and Guarantee Agreement
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U.S. BANK NATIONAL ASSOCIATION, as a U.S. Lender |
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By:
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/s/ Jeffrey D. Patton |
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Name:
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Jeffrey D. Patton |
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Title:
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Assistant Vice President |
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One U.S. Bank Plaza |
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St. Louis, MO 63101 |
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Attn: Jeff Patton |
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Telecopy: (314) 418-8556 |
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U.S. BANK NATIONAL ASSOCIATION, as a Canadian Lender |
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By:
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/s/ Joseph Rauhala |
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Name:
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Joseph Rauhala |
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Title:
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Principal Officer |
Signature Page to Loan, Security and Guarantee Agreement
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SUNTRUST BANK, as a U.S. Lender |
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By:
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/s/ David Holland |
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Name:
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David Holland |
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Title:
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VP, Portfolio Manager |
Signature Page to Loan, Security and Guarantee Agreement
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TD BANK, N.A., as a U.S. Lender |
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By:
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/s/ Francis Garvin |
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Name:
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Francis Garvin |
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Title:
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Vice President |
Signature Page to Loan, Security and Guarantee Agreement
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THE TORONTO DOMINION BANK, as a Canadian Lender |
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By:
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/s/Darcy Mack
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/s/ Kyle Wedge |
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Name:
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Darcy Mack
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Kyle Wedge |
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Title:
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VP
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Analyst |
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Attn:
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Kyle Wedge |
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Telecopy:
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(416) 983-6522 |
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Signature Page to Loan, Security and Guarantee Agreement
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PNC BANK, NATIONAL ASSOCIATION, |
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as a U.S. Lender |
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By:
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/s/ Katherine Garland |
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Name:
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Katherine Garland |
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Title:
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Account Executive |
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Attn: Katherine Garland |
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Telecopy: 212-303-0060 |
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PNC BANK, CANADA BRANCH, |
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as a Canadian Lender |
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By:
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/s/ Mike Danby |
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Name:
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Mike Danby |
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Title:
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Assistant Vice President |
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Attn: Portfolio Manager |
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Telecopy: 416-361-0085 |
Signature Page to Loan, Security and Guarantee Agreement
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RBS CITIZENS BUSINESS CAPITAL, |
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a division of RBS ASSET FINANCE, INC., |
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a subsidiary of RBS Citizens, N.A., as a U.S. Lender |
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By:
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/s/ Patrick Aarons |
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Name:
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Patrick Aarons |
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Title:
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Senior Vice President |
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RBS/Citizens Business Capital |
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A Member of the Royal Bank of Scotland Group |
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100 Galleria Parkway, Suite 1100 |
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Atlanta, Georgia 30339 |
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Attn: Patrick Aarons |
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Telecopy: (770) 850-4895 |
Signature Page to Loan, Security and Guarantee Agreement
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UNION BANK, N.A., as a U.S. Lender |
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By:
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/s/ Terry L. Rocha |
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Name:
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Terry L. Rocha |
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Title:
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Vice President |
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445 South Figueroa Street, G13-300 |
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Los Angeles, CA 90071 |
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Attn: Mike Richman |
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Telecopy: (213) 236-6089 |
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UNION BANK, N.A., as a U.S. Lender and Canadian Lender |
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By:
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/s/ Anne Collins |
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Name:
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Anne Collins |
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Title:
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Vice President |
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730, 440 2nd Ave. SW |
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Calgary, Alberta, T2P 5E9 |
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Attn: Anne Collins |
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Telecopy: 403-264-2770 |
Signature Page to Loan, Security and Guarantee Agreement
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JPMORGAN CHASE BANK, N.A., as a U.S. Lender |
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By:
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/s/ Dan Bueno |
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Name:
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Dan Bueno |
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Title:
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Vice President |
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270 Park Avenue, 44th Floor |
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New York, NY 10017 |
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Attn: Dan Bueno |
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Telecopy: 646-534-2274 |
Signature Page to Loan, Security and Guarantee Agreement
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JPMORGAN CHASE BANK, N.A., TORONTO BRANCH as |
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Canadian Lender |
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By:
