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Form 10-Q GRAHAM CORP For: Dec 31

February 2, 2016 7:33 AM EST
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2015

or

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File Number 1-8462

GRAHAM CORPORATION

 

(Exact name of registrant as specified in its charter)

 

Delaware

  16-1194720

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

20 Florence Avenue, Batavia, New York

  14020

(Address of principal executive offices)

  (Zip Code)

585-343-2216

 

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x    No ¨

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.

 

Large accelerated filer

 

    ¨

  

Accelerated filer

  x

Non-accelerated filer

 

    ¨

  

Smaller reporting company

  ¨

(Do not check if a smaller reporting company)

    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No x

As of January 26, 2016, there were outstanding 9,808,004 shares of the registrant’s common stock, par value $.10 per share.


Table of Contents

Graham Corporation and Subsidiaries

Index to Form 10-Q

As of December 31, 2015 and March 31, 2015 and for the Three and Nine-Month Periods

Ended December 31, 2015 and 2014

 

          Page  

Part I.

  

FINANCIAL INFORMATION

  

Item 1.

   Unaudited Condensed Consolidated Financial Statements      4   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      19   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      29   

Item 4.

   Controls and Procedures      30   

Part II.

   OTHER INFORMATION   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      31   

Item 6.

   Exhibits      31   

Signatures

     32   

Index to Exhibits

     33   

 

 

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Table of Contents

GRAHAM CORPORATION AND SUBSIDIARIES

FORM 10-Q

December 31, 2015

PART I—FINANCIAL INFORMATION

 

3


Table of Contents
Item 1.                         Unaudited Condensed Consolidated Financial Statements

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(Unaudited)

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

   

2014

   

2015

   

2014

 
     (Amounts in thousands, except per share data)  

Net sales

   $ 17,323      $ 33,646      $ 67,738      $ 97,714   

Cost of products sold

     13,799        23,543        49,042        68,695   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,524        10,103        18,696        29,019   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expenses and income:

        

Selling, general and administrative

     3,680        4,424        12,447        13,413   

Selling, general and administrative - amortization

     58        59        175        171   

Interest income

     (72     (50     (177     (139

Interest expense

     4        2        8        8   

Other income

     (1,784     -        (1,784     -   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses and income

     1,886        4,435        10,669        13,453   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     1,638        5,668        8,027        15,566   

Provision for income taxes

     364        1,676        2,416        4,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,274        3,992        5,611        10,570   

Retained earnings at beginning of period

     108,895        99,237        106,178        93,469   

Dividends

     (795     (405     (2,415     (1,215
  

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings at end of period

   $ 109,374      $ 102,824      $ 109,374      $ 102,824   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic:

        

Net income

   $ .13      $ .39      $ .56      $ 1.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Net income

   $ .13      $ .39      $ .56      $ 1.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic:

     9,922        10,127        10,051        10,119   

Diluted:

     9,927        10,149        10,059        10,142   

Dividends declared per share

   $ .08      $ .04      $ .24      $ .12   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

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Table of Contents

GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

   

2014

   

2015

   

2014

 
     (Amounts in thousands)  

Net income

   $ 1,274      $ 3,992      $ 5,611      $ 10,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

        

Foreign currency translation adjustment

     (73     (40     (184     4   

Defined benefit pension and other postretirement plans, net of income tax of $107 and $46 for the three months ended December 31, 2015 and 2014, respectively, and $322 and $137 for the nine months ended December 31, 2015 and 2014, respectively

     197        84        589        252   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     124        44        405        256   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 1,398      $ 4,036      $ 6,016      $ 10,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     December 31,
2015
    March 31,
2015
 
     (Amounts in thousands,
except per share data)
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 31,215      $ 27,271   

Investments

     42,000        33,000   

Trade accounts receivable, net of allowances ($76 and $62 at December 31 and March 31, 2015, respectively)

     10,860        17,249   

Unbilled revenue

     8,454        18,665   

Inventories

     11,803        13,994   

Prepaid expenses and other current assets

     866        529   

Income taxes receivable

     2,871        339   
  

 

 

   

 

 

 

Total current assets

     108,069        111,047   

Property, plant and equipment, net

     18,975        19,812   

Prepaid pension asset

     2,248        1,332   

Goodwill

     6,938        6,938   

Permits

     10,300        10,300   

Other intangible assets, net

     4,293        4,428   

Other assets

     186        146   
  

 

 

   

 

 

 

Total assets

   $ 151,009      $ 154,003   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Current portion of capital lease obligations

   $ 55      $ 60   

Accounts payable

     10,909        13,334   

Accrued compensation

     5,500        9,343   

Accrued expenses and other current liabilities

     3,153        3,247   

Customer deposits

     8,120        4,179   
  

 

 

   

 

 

 

Total current liabilities

     27,737        30,163   

Capital lease obligations

     174        98   

Accrued compensation

     -        124   

Deferred income tax liability

     6,784        5,876   

Accrued pension liability

     353        315   

Accrued postretirement benefits

     895        876   
  

 

 

   

 

 

 

Total liabilities

     35,943        37,452   
  

 

 

   

 

 

 

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Preferred stock, $1.00 par value, 500 shares authorized

    

Common stock, $.10 par value, 25,500 shares authorized
10,468 and 10,432 shares issued and 9,848 and 10,133 shares outstanding

     1,047        1,043   

Capital in excess of par value

     22,101        21,398   

Retained earnings

     109,374        106,178   

Accumulated other comprehensive loss

     (8,651     (9,056

Treasury stock (620 and 299 shares)

     (8,805     (3,012
  

 

 

   

 

 

 

Total stockholders’ equity

     115,066        116,551   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 151,009      $ 154,003   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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GRAHAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended
December 31,
 
     2015     2014  
     (Amounts in thousands)  

Operating activities:

    

Net income

   $ 5,611      $ 10,570   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     1,675        1,561   

Amortization

     175        171   

Amortization of unrecognized prior service cost and actuarial losses

     911        389   

Stock-based compensation expense

     540        481   

(Gain) loss on disposal of property, plant and equipment

     (1     3   

Deferred income taxes

     596        (281

(Increase) decrease in operating assets:

    

Accounts receivable

     6,329        (4,938

Unbilled revenue

     10,152        (5,463

Inventories

     2,186        1,887   

Prepaid expenses and other current and non-current assets

     (420     (430

Prepaid pension asset

     (917     (845

Increase (decrease) in operating liabilities:

    

Accounts payable

     (2,216     2,584   

Accrued compensation, accrued expenses and other current and non-current liabilities

     (3,795     2,138   

Customer deposits

     3,944        (964

Income taxes payable/receivable

     (2,531     743   

Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits

     (68     (101
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,171        7,505   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of property, plant and equipment

     (883     (4,965

Proceeds from disposal of property, plant and equipment

     4        1   

Purchase of investments

     (36,000     (41,000

Redemption of investments at maturity

     27,000        37,000   
  

 

 

   

 

 

 

Net cash used by investing activities

     (9,879     (8,964
  

 

 

   

 

 

 

Financing activities:

    

Principal repayments on capital lease obligations

     (42     (64

Issuance of common stock

     97        48   

Dividends paid

     (2,415     (1,215

Purchase of treasury stock

     (5,852     -   

Excess tax benefit on stock awards

     5        37   
  

 

 

   

 

 

 

Net cash used by financing activities

     (8,207     (1,194
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (141     3   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,944        (2,650

Cash and cash equivalents at beginning of period

     27,271        32,146   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 31,215      $ 29,496   
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

GRAHAM CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except per share data)

 

 

NOTE 1 – BASIS OF PRESENTATION:

 

Graham Corporation’s (the “Company’s”) Condensed Consolidated Financial Statements include its: (i) wholly-owned foreign subsidiary located in Suzhou, China; and (ii) wholly-owned domestic subsidiary located in Lapeer, Michigan. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, each as promulgated by the Securities and Exchange Commission. The Company’s Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2015 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2015. For additional information, please refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015 (“fiscal 2015”). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company’s Condensed Consolidated Financial Statements.

The Company’s results of operations and cash flows for the three and nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2016 (“fiscal 2016”).

 

 

NOTE 2 – REVENUE RECOGNITION:

 

The Company recognizes revenue on all contracts with a planned manufacturing process in excess of four weeks (which approximates 575 direct labor hours) using the percentage-of-completion method. The majority of the Company’s revenue is recognized under this methodology. The Company has established the systems and procedures essential to developing the estimates required to account for contracts using the percentage-of-completion method. The percentage-of-completion method is determined by comparing actual labor incurred to a specific date to management’s estimate of the total labor to be incurred on each contract or completion of operational milestones assigned to each contract. Contracts in progress are reviewed monthly by management, and sales and earnings are adjusted in current accounting periods based on revisions in the contract value and estimated costs at completion. Losses on contracts are recognized immediately when evident to management.

Revenue on contracts not accounted for using the percentage-of-completion method is recognized utilizing the completed contract method. The majority of the Company’s contracts (as opposed to revenue) have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the percentage-of-completion method. The Company recognizes revenue and all related costs on these contracts upon substantial completion or shipment to the customer. Substantial completion is consistently defined as at least 95% complete with regard to direct labor hours. Customer acceptance is generally required throughout the construction process and the Company has no further material obligations under its contracts after the revenue is recognized.

Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $1,863 and $1,751 at December 31, 2015 and March 31, 2015, respectively.

 

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NOTE 3 – INVESTMENTS:

 

Investments consist solely of certificates of deposit with financial institutions. All investments have original maturities of greater than three months and less than one year and are classified as held-to-maturity, as the Company believes it has the intent and ability to hold the securities to maturity. The investments are stated at amortized cost which approximates fair value. All investments held by the Company at December 31, 2015 are scheduled to mature on or before November 10, 2016.

 

 

NOTE 4 – INVENTORIES:

 

Inventories are stated at the lower of cost or market, using the average cost method. For contracts accounted for on the completed contract method, progress payments received are netted against inventory to the extent the payment is less than the inventory balance relating to the applicable contract. Progress payments that are in excess of the corresponding inventory balance are presented as customer deposits in the Condensed Consolidated Balance Sheets. Unbilled revenue in the Condensed Consolidated Balance Sheets represents revenue recognized that has not been billed to customers on contracts accounted for on the percentage-of-completion method. For contracts accounted for on the percentage–of–completion method, progress payments are netted against unbilled revenue to the extent the payment is less than the unbilled revenue for the applicable contract. Progress payments exceeding unbilled revenue are netted against inventory to the extent the payment is less than or equal to the inventory balance relating to the applicable contract, and the excess is presented as customer deposits in the Condensed Consolidated Balance Sheets.

Major classifications of inventories are as follows:

 

    

December 31,

2015

         

March 31,

2015

 

Raw materials and supplies

   $ 2,775          $ 2,763   

Work in process

     13,277            13,685   

Finished products

     666            689   
  

 

 

       

 

 

 
     16,718            17,137   

Less - progress payments

     4,915            3,143   
  

 

 

       

 

 

 

Total

   $ 11,803          $ 13,994   
  

 

 

       

 

 

 

 

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NOTE 5 – INTANGIBLE ASSETS:

 

Intangible assets are comprised of the following:

 

     Gross
Carrying
    Amount    
          Accumulated
    Amortization    
          Net
Carrying
    Amount    
 

At December 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 907          $ 1,793   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 

At March 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 772          $ 1,928   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 

Intangible assets are amortized on a straight line basis over their estimated useful lives. Intangible amortization expense for each of the three-month periods ended December 31, 2015 and 2014 was $45. Intangible amortization expense for each of the nine months ended December 31, 2015 and 2014 was $135. As of December 31, 2015, amortization expense is estimated to be $45 for the remainder of fiscal 2016 and $180 in each of the fiscal years ending March 31, 2017, 2018, 2019 and 2020.

 

 

NOTE 6 – STOCK-BASED COMPENSATION:

 

The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value provides for the issuance of up to 1,375 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, stock awards and performance awards to officers, key employees and outside directors; provided, however, that no more than 250 shares of common stock may be used for awards other than stock options. Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.

 

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There were no restricted stock awards granted in the three-month periods ended December 31, 2015 and 2014. Restricted stock awards granted in the nine-month periods ended December 31, 2015 and 2014 were 34 and 30, respectively. Restricted shares of 15 and 12 granted to officers in fiscal 2016 and fiscal 2015, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. Restricted shares of 12 and 11 granted to officers and key employees in fiscal 2016 and fiscal 2015, respectively, vest 33 13% per year over a three-year term. Restricted shares of 7 and 7 granted to directors in fiscal 2016 and fiscal 2015, respectively, vest 100% on the first year anniversary of the grant date. There were no stock option awards granted in the three-month or nine-month periods ended December 31, 2015 and 2014.

During the three months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $148 and $166, respectively. The income tax benefit recognized related to stock-based compensation was $52 and $59 for the three months ended December 31, 2015 and 2014, respectively. During the nine months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $505 and $435, respectively. The income tax benefit recognized related to stock-based compensation was $178 and $153 for the nine months ended December 31, 2015 and 2014, respectively.

The Company has an Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase shares of the Company’s common stock on the last day of a six-month offering period at a purchase price equal to the lesser of 85% of the fair market value of the common stock on either the first day or the last day of the offering period. A total of 200 shares of common stock may be purchased under the ESPP. During the three months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs of $14 and $16, respectively, related to the ESPP and $5 and $6, respectively, of related tax benefits. During the nine months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs of $35 and $46, respectively, related to the ESPP and $13 and $16, respectively, of related tax benefits.

 

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NOTE 7 – INCOME PER SHARE:

 

Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted income per share is calculated by dividing net income by the weighted average number of common shares outstanding and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted income per share is presented below:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

    

2014

    

2015

    

2014

 

Basic income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   

Stock options outstanding

     5         22         8         23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and potential common shares outstanding

     9,927         10,149         10,059         10,142   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options to purchase a total of 54 and 12 shares of common stock were outstanding at December 31, 2015 and 2014, respectively, but were not included in the above computation of diluted income per share given their exercise prices as they would not be dilutive upon issuance.

 

 

NOTE 8 – PRODUCT WARRANTY LIABILITY:

 

The reconciliation of the changes in the product warranty liability is as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Balance at beginning of period

   $ 504         $ 347      $ 653         $ 308   

(Income) expense for product warranties

     (158        436        (45        573   

Product warranty claims paid

     (11        (63     (273        (161
  

 

 

      

 

 

   

 

 

      

 

 

 

Balance at end of period

   $ 335         $ 720      $ 335         $ 720   
  

 

 

      

 

 

   

 

 

      

 

 

 

The income of $158 and $45 for product warranties in the three and nine months ended December 31, 2015, respectively, resulted from the reversal of provisions made that were no longer required due to lower claim experience.

The product warranty liability is included in the line item “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheets.

 

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NOTE 9 – CASH FLOW STATEMENT:

 

Interest paid was $8 for each of the nine-month periods ended December 31, 2015 and 2014. In addition, income taxes paid for the nine months ended December 31, 2015 and 2014 were $4,348 and $4,497, respectively.

During the nine months ended December 31, 2015 and 2014, respectively, stock option awards were exercised and restricted stock awards vested. In connection with such stock option exercises and vesting, the related income tax benefit realized exceeded the tax benefit that had been recorded pertaining to the compensation cost recognized by $5 and $37, respectively, for such periods. This excess tax benefit has been separately reported under “Financing activities” in the Condensed Consolidated Statements of Cash Flows.

At December 31, 2015 and 2014, there were $20 and $35, respectively, of capital purchases that were recorded in accounts payable and are not included in the caption “Purchase of property, plant and equipment” in the Condensed Consolidated Statements of Cash Flows. During the nine months ended December 31, 2015 and 2014, capital expenditures totaling $113 and $0, respectively, were financed through the issuance of capital leases.

 

 

NOTE 10 – EMPLOYEE BENEFIT PLANS:

 

The components of pension benefit income are as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Service cost

   $ 130         $ 136      $ 391         $ 409   

Interest cost

     360           359        1,078           1,076   

Expected return on assets

     (795        (758     (2,385        (2,275

Amortization of:

              

Unrecognized prior service cost

     -           1        -           3   

Actuarial loss

     293           145        880           435   
  

 

 

      

 

 

   

 

 

      

 

 

 

Net pension benefit income

   $ (12      $ (117   $ (36      $ (352
  

 

 

      

 

 

   

 

 

      

 

 

 

The Company made no contributions to its defined benefit pension plan during the nine months ended December 31, 2015 and does not expect to make any contributions to the plan for the balance of fiscal 2016.

The components of the postretirement benefit cost (income) are as follows:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

         

2014

    

2015

         

2014

 

Service cost

   $ -          $ -       $ -          $ -   

Interest cost

     7            8         20            24   

Amortization of prior service benefit

     -            (26      -            (79

Amortization of actuarial loss

     10            10         30            30   
  

 

 

       

 

 

    

 

 

       

 

 

 

Net postretirement benefit cost (income)

   $ 17          $ (8    $ 50          $ (25
  

 

 

       

 

 

    

 

 

       

 

 

 

 

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The Company paid benefits of $1 related to its postretirement benefit plan during the nine months ended December 31, 2015. The Company expects to pay benefits of approximately $91 for the balance of fiscal 2016.

The Company self-funds the medical insurance coverage it provides to its U.S. based employees. The Company has obtained a stop loss insurance policy in an effort to limit its exposure to claims. The liability of $273 and $446 on December 31, 2015 and March 31, 2015, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption “Accrued compensation” in the Condensed Consolidated Balance Sheets.

 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES:

 

The Company has been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying products made by the Company. The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims. The claims in the Company’s current lawsuits are similar to those made in previous asbestos suits that named the Company as defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs’ places of work or were settled for immaterial amounts.

As of December 31, 2015, the Company was subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.

Although the outcome of the lawsuits, legal proceedings or potential claims to which the Company is or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made, management does not believe that the outcomes, either individually or in the aggregate, will have a material effect on the Company’s results of operations, financial position or cash flows.

 

 

NOTE 12 – INCOME TAXES:

 

The Company files federal and state income tax returns in several domestic and international jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is subject to U.S. federal examination for the tax years 2013 through 2015 and examination in state tax jurisdictions for the tax years 2011 through 2015. The Company is subject to examination in the People’s Republic of China for tax years 2012 through 2015.

There was no liability for unrecognized tax benefits at each of December 31, 2015 and March 31, 2015.

 

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NOTE 13 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:

 

The changes in accumulated other comprehensive loss by component for the nine months ended December 31, 2015 and 2014 are as follows:

 

     Pension and
Other
  Postretirement  
Benefit Items
          Foreign
  Currency  
Items
              Total      

Balance at April 1, 2015

   $ (9,462)          $ 406          $ (9,056)   

Other comprehensive income before reclassifications

     -            (184)            (184)   

Amounts reclassified from accumulated other comprehensive loss

     589            -            589   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     589            (184)            405   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2015

   $ (8,873)          $ 222          $ (8,651)   
  

 

 

       

 

 

       

 

 

 
     Pension and
Other
Postretirement
Benefit Items
          Foreign
Currency
Items
          Total  

Balance at April 1, 2014

   $   (6,168)          $ 403          $   (5,765)   

Other comprehensive income before reclassifications

     -            4            4   

Amounts reclassified from accumulated other comprehensive loss

     252            -            252   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     252            4            256   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2014

   $ (5,916)          $ (407)          $ (5,509)   
  

 

 

       

 

 

       

 

 

 

 

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The reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended December 31, 2015 and 2014 are as follows:

 

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

Three Months
Ended

December 31, 2015

   

Three Months
Ended

December 31, 2014

     

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 25 (1)   

Amortization of actuarial loss

     (304 )(1)      (155 )(1)   
  

 

 

   

 

 

   
     (304     (130  

Income before provision for income taxes

     (107     (46  

Provision for income taxes

  

 

 

   

 

 

   
   $ (197   $ (84  

Net income

  

 

 

   

 

 

   

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

 

 

Nine Months

Ended

December 31, 2015

  

  

  

   

 

 

Nine Months

Ended

December 31, 2014

  

  

  

 

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 76 (1)   

Amortization of actuarial loss

     (911 )(1)      (465 )(1)   
  

 

 

   

 

 

   
     (911     (389  

Income before provision for income taxes

     (322     (137  

Provision for income taxes

  

 

 

   

 

 

   
   $ (589   $ (252  

Net income

  

 

 

   

 

 

   

 

(1) 

These accumulated other comprehensive loss components are included within the computation of net pension and other postretirement benefit costs. See Note 10.

 

 

NOTE 14 – PURCHASE OF TREASURY STOCK:

 

On January 29, 2015, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program the Company is permitted to repurchase up to $18,000 of its common stock either in the open market or through privately negotiated transactions. Cash on hand has been used to fund all stock repurchases under the program. At December 31, 2015, the Company had purchased 328 shares at an aggregate cost of $5,852 under this program.

 

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NOTE 15 – DEBT:

 

On December 2, 2015, the Company entered into a new revolving credit facility agreement with JPMorgan Chase Bank, N.A. that provides a $25,000 line of credit, including letters of credit and bank guarantees, expandable at the Company’s option at any time up to $50,000. The agreement has a five year term. This facility replaced a similar facility with Bank of America, N.A.

At the Company’s option, amounts outstanding under the agreement will bear interest at either: (i) a rate equal to the bank’s prime rate; or (ii) a rate equal to LIBOR plus a margin. The margin is based on the Company’s funded debt to earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) and may range from 1.75% to .95%. Amounts available for borrowing under the agreement are subject to an unused commitment fee of between 0.30% and 0.20%, depending on the above ratio.

Outstanding letters of credit under the agreement are subject to a fee of between 1.20% and 0.70%, depending on the Company’s ratio of funded debt to EBITDA. The agreement allows the Company to reduce the fee on outstanding letters of credit to a fixed rate of .40% by securing outstanding letters of credit with cash and cash equivalents. At December 31, 2015, there were no letters of credit outstanding on the new revolving credit facility and $10,042 outstanding with Bank of America, N.A., which were secured by cash and cash equivalents.

Under the new revolving credit facility, the Company covenants to maintain a maximum funded debt to EBITDA ratio of 3.5 to 1.0 and a minimum earnings before interest expense and income taxes to interest ratio of 4.0 to 1.0. The agreement also provides that the Company is permitted to pay dividends without limitation if it maintains a maximum funded debt to EBITDA ratio equal to or less than 2.0 to 1.0 and permits the Company to pay dividends in an amount equal to 25% of net income if it maintains a maximum funded debt to EBITDA ratio of greater than 2.0 to 1.0.

 

 

NOTE 16 – OTHER INCOME:

 

During the three and nine months ended December 31, 2015, certain orders from customers were cancelled. The contracts for the cancelled orders included provisions that entitled the Company to cancellation charges. The amount of the cancellation charges were negotiated and settled with the customers. This income, net of costs incurred on the contracts, of $1,784 is presented in the caption “Other Income” in the Condensed Consolidated Statements of Operations and Retained Earnings for the three and nine months ended December 31, 2015.

 

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NOTE 17 – ACCOUNTING AND REPORTING CHANGES:

 

In the normal course of business, Company management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission, the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting body to determine the potential impact they may have on the Company’s consolidated financial statements.

In May 2014, the FASB issued guidance related to the accounting for revenue from contracts with customers. This guidance establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers. The guidance requires companies to apply a five-step model when recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The guidance also includes a comprehensive set of disclosure requirements regarding revenue recognition. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the impact this guidance will have on its financial position, results of operations and cash flows. See Note 2 for a description of the Company’s current revenue recognition policy.

In June 2015, the FASB issued guidance covering a wide range of topics in the FASB Accounting Standards Codifications (the “Codification”). This guidance included changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and early adoption is permitted. The Company is currently assessing the impact this guidance will have on its financial position, results of operations, cash flows and disclosures.

In November 2015, the FASB issued guidance related to the balance sheet classification of deferred income taxes. This guidance simplifies the presentation of deferred income taxes and requires deferred tax liabilities and assets be offset and presented as a single noncurrent amount for all tax-paying components of an entity within a particular tax jurisdiction. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlier application of the guidance is permitted as of the beginning of any interim or annual reporting period and may be applied prospectively or retrospectively to all periods presented. The provisions of the guidance were adopted by the Company during the third quarter of fiscal 2016, and the Company elected to apply the provisions retrospectively to all periods presented. The following table presents the impact of applying the provisions retrospectively on individual line items in the Company’s Condensed Consolidated Balance Sheet at March 31, 2015:

 

Balance Sheet Caption

  

Before Application

of Guidance

          Reclassification           After Application
of Guidance
 

Current deferred income tax asset

   $ 647          $ (647       $ -   

Other assets

   $ 150          $ (4       $ 146   

Current deferred income tax liability

   $ (164       $ 164          $ -   

Long-term deferred income tax liability

   $ (6,363       $ 487          $ (5,876

Management does not expect any other recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share data)

Overview

We are a global business that designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries. Our energy markets include oil refining, cogeneration, nuclear and alternative power. For the defense industry, our equipment is used in nuclear propulsion power systems for the U.S. Navy. For the chemical and petrochemical industries, our equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.

Graham’s global brand is built upon our world-renowned engineering expertise in vacuum and heat transfer technology, responsive and flexible service and high quality standards. We design and manufacture custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. We are also a leading nuclear code accredited fabrication and specialty machining company. We supply components used inside reactor vessels and outside containment vessels of nuclear power facilities. Our equipment can also be found in other diverse applications such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning.

Our corporate headquarters are located in Batavia, New York. We have production facilities co-located with our headquarters in Batavia and also at our wholly-owned subsidiary, Energy Steel & Supply Co. (“Energy Steel”), located in Lapeer, Michigan. We also have a wholly-owned foreign subsidiary, Graham Vacuum and Heat Transfer Technology (Suzhou) Co., Ltd. (“GVHTT”), located in Suzhou, China. GVHTT provides sales and engineering support for us in the People’s Republic of China and management oversight throughout Southeast Asia.

Our current fiscal year (which we refer to as “fiscal 2016”) ends March 31, 2016.

Highlights

Highlights for the three and nine months ended December 31, 2015 include:

 

   

Net sales for the third quarter of fiscal 2016 were $17,323, a decrease of 49% compared with $33,646 for the third quarter of the fiscal year ended March 31, 2015, referred to as “fiscal 2015.” Net sales for the first nine months of fiscal 2016 were $67,738, down 31% compared with net sales of $97,714 for the first nine months of fiscal 2015.

 

   

Net income and income per diluted share for the third quarter of fiscal 2016 were $1,274 and $0.13, compared with net income of $ 3,992 and income per diluted share of $0.39 for the third quarter of fiscal 2015. Net income and income per diluted share for the first nine months of fiscal 2016 were $5,611 and $0.56, respectively, compared with net income of $10,570 and income per diluted share of $1.04 for the first nine months of fiscal 2015. Net income in the three and nine-month periods of fiscal 2016 was positively impacted by income from cancellation fees.

 

   

Orders booked in the third quarter of fiscal 2016 were $22,263, net of a $3,313 cancellation from backlog (gross orders were $25,576), down 1% compared with the third quarter of fiscal 2015, when orders were $22,558. Orders booked in the first nine months of fiscal 2016 were $66,840, net of two cancellations totaling $7,168 from backlog (gross orders were $74,008), down 25% compared with the first nine months of fiscal 2015, when orders were $89,069.

 

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Backlog was $113,150 on December 31, 2015, compared with $108,139 on September 30, 2015 and $113,811 on March 31, 2015.

 

   

Gross profit margin and operating margin for the third quarter of fiscal 2016 were 20% and 9%, compared with 30% and 17%, respectively, for the third quarter of fiscal 2015. Gross profit margin and operating margin for the first nine months of fiscal 2016 were 28% and 12% compared with 30% and 16%, respectively, for the first nine months of fiscal 2015.

 

   

We repurchased 141 shares of common stock at a cost of $2,453 in the third quarter of fiscal 2016. We repurchased 328 shares of common stock, at an aggregate cost of $5,852 in the first nine months of fiscal 2016. No shares were repurchased in the third quarter or in the first nine months of fiscal 2015.

 

   

Cash and cash equivalents and investments at December 31, 2015 were $73,215, compared with $62,416 on September 30, 2015 and $60,271 at March 31, 2015.

Forward-Looking Statements

This report and other documents we file with the Securities and Exchange Commission include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results implied by the forward-looking statements. Such factors include, but are not limited to, the risks and uncertainties identified by us under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for fiscal 2015.

Forward-looking statements may also include, but are not limited to, statements about:

 

   

the current and future economic environments affecting us and the markets we serve;

 

   

expectations regarding investments in new projects by our customers;

 

   

sources of revenue and anticipated revenue, including the contribution from the growth of new products, services and markets;

 

   

expectations regarding achievement of revenue and profitability expectations;

 

   

plans for future products and services and for enhancements to existing products and services;

 

   

our operations in foreign countries;

 

   

political instability in regions in which our customers are located;

 

   

our ability to affect our growth and acquisition strategy;

 

   

our ability to expand nuclear power work into new markets;

 

   

our ability to maintain or expand nuclear power work for the U.S. Navy;

 

   

our ability to successfully execute our existing contracts;

 

   

estimates regarding our liquidity and capital requirements;

 

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timing of conversion of backlog to sales;

 

   

our ability to attract or retain customers;

 

   

the outcome of any existing or future litigation; and

 

   

our ability to increase our productivity and capacity.

Forward-looking statements are usually accompanied by words such as “anticipate,” “believe,” “estimate,” “may,” “might,” “intend,” “interest,” “appear,” “expect,” “suggest,” “plan,” “encourage,” “potential” and similar expressions. Actual results could differ materially from historical results or those implied by the forward-looking statements contained in this report.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we undertake no obligation to update or announce any revisions to forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Current Market Conditions

Demand for our products and services to the oil refining and chemical industries depends on capital investment for new capacity, retrofit and debottlenecking projects and for planned or unplanned maintenance activity. Uncertainty persists in the oil refining and chemical industries due to the significant reduction and increased volatility in global crude oil prices. This has and is expected to continue to impact industry investment in new capacity and in retrofit and debottlenecking projects. The dramatic reduction and volatility in global crude oil prices has caused a significant slowdown in investment by our oil refining and chemical industry customers. These markets have altered their investment timing over the past year due to this sustained lower price and volatility of crude oil. Capital investment within global refining and chemical industries is projected to be down during the next twelve months and timing of the investment recovery is uncertain. In the near term, we believe that the catalyst for increased investment would likely be higher or more stable crude oil prices. However, if crude oil prices remain low for a sustained period, we expect increased global energy demand would eventually drive additional investment regardless of crude oil prices.

Demand for our products and services, in the nuclear utility market, is affected by investment in maintenance, repair, life extension and nuclear regulatory mandated investment along with global investment in new capacity. We continue to believe the nuclear market provides an important opportunity for growth.

Our naval nuclear propulsion market has demand tied to surface and submarine vessel construction schedules of the primary shipyards who service the U.S. Navy. We expect growth in our naval nuclear propulsion business based on our strategic actions and expected demand.

Our long-term perspective for oil refining and chemical markets remains cautiously optimistic notwithstanding the severity of the current downturn in these markets. We believe that long-term demand drivers are unchanged and have not been affected by the price of crude oil. We believe that the demand which is driven by population growth and an expanding middle class in emerging markets requires an increase in global energy capacity and therefore, investment. Our strategy is to continue to leverage our investments and expand our capabilities and execution capacity to grow market share in the oil refining, chemical and nuclear markets, as well as our business with the U.S. Navy. For more information, refer to the heading “Our Strategy” within Item 1 of our Annual Report on Form 10-K for fiscal 2015.

We believe the long-term outlook in our key markets supports our strategy to grow our revenue to over $200,000 across the next business cycle in our markets. In the near term, new order levels are expected to remain volatile, resulting in both relatively strong and weak periods.

 

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The chart below shows our total backlog for the past 15 quarters, as well as the portion expected to convert within the next 12 months. In recent quarters, the percent of backlog that converts within 12 months has declined due to the increase in the proportion of our backlog that is for the naval nuclear propulsion business and the weakened refining and chemical market fundamentals.

 

LOGO

Results of Operations

For an understanding of the significant factors that influenced our performance in the three and nine month periods ended December 31, 2015, the following discussion should be read in conjunction with our condensed consolidated financial statements and the notes to our condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

 

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The following table summarizes our results of operations for the periods indicated:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
     2015     2014     2015     2014  

Net sales

   $ 17,323      $ 33,646      $ 67,738      $ 97,714   

Gross profit

   $ 3,524      $ 10,103      $ 18,696      $ 29,019   

Gross profit margin

     20     30     28     30

SG&A (1)

   $ 3,738      $ 4,483      $ 12,622      $ 13,584   

SG&A, as a percent of sales

     22     13     19     14

Net income

   $ 1,274      $ 3,992      $ 5,611      $ 10,570   

Diluted income per share

   $ 0.13      $ 0.39      $ 0.56      $ 1.04   

Total assets

   $ 151,009      $ 154,883      $ 151,009      $ 154,883   

Total assets, excluding cash, cash equivalents and investments

   $ 77,794      $ 92,387      $ 77,794      $ 92,387   

 

(1) 

Selling, general and administrative expense is referred to as “SG&A”

The Third Quarter and First Nine Months of Fiscal 2016 Compared With the Third Quarter and First Nine Months of Fiscal 2015

Sales for the third quarter of fiscal 2016 were $17,323, a 49% decrease as compared with sales of $33,646 for the third quarter of fiscal 2015. These decreased sales were a result of the lower commercial order levels due to the weaker refining and chemical markets which began in the second half of fiscal 2015 and continued during the first nine months of fiscal 2016 compared with a very strong order environment in the previous eighteen months. In addition, we encountered short-term delays caused by customers which impacted sales volume in the third quarter of fiscal 2016. Our domestic sales, as a percentage of aggregate product sales, were 62% in the third quarter of fiscal 2016 compared with 55% in the third quarter of fiscal 2015. Domestic sales year-over-year decreased $7,518, or 41%, reflective of lower sales in all market segments. International sales decreased $8,805, or 58%, in the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015, also driven by decreases across all geographies. Sales in the three months ended December 31, 2015 were 36% to the refining industry, 28% to the chemical and petrochemical industries, 16% to the power industry, including the nuclear market, and 20% to other commercial and industrial applications, including the U.S. Navy. Sales in the three months ended December 31, 2014 were 38% to the refining industry, 28% to the chemical and petrochemical industries, 16% to the power industry, including the nuclear market, and 18% to other commercial and industrial applications, including the U.S. Navy. Fluctuations in sales among markets, products and geographic locations can vary measurably from quarter-to-quarter based on timing and magnitude of projects. See also “Current Market Conditions,” above. For additional information on anticipated future sales and our markets, see “Orders and Backlog” below.

Sales for the first nine months of fiscal 2016 were $67,738, a decrease of $29,976, or 31% compared with sales of $97,714 for the first nine months of fiscal 2015. The decrease in year-to-date sales was due to weaker sales across all geographies and market segments, except the Middle East. Our domestic sales, as a percentage of aggregate product sales, were 65% in the first nine months of fiscal 2016 compared with 64% in the same period in fiscal 2015. Domestic sales decreased $18,720, or 30%, while international sales decreased by $11,256, or 32%, driven by lower sales in all regions, except in the Middle East. International sales accounted for 35% and 36% of total sales for the first nine months of fiscal 2016 and fiscal 2015, respectively. Sales in the first nine months of fiscal 2016 were 31% to the refining industry, 35% to the chemical and petrochemical industries, 14% to the power industry, including the nuclear market, and 20% to other commercial and industrial applications, including the U.S. Navy. Sales in the first nine months of fiscal 2015 were 32% to the refining industry, 35% to the chemical and petrochemical industries, 17% to the power industry, including the nuclear market, and 16% to other commercial and industrial applications, including the U.S. Navy.

 

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Our gross profit margin for the third quarter of fiscal 2016 was 20%, compared with 30% in the third quarter of fiscal 2015. The lower gross margin in the third quarter of fiscal 2016 was due to the low level of revenue achieved and the under absorption of fixed costs related to the sales level. Gross profit for the third quarter of fiscal 2016 decreased to $3,524 from $10,103, or 65%, compared with the same period in fiscal 2015. Gross profit dollars decreased due to lower volume and the related absorption of fixed costs.

Our gross profit margin for the first nine months of fiscal 2016 was 28%, down from 30% in the first nine months of fiscal 2015. Gross profit for the first nine months of fiscal 2016 decreased 36%, to $18,696, compared with the same period in fiscal 2015, which had gross profit of $29,019. The decrease in gross profit dollars was due to lower volume and absorption of fixed costs.

SG&A expense in the three and nine-month periods ended December 31, 2015 decreased $745, or 17%, and $962, or 7%, respectively, compared with the same periods of the prior year, due to lower volume driven expenses and the cost reductions related to the restructuring activity that occurred at the end of fiscal 2015.

SG&A expense as a percent of sales for the three and nine-month periods ended December 31, 2015 was 22 % and 19%, respectively. This compared with 13% and 14%, respectively, for the same periods of the prior year, where volume was higher.

Other income in the three and nine-month periods ended December 31, 2015 was $1,784. This amount was due to cancellation charges received from customers for the $3,313 order cancelled in the current quarter, as well for a $3,855 order cancelled in the second quarter of fiscal 2016. There was no other income in the three and nine-month periods ended December 31, 2014.

Interest income was $72 and $177 for the three and nine-month periods ended December 31, 2015, compared with $50 and $139 for the same periods ended December 31, 2014. The low level of interest income relative to the amount of cash invested reflects the persistent low level of interest rates earned on funds invested in short term U.S. government securities, certificates of deposit and money market accounts.

Interest expense was $4 and $8 for the three and nine-month periods ended December 31, 2015, compared with $2 and $8 for the same periods ended December 31, 2014.

The effective tax rate in the current quarter was 22%, and was 30% in the first nine months of fiscal 2016. The effective tax rates for the comparable three and nine-month periods of fiscal 2015 were 30% and 32%, respectively. The tax rate in the third quarter in both fiscal years was favorably impacted by the calendar year end retroactive reinstatement of the federal research and development tax credit.

Net income for the three and nine months ended December 31, 2015 was $1,274 and $5,611, respectively, compared with $3,992 and $10,570, respectively, for the same periods in the prior fiscal year. Income per diluted share in fiscal 2016 was $0.13 and $0.56 for the three and nine-month periods, compared with $0.39 and $1.04 for the same three and nine-month periods of fiscal 2015.

 

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Liquidity and Capital Resources

The following discussion should be read in conjunction with our Condensed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10Q:

 

     December 31
2015
     March 31,
2015
 

Cash and cash equivalents and investments

   $ 73,215       $ 60,271   

Working capital

   $ 80,332       $ 80,884   

Working capital ratio(1)

     3.9         3.7   

    (1) Working capital ratio equals current assets divided by current liabilities.

Net cash generated by operating activities for the first nine months of fiscal 2016 was $22,171, compared with $7,505 generated by operating activities for the first nine months of fiscal 2015. Compared with the first nine months of fiscal 2015, the increase in cash generated was due to strong customer collections and lower unbilled revenue. These were partly offset by lower net income, decreases in accrued compensation, accounts payable and income taxes.

Dividend payments and capital expenditures in the first nine months of fiscal 2016 were $2,415 and $883, respectively, compared with $1,215 and $4,965, respectively, for the first nine months of fiscal 2015. The higher dividend payments were due to a 100% increase in the quarterly dividend which was announced in January 2015. The lower capital expenditures were due to the higher level spent in fiscal 2015 related to the expansion of our Batavia facility.

Capital expenditures for fiscal 2016 are expected to be between approximately $1,500 and $2,000. Approximately 80% of our fiscal 2016 capital expenditures are expected to be for machinery and equipment, with the remaining amounts expected to be used for information technology improvements and other items.

Cash and cash equivalents and investments were $73,215 on December 31, 2015 compared with $60,271 on March 31, 2015, up $12,944, or 21%. In addition, $5,852 of cash was used in the first nine months of fiscal 2016 to repurchase common stock under our previously disclosed stock repurchase program. In total, $8,267 has been returned to shareholders between the share buyback and dividend payments.

We invest net cash generated from operations in excess of cash held for near-term needs in short-term, less than 365 days, certificates of deposit, money market accounts or U.S. government instruments, generally with maturity periods of up to 360 days. Our money market account is used to securitize our outstanding letters of credit, which reduces our cost on those letters of credit. Approximately 95% of our cash and investments is held in the U.S. The remaining 5% is invested by our China operations.

 

25


Table of Contents

On December 2, 2015, we entered into a new revolving credit facility agreement with JP Morgan Chase Bank, N.A. This revolving credit facility replaced our previous facility, which was with Bank of America, N.A. The new facility is of equivalent size as the one it replaced, providing us with a line of credit of $25,000, including letters of credit and bank guarantees. In addition, our JP Morgan Chase agreement allows us to increase the line of credit, at our discretion, up to another $25,000, for total availability of $50,000. Borrowings under our credit facility are secured by all of our assets. We also have a $5,000 unsecured line of credit with HSBC, N.A. Letters of credit outstanding on December 31, 2015 and March 31, 2015 were $10,042 and $10,903, respectively. The outstanding letters of credit as of December 31, 2015 were issued by Bank of America, under our previous credit facility as well as by HSBC. Bank of America letters of credit of $8,785 as of December 31, 2015 were cash secured and do not reduce the availability on our new credit facility with JP Morgan Chase. HSBC letters of credit were $1,257 as of December 31, 2015. There were no other amounts outstanding on our credit facilities at December 31, 2015 and March 31, 2015. The borrowing rate under our JP Morgan Chase facility as of December 31, 2015 was the bank’s prime rate, or 3.50%. Availability under the JP Morgan Chase and HSBC lines of credit was $28,743 at December 31, 2015. The availability under the Bank of America and HSBC lines, which were in place, on March 31, 2015, was $19,097. We believe that cash generated from operations, combined with our investments and available financing capacity under our credit facility, will be adequate both to meet our cash needs for the immediate future and to support our growth strategies.

Orders and Backlog

Orders for the three-month period ended December 31, 2015 were $22,263, net of a $3,313 cancellation from backlog (gross orders were $25,576), compared with $22,558 for the same period last year, a decrease of $295, or 1%. For the three months ended December 31, 2015, orders were higher in chemical and petrochemical market by $1,289 and power by $5,286. Orders were lower in refining by $3,124 and other commercial and industrial applications, including the U.S. Navy, by $3,746. The refining market orders included the cancellation of $3,313. Excluding the cancellation, orders in the refining market would have been up 2%. Orders represent communications received from customers requesting us to supply products and services.

During the first nine months of fiscal 2016, orders were $66,840, net of two refining market cancellations totaling $7,168 from backlog (gross orders were $74,008), down 25% compared with the first nine months of fiscal 2015, when orders were $89,069. For the first nine months of fiscal 2016, refining orders decreased by $18,800, chemical and petrochemical by $2,735 and other commercial and industrial applications, including the U.S. Navy, by $6,478. These decreases were partially offset by higher Power orders, which were up by $5,783. See “Current Market Conditions” for additional information.

Domestic orders were 42%, or $9,442, while international orders were 58%, or $12,821, of total orders in the current quarter compared with the same period in the prior fiscal year, when domestic orders were 55%, or $12,426, and international orders were 45% of total orders, or $10,132.

 

26


Table of Contents

For the first nine months of fiscal 2016, domestic orders were 55% of total orders, or $36,674, while international orders were 45%, or $30,166. During the first nine months of fiscal 2015, domestic orders were 51% of total orders, or $45,531, and international orders were 49 %, or $43,538.

Backlog was $113,150 at December 31, 2015, compared with $108,139 on September 30, 2015, an increase of 5% and $113,811 at March 31, 2015, a 1% decrease. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. Approximately 45% to 50% of orders currently in our backlog are expected to be converted to sales within one year, 5% to 10% are expected to be recognized between 12 and 24 months, and 40% to 45% beyond two years. The majority of these orders that convert beyond twelve months are for the U.S. Navy. At December 31, 2015, 24% of our backlog was attributable to equipment for refinery project work 13% for chemical and petrochemical projects, 15% for power projects, including nuclear, 44% for U.S. Navy projects and 4% for other industrial or commercial applications. At December 31, 2014, 37% of our backlog was attributed to equipment for refinery project work, 23% for chemical and petrochemical projects, 11% for power projects, 21% for U.S. Navy projects and 8% for other industrial or commercial applications.

In the third quarter of fiscal 2016, as previously noted, one project totaling $3,313 was cancelled. In the first nine months of fiscal 2016, there were two projects totaling $7,168 which were cancelled. At December 31, 2015, we had one order on hold for $10,084.

Strategy and Outlook

The dramatic drop in oil prices which began during the second half of calendar 2014 has continued to affect investment activity in the refinery and petrochemical markets. The U.S. petrochemical market was very strong in fiscal 2014 and the broader global refining and petrochemical markets began to improve at the start of fiscal 2015. Our pipeline abruptly slowed in the second half of fiscal 2015 as our customers began to decrease their planned capital spending in reaction to lower oil prices. As a result, the first nine months of fiscal 2016 has been weaker than fiscal 2015. We expect this to continue during the last three months of fiscal 2016. While the current slowdown shows no signs of abating, we continue to believe in the long-term strength of the energy markets.

We believe that our diversification strategy in the power market and with the U.S. Navy, coupled with an anticipated recovery in the energy markets, will support our strategy to grow our revenue to over $200,000 across the next business cycle in our markets. We have invested to gain capacity to serve our commercial customers as well as to expand the work we do for the U.S. Navy. We intend to continue to aggressively seek organic growth opportunities. We continue to search for acquisition opportunities that we believe will allow us to expand our presence in both our existing and adjacent markets. We are focused on reducing our earnings volatility, growing our business and diversifying our business and product lines.

 

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Table of Contents

We expect revenue to be between $90,000 and $95,000 in fiscal 2016, a decrease when compared with fiscal 2015. We expect gross profit margin in fiscal 2016 to be in the 27% to 28% range. The gross margin in the first nine months of fiscal 2016 was 28%. With the lower revenue expectations in fiscal 2016 compared with fiscal 2015, our production facility utilization and production overhead absorption is likewise expected to decrease, which in turn is expected to put pressure on gross profit margins. Given this environment, while we have reduced our costs, primarily through a voluntary early retirement program, we have intentionally kept our workforce at a level in excess of our needs at the expected fiscal 2016 revenue level. We intend to keep our highly trained and knowledgeable workforce intact to focus on increasing service to our long-term customers during this period of lower demand and to be poised to take full advantage of what we believe will be an eventual energy segment upturn. We intend to continue to invest in organizational capabilities and personnel to prepare for this anticipated future growth. We believe this strategy further enhances the value that our customers receive from Graham and will ultimately drive improved performance. We will continue to review the market situation and if the markets materially deteriorate further or are projected to remain weak for an extended duration, may re-consider how we manage our costs.

SG&A spending during fiscal 2016 is expected to be between 17% and 18% of sales. Our effective tax rate during fiscal 2016 is expected to be between 30% and 31%.

Cash flow in fiscal 2016 has been quite strong as the build-up of accounts receivable and unbilled revenue which occurred in the latter portion of fiscal 2015 has been converted to cash. We expect the sum of our year end cash, cash equivalents and investments position to be similar to the December 31, 2015 level; between $70,000 and $75,000.

We will continue to look toward future growth while being mindful of near-term profitability, given short-term challenges.

Commitments and Contingencies

We have been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying our products. We are a co-defendant with numerous other defendants in these lawsuits and intend to vigorously defend ourselves against these claims. The claims in our current lawsuits are similar to those made in previous asbestos lawsuits that named us as a defendant. Such previous lawsuits either were dismissed when it was shown that we had not supplied products to the plaintiffs’ places of work or were settled by us for immaterial amounts.

As of December 31, 2015, we are subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business. Although the outcome of the lawsuits, legal proceedings or potential claims to which we are or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made, we do not believe that the outcomes, either individually or in the aggregate, will have a material effect on our results of operations, financial position or cash flows.

Critical Accounting Policies, Estimates, and Judgments

Our unaudited condensed consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that the most critical accounting estimates used in the preparation of our condensed consolidated financial statements relate to labor hour estimates and establishment of operational milestones which are used to recognize revenue under the percentage-of-completion method, fair value estimates of identifiable tangible and intangible assets acquired in business combinations, accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, and accounting for pensions and other postretirement benefits. For further information, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data” included in our Annual Report on Form 10-K for the year ended March 31, 2015.

 

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Table of Contents

Off Balance Sheet Arrangements

We did not have any off balance sheet arrangements as of December 31, 2015 or March 31, 2015, other than operating leases and letters of credit.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The principal market risks (i.e., the risk of loss arising from market changes) to which we are exposed are foreign currency exchange rates, price risk and project cancellation risk.

The assumptions applied in preparing the following qualitative and quantitative disclosures regarding foreign currency exchange rate, price risk and project cancellation risk are based upon volatility ranges experienced by us in relevant historical periods, our current knowledge of the marketplace, and our judgment of the probability of future volatility based upon the historical trends and economic conditions of the markets in which we operate.

Foreign Currency

International consolidated sales for the three and nine months ended December 31, 2015 were 38% and 35%, respectively, of total sales compared with 45% and 36%, respectively, for the same periods of fiscal 2015. Operating in markets throughout the world exposes us to movements in currency exchange rates. Currency movements can affect sales in several ways, the foremost being our ability to compete for orders against foreign competitors that base their prices on relatively weaker currencies. In addition, cash can be adversely impacted by the conversion of sales made by us in a foreign currency to U.S. dollars. In the first nine months of each of fiscal 2016 and fiscal 2015, all sales by us and our wholly-owned subsidiaries, for which we were paid, were denominated in the local currency of the respective subsidiary (U.S. dollars or Chinese RMB).

We have limited exposure to foreign currency purchases. In each of the first nine months of fiscal 2016 and 2015, our purchases in foreign currencies represented 1% of the cost of products sold. At certain times, we may enter into forward foreign currency exchange agreements to hedge our exposure against potential unfavorable changes in foreign currency values on significant sales and purchase contracts negotiated in foreign currencies. Forward foreign currency exchange contracts were not used in the periods being reported on in this Quarterly Report on Form 10-Q and as of December 31, 2015 and March 31, 2015, we held no forward foreign currency contracts.

Price Risk

Operating in a global marketplace requires us to compete with other global manufacturers which, in some instances, benefit from lower production costs and more favorable economic conditions. Although we believe that our customers differentiate our products on the basis of our manufacturing quality and engineering experience and excellence, among other things, such lower production costs and more favorable economic conditions mean that certain of our competitors are able to offer products similar to ours at lower prices. In severe market downturns, such as we are currently experiencing, we typically see depressed price levels. Moreover, the cost of metals and other materials used in our products have experienced significant volatility. Such factors, in addition to the global effects of the recent volatility and disruption of the capital and credit markets, have resulted in downward demand and pricing pressure on our products.

 

29


Table of Contents

Project Cancellation and Project Continuation Risk

Adverse economic or specific project conditions can lead to projects being placed on hold or cancelled by our customers. In the third quarter of fiscal 2016, one project totaling $3,313 was cancelled. In the first nine months of fiscal 2016, we have had two projects totaling $7,168 cancelled. We attempt to mitigate the risk of cancellation by structuring contracts with our customers to maximize the likelihood that progress payments made to us for individual projects cover the costs we have incurred. As a result, we do not believe we have a significant cash exposure to projects which may be cancelled.

Open orders are reviewed continuously through communications with customers. If it becomes evident to us that a project is delayed well beyond its original shipment date, management will move the project into “placed on hold” (i.e., suspended) category. Furthermore, if a project is cancelled by our customer, it is removed from our backlog. At December 31, 2015, we had one order on hold for $10,084.

 

Item 4.     Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures

Our President and Chief Executive Officer (principal executive officer) and Vice President-Finance & Administration and Chief Financial Officer (principal financial officer) each have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, and as of such date, our President and Chief Executive Officer and Vice President-Finance & Administration and Chief Financial Officer concluded that our disclosure controls and procedures were effective in all material respects.

Changes in internal control over financial reporting

There has been no change to our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

GRAHAM CORPORATION AND SUBSIDIARIES

FORM 10-Q

December 31, 2015

PART II—OTHER INFORMATION

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities by the Issuer

On January 29, 2015, our Board of Directors authorized a stock repurchase program. Under the stock repurchase program, up to $18,000 of our common stock may be repurchased by us from time to time either in the open market or through privately negotiated transactions. Common stock repurchases in the quarter ended December 31, 2015 were as follows:

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid Per Share
     Approximate Dollar Value
of Shares That May Yet
Be Purchased Under the
Program
 

10/01/2015 – 10/31/2015

     47       $ 17.76       $ 13,767   

11/01/2015 – 11/30/2015

     35       $ 17.68       $ 13,144   

12/01/2015 – 12/31/2015

     59       $ 16.94       $ 12,148   
  

 

 

       

Total

     141       $ 17.39       $ 12,148   
  

 

 

    

 

 

    

 

 

 

 

Item 6.     Exhibits

See index to exhibits on page 33 of this report.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GRAHAM CORPORATION

 

 

 

By:

    

/s/ JEFFREY GLAJCH

       Jeffrey Glajch
       Vice President-Finance & Administration and
       Chief Financial Officer

 

Date: February 2, 2016

 

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Table of Contents

INDEX TO EXHIBITS

 

(10)    Material Contracts
+    10.1    Credit Agreement between the Company and JPMorgan Chase Bank, N.A., dated December 2, 2015.
+    10.2    Revolving Credit Note between the Company and JPMorgan Chase Bank, N.A., dated December 2, 2015.
+    10.3    Pledge and Security Agreement between the Company and JPMorgan Chase Bank, N.A., dated December 2, 2015.
+    10.4    Trademark Security Agreement between the Company and JPMorgan Chase Bank, N.A., dated December 2, 2015.
+    10.5    Patent Security Agreement between the Company and JPMorgan Chase Bank, N.A., dated December 2, 2015.
(31)    Rule 13a-14(a)/15d-14(a) Certifications
+    31.1    Certification of Principal Executive Officer
+    31.2    Certification of Principal Financial Officer
(32)    Section 1350 Certification
+    32.1    Section 1350 Certifications
(101)    Interactive Date File
+    101.INS    XBRL Instance Document
+    101.SCH    XBRL Taxonomy Extension Schema Document
+    101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
+    101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
+    101.LAB    XBRL Taxonomy Extension Label Linkbase Document
+    101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
  

            +     Exhibit filed with this report.

 

33

EXHIBIT 10.1

 

 

 

 

LOGO

CREDIT AGREEMENT

dated as of

December 2, 2015

among

Graham Corporation,

the Loan Parties Party Hereto,

The Lenders Party Hereto

and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

 

J.P. MORGAN SECURITIES LLC,

as Sole Bookrunner and Sole Lead Arranger

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I.  Definitions

     1   

SECTION 1.01.  Defined Terms

     1   

SECTION 1.02.  Classification of Loans and Borrowings

     23   

SECTION 1.03.  Terms Generally

     23   

SECTION 1.04.  Accounting Terms; GAAP

     24   

SECTION 1.05.  Pro Forma Adjustments for Acquisitions and Dispositions

     24   

SECTION 1.06.  Status of Obligations

     24   

ARTICLE II.  The Credits

     25   

SECTION 2.01.  Revolving Commitments

     25   

SECTION 2.02.  Loans and Borrowings

     25   

SECTION 2.03.  Requests for Borrowings

     26   

SECTION 2.05.  Swingline Loans

     26   

SECTION 2.06.  Letters of Credit

     27   

SECTION 2.07.  Funding of Borrowings

     33   

SECTION 2.08.  Interest Elections

     33   

SECTION 2.09.  Termination and Reduction of Commitments; Increase in Revolving Commitments

     34   

SECTION 2.10.  Repayment and Amortization of Loans; Evidence of Debt

     36   

SECTION 2.11.  Prepayment of Loans

     37   

SECTION 2.12.  Fees

     38   

SECTION 2.13.  Interest

     39   

SECTION 2.14.  Alternate Rate of Interest

     40   

SECTION 2.15.  Increased Costs

     40   

SECTION 2.16.  Break Funding Payments

     41   

SECTION 2.17.  Taxes

     42   

SECTION 2.18.  Payments Generally; Allocation of Proceeds; Sharing of Set-offs

     45   

SECTION 2.19.  Mitigation Obligations; Replacement of Lenders

     47   

SECTION 2.20.  Defaulting Lenders

     48   

SECTION 2.21.  Returned Payments

     49   

SECTION 2.22.  Banking Services and Swap Agreements

     50   

ARTICLE III.  Representations and Warranties

     50   

SECTION 3.01.  Organization; Powers

     50   

SECTION 3.02.  Authorization; Enforceability

     50   

SECTION 3.03.  Governmental Approvals; No Conflicts

     50   

SECTION 3.04.  Financial Condition; No Material Adverse Change

     51   

SECTION 3.05.  Properties

     51   

SECTION 3.06.  Litigation and Environmental Matters

     51   

SECTION 3.07.  Compliance with Laws and Agreements; No Default

     52   

SECTION 3.08.  Investment Company Status

     52   

SECTION 3.09.  Taxes

     52   

SECTION 3.10.  ERISA

     52   

SECTION 3.11.  Disclosure

     52   

SECTION 3.12.  Material Agreements

     52   

SECTION 3.13.  Solvency

     53   

SECTION 3.14.  Insurance

     53   


SECTION 3.15.  Capitalization and Subsidiaries

     53   

SECTION 3.16.  Security Interest in Collateral

     53   

SECTION 3.17.  Employment Matters

     53   

SECTION 3.18.  Federal Reserve Regulations

     54   

SECTION 3.19.  Use of Proceeds

     54   

SECTION 3.20.  No Burdensome Restrictions

     54   

SECTION 3.21.  Anti-Corruption Laws and Sanctions

     54   

ARTICLE IV.  Conditions

     54   

SECTION 4.01.  Effective Date

     54   

SECTION 4.02.  Each Credit Event

     56   

ARTICLE V.  Affirmative Covenants

     57   

SECTION 5.01.  Financial Statements; Borrowing Base and Other Information

     57   

SECTION 5.02.  Notices of Material Events

     59   

SECTION 5.03.  Existence; Conduct of Business

     59   

SECTION 5.04.  Payment of Obligations

     60   

SECTION 5.05.  Maintenance of Properties

     60   

SECTION 5.06.  Books and Records; Inspection Rights

     60   

SECTION 5.07.  Compliance with Laws and Material Contractual Obligations

     60   

SECTION 5.08.  Use of Proceeds

     60   

SECTION 5.09.  Accuracy of Information

     61   

SECTION 5.10.  Insurance

     61   

SECTION 5.11.  Appraisals

     61   

SECTION 5.12.  Casualty and Condemnation

     61   

SECTION 5.13.  Depository Banks

     62   

SECTION 5.14.  Additional Collateral; Further Assurances

     62   

SECTION 5.15.  Post-Closing Covenants

     63   

ARTICLE VI.  Negative Covenants

     63   

SECTION 6.01.  Indebtedness

     63   

SECTION 6.02.  Liens

     65   

SECTION 6.03.  Fundamental Changes

     66   

SECTION 6.04.  Investments, Loans, Advances, Guarantees and Acquisitions

     66   

SECTION 6.05.  Asset Sales

     67   

SECTION 6.06.  Sale and Leaseback Transactions

     68   

SECTION 6.07.  Swap Agreements

     68   

SECTION 6.08.  Restricted Payments; Certain Payments of Indebtedness

     68   

SECTION 6.09.  Transactions with Affiliates

     69   

SECTION 6.10.  Restrictive Agreements

     69   

SECTION 6.11.  Amendment of Material Documents

     70   

SECTION 6.12.  Financial Covenants

     70   

ARTICLE VII.  Events of Default

     70   

ARTICLE VIII.  The Administrative Agent

     73   

SECTION 8.01.  Appointment

     73   

SECTION 8.02.  Rights as a Lender

     73   

SECTION 8.03.  Duties and Obligations

     73   

SECTION 8.04.  Reliance

     74   

SECTION 8.05.  Actions through Sub-Agents

     74   

SECTION 8.06.  Resignation

     74   

SECTION 8.07.  Non-Reliance

     75   

SECTION 8.08.  Not Partners or Co-Venturers; Administrative Agent as Representative of the Secured Parties

     76   

 

ii


ARTICLE IX.  Miscellaneous

     76   

SECTION 9.01.  Notices

     76   

SECTION 9.02.  Waivers; Amendments

     78   

SECTION 9.03.  Expenses; Indemnity; Damage Waiver

     80   

SECTION 9.04.  Successors and Assigns

     82   

SECTION 9.05.  Survival

     86   

SECTION 9.06.  Counterparts; Integration; Effectiveness; Electronic Execution

     86   

SECTION 9.07.  Severability

     86   

SECTION 9.08.  Right of Setoff

     87   

SECTION 9.09.  Governing Law; Jurisdiction; Consent to Service of Process

     87   

SECTION 9.10.  WAIVER OF JURY TRIAL

     87   

SECTION 9.11.  Headings

     88   

SECTION 9.12.  Confidentiality

     88   

SECTION 9.13.  Several Obligations; Nonreliance; Violation of Law

     89   

SECTION 9.14.  USA PATRIOT Act

     89   

SECTION 9.15.  Disclosure

     89   

SECTION 9.16.  Appointment for Perfection

     89   

SECTION 9.17.  Interest Rate Limitation

     89   

SECTION 9.18.  Marketing Consent

     90   

ARTICLE X.  Loan Guaranty

     90   

SECTION 10.01.  Guaranty

     90   

SECTION 10.02.  Guaranty of Payment

     90   

SECTION 10.03.  No Discharge or Diminishment of Loan Guaranty

     90   

SECTION 10.04.  Defenses Waived

     91   

SECTION 10.05.  Rights of Subrogation

     91   

SECTION 10.06.  Reinstatement; Stay of Acceleration

     91   

SECTION 10.07.  Information

     92   

SECTION 10.08.  Termination

     92   

SECTION 10.09.  Taxes

     92   

SECTION 10.10.  Maximum Liability

     92   

SECTION 10.11.  Contribution

     92   

SECTION 10.12.  Liability Cumulative

     93   

SECTION 10.13.  Keepwell

     93   

SCHEDULES:

 

Commitment Schedule

Schedule 3.05 – Properties, etc.

Schedule 3.06 – Disclosed Matters

Schedule 3.14 – Insurance

Schedule 3.15 – Capitalization and Subsidiaries

Schedule 5.13 – Existing Standby Letters of Credit

Schedule 6.01 – Existing Indebtedness

Schedule 6.02 – Existing Liens

Schedule 6.04 – Existing Investments

Schedule 6.10 – Existing Restrictions

EXHIBITS:

 

Exhibit A – Assignment and Assumption

 

iii


Exhibit B – Opinion of Counsel for the Loan Parties

Exhibit C-1 – U.S.

 

Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Exhibit C-2 – U.S.

 

Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Exhibit C-3 – U.S.

 

Tax Compliance Certificate (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

Exhibit C-4 – U.S.

 

Tax Compliance Certificate (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

Exhibit D – Compliance Certificate

Exhibit E – Joinder Agreement

 

iv


CREDIT AGREEMENT dated as of December 2, 2015 (as it may be amended or modified from time to time, this “Agreement”), among Graham Corporation, a Delaware corporation, as Borrower, the other Loan Parties party hereto, the Lenders party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

The parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

Account” has the meaning assigned to such term in the Security Agreement.

Account Debtor” means any Person obligated on an Account.

Acquisition” means the purchase by a Loan Party of all or substantially all of the assets or Equity Interests of a Person or division or line of business of a Person.

Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period or for any CBFR Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

Adjusted One Month LIBOR Rate” means, for any day, an interest rate per annum equal to the sum of (i) 2.50% plus (ii) the Adjusted LIBO Rate for a one-month interest period on such day (or if such day is not a Business Day, the immediately preceding Business Day); provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate at approximately 11:00 a.m. London time on such day; provided further, that, if the LIBO Screen Rate at such time shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.

Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the specified Person.

Agency Site” means the Electronic System established by the Administrative Agent to administer this Agreement.

Aggregate Credit Exposure” means, at any time, the aggregate Credit Exposure of all the Lenders at such time.

Aggregate Revolving Exposure” means, at any time, the aggregate Revolving Exposure of all the Lenders at such time (with the Swingline Exposure of each Lender calculated assuming that all of the Lenders have funded their participations in all Swingline Loans outstanding at such time).

 

1


Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Affiliates from time to time concerning or relating to bribery or corruption.

Applicable LC Rate” means, for any day, with respect to the outstanding undrawn amount of each Letter of Credit, payable quarterly in arrears, the applicable rate per annum set forth below under the caption “Applicable LC Rate Not Cash Collateralized” or “Applicable LC Rate Cash/Cash Equivalents Collateralized”, as the case may be, based upon the Borrower’s Funded Indebtedness to EBITDA Ratio as of the most recent determination date, provided that until the delivery to the Administrative Agent, pursuant to Section 5.01, of the Borrower’s consolidated financial information for the Borrower’s first fiscal quarter ending after the Effective Date, the “Applicable LC Rate” shall be the applicable rates per annum set forth below in Category 1:

 

Funded Indebtedness

to EBITDA

Ratio

  

Applicable LC

Rate Not Cash

Collateralized

  

Applicable LC

Rate Cash/Cash

Equivalents

Collateralized

Category 1

> 3.00 to 1.0

   120 bps    40 bps

Category 2

< 3.00 to 1.0 but

> 2.00 to 1.0

   95 bps    40 bps

Category 3

< 2.00 to 1.0 but

> 1.00 to 1.0

   80 bps    40 bps

Category 4

< 1.00 to 1.0

   70 bps    40 bps

Applicable Percentage” means, at any time with respect to any Lender, a percentage equal to a fraction the numerator of which is such Lender’s Revolving Commitment at such time and the denominator of which is the aggregate Revolving Commitments at such time (provided that, if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon such Lender’s share of the Aggregate Revolving Exposure at such time); provided that, in accordance with Section 2.20, so long as any Lender shall be a Defaulting Lender, such Defaulting Lender’s Commitment shall be disregarded in the calculations above.

Applicable Rate” means, for any day, with respect to any Loan, or with respect to the Commitment Fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption “Revolving Commitment CBFR Spread”, “Revolving Commitment Spread” or “Commitment Fee”, as the case may be, based upon the Borrower’s Funded Indebtedness to EBITDA Ratio as of the most recent determination date, provided that until the delivery to the Administrative Agent, pursuant to Section 5.01, of the Borrower’s consolidated financial information for the Borrower’s first fiscal quarter ending after the Effective Date, the “Applicable Rate” shall be the applicable rates per annum set forth below in Category 1:

 

Funded Indebtedness

to EBITDA

Ratio

  

Revolving

Commitment

CBFR Spread

  

Revolving

Commitment

LIBOR Spread

 

  

Commitment

Fee

Category 1

> 3.00 to 1.0

   0    175 bps    30 bps

Category 2

< 3.00 to 1.0 but

> 2.00 to 1.0

   0    150 bps    25 bps

Category 3

< 2.00 to 1.0 but

> 1.00 to 1.0

   0    120 bps    20 bps

Category 4

< 1.00 to 1.0

   0    95 bps    20 bps

 

2


For purposes of the foregoing, (a) the Applicable Rate shall be determined as of the end of each fiscal quarter of the Borrower, based upon the Borrower’s annual or quarterly consolidated financial statements delivered pursuant to Section 5.01 and (b) each change in the Applicable Rate resulting from a change in the Funded Indebtedness to EBITDA Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change, provided that (A) at any time that an Event of Default has occurred and is continuing or (B) at the option of the Administrative Agent or at the request of the Required Lenders, if the Borrower fails to deliver the annual or quarterly consolidated financial statements required to be delivered by it pursuant to Section 5.01, the Funded Indebtedness to EBITDA Ratio shall be deemed to be in Category 1 during the period from the expiration of the time for delivery thereof until such consolidated financial statements are delivered.

If at any time the Administrative Agent determines that the financial statements upon which the Applicable Rate was determined were incorrect (whether based on a restatement, fraud or otherwise), the Borrower shall be required to retroactively pay any additional amount that the Borrower would have been required to pay if such financial statements had been accurate at the time they were delivered.

Approved Fund” has the meaning assigned to the term in Section 9.04(b).

Assignment and Assumption” means an assignment and assumption agreement entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

Availability” means, at any time, an amount equal to (a) the aggregate Revolving Commitments minus (b) the Aggregate Revolving Exposure (calculated, with respect to any Defaulting Lender, as if such Defaulting Lender had funded its Applicable Percentage of all outstanding Borrowings).

Availability Period” means the period from and including the Effective Date to but excluding the earlier of the Revolving Credit Maturity Date and the date of termination of the Revolving Commitments.

Bank Guarantee” means a Guarantee issued by an Issuing Bank.

Bank Guarantee Exposure” means, at any time, the aggregate amount of any and all outstanding Bank Guarantees.

Bank Guarantee Payment” means any payment made by an Issuing Bank pursuant to a Bank Guarantee.

Banking Services” means each and any of the following bank services provided to any Loan Party by Chase or any of its Affiliates: (a) credit cards for commercial customers (including, without limitation, “commercial credit cards” and purchasing cards), (b) stored value cards, (c) merchant processing services, and (d) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, any direct debit scheme or arrangement, overdrafts and interstate depository network services).

 

3


Banking Services Obligations” means any and all obligations of the Loan Parties or their Subsidiaries, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

Bankruptcy Event” means, with respect to any Person, when such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business, appointed for it, or, in the good faith exercise of the business judgment of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the U.S. or from the enforcement of judgments or writs of attachment on its assets or permits such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

Beneficial Owner” means, with respect to any U.S. federal withholding Tax, the beneficial owner, for U.S. federal income tax purposes, to whom such Tax relates.

Board” means the Board of Governors of the Federal Reserve System of the U.S.

Borrower” means Graham Corporation, a Delaware corporation.

Borrowing” means any (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.

Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03.

Burdensome Restrictions” means any consensual encumbrance or restriction of the type described in clause (a) or (b) of Section 6.10.

Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for general business in London.

Capital Expenditures” means, without duplication, any expenditure or commitment to expend money for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP.

Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

 

4


CB Floating Rate” means the Prime Rate; provided that the CB Floating Rate shall never be less than the Adjusted One Month LIBOR Rate on such day (or if such day is not a Business Day, the immediately preceding Business Day). Any change in the CB Floating Rate due to a change in the Prime Rate or the Adjusted One Month LIBOR Rate shall be effective from and including the effective date of such change in the Prime Rate or the Adjusted One Month LIBOR Rate, respectively.

CBFR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the CB Floating Rate.

Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof) of Equity Interests representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated.

Change in Law” means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of any of the following: (a) the adoption of or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or the Issuing Bank’s holding company, if any) with any request, guideline, requirement or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the U.S. 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, issued or implemented.

Charges” has the meaning assigned to such term in Section 9.17.

Chase” means JPMorgan Chase Bank, N.A., a national banking association, in its individual capacity, and its successors.

Class”, when used in reference to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans, and (b) any Lender, refers to whether such Lender has a Loan or Commitment of a particular Class.

Code” means the Internal Revenue Code of 1986, as amended from time to time.

Collateral” means any and all property owned, leased or operated by a Person covered by the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that may at any time be, become or intended to be, subject to a security interest or Lien in favor of the Administrative Agent, on behalf of itself and the Lenders and other Secured Parties, to secure the Secured Obligations.

 

5


Collateral Access Agreement” has the meaning assigned to such term in the Security Agreement.

Collateral Documents” means, collectively, the Security Agreement, and any other agreements, instruments and documents executed in connection with this Agreement that are intended to create, perfect or evidence Liens to secure the Secured Obligations, including, without limitation, all other security agreements, pledge agreements, mortgages, deeds of trust, loan agreements, notes, guarantees, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, fee letters, notices, leases, financing statements and all other written matter whether theretofore, now or hereafter executed by any Loan Party and delivered to the Administrative Agent.

Commercial LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding commercial (or documentary) Letters of Credit plus (b) the aggregate amount of all LC Disbursements relating to commercial Letters of Credit that have not yet been reimbursed by or on behalf of the Borrower. The Commercial LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the aggregate Commercial LC Exposure at such time.

Commitment” means, with respect to each Lender, such Lender’s Revolving Commitment. The initial amount of each Lender’s Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable.

Commitment Fees” means the fees to be paid by the Borrower to the Administrative Agent in accordance with Section 2.12(a).

Commitment Schedule” means the Schedule attached hereto identified as such.

Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.

Communications” has the meaning assigned to such term in Section 9.01(d).

Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

Credit Exposure” means, as to any Lender at any time, such Lender’s Revolving Exposure at such time.

Credit Party” means the Administrative Agent, the Issuing Bank, the Swingline Lender or any other Lender.

Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

6


Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by a Credit Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of a Bankruptcy Event.

Disclosed Matters” means the actions, suits, proceedings and environmental matters disclosed in Schedule 3.06.

Document” has the meaning assigned to such term in the Security Agreement.

dollars” or “$” refers to lawful money of the U.S.

Domestic Subsidiary” means any Subsidiary that is organized under the Laws of any state of the United States or the District of Columbia.

EBIT” means, for any period, Net Income for such period plus (a) without duplication and to the extent deducted in determining Net Income for such period, the sum of (i) Interest Expense for such period, (ii) income tax expense for such period net of tax refunds, (iii) any extraordinary non-cash charges for such period and (iv) any other non-cash charges for such period (but excluding any non-cash charge in respect of an item that was included in Net Income in a prior period and any non-cash charge that relates to the write-down or write-off of inventory), minus (b) without duplication and to the extent included in Net Income, (i) any cash payments made during such period in respect of non-cash charges described in clause (a)(v) taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such period, all calculated for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.

EBITDA” means, for any period, Net Income for such period plus (a) without duplication and to the extent deducted in determining Net Income for such period, the sum of (i) Interest Expense for such period, (ii) income tax expense for such period net of tax refunds, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any extraordinary non-cash charges for such period and (v) any other non-cash charges for such period (but excluding any non-cash charge in respect of an item that was included in Net Income in a prior period and any non-cash charge that relates to the write-down or write-off of inventory), minus (b) without duplication and to the extent included in Net Income, (i) any cash payments made during such period in respect of non-cash charges described in clause (a)(v) taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such period, all calculated for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.

 

7


ECP” means an “eligible contract participant” as defined in Section 1(a)(18) of the Commodity Exchange Act or any regulations promulgated thereunder and the applicable rules issued by the Commodity Futures Trading Commission and/or the SEC.

Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.

Electronic System” means any electronic system, including e-mail, e-fax, Intralinks®, ClearPar®, Debt Domain, Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and the Issuing Bank and any of its respective Related Parties or any other Person, providing for access to data protected by passcodes or other security system.

Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Equipment” has the meaning assigned to such term in the Security Agreement.

Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice

 

8


period is waived); (b) the failure to satisfy the “minimum funding standard” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA as a result of the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice indicating an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal of the Borrower or any ERISA Affiliate from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition upon the Borrower or any ERISA Affiliate of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

ES Acquisition Subsidiary” means ES Acquisition Corp., a Delaware corporation.

Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Adjusted LIBO Rate.

Event of Default” has the meaning assigned to such term in Article VII.

Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an ECP at the time the Guarantee of such Guarantor or the grant of such security interest becomes or would become effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.

Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan, Letter of Credit or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan, Letter of Credit or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan, Letter of Credit or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f) and (d) any U.S. federal withholding Taxes imposed under FATCA.

FATCA” means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code.

 

9


Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it; provided, that, if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.

Financial Statements” has the meaning assigned to such term in Section 5.01.

Fixtures” has the meaning assigned to such term in the Security Agreement.

Foreign Lender” means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.

Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

Funded Indebtedness” means, all outstanding Indebtedness for borrowed money and other interest-bearing liabilities, including current and long term Indebtedness.

Funded Indebtedness to EBITDA Ratio” means, at any date, the ratio of (a) Funded Indebtedness for such date to (b) EBITDA for the period of four fiscal quarters ended on or most recently prior to such date.

Funding Account” has the meaning assigned to such term in Section 4.01(h).

GAAP” means generally accepted accounting principles in the U.S.

Governmental Authority” means the government of the U.S., any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

 

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Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.

Guarantors” means all Loan Guarantors and all non-Loan Parties who have delivered an Obligation Guaranty, and the term “Guarantor” means each or any one of them individually.

Hazardous Materials” means: (a) any substance, material, or waste that is included within the definitions of “hazardous substances,” “hazardous materials,” “hazardous waste,” “toxic substances,” “toxic materials,” “toxic waste,” or words of similar import in any Environmental Law; (b) those substances listed as hazardous substances by the United States Department of Transportation (or any successor agency) (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) (40 C.F.R. Part 302 and amendments thereto); and (c) any substance, material, or waste that is petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos-containing material, polychlorinated biphenyls, flammable, explosive, radioactive, freon gas, radon, or a pesticide, herbicide, or any other agricultural chemical.

Impacted Interest Period” has the meaning assigned to such term in the definition of “LIBO Rate”.

Inactive Subsidiary” means Graham Indonesia, Inc., a Delaware corporation.

Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (k) obligations under any liquidated earn-out, (l) any other Off-Balance Sheet Liability and (m) obligations, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all Swap Agreements, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Swap Agreement transaction. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in the foregoing clause (a), Other Taxes.

Indemnitee” has the meaning assigned to such term in Section 9.03(b).

 

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Ineligible Institution” has the meaning assigned to such term in Section 9.04(b).

Information” has the meaning assigned to such term in Section 9.12.

Interest Coverage Ratio” means, for any period, the ratio of (a) EBIT for such period to (b) Interest Expense for such period.

Interest Expense” means, with reference to any period, total interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptances and net costs under Swap Agreements in respect of interest rates, to the extent such net costs are allocable to such period in accordance with GAAP), calculated for the Borrower and its Subsidiaries on a consolidated basis for such period in accordance with GAAP.

Interest Election Request” means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.08.

Interest Payment Date” means (a) with respect to any CBFR Loan (other than a Swingline Loan), the first Business Day of each calendar month and the Revolving Credit Maturity Date, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Revolving Credit Maturity Date, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Revolving Credit Maturity Date.

Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Eurodollar Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, or three months thereafter, as the Borrower may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter, in the case of a Revolving Borrowing, shall be the effective date of the most recent conversion or continuation of such Borrowing.

Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available) that is shorter than the Impacted Interest Period and (b) the LIBO Screen Rate for the shortest period (for which the LIBO Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.

Inventory” has the meaning assigned to such term in the Security Agreement.

IRS” means the United States Internal Revenue Service.

 

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Issuing Bank” means, individually and collectively, each of Chase, in its capacity as the issuer of Letters of Credit hereunder, and any other Revolving Lender from time to time designated by the Borrower as an Issuing Bank, with the consent of such Revolving Lender and the Administrative Agent, and their respective successors in such capacity as provided in Section 2.06(i). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by its Affiliates, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate (it being agreed that such Issuing Bank shall, or shall cause such Affiliate to, comply with the requirements of Section 2.06 with respect to such Letters of Credit). At any time there is more than one Issuing Bank, all singular references to the Issuing Bank shall mean any Issuing Bank, either Issuing Bank, each Issuing Bank, the Issuing Bank that has issued the applicable Letter of Credit, or both (or all) Issuing Banks, as the context may require.

Issuing Bank Sublimits” means, as of the Effective Date, (i) $25,000,000 in the case of Chase, and (ii) such amount as shall be designated to the Administrative Agent and the Borrower in writing by an Issuing Bank; provided that any Issuing Bank shall be permitted at any time to increase or reduce its Issuing Bank Sublimit upon providing five (5) days’ prior written notice thereof to the Administrative Agent and the Borrower.

Joinder Agreement” means a Joinder Agreement in substantially the form of Exhibit E.

LC Collateral Account” has the meaning assigned to such term in Section 2.06(j).

LC Disbursement” means any payment made by an Issuing Bank pursuant to a Letter of Credit.

LC Exposure” means, at any time, the sum of the Commercial LC Exposure, the Standby LC Exposure and the Bank Guarantee Exposure at such time. The LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the aggregate LC Exposure at such time.

Lenders” means the Persons listed on the Commitment Schedule and any other Person that shall have become a Lender hereunder pursuant to (i) Section 2.09 or (ii) an Assignment and Assumption, other than any such Person that ceases to be a Lender hereunder pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender and the Issuing Bank.

Letters of Credit” means the letters of credit issued pursuant to this Agreement, and the term “Letter of Credit” means any one of them or each of them singularly, as the context may require.

LIBO Rate” means, with respect to any Eurodollar Borrowing for any applicable Interest Period or for any CBFR Borrowing, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for Dollars) for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as shall be selected by the Administrative Agent in its reasonable discretion (in each case, the “LIBO Screen Rate”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, (x) if the LIBO Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement and (y) if the LIBO Screen Rate shall not be available at such time for a period equal in length to such Interest Period (an “Impacted Interest Period”), then the LIBO Rate shall be the Interpolated Rate at such time, subject to Section 2.14 in the event that

 

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the Administrative Agent shall conclude that it shall not be possible to determine such Interpolated Rate (which conclusion shall be conclusive and binding absent manifest error); provided further, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. Notwithstanding the above, to the extent that “LIBO Rate” or “Adjusted LIBO Rate” is used in connection with a CBFR Borrowing, such rate shall be determined as modified by the definition of Adjusted One Month LIBOR Rate.

LIBO Screen Rate” has the meaning assigned to such term in the definition of “LIBO Rate”.

Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

Loan Documents” means, collectively, this Agreement, each promissory note issued pursuant to this Agreement, any Letter of Credit applications, each Collateral Document, the Loan Guaranty, any Obligation Guaranty, any Guaranty now or hereafter executed by any Loan Party for the benefit of the Administrative Agent with respect to the obligations of any Subsidiary and each other agreement, instrument, document and certificate identified in Section 4.01 executed and delivered to, or in favor of, the Administrative Agent or any Lender and including each other pledge, power of attorney, consent, assignment, contract, notice, letter of credit agreement and each other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to the Administrative Agent or any Lender in connection with this Agreement or the transactions contemplated hereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

Loan Guarantor” means each Loan Party.

Loan Guaranty” means Article X of this Agreement.

Loan Parties” means, collectively, the Borrower, the Borrower’s Domestic Subsidiaries and any other Person who becomes a party to this Agreement pursuant to a Joinder Agreement and their successors and assigns, and the term “Loan Party” shall mean any one of them or all of them individually, as the context may require.

Loans” means the loans and advances made by the Lenders pursuant to this Agreement, including Swingline Loans.

Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents to which it is a party, (c) the Collateral, or the Administrative Agent’s Liens (on behalf of itself and the other Secured Parties) on the Collateral or the priority of such Liens, or (d) the rights of or benefits available to the Administrative Agent, the Issuing Bank or the Lenders under any of the Loan Documents.

Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Loan Parties in an

 

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aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of any Loan Party in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Loan Party would be required to pay if such Swap Agreement were terminated at such time.

Maximum Rate” has the meaning assigned to such term in Section 9.17.

Moody’s” means Moody’s Investors Service, Inc.

Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

Net Income” means, for any period, the consolidated net income (or loss) determined for the Borrower and its Subsidiaries, on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any Subsidiary, (b) the income (or deficit) of any Person (other than a Subsidiary) in which the Borrower or any Subsidiary has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary, to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary.

Net Proceeds” means, with respect to any event, (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but excluding any interest payments), but only as and when received, (ii) in the case of a casualty, insurance proceeds and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, minus (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event and (iii) the amount of all taxes paid (or reasonably estimated to be payable) and the amount of any reserves established to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by a Financial Officer).

Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(d).

Non-U.S. Lender” means a Lender that is not a U.S. Person.

Obligated Party” has the meaning assigned to such term in Section 10.02.

Obligation Guaranty” means any Guarantee of all or any portion of the Secured Obligations executed and delivered to the Administrative Agent for the benefit of the Secured Parties by a guarantor who is not a Loan Party.

Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Exposure, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations and indebtedness (including interest and fees accruing during the pendency of any bankruptcy,

 

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insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), obligations and liabilities of any of the Loan Parties to any of the Lenders, the Administrative Agent, the Issuing Bank or any indemnified party, individually or collectively, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the other Loan Documents or in respect of any of the Loans made or reimbursement or other obligations incurred or any of the Letters of Credit or other instruments at any time evidencing any thereof.

OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.

Off-Balance Sheet Liability” of a Person means (a) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (b) any indebtedness, liability or obligation under any so-called “synthetic lease” transaction entered into by such Person, or (c) any indebtedness, liability or obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person (other than operating leases).

Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection 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 any Loan Document.

Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).

Parent” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.

Participant” has the meaning assigned to such term in Section 9.04(c).

Participant Register” has the meaning assigned to such term in Section 9.04(c).

PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

Permitted Acquisitions” means any Acquisition by any Loan Party where:

(a)        the business or division acquired is for use, or the Person acquired is engaged, in businesses which are similar or related to the businesses engaged in by the Borrower on the date of this Agreement or are otherwise reasonably incidental or complementary thereto;

(b)        immediately before and after giving effect to such Acquisition, no Default or Event of Default shall exist;

 

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(c)        immediately before such Acquisition, the Borrower’s Funded Indebtedness to EBITDA Ratio on a pro forma basis after giving effect to such acquisition(s) is equal to or less than 3.0 to 1.0;

(d)        if a new Subsidiary is formed or acquired as a result of or in connection with the Acquisition, the Borrower shall have complied with the requirements of Article IV and Section 5.14, as applicable.

Permitted Encumbrances” means:

(a)  Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.04;

(b)  carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 5.04;

(c)  pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(d)  deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e)  judgment Liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; and

(f)  easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;

provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness, except with respect to clause (e) above.

Permitted Investments” means:

(a)  direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the U.S. (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the U.S.), in each case maturing within one year from the date of acquisition thereof;

(b)  investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;

(c)  investments in certificates of deposit, bankers’ acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the U.S. or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

 

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(d)  fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e)  money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

Platform” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.

Prepayment Event” means:

(a)  any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of any Loan Party or any Subsidiary, other than dispositions described in Sections 6.05(a) or 6.05(b); or

(b)  any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party or any Subsidiary with a fair value immediately prior to such event equal to or greater than $100,000; or

(c)  the issuance by the Borrower of any Equity Interests, or the receipt by the Borrower of any capital contribution; or

(d)  the incurrence by any Loan Party or any Subsidiary of any Indebtedness, other than Indebtedness permitted under Section 6.01.

Prime Rate” means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal offices in New York City. Each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

Projections” has the meaning assigned to such term in Section 5.01(e).

Public-Sider” means a Lender whose representatives may trade in securities of the Borrower or its controlling person or any of its Subsidiaries while in possession of the financial statements provided by the Borrower under the terms of this Agreement.

Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Loan Party that has total assets exceeding $10,000,000 at the time the relevant Loan Guaranty or grant of the relevant security interest becomes or would become effective with respect to such Swap Obligation or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

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Real Property” means all real property that was, is now or may hereafter be owned, occupied or otherwise controlled by any Loan Party pursuant to any contract of sale, lease or other conveyance of any legal interest in any real property to any Loan Party.

Recipient” means, as applicable, (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, or any combination thereof (as the context requires).

Refinance Indebtedness” has the meaning assigned to such term in Section 6.01(f).

Register” has the meaning assigned to such term in Section 9.04(b).

Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, partners, members, trustees, employees, agents, administrators, managers, representatives and advisors of such Person and such Person’s Affiliates.

Release” means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, disposing, or dumping of any substance into the environment.

Report” means reports prepared by the Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets from information furnished by or on behalf of the Borrower, after the Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent.

Required Lenders” means, at any time, Lenders (other than Defaulting Lenders) having Credit Exposure and unused Commitments representing at least 66.6% of the sum of the Aggregate Credit Exposure and unused Commitments at such time if there are more than three Lenders at such time, and 66.6% of the sum of the Aggregate Credit Exposure and unused Commitments at such time if there are not more than three Lenders at such time; provided that, as long as there are only two Lenders, Required Lenders shall mean both Lenders; provided further that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, then, as to each Lender, clause (a) of the definition of Swingline Exposure shall only be applicable for purposes of determining its Revolving Exposure to the extent such Lender shall have funded its participation in the outstanding Swingline Loans.

Requirement of Law” means, with respect to any Person, (a) the charter, articles or certificate of organization or incorporation and bylaws or operating, management or partnership agreement, or other organizational or governing documents of such Person and (b) any statute, law (including common law), treaty, rule, regulation, code, ordinance, order, decree, writ, judgment, injunction or determination of any arbitrator or court or other Governmental Authority (including Environmental Laws), 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.

Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests or any option, warrant or other right to acquire any such Equity Interests.

 

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Revolving Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate permitted amount of such Lender’s Revolving Exposure hereunder, as such commitment may be reduced or increased from time to time pursuant to (a) Section 2.09 and (b) assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender’s Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders’ Revolving Commitments is $25,000,000.00.

Revolving Credit Maturity Date” means December 2, 2020 (if the same is a Business Day, or if not then the immediately next succeeding Business Day), or any earlier date on which the Revolving Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof.

Revolving Exposure” means, with respect to any Lender, at any time, the sum of the aggregate outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure and its Swingline Exposure at such time.

Revolving Lender” means, as of any date of determination, a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure.

Revolving Loan” means a Loan made pursuant to Section 2.01(a).

S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

Sale and Leaseback Transaction” has the meaning assigned to such term in Section 6.06.

Sanctioned Country” means, at any time, a country or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Cuba, Iran, North Korea, Sudan and Syria).

Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).

Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.

SEC” means the Securities and Exchange Commission of the U.S.

 

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Secured Obligations” means all Obligations, together with all (i) Banking Services Obligations and (ii) Swap Agreement Obligations owing to one or more Lenders or their respective Affiliates; provided, however, that the definition of “Secured Obligations” shall not create any guarantee by any Guarantor of (or grant of security interest by any Guarantor to support, as applicable) any Excluded Swap Obligations of such Guarantor for purposes of determining any obligations of any Guarantor.

Secured Parties” means (a) the Lenders, (b) the Administrative Agent, (c) each Issuing Bank, (d) each provider of Banking Services, to the extent the Banking Services Obligations in respect thereof constitute Secured Obligations, (e) each counterparty to any Swap Agreement, to the extent the obligations thereunder constitute Secured Obligations, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document and (g) the successors and assigns of each of the foregoing.

Security Agreement” means that certain Pledge and Security Agreement (including any and all supplements thereto), dated as of the date hereof, among the Loan Parties and the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, and any other pledge or security agreement entered into, after the date of this Agreement by any other Loan Party (as required by this Agreement or any other Loan Document) or any other Person for the benefit of the Administrative Agent and the other Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Standby LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all standby Letters of Credit outstanding at such time plus (b) the aggregate amount of all LC Disbursements relating to standby Letters of Credit that have not yet been reimbursed by or on behalf of the Borrower at such time. The Standby LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the aggregate Standby LC Exposure at such time.

Statement” has the meaning assigned to such term in Section 2.18(g).

Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D of the Board. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D of the Board or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

Subordinated Indebtedness” of a Person means any Indebtedness of such Person, the payment of which is subordinated to payment of the Secured Obligations to the written satisfaction of the Administrative Agent.

subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting

 

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power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

Subsidiary” means any direct or indirect subsidiary of the Borrower or of any other Loan Party, as applicable. Notwithstanding anything contained herein to the contrary, neither the Inactive Subsidiary nor the ES Acquisition Subsidiary shall be deemed a “Subsidiary” for purposes of this Agreement and the other Loan Documents.

Swap Agreement” means any agreement with respect to any swap, forward, spot, future, credit default or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

Swap Agreement Obligations” means any and all obligations of the Loan Parties and their Subsidiaries, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any Swap Agreement permitted hereunder with a Lender or an Affiliate of a Lender, and (b) any cancellations, buy backs, reversals, terminations or assignments of any Swap Agreement transaction permitted hereunder with a Lender or an Affiliate of a Lender.

Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act or any rules or regulations promulgated thereunder.

Swingline Commitment” means the amount set forth opposite Chase’s name on the Commitment Schedule as Swingline Commitment.

Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Revolving Lender at any time shall be the sum of (a) its Applicable Percentage of the total Swingline Exposure at such time other than with respect to any Swingline Loans made by such Revolving Lender in its capacity as the Swingline Lender and (b) the principal amount of all Swingline Loans made by such Revolving Lender in its capacity as the Swingline Lender outstanding at such time (less the amount of participations funded by the other Lenders in such Swingline Loans).

Swingline Lender” means Chase, in its capacity as lender of Swingline Loans hereunder. Any consent required of the Administrative Agent or the Issuing Bank shall be deemed to be required of the Swingline Lender and any consent given by Chase in its capacity as Administrative Agent or Issuing Bank shall be deemed given by Chase in its capacity as Swingline Lender as well.

Swingline Loan” means a Loan made pursuant to Section 2.05.

Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

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Transactions” means the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents, the borrowing of Loans and other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.

Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the CB Floating Rate.

UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or in any other state, the laws of which are required to be applied in connection with the issue of perfection of security interests.

Unliquidated Obligations” means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.

U.S.” means the United States of America.

U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.

U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).

USA PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.

Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02.  Classification of Loans and Borrowings.  For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Borrowing”).

SECTION 1.03.  Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “law” shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply) and all judgments, orders and decrees of all Governmental Authorities. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any definition of or reference to any

 

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statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), (c) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to any restrictions on assignments set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (f) any reference in any definition to the phrase “at any time” or “for any period” shall refer to the same time or period for all calculations or determinations within such definition, and (g) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04  Accounting Terms; GAAP.  Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if after the date hereof there occurs any change in GAAP or in the application thereof on the operation of any provision hereof and the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of such change in GAAP or in the application thereof (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party at “fair value”, as defined therein and (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Financial Accounting Standards Board Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof.

SECTION 1.05.  Pro Forma Adjustments for Acquisitions and Dispositions.  To the extent the Borrower or any Subsidiary makes any Acquisition permitted pursuant to Section 6.04 or disposition of assets outside the ordinary course of business permitted by Section 6.05 during the period of four fiscal quarters of the Borrower most recently ended, the financial covenants set forth in Section 6.12 shall be calculated after giving pro forma effect thereto (including pro forma adjustments arising out of events which are directly attributable to the acquisition or the disposition of assets, are factually supportable and are expected to have a continuing impact, in each case as determined on a basis consistent with Article 11 of Regulation S-X of the Securities Act of 1933, as amended, as interpreted by the SEC, and as certified by a Financial Officer), as if such acquisition or such disposition (and any related incurrence, repayment or assumption of Indebtedness) had occurred in the first day of such four-quarter period.

SECTION 1.06. Status of Obligations.  In the event that the Borrower or any other Loan Party shall at any time issue or have outstanding any Subordinated Indebtedness, the Borrower shall take or cause such other Loan Party to take all such actions as shall be necessary to cause the Secured Obligations to constitute senior indebtedness (however denominated) in respect of such Subordinated Indebtedness

 

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and to enable the Administrative Agent and the Lenders to have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness. Without limiting the foregoing, the Secured Obligations are hereby designated as “senior indebtedness” and as “designated senior indebtedness” and words of similar import under and in respect of any indenture or other agreement or instrument under which such Subordinated Indebtedness is outstanding and are further given all such other designations as shall be required under the terms of any such Subordinated Indebtedness in order that the Lenders may have and exercise any payment blockage or other remedies available or potentially available to holders of senior indebtedness under the terms of such Subordinated Indebtedness.

ARTICLE II

The Credits

SECTION 2.01.  Revolving Commitments.  Subject to the terms and conditions set forth herein, each Lender severally (and not jointly) agrees to make Revolving Loans in dollars to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing pursuant to Section 2.10(a)) in (i) such Lender’s Revolving Exposure exceeding such Lender’s Revolving Commitment or (ii) the Aggregate Revolving Exposure exceeding the aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.

SECTION 2.02.  Loans and Borrowings.

(a)  Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.05.

(b)  Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of CBFR Loans or Eurodollar Loans as the Borrower may request in accordance herewith, provided that all Revolving Borrowings made on the Effective Date must be made as CBFR Borrowings but may be converted into Eurodollar Borrowings in accordance with Section 2.08. Each Swingline Loan shall be a CBFR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17 shall apply to such Affiliate to the same extent as to such Lender); provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c)    At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $500,000. At the time that each CBFR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $50,000 and not less than $250,000; provided that a CBFR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in an amount that is an integral multiple of $100,000 and not less than $100,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 5 Eurodollar Borrowings outstanding.

(d)  Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date.

 

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SECTION 2.03.  Requests for Borrowings.  To request a Borrowing, the Borrower shall notify the Administrative Agent of such request either in writing (delivered by hand or fax) in a form approved by the Administrative Agent and signed by the Borrower or by telephone (a) in the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York time, three Business Days before the date of the proposed Borrowing or (b) in the case of a CBFR Revolving Borrowing, not later than noon, New York time, on the date of the proposed Borrowing; provided that any such notice of a CBFR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be given not later than 9:00 a.m., New York time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or fax to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.01:

 

  (i)

the Class of Borrowing, the aggregate amount of the requested Borrowing, and a breakdown of the separate wires comprising such Borrowing;

 

  (ii)

the date of such Borrowing, which shall be a Business Day;

 

  (iii)

whether such Borrowing is to be a CBFR Revolving Borrowing or a Eurodollar Revolving Borrowing; and

 

  (iv)

in the case of a Eurodollar Revolving Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period.”

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a CBFR Revolving Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04.  Intentionally Omitted

SECTION 2.05.  Swingline Loans.

(a)        Subject to the terms and conditions set forth herein, from time to time during the Availability Period, the Swingline Lender may in its discretion make Swingline Loans to the Borrower, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding the Swingline Lender’s Swingline Commitment, (ii) the Swingline Lender’s Revolving Exposure exceeding its Revolving Commitment, or (iii) the Aggregate Revolving Exposure exceeding the aggregate Revolving Commitments; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may

 

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borrow, prepay and reborrow Swingline Loans. To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by fax), not later than noon, New York time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the Funding Account(s) (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Issuing Bank, and in the case of repayment of another Loan or fees or expenses as provided by Section 2.18(c), by remittance to the Administrative Agent to be distributed to the Lenders) by 2:00 p.m., New York time, on the requested date of such Swingline Loan.

(b)        The Swingline Lender may by written notice given to the Administrative Agent require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which the Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if such notice is received by 11:00 a.m., New York time, on a Business Day no later than 4:00 p.m., New York time on such Business Day and if received after 11:00 a.m., New York time, “on a Business Day” shall mean no later than 9:00 a.m. New York time on the immediately succeeding Business Day), to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.

SECTION 2.06.  Letters of Credit and Bank Guarantees.

(a)        General.  Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit or Bank Guarantees (or the amendment, renewal or extension of an outstanding Letter of Credit or Bank Guarantee), as the applicant thereof for the support of its or its Subsidiaries’ obligations, in a form reasonably acceptable to the Administrative Agent and the Issuing

 

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Bank, at any time and from time to time during the Availability Period and the Issuing Bank may, but shall have no obligation, to issue such requested Letters of Credit or Bank Guarantees (or to amend, renew or extend such outstanding Letter of Credit or Bank Guarantee) pursuant to this Agreement. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit or Bank Guarantee, the terms and conditions of this Agreement shall control. The Borrower unconditionally and irrevocably agrees that, in connection with any Letter of Credit or Bank Guarantee issued for the support of any Subsidiary’s obligations as provided in the first sentence of this paragraph, the Borrower will be fully responsible for the reimbursement of LC Disbursements or Bank Guarantee Payments in accordance with the terms hereof, the payment of interest thereon and the payment of fees due under Section 2.12(b) to the same extent as if it were the sole account party in respect of such Letter of Credit or Bank Guarantee (the Borrower hereby irrevocably waiving any defenses to the fullest extent permitted by law, that might otherwise be available to it as a guarantor or surety of the obligations of such Subsidiary that is an account party in respect of any such Letter of Credit Bank Guarantee). Notwithstanding anything herein to the contrary, the Issuing Bank shall have no obligation hereunder to issue, and shall not issue, any Letter of Credit or Bank Guarantee (i) the proceeds of which would be made available to any Person (A) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any Sanctions or (B) in any manner that would result in a violation of any Sanctions by any party to this Agreement, (ii) if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit or Bank Guarantee, or any Requirement of Law relating to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit or Bank Guarantee in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit or Bank Guarantee any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which the Issuing Bank in good faith deems material to it, or (iii) if the issuance of such Letter of Credit or Bank Guarantee would violate one or more policies of the Issuing Bank applicable to letters of credit generally; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements 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 not to be in effect on the Effective Date for purposes of clause (ii) above, regardless of the date enacted, adopted, issued or implemented.

(b)        Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.    To request the issuance of a Letter of Credit or Bank Guarantee (or the amendment, renewal or extension of an outstanding Letter of Credit or Bank Guarantee), the Borrower shall hand deliver or fax (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension, but in any event no less than three Business Days) a notice requesting the issuance of a Letter of Credit or Bank Guarantee, or identifying the Letter of Credit or Bank Guarantee to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit or Bank Guarantee is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit or Bank Guarantee, the name and address of the beneficiary thereof, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit or Bank Guarantee. If requested by

 

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the Issuing Bank, the Borrower also shall submit a bank guarantee or letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit or Bank Guarantee. A Letter of Credit or Bank Guarantee shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit or Bank Guarantee the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the aggregate LC Exposure shall not exceed $25,000,000, (ii) the aggregate Standby LC Exposure shall not exceed $25,000,000, (iii) the aggregate Commercial LC Exposure shall not exceed $10,000,000, (iv) no Revolving Lender’s Revolving Exposure shall exceed its Revolving Commitment and (v) the Aggregate Revolving Exposure shall not exceed the aggregate Revolving Commitments. No Letter of Credit or Bank Guarantee may be renewed within six months of the Revolving Credit Maturity Date, as the same may be extended from time to time unless cash collateralized in accordance with Section 2.06(j). Notwithstanding the foregoing or anything to the contrary contained herein, no Issuing Bank shall be obligated to issue or modify any Letter of Credit or Bank Guarantee if, immediately after giving effect thereto, the outstanding LC Exposure in respect of all Letters of Credit or Bank Guarantee issued by such Person and its Affiliates would exceed such Issuing Bank’s Issuing Bank Sublimit. Without limiting the foregoing and without affecting the limitations contained herein, it is understood and agreed that the Borrower may from time to time request that an Issuing Bank issue Letters of Credit or Bank Guarantee in excess of its individual Issuing Bank Sublimit in effect at the time of such request, and each Issuing Bank agrees to consider any such request in good faith. Any Letter of Credit or Bank Guarantee so issued by an Issuing Bank in excess of its individual Issuing Bank Sublimit then in effect shall nonetheless constitute a Letter of Credit or Bank Guarantee for all purposes of the Credit Agreement, and shall not affect the Issuing Bank Sublimit of any other Issuing Bank, subject to the limitations on the aggregate LC Exposure set forth in clause (i) of this Section 2.06(b).

(c)        Expiration Date.  Except as permitted by Section 2.06(b), each Letter of Credit or Bank Guarantee shall expire (or be subject to termination or non-renewal by notice from the Issuing Bank to the beneficiary thereof) at or prior to the close of business on the date five (5) years after the date of the issuance of such Letter of Credit or Bank Guarantee (or, in the case of any renewal or extension thereof, including, without limitation, any automatic renewal provision, one year after such renewal or extension); provided, however, that (i) the LC Exposure relating to Letters of Credit and Bank Guarantees with a maturity date beyond the Revolving Credit Maturity Date shall not exceed $7,500,000 at any time and (ii) the Borrower shall deposit cash collateral in the LC Collateral Account in an amount sufficient to fully cash collateralize, in accordance with and when required by Section 2.06(j), all outstanding Letters of Credit and Bank Guarantees with a maturity date beyond the Revolving Credit Maturity Date.

(d)        Participations.    By the issuance of a Letter of Credit or Bank Guarantee (or an amendment to a Letter of Credit or Bank Guarantee increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Revolving Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit or Bank Guarantee equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit or Bank Guarantee. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement and Bank Guarantee Payment made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit or Bank Guarantees is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or Bank Guarantee or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

 

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(e)        Reimbursement.    If the Issuing Bank shall make any LC Disbursement or Bank Guarantee Payment in respect of a Letter of Credit or Bank Guarantee, respectively, the Borrower shall reimburse such LC Disbursement or Bank Guarantee Payment by paying to the Administrative Agent an amount equal to such LC Disbursement or Bank Guarantee Payment not later than 11:00 a.m., New York time, on (i) the Business Day that the Borrower receives notice of such LC Disbursement or Bank Guarantee Payment, as applicable, if such notice is received prior to 9:00 a.m., New York time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is received after 9:00 a.m., New York time, on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with a CBFR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting CBFR Revolving Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement or Bank Guarantee Payment, the payment then due from the Borrower in respect thereof, and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank, as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement or Bank Guarantee Payment (other than the funding of CBFR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement or Bank Guarantee Payment.

(f)        Obligations Absolute.        The Borrower’s obligation to reimburse LC Disbursements or Bank Guarantee Payment as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or Bank Guarantee or this Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under a Letter of Credit or Bank Guarantee proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) any payment by the Issuing Bank under a Letter of Credit or Bank Guarantee against presentation of a draft or other document that does not comply with the terms of such Letter of Credit or Bank Guarantee, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. None of the Administrative Agent, the Revolving Lenders or the Issuing Bank, or any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or Bank Guarantee, or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit or Bank Guarantee (including any document required to make a drawing or payment thereunder), any error in interpretation of technical terms or any consequence arising from

 

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causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit or Bank Guarantee comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit or Bank Guarantee, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit or Bank Guarantee.

(g)        Disbursement Procedures.    The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit or Bank Guarantee. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by fax) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement or Bank Guarantee Payment thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement or Bank Guarantee Payment.

(h)        Interim Interest.    If the Issuing Bank shall make any LC Disbursement or Bank Guarantee Payment, then, unless the Borrower shall reimburse such LC Disbursement or Bank Guarantee Payment in full on the date such LC Disbursement or Bank Guarantee Payment is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement or Bank Guarantee Payment is made to but excluding the date that the Borrower reimburses such LC Disbursement or Bank Guarantee Payment, at the rate per annum then applicable to CBFR Revolving Loans and such interest shall be due and payable on the date when such reimbursement is due; provided that, if the Borrower fails to reimburse such LC Disbursement or Bank Guarantee Payment when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i)        Replacement of the Issuing Bank.    The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit or Bank Guarantees to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit or Bank Guarantees then outstanding and issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit or Bank Guarantees.

 

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(j)        Cash Collateralization.

(i)        The Borrower may, at its option, deposit cash collateral with respect to any Letter of Credit or Bank Guarantee issued hereunder by depositing such cash collateral in the LC Collateral Account (defined below).

(ii)        If (A) any Letter of Credit or Bank Guarantee is outstanding on any date that is fourteen (14) Business Days prior to the Revolving Credit Maturity Date, as the same may be extended from time to time, then with respect to each such Letter of Credit or Bank Guarantee the Borrower shall immediately deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders (the “LC Collateral Account”), an amount in cash equal to 100% of the amount of each such Letter of Credit or Bank Guarantee as of such date plus accrued and unpaid interest thereon or (B) any Default shall occur and be continuing, then on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 66.6% of the aggregate LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an LC Collateral Account, an amount in cash equal to 100% of the amount of the LC Exposure as of such date plus accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral pursuant to clause (B) shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. The Borrower also shall deposit cash collateral in accordance with this paragraph as and to the extent required by Section 2.6, 2.11(b) or 2.20. Each such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the LC Collateral Account and the Borrower hereby grants the Administrative Agent a security interest in the LC Collateral Account and all moneys or other assets on deposit therein or credited thereto. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements or Bank Guarantee Payments for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 66.6% of the aggregate LC Exposure), be applied to satisfy other Secured Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of a Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three (3) Business Days after all such Defaults have been cured or waived as confirmed in writing by the Administrative Agent.

(k)        Issuing Bank Reports to the Administrative Agent.    Unless otherwise agreed by the Administrative Agent, each Issuing Bank shall, in addition to its notification obligations set forth elsewhere in this Section, report in writing to the Administrative Agent (i) periodic activity (for such period or recurrent periods as shall be requested by the Administrative Agent) in respect of Letters of Credit and Bank Guarantees issued by such Issuing Bank, including all issuances, extensions, amendments and renewals, all expirations and cancelations and all disbursements and reimbursements, (ii) reasonably prior to the time that such Issuing Bank issues, amends, renews or extends any Letter of

 

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Credit or Bank Guarantee, the date of such issuance, amendment, renewal or extension, and the stated amount of the Letters of Credit or Bank Guarantees issued, amended, renewed or extended by it and outstanding after giving effect to such issuance, amendment, renewal or extension (and whether the amounts thereof shall have changed), (iii) on each Business Day on which such Issuing Bank makes any LC Disbursement or Bank Guarantee Payment, the date and amount of such LC Disbursement or Bank Guarantee Payment, (iv) on any Business Day on which the Borrower fails to reimburse an LC Disbursement or Bank Guarantee Payment required to be reimbursed to such Issuing Bank on such day, the date of such failure and the amount of such LC Disbursement or Bank Guarantee Payment, and (v) on any other Business Day, such other information as the Administrative Agent shall reasonably request as to the Letters of Credit or Bank Guarantees issued by such Issuing Bank.

(l)        LC Exposure Determination.    For all purposes of this Agreement, the amount of a Letter of Credit or Bank Guarantee that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof shall be deemed to be the maximum stated amount of such Letter of Credit or Bank Guarantee after giving effect to all such increases, whether or not such maximum stated amount is in effect at the time of determination.

SECTION 2.07.  Funding of Borrowings.

(a)        Each Lender shall make each Loan to be made by such Lender hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage; provided that Swingline Loans shall be made as provided in Section 2.05. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to the Funding Account(s); provided that CBFR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.

(b)        Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to CBFR Revolving Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

SECTION 2.08.  Interest Elections.

(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably

 

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among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.

(b)    To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone or in writing by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall be irrevocable. Each such telephonic Interest Election Request shall be confirmed promptly by hand delivery or fax to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

(c)  Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i)   the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii)  the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii)    whether the resulting Borrowing is to be a CBFR Borrowing or a Eurodollar Borrowing; and

(iv)    if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d)  Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the applicable Class of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e)   If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a CBFR Borrowing. Notwithstanding any contrary provision hereof, if a Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long a Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to a CBFR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.09.    Termination and Reduction of Commitments; Increase in Revolving Commitments.

(a)  Unless previously terminated, all the Revolving Commitments shall terminate on the Revolving Credit Maturity Date.

 

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(b)  The Borrower may at any time terminate the Revolving Commitments upon (i) the payment in full of all outstanding Revolving Loans and LC Disbursements, together with accrued and unpaid interest thereon, (ii) the cancellation and return of all outstanding Letters of Credit (or alternatively, with respect to each such Letter of Credit, the furnishing to the Administrative Agent of a cash deposit (or at the discretion of the Administrative Agent a backup standby letter of credit satisfactory to the Administrative Agent and the Issuing Bank) in an amount equal to 100% of the LC Exposure as of such date), (iii) the payment in full of the accrued and unpaid fees, and (iv) the payment in full of all reimbursable expenses and other Obligations together with accrued and unpaid interest thereon.

(c)  The Borrower may from time to time reduce the Revolving Commitments; provided that (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.11, the Aggregate Revolving Exposure would exceed the aggregate Revolving Commitments.

(d)  The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Commitments under paragraph (b) or (c) of this Section at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Revolving Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Revolving Commitments.

(e)  The Borrower shall have the right to increase the Revolving Commitments by obtaining additional Revolving Commitments, either from one or more of the Lenders or another lending institution, provided that (i) any such request for an increase shall be in a minimum amount of $5,000,000 and, if in excess thereof, in increments of $1,000,000, (ii) the Borrower may make a maximum of two (2) such requests, (iii) after giving effect thereto, the sum of the total of the additional Commitments does not exceed $25,000,000, (iv) the Administrative Agent, the Swingline Lender and the Issuing Bank have approved the identity of any such new Lender, such approvals not to be unreasonably withheld, (v) any such new Lender assumes all of the rights and obligations of a “Lender” hereunder, and (vi) the procedures described in Section 2.09(f) below have been satisfied. Nothing contained in this Section 2.09 shall constitute, or otherwise be deemed to be, a commitment on the part of any Lender to increase its Commitment hereunder at any time.

(f)  Any amendment hereto for such an increase or addition shall be in form and substance satisfactory to the Administrative Agent and shall only require the written signatures of the Administrative Agent, the Borrower and each Lender being added or increasing its Commitment, subject only to the approval of all Lenders if any such increase or addition would cause the Revolving Commitments to exceed $50,000,000. As a condition precedent to such an increase or addition, the Borrower shall deliver to the Administrative Agent (i) a certificate of each Loan Party signed by an authorized officer of such Loan Party (A) certifying and attaching the resolutions adopted by such Loan Party approving or consenting to such increase, and (B) in the case of the Borrower, certifying that, before and after giving effect to such increase or addition, (1) the representations and warranties contained in Article III and the other Loan Documents are true and correct, except to the extent that such

 

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representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, (2) no Default exists and (3) the Borrower is in compliance (on a pro forma basis) with the covenants contained in Section 6.12, and (ii) legal opinions and documents consistent with those delivered on the Effective Date, to the extent requested by the Administrative Agent.

(g)        On the effective date of any such increase or addition, (i) any Lender increasing (or, in the case of any newly added Lender, extending) its Revolving Commitment shall make available to the Administrative Agent such amounts in immediately available funds as the Administrative Agent shall determine, for the benefit of the other Lenders, as being required in order to cause, after giving effect to such increase or addition and the use of such amounts to make payments to such other Lenders, each Lender’s portion of the outstanding Revolving Loans of all the Lenders to equal its revised Applicable Percentage of such outstanding Revolving Loans, and the Administrative Agent shall make such other adjustments among the Lenders with respect to the Revolving Loans then outstanding and amounts of principal, interest, Commitment Fees and other amounts paid or payable with respect thereto as shall be necessary, in the opinion of the Administrative Agent, in order to effect such reallocation and (ii) the Borrower shall be deemed to have repaid and reborrowed all outstanding Revolving Loans as of the date of any increase (or addition) in the Revolving Commitments (with such reborrowing to consist of the Types of Revolving Loans, with related Interest Periods if applicable, specified in a notice delivered by the Borrower, in accordance with the requirements of Section 2.03). The deemed payments made pursuant to clause (ii) of the immediately preceding sentence shall be accompanied by payment of all accrued interest on the amount prepaid and, in respect of each Eurodollar Loan, shall be subject to indemnification by the Borrower pursuant to the provisions of Section 2.16 if the deemed payment occurs other than on the last day of the related Interest Periods. Within a reasonable time after the effective date of any increase or addition, the Administrative Agent shall, and is hereby authorized and directed to, revise the Commitment Schedule to reflect such increase or addition and shall distribute such revised Commitment Schedule to each of the Lenders and the Borrower, whereupon such revised Commitment Schedule shall replace the old Commitment Schedule and become part of this Agreement.

SECTION 2.10.   Repayment and Amortization of Loans; Evidence of Debt.

(a)        The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Revolving Lender the then unpaid principal amount of each Revolving Loan on the Revolving Credit Maturity Date, and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Revolving Credit Maturity Date and the fifth Business Day after such Swingline Loan is made; provided that on each date that a Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Revolving Loan shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.

(b)  Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c)  The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, if any, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

 

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(d)  The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e)  Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.11.  Prepayment of Loans.

(a)  The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (e) of this Section and, if applicable, payment of any break funding expenses under Section 2.16.

(b)  In the event and on such occasion that the Aggregate Revolving Exposure exceeds the aggregate Revolving Commitments, the Borrower shall prepay the Revolving Loans, LC Exposure and/or Swingline Loans (or, if no such Borrowings are outstanding, deposit cash collateral in the LC Collateral Account in an aggregate amount equal to such excess, in accordance with Section 2.06(j)).

(c)  In the event and on each occasion that any Net Proceeds are received by or on behalf of any Loan Party or any Subsidiary in respect of any Prepayment Event, the Borrower shall, immediately after such Net Proceeds are received by any Loan Party or Subsidiary, prepay the Obligations and cash collateralize the LC Exposure as set forth in Section 2.11(d) below in an aggregate amount equal to 100% of such Net Proceeds, provided that, in the case of any event described in clause (a) or (b) of the definition of the term “Prepayment Event”, if the Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer to the effect that the Loan Parties intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 90 days after receipt of such Net Proceeds, to acquire (or replace or rebuild) real property, equipment or other tangible assets (excluding inventory) to be used in the business of the Loan Parties, and certifying that no Default has occurred and is continuing, then no prepayment shall be required pursuant to this paragraph in respect of the Net Proceeds specified in such certificate, provided that to the extent of any such Net Proceeds that have not been so applied by the end of such 90-day period, a prepayment shall be required at such time in an amount equal to such Net Proceeds that have not been so applied; provided further that the Borrower shall not be permitted to make elections to use Net Proceeds to acquire (or replace or rebuild) real property, equipment or other tangible assets (excluding inventory) with respect to Net Proceeds in any fiscal year in an aggregate amount in excess of $1,000,000.

(d)  All prepayments required to be made pursuant to Section 2.11(c) shall be applied, first to prepay the Revolving Loans (including Swingline Loans) without a corresponding reduction in the Revolving Commitments and second if a request has been made pursuant to Section 2.06(j), to cash collateralize outstanding LC Exposure.

(e)  The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by fax) of any prepayment under this Section: (i) in the case of prepayment of a Eurodollar Borrowing, not later than 10:00 a.m., New

 

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York time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of a CBFR Borrowing, not later than 10:00 a.m., New York time, one (1) Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 11:00 a.m., New York time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that if a notice of prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by (i) accrued interest to the extent required by Section 2.13 and (ii) break funding payments pursuant to Section 2.16.

SECTION 2.12.  Fees.

(a)  The Borrower agrees to pay to the Administrative Agent a Commitment Fee for the account of each Revolving Lender, which shall accrue at the Applicable Rate on the daily amount of the undrawn portion of the Revolving Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which the Lenders’ Revolving Commitments terminate; it being understood that the LC Exposure of a Lender shall be included in the drawn portion of the Revolving Commitment of such Lender for purposes of calculating the Commitment Fees. Accrued Commitment Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof. All Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b)  The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable LC Rate on the daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender’s Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum on the daily amount of the LC Exposure attributable to Letters of Credit issued by such Issuing Bank (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of drawings thereunder; provided, however, that the Borrower shall not be responsible for any fronting fees under clause (ii) above during any periods which Chase is the only Lender under this Agreement. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

 

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(c)  To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late. The imposition and payment of a late fee shall not constitute a waiver by the Administrative Agent’s rights with respect to any such Default in connection with any such late payment.

(d)  The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

(e)  All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances.

SECTION 2.13.  Interest.

(a)  The Loans comprising each CBFR Borrowing (including each Swingline Loan) shall bear interest at the CB Floating Rate plus the Applicable Rate.

(b)  The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c) Notwithstanding the foregoing, during the occurrence and continuance of an Event of Default, the Administrative Agent or the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 9.02 requiring the consent of “each Lender affected thereby” for reductions in interest rates), declare that (i) all Loans shall bear interest at 4% plus the rate otherwise applicable to such Loans as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount outstanding hereunder, such amount shall accrue at 4% plus the rate applicable to such fee or other obligation as provided hereunder.

(d)  Accrued interest on each Loan (for CBFR Loans, accrued through the last day of the prior calendar month) shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a CBFR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e)  All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the CB Floating Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable CB Floating Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

 

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SECTION 2.14.  Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a)        the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that adequate and reasonable means do not exist for ascertaining (including, without limitation, by means of an Interpolated Rate) the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b)        the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for the applicable Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans included in such Borrowing for such Interest Period.

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by electronic communication as provided in Section 9.01 as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and any such Eurodollar Borrowing shall be repaid on the last day of the then current Interest Period applicable thereto, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as a CBFR Borrowing.

SECTION 2.15.  Increased Costs. (a) If any Change in Law shall:

(i)  impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

(ii)  impose on any Lender or the Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or

(iii)  subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;

and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting into or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender, the Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender, the Issuing Bank or such other Recipient hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender, the Issuing Bank or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, the Issuing Bank or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.

(b)  If any Lender or the Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s holding

 

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company, if any, as a consequence of this Agreement, the Commitments of or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such reduction suffered.

(c)  A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

(d)    Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.16.    Break Funding Payments.    In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.11), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(d) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19 or 9.02(d), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Eurodollar Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Eurodollar Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

 

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SECTION 2.17.  Taxes.

(a)  Withholding Taxes; Gross-Up; Payments Free of Taxes.  Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.17), the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(b)  Payment of Other Taxes by Loan Parties.  The Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.

(c)  Evidence of Payment.  As soon as practicable after any payment of Taxes by any Loan Party to a Governmental Authority pursuant to this Section 2.17, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment, or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(d)  Indemnification by the Loan Parties.  The Loan Parties shall jointly and severally indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Loan Party by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(e)    Indemnification by the Lenders.    Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to such Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).

 

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(f)   Status of Lenders.

(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii)  Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,

(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the U.S. is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2) in the case of a Foreign Lender claiming that its extension of credit will generate U.S. effectively connected income, executed originals of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit C-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or

 

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(4) to the extent a Foreign Lender is not the Beneficial Owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit C-2 or Exhibit C-3, IRS Form W-9, and/or other certification documents from each Beneficial Owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit C-4 on behalf of each such direct and indirect partner;

(C)  any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

(g)    Treatment of Certain Refunds.    If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and

 

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giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph (g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(h)  Survival.   Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

(i)  Defined Terms.    For purposes of this Section 2.17, the term “applicable law” includes FATCA.

SECTION 2.18.  Payments Generally; Allocation of Proceeds; Sharing of Set-offs.

(a)        The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Sections 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., New York time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at One Chase Square, 11th Floor, Rochester, NY 14643-0001, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(b)        Any proceeds of Collateral received by the Administrative Agent (i) not constituting either (A) a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower), or (B) a mandatory prepayment (which shall be applied in accordance with Section 2.11) or (ii) after an Event of Default has occurred and is continuing and the Administrative Agent so elects or the Required Lenders so direct, shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the Administrative Agent, the Swingline Lender and the Issuing Bank from the Borrower (other than in connection with Banking Services Obligations or Swap Agreement Obligations), second, to pay any fees or expense reimbursements then due to the Lenders from the Borrower (other than in connection with Banking Services Obligations or Swap Agreement Obligations), third, to pay interest then due and payable on the Loans ratably, fourth, to prepay principal on the Loans and unreimbursed LC Disbursements and to pay any amounts owing with respect to Swap Agreement Obligations up to and including the amount most recently provided to the Administrative Agent pursuant to Section 2.22, ratably, fifth, to pay an amount to the Administrative Agent equal to one hundred percent (100%) of the aggregate LC Exposure, to be held as cash collateral for such Obligations, and sixth, to the payment of any amounts owing in respect of Banking Services Obligations up to and including the amount most recently provided to the Administrative Agent pursuant to Section 2.22, and seventh, to the payment of any other Secured Obligation due to the Administrative Agent or any Lender from the Borrower or any other Loan Party. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower, or unless a Default is in existence, neither the Administrative Agent nor any

 

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Lender shall apply any payment which it receives to any Eurodollar Loan of a Class, except (i) on the expiration date of the Interest Period applicable thereto, or (ii) in the event, and only to the extent, that there are no outstanding CBFR Loans of the same Class and, in any such event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The Administrative Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations.

Notwithstanding the foregoing, Secured Obligations arising under Banking Services Obligations or Swap Agreement Obligations shall be excluded from the application described above and paid in clause seventh if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may have reasonably requested from the applicable provider of such Banking Services or Swap Agreements.

(c)        At the election of the Administrative Agent, all payments of principal, interest, LC Disbursements, fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for fees, costs and expenses pursuant to Section 9.03), and other sums payable under the Loan Documents, may be paid from the proceeds of Borrowings made hereunder, whether made following a request by the Borrower pursuant to Section 2.03 or 2.05 or a deemed request as provided in this Section or may be deducted from any deposit account of the Borrower maintained with the Administrative Agent. The Borrower hereby irrevocably authorizes (i) the Administrative Agent to make a Borrowing for the purpose of paying each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents and agrees that all such amounts charged shall constitute Loans (including Swingline Loans), and that all such Borrowings shall be deemed to have been requested pursuant to Sections 2.03 or 2.05, as applicable, and (ii) the Administrative Agent to charge any deposit account of the Borrower maintained with the Administrative Agent for each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents.

(d)        If, except as otherwise expressly provided herein, any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other similarly situated Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by all such Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment or sale of a participation in any of its Loans or participations in LC Disbursements or Swingline Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

 

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(e)        Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(f)        If any Lender shall fail to make any payment required to be made by it hereunder, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations hereunder until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender hereunder. Application of amounts pursuant to (i) and (ii) above shall be made in such order as may be determined by the Administrative Agent in its discretion.

(g)        The Administrative Agent may from time to time provide the Borrower with account statements or invoices with respect to any of the Secured Obligations (the “Statements”). The Administrative Agent is under no duty or obligation to provide Statements, which, if provided, will be solely for the Borrower’s convenience. Statements may contain estimates of the amounts owed during the relevant billing period, whether of principal, interest, fees or other Secured Obligations. If the Borrower pays the full amount indicated on a Statement on or before the due date indicated on such Statement, the Borrower shall not be in default of payment with respect to the billing period indicated on such Statement; provided, that acceptance by the Administrative Agent, on behalf of the Lenders, of any payment that is less than the total amount actually due at that time (including but not limited to any past due amounts) shall not constitute a waiver of the Administrative Agent’s or the Lenders’ right to receive payment in full at another time.

SECTION 2.19.  Mitigation Obligations; Replacement of Lenders.

(a)        If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder 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 (i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b)    If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender) pursuant to Section 2.17, or if any Lender becomes a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing

 

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rights to payments pursuant to Sections 2.15 or 2.17) and obligations under this Agreement and other Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and in circumstances where its consent would be required under Section 9.04, the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and funded participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.20.  Defaulting Lenders.

Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

(a)        fees shall cease to accrue on the unfunded portion of the Revolving Commitment of such Defaulting Lender pursuant to Section 2.12(a);

(b)        such Defaulting Lender shall not have the right to vote on any issue on which voting is required (other than to the extent expressly provided in Section 9.02(b)) and the Commitment and Revolving Exposure of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder or under any other Loan Document; provided that, except as otherwise provided in Section 9.02, this clause (b) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected thereby;

(c)        if any Swingline Exposure or LC Exposure exists at the time such Lender becomes a Defaulting Lender then:

(i)        all or any part of the Swingline Exposure and LC Exposure of such Defaulting Lender (other than the portion of such Swingline Exposure referred to in clause (b) of the definition of such term) shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only (x) to the extent that the conditions set forth in Section 4.02 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Administrative Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time) and (y) to the extent that such reallocation does not, as to any non-Defaulting Lender, cause such non-Defaulting Lender’s Revolving Exposure to exceed its Revolving Commitment;

(ii)       if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one (1) Business Day following notice by the Administrative Agent (x) first, prepay such Swingline Exposure and (y) second, cash collateralize, for the benefit of the Issuing Bank, the Borrower’s obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;

 

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(iii)      if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;

(iv)      if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Sections 2.12(a) and 2.12(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and

(v)      if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of the Issuing Bank or any other Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and

(d)        so long as such Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend, renew, extend or increase any Letter of Credit, unless it is satisfied that the related exposure and such Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.20(c), and Swingline Exposure related to any such newly made Swingline Loan or LC Exposure related to any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.20(c)(i) (and such Defaulting Lender shall not participate therein).

If (i) a Bankruptcy Event with respect to the Parent of any Lender shall occur following the date hereof and for so long as such event shall continue or (ii) the Swingline Lender or the Issuing Bank has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless the Swingline Lender or the Issuing Bank, as the case may be, shall have entered into arrangements with the Borrower or such Lender, satisfactory to the Swingline Lender or the Issuing Bank, as the case may be, to defease any risk to it in respect of such Lender hereunder.

In the event that each of the Administrative Agent, the Borrower, the Swingline Lender and the Issuing Bank agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Revolving Commitment and on the date of such readjustment such Lender shall purchase at par such of the Loans of the other Lenders (other than Swingline Loans) as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.

SECTION 2.21.  Returned Payments.  If, after receipt of any payment which is applied to the payment of all or any part of the Obligations (including a payment effected through exercise of a right of setoff), the Administrative Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion), then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment

 

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or proceeds had not been received by the Administrative Agent or such Lender. The provisions of this Section 2.21 shall be and remain effective notwithstanding any contrary action which may have been taken by the Administrative Agent or any Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.21 shall survive the termination of this Agreement.

SECTION 2.22.    Banking Services and Swap Agreements.    Each Lender or Affiliate thereof providing Banking Services for, or having Swap Agreements with, any Loan Party or any Subsidiary or Affiliate of a Loan Party shall deliver to the Administrative Agent, promptly after entering into such Banking Services or Swap Agreements, written notice setting forth the aggregate amount of all Banking Services Obligations and Swap Agreement Obligations of such Loan Party or Subsidiary or Affiliate thereof to such Lender or Affiliate (whether matured or unmatured, absolute or contingent). In furtherance of that requirement, each such Lender or Affiliate thereof shall furnish the Administrative Agent, following the end of each calendar month, a summary of the amounts due or to become due in respect of such Banking Services Obligations and Swap Agreement Obligations. The most recent information provided to the Administrative Agent shall be used in determining which tier of the waterfall, contained in Section 2.18(b), such Banking Services Obligations and/or Swap Agreement Obligations will be placed.

ARTICLE III

Representations and Warranties

Each Loan Party represents and warrants to the Lenders that (and where applicable, agrees):

SECTION 3.01.    Organization; Powers.    Each Loan Party and each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

SECTION 3.02.  Authorization; Enforceability.  The Transactions are within each Loan Party’s organizational powers and have been duly authorized by all necessary organizational actions and, if required, actions by equity holders. Each Loan Document to which each Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.03.  Governmental Approvals; No Conflicts.  The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any Subsidiary, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any Subsidiary or the assets of any Loan Party or any Subsidiary, or give rise to a right thereunder to require any payment to be made by any Loan Party or any Subsidiary, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any Subsidiary, except Liens created pursuant to the Loan Documents.

 

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SECTION 3.04.  Financial Condition; No Material Adverse Change.

(a)  The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended March 31, 2015, reported on by Deloitte & Touche LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2015, certified by its Financial Officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to normal year-end audit adjustments all of which, when taken as a whole, would not be materially adverse and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(b)  No event, change or condition has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect, since March 31, 2015.

SECTION 3.05.  Properties.

(a)  As of the date of this Agreement, Schedule 3.05 sets forth the address of each parcel of real property that is owned or leased by any Loan Party. Each of such leases and subleases is valid and enforceable in accordance with its terms and is in full force and effect, and no default by any party to any such lease or sublease exists. Each of the Loan Parties and each Subsidiary has good and indefeasible title to, or valid leasehold interests in, all of its real and personal property, free of all Liens other than those permitted by Section 6.02.

(b)  Each Loan Party and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property necessary to its business as currently conducted, a correct and complete list of which, as of the date of this Agreement, is set forth on Schedule 3.05, and the use thereof by each Loan Party and each Subsidiary does not infringe in any material respect upon the rights of any other Person, and each Loan Party’s and each Subsidiary’s rights thereto are not subject to any licensing agreement or similar arrangement.

SECTION 3.06.  Litigation and Environmental Matters.

(a)    There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting any Loan Party or any Subsidiary (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters set forth on Schedule 3.06) or (ii) that involve any Loan Document or the Transactions.

(b)  Except for the Disclosed Matters, (i) no Loan Party or any Subsidiary has received notice of any claim with respect to any Environmental Liability and (ii) except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, no Loan Party or any Subsidiary (A) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law (B) has become subject to any Environmental Liability, (C) has received notice of any claim with respect to any Environmental Liability or (D) knows of any basis for any material Environmental Liability.

(c)  Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

 

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SECTION 3.07.  Compliance with Laws and Agreements; No Default.  Except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, each Loan Party and each Subsidiary is in compliance with (i) all Requirements of Law applicable to it or its property and (ii) all indentures, agreements and other instruments binding upon it or its property. No Default has occurred and is continuing.

SECTION 3.08.    Investment Company Status.    No Loan Party or any Subsidiary is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

SECTION 3.09.  Taxes.  Each Loan Party and each Subsidiary has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not be expected to result in a Material Adverse Effect. No tax liens have been filed and no claims are being asserted with respect to any such taxes.

SECTION 3.10.    ERISA.  No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $1,000,000.00 the fair market value of the assets of all Plans.

SECTION 3.11.      Disclosure.    The Loan Parties have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which any Loan Party or any Subsidiary is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party or any Subsidiary to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document (as modified or supplemented by other information so furnished) contains any material misstatement of fact and the reports, financial statements, certificates and other information furnished by or on behalf of any Loan Party or any Subsidiary to the Administrative Agent and the Lenders in connection with the negotiation of this Agreement and the other Loan Documents (as modified or supplemented by other information so furnished), taken as a whole, do not omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time delivered and, if such projected financial information was delivered prior to the Effective Date, as of the Effective Date.

SECTION 3.12.  Material Agreements. No Loan Party or any Subsidiary is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in (i) any material agreement to which it is a party or (ii) any agreement or instrument evidencing or governing Indebtedness.

 

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SECTION 3.13.  Solvency.  (a)  Immediately after the consummation of the Transactions to occur on the Effective Date, (i) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of each Loan Party, calculated on a going concern basis, will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) no Loan Party will have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted after the Effective Date.

(b)        No Loan Party intends to, nor will permit any Subsidiary to, and no Loan Party believes that it or any Subsidiary will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it or any such Subsidiary and the timing of the amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary.

SECTION 3.14.    Insurance.    Schedule 3.14 sets forth a description of all insurance maintained by or on behalf of the Loan Parties and their Subsidiaries as of the Effective Date. As of the Effective Date, all premiums in respect of such insurance have been paid. The Loan Parties believe that the insurance maintained by or on behalf of the Loan Parties and their Subsidiaries is adequate and is customary for companies engaged in the same or similar businesses operating in the same or similar locations.

SECTION 3.15.  Capitalization and Subsidiaries.   Schedule 3.15 sets forth (a) a correct and complete list of the name and relationship to the Borrower of each Subsidiary, (b) a true and complete listing of each class of each Subsidiary’s authorized Equity Interests, of which all of such issued Equity Interests are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.15, and (c) the type of entity of the Borrower and each Subsidiary. All of the issued and outstanding Equity Interests owned by any Loan Party have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable.

SECTION 3.16.  Security Interest in Collateral.  The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Administrative Agent, for the benefit of the Secured Parties, and such Liens constitute perfected and continuing Liens on the Collateral, securing the Secured Obligations, enforceable against the applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would have priority over the Liens in favor of the Administrative Agent pursuant to any applicable law or agreement and (b) Liens perfected only by possession (including possession of any certificate of title), to the extent the Administrative Agent has not obtained or does not maintain possession of such Collateral.

SECTION 3.17.  Employment Matters.    As of the Effective Date, there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending or, to the knowledge of any Loan Party, threatened. The hours worked by and payments made to employees of the Loan Parties and their Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, local or foreign law dealing with such matters. All payments due from any Loan Party or any Subsidiary, or for which any claim may be made against any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of such Loan Party or such Subsidiary.

 

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SECTION 3.18.      Federal Reserve Regulations.  No part of the proceeds of any Loan or Letter of Credit has been used or will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.

SECTION 3.19.    Use of Proceeds.  The proceeds of the Loans have been used and will be used, whether directly or indirectly as set forth in Section 5.08.

SECTION 3.20.      No Burdensome Restrictions.  No Loan Party is subject to any Burdensome Restrictions except Burdensome Restrictions permitted under Section 6.10.

SECTION 3.21.  Anti-Corruption Laws and Sanctions.  Each Loan Party has implemented and maintains in effect policies and procedures designed to ensure compliance by such Loan Party, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and such Loan Party, its Subsidiaries and their respective officers and employees and to the knowledge of such Loan Party its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) any Loan Party, any Subsidiary or any of their respective directors, officers or employees, or (b) to the knowledge of any such Loan Party or Subsidiary, any agent of such Loan Party or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds, Transaction or other transaction contemplated by this Agreement or the other Loan Documents will violate Anti-Corruption Laws or applicable Sanctions.

ARTICLE IV

Conditions

SECTION 4.01.    Effective Date.    The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a)  Credit Agreement and Loan Documents.    The Administrative Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence satisfactory to the Administrative Agent (which may include fax or other electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) duly executed copies of the Loan Documents and such other certificates, documents, instruments and agreements as the Administrative Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including any promissory notes requested by a Lender pursuant to Section 2.10 payable to the order of each such requesting Lender and a written opinion of the Loan Parties’ counsel, addressed to the Administrative Agent, the Issuing Bank and the Lenders in substantially the form of Exhibit B.

(b)  Financial Statements and Projections.    The Lenders shall have received (i) audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal years ended March 31, 2013 and March 31, 2014, (ii) unaudited interim consolidated financial statements of the Borrower and its Subsidiaries for each fiscal quarter ended after the date of the latest applicable financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Administrative Agent, reflect any material adverse change in the consolidated financial condition of the Borrower and its Subsidiaries as reflected in the audited, consolidated financial statements described in clause (i) of this paragraph and (ii) satisfactory Projections through the fiscal year ending March 31, 2017.

 

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(c)      Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates.  The Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Effective Date and executed by its Secretary or Assistant Secretary, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the officers of such Loan Party authorized to sign the Loan Documents to which it is a party and, in the case of the Borrower, its Financial Officers, and (C) contain appropriate attachments, including the charter, articles or certificate of organization or incorporation of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and correct copy of its bylaws or operating, management or partnership agreement, or other organizational or governing documents, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization.

(d)  No Default Certificate.  The Administrative Agent shall have received a certificate, signed by the Financial Officer of the Borrower and each other Loan Party, dated as of the Effective Date (i) stating that no Default has occurred and is continuing and (ii) stating that the representations and warranties contained in the Loan Documents are true and correct as of such date.

(e)  Fees.  The Lenders and the Administrative Agent shall have received all fees required to be paid, and all expenses required to be reimbursed for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Effective Date. All such amounts will be paid with proceeds of Loans made on the Effective Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Effective Date.

(f)  Lien Searches.  The Administrative Agent shall have received the results of a recent lien search in the jurisdiction of organization of each Loan Party and each jurisdiction where assets of the Loan Parties are located, and such search shall reveal no Liens on any of the assets of the Loan Parties except for liens permitted by Section 6.02 or discharged on or prior to the Effective Date pursuant to a pay-off letter or other documentation satisfactory to the Administrative Agent.

(g)  Pay-Off Letter.  The Administrative Agent shall have received satisfactory pay-off letters for all existing Indebtedness required to be repaid and which confirms that all Liens upon any of the property of the Loan Parties constituting Collateral will be terminated concurrently with such payment and all letters of credit issued or guaranteed as part of such Indebtedness shall have been cash collateralized or supported by a Letter of Credit.

(h)  Funding Account.  The Administrative Agent shall have received a notice setting forth the deposit account of the Borrower (the “Funding Account”) to which the Administrative Agent is authorized by the Borrower to transfer the proceeds of any Borrowings requested or authorized pursuant to this Agreement.

(i)  Collateral Access and Control Agreements.  The Administrative Agent shall have received each of a Collateral Access Agreement required to be provided pursuant to Section 4.13 of the Security Agreement.

(j)  Solvency.  The Administrative Agent shall have received a solvency certificate signed by a Financial Officer dated the Effective Date in form and substance reasonably satisfactory to the Administrative Agent.

 

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(k)  Pledged Equity Interests; Stock Powers; Pledged Notes.  The Administrative Agent shall have received (i) the certificates representing the Equity Interests pledged pursuant to the Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Administrative Agent pursuant to the Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

(l)    Filings, Registrations and Recordings.    Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration or recordation.

(m)  Insurance.    The Administrative Agent shall have received evidence of insurance coverage in form, scope, and substance reasonably satisfactory to the Administrative Agent and otherwise in compliance with the terms of Section 5.10 of this Agreement and Section 4.12 of the Security Agreement.

(n)  Letter of Credit Application.    The Administrative Agent shall have received a properly completed letter of credit application (whether standalone or pursuant to a master agreement, as applicable, and whether electronic or on the Issuing Bank’s trade paper) if the issuance of a Letter of Credit will be required on the Effective Date.

(o)  Legal Due Diligence. The Administrative Agent and its counsel shall have completed all legal due diligence, the results of which shall be satisfactory to Administrative Agent in its sole discretion.

(p)  USA PATRIOT Act, Etc.  The Administrative Agent and Lenders shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including USA PATRIOT Act, and a properly completed and signed IRS Form W-8 or W-9, as applicable, for each Loan Party.

(q)      Other Documents.    The Administrative Agent shall have received such other documents as the Administrative Agent, the Issuing Bank, any Lender or their respective counsel may have reasonably requested.

SECTION 4.02.      Each Credit Event.    The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

(a)    The representations and warranties of the Loan Parties set forth in the Loan Documents shall be true and correct in all material respects with the same effect as though made on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable (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, and that any representation or warranty which is subject to any materiality qualifier shall be required to be true and correct in all respects).

 

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(b)        At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.

(c)    After giving effect to any Borrowing or the issuance, amendment, renewal or extension of any Letter of Credit, Availability shall not be less than zero.

(d)    No event shall have occurred and no condition shall exist which has or could be reasonably expected to have a Material Adverse Effect.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b), (c) and (d) of this Section.

Notwithstanding the failure to satisfy the conditions precedent set forth in paragraphs (a), (b), (c) or (d) of this Section, unless otherwise directed by the Required Lenders, the Administrative Agent may, but shall have no obligation to, continue to make Loans and an Issuing Bank may, but shall have no obligation to, issue, amend, renew or extend, or cause to be issued, amended, renewed or extended, any Letter of Credit for the ratable account and risk of Lenders from time to time if the Administrative Agent believes that making such Loans or issuing, amending, renewing or extending, or causing the issuance, amendment, renewal or extension of, any such Letter of Credit is in the best interests of the Lenders.

ARTICLE V

Affirmative Covenants

Until the Commitments shall have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated, in each case without any pending draw, and all LC Disbursements shall have been reimbursed, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the other Loan Parties, with the Lenders that:

SECTION 5.01.  Financial Statements and Other Information.  The Borrower will furnish to the Administrative Agent and each Lender:

(a) within ninety (90) days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing or otherwise acceptable to the Required Lenders (without a “going concern” or like qualification, commentary or exception, and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, accompanied by any management letter prepared by such accountants;

(b) within forty-five (45) days after the end of each of the first three fiscal quarters of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year,

 

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all certified by a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

(c)  The Borrower represents and warrants that it, its controlling Person and any Subsidiary, in each case, if any, either (i) has no registered or publicly traded securities outstanding, or (ii) files its financial statements with the SEC and/or makes its financial statements available to potential holders of its 144A securities, and, accordingly, the Borrower hereby (i) authorizes the Administrative Agent to make the financial statements to be provided under Section 5.01(a) and (b) above (collectively or individually, as the context requires, the “Financial Statements”), along with the Loan Documents, available to Public-Siders and (ii) agrees that at the time such Financial Statements are provided hereunder, they shall already have been made available to holders of its securities. The Borrower will not request that any other material be posted to Public-Siders without expressly representing and warranting to the Administrative Agent in writing that such materials do not constitute material non-public information within the meaning of the federal securities laws or that the Borrower has no outstanding publicly traded securities, including 144A securities. In no event shall the Administrative Agent post compliance certificates or budgets to Public-Siders.

(d) concurrently with any delivery of the Financial Statements under clause (a) or (b) above, a certificate of a Financial Officer in substantially the form of Exhibit D (i) certifying, in the case of the Financial Statements delivered under clause (b) above, as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, (ii) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (iii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.12 and (iv) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the Financial Statements accompanying such certificate;

(e)  as soon as available, but in any event no later than sixty (60) days after the end of each fiscal year of the Borrower, a copy of the plan and forecast (including a projected consolidated and consolidating balance sheet, income statement and cash flow statement) of the Borrower for each month of the upcoming fiscal year (the “Projections”) in form reasonably satisfactory to the Administrative Agent;

(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Loan Party or any Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be;

(g)  promptly following any request therefor, such other information regarding the operations, material changes in ownership of Equity Interests, business affairs and financial condition of any Loan Party or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request; and

 

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(h) promptly after any request therefor by the Administrative Agent or any Lender, copies of (i) any documents described in Section 101(k)(1) of ERISA that the Borrower or any ERISA Affiliate may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l)(1) of ERISA that the Borrower or any ERISA Affiliate may request with respect to any Multiemployer Plan; provided that if the Borrower or any ERISA Affiliate has not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan, the Borrower or the applicable ERISA Affiliate shall promptly make a request for such documents and notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof.

SECTION 5.02.      Notices of Material Events.      The Borrower will furnish to the Administrative Agent and each Lender prompt (but in any event within any time period that may be specified below) written notice of the following:

(a) the occurrence of any Default;

(b)  receipt of any notice of any investigation by a Governmental Authority or any litigation or proceeding commenced or threatened against any Loan Party or any Subsidiary that (i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is asserted or instituted against any Plan, its fiduciaries or its assets (excluding (A) benefit claims being contested through internal or external administrative review procedures provided that all such claims, taken together, do not claim in excess of $250,000 and (B) claims not described in clause (A) claiming less than $100,000 individually provided that all such claims, taken together, claim less than $250,000) seeking aggregate amounts in excess of $250,000, (iv) alleges criminal misconduct by any Loan Party or any Subsidiary, (v) alleges the violation of, or seeks to impose remedies under, any Environmental Law or related Requirement of Law, or seeks to impose material Environmental Liability, (vi) asserts liability on the part of any Loan Party or any Subsidiary in excess of $100,000 in respect of any tax, fee, assessment, or other governmental charge, or (vii) involves any product recall;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Loan Parties and their Subsidiaries in an aggregate amount exceeding $100,000;

(d) within two (2) Business Days after the occurrence thereof, any Loan Party entering into a Swap Agreement or an amendment to a Swap Agreement, together with copies of all agreements evidencing such Swap Agreement or amendment; and

(e) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03.    Existence; Conduct of Business.  Each Loan Party will, and will cause each Subsidiary to, (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted; provided that the foregoing shall not prohibit any merger, consolidation,

 

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liquidation or dissolution permitted under Section 6.03 and (b) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted.

SECTION 5.04.    Payment of Obligations.    Each Loan Party will, and will cause each Subsidiary to, pay or discharge all Material Indebtedness and all other material liabilities and obligations, including Taxes, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect; provided, however, that each Loan Party will, and will cause each Subsidiary to, remit withholding taxes and other payroll taxes to appropriate Governmental Authorities as and when claimed to be due, notwithstanding the foregoing exceptions.

SECTION 5.05.    Maintenance of Properties.    Each Loan Party will, and will cause each 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.

SECTION 5.06.    Books and Records; Inspection Rights.    Each Loan Party will, and will cause each Subsidiary to, (a) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (b) permit any representatives designated by the Administrative Agent or any Lender (including employees of the Administrative Agent, any Lender or any consultants, accountants, lawyers, agents and appraisers retained by the Administrative Agent), during regular business hours and upon reasonable prior notice, to visit and inspect its properties, conduct at the Loan Party’s premises field examinations of the Loan Party’s assets, liabilities, books and records, including examining and making extracts from its books and records, environmental assessment reports and Phase I and/or other non-invasive studies, surveys or audits, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. The Loan Parties acknowledge that the Administrative Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain Reports pertaining to the Loan Parties’ assets for internal use by the Administrative Agent and the Lenders.

SECTION 5.07.    Compliance with Laws and Material Contractual Obligations.    Each Loan Party will, and will cause each Subsidiary to, (i) comply in all material respects with each Requirement of Law applicable to it or its property (including without limitation Environmental Laws) and (ii) perform in all material respects its obligations under material agreements to which it is a party. Each Loan Party will maintain in effect and enforce policies and procedures designed to ensure compliance by such Loan Party, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

SECTION 5.08.  Use of Proceeds.

(a)        The proceeds of the Loans and the Letters of Credit will be used only (i) for general corporate purposes, including capital expenditures, and (ii) to finance Acquisitions permitted by Section 6.04. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.

(b)        The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers,

 

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employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto, or (iv) in furtherance of, directly or indirectly, any transaction or series of transactions to acquire a controlling interest in any publicly-traded company unless the Administrative Agent provides written consent thereto.

SECTION 5.09.    Accuracy of Information.    The Loan Parties will ensure that any information, including financial statements or other documents, furnished to the Administrative Agent or the Lenders in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder contains no material misstatement of fact and that such information, taken as a whole, does not omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and the furnishing of such information shall be deemed to be a representation and warranty by the Borrower on the date thereof as to the matters specified in this Section 5.09; provided that, with respect to the Projections, the Loan Parties will cause the Projections to be prepared in good faith based upon assumptions believed to be reasonable at the time.

SECTION 5.10.    Insurance. Each Loan Party will, and will cause each Subsidiary to, maintain with financially sound and reputable carriers having a financial strength rating of at least A- by A.M. Best Company (a) insurance in such amounts (with no greater risk retention) and against such risks (including loss or damage by fire and loss in transit; theft, burglary, pilferage, larceny, embezzlement, and other criminal activities; business interruption; and general liability) and such other hazards, as is customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (b) all insurance required pursuant to the Collateral Documents. The Borrower will furnish to the Lenders, upon request of the Administrative Agent, but no less frequently than annually, information in reasonable detail as to the insurance so maintained.

SECTION 5.11.    Appraisals.  At any time that the Administrative Agent requests, but no more than once per year (other than after the occurrence and during the continuance of an Event of Default), and at the expense of the Administrative Agent, the Borrower will, and will cause each Subsidiary to, provide the Administrative Agent with appraisals or updates thereof of their Inventory, Equipment and real property from an appraiser selected and engaged by the Administrative Agent, and prepared on a basis satisfactory to the Administrative Agent, such appraisals and updates to include, without limitation, information required by any applicable Requirement of Law; provided, however, that upon the occurrence and during the continuance of an Event of Default, the Borrower shall, at its sole expense, provide such appraisals and/or updates as the Administrative Agent may, in its sole discretion, request.

SECTION 5.12.      Casualty and Condemnation.      The Borrower (a) will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of the Collateral or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of this Agreement and the Collateral Documents

 

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SECTION 5.13. Depository Banks. The Borrower and each Subsidiary will maintain the Administrative Agent as its principal depository bank, including for the maintenance of operating, administrative, cash management, collection activity, and other deposit accounts for the conduct of its business. Notwithstanding the foregoing, the Borrower and each Subsidiary may continue (i) to open and maintain certificates of deposit with Bank of America, N.A. or any other financial institution, (ii) to maintain the money market deposit accounts with Bank of America, N.A. existing on the date hereof (collectively, the “Pledged Accounts”), which such Pledged Accounts may be pledged to secure, and only to secure, Existing SBLCs but only so long as any Existing SBLC remains outstanding, (iii) to maintain in effect any standby letters of credit existing on the date hereof and listed on Schedule 5.13, as the same may be renewed or extended, but not increased, from time to time (collectively, the “Existing SBLCs”).

SECTION 5.14.  Additional Collateral; Further Assurances.

(a)    Subject to applicable Requirements of Law, each Loan Party will cause each of its Domestic Subsidiaries formed or acquired after the date of this Agreement to become a Loan Party by executing a Joinder Agreement. Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will grant Liens to the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, in any property of such Loan Party which constitutes Collateral, including any parcel of real property located in the U.S. owned by any Loan Party.

(b)  Each Loan Party will cause (i) 100% of the issued and outstanding Equity Interests of each of its Domestic Subsidiaries and (ii) 65% (or such greater percentage that, due to a change in applicable law after the date hereof, (1) could not reasonably be expected to cause the undistributed earnings of such foreign Subsidiary as determined for U.S. federal income tax purposes to be treated as a deemed dividend to such foreign Subsidiary’s U.S. parent and (2) could not reasonably be expected to cause any material adverse tax consequences) of the issued and outstanding Equity Interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and outstanding Equity Interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) in each Foreign Subsidiary directly owned by the Borrower or by any Domestic Subsidiary to be subject at all times to a first priority, perfected Lien in favor of the Administrative Agent for the benefit of the Administrative Agent and the other Secured Parties, pursuant to the terms and conditions of the Loan Documents or other security documents as the Administrative Agent shall reasonably request.

(c)  Without limiting the foregoing, each Loan Party will, and will cause each Subsidiary to, execute and deliver, or cause to be executed and delivered, to the Administrative Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable), which may be required by any Requirement of Law or which the Administrative Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties. Notwithstanding the foregoing, at any time after an Event of Default has occurred, each Loan Party will, upon the request of the Administrative Agent, cause each Foreign Subsidiary to become a Loan Party and a Loan Guarantor and to grant Liens to the Administrative Agent on its assets and have the balance of its Equity Interests pledged to the Administrative Agent.

(d)    If any material assets (including any real property or improvements thereto or any interest therein) are acquired by any Loan Party after the Effective Date (other than assets constituting

 

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Collateral under the Security Agreement that become subject to the Lien under the Security Agreement upon acquisition thereof), the Borrower will (i) notify the Administrative Agent and the Lenders thereof, and, if requested by the Administrative Agent or the Required Lenders, cause such assets to be subjected to a Lien securing the Secured Obligations and (ii) take, and cause each applicable Loan Party to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Loan Parties.

SECTION 5.15.  Post-Closing Covenants.

(a)        The Borrower shall (i) cause the Inactive Subsidiary to transfer any and all of its assets to the Borrower and be dissolved and (ii) provide the Administrative Agent with a copy of the Certificate of Dissolution for the Borrower, stamped as filed by the Delaware Secretary of State, each within ninety (90) days after the Effective Date. The Borrower shall not and shall not permit any Person to capitalize the Inactive Subsidiary or otherwise allow the Inactive Subsidiary to conduct any business prior to such dissolution.

(b)        The Borrower shall (i) cause the ES Acquisition Subsidiary to merge with and into the Borrower pursuant to Section 253 of the Delaware General Corporation Law and (ii) provide Borrower with a copy of the Certificate of Ownership and Merger, stamped as filed by the Delaware Secretary of State, each within ninety (90) days after the Effective Date. The Borrower shall not and shall not permit any Person to capitalize the ES Acquisition Subsidiary or otherwise allow the ES Acquisition Subsidiary to conduct any business prior to such merger.

(c)        The Borrower shall, within thirty (30) days after the Effective Date, provide the Administrative Agent a Collateral Access Agreement with respect to its facilities located at 3123 John Conley Drive, Lapeer, Michigan 48446 executed by the landlord and tenant thereof.

(d)        The Borrower shall, within three (3) Business Days after the Effective Date, deliver to the Administrative Agent or its counsel the originally executed stock certificate(s) of Energy Steel & Supply Co.

ARTICLE VI

Negative Covenants

Until the Commitments shall have expired or been terminated and the principal of and interest on each Loan and all fees, expenses and other amounts payable under any Loan Document shall have been paid in full and all Letters of Credit shall have expired or terminated, in each case without any pending draw, and all LC Disbursements shall have been reimbursed, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the other Loan Parties, with the Lenders that:

SECTION 6.01.  Indebtedness.  No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or suffer to exist any Indebtedness, except:

(a)  the Secured Obligations;

(b)    Indebtedness existing on the date hereof and set forth in Schedule 6.01 and any extensions, renewals, refinancings and replacements of any such Indebtedness in accordance with clause (f) hereof;

 

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(c)    Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary, provided that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or any other Loan Party shall be subject to Section 6.04 and (ii) Indebtedness of any Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Secured Obligations on terms reasonably satisfactory to the Administrative Agent;

(d)  Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary, provided that (i) the Indebtedness so Guaranteed is permitted by this Section 6.01, (ii) Guarantees by the Borrower or any other Loan Party of Indebtedness of any Subsidiary that is not a Loan Party shall be subject to Section 6.04 and (iii) Guarantees permitted under this clause (d) shall be subordinated to the Secured Obligations on the same terms as the Indebtedness so Guaranteed is subordinated to the Secured Obligations;

(e)      Indebtedness of the Borrower or any Subsidiary (i) incurred to finance the acquisition, construction or improvement of any fixed or capital assets (whether or not constituting purchase money Indebtedness), including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness in accordance with clause (f) below; provided that such Indebtedness described in clause (i) is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, and (ii) other unsecured Indebtedness at any time outstanding; provided further, however, that the aggregate principal amount of Indebtedness permitted by this clause (e), together with any Refinance Indebtedness in respect thereof permitted by clause (f) below, shall not exceed $1,000,000 at any time outstanding;

(f)    Indebtedness which represents extensions, renewals, refinancing or replacements (such Indebtedness being so extended, renewed, refinanced or replaced being referred to herein as the “Refinance Indebtedness”) of any of the Indebtedness described in clauses (b) and (e) and (i) hereof (such Indebtedness being referred to herein as the “Original Indebtedness”); provided that (i) such Refinance Indebtedness does not increase the principal amount or interest rate of the Original Indebtedness, (ii) any Liens securing such Refinance Indebtedness are not extended to any additional property of any Loan Party or any Subsidiary, (iii) no Loan Party or any Subsidiary that is not originally obligated with respect to repayment of such Original Indebtedness is required to become obligated with respect to such Refinance Indebtedness, (iv) such Refinance Indebtedness does not result in a shortening of the average weighted maturity of such Original Indebtedness, (v) the terms of such Refinance Indebtedness are not less favorable to the obligor thereunder than the original terms of such Original Indebtedness and (vi) if such Original Indebtedness was subordinated in right of payment to the Secured Obligations, then the terms and conditions of such Refinance Indebtedness must include subordination terms and conditions that are at least as favorable to the Administrative Agent and the Lenders as those that were applicable to such Original Indebtedness;

(g)  Indebtedness owed to any Person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business;

(h)  Indebtedness of any Loan Party in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the ordinary course of business;

(i) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (x) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (y) the aggregate principal amount of Indebtedness permitted by this clause (i) together with any Refinance Indebtedness in respect thereof permitted by clause (f) above, shall not exceed $1,000,000 at any time outstanding; and

(j)    Indebtedness of any Loan Party in connection with the reimbursement obligations with respect to the Existing SBLCs not in excess of the aggregate amount of such Existing SBLCs on the date hereof plus any fees incurred in connection with the collection thereof (collectively, the “Existing Reimbursement Obligations”).

 

 

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SECTION 6.02.  Liens.   No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property (including any Real Property) or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including Accounts) or rights in respect of any thereof, except:

(a) Liens created pursuant to any Loan Document;

(b) Permitted Encumbrances;

(c) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such Liens shall not apply to any other property or assets of the Borrower or any Subsidiary;

(e) any Lien existing on any property or asset (other than Accounts and Inventory) prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset (other than Accounts and Inventory) of any Person that becomes a Loan Party after the date hereof prior to the time such Person becomes a Loan Party; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Loan Party, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Loan Party and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(f)  Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the UCC in effect in the relevant jurisdiction covering only the items being collected upon;

(g)  Liens arising out of Sale and Leaseback Transactions permitted by Section 6.06;

(h)  Liens granted by a Subsidiary that is not a Loan Party in favor of the Borrower or another Loan Party in respect of Indebtedness owed by such Subsidiary; and

(i)  Liens on the Pledged Accounts to secure the Existing Reimbursement Obligations.

 

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SECTION 6.03.  Fundamental Changes.

(a)  No Loan Party will, nor will it permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing, (i) any Subsidiary of the Borrower may merge into the Borrower in a transaction in which the Borrower is the surviving entity, (ii) any Loan Party (other than the Borrower) may merge into any other Loan Party in a transaction in which the surviving entity is a Loan Party and (iii) any Subsidiary that is not a Loan Party may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04.

(b)  No Loan Party will, nor will it permit any Subsidiary to, engage in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto.

(c) No Loan Party will, nor will it permit any Subsidiary to change its fiscal year or any fiscal quarter from the basis in effect on the Effective Date.

(d) No Loan Party will change the accounting basis upon which its financial statements are prepared.

(e) No Loan Party will change the tax filing elections it has made under the Code.

SECTION 6.04.  Investments, Loans, Advances, Guarantees and Acquisitions.  No Loan Party will, nor will it permit any Subsidiary to, form any subsidiary after the Effective Date, or purchase, hold or acquire (including pursuant to any merger with any Person that was not a Loan Party and a wholly owned Subsidiary prior to such merger) any Equity Interests, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (whether through purchase of assets, merger or otherwise), except:

(a)  Permitted Investments, subject to control agreements in favor of the Administrative Agent for the benefit of the Secured Parties or otherwise subject to a perfected security interest in favor of the Administrative Agent for the benefit of the Secured Parties;

(b) investments in existence on the date hereof and described in Schedule 6.04;

(c)  investments by the Borrower and the Subsidiaries in Equity Interests in their respective Subsidiaries, provided that (i) any such Equity Interests held by a Loan Party shall be pledged pursuant to the Security Agreement (subject to the limitations applicable to Equity Interests of a Foreign Subsidiary referred to in Section 5.14) and (ii) the aggregate amount of investments by Loan Parties in Subsidiaries that are not Loan Parties (together with outstanding intercompany loans permitted under Section 6.04(d) and outstanding Guarantees permitted under Section 6.04(e)) shall not exceed $1,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

 

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(d)  loans or advances made by any Loan Party to any Subsidiary and made by any Subsidiary to a Loan Party or any other Subsidiary, provided that (i) any such loans and advances made by a Loan Party shall be evidenced by a promissory note pledged pursuant to the Security Agreement and (ii) the amount of such loans and advances made by Loan Parties to Subsidiaries that are not Loan Parties (together with outstanding investments permitted under Section 6.04(c) and outstanding Guarantees permitted under Section 6.04(e)) shall not exceed $1,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs); provided, however, that, notwithstanding anything to the contrary in this Section 6.04(d), the Borrower may make investments in and loans to Borrower’s Wholly Owned Foreign Enterprise Subsidiary (the “WOFE”) formed in China, which such investments and loans shall not exceed an aggregate amount of $2,500,000 outstanding at any one time;

(e)  Guarantees constituting Indebtedness permitted by Section 6.01, provided that the aggregate principal amount of Indebtedness of Subsidiaries that are not Loan Parties that is Guaranteed by any Loan Party (together with outstanding investments permitted under clause (ii) to the proviso to Section 6.04(c) and outstanding intercompany loans permitted under clause (ii) to the proviso to Section 6.04(d)) shall not exceed $1,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(f) loans or advances made by a Loan Party to its employees on an arms-length basis in the ordinary course of business consistent with past practices for travel and entertainment expenses, relocation costs and similar purposes up to a maximum of $250,000 in the aggregate at any one time outstanding;

(g) notes payable, or stock or other securities issued by Account Debtors to a Loan Party pursuant to negotiated agreements with respect to settlement of such Account Debtor’s Accounts in the ordinary course of business, consistent with past practices;

(h)  investments in the form of Swap Agreements permitted by Section 6.07;

(i)   investments of any Person existing at the time such Person becomes a Subsidiary of the Borrower or consolidates or merges with the Borrower or any Subsidiary (including in connection with a permitted acquisition), so long as such investments were not made in contemplation of such Person becoming a Subsidiary or of such merger;

(j)    investments received in connection with the disposition of assets permitted by Section 6.05;

(k)  investments constituting deposits described in clauses (c) and (d) of the definition of the term “Permitted Encumbrances”;

(l)  Permitted Acquisitions; and

(m)    Investments not otherwise permitted under this Section 6.04 in an amount not to exceed $250,000 in the aggregate any time outstanding.

SECTION 6.05.  Asset Sales.    No Loan Party will, nor will it permit any Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will the Borrower permit any Subsidiary to issue any additional Equity Interest in such Subsidiary (other than to the Borrower or another Subsidiary in compliance with Section 6.04), except:

(a)  sales, transfers and dispositions of (i) Inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus Equipment or property in the ordinary course of business;

 

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(b)    sales, transfers and dispositions of assets to the Borrower or any Domestic Subsidiary, provided that any such sales, transfers or dispositions involving a Domestic Subsidiary that is not a Loan Party shall be made in compliance with Section 6.09;

(c)    sales, transfers and dispositions of Accounts (excluding sales or dispositions in a factoring arrangement) in connection with the compromise, settlement or collection thereof;

(d)    sales, transfers and dispositions of Permitted Investments and other investments permitted by clauses (i) and (k) of Section 6.04;

(e)  Sale and Leaseback Transactions permitted by Section 6.06;

(f)    dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Subsidiary; and

(g)    sales, transfers and other dispositions of assets (other than Equity Interests in a Subsidiary unless all Equity Interests in such Subsidiary are sold) that are not permitted by any other clause of this Section, provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this paragraph (g) shall not exceed $250,000 during any fiscal year of the Borrower.

SECTION 6.06.  Sale and Leaseback Transactions.  No Loan Party will, nor will it permit any Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred (a “Sale and Leaseback Transaction”), except for any such sale of any fixed or capital assets by the Borrower or any Subsidiary that is made for cash consideration in an amount not less than the fair value of such fixed or capital asset and is consummated within 90 days after the Borrower or such Subsidiary acquires or completes the construction of such fixed or capital asset.

SECTION 6.07.    Swap Agreements.    No Loan Party will, nor will it permit any Subsidiary to, enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Subsidiary has actual exposure (other than those in respect of Equity Interests of the Borrower or any Subsidiary), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from floating to fixed rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Subsidiary.

SECTION 6.08.  Restricted Payments; Certain Payments of Indebtedness.

(a)  No Loan Party will, nor will it permit any Subsidiary to, declare or make, or agree to declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or

 

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otherwise) to do so, except (i) the Borrower may declare and pay dividends with respect to its common stock payable solely in additional shares of its common stock, and, with respect to its preferred stock, payable solely in additional shares of such preferred stock or in shares of its common stock, (ii) Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests, and (iii) so long as no Event of Default has occurred and is continuing or would result after giving effect to any distribution pursuant to this paragraph (a), the Borrower may make unlimited dividends, redemptions of its Equity Interests, distributions and withdrawals to its owners; provided, however, that if the Borrower’s Funded Indebtedness to EBITDA Ratio as of the last day of the most recent fiscal quarter of the Borrower then ended is greater than 2.0 to 1.0, calculated pursuant to Section 6.12, any dividends, redemptions, distributions or withdrawals permitted pursuant to this subsection (iii) shall not exceed twenty five percent (25%) of Net Income of the Borrower for the four (4) fiscal quarters ending on the last day of the most recent fiscal quarter of the Borrower then ended.

(b)    No Loan Party will, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, except:

(i)  payment of Indebtedness created under the Loan Documents;

(ii)    payment of regularly scheduled interest and principal payments as and when due in respect of any Indebtedness permitted under Section 6.01, other than payments in respect of the Subordinated Indebtedness prohibited by the subordination provisions thereof;

(iii)  refinancings of Indebtedness to the extent permitted by Section 6.01; and

(iv)    payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness to the extent such sale or transfer is permitted by the terms of Section 6.05.

SECTION 6.09.  Transactions with Affiliates.  No Loan Party will, nor will it permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that (i) are in the ordinary course of business and (ii) are at prices and on terms and conditions not less favorable to such Loan Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Loan Parties not involving any other Affiliate, (c) any investment permitted by Sections 6.04(c) or 6.04(d), (d) any Indebtedness permitted under Section 6.01(c), (e) any Restricted Payment permitted by Section 6.08, (f) loans or advances to employees permitted under Section 6.04(f), (g) the payment of reasonable fees to directors of the Borrower or any Subsidiary who are not employees of the Borrower or any Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of the Borrower or its Subsidiaries in the ordinary course of business, and (h) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by the Borrower’s board of directors.

SECTION 6.10.    Restrictive Agreements.    No Loan Party will, nor will it permit any Subsidiary to, directly or indirectly enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of such Loan Party or any Subsidiary

 

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to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any Equity Interests or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by any Requirement of Law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

SECTION 6.11.  Amendment of Material Documents.   No Loan Party will, nor will it permit any Subsidiary to, amend, modify or waive any of its rights under (a) any agreement relating to any Subordinated Indebtedness, or (b) its charter, articles or certificate of organization or incorporation and bylaws or operating, management or partnership agreement, or other organizational or governing documents, to the extent any such amendment, modification or waiver would be adverse to the Lenders.

SECTION 6.12. Financial Covenants.

(a)        Funded Indebtedness to EBITDA Ratio.    The Borrower will not permit its Funded Indebtedness to EBITDA Ratio, on the last day of any fiscal quarter, to exceed 3.5 to 1.0. The Funded Indebtedness to EBITDA Ratio shall be calculated on a trailing twelve (12) month basis and tested on the last day of each fiscal quarter commencing with the calendar quarter ending December 31, 2015.

(b)        Interest Coverage Ratio.    The Borrower will not permit the Interest Coverage Ratio, for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter, to be less than 4.0 to 1.0. The Interest Coverage Ratio shall be calculated on a trailing twelve (12) month basis and tested on the last day of each calendar quarter commencing with the calendar quarter ending December 31, 2015.

ARTICLE VII

Events of Default

If any of the following events (“Events of Default”) shall occur:

(a)  the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) days;

 

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(c) any representation or warranty made or deemed made by or on behalf of any Loan Party or any Subsidiary in, or in connection with, this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, shall prove to have been materially incorrect when made or deemed made;

(d) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.03 (with respect to a Loan Party’s existence) or 5.08 or in Article VI;

(e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any other Loan Document (other than those specified in clause (a), (b) or (d)), and such failure shall continue unremedied for a period of (i) 5 days after the earlier of any Loan Party’s knowledge of such breach or notice thereof from the Administrative Agent (which notice will be given at the request of any Lender) if such breach relates to terms or provisions of Section 5.01, 5.02 (other than Section 5.02(a)), 5.03 through 5.07, 5.10, 5.11 or 5.13 of this Agreement or (ii) 15 days after the earlier of any Loan Party’s knowledge of such breach or notice thereof from the Administrative Agent (which notice will be given at the request of any Lender) if such breach relates to terms or provisions of any other Section of this Agreement or of any other Loan Document;

(f) any Loan Party or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable;

(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness to the extent such sale or transfer is permitted by the terms of Section 6.05;

(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of a Loan Party or Subsidiary or its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;

(i) any Loan Party or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

 

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(j) any Loan Party or any Subsidiary shall become unable, admit in writing its inability, or publicly declare its intention not to, or fail generally, to pay its debts as they become due;

(k) one or more judgments for the payment of money in an aggregate amount in excess of $500,000 shall be rendered against any Loan Party, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Loan Party or any Subsidiary to enforce any such judgment or any Loan Party or any Subsidiary shall fail within thirty (30) days to discharge one or more non-monetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal and being appropriately contested in good faith by proper proceedings diligently pursued;

(l) an ERISA Event shall have occurred that, in the business judgment of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;

(m) a Change in Control shall occur;

(n) the Loan Guaranty or any Obligation Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty or any Obligation Guaranty, or any Loan Guarantor shall fail to comply with any of the terms or provisions of the Loan Guaranty or any Obligation Guaranty to which it is a party, or any Loan Guarantor shall deny that it has any further liability under the Loan Guaranty or any Obligation Guaranty to which it is a party, or shall give notice to such effect, including, but not limited to notice of termination delivered pursuant to Section 10.08 or any notice of termination delivered pursuant to the terms of any Obligation Guaranty;

(o)  except as permitted by the terms of any Collateral Document, (i) any Collateral Document shall for any reason fail to create a valid security interest in any Collateral purported to be covered thereby, or (ii) any Lien securing any Secured Obligation shall cease to be a perfected, first priority Lien;

(p) any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document;

(q) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction that evidences its assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms); or

(r) any Loan Party is criminally indicted or convicted under any law that may reasonably be expected to lead to a forfeiture of any property of such Loan Party having a fair market value in excess of $250,000;

then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and

 

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payable in whole (or in part, but ratably as among the Classes of Loans and the Loans of each Class at the time outstanding, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in the case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, increase the rate of interest applicable to the Loans and other Obligations as set forth in this Agreement and exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

ARTICLE VIII

The Administrative Agent

SECTION 8.01.  Appointment.  Each of the Lenders, on behalf of itself and any of its Affiliates that are Secured Parties and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than the U.S., each of the Lenders and the Issuing Bank hereby grants to the Administrative Agent any required powers of attorney to execute any Collateral Document governed by the laws of such jurisdiction on such Lender’s or Issuing Bank’s behalf. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders (including the Swingline Lender and the Issuing Bank), and the Loan Parties shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

SECTION 8.02.  Rights as a Lender.  The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Loan Party or any Subsidiary or any Affiliate thereof as if it were not the Administrative Agent hereunder.

SECTION 8.03.  Duties and Obligations.  The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and, (c) except

 

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as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any Subsidiary that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

SECTION 8.04.  Reliance.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

SECTION 8.05.  Actions through Sub-Agents.  The Administrative Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.

SECTION 8.06.  Resignation.  Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by its successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor, unless otherwise agreed by the Borrower and such successor. Notwithstanding the foregoing, in the event no successor

 

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Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuing Banks and the Borrower, whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents, provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under any Collateral Document for the benefit of the Secured Parties, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Secured Parties and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this paragraph (it being understood and agreed that the retiring Administrative Agent shall have no duty or obligation to take any further action under any Collateral Document, including any action required to maintain the perfection of any such security interest), and (b) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, provided that (i) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (ii) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall also directly be given or made to each Lender and each Issuing Bank. Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article, Section 2.17(d) and Section 9.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent and in respect of the matters referred to in the proviso under clause (a) above.

SECTION 8.07.  Non-Reliance.

(a)  Each Lender acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the U.S. securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.

(b)  Each Lender hereby agrees that (i) it has requested a copy of each Report prepared by or on behalf of the Administrative Agent; (ii) the Administrative Agent (A) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (B) shall not be liable for any information contained in any Report; (iii) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ personnel and that the Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (iv) it will keep all Reports

 

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confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (v) without limiting the generality of any other indemnification provision contained in this Agreement, (A) it will hold the Administrative Agent and any such other Person preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any extension of credit that the indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a Loan or Loans; and (B) it will pay and protect, and indemnify, defend, and hold the Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys’ fees) incurred by the Administrative Agent or any such other Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

 

SECTION 8.08.  Not Partners or Co-Venturers; Administrative Agent as Representative of the Secured Parties.

(a)        The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.

(b)        In its capacity, the Administrative Agent is a “representative” of the Secured Parties within the meaning of the term “secured party” as defined in the UCC. Each Lender authorizes the Administrative Agent to enter into each of the Collateral Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Secured Party (other than the Administrative Agent) shall have the right individually to seek to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Secured Parties upon the terms of the Collateral Documents. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Secured Obligations, the Administrative Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Secured Parties any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Secured Parties.

ARTICLE IX

Miscellaneous

SECTION 9.01.  Notices.

(a) Except in the case of notices and other communications expressly permitted to be given by telephone or Electronic Systems (and subject in each case to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax, as follows:

 

  (i)

if to any Loan Party, to it in care of the Borrower at:

Graham Corporation

20 Florence Avenue

Batavia, New York 14020

Attention: Jeffrey Glajch

Fax No: (585) 815-2003

 

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With a copy to:

Harter Secrest & Emery LLP

1600 Bausch & Lomb Place

Rochester, New York 14606

Attention: Daniel Kinel, Esq.

Fax No: (585) 232-2152

 

  (ii)

if to the Administrative Agent, the Swingline Lender, or the Issuing Bank, to JPMorgan Chase Bank, N.A. at:

JPMorgan Chase Bank, N.A.

One Chase Square, 11th Floor

Rochester, NY 14643

Attention: Kathleen McCarney

Email: [email protected]

Phone: (585) 797-0174

Fax No.: (585) 797-1880

With a copy to:

JPMorgan Chase Bank, N.A.

One Chase Square, 11th Floor

Rochester, NY 14643

Attention: Philip M. Hendrix

Email: [email protected]

Phone: (585) 797-0172

Fax No.: (585) 797-1880

 

  (iii)

if to any other Lender, to it at its address or fax number set forth in its Administrative Questionnaire.

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail shall be deemed to have been given when received, (ii) sent by fax shall be deemed to have been given when sent, provided that if not given during normal business hours for the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day of the recipient, or (iii) delivered through Electronic Systems to the extent provided in paragraph (b) below shall be effective as provided in such paragraph.

(b)   Notices and other communications to the Lenders hereunder may be delivered or furnished by Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the Administrative Agent and the applicable Lender. Each of the Administrative Agent and the Borrower (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by Electronic Systems pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise

 

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proscribes, all such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and, (ii) except for notices sent to any Loan Party, posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, e-mail or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day of the recipient.

(c)   Any party hereto may change its address, facsimile number or e-mail address for notices and other communications hereunder by notice to the other parties hereto.

(d)  Electronic Systems.

(i)        Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.

(ii)        Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower or the other Loan Parties, any Lender, the Issuing Bank or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s, any Loan Party’s or the Administrative Agent’s transmission of communications through an Electronic System. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section, including through an Electronic System.

SECTION 9.02.  Waivers; Amendments.

(a)  No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall

 

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be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.

(b)         Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall (A) increase the Commitment of any Lender without the written consent of such Lender (including any such Lender that is a Defaulting Lender), (B) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) affected thereby, (C) postpone any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) affected thereby, (D) change Section 2.18(b) or (d) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender (other than any Defaulting Lender), (E) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (other than any Defaulting Lender) directly affected thereby, (F) change Section 2.20, without the consent of each Lender (other than any Defaulting Lender), (G) release any Guarantor from its obligation under its Loan Guaranty or any Obligation Guaranty (except as otherwise permitted herein or in the other Loan Documents), without the written consent of each Lender (other than any Defaulting Lender), or (H) except as provided in clause (c) of this Section or in any Collateral Document, release all or substantially all of the Collateral without the written consent of each Lender (other than any Defaulting Lender); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Swingline Lender or the Issuing Bank hereunder without the prior written consent of the Administrative Agent, the Swingline Lender or the Issuing Bank, as the case may be (it being understood that any amendment to Section 2.20 shall require the consent of the Administrative Agent, the Swingline Lender and the Issuing Bank). The Administrative Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04. Any amendment, waiver or other modification of this Agreement or any other Loan Document that by its terms affects the rights or duties under this Agreement of the Lenders of one or more Classes (but not the Lenders of any other Class), may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite number or percentage in interest of each affected Class of Lenders that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time.

(c)         The Lenders and the Issuing Bank hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Liens granted to the Administrative Agent by the Loan Parties on any Collateral (i) upon the termination of all of the Commitments, payment and satisfaction in full of all Secured Obligations (other than Unliquidated Obligations), and the cash collateralization of all Unliquidated Obligations in a manner satisfactory to each affected Lender, (ii) constituting property being sold or disposed of if the Loan Party disposing of such property certifies to the Administrative Agent that the sale or disposition is made in compliance with the terms of this Agreement (and the Administrative Agent may rely conclusively on any such certificate,

 

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without further inquiry), and to the extent that the property being sold or disposed of constitutes 100% of the Equity Interests of a Subsidiary, the Administrative Agent is authorized to release any Loan Guaranty or Obligation Guaranty provided by such Subsidiary, (iii) constituting property leased to a Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement, or (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Administrative Agent and the Lenders pursuant to Article VII. Except as provided in the preceding sentence, the Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Lenders; provided that the Administrative Agent may, in its discretion, release its Liens on Collateral that the Administrative Agent determines, in its sole discretion, not to be a material portion of the Collateral during any calendar year without the prior written authorization of the Required Lenders (it being agreed that the Administrative Agent may rely conclusively on one or more certificates of the Borrower as to the value of any Collateral to be so released, without further inquiry). Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. Any execution and delivery by the Administrative Agent of documents in connection with any such release shall be without recourse to or warranty by the Administrative Agent.

(d)         If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but has not been obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower, the Administrative Agent and the Issuing Bank shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.

(e)         Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.

SECTION 9.03.   Expenses; Indemnity; Damage Waiver.

(a)  The Loan Parties, jointly and severally, shall pay all (i) reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through an Electronic System) of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension

 

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of any Letter of Credit or any demand for payment thereunder and (iii) out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. Expenses being reimbursed by the Loan Parties under this Section include, without limiting the generality of the foregoing, fees, costs and expenses incurred in connection with:

(A)        appraisals and insurance reviews;

(B)        field examinations and the preparation of Reports based on the fees charged by a third party retained by the Administrative Agent or the internally allocated fees for each Person employed by the Administrative Agent with respect to each field examination;

(C)        background checks regarding senior management and/or key investors, as deemed necessary or appropriate in the sole discretion of the Administrative Agent;

(D)        Taxes, fees and other charges for (i) lien searches and (ii) filing financing statements and continuations, and other actions to perfect, protect, and continue the Administrative Agent’s Liens;

(E)        sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; and

(F)        forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.

All of the foregoing fees, costs and expenses may be charged to the Borrower as Revolving Loans or to another deposit account, all as described in Section 2.18(c).

(b)        The Loan Parties, jointly and severally, shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, incremental taxes, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by a Loan Party or a Subsidiary, or any Environmental Liability related in any way to a Loan Party or a Subsidiary, (iv) the failure of a Loan Party to deliver to the Administrative Agent the required receipts or other required documentary evidence with respect to a payment made by such Loan Party for Taxes pursuant to Section 2.17, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by any Loan Party or their respective equity holders, Affiliates, creditors or any

 

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other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses or damages arising from any non-Tax claim.

(c)  To the extent that any Loan Party fails to pay any amount required to be paid by it to the Administrative Agent (or any sub-agent thereof), the Swingline Lender or the Issuing Bank (or any Related Party of any of the foregoing) under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Swingline Lender or the Issuing Bank (or any Related Party of any of the foregoing), as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that the Borrower’s failure to pay any such amount shall not relieve the Borrower of any default in the payment thereof); provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Swingline Lender or the Issuing Bank in its capacity as such.

(d)  To the extent permitted by applicable law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnitee, (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet), or (ii) on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document, or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that, nothing in this paragraph (d) shall relieve any Loan Party of any obligation it may have to indemnify any Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.

(e)  All amounts due under this Section shall be payable promptly after written demand therefor.

SECTION 9.04.  Successors and Assigns.

(a)  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)(i)    Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, participations in Letters of Credit and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A)        the Borrower, provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof, and provided further that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee;

 

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(B)        the Administrative Agent;

(C)        the Issuing Bank; and

(D)        the Swingline Lender.

Notwithstanding the foregoing, Chase, in its capacity as a Lender hereunder, shall at all times maintain at least 66.6% of the Aggregate Credit Exposure, as the same may be increased or decreased from time to time.

(ii)        Assignments shall be subject to the following additional conditions:

(A)        except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;

(B)        each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(C)        the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment and Assumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, together with a processing and recordation fee of $3,500; and

(D)        the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower, the other Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including federal and state securities laws.

 

 

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For the purposes of this Section 9.04(b), the terms “Approved Fund” and “Ineligible Institution” have the following meanings:

Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Ineligible Institution” means a (a) natural person, (b) a Defaulting Lender or its Parent, (c) holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof; provided that, such holding company, investment vehicle or trust shall not constitute an Ineligible Institution if it (x) has not been established for the primary purpose of acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business; provided that upon the occurrence of an Event of Default, any Person (other than a Lender) shall be an Ineligible Institution if after giving effect to any proposed assignment to such Person, such Person would hold more than 25% of the then outstanding Aggregate Credit Exposure or Commitments, as the case may be or (d) a Loan Party or a Subsidiary or other Affiliate of a Loan Party.

(iii)        Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv)        The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v)        Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the Administrative Agent shall have

 

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no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c)  Any Lender may, without the consent of the Borrower, the Administrative Agent, the Swingline Lender or the Issuing Bank, sell participations to one or more banks or other entities (a “Participant”), other than an Ineligible Institution, in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (iii) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under Sections 2.17(f) and (g) (it being understood that the documentation required under Section 2.17(f) shall be delivered to the participating Lender and the information and documentation required under Section 2.17(g) will be delivered to the Borrower and the Administrative Agent)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 2.18 and 2.19 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 2.15 or 2.17 with respect to any participation than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.

Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(d) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement or any other Loan Document (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) to any Person 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. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(d)        Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge

 

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or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.05.    Survival.    All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof.

SECTION 9.06.  Counterparts; Integration; Effectiveness; Electronic Execution.

(a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent 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. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(b)    Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby or thereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

SECTION 9.07.  Severability.  Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

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SECTION 9.08.  Right of Setoff.  To the fullest extent permitted by law, if an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Loan Party against any of and all the Secured Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender shall notify the Borrower and the Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

SECTION 9.09.  Governing Law; Jurisdiction; Consent to Service of Process.

(a)  The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of New York, but giving effect to federal laws applicable to national banks.

(b)  Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any U.S. federal or New York state court sitting in New York, New York in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such state court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

(c)  Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)  Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10.    WAIVER OF JURY TRIAL.    EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER

 

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PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11.  Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12.  Confidentiality.  Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any Governmental Authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by any Requirement of Law or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (x) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (y) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Loan Parties and their obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis prior to disclosure by the Borrower and other than information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

EACH LENDER ACKNOWLEDGES THAT INFORMATION (AS DEFINED IN THIS SECTION 9.12) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER, THE OTHER LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-

 

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LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

SECTION 9.13. Several Obligations; Nonreliance; Violation of Law.    The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board) for the repayment of the Borrowings provided for herein. Anything contained in this Agreement to the contrary notwithstanding, neither the Issuing Bank nor any Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.

SECTION 9.14.  USA PATRIOT Act.  Each Lender that is subject to the requirements of the USA PATRIOT Act hereby notifies each Loan Party that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies such Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the USA PATRIOT Act.

SECTION 9.15.  Disclosure. Each Loan Party, each Lender and the Issuing Bank hereby acknowledges and agrees that the Administrative Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with, any of the Loan Parties and their respective Affiliates.

SECTION 9.16.  Appointment for Perfection.  Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the Secured Parties, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession or control. Should any Lender (other than the Administrative Agent) obtain possession or control of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent’s request therefor shall deliver such Collateral to the Administrative Agent or otherwise deal with such Collateral in accordance with the Administrative Agent’s instructions.

SECTION 9.17.    Interest Rate Limitation.    Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

 

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SECTION 9.18.    Marketing Consent.    The Borrower hereby authorizes Chase and its affiliates (including without limitation JPMorgan Securities LLC) (collectively, the “Chase Parties”), at their respective sole expense, but with the prior approval of the Borrower, which shall not be unreasonably withheld or delayed, to publish such tombstones and give such other publicity to this Agreement as each may from time to time determine in its sole discretion. The foregoing authorization shall remain in effect unless the Borrower notifies Chase in writing that such authorization is revoked.

ARTICLE X

Loan Guaranty

SECTION 10.01.  Guaranty.  Each Loan Guarantor (other than those that have delivered a separate Guaranty) hereby agrees that it is jointly and severally liable for, and, as a primary obligor and not merely as surety, absolutely, unconditionally and irrevocably guarantees to the Secured Parties, the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Secured Obligations and all costs and expenses including, without limitation, all court costs and reasonable attorneys’ and paralegals’ fees (including allocated costs of in-house counsel and paralegals) and expenses paid or incurred by the Administrative Agent, the Issuing Bank and the Lenders in endeavoring to collect all or any part of the Secured Obligations from, or in prosecuting any action against, the Borrower, any Loan Guarantor or any other guarantor of all or any part of the Secured Obligations (such costs and expenses, together with the Secured Obligations, collectively the “Guaranteed Obligations”); provided, however, that the definition of “Guaranteed Obligations” shall not create any guarantee by any Loan Guarantor of (or grant of security interest by any Loan Guarantor to support, as applicable) any Excluded Swap Obligations of such Loan Guarantor for purposes of determining any obligations of any Loan Guarantor). Each Loan Guarantor further agrees that the Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any domestic or foreign branch or Affiliate of any Lender that extended any portion of the Guaranteed Obligations.

SECTION 10.02.  Guaranty of Payment.  This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Guarantor waives any right to require the Administrative Agent, the Issuing Bank or any Lender to sue the Borrower, any Loan Guarantor, any other guarantor of, or any other Person obligated for all or any part of the Guaranteed Obligations (each, an “Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations.

SECTION 10.03.  No Discharge or Diminishment of Loan Guaranty.

(a) Except as otherwise provided for herein, the obligations of each Loan Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed Obligations), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of the Borrower or any other Obligated Party liable for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Obligated Party, or their assets or any resulting release or discharge of any obligation of any Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Loan Guarantor may have at any time against any Obligated Party, the Administrative Agent, the Issuing Bank, any Lender, or any other Person, whether in connection herewith or in any unrelated transactions.

 

90


(b)        The obligations of each Loan Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Guaranteed Obligations or otherwise, or any provision of applicable law or regulation purporting to prohibit payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.

(c)        Further, the obligations of any Loan Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the Administrative Agent, the Issuing Bank or any Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of the Borrower for all or any part of the Guaranteed Obligations or any obligations of any other Obligated Party liable for any of the Guaranteed Obligations; (iv) any action or failure to act by the Administrative Agent, the Issuing Bank or any Lender with respect to any collateral securing any part of the Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Guarantor or that would otherwise operate as a discharge of any Loan Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of the Guaranteed Obligations).

SECTION 10.04.  Defenses Waived.  To the fullest extent permitted by applicable law, each Loan Guarantor hereby waives any defense based on or arising out of any defense of the Borrower or any Loan Guarantor or the unenforceability of all or any part of the Guaranteed Obligations from any cause, or the cessation from any cause of the liability of the Borrower, any Loan Guarantor or any other Obligated Party, other than the indefeasible payment in full in cash of the Guaranteed Obligations. Without limiting the generality of the foregoing, each Loan Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Obligated Party, or any other Person. Each Loan Guarantor confirms that it is not a surety under any state law and shall not raise any such law as a defense to its obligations hereunder. The Administrative Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Guaranteed Obligations, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Obligated Party or exercise any other right or remedy available to it against any Obligated Party, without affecting or impairing in any way the liability of such Loan Guarantor under this Loan Guaranty, except to the extent the Guaranteed Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable law, each Loan Guarantor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Loan Guarantor against any Obligated Party or any security.

SECTION 10.05.  Rights of Subrogation.  No Loan Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Obligated Party, or any collateral, until the indefeasible payment in full in cash of the Obligations.

SECTION 10.06.  Reinstatement; Stay of Acceleration.  If at any time any payment of any portion of the Guaranteed Obligations (including a payment effected through exercise of a right of setoff) is rescinded, or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise (including pursuant to any settlement entered into by a Secured Party in its discretion), each Loan Guarantor’s obligations under this Loan Guaranty with respect to that payment shall

 

91


be reinstated at such time as though the payment had not been made and whether or not the Administrative Agent, the Issuing Bank and the Lenders are in possession of this Loan Guaranty. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Guaranteed Obligations shall nonetheless be payable by the Loan Guarantors forthwith on demand by the Administrative Agent.

SECTION 10.07.    Information.    Each Loan Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Loan Guarantor assumes and incurs under this Loan Guaranty, and agrees that none of the Administrative Agent, the Issuing Bank or any Lender shall have any duty to advise any Loan Guarantor of information known to it regarding those circumstances or risks.

SECTION 10.08.  Termination.  Each of the Lenders and the Issuing Bank may continue to make loans or extend credit to the Borrower based on this Loan Guaranty until five (5) days after it receives written notice of termination from any Loan Guarantor. Notwithstanding receipt of any such notice, each Loan Guarantor will continue to be liable to the Lenders for any Guaranteed Obligations created, assumed or committed to prior to the fifth day after receipt of the notice, and all subsequent renewals, extensions, modifications and amendments with respect to, or substitutions for, all or any part of such Guaranteed Obligations. Nothing in this Section 10.08 shall be deemed to constitute a waiver of, or eliminate, limit, reduce or otherwise impair any rights or remedies the Administrative Agent or any Lender may have in respect of, any Default or Event of Default that shall exist under Article VII hereof as a result of any such notice of termination.

SECTION 10.09.  Taxes.  Each payment of the Guaranteed Obligations will be made by each Loan Guarantor without withholding for any Taxes, unless such withholding is required by law. If any Loan Guarantor determines, in its sole discretion exercised in good faith, that it is so required to withhold Taxes, then such Loan Guarantor may so withhold and shall timely pay the full amount of withheld Taxes to the relevant Governmental Authority in accordance with applicable law. If such Taxes are Indemnified Taxes, then the amount payable by such Loan Guarantor shall be increased as necessary so that, net of such withholding (including such withholding applicable to additional amounts payable under this Section), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives the amount it would have received had no such withholding been made.

SECTION 10.10.  Maximum Liability.  Notwithstanding any other provision of this Loan Guaranty, the amount guaranteed by each Loan Guarantor hereunder shall be limited to the extent, if any, required so that its obligations hereunder shall not be subject to avoidance under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. In determining the limitations, if any, on the amount of any Loan Guarantor’s obligations hereunder pursuant to the preceding sentence, it is the intention of the parties hereto that any rights of subrogation, indemnification or contribution which such Loan Guarantor may have under this Loan Guaranty, any other agreement or applicable law shall be taken into account.

SECTION 10.11.  Contribution.

(a)        To the extent that any Loan Guarantor shall make a payment under this Loan Guaranty (a “Guarantor Payment”) which, taking into account all other Guarantor Payments then previously or concurrently made by any other Loan Guarantor, exceeds the amount which otherwise would have been paid by or attributable to such Loan Guarantor if each Loan Guarantor had paid the aggregate Guaranteed Obligations satisfied by such Guarantor Payment in the same proportion as such Loan Guarantor’s

 

92


“Allocable Amount” (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Loan Guarantors as determined immediately prior to the making of such Guarantor Payment, then, following payment in full of the Guarantor Payment and the Guaranteed Obligations (other than Unliquidated Obligations that have not yet arisen), and all Commitments and Letters of Credit have terminated or expired or, in the case of all Letters of Credit, are fully collateralized on terms reasonably acceptable to the Administrative Agent and the Issuing Bank, and this Agreement, the Swap Agreement Obligations and the Banking Services Obligations have terminated, such Loan Guarantor shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Loan Guarantor for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.

(b)        As of any date of determination, the “Allocable Amount” of any Loan Guarantor shall be equal to the excess of the fair saleable value of the property of such Loan Guarantor over the total liabilities of such Loan Guarantor (including the maximum amount reasonably expected to become due in respect of contingent liabilities, calculated, without duplication, assuming each other Loan Guarantor that is also liable for such contingent liability pays its ratable share thereof), giving effect to all payments made by other Loan Guarantors as of such date in a manner to maximize the amount of such contributions.

(c)        This Section 10.11 is intended only to define the relative rights of the Loan Guarantors, and nothing set forth in this Section 10.11 is intended to or shall impair the obligations of the Loan Guarantors, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Loan Guaranty.

(d)        The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Loan Guarantor or Loan Guarantors to which such contribution and indemnification is owing.

(e)        The rights of the indemnifying Loan Guarantors against other Loan Guarantors under this Section 10.11 shall be exercisable upon the full and payment of the Guaranteed Obligations (other than Unliquidated Obligations that have not yet arisen) and the termination or expiry (or, in the case of all Letters of Credit, full cash collateralization), on terms reasonably acceptable to the Administrative Agent and the Issuing Bank, of the Commitments and all Letters of Credit issued hereunder and the termination of this Agreement, the Swap Agreement Obligations and the Banking Services Obligations; provided however, that if a reinstatement shall occur pursuant to Section 10.06 hereof, the Loan Guarantors shall cease exercising any and all remedies unless and until the Guaranteed Obligations shall again be paid in full.

SECTION 10.12.    Liability Cumulative.    The liability of each Loan Party as a Loan Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each Loan Party to the Administrative Agent, the Issuing Bank and the Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

SECTION 10.13.    Keepwell.        Each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Guarantor to honor all of its obligations under this Guarantee in respect of a Swap Obligation (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 10.13 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 10.13 or otherwise under this Loan Guaranty voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). Except as otherwise provided herein, the obligations of each Qualified ECP Guarantor under this Section 10.13

 

93


shall remain in full force and effect until the termination of all Swap Obligations. Each Qualified ECP Guarantor intends that this Section 10.13 constitute, and this Section 10.13 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Loan Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

[Signature Page Follows]

 

94


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

 

GRAHAM CORPORATION, a Delaware corporation
By: /s/ Jeffrey Glajch
Name: Jeffrey Glajch
Title: Chief Financial Officer
ENERGY STEEL & SUPPLY CO., a Michigan corporation
By: /s/ Jeffrey Glajch
Name: Jeffrey Glajch
Title: Chief Financial Officer
JPMORGAN CHASE BANK, N.A., individually, and as Administrative Agent, Swingline Lender and Issuing Bank
By: /s/ Philip M. Hendrix
Name: Philip M. Hendrix
Title: Vice President and Authorized Officer

 

95


COMMITMENT SCHEDULE

 

Lender   

Revolving

Commitment

  

Swingline

Commitment

   Commitment

JPMorgan Chase Bank, N.A.

  

$25,000,000.00

 

  

$5,000,000

 

  

$25,000,000.00

 

Total

  

$25,000,000.00

 

  

$5,000,000

 

  

$25,000,000.00

 

 

Commitment Schedule


SCHEDULE 3.05

Properties, etc.

SCHEDULE 3.06

Disclosed Matters

SCHEDULE 3.14

Insurance

SCHEDULE 3.15

Capitalization and Subsidiaries

SCHEDULE 5.13

Existing Standby Letters of Credit

SCHEDULE 6.01

Existing Indebtedness

SCHEDULE 6.02

Existing Liens

SCHEDULE 6.04

Existing Investments

SCHEDULE 6.10

Existing Restrictions


SCHEDULE 3.05

Properties, etc.

Owned and Leased Real Property -- See following.

Intellectual Property Rights --

PATENTS

 

Name of Grantor   Patent Description   Patent Number   Issue Date
Graham Corporation   Instantaneous Water Heater   7140378   11-28-2006
Graham Corporation   Apparatus For Removing Ammonia And Carbon Dioxide Gases From A Steam   5772709   06-30-1998

TRADEMARKS

 

Name of Grantor     Trademark  

     Registration      

Date

   Registration Number           Country    
Graham Corporation     GRAHAM   11/18/1997   2,113,725   US
Graham Corporation     LOGO   12/23/1997   2,123,101   US
Graham Corporation     LOGO   11/20/2007   3,339,668   US
Graham Corporation     GRAHAM PRECISION PUMPS   7/7/1998   2,171,065   US
Graham Corporation     GRAHAM VACUUM AND HEAT TRANSFER   7/7/1998   2,171,070   US
Graham Corporation     HELIFLOW   4/8/2003   2,704,853   US
Graham Corporation     MICROMAX   6/17/2008   3,450,764   US
Graham Corporation     MICROMIX   11/18/1958   669,905   US
Graham Corporation     SEALCOOL   8/8/2000   2,375,893   US
Graham Corporation     ULTRAHEAT   10/23/2007   3,319,469   US
Graham Corporation     VACADEMICS   9/24/2002   2,626,331   US
Graham Corporation     VACWORKS   11/30/1999   2,296,884   US
Graham Corporation     G Logo   10/06/2006   004596011   CTM
Graham Corporation     GRAHAM   000486845   01/16/200   CTM
Graham Corporation     GRAHAM   004586467   11/27/2006   CTM
Graham Corporation     GRAHAM & DESIGN   000486852   3/3/1997   CTM
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 07)   5288202   4/14/2006   CN
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 37)   5288203   4/14/2006   CN


Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 40)   5288204   4/14/2006   CN
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 42)   5288205   4/14/2006   CN
Graham Corporation     GRAHAM ENGINEERING & DESIGN   005290275   8/23/2007   CTM
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN   1502414   11/08/2006   IN
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 07)   992949   07/23/2007   MX
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 37)   971079   01/30/2007   MX
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 40)   971080   01/30/2007   MX
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 42)   971081   01/30/2007   MX
Graham Corporation     GRAHAM ENGINEERING ANSWERS & DESIGN (Class 11)   848887   04/17/2007   MX
Graham Corporation     GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 07)   5288206   04/14/2006   CN
Graham Corporation     GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 37)   5288207   04/14/2006   CN
Graham Corporation     GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 40)   5288208   04/14/2006   CN
Graham Corporation     GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 42)   5288209   04/14/2006   CN
Graham Corporation     GVHT (Class 07)   5288210   04/14/2006   CN
Graham Corporation     GVHT (Class 37)   5288211   04/14/2006   CN
Graham Corporation     GVHT (Class 40)   5288186   04/14/2006   CN
Graham Corporation     GVHT (Class 42)   5288187   04/14/2006   CN
Graham Corporation     GVHT (Class 11)   5882574   02/01/2007   CN
Graham Corporation     HELIFLOW   736590   12/01/2003   BX
Graham Corporation     HELIFLOW   TMA169350   05/22/1970   CA
Graham Corporation     HELIFLOW   977506   07/27/1987   DE
Graham Corporation     HELIFLOW   226805   01/08/2003   IE
Graham Corporation     HELIFLOW   2320120   01/08/2003   UK
Graham Corporation     MICROMAX   TMA631,364   01/27/2005   CA
Graham Corporation     MICROMIX   TMA169351   05/22/1970   CA


COPYRIGHTS

 

Name of Grantor    Copyright    Registration Date    Registration Number
Energy Steel & Supply Co.    The Duke of Nuke    1-9-1989    VA0000363219
                


SCHEDULE 3.05

Properties, etc.

 

OWNED – Batavia, NY 14020

16-24 Florence Avenue

   Manufacturing and Office
6 Cedar Street    Manufacturing
28 Cedar Street    Land
4-12 Howard Street    Manufacturing
113 Harvester Avenue    Land
16 Howard Street    Land
111 Harvester Avenue    Land
2 Howard Street    Land
3 Howard Street    Land
119 Harvester Avenue    Land
121 Harvester Avenue    Land
114-A Harvester Avenue    Land
114-B Harvester Avenue    Land
114-C Harvester Avenue    Land
19 Florence Avenue    Land
9-31 Howard Street    Manufacturing
33-37 Howard Street    Manufacturing
60 Evans Street    Land
33 Harvester Avenue    Land
6 Florence Avenue    Land
623 E. Main Street    Land

 

 

LEASED   

3123 John Conley Drive

Lapeer, Ml 48446

   Manufacturing and Office

333 N. Sam Houston Parkway E, Suite 850

Houston, TX 77060

   Office

Suite 601, 23-B Harmony Times Square

Huachi Street, Suzhou Industrial Park

Suzhou 215028, PR China

   Office


SCHEDULE 3.06

Disclosed Matters

None.


SCHEDULE 3.14

Insurance

See following.


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
         

 

  Commercial Package       Great Northern     Insurance Co.    35879559           04/01/15        04/01/16   
  Property                     
 

Premise 1, Buildings 1-13

20 Florence Ave.

Batavia, NY 14020

                    
 

Premise 2, Building 1

333 N. Sam Houston Parkway E.

Suite 850

Houston, TX 77060

                    
 

Premise 3, Building 1

3123 John Conley Dr.

Lapeer, Ml 48446

                    
 

Premise 4, Building 1

23-B Harmony Times Square

Suite 601, Huachi Street

Suzhou Industrial Park

Suzhou, 215028

Peoples Republic - China

                    
  Blanket Building & Contents    57,503,622                  
  (Premises 1 & 4 only)                     
  Coinsurance (Agreed Value)    100%                  
 

Replacement Cost

Special Form Cause of Loss

                    
  Deductible    25,000                  
  Blanket Business Income &    19,571,429                  
 

Extra Expense

 (Premises 1 & 3 only)

                    
  Coinsurance (Agreed Value)    100%                  
 

Special Form Cause of Loss

Deductible

   24 hours                  


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
         

 

 

  Premise 2, Building 1                     
  Business Personal Property    26,100                  
  Coinsurance    100%                  
  Replacement Cost                     
  Special Form Cause of Loss                     
  Deductible    25,000                  
  Business Income/Extra Expense    1,428,571                  
  Coinsurance    100%                  
  Special Form Cause of Loss                     
  Deductible    24 hours                  
  Premise 4, Building 1                     
  Business Personal Property    20,000                  
  Deductible    2,500                  
  Flood:                     
 

 

Premise 1 & 3

                    
  Premises Annual Aggregate    25,000,000                  
  Per Occurrence Limit    25,000,000                  
  Property Damage Deductible    50,000                  
  Waiting Period    48 hours                  
  Wind/Hail/Hurricane:                     
 

 

Premise 2

                    
  Property Damage Deductible    2%                  
  Property Damage Minimum                     
  Dollar Deductible    25,000                  
  Waiting Period    72 hours                  
  Earthquake:                     
 

 

Premise 1, 2, & 3

                    
  Premises Annual Aggregate    25,000,000                  
  Per Occurrence Limit    25,000,000                  
  Property Deductible    50,000                  
  Waiting Period    48 hours                  
  Equipment Breakdown    Included                  
  Business Income/Extra Expense    3x ADV                  
  Property Damage Deductible    25,000                  


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
         

 

 

  International Coverage                     
  Liability Global Extension                     
  Endorsement                     
  Automobile:                     
  Hired & Non-Owned Autos:                     
  Bodily Injury & Property Damage    1,000,000                  
  Auto Medical Payments    10,000                  
  Workers’ Compensation:                     
  International Voluntary –    State of Hire                  
  International Executive                     
  Employees                     
  Employers Liability:                     
  Bodily Injury by Accident                     
  Each Accident    1,000,000                  
  Bodily Injury by Disease                     
  Aggregate    1,000,000                  
  Bodily Injury by Disease                     
  Each Employee    1,000,000                  
  Repatriation Expenses                     
  Each Employee    250,000                  
  Aggregate    500,000                  
  Blanket Accident:                     
  Refer to policy for coverages and limits                     
  Refer to policy for additional coverages, extensions and exclusions
  General Liability       Great Northern     Insurance Co.    35879559           04/01/15        04/01/16   
  Occurrence                     
  General Aggregate    2,000,000                  
  Products/Completed Oper. Aggr.    2,000,000                  
  Personal & Advertising Injury    1,000,000                  
  Each Occurrence    1,000,000                  
  Damage to Rented Premises    1,000,000                  
  Medical Expense (Any One Person)    10,000                  


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

    716-853-7960  
         

 

 

 

Employee Benefits Errors or            
Omissions (Claims Made)            
Each Claim Limit   1,000,000          
Aggregate Limit   1,000,000          
Deductible – each claim   1,000          
Retroactive Date: 04/01/10            
Refer to policy for additional coverages, extensions and exclusions     

 

Business Auto

    

 

Sentinel Ins Co Ltd

 

 

  01UENT09826

 

 

    04/01/15  

  

 

04/01/16

 

Liability – including Hired and Non-Owned Autos

           
Combined Single Limit   1,000,000          
Personal Injury Protection –   50,000          
Per Person Limit            
Additional Personal Injury   100,000          
Protection            
Medical Payments Each Person   10,000          
Supplementary Uninsured/   1,000,000          
Underinsured Motorists –            
Combined Single Limit            
Primary Hired Car Physical   50,000 or ACV          
Damage            
  Comprehensive Deductible   500          
  Collision Deductible   500          

 

Broad Form Auto endorsement

           

Refer to policy for all coverage extensions and exclusions

* See Attached Vehicle Schedule

 

  
Excess and Umbrella     

Federal

Insurance

Company

    79872747   04/01/15       04/01/16
Excess Coverage Other   10,000,000          
Aggregate Limit (as applicable)            
Umbrella Aggregate Limit   10,000,000          
Products Completed Operations   10,000,000          
Aggregate Limit            
Advertising Injury and Personal   10,000,000          
Injury Aggregate Limit            
Each Occurrence Limit   10,000,000          


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

    716-853-7960  
         

 

 

Refer to policy for exclusions

 

          
Excess Liability     St Paul Fire & Marine Ins. Co.   ZUP-10N83869-15-NF       04/01/15      04/01/16
Each Loss Limit   10,000,000         
Aggregate Limit   10,000,000         
Refer to policy for all exclusions           

 

Ocean Cargo

   

 

AGCS Marine Insurance

 

 

OC95186000

 

 

    04/01/15  

  

 

04/01/16

Any One Vessel or connecting conveyance or in any one place at any one time   500,000         
Any One Aircraft or connecting conveyance   500,000         
Any one metal barge or any one tow (other than as a connecting conveyance)   250,000         

 

Any one package shipped by government or private mail or parcel post or parcel delivery service

  5,000         
Deductible   1,000         
Refer to policy for all exclusions           

 

Workers Compensation

   

 

Great American Alliance Ins Co.

 

 

WC170896504

 

 

    05/01/15  

  

 

05/01/16

Named States: NY, TX, Ml Employer’s Liability

Each Accident

  1,000,000         
Disease Policy Limit   1,000,000         
Disease Each Employee   1,000,000         

 

Deductible Limits:

Per Accident Limit (specific)

  250,000         
Allocated Loss Adjustment   Included         

Expense

Minimum Aggregate Limit

  752,000         

 

* See Attached Rating Information

          


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
         

 

 

 

Public Liability – Graham     Chubb Indemnity     93518932       10/03/14      10/03/15
Vacuum & Heat Transfer     Insurance Co.       
Technology           

 

Limit of Indemnity

 

 

1,000,000

        

 

Jurisdiction: within the territory of P.R. China only

 

    

Errors & Omissions

Liability

    Hudson Ins. Co.     ELP212429       04/21/15    04/21/16

 

Limit - each glitch

 

 

1,000,000

        

 

Limit – aggregate

 

 

1,000,000

        

 

Retention – each glitch

 

Retroactive date: 04/21/2014

 

 

50,000

        

 

Contract specific

endorsement: Contract 0009- CON-GRM-36-62-0001 dated 8/2/2013 with Abeinsa Abener Teyma General Partnership.

 

Purchase Order NG-OEC-019 dated 3/16/15 with Orascom E&C USA, Inc.

          


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
 

Business Automobile - Vehicle Schedule    Policy No. 01UENTO9826

 

 
         

 

 

001   2002   Mitsubishi   Forklift   AF33A50013   Batavia, NY    7996   X      
002   1973   Trojan   Forklift   201039   Batavia, NY    7996   X      
003   1979   Caterpillar   Forklift   87M02297   Batavia, NY    7996   X      
004   2008   Chev   2500   1GCHC24K68E123351   Batavia, NY    03499   X     500   500
005   2006   Chev   Silverado   1GCHK24U86E126950   Lapeer, M    01499   X     500   500
006   1995   Ford   F700   1FDNF70J6SVA82906   Lapeer, Ml    31499   X      
007   2001   Ford   Super Duty   1FDXE45S01HA47853   Lapeer, Ml    21499   X      
008   1996   Dodge   Pickup   1B7HF16Z7TS584662   Lapeer, Ml    01499   X      
009   2011   Linde   H80D   H2X396B00720   Batavia, NY    7996   X      
010   2012   Chev   Silverado   1GCNCPEX1CZ209484   Batavia, NY    03499   X     500   500
011   2012   Linde   Forklift   H2X396C01043   Batavia, NY    7996   X      
012   2012   Unde   Forklift   H2X394C02480   Batavia, NY    7996   X      
013   2012   Hyster   Forklift   L177V11121K   Batavia, NY    7996   X      
014   2012   Hyster   Forklift   L177V11122K   Batavia, NY    7996   X      


         
 

 

For:

 

 

Graham Corporation

   

 

M & T Insurance Agency, Inc.

 
    Attn:  Jeffrey Glajch     285 Delaware Avenue, Ste 4000  
    20 Florence Avenue     Buffalo, NY 14202  
   

Batavia, NY 14020

 

   

716-853-7960

 

 
 

Workers Compensation - Rating            Policy No. WC170896503

Information

 

 
         

 

 

20 Florence Ave.   3632        Machine Shop NOC      11,510,000           5.02     
Batavia, NY                   
  8742        Salespersons - outside      573,100           .49     
  8809        Executive Officers NOC      395,200           .24     
  8810        Clerical Office Employees NOC      9,425,000           .23     
                  
16630 Imperial Valley Dr.   8742        Salespersons - outside      602,200           .41     
Houston, TX                   
  8810        Clerical Office Employees NOC      50,000           .25     
                  
3123 John Conley Dr.   8810        Clerical Office Employees NOC      1,947,800           .16     
Lapeer, Ml                   
  7215        Iron or Steel Merchant - drivers      37,100           13.54     
  4511        Analytical Laboratories - Research      455,700           .55     
  3365        Welding or Cutting NOC      614,100           5.80     
  3632        Machine Shop NOC      198,400           4.04     
  8742        Salesperson-outside      474,600           .34     

 

 

THIS SUMMARY IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS TO THE INSURED. THIS SUMMARY DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES. IT IS STRONGLY RECOMMENDED THAT EACH POLICY BE THOROUGHLY REVIEWED.

 

 

Account Executive

 

   Kevin Weber    716-651-4253

Client Service Consultant

 

   Linda Sim    716-651-4243

Assistant Account Manager

 

   Erin Walls    716-651-4219

Claims Representative

 

   Jessica Stankiewicz    716-651-4270

Claims Manager

 

   Marlene Szretter    716-651-4249

Commercial Lines Manager

 

   Ruth Gustafson-Hare    716-651-4216


SUMMARY OF INSURANCE

 

  

Prepared:    10/23/15                   Page 1

 

For:   Graham Corporation    M & T Insurance Agency, Inc.
    20 Florence Avenue    285 Delaware Avenue, Suite 4000
   

Batavia, NY 14020

585-343-2216

  

Buffalo, NY 14202

800-716-8314

Coverage   Amount   Company   Policy No   Eff   Exp     
                           

 

Directors and Officers Liability

        Illinois National Insurance   Company (Chartis)           01-137-47-11             04/01/15       04/01/16      

Claims Made

                       
                     

Named Insured:

                       

Graham Corporation

                   
                         

Aggregate Limit of Liability

  $15,000,000                
                         

Directors and Officers Liability Deductibles:

                   

Non-Indemnified

    $5,000/$50,000                      

Indemnified

  $125,000                

Security Claims (Entity)

  $500,000                    

Aggregate Tie In Limit of Liability to EPL Policy #02-778-27-59 and Fiduciary Policy #01-137-72-43

                   
                         

A-Side Directors and Officers Liability

      Federal Insurance Company (Chubb)   8223-5692   04/01/15   04/01/16      
                         

Claims Made

                   
                         

Named Insured:

                   

Graham Corporation

                       
                     

Aggregate Limit of Liability

  $10,000,000                    
                     

Employment Practices Liability

      National Union Fire Insurance Company of Pittsburgh, PA (Chartis)   01-137-74-16   04/01/15   04/01/16      
                     

Claims Made

                       
                     

Named Insured:

                       

Graham Corporation

                   
                         

Aggregate Tie In Limit of Liability Under the Directors and Officers Liability Policy #01-137-47-11

  $5,000,000                
                         

Employment Practices Liability Deductible

  $75,000                
                         

Fiduciary Liability

      Illinois National Insurance Company (Chartis)   01-137-72-43   04/01/15   04/01/16      
                         

Claims Made

                   
                         

Named Insured:

                   

Graham Corporation

                       
                     

Aggregate Tie In Limit of Liability Under the Directors and Officers Liability Policy #01-137-47-11

  $5,000,000                    
                     

Fiduciary Liability Deductible

  $100,000                    
                         


Voluntary Compliance Loss Sublimit

   $250,000                        

Section 502(c) Penalties Sublimit

   $250,000                        

Pension Protection Act Penalties Sublimit

   $250,000                        

HIPAA Penalties Sublimit

       $1,500,000                            

Healthcare Reform Penalties Sublimit

   $250,000                        

Section 4975 Penalties Sublimit

   $250,000                        

Pension Crisis Fund Sublimit

   $100,000                        
                              

Commercial Crime Coverage

              Federal Insurance             Company (Chubb)              8207-3264        09/01/15      09/01/16      
                              

Named Insured:

                            

Graham Corporation and its Subsidiaries

                            
                              

Employee Theft Coverage

   $1,500,000                        

Deductible

   $10,000                        

Premises Coverage

   $1,000,000                        

Deductible

   $10,000                        

In Transit Coverage

   $1,000,000                        

Deductible

   $10,000                        

Forgery Coverage

   $1,000,000                        

Deductible

   $10,000                        

Computer Fraud Coverage

   $1,000,000                        

Deductible

   $10,000                        

Funds Transfer Fraud Coverage

   $1,000,000                        

Deductible

   $10,000                        

Money Orders & Counterfeit Fraud Coverage

   $50,000                        

Deductible

   $10,000                        

Credit Card Fraud Coverage

   $50,000                        

Deductible

   $10,000                        

Expense Coverage

   $250,000                        

Deductible

   $10,000                        

Telephone Fraud Coverage

   $100,000                        

Deductible

   $10,000                        

ERISA Coverage

   See Policy                        

Deductible

   $0                        
                              

Kidnap & Ransom Coverage

              Federal Insurance             Company (Chubb)          8211-5877    04/01/15      04/01/18      
                              

Named Insured:

                            

Graham Corporation

                            

Energy Steel & Supply Co.

                            

ES Acquisition, Corp.

                            

All Subsidiaries Covered By Endorsement

                            
                              

Kidnap/Ransom and Extortion Coverage

   $5,000,000                        

Delivery Coverage

   $5,000,000                        

Expense Coverage

   $5,000,000                        

Legal Liability Coverage

   $5,000,000                        

Political Threat and Wrongful Detention Coverage

   $5,000,000                        

Threat Response Expense Coverage

   $5,000,000                        

Business Income / 6 Hours

   $5,000,000                        

Deductible

   $0                        
                              

THIS SUMMARY IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE

INSURED. THIS SUMMARY DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE

POLICIES. IT IS STRONGLY RECOMMENDED THAT EACH POLICY BE THOROUGHLY REVIEWED.

 

  Account Executive:   Kevin Weber   716-651-4253    
  Account Manager:   Linda Sim   716-651-4243    
  Claims Manager:   Marlene Szretter   716-651-4249    
  Surety Manager:   Joe Riggie   716-651-4239    


SCHEDULE 3.15

Capitalization and Subsidiaries

Borrower:

Graham Corporation -- Delaware corporation

Common stock, par value $0.10 per share -- 10,138,983 shares outstanding to 148 holders of record (as of 5/22/15)

 

Subsidiaries:

Energy Steel & Supply Co. -- Michigan corporation

Common stock, no par value -- 9,000 shares of common stock outstanding owned by Graham Corporation

Graham Vacuum and Heat Transfer and Technology (Suzhou) Co., Ltd. -- limited liability company organized under the laws of the People’s Republic of China --

Wholly-owned by Graham Corporation -- equity interests are uncertificated

Inactive Subsidiary:

Graham Indonesia, Inc. -- Delaware corporation

Wholly-owned by Graham Corporation; to be dissolved


SCHEDULE 5.13

Existing Standby Letters of Credit

See following.


OUTSTANDING LETTERS OF CREDIT ISSUED BY BANK OF AMERICA, N.A.

 

        Issue Date                       Beneficiary  (abbreviated)                 Outstanding Amount ($)  
5/7/2012   GREAT AMERICAN INSUR   430,000.00
7/18/2012   FUJI ELECTRIC CORP.   17,851.30
1/7/2013   TOYO ENGINEERING KOR   37,200.00
3/26/2013   NUKLEARNA ELEKTRARNA   414,426.00
6/14/2013   DAELIM INDUSTRIAL CO   801,190.90
6/25/2013   DAELIM INDUSTRIAL CO   60,168.40
7/2/2013   TECNICAS REUNIDAS, S   427,516.90
10/31/2013   BANK OF AMERICA   115,339.30
3/27/2014   TR CANADA, INC.   584,910.00
5/2/2014   ABEINSA ABENER TEYMA   79,270.00
9/9/2014   UHDE SHEDDEN (AUSTRA   16,621.50
9/29/2014   SAMSUNG ENGINEERING   27,000.00
10/1/2014   TECNIMONT SPA   251,250.00
11/5/2014   QUANTA POWER GENERAT   142,950.00
2/10/2015   THYSSENKRUPP INDUSTR   72,130.70
2/10/2015   THYSSENKRUPP INDUSTR   39,757.60
3/2/2015   JGSK JOINT-VENTURE,   1,120,000.00
3/16/15   CNOOC ZHONGJIE PETROCHEMICAL CO.   110,500.00
4/29/15   THYSSENKRUPP INDUSTRIAL SOLUTIONS   74,397.70
5/29/2015   CNOOC OIL & PETROCHE   3,800.00
7/3/2015   THYSSENKRUPP INDUSTR   427,256.80
7/17/2015   PTT GLOBAL CHEMICAL   133,834.70
7/16/2015   TOYO U.S.A. INC.   677,400.00
7/28/2015   PEMEX PETROQUIMICA   31,698.70
7/28/2015   PEMEX PETROQUIMICA   237,740.25*
7/30/2015   MHI COMPRESSOR INTER   423,187.70
8/4/2015   THYSSENKRUPP INDUSTR   177,568.00
9/3/2015   ORASCOM E & C USA IN   5,489.10
9/10/2015   MHI COMPRESSOR INTER   504,655.40
9/30/2015   SK ENGINEERING & CON   636,367.20
10/27/2015   HYUNDAI ENGINEERING   92,500.00
10/27/2015   HYUNDAI ENGINEERING   92,500.00
11/6/2105   SAMSUNG ENGINEERING   246,537.00
11/13/2015   ENAP REFINERIAS S.A.   212,500.00
11/13/2015   ENAP REFINERIAS S.A.   217,840.00

*  The face amount of this letter of credit on the Closing Date is $79,246.75. This letter of credit will be amended shortly after or contemporaneously with the Closing Date to reflect the face amount listed in the Schedule.


Outstanding standby DCs | HSBCnet

 

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Pending standby DCs        

 

          Outstanding         standby DCs           

    Outstanding

    standby DC claims

 

  Standby DC account information    Outstanding standby DCs    Outstanding standby DCs summary      

Help

 

 

 

 

Location / Institution

  United States - HSBC Bank USA NA

Account

  GRAHAM CORPORATION IMP 504-082801-750

Category

  Outstanding standby DCs

Currency subtotals

  USD              1,257,322.42    @    1.0000000

Total (LCY)

  USD              1,257,322.42

Please note that the above exchange rate is for Indication only.

 

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Outstanding standby DCs GRAHAM CORPORATION IMP 504-082801-750  

Standby DC

number

  Beneficiary name   CCY   

Outstanding    

amount    

   Expiry date (dd/mm/yyyy)   Status    

 

SDCMTN567144

 

 

HSBC BANK PLC SUCURSAL EN ESPANA.

 

USD

  

96,092.80

  

04/01/2017

 

Issued

 

SDCMTN567149

 

HSBC BANK PLC SUCURSAL EN ESPANA.

 

USD

  

854,998.00

  

15/06/2016

 

Issued

 

SDCMTN567210

 

HSBC BANK PLC

 

USD

  

213,749.50

  

26/05/2019

 

Issued

 

SDCMTN567498

 

HSBC BANK PLC

 

USD

  

7,889.00

  

30/01/2019

 

Issued

 

SDCMTN567569

 

FACILITY USE ONLY

 

USD

  

0.01

  

31/12/2015

 

Issued

 

SDCMTN567587

 

HSBC BANK PLC

 

USD

  

1,472.56

  

04/01/2017

 

Issued

 

SDCMTN567589

 

HSBC BANK PLC

 

USD

  

12,985.76

  

03/12/2016

 

Issued

 

SDCMTN567591

 

HSBC BANK PLC

 

USD

  

8,287.29

  

24/11/2016

 

Issued

 

SDCMTN567709

 

HSBC BANK PLC

 

USD

  

61,847.50

  

23/03/2016

 

Issued

 

 Note:

 Issued = Action completed from bank

 Submitted = Application submitted to bank

 Am/In transit = Amendment in transit

 Am/Incomplete = Amendment incomplete

 Am/Pend check = Amendment pending check

 Am/Pend auth = Amendment pending authorisation

 Am/Pend 2nd = Amendment pending 2nd authorisation

 Am/Pend 3rd = Amendment pending 3rd authorisation

 Am/Pend repair = Amendment pending repair

 Am/Submitted = Amendment submitted to bank

 Can/In transit = Cancellation in transit

 Can/Pend check = Cancellation pending check

 Can/Pend auth = Cancellation pending authorisation

 Can/Pend 2nd = Cancellation pending 2nd authorisation

 Can/Pend 3rd = Cancellation pending 3rd authorisation

 Can/Submitted = Cancellation submitted to bank

 Can/Pend repair = Cancellation pending repair

 Can/Incomplete = Cancellation incomplete

 

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SCHEDULE 6.01

Existing Indebtedness

1.  Unsecured line of credit with HSBC, N.A. -- up to $5,000,000 in principal amount

$ 1,257,322.42 face amount of letters of credit outstanding as of Closing Date

2.  Existing Standby letters of credit listed on Schedule 5.13


SCHEDULE 6.02

Existing Liens

Cash collateralization of standby letters of credit issued by Bank of America, NA and listed on Schedule 5.13, at Bank of America Deposit Account Number 483037479292.


SCHEDULE 6.04

Existing Investments

See following list of certificates of deposit maintained with Bank of America, N.A., each of which has/had a maturity beyond 180 days after acquisition thereof.


         INVESTMENT             MATURITY/      
     AMOUNT     CALL DATE  

CD

     3,000,000.00           1/13/2016   

CD

     3,000,000.00           12/14/2015   

CD

     3,000,000.00           2/10/2016   

CD

     3,000,000.00           3/10/2016   

CD

     3,000,000.00           4/11/2016   

CD

     3,000,000.00           5/11/2016   

CD

     3,000,000.00           6/10/2016   

CD

     3,000,000.00           7/5/2016   

CD

     3,000,000.00           8/10/2016   

CD

     3,000,000.00           9/8/2016   

CD

     1,500,000.00           9/8/2016   

CD

     1,500,000.00           10/7/2016   

CD

     1,500,000.00           10/7/2016   

CD

     1,500,000.00           10/17/2016   

CD

     3,000,000.00           11/10/2016   
     39,000,000.00        


SCHEDULE 6.10

Existing Restrictions

None.

EXHIBIT 10.2

REVOLVING CREDIT NOTE

 

   Rochester, New York
December 2, 2015    $25,000,000.00

FOR VALUE RECEIVED, the undersigned (the “Borrower”), HEREBY PROMISES TO PAY to the order of JPMORGAN CHASE BANK, N.A. (“Lender”), at the Administrative Agent’s address at One Chase Square, 11th Floor, Rochester, NY 14643, or at such other place as Administrative Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of TWENTY FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00) or, if less, the aggregate unpaid amount of all Revolving Loans advanced to the Borrower by the Lender under the Credit Agreement (as hereinafter defined). Borrower further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full at the rate or rates from time to time applicable to the Revolving Loans as determined in accordance with the Credit Agreement. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement.

This Revolving Credit Note (this “Note”) is issued pursuant to that certain Credit Agreement dated as of December 2, 2015 by and among Graham Corporation, a Delaware corporation, JPMorgan Chase Bank, N.A., as Administrative Agent and as a Lender, and the other Lenders party thereto (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “Credit Agreement”), and the holder hereof is entitled to the benefit and security of the Credit Agreement and all of the other Loan Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which the Revolving Loans evidenced hereby are made and are to be repaid.

The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement, the terms of which are hereby incorporated herein by reference. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

Upon and during the continuance of any Event of Default, the entire principal amount of this Note, together with all accrued interest thereon, may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.

 

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Time is of the essence of this Note. Except for such notices as may be required under the terms of the Credit Agreement, the Borrower waives, to the extent permitted by applicable law, presentment, demand, notice, protest and all other demands, or notices, in connection with the delivery, acceptance, performance, default, or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence. Borrower further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including attorneys’ fees and legal expenses, incurred by Lender in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provisions of this Note shall be prohibited by or invalid under applicable law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. Whenever in this Note reference is made to Administrative Agent, Lender or Borrower, such reference shall be deemed to include, as applicable, a reference to their respective permitted successors and assigns and in the case of Lender, any financial institution to which it has sold or assigned all or any part of its interest in the Revolving Loans or in its commitment to make the Revolving Loans as permitted by the Credit Agreement. The provisions of this Note shall be binding upon and inure to the benefit of such successors and assigns, except that Borrower may not assign its rights or obligations. Borrower’s successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrower.

[signature page attached]

 

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This Revolving Credit Note has been executed by the undersigned as of the date first referenced above.

 

 

GRAHAM CORPORATION
By: /s/ Jeffrey Glajch
Name:   Jeffrey Glajch
Title:   Chief Financial Officer

 

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EXHIBIT 10.3

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT (as it may be amended, restated, supplemented or otherwise modified from time to time, this “Security Agreement”) is entered into as of December 2, 2015 by and among Graham Corporation, a Delaware corporation (the “Borrower”), Energy Steel & Supply Co., a Michigan corporation (“ESSC”), and any additional entities which become parties to this Security Agreement by executing a Security Agreement Supplement in substantially the form of Annex I hereto (such additional entities, together with the Borrower and ESSC, each a “Grantor”, and collectively, the “Grantors”), and JPMorgan Chase Bank, N.A., in its capacity as administrative agent (the “Administrative Agent”) for itself and for the Lenders party to the Credit Agreement referred to below, (each a “Secured Party”, and collectively, the “Secured Parties”).

PRELIMINARY STATEMENT

The Borrower, each Grantor as a Loan Guarantor, the Administrative Agent, the other Loan Parties, and the Lenders are entering into a Credit Agreement dated as of December 2, 2015 (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Each Grantor is entering into this Security Agreement in order to induce the Lenders to enter into and extend credit to the Borrower under the Credit Agreement and to secure the Secured Obligations that it has agreed to guarantee pursuant to Article X of the Credit Agreement.

ACCORDINGLY, the Grantors and the Administrative Agent on behalf of the Secured Parties, hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1.      Terms Defined in Credit Agreement.    All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

1.2.      Terms Defined in UCC.   Terms defined in the UCC which are not otherwise defined in this Security Agreement are used herein as defined in the UCC.

1.3.      Definitions of Certain Terms Used Herein.   As used in this Security Agreement, in addition to the terms defined in the first paragraph hereof and in the Preliminary Statement, the following terms shall have the following meanings:

Accounts” shall have the meaning set forth in Article 9 of the UCC.

Article” means a numbered article of this Security Agreement, unless another document is specifically referenced.

Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.

Closing Date” means the date of the Credit Agreement.

Collateral” shall have the meaning set forth in Article II.

Collateral Access Agreement” means any landlord waiver or other agreement, in form and substance satisfactory to the Administrative Agent, between the Administrative Agent and any third party (including any

 

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bailee, consignee, customs broker, or other similar Person) in possession of any Collateral or any landlord of any real property where any Collateral is located, as such landlord waiver or other agreement may be amended, restated, supplemented or otherwise modified from time to time.

Collateral Report” means any certificate, report or other document delivered by any Grantor to the Administrative Agent or any Lender with respect to the Collateral pursuant to any Loan Document.

Commercial Tort Claims” means the commercial tort claims as defined in Article 9 of the UCC, including each commercial tort claim specifically described on Exhibit H.

Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

Copyrights” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.

Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

Deposit Account Control Agreement” means an agreement, in form and substance satisfactory to the Administrative Agent, among any Loan Party, a banking institution holding such Loan Party’s funds, and the Administrative Agent with respect to collection and control of all deposits and balances held in a deposit account maintained by such Loan Party with such banking institution.

Deposit Accounts” shall have the meaning set forth in Article 9 of the UCC.

Documents” shall have the meaning set forth in Article 9 of the UCC.

Equipment” shall have the meaning set forth in Article 9 of the UCC.

Event of Default” means an event described in Section 5.1.

Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

Fixtures” shall have the meaning set forth in Article 9 of the UCC.

General Intangibles” shall have the meaning set forth in Article 9 of the UCC.

Goods” shall have the meaning set forth in Article 9 of the UCC.

Instruments” shall have the meaning set forth in Article 9 of the UCC.

Inventory” shall have the meaning set forth in Article 9 of the UCC.

Investment Property” shall have the meaning set forth in Article 9 of the UCC.

Lenders” means the lenders party to the Credit Agreement and their successors and assigns.

 

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Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of the UCC.

Licenses” means, with respect to any Person, all of such Person’s right, title, and interest in and to (a) any and all licensing agreements or similar arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.

“Loan Parties” means the Borrower and each Grantor who guarantees the Borrower’s obligations under the Credit Agreement.

Patents” means, with respect to any Person, all of such Person’s right, title, and interest in and to: (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.

Pledged Collateral” means all Instruments, Securities and other Investment Property of the Grantors, whether or not physically delivered to the Administrative Agent pursuant to this Security Agreement; provided, however, unless otherwise required by the Administrative Agent during existence of an Event of Default, the portion of Pledged Collateral constituting any Equity Interests of a Foreign Subsidiary shall be limited to sixty-six percent (66%) of the issued and outstanding Equity Interests of such Foreign Subsidiary.

Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments and any other rights or claims to receive money which are General Intangibles or which are otherwise included as Collateral.

Section” means a numbered section of this Security Agreement, unless another document is specifically referenced.

Secured Parties” shall have the meaning set forth in the Credit Agreement.

Security” shall have the meaning set forth in Article 8 of the UCC.

Security Agreement Supplement” shall mean any Security Agreement Supplement to this Security Agreement in substantially the form of Annex I hereto executed by an entity that becomes a Grantor under this Security Agreement after the date hereof.

Stock Rights” means all dividends, instruments or other distributions and any other right or property which the Grantors shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Equity Interest constituting Collateral, any right to receive an Equity Interest and any right to receive earnings, in which the Grantors now have or hereafter acquire any right, issued by an issuer of such Equity Interest.

Supporting Obligations” shall have the meaning set forth in Article 9 of the UCC.

Trademarks” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following: (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including,

 

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without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.

UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of New York or of any other state the laws of which are required as a result thereof to be applied in connection with the attachment, perfection or priority of, or remedies with respect to, Administrative Agent’s or any other Secured Party’s Lien on any Collateral.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II

GRANT OF SECURITY INTEREST

Each Grantor hereby pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Secured Parties, a security interest in all of its right, title and interest in, to and under all personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade name or derivations thereof), and whether owned or consigned by or to, or leased from or to, such Grantor, and regardless of where located (all of which will be collectively referred to as the “Collateral”), including:

 

  (i)

all Accounts;

 

  (ii)

all Chattel Paper;

 

  (iii)

all Copyrights, Patents and Trademarks;

 

  (iv)

all Documents;

 

  (v)

all Equipment;

 

  (vi)

all Fixtures;

 

  (vii)

all General Intangibles;

 

  (viii)

all Goods;

 

  (ix)

all Instruments;

 

  (x)

all Inventory;

 

  (xi)

all Investment Property;

 

  (xii)

all cash or cash equivalents;

 

  (xiii)

all letters of credit, Letter-of-Credit Rights and Supporting Obligations;

 

  (xiv)

all Deposit Accounts with any bank or other financial institution;

 

  (xv)

all Commercial Tort Claims; and

 

  (xvi)

all accessions to, substitutions for and replacements, proceeds (including Stock Rights), insurance proceeds and products of the foregoing, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto and any General Intangibles at any time evidencing or relating to any of the foregoing;

to secure the prompt and complete payment and performance of the Secured Obligations.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

Each Grantor represents and warrants, and each Grantor that becomes a party to this Security Agreement pursuant to the execution of a Security Agreement Supplement represents and warrants (after giving effect to supplements, if any, to each of the Exhibits hereto with respect to such Grantor as attached to such Security Agreement Supplement), to the Administrative Agent and the Secured Parties that:

3.1       Title, Authorization, Validity, Enforceability, Perfection and Priority.   Such Grantor has good and valid rights in or the power to transfer the Collateral and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1(e), and has full power and authority to grant to the Administrative Agent the security interest in the Collateral pursuant hereto. The execution and delivery by such Grantor of this Security Agreement has been duly authorized by proper corporate proceedings of such Grantor, and this Security Agreement constitutes a legal valid and binding obligation of such Grantor and creates a security interest which is enforceable against such Grantor in all Collateral it now owns or hereafter acquires, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. When financing statements have been filed in the appropriate offices against such Grantor in the locations listed on Exhibit G, the Administrative Agent will have a fully perfected first priority security interest in that Collateral of such Grantor in which a security interest may be perfected by filing, subject only to Liens permitted under Section 4.1(e).

3.2      Type and Jurisdiction of Organization, Organizational and Identification Numbers.   The type of entity of such Grantor, its state of organization, the organizational number issued to it by its state of organization and its federal employer identification number are set forth on Exhibit A.

3.3      Principal Location.  Such Grantor’s mailing address and the location of its place of business and of its chief executive office are disclosed in Exhibit A; such Grantor has no other places of business except those set forth in Exhibit A.

3.4      Collateral Locations.   All of such Grantor’s locations where Collateral is located are listed on Exhibit A. All of said locations are owned by such Grantor except for locations (i) which are leased by the Grantor as lessee and designated in Part VII(b) of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part VII(c) of Exhibit A.

3.5      Deposit Accounts.  All of such Grantor’s Deposit Accounts are listed on Exhibit B.

3.6      Exact Names.   Such Grantor’s name in which it has executed this Security Agreement is the exact name as it appears in such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization. Such Grantor has not, during the past five years, been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, or been a party to any acquisition.

3.7      Letter-of-Credit Rights and Chattel Paper.    Exhibit C lists all Letter-of-Credit Rights and Chattel Paper of such Grantor. All action by such Grantor necessary or desirable to protect and perfect the Administrative Agent’s Lien on each item listed on Exhibit C (including the delivery of all originals and the placement of a legend on all Chattel Paper as required hereunder) has been duly taken. The Administrative Agent will have a fully perfected first priority security interest in the Collateral listed on Exhibit C, subject only to Liens permitted under Section 4.1(e).

 

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3.8        Accounts and Chattel Paper.

(a)        The names of the obligors, amounts owing, due dates and other information with respect to its Accounts and Chattel Paper are and will be correctly stated in all records of such Grantor relating thereto and in all invoices and Collateral Reports with respect thereto furnished to the Administrative Agent by such Grantor from time to time. As of the time when each Account or each item of Chattel Paper arises, such Grantor shall be deemed to have represented and warranted that such Account or Chattel Paper, as the case may be, and all records relating thereto, are genuine and in all respects what they purport to be.

(b)        With respect to its Accounts, except as disclosed on the most recent Collateral Report, (i) all Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of such Grantor’s business and are not evidenced by a judgment, Instrument or Chattel Paper; and (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and such Grantor has not made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by such Grantor in the ordinary course of its business for prompt payment and disclosed to the Administrative Agent.

(c)        In addition, with respect to all of its Accounts, (i) the amounts shown on all Collateral Reports invoices and statements with respect thereto are actually and absolutely owing to such Grantor as indicated thereon and are not in any way contingent, and (ii) to such Grantor’s knowledge, all Account Debtors have the capacity to contract.

3.9        Inventory.  With respect to any of its Inventory scheduled or listed on the most recent Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of such Grantor’s locations set forth on Exhibit A, (b) no Inventory (other than Inventory in transit) is now, or shall at any time or times hereafter be stored at any other location except as permitted by Section 4.1(g), (c) such Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the security interest granted to the Administrative Agent hereunder, for the benefit of the Administrative Agent and Secured Parties, and Permitted Encumbrances, (d) except as may be disclosed in the most recent Collateral Report, such Inventory is of good and merchantable quality, free from any defects, (e) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party upon such sale or other disposition, and (f) such Inventory has been produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder.

3.10       Intellectual Property.    Such Grantor does not have any interest in, or title to, any Patent, registered Trademark or registered Copyright except as set forth in Exhibit D. This Security Agreement is effective to create a valid and continuing Lien and, upon filing of appropriate financing statements in the offices listed on Exhibit G and this Security Agreement, or any other similar security agreement relating to the Intellectual Property of any Grantor, with the United States Copyright Office and the United States Patent and Trademark Office, as applicable, fully perfected first priority security interests in favor of the Administrative Agent on such Grantor’s Patents, Trademarks and Copyrights, such perfected security interests are enforceable as such as against any and all creditors of and purchasers from such Grantor; and all action necessary or desirable to protect and perfect the Administrative Agent’s Lien on such Grantor’s Patents, Trademarks or Copyrights shall have been duly taken.

3.11       Filing Requirements.  None of its Equipment is covered by any certificate of title, except for the vehicles described in Part I of Exhibit E. None of the Collateral owned by it is of a type for which security interests or liens may be perfected by filing under any federal statute except for (a) the vehicles described in Part II of Exhibit E and (b) Patents, Trademarks and Copyrights held by such Grantor and described in Exhibit D.

3.12       No Financing Statements, Security Agreements.  No financing statement or security agreement describing all or any portion of the Collateral which has not lapsed or been terminated (by a filing authorized by

 

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the secured party in respect thereof) naming such Grantor as debtor has been filed or is of record in any jurisdiction except for financing statements or security agreements (a) naming the Administrative Agent on behalf of the Secured Parties as the secured party and (b) in respect to other Liens permitted under Section 6.02 of the Credit Agreement.

3.13      Pledged Collateral.

(a)        Exhibit F sets forth a complete and accurate list of all of the Pledged Collateral owned by such Grantor. Such Grantor is the direct, sole beneficial owner and sole holder of record of the Pledged Collateral listed on Exhibit F as being owned by it, free and clear of any Liens, except for the security interest granted to the Administrative Agent for the benefit of the Secured Parties hereunder and Permitted Encumbrances. Such Grantor further represents and warrants that (i) all Pledged Collateral owned by it constituting an Equity Interest has been (to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized, validly issued, are fully paid and non-assessable, (ii) with respect to any certificates delivered to the Administrative Agent representing an Equity Interest, either such certificates are Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, such Grantor has so informed the Administrative Agent so that the Administrative Agent may take steps to perfect its security interest therein as a General Intangible, (iii) all such Pledged Collateral held by a securities intermediary is covered by a control agreement among such Grantor, the securities intermediary and the Administrative Agent pursuant to which the Administrative Agent has Control, except as otherwise permitted under the Credit Agreement, and (iv) all Pledged Collateral which represents Indebtedness owed to such Grantor has been duly authorized, authenticated or issued and delivered by the issuer of such Indebtedness, is the legal, valid and binding obligation of such issuer and such issuer is not in default thereunder.

(b)        In addition, (i) none of the Pledged Collateral owned by it has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject, (ii) no options, warrants, calls or commitments of any character whatsoever (A) exist relating to such Pledged Collateral or (B) obligate the issuer of any Equity Interest included in the Pledged Collateral to issue additional Equity Interests, and (iii) no consent, approval, authorization, or other action by, and no giving of notice, filing with, any governmental authority or any other Person is required for the pledge by such Grantor of such Pledged Collateral pursuant to this Security Agreement or for the execution, delivery and performance of this Security Agreement by such Grantor, or for the exercise by the Administrative Agent of the voting or other rights provided for in this Security Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Security Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally.

(c)        Except as set forth in Exhibit F, such Grantor owns 100% of the issued and outstanding Equity Interests which constitute Pledged Collateral owned by it and none of the Pledged Collateral which represents Indebtedness owed to such Grantor is subordinated in right of payment to other Indebtedness or subject to the terms of an indenture.

ARTICLE IV

COVENANTS

From the date of this Security Agreement and thereafter until this Security Agreement is terminated pursuant to the terms hereof, each Grantor party hereto as of the date hereof agrees, and from and after the effective date of any Security Agreement Supplement applicable to any Grantor (and after giving effect to supplements, if any, to each of the Exhibits hereto with respect to such subsequent Grantor as attached to such Security Agreement Supplement) and thereafter until this Security Agreement is terminated pursuant to the terms hereof, each such additional Grantor agrees that:

 

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4.1.       General.

(a)        Collateral Records.    Such Grantor will maintain complete and accurate books and records with respect to the Collateral owned by it, and furnish to the Administrative Agent with sufficient copies for each of the Lenders, such reports relating to such Collateral as the Administrative Agent shall from time to time request.

(b)        Authorization to File Financing Statements; Ratification.    Such Grantor hereby authorizes the Administrative Agent to file, and if requested will deliver to the Administrative Agent, all financing statements and other documents and take such other actions as may from time to time be requested by the Administrative Agent in order to maintain a first perfected security interest in and, if applicable, Control of, the Collateral owned by such Grantor. Any financing statement filed by the Administrative Agent may be filed in any filing office in any UCC jurisdiction and may (i) indicate such Grantor’s Collateral (1) as all assets of the Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) by any other description which reasonably approximates the description contained in this Security Agreement, and (ii) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor, and (B) in the case of a financing statement filed as a fixture filing or indicating such Grantor’s Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Such Grantor also agrees to furnish any such information described in the foregoing sentence to the Administrative Agent promptly upon request. Such Grantor also ratifies its authorization for the Administrative Agent to have filed in any UCC jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

(c)        Further Assurances.   Such Grantor will, if so requested by the Administrative Agent, furnish to the Administrative Agent, as often as the Administrative Agent requests, statements and schedules further identifying and describing the Collateral owned by it and such other reports and information in connection with its Collateral as the Administrative Agent may reasonably request, all in such detail as the Administrative Agent may specify. Such Grantor also agrees to take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Administrative Agent in its Collateral and the priority thereof against any Lien not expressly permitted hereunder.

(d)        Disposition of Collateral.  Such Grantor will not sell, lease or otherwise dispose of the Collateral except for dispositions specifically permitted pursuant to Section 6.05 of the Credit Agreement.

(e)        Liens.  Such Grantor will not create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, and (ii) other Liens permitted under Section 6.02 of the Credit Agreement.

(f)        Other Financing Statements.  Such Grantor will not authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral owned by it, except for financing statements (i) naming the Administrative Agent on behalf of the Secured Parties as the secured party, and (ii) in respect to other Liens permitted under Section 6.02 of the Credit Agreement. Such Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming any of the Secured Parties as secured party without the prior written consent of the Administrative Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the UCC.

(g)        Locations.  Such Grantor will not (i) maintain any Collateral owned by it at any location other than those locations listed on Exhibit A or disclosed to Administrative Agent pursuant to clause (ii) of this Section, (ii) otherwise change, or add to, such locations without the Administrative Agent’s prior written consent as required by the Credit Agreement, such consent not to be unreasonably withheld or delayed (and if the Administrative Agent gives such consent, such Grantor will concurrently therewith obtain a Collateral Access Agreement for each such location to the extent required by the Credit Agreement), or (iii) change its principal place of business or chief executive office from the location identified on Exhibit A, other than as permitted by the Credit Agreement.

 

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(h)        Compliance with Terms.  Such Grantor will perform and comply with all obligations in respect of the Collateral owned by it and all agreements to which it is a party or by which it is bound relating to such Collateral.

4.2.       Receivables.

(a)        Certain Agreements on Receivables.  Such Grantor will not make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof, except that, prior to the occurrence of an Event of Default, such Grantor may reduce the amount of Accounts arising from the sale of Inventory in accordance with its present policies and in the ordinary course of business.

(b)        Collection of Receivables.   Except as otherwise provided in this Security Agreement, such Grantor will collect and enforce, at such Grantor’s sole expense, all amounts due or hereafter due to such Grantor under the Receivables owned by it.

(c)        Delivery of Invoices.     Such Grantor will deliver to the Administrative Agent immediately upon its request after the occurrence and during the continuation of an Event of Default duplicate invoices with respect to each Account owned by it bearing such language of assignment as the Administrative Agent shall specify.

(d)        Disclosure of Counterclaims on Receivables.   If (i) any material discount, credit or agreement to make a rebate or to otherwise reduce the amount owing on any material Receivable owned by such Grantor exists or (ii) if, to the knowledge of such Grantor, any material dispute, setoff, claim, counterclaim or defense exists or has been asserted or threatened with respect to any such material Receivable, such Grantor will promptly disclose such fact to the Administrative Agent in writing. Such Grantor shall report each credit memorandum and each of the facts required to be disclosed to the Administrative Agent in accordance with this Section 4.2(d) on a Collateral Report submitted by it to the Administrative Agent concurrently with the certificate to be delivered to the Administrative Agent pursuant to Section 5.01(d) of the Credit Agreement.

(e)        Electronic Chattel Paper.   Such Grantor shall take all steps necessary to grant the Administrative Agent Control of all electronic chattel paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

4.3.       Inventory and Equipment.

(a)        Maintenance of Goods.  Such Grantor will do all things necessary to maintain, preserve, protect and keep its Inventory and the Equipment in good repair and working and saleable condition, except for damaged or defective goods arising in the ordinary course of such Grantor’s business and except for ordinary wear and tear in respect of the Equipment.

(b)        Returned Inventory.  In the event any Account Debtor returns Inventory to such Grantor when an Event of Default exists, such Grantor, upon the request of the Administrative Agent, shall: (i) hold the returned Inventory in trust for the Administrative Agent; (ii) segregate all returned Inventory from all of its other property; (iii) dispose of the returned Inventory solely according to the Administrative Agent’s written instructions; and (iv) not issue any credits or allowances with respect thereto without the Administrative Agent’s prior written consent. All returned Inventory shall be subject to the Administrative Agent’s Liens thereon.

 

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(c)        Inventory Count; Perpetual Inventory System.   Such Grantor will conduct a physical count of its Inventory at least once per fiscal year, and after and during the continuation of an Event of Default, at such other times as the Administrative Agent requests. Such Grantor, at its own expense, shall deliver to the Administrative Agent the results of each physical verification, which such Grantor has made, or has caused any other Person to make on its behalf, of all or any portion of its Inventory. Such Grantor will maintain a perpetual inventory reporting system at all times.

(d)        Equipment.   Such Grantor shall not permit any Equipment to become a fixture with respect to real property or to become an accession with respect to other personal property with respect to which real or personal property the Administrative Agent does not have a Lien. Such Grantor will not, without the Administrative Agent’s prior written consent, alter or remove any identifying symbol or number on any of such Grantor’s Equipment constituting Collateral.

(e)        Titled Vehicles.    Such Grantor will give the Administrative Agent notice of its acquisition of any vehicle covered by a certificate of title and deliver to the Administrative Agent, upon request, the original of any vehicle title certificate and provide and/or file all other documents or instruments necessary to have the Lien of the Administrative Agent noted on any such certificate or with the appropriate state office.

4.4.       Delivery of Instruments, Securities, Chattel Paper and Documents.    Such Grantor will (a) deliver to the Administrative Agent immediately upon execution of this Security Agreement the originals of all Chattel Paper, Securities and Instruments constituting Collateral owned by it (if any then exist), (b) hold in trust for the Administrative Agent upon receipt and immediately thereafter deliver to the Administrative Agent any Chattel Paper, Securities and Instruments constituting Collateral, (c) upon the Administrative Agent’s request, deliver to the Administrative Agent (and thereafter hold in trust for the Administrative Agent upon receipt and immediately deliver to the Administrative Agent) any Document evidencing or constituting Collateral.

4.5.       Uncertificated Pledged Collateral.   Such Grantor will permit the Administrative Agent from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Pledged Collateral owned by it not represented by certificates to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Pledged Collateral not represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Administrative Agent granted pursuant to this Security Agreement. With respect to any Pledged Collateral owned by it, such Grantor will take any actions necessary to cause (a) the issuers of uncertificated securities which are Pledged Collateral and (b) any securities intermediary which is the holder of any such Pledged Collateral, to cause the Administrative Agent to have and retain Control over such Pledged Collateral. Without limiting the foregoing, such Grantor will, with respect to any such Pledged Collateral held with a securities intermediary, cause such securities intermediary to enter into a control agreement with the Administrative Agent, in form and substance satisfactory to the Administrative Agent, giving the Administrative Agent Control.

4.6.       Pledged Collateral.

(a)        Changes in Capital Structure of Issuers.  Such Grantor will not (i) permit or suffer any issuer of an Equity Interest constituting Pledged Collateral owned by it to dissolve, merge, liquidate, retire any of its Equity Interests or other Instruments or Securities evidencing ownership, reduce its capital, sell or encumber all or substantially all of its assets (except for Permitted Encumbrances and sales of assets permitted pursuant to Section 4.1(d)) or merge or consolidate with any other entity (except as permitted under the Credit Agreement), or (ii) vote any such Pledged Collateral in favor of any of the foregoing.

(b)        Issuance of Additional Securities.  Such Grantor will not permit or suffer the issuer of an Equity Interest constituting Pledged Collateral owned by it to issue additional Equity Interests, any right to receive the same or any right to receive earnings, except to such Grantor.

 

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(c)        Registration of Pledged Collateral.  Such Grantor will permit any registerable Pledged Collateral to be registered in the name of the Administrative Agent or its nominee at any time at the option of the Required Lenders.

(d)        Exercise of Rights in Pledged Collateral.

(i)       Without in any way limiting the foregoing and subject to clause (ii) below, such Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral owned by it for all purposes not inconsistent with this Security Agreement, the Credit Agreement or any other Loan Document; provided however, that no vote or other right shall be exercised or action taken which would have the effect of impairing the rights of the Administrative Agent in respect of such Pledged Collateral.

(ii)      Such Grantor will permit the Administrative Agent or its nominee at any time after the occurrence of an Event of Default, without notice, to exercise all voting rights or other rights relating to the Pledged Collateral owned by it, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interest or Investment Property constituting Pledged Collateral as if it were the absolute owner thereof.

(iii)     Such Grantor shall be entitled to collect and receive for its own use all cash dividends and interest paid in respect of the Pledged Collateral owned by it to the extent not in violation of the Credit Agreement other than any of the following distributions and payments (collectively referred to as the “Excluded Payments”): (A) dividends and interest paid or payable other than in cash in respect of such Pledged Collateral, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral; (B) dividends and other distributions paid or payable in cash in respect of such Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in capital of an issuer; and (C) cash paid, payable or otherwise distributed, in respect of principal of, or in redemption of, or in exchange for, such Pledged Collateral; provided however, that until actually paid, all rights to such distributions shall remain subject to the Lien created by this Security Agreement; and

(iv)     All Excluded Payments and all other distributions in respect of any of the Pledged Collateral owned by such Grantor, whenever paid or made, shall be delivered to the Administrative Agent to hold as Pledged Collateral and shall, if received by such Grantor, be received in trust for the benefit of the Administrative Agent, be segregated from the other property or funds of such Grantor, and be forthwith delivered to the Administrative Agent as Pledged Collateral in the same form as so received (with any necessary endorsement).

4.7.       Intellectual Property.

(a)        Such Grantor will use its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or benefit of the Administrative Agent of any License held by such Grantor and to enforce the security interests granted hereunder.

(b)        Such Grantor shall notify the Administrative Agent immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding such Grantor’s ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.

 

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(c)        In the event that any Grantor, either directly or through any agent, employee, licensee or designee, shall file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency, such Grantor shall (i) provide prompt written notice to the Administrative Agent regarding such filing and (ii) execute and deliver any and all security agreements as the Administrative Agent may request to evidence the Administrative Agent’s first priority security interest on such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.

(d)        Such Grantor shall take all actions necessary or requested by the Administrative Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of its Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless such Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of such Grantor’s business.

(e)        Such Grantor shall, unless it shall reasonably determine that such Patent, Trademark or Copyright is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as the Administrative Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright. In the event that such Grantor institutes suit because any of its Patents, Trademarks or Copyrights constituting Collateral is infringed upon, or misappropriated or diluted by a third party, such Grantor shall comply with Section 4.8.

4.8        Commercial Tort Claims.  Such Grantor shall promptly, and in any event within two Business Days after the same is acquired by it, notify the Administrative Agent of any commercial tort claim (as defined in the UCC) acquired by it and, unless the Administrative Agent otherwise consents, such Grantor shall enter into an amendment to this Security Agreement, in the form of Exhibit I hereto, granting to Administrative Agent a first priority security interest in such commercial tort claim.

4.9.       Letter-of-Credit Rights.  If such Grantor is or becomes the beneficiary of a letter of credit, it shall promptly, and in any event within two (2) Business Days after becoming a beneficiary, notify the Administrative Agent thereof and cause the issuer and/or confirmation bank to (i) consent to the assignment of any Letter-of-Credit Rights to the Administrative Agent and (ii) agree to direct all payments thereunder to a Deposit Account at the Administrative Agent or subject to a Deposit Account Control Agreement for application to the Secured Obligations, in accordance with Section 2.18 of the Credit Agreement, all in form and substance reasonably satisfactory to the Administrative Agent.

4.10.     Federal, State or Municipal Claims.   Such Grantor will promptly notify the Administrative Agent of any Collateral which constitutes a claim against the United States government or any state or local government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal, state or municipal law.

4.11.     No Interference.  Such Grantor agrees that it will not interfere with any right, power and remedy of the Administrative Agent provided for in this Security Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Administrative Agent of any one or more of such rights, powers or remedies.

4.12.     Insurance.  (a)    All insurance policies required hereunder and under Section 5.10 of the Credit Agreement shall name the Administrative Agent (for the benefit of the Administrative Agent and the Secured Parties) as an additional insured or as lender’s loss payee, as applicable, and shall contain lender loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Administrative Agent, which provide that: (i) all proceeds thereunder with respect to any Collateral shall be payable to the Administrative Agent; (ii) no such insurance shall be affected by any act or neglect of the insured or owner of

 

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the property described in such policy; and (iii) such policy and lender loss payable or mortgagee clauses may be canceled, amended, or terminated only upon at least thirty (30) days prior written notice given to the Administrative Agent.

(b)        All premiums on any such insurance shall be paid when due by such Grantor, and copies of the policies delivered to the Administrative Agent. If such Grantor fails to obtain or maintain any insurance as required by this Section, the Administrative Agent may obtain such insurance at the Borrower’s expense. By purchasing such insurance, the Administrative Agent shall not be deemed to have waived any Default arising from the Grantor’s failure to maintain such insurance or pay any premiums therefor.

4.13.     Collateral Access Agreements.    Such Grantor shall use commercially reasonable efforts to obtain a Collateral Access Agreement from the lessor of each leased property, mortgagee of owned property or bailee or consignee with respect to any warehouse, processor or converter facility or other location where Collateral is stored or located, which agreement or letter shall provide access rights, contain a waiver or subordination of all Liens or claims that the landlord, mortgagee, bailee or consignee may assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to the Administrative Agent.

4.14.     Deposit Account Control Agreements.  Such Grantor will provide to the Administrative Agent upon the Administrative Agent’s request, a Deposit Account Control Agreement duly executed on behalf of each financial institution holding a deposit account of such Grantor as set forth in this Security Agreement.

4.15.     Change of Name or Location; Change of Fiscal Year.  Such Grantor shall not (a) change its name as it appears in official filings in the state of its incorporation or organization, (b) change its chief executive office, principal place of business, mailing address, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral as set forth in this Security Agreement, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its state of incorporation or other organization, or (e) change its state of incorporation or organization, in each case, unless the Administrative Agent shall have received at least thirty (30) days prior written notice of such change and the Administrative Agent shall have acknowledged in writing that either (1) such change will not adversely affect the validity, perfection or priority of the Administrative Agent’s security interest in the Collateral, or (2) any reasonable action requested by the Administrative Agent in connection therewith has been completed or taken (including any action to continue the perfection of any Liens in favor of the Administrative Agent, on behalf of the Secured Parties, in any Collateral), provided that, any new location shall be in the continental U.S. Such Grantor shall not change its fiscal year which currently ends on March 31.

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

5.1.       Events of Default.  The occurrence of any one or more of the following events shall constitute an Event of Default hereunder:

(a)        The occurrence of any “Event of Default” as defined in the Credit Agreement.

(b)        Any Equity Interest which is included within the Collateral shall at any time constitute a Security or the issuer of any such Equity Interest shall take any action to have such interests treated as a Security unless (i) all certificates or other documents constituting such Security have been delivered to the Administrative Agent and such Security is properly defined as such under Article 8 of the UCC of the applicable jurisdiction, whether as a result of actions by the issuer thereof or otherwise, or (ii) the Administrative Agent has entered into a control agreement with the issuer of such Security or with a securities intermediary relating to such Security and such Security is defined as such under Article 8 of the UCC of the applicable jurisdiction, whether as a result of actions by the issuer thereof or otherwise.

 

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5.2.  Remedies.

(a)        Upon the occurrence of an Event of Default, the Administrative Agent may, with the concurrence or at the direction of the Required Lenders, exercise any or all of the following rights and remedies:

(i)        those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan Document; provided that, this Section 5.2(a) shall not be understood to limit any rights or remedies available to the Administrative Agent and the other Secured Parties prior to an Event of Default;

(ii)       those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement;

(iii)      give notice of sole control or any other instruction under any Deposit Account Control Agreement or and other control agreement with any securities intermediary and take any action therein with respect to such Collateral;

(iv)      without notice (except as specifically provided in Section 8.1 or elsewhere herein), demand or advertisement of any kind to any Grantor or any other Person, enter the premises of any Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at any Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Administrative Agent may deem commercially reasonable; and

(v)       concurrently with written notice to the applicable Grantor, transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, exercise the voting and all other rights as a holder with respect thereto, to collect and receive all cash dividends, interest, principal and other distributions made thereon and to otherwise act with respect to the Pledged Collateral as though the Administrative Agent was the outright owner thereof.

(b)        The Administrative Agent, on behalf of the Secured Parties, may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

(c)        The Administrative Agent shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of the Administrative Agent and the other Secured Parties, the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption the Grantor hereby expressly releases.

(d)        Until the Administrative Agent is able to effect a sale, lease, or other disposition of Collateral, the Administrative Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by the Administrative Agent. The Administrative Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Administrative Agent’s remedies (for the benefit of the Administrative Agent and the other Secured Parties), with respect to such appointment without prior notice or hearing as to such appointment.

 

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(e)        If, after the Credit Agreement has terminated by its terms and all of the Obligations have been paid in full, there remain Swap Agreement Obligations outstanding, the Required Lenders may exercise the remedies provided in this Section 5.2 upon the occurrence of any event which would allow or require the termination or acceleration of any Swap Agreement Obligations pursuant to the terms of the Swap Agreement.

(f)        Notwithstanding the foregoing, neither the Administrative Agent nor any other Secured Party shall be required to (i) make any demand upon, or pursue or exhaust any of its rights or remedies against, any Grantor, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Secured Obligations or to pursue or exhaust any of its rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Secured Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.

(g)        Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (a) above. Each Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit any Grantor or the issuer of the Pledged Collateral to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if the applicable Grantor and the issuer would agree to do so.

5.3.       Grantor’s Obligations Upon Default. Upon the request of the Administrative Agent after the occurrence of a Default, each Grantor will:

(a)        assemble and make available to the Administrative Agent the Collateral and all books and records relating thereto at any place or places specified by the Administrative Agent, whether at a Grantor’s premises or elsewhere;

(b)        permit the Administrative Agent, by the Administrative Agent’s representatives and agents, to enter, occupy and use any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay the Grantor for such use and occupancy;

(c)        prepare and file, or cause an issuer of Pledged Collateral to prepare and file, with the Securities and Exchange Commission or any other applicable government agency, registration statements, a prospectus and such other documentation in connection with the Pledged Collateral as the Administrative Agent may request, all in form and substance satisfactory to the Administrative Agent, and furnish to the Administrative Agent, or cause an issuer of Pledged Collateral to furnish to the Administrative Agent, any information regarding the Pledged Collateral in such detail as the Administrative Agent may specify;

(d)        take, or cause an issuer of Pledged Collateral to take, any and all actions necessary to register or qualify the Pledged Collateral to enable the Administrative Agent to consummate a public sale or other disposition of the Pledged Collateral; and

(e)        at its own expense, cause the independent certified public accountants then engaged by each Grantor to prepare and deliver to the Administrative Agent and each Lender, at any time, and from time to

 

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time, promptly upon the Administrative Agent’s request, the following reports with respect to the applicable Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts.

5.4.       Grant of Intellectual Property License.  For the purpose of enabling the Administrative Agent to exercise the rights and remedies under this Article V at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby (a) grants to the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, license or sublicense any intellectual property rights now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof and (b) irrevocably agrees that the Administrative Agent may sell any of such Grantor’s Inventory directly to any person, including without limitation persons who have previously purchased the Grantor’s Inventory from such Grantor and in connection with any such sale or other enforcement of the Administrative Agent’s rights under this Security Agreement, may sell Inventory which bears any Trademark owned by or licensed to such Grantor and any Inventory that is covered by any Copyright owned by or licensed to such Grantor and the Administrative Agent may finish any work in process and affix any Trademark owned by or licensed to such Grantor and sell such Inventory as provided herein.

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

6.1.       Account Verification.    The Administrative Agent may at any time after the occurrence of an Event of Default, in the Administrative Agent’s own name, in the name of a nominee of the Administrative Agent, or in the name of any Grantor communicate (by mail, telephone, facsimile or otherwise) with the Account Debtors of any such Grantor, parties to contracts with any such Grantor and obligors in respect of Instruments of any such Grantor to verify with such Persons, to the Administrative Agent’s satisfaction, the existence, amount, terms of, and any other matter relating to, Accounts, Instruments, Chattel Paper, payment intangibles and/or other Receivables.

6.2.       Authorization for Administrative Agent to Take Certain Action.

(a)        Each Grantor irrevocably authorizes the Administrative Agent at any time and from time to time in the sole discretion of the Administrative Agent and appoints the Administrative Agent as its attorney-in-fact (A)(i) to endorse and collect any cash proceeds of the Collateral, (ii) to file any financing statement with respect to the Collateral and to file any other financing statement or amendment of a financing statement (which does not add new collateral or add a debtor) in such offices as the Administrative Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Administrative Agent’s security interest in the Collateral, (iii) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be necessary or advisable to give the Administrative Agent Control over such Pledged Collateral, (iv) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens that are permitted under Section 6.02 of the Credit Agreement), and (v) to do all other acts and things necessary to carry out this Security Agreement; and (B) after the occurrence and during the continuance of an Event of Default, (i) to contact Account Debtors for any reason, (ii) to demand payment or enforce payment of the Receivables in the name of the Administrative Agent or such Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (iii) to sign such Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of the Grantor, assignments and verifications of Receivables, (iv) to exercise all of such Grantor’s rights and remedies with respect to the collection of the Receivables and any other Collateral, (v) to settle, adjust, compromise, extend or renew the Receivables, (vi) to settle, adjust or compromise any legal proceedings brought to collect Receivables, (vii) to prepare, file and sign such Grantor’s name on a proof of claim in

 

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bankruptcy or similar document against any Account Debtor of such Grantor, (viii) to prepare, file and sign such Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, and (ix) to change the address for delivery of mail addressed to such Grantor to such address as the Administrative Agent may designate and to receive, open and dispose of all mail addressed to such Grantor; and such Grantor agrees to reimburse the Administrative Agent on demand for any payment made or any expense incurred by the Administrative Agent in connection with any of the foregoing; provided that, this authorization shall not relieve such Grantor of any of its obligations under this Security Agreement or under the Credit Agreement.

(b)        All acts of said attorney or designee are hereby ratified and approved. The powers conferred on the Administrative Agent, for the benefit of the Administrative Agent and Secured Parties, under this Section 6.2 are solely to protect the Administrative Agent’s interests in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers. The Administrative Agent agrees that, except for the powers granted in Section 6.2(a)(i)-(iv) and Section 6.2(a)(xiv), it shall not exercise any power or authority granted to it unless an Event of Default has occurred and is continuing.

6.3.       Proxy.   EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE ADMINISTRATIVE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) OF THE GRANTOR WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE ADMINISTRATIVE AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE OF A DEFAULT.

6.4.       Nature of Appointment; Limitation of Duty.    THE APPOINTMENT OF THE ADMINISTRATIVE AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 7.14. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NONE OF THE ADMINISTRATIVE AGENT, ANY LENDER, ANY OTHER SECURED PARTY, ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY OF THEIR OR THEIR AFFILIATES’ RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO SUCH PARTY’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

ARTICLE VII

GENERAL PROVISIONS

7.1       Waivers.  Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the

 

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extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to Grantors, addressed as set forth in Article IX, at least ten days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against the Administrative Agent or any Secured Party arising out of the repossession, retention or sale of the Collateral, except such as arise solely out of the gross negligence or willful misconduct of the Administrative Agent or such Secured Party as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Administrative Agent or any other Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

7.2.      Limitation on Administrative Agent’s and Secured Parties’ Duty with Respect to the Collateral. The Administrative Agent shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Administrative Agent and each other Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. Neither the Administrative Agent nor any other Secured Party shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Administrative Agent or such other Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Administrative Agent to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is commercially reasonable for the Administrative Agent (i) to fail to incur expenses deemed significant by the Administrative Agent to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as such Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Administrative Agent against risks of loss, collection or disposition of Collateral or to provide to the Administrative Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Administrative Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Administrative Agent in the collection or disposition of any of the Collateral. The Grantor acknowledges that the purpose of this Section 7.2 is to provide non-exhaustive indications of what actions or omissions by the Administrative Agent would be commercially reasonable in the Administrative Agent’s exercise of remedies against the Collateral and that other actions or omissions by the Administrative Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 7.2. Without limitation upon the foregoing, nothing contained in this Section 7.2 shall be construed to grant any rights to the Grantor or to impose any duties on the Administrative Agent that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 7.2.

 

18


7.3.      Compromises and Collection of Collateral.    The Grantors and the Administrative Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, each Grantor agrees that the Administrative Agent may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Administrative Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the Administrative Agent shall be commercially reasonable so long as the Administrative Agent acts in good faith based on information known to it at the time it takes any such action.

7.4.      Secured Party Performance of Debtor Obligations.  Without having any obligation to do so, the Administrative Agent may perform or pay any obligation which any Grantor has agreed to perform or pay in this Security Agreement and the Grantors shall reimburse the Administrative Agent for any amounts paid by the Administrative Agent pursuant to this Section 7.4. The Grantors’ obligation to reimburse the Administrative Agent pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

7.5       Specific Performance of Certain Covenants.  Each Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1(d), 4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 4.13, 4.14, 4.15, 5.3, or 7.7 will cause irreparable injury to the Administrative Agent and the other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Administrative Agent or the other Secured Parties to seek and obtain specific performance of other obligations of the Grantors contained in this Security Agreement, that the covenants of the Grantors contained in the Sections referred to in this Section 7.5 shall be specifically enforceable against the Grantors.

7.6.      Dispositions Not Authorized.  No Grantor is authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.1(d) and notwithstanding any course of dealing between any Grantor and the Administrative Agent or other conduct of the Administrative Agent, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.1(d)) shall be binding upon the Administrative Agent or the other Secured Parties unless such authorization is in writing signed by the Administrative Agent with the consent or at the direction of the Required Lenders.

7.7.      No Waiver; Amendments; Cumulative Remedies.  No failure or delay by the Administrative Agent or any other Secured Party in exercising any right or power under this Security Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the other Secured Parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Security Agreement or consent to any departure by the Grantor therefrom shall in any event be effective unless in writing signed by the Administrative Agent with the concurrence or at the direction of the Lenders required under Section 9.02 of the Credit Agreement and then only to the extent in such writing specifically set forth.

7.8.      Limitation by Law; Severability of Provisions.  All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable or not entitled to be recorded or registered, in whole or in part. Any provision in this Security Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction, and to this end the provisions of this Security Agreement are declared to be severable.

 

19


7.9       Reinstatement.   This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof (including a payment effected through exercise of a right of setoff), is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise (including pursuant to any settlement entered into by a Secured Party in its discretion), all as though such payment or performance had not been made. In the event that any payment, or any part thereof (including a payment effected through exercise of a right of setoff), is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

7.10.    Benefit of Agreement.  The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of the Grantors, the Administrative Agent and the other Secured Parties and their respective successors and assigns (including all persons who become bound as a debtor to this Security Agreement), except that no Grantor shall have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Administrative Agent. No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, hereunder.

7.11.    Survival of Representations.  All representations and warranties of the Grantors contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.

7.12.    Taxes and Expenses.  Any taxes (including income taxes) payable or ruled payable by Federal or State authority in respect of this Security Agreement shall be paid by the Grantors, together with interest and penalties, if any. The Grantors shall reimburse the Administrative Agent for any and all out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the Administrative Agent) paid or incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and, to the extent provided in the Credit Agreement in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by the Grantors in the performance of actions required pursuant to the terms hereof shall be borne solely by the Grantors.

7.13.    Headings.  The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

7.14.    Termination.  This Security Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Secured Obligations outstanding) until (i) the Credit Agreement has terminated pursuant to its express terms and (ii) all of the Secured Obligations have been paid and performed in full (or with respect to any outstanding Letters of Credit, a cash deposit has been delivered to the Administrative Agent as required by the Credit Agreement) and no commitments of the Administrative Agent or the Lenders which would give rise to any Secured Obligations are outstanding.

7.15.    Entire Agreement.  This Security Agreement and the other Loan Documents embody the entire agreement and understanding between the Grantors and the Administrative Agent relating to the Collateral and supersedes all prior agreements and understandings between the Grantors and the Administrative Agent relating to the Collateral.

 

20


7.16.    CHOICE OF LAW.    THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

7.17.    CONSENT TO JURISDICTION.      EACH GRANTOR HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY GRANTOR AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

7.18.    WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

7.19.    Indemnity.  Each Grantor hereby agrees to indemnify the Administrative Agent and the other Secured Parties, and their respective successors, assigns, agents and employees, from and against any and all liabilities, damages, penalties, suits, fees, costs, and expenses of any kind and nature (including, without limitation, all expenses of litigation or preparation therefor whether or not the Administrative Agent or any Secured Party is a party thereto) imposed on, incurred by or asserted against the Administrative Agent or the other Secured Parties, or their respective successors, assigns, agents and employees, in any way relating to or arising out of this Security Agreement, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease, possession, use, operation, condition, sale, return or other disposition of any Collateral (including, without limitation, latent and other defects, whether or not discoverable by the Administrative Agent or the other Secured Parties or any Grantor, and any claim for Patent, Trademark or Copyright infringement).

 

21


7.20.     Counterparts.  This Security Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Security Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page of this Security Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Security Agreement.

 

            7.21  

        Lien Absolute.  All rights of the Administrative Agent hereunder, and all obligations of the Grantors hereunder, shall be absolute and unconditional irrespective of:

(a)        any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations;

(b)        any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations;

(c)        any exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations;

(d)        the insolvency of any Person; or

(e)        any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Grantor.

 

            7.22  

       Release.  Each Grantor consents and agrees that the Administrative Agent may at any time, or from time to time, in its discretion:

(a)        renew, extend or change the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations; and

(b)        exchange, release and/or surrender all or any of the Collateral (including the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by the Administrative Agent in connection with all or any of the Secured Obligations; all in such manner and upon such terms as the Administrative Agent may deem proper, and without notice to or further assent from any Grantor, it being hereby agreed that each Grantor shall be and remain bound upon this Security Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Credit Agreement, or any other agreement governing any Secured Obligations.

ARTICLE VIII

NOTICES

8.1.       Sending Notices.  Any notice required or permitted to be given under this Security Agreement shall be sent in accordance with Section 9.01 of the Credit Agreement.

8.2.       Change in Address for Notices.    Each of the Grantors, the Administrative Agent and the Lenders may change the address for service of notice upon it by a notice in writing to the other parties.

 

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ARTICLE IX

THE ADMINISTRATIVE AGENT

JPMorgan Chase Bank, N.A. has been appointed Administrative Agent for the Lenders hereunder pursuant to Article VIII of the Credit Agreement. It is expressly understood and agreed by the parties to this Security Agreement that any authority conferred upon the Administrative Agent hereunder is subject to the terms of the delegation of authority made by the Lenders to the Administrative Agent pursuant to Article VIII of the Credit Agreement, and that the Administrative Agent has agreed to act (and any successor Administrative Agent shall act) as such hereunder only on the express conditions contained in such Article VIII. Any successor Administrative Agent appointed pursuant to Article VIII of the Credit Agreement shall be entitled to all the rights, interests and benefits of the Administrative Agent hereunder.

[Signature Page Follows]

 

23


IN WITNESS WHEREOF, the Grantors and the Administrative Agent have executed this Security Agreement as of the date first above written.

 

  

GRANTORS:

  

GRAHAM CORPORATION

  

By: /s/  Jeffrey Glajch

  

Name: Jeffrey Glajch

  

Title: Chief Financial Officer

  

ENERGY STEEL & SUPPLY CO.

  

By: /s/  Jeffrey Glajch

  

Name: Jeffrey Glajch

  

Title: Chief Financial Officer

  

ADMINISTRATIVE AGENT:

  

JPMORGAN CHASE BANK, N.A.,

  

By: /s/  Philip M. Hendrix

  

Name: Philip M. Hendrix

  

Title: Vice-President & Authorized Officer

 

24


EXHIBIT A

(See Sections 3.2, 3.3, 3.4, 3.9 and 8.1 of Security Agreement)

 

  

 NOTICE ADDRESS FOR ALL GRANTORS

  

GRAHAM CORPORATION.

  

20 Florence Avenue

  

Batavia, New York 14020

  

Attention: Jeffrey Glajch

  

Fax No: (585) 815-2003

INFORMATION AND COLLATERAL LOCATIONS OF GRAHAM CORPORATION

 

I.

Name of Grantor: Graham Corporation

 

II.

State of Incorporation or Organization: Delaware

 

III.

Type of Entity: Corporation

 

IV.

Organizational Number assigned by State of Incorporation or Organization: 2004194

 

V.

Federal Identification Number: 16-1194720

 

VI. Place of Business (if it has only one) or Chief Executive Office (if more than one place of business) and Mailing Address:

 

  

GRAHAM CORPORATION.

  

20 Florence Avenue

  

Batavia, New York 14020

  

Attention: Jeffrey Glajch

  

Fax No: (585) 815-2003

 

VII.

Locations of Collateral:

 

  (a)

Properties Owned by the Grantor:

ALL ADDRESSES IN BATAVIA, NEW YORK 14020:

16-24 Florence Avenue (manufacturing facility and office property)

6 Cedar Street (manufacturing facility)

4-12 Howard Street (manufacturing facility)

9-31 Howard Street (manufacturing facility)

33-37 Howard Street (manufacturing facility)

16 Howard Street (land)

2 Howard Street (land)

3 Howard Street (land)

19 Florence Avenue (land)

6 Florence Avenue (land)

623 E. Main Street (land)


60 Evans Street (land)

33 Harvester Avenue (land)

113 Harvester Avenue (land)

111 Harvester Avenue (land)

119 Harvester Avenue (land)

121 Harvester Avenue (land)

114-A Harvester Avenue (land)

114-B Harvester Avenue (land)

114-C Harvester Avenue (land)

 

  (b)

Properties Leased by the Grantor (Include Landlord’s Name):

None.

 

  (c)

Public Warehouses or other Locations pursuant to Bailment or Consignment Arrangements

(include name of Warehouse Operator or other Bailee or Consignee):

The Borrower has a consignment arrangement with the following company, located in the UK:

Kinder & Janes Ltd.

151 Marsland Road

Sale, Cheshire, UK M33 3WE


INFORMATION AND COLLATERAL LOCATIONS OF ENERGY STEEL & SUPPLY CO.

 

I. Name of Grantor: Energy Steel & Supply Co.

 

II. State of Incorporation or Organization: Michigan

 

III. Type of Entity: Corporation

 

IV. Organizational Number assigned by State of Incorporation or Organization: 256690

 

V. Federal Identification Number: 38-2451402

 

VI. Place of Business (if it has only one) or Chief Executive Office (if more than one place of business) and Mailing Address:

3123 John Conley Drive

Lapeer, MI 48446

Attention: Frank J. Helin, President

 

VII. Locations of Collateral:

 

  (a) Properties Owned by the Grantor:

None.

 

  (b) Properties Leased by the Grantor (Include Landlord’s Name):

3123 John Conley Drive

Lapeer, Michigan 48446

 

  (c) Public Warehouses or other Locations pursuant to Bailment or Consignment Arrangements

(include name of Warehouse Operator or other Bailee or Consignee):

None.

[NOTE: ADD ADDITIONAL INFORMATION PAGE FOR EACH GRANTOR]


EXHIBIT B

(See Section 3.5 of Security Agreement)

DEPOSIT ACCOUNTS

(see attached)


EXHIBIT C

(See Section 3.7 of Security Agreement)

LETTER-OF-CREDIT RIGHTS

None.

CHATTEL PAPER

None.


EXHIBIT D

(See Section 3.10 and 3.11 of Security Agreement)

INTELLECTUAL PROPERTY RIGHTS

PATENTS

 

Name of Grantor   Patent Description   Patent Number   Issue Date
Graham Corporation   Instantaneous Water Heater   7140378   11-28-2006
Graham Corporation   Apparatus For Removing Ammonia And Carbon Dioxide Gases From A Steam   5772709   06-30-1998

PATENT APPLICATIONS

None.

TRADEMARKS

 

Name of Grantor      Trademark  

Registration

Date

   Registration Number    Country
Graham Corporation      GRAHAM   11/18/1997   2,113,725   US
Graham Corporation      LOGO   12/23/1997   2,123,101   US
Graham Corporation      LOGO   11/20/2007   3,339,668   US
Graham Corporation      GRAHAM PRECISION PUMPS   7/7/1998   2,171,065   US
Graham Corporation     

GRAHAM VACUUM AND 

HEAT TRANSFER

  7/7/1998   2,171,070   US
Graham Corporation      HELIFLOW   4/8/2003   2,704,853   US
Graham Corporation      MICROMAX   6/17/2008   3,450,764   US
Graham Corporation      MICROMIX   11/18/1958   669,905   US
Graham Corporation      SEALCOOL   8/8/2000   2,375,893   US
Graham Corporation      ULTRAHEAT   10/23/2007   3,319,469   US
Graham Corporation      VACADEMICS   9/24/2002   2,626,331   US
Graham Corporation      VACWORKS   11/30/1999   2,296,884   US
Graham Corporation      G Logo   10/06/2006   004596011   CTM
Graham Corporation      GRAHAM   000486845   01/16/200   CTM
Graham Corporation      GRAHAM   004586467   11/27/2006   CTM
Graham Corporation      GRAHAM & DESIGN   000486852   3/3/1997   CTM
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 07)   5288202   4/14/2006   CN
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 37)   5288203   4/14/2006   CN
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 40)   5288204   4/14/2006   CN


Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 42)   5288205   4/14/2006   CN
Graham Corporation      GRAHAM ENGINEERING  & DESIGN   005290275   8/23/2007   CTM
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN   1502414   11/08/2006   IN
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 07)   992949   07/23/2007   MX
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 37)   971079   01/30/2007   MX
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 40)   971080   01/30/2007   MX
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 42)   971081   01/30/2007   MX
Graham Corporation      GRAHAM ENGINEERING  ANSWERS & DESIGN (Class 11)   848887   04/17/2007   MX
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 07)   5288206   04/14/2006   CN
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 37)   5288207   04/14/2006   CN
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 40)   5288208   04/14/2006   CN
Graham Corporation      GRAHAM VACUUM AND  HEAT TRANSFER & DESIGN (Class 42)   5288209   04/14/2006   CN
Graham Corporation      GVHT (Class 07)   5288210   04/14/2006   CN
Graham Corporation      GVHT (Class 37)   5288211   04/14/2006   CN
Graham Corporation      GVHT (Class 40)   5288186   04/14/2006   CN
Graham Corporation      GVHT (Class 42)   5288187   04/14/2006   CN
Graham Corporation      GVHT (Class 11)   5882574   02/01/2007   CN
Graham Corporation      HELIFLOW   736590   12/01/2003   BX
Graham Corporation      HELIFLOW   TMA169350   05/22/1970   CA
Graham Corporation      HELIFLOW   977506   07/27/1987   DE
Graham Corporation      HELIFLOW   226805   01/08/2003   IE
Graham Corporation      HELIFLOW   2320120   01/08/2003   UK
Graham Corporation      MICROMAX   TMA631,364   01/27/2005   CA
Graham Corporation      MICROMIX   TMA169351   05/22/1970   CA

TRADEMARK APPLICATIONS

None.


COPYRIGHTS

 

Name of Grantor    Copyright   Registration Date   Registration Number
Energy Steel & Supply Co.    The Duke of Nuke   1-9-1989   VA0000363219
              

COPYRIGHT APPLICATIONS

None.

INTELLECTUAL PROPERTY LICENSES

None.


EXHIBIT E

(See Section 3.11 of Security Agreement)

TITLE DOCUMENTS

I. Vehicles subject to certificates of title:

 

Name of Grantor   Description   Title Number   State Where Issued
Graham Corporation   Chevrolet 2500   1GCHC24K68E123351   New York
Graham Corporation   Chevrolet Silverado   1GCNCPEX1CZ209484   New York
Energy Steel & Supply Co.   Chevrolet Silverado   1GCHK24U86E126950   Michigan
Energy Steel & Supply Co.   Ford F700   1FDNF70J6SVA82906   Michigan
Energy Steel & Supply Co.   Ford Super Duty   1FDXE45S01HA47853   Michigan
Energy Steel & Supply Co.   Dodge Pickup   1B7HF16Z7TS584662   Michigan

II. Aircraft/engines/parts, ships, railcars and other vehicles governed by federal statute:

None.


EXHIBIT F

(See Section 3.13 of Security Agreement and Definition of “Pledged Collateral”)

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY

STOCKS

 

Name of Grantor    Issuer        Certificate    
Number(s)
         Number of      
Shares
   Class of Stock         Percentage of   
Outstanding
Shares
Graham Corporation    Energy Steel & Supply Co.    9    9,000    Common    100%
Graham Corporation    Graham Vacuum and Heat Transfer and Technology (Suzhou) Co., Ltd.                   66 2/3

BONDS

None.

GOVERNMENT SECURITIES

None.

OTHER SECURITIES OR OTHER INVESTMENT PROPERTY

(CERTIFICATED AND UNCERTIFICATED)

None.

[Add description of custody accounts or arrangements with securities intermediary, if applicable]


EXHIBIT G

(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

Graham Corporation: Secretary of State of Delaware

Energy Steel & Supply Co.: Secretary of State of Michigan


EXHIBIT H

(See Definition of “Commercial Tort Claim”)

COMMERCIAL TORT CLAIMS

{NOTE: SPECIFICALLY DESCRIBE THE CLAIM (I.E. PARTIES, DESCRIPTION OF THE DISPUTE, CASE NUMBER – IF AVAILABLE) - SEE OFFICIAL COMMENT 5 TO SECTION 9-108 OF THE UCC}.

None.


EXHIBIT I

(See Section 4.8 of Security Agreement)

AMENDMENT

 

This Amendment, dated                                 ,        is delivered pursuant to Section 4.8 of the Security Agreement referred to below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Security Agreement. The undersigned hereby certifies that the representations and warranties in Article III of the Security Agreement are and continue to be true and correct. The undersigned further agrees that this Amendment may be attached to that certain Pledge and Security Agreement, dated December 2, 2015, by and among the undersigned, as the Grantors, and JPMorgan Chase Bank, N.A., as the Administrative Agent, (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Security Agreement”) and that the Collateral listed on Schedule I to this Amendment shall be and become a part of the Collateral referred to in said Security Agreement and shall secure all Secured Obligations referred to in the Security Agreement.

 

 

 

  
  By:      
  Name:   

 

  
  Title:   

 

  


Schedule I to Amendment to Security Agreement

COMMERCIAL TORT CLAIMS

{NOTE: SPECIFICALLY DESCRIBE THE CLAIM (I.E. PARTIES, DESCRIPTION OF THE DISPUTE, CASE NUMBER – IF AVAILABLE) - SEE OFFICIAL COMMENT 5 TO SECTION 9-108 OF THE UCC}.

 

Name of Grantor    Description of Claim                Parties                 Case Number; Name of Court
where Case was Filed
                
                


ANNEX I TO PLEDGE AND SECURITY AGREEMENT

Reference is hereby made to the Pledge and Security Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), dated as of December 2, 2015 by and among Graham Corporation, a Delaware corporation (the “Borrower”), Energy Steel & Supply Co., a Michigan corporation (“ESSC”), and certain other entities which become parties to the Security Agreement from time to time, including, without limitation, those that become party thereto by executing a Security Agreement Supplement in substantially the form hereof (such parties, including the undersigned, together with the Borrower and ESCC, the “Grantors”), in favor of JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative Agent”), for the benefit of the Secured Parties under the Credit Agreement. Each capitalized term used herein and not defined herein shall have the meaning given to it in the Security Agreement.

By its execution below, the undersigned, [NAME OF NEW GRANTOR], a [                                                     ] [corporation] [partnership] [limited liability company] (the “New Grantor”) agrees to become, and does hereby become, a Grantor under the Security Agreement and agrees to be bound by such Security Agreement as if originally a party thereto. The New Grantor hereby pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Secured Parties, a security interest in all of the New Grantor’s right, title and interest in and to the Collateral, whether now owned or hereafter acquired, to secure the prompt and complete payment and performance of the Secured Obligations.

By its execution below, the New Grantor represents and warrants as to itself that all of the representations and warranties contained in the Security Agreement are true and correct in all respects as of the date hereof. The New Grantor represents and warrants that the supplements to the Exhibits to the Security Agreement attached hereto are true and correct in all respects and such supplements set forth all information required to be scheduled under the Security Agreement. The New Grantor shall take all steps necessary to perfect, in favor of the Administrative Agent, a first-priority security interest in and lien against the New Grantor’s Collateral, including, without limitation, delivering all certificated Pledged Collateral to the Administrative Agent (and other Collateral required to be delivered under the Security Agreement), and taking all steps necessary to properly perfect the Administrative Agent’s interest in any uncertificated Pledged Collateral.

IN WITNESS WHEREOF, [NAME OF NEW GRANTOR], a [                                    ] [corporation] [partnership] [limited liability company] has executed and delivered this Annex I counterpart to the Security Agreement as of this                        day of                         ,         .

 

  [NAME OF NEW GRANTOR]  
  By:    
  Name:  

 

 
  Title:  

 

 

EXHIBIT 10.4

TRADEMARK SECURITY AGREEMENT

This TRADEMARK SECURITY AGREEMENT (“Agreement”), dated as of December 2, 2015 is made by Graham Corporation, a Delaware corporation (the “Borrower”), and the undersigned subsidiaries of the Borrower (each, a “Grantor” and collectively, the “Grantors”), in favor of JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) for the banks and other financial institutions or entities (the “Lenders”) from time to time parties to the Credit Agreement, dated as of December 2, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Lenders, the Administrative Agent and the other parties thereto.

W I T N E S S E T H:

WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS, in connection with the Credit Agreement the Grantors have executed and delivered a Pledge and Security Agreement dated as of December 2, 2015 in favor of the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”);

WHEREAS, pursuant to the Security Agreement, the Grantors pledged and granted to the Administrative Agent for the benefit of the Secured Parties a continuing security interest in all Intellectual Property, including the Trademarks; and

WHEREAS, each Grantor has duly authorized the execution, delivery and performance of this Agreement.

NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Lenders to enter into the Credit Agreement, each Grantor agrees, for the benefit of the Administrative Agent and the Lenders, as follows:

SECTION 1.      Definitions.    Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided or provided by reference in the Security Agreement.

SECTION 2.      Grant of Security Interest.    Each Grantor hereby pledges and grants a continuing security interest in, and a right of setoff against, and agrees to assign, transfer and convey, upon demand made upon the occurrence and during the continuance of an Event of Default without requiring further action by either party and to be effective upon such demand, (i) all of such Grantor’s right, title and interest in, to and under the Trademarks owned by such Grantor (including, without limitation, those items listed on Schedule A hereto), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by the foregoing, (iv) the right to sue for past, present and future infringement, dilution, or other violation of any of the foregoing or for any injury to goodwill (collectively, the “Trademark Collateral”), and (v) all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit, to the Administrative Agent for the benefit of the Secured Parties to secure payment, performance and observance of the Obligations.

 

1


;

SECTION 3.     Purpose.    This Agreement has been executed and delivered by each Grantor for the purpose of recording the grant of security interest herein with the United States Patent and Trademark Office. The security interest granted hereby has been granted to the Administrative Agent for the benefit of the Secured Parties in connection with the Security Agreement and is expressly subject to the terms and conditions thereof. The Security Agreement (and all rights and remedies of the Lenders thereunder) shall remain in full force and effect in accordance with its terms.

SECTION 4.     Authorization to Supplement.   If any Grantor shall obtain rights to any new Trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto. Such Grantor shall give notice in writing to Administrative Agent in accordance with the terms of the Security Agreement with respect to any such new Trademarks or renewal or extension of any Trademark registration. Without limiting such Grantor’s obligations under this Section, such Grantor hereby authorizes the Administrative Agent unilaterally to modify this Trademark Security Agreement by amending Schedule A to include any such new Trademark rights of such Grantor. Notwithstanding the foregoing, no failure to so modify this Trademark Security Agreement or amend Schedule A shall in any way affect, invalidate or detract from the Administrative Agent’s continuing security interest in all Trademark Collateral, whether or not listed on Schedule A.

SECTION 5.     Applicable Law.    THIS TRADEMARK SECURITY AGREEMENT SHALL BE SUBJECT TO THE PROVISIONS REGARDING CHOICE OF LAW AND VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE SET FORTH IN SECTION 7 OF THE SECURITY AGREEMENT, AND SUCH PROVISIONS ARE INCORPORATED HEREIN BY THIS REFERENCE, MUTATIS MUTANDIS.

SECTION 6.     Acknowledgment.   Each Grantor does hereby further acknowledge and affirm that the rights and remedies of the Secured Parties with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Credit Agreement and the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. In the event of any conflict between the terms of this Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall govern.

SECTION 7.     Counterparts.    This Agreement may be executed in any number of counterparts and delivered via facsimile or other electronic format, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

[Signature page follows]

 

2


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

 

GRANTORS:

GRAHAM CORPORATION, a Delaware corporation

By: /s/ Jeffrey Glajch

Name:

 

Jeffrey Glajch

Title:

 

Chief Financial Officer

ENERGY STEEL & SUPPLY CO., a Michigan corporation

By: /s/ Jeffrey Glajch

Name: Jeffrey Glajch

Title: Chief Financial Officer

ADMINISTRATIVE AGENT:

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent for the Lenders

By: /s/ Philip M. Hendrix

Name:

 

Philip M. Hendrix

Title:

 

Vice President and Authorized Officer

 

3


SCHEDULE A

U.S. Trademark Registrations and Applications

TRADEMARKS

 

Name of Grantor   Trademark   Registration Date   Registration Number    Country
Graham Corporation   GRAHAM   11/18/1997   2,113,725   US
Graham Corporation   LOGO   12/23/1997   2,123,101   US
Graham Corporation   LOGO   11/20/2007   3,339,668   US
Graham Corporation   GRAHAM PRECISION PUMPS   7/7/1998   2,171,065   US
Graham Corporation   GRAHAM VACUUM AND HEAT TRANSFER   7/7/1998   2,171,070   US
Graham Corporation   HELIFLOW   4/8/2003   2,704,853   US
Graham Corporation   MICROMAX   6/17/2008   3,450,764   US
Graham Corporation   MICROMIX   11/18/1958   669,905   US
Graham Corporation   SEALCOOL   8/8/2000   2,375,893   US
Graham Corporation   ULTRAHEAT   10/23/2007   3,319,469   US
Graham Corporation   VACADEMICS   9/24/2002   2,626,331   US
Graham Corporation   VACWORKS   11/30/1999   2,296,884   US
Graham Corporation   G Logo   10/06/2006   004596011   CTM
Graham Corporation   GRAHAM   000486845   01/16/200   CTM
Graham Corporation   GRAHAM   004586467   11/27/2006   CTM
Graham Corporation   GRAHAM & DESIGN   000486852   3/3/1997   CTM
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 07)   5288202   4/14/2006   CN
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 37)   5288203   4/14/2006   CN
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 40)   5288204   4/14/2006   CN
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 42)   5288205   4/14/2006   CN
Graham Corporation   GRAHAM ENGINEERING & DESIGN   005290275   8/23/2007   CTM
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN   1502414   11/08/2006   IN
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 07)   992949   07/23/2007   MX
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 37)   971079   01/30/2007   MX


Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 40)   971080   01/30/2007   MX
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 42)   971081   01/30/2007   MX
Graham Corporation   GRAHAM ENGINEERING ANSWERS & DESIGN (Class 11)   848887   04/17/2007   MX
Graham Corporation   GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 07)   5288206   04/14/2006   CN
Graham Corporation   GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 37)   5288207   04/14/2006   CN
Graham Corporation   GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 40)   5288208   04/14/2006   CN
Graham Corporation   GRAHAM VACUUM AND HEAT TRANSFER & DESIGN (Class 42)   5288209   04/14/2006   CN
Graham Corporation   GVHT (Class 07)   5288210   04/14/2006   CN
Graham Corporation   GVHT (Class 37)   5288211   04/14/2006   CN
Graham Corporation   GVHT (Class 40)   5288186   04/14/2006   CN
Graham Corporation   GVHT (Class 42)   5288187   04/14/2006   CN
Graham Corporation   GVHT (Class 11)   5882574   02/01/2007   CN
Graham Corporation   HELIFLOW   736590   12/01/2003   BX
Graham Corporation   HELIFLOW   TMA169350   05/22/1970   CA
Graham Corporation   HELIFLOW   977506   07/27/1987   DE
Graham Corporation   HELIFLOW   226805   01/08/2003   IE
Graham Corporation   HELIFLOW   2320120   01/08/2003   UK
Graham Corporation   MICROMAX   TMA631,364   01/27/2005   CA
Graham Corporation   MICROMIX   TMA169351   05/22/1970   CA

TRADEMARK APPLICATIONS

None.

EXHIBIT 10.5

PATENT SECURITY AGREEMENT

This PATENT SECURITY AGREEMENT (“Agreement”), dated as of December 2, 2015 is made by Graham Corporation, a Delaware corporation (the “Borrower”), and the undersigned subsidiaries of the Borrower (each, a “Grantor” and collectively, the “Grantors”), in favor of JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) for the banks and other financial institutions or entities (the “Lenders”) from time to time parties to the Credit Agreement, dated as of December 2, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Lenders, the Administrative Agent and the other parties thereto.

W I T N E S S E T H:

WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS, in connection with the Credit Agreement the Grantors have executed and delivered a Pledge and Security Agreement dated as of December 2, 2015 in favor of the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”);

WHEREAS, pursuant to the Security Agreement, the Grantors pledged and granted to the Administrative Agent for the benefit of the Secured Parties a continuing security interest in all Intellectual Property, including the Patents; and

WHEREAS, each Grantor has duly authorized the execution, delivery and performance of this Agreement.

NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Lenders to enter into the Credit Agreement, each Grantor agrees, for the benefit of the Administrative Agent and the Lenders, as follows:

SECTION 1.     Definitions.   Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided or provided by reference in the Security Agreement.

SECTION 2.     Grant of Security Interest.   Each Grantor hereby pledges and grants a continuing security interest in, and a right of setoff against, and agrees to assign, transfer and convey, upon demand made upon the occurrence and during the continuance of an Event of Default without requiring further action by either party and to be effective upon such demand, (i) all of such Grantor’s Patents and any licenses thereof, including without limitation those referred to on Schedule A hereto, (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof (collectively, the “Patent Collateral”), and (v) all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit, to the Administrative Agent for the benefit of the Secured Parties to secure payment, performance and observance of the Obligations.

SECTION 3.     Purpose.    This Agreement has been executed and delivered by each Grantor for the purpose of recording the grant of security interest herein with the United States Patent and Trademark Office. The security interest granted hereby has been granted to the Administrative Agent for the benefit of the Secured Parties in connection with the Security Agreement and is expressly subject to the terms and conditions thereof. The Security Agreement (and all rights and remedies of the Lenders thereunder) shall remain in full force and effect in accordance with its terms.

 

1


SECTION 4.     Authorization to Supplement.   If any Grantor shall obtain rights to any new Patents, the provisions of this Patent Security Agreement shall automatically apply thereto. Such Grantor shall give notice in writing to Administrative Agent in accordance with the terms of the Security Agreement with respect to any such new Patents or renewal or extension of any Patent registration. Without limiting such Grantor’s obligations under this Section, such Grantor hereby authorizes the Administrative Agent unilaterally to modify this Patent Security Agreement by amending Schedule A to include any such new Patent rights of such Grantor. Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend Schedule A shall in any way affect, invalidate or detract from the Administrative Agent’s continuing security interest in all Patent Collateral, whether or not listed on Schedule A.

SECTION 5.     Applicable Law.   THIS PATENT SECURITY AGREEMENT SHALL BE SUBJECT TO THE PROVISIONS REGARDING CHOICE OF LAW AND VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE SET FORTH IN SECTION 7 OF THE SECURITY AGREEMENT, AND SUCH PROVISIONS ARE INCORPORATED HEREIN BY THIS REFERENCE, MUTATIS MUTANDIS.

SECTION 6.     Acknowledgment.   Each Grantor does hereby further acknowledge and affirm that the rights and remedies of the Secured Parties with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Credit Agreement and the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. In the event of any conflict between the terms of this Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall govern.

SECTION 7.     Counterparts.     This Agreement may be executed in any number of counterparts and delivered via facsimile or other electronic format, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

[Signature page follows]

 

2


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

 

GRANTORS:

GRAHAM CORPORATION, a Delaware corporation

By: /s/ Jeffrey Glajch

Name: Jeffrey Glajch

Title: Chief Financial Officer

ENERGY STEEL & SUPPLY CO., a Michigan corporation

By: /s/ Jeffrey Glajch

Name: Jeffrey Glajch

Title: Chief Financial Officer

ADMINISTRATIVE AGENT:

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent for the Lenders

By: /s/ Philip M. Hendrix

Name:

 

Philip M. Hendrix

Title:

 

Vice President and Authorized Officer

 

3


SCHEDULE A

U.S. Patent Registrations and Applications

PATENTS

 

Name of Grantor   Patent Description    Patent Number   Issue Date
Graham Corporation   Instantaneous Water Heater    7140378   11-28-2006
Graham Corporation  

Apparatus For Removing Ammonia And Carbon

Dioxide Gases From A

Steam

  5772709   06-30-1998

PATENT APPLICATIONS

None.

EXHIBIT 31.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

I, James R. Lines, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Graham Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 2, 2016

 

/s/ JAMES R. LINES

James R. Lines
President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

I, Jeffrey Glajch, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Graham Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 2, 2016

 

/s/ JEFFREY GLAJCH

Jeffrey Glajch

Vice President-Finance & Administration and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Graham Corporation (the “Company”) on Form 10-Q for the period ending December 31, 2015 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/JAMES R. LINES

    

/s/JEFFREY GLAJCH

James R. Lines      Jeffrey Glajch

President and Chief Executive Officer

(Principal Executive Officer)

    

Vice President-Finance & Administration and

Chief Financial Officer

Date: February 2, 2016      (Principal Financial Officer)
     Date: February 2, 2016

A signed original of this written statement required by Section 906 has been provided to Graham Corporation and will be retained by Graham Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

v3.3.1.900
Document and Entity Information - shares
9 Months Ended
Dec. 31, 2015
Jan. 26, 2016
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Dec. 31, 2015  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q3  
Trading Symbol GHM  
Entity Registrant Name GRAHAM CORP  
Entity Central Index Key 0000716314  
Current Fiscal Year End Date --03-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   9,808,004
v3.3.1.900
Condensed Consolidated Statements of Operations and Retained Earnings (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Income Statement [Abstract]        
Net sales $ 17,323 $ 33,646 $ 67,738 $ 97,714
Cost of products sold 13,799 23,543 49,042 68,695
Gross profit 3,524 10,103 18,696 29,019
Other expenses and income:        
Selling, general and administrative 3,680 4,424 12,447 13,413
Selling, general and administrative - amortization 58 59 175 171
Interest income (72) (50) (177) (139)
Interest expense 4 2 8 8
Other income (1,784)   (1,784)  
Total other expenses and income 1,886 4,435 10,669 13,453
Income before provision for income taxes 1,638 5,668 8,027 15,566
Provision for income taxes 364 1,676 2,416 4,996
Net income 1,274 3,992 5,611 10,570
Retained earnings at beginning of period 108,895 99,237 106,178 93,469
Dividends (795) (405) (2,415) (1,215)
Retained earnings at end of period $ 109,374 $ 102,824 $ 109,374 $ 102,824
Basic:        
Net income $ 0.13 $ 0.39 $ 0.56 $ 1.04
Diluted:        
Net income $ 0.13 $ 0.39 $ 0.56 $ 1.04
Weighted average common shares outstanding:        
Basic 9,922 10,127 10,051 10,119
Diluted 9,927 10,149 10,059 10,142
Dividends declared per share $ 0.08 $ 0.04 $ 0.24 $ 0.12
v3.3.1.900
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]        
Net income $ 1,274 $ 3,992 $ 5,611 $ 10,570
Other comprehensive income:        
Foreign currency translation adjustment (73) (40) (184) 4
Defined benefit pension and other postretirement plans, net of income tax of $107 and $46 for the three months ended December 31, 2015 and 2014, respectively, and $322 and $137 for the nine months ended December 31, 2015 and 2014, respectively 197 84 589 252
Total other comprehensive income 124 44 405 256
Total comprehensive income $ 1,398 $ 4,036 $ 6,016 $ 10,826
v3.3.1.900
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]        
Defined benefit pension and other postretirement plans, tax $ 107 $ 46 $ 322 $ 137
v3.3.1.900
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Dec. 31, 2015
Mar. 31, 2015
Current assets:    
Cash and cash equivalents $ 31,215 $ 27,271
Investments 42,000 33,000
Trade accounts receivable, net of allowances ($76 and $62 at December 31 and March 31, 2015, respectively) 10,860 17,249
Unbilled revenue 8,454 18,665
Inventories 11,803 13,994
Prepaid expenses and other current assets 866 529
Income taxes receivable 2,871 339
Total current assets 108,069 111,047
Property, plant and equipment, net 18,975 19,812
Prepaid pension asset 2,248 1,332
Goodwill 6,938 6,938
Permits 10,300 10,300
Other intangible assets, net 4,293 4,428
Other assets 186 146
Total assets 151,009 154,003
Current liabilities:    
Current portion of capital lease obligations 55 60
Accounts payable 10,909 13,334
Accrued compensation 5,500 9,343
Accrued expenses and other current liabilities 3,153 3,247
Customer deposits 8,120 4,179
Total current liabilities 27,737 30,163
Capital lease obligations 174 98
Accrued compensation   124
Deferred income tax liability 6,784 5,876
Accrued pension liability 353 315
Accrued postretirement benefits 895 876
Total liabilities $ 35,943 $ 37,452
Commitments and contingencies (Note 11)
Stockholders' equity:    
Preferred stock, $1.00 par value, 500 shares authorized $ 0 $ 0
Common stock, $.10 par value, 25,500 shares authorized 10,468 and 10,432 shares issued and 9,848 and 10,133 shares outstanding 1,047 1,043
Capital in excess of par value 22,101 21,398
Retained earnings 109,374 106,178
Accumulated other comprehensive loss (8,651) (9,056)
Treasury stock (620 and 299 shares) (8,805) (3,012)
Total stockholders' equity 115,066 116,551
Total liabilities and stockholders' equity $ 151,009 $ 154,003
v3.3.1.900
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2015
Mar. 31, 2015
Statement of Financial Position [Abstract]    
Allowances on trade accounts receivable $ 76 $ 62
Preferred stock, par value $ 1.00 $ 1.00
Preferred stock, shares authorized 500,000 500,000
Common stock, par value $ 0.10 $ 0.10
Common stock, shares authorized 25,500,000 25,500,000
Common stock, shares issued 10,468,000 10,432,000
Common stock, shares outstanding 9,848,000 10,133,000
Treasury stock, shares 620,000 299,000
v3.3.1.900
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Operating activities:    
Net income $ 5,611 $ 10,570
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 1,675 1,561
Amortization 175 171
Amortization of unrecognized prior service cost and actuarial losses 911 389
Stock-based compensation expense 540 481
(Gain) loss on disposal of property, plant and equipment (1) 3
Deferred income taxes 596 (281)
(Increase) decrease in operating assets:    
Accounts receivable 6,329 (4,938)
Unbilled revenue 10,152 (5,463)
Inventories 2,186 1,887
Prepaid expenses and other current and non-current assets (420) (430)
Prepaid pension asset (917) (845)
Increase (decrease) in operating liabilities:    
Accounts payable (2,216) 2,584
Accrued compensation, accrued expenses and other current and non-current liabilities (3,795) 2,138
Customer deposits 3,944 (964)
Income taxes payable/receivable (2,531) 743
Long-term portion of accrued compensation, accrued pension liability and accrued postretirement benefits (68) (101)
Net cash provided by operating activities 22,171 7,505
Investing activities:    
Purchase of property, plant and equipment (883) (4,965)
Proceeds from disposal of property, plant and equipment 4 1
Purchase of investments (36,000) (41,000)
Redemption of investments at maturity 27,000 37,000
Net cash used by investing activities (9,879) (8,964)
Financing activities:    
Principal repayments on capital lease obligations (42) (64)
Issuance of common stock 97 48
Dividends paid (2,415) (1,215)
Purchase of treasury stock (5,852)  
Excess tax benefit on stock awards 5 37
Net cash used by financing activities (8,207) (1,194)
Effect of exchange rate changes on cash (141) 3
Net increase (decrease) in cash and cash equivalents 3,944 (2,650)
Cash and cash equivalents at beginning of period 27,271 32,146
Cash and cash equivalents at end of period $ 31,215 $ 29,496
v3.3.1.900
Basis of Presentation
9 Months Ended
Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

NOTE 1 – BASIS OF PRESENTATION:

 

Graham Corporation’s (the “Company’s”) Condensed Consolidated