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/s/ Auggie Marchetti |
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Name:
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Auggie Marchetti |
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Title:
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Senior Vice President & Regional Manager |
Signature Page to Loan, Security and Guarantee Agreement
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THE HUNTINGTON NATIONAL BANK, as a U.S. Lender |
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By:
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/s/ Jeffrey M. Evans |
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Name:
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Jeffrey M. Evans |
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Title:
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Vice President |
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917 Euclid Ave. CM64 |
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Cleveland, OH 44115 |
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Attn: Betty Johnson |
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Telecopy: 216.515.0179 |
Signature Page to Loan, Security and Guarantee Agreement
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CITY NATIONAL BANK, as a U.S. Lender and Canadian Lender |
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By:
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/s/ Brent Phillips |
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Name:
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Brent Phillips |
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Title:
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Vice President |
Signature Page to Loan, Security and Guarantee Agreement
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FLAGSTAR BANK, FSB, as a U.S. Lender |
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By:
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/s/ Willard D. Dickerson, Jr. |
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Name:
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Willard D. Dickerson, Jr. |
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Title:
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Senior Vice President |
Signature Page to Loan, Security and Guarantee Agreement
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RAYMOND JAMES BANK, FSB, as a U.S. Lender |
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By:
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/s/ James M. Armstrong |
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Name:
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James M. Armstrong |
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Title:
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Vice President |
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710 Carillon Parkway |
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St. Petersburg, FL 33716 |
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Attn: James Armstrong |
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Telecopy: (866) 205-1396 |
Signature Page to Loan, Security and Guarantee Agreement
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UNITED BANK, as a U.S. Lender |
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By:
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/s/ Timothy A. Paxton |
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Name:
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Timothy A. Paxton |
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Title:
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Senior Vice President |
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500 Virginia Street East |
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Charleston, WV 25301 |
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Attn: Melanie Humphreys |
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Telecopy: (304) 348-8353 |
Signature Page to Loan, Security and Guarantee Agreement
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CITY NATIONAL BANK OF WEST VIRGINIA, as a U.S. Lender |
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By:
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/s/ Jack Cavender |
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Name:
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Jack Cavender |
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Title:
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Executive Vice President |
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10 Hale Street, Suite 100 |
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Charleston, WV 25301 |
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Attn: Katha J. Morris, Administrative Assistant |
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Telecopy: (304) 347-2444 |
Signature Page to Loan, Security and Guarantee Agreement
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CAPITAL ONE LEVERAGED FINANCE CORP., as a U.S. Lender |
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By:
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/s/ Julianne Low |
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Name:
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Julianne Low |
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Title:
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Vice President |
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275 Boradhollow Road |
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Melville, NY 11747 |
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Attn: Julianne Low |
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Telecopy: 800-986-0323 |
Signature Page to Loan, Security and Guarantee Agreement
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CITIZENS BANK, as a U.S. Lender |
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By:
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/s/ Thomas Couture |
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Name:
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Thomas Couture |
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Title:
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First Vice President |
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28001 Cabot Drive, Suite 250 |
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Novi, MI 48377 |
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Attn: Tom Couture |
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Telecopy: (248) 324-8616 |
Signature Page to Loan, Security and Guarantee Agreement
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WEBSTER BUSINESS CREDIT CORPORATION, as a U.S. Lender |
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By:
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/s/ Harvey Winter |
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Name:
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Harvey Winter |
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Title:
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VP |
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360 Lexington Avenue |
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New York, NY 10017 |
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Attn: Harvey Winter |
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Telecopy: 212-806-4510 |
Signature Page to Loan, Security and Guarantee Agreement
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BOKF, NA as a U.S. Lender |
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By:
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/s/ Ryan L. Kirk |
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Name:
|
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Ryan L. Kirk |
|
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Title:
|
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Officer |
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Attn: |
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Telecopy:
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(918) 280-3368
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Signature Page to Loan, Security and Guarantee Agreement
exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and the use of our report
dated March 23, 2011 (except for Note 6, as to which the date is May 6, 2011), with respect to the consolidated financial statements of McJunkin Red Man
Holding Corporation for the year ended December 31, 2010 included in the Registration Statement
(Amendment No. 3 to Form S-4
No. 333-173035) and related Prospectus of McJunkin Red Man Holding Corporation for
the registration of $1,050,000,000 9.50% Senior Secured Notes due December 15, 2016 filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Charleston, West Virginia
June 20, 2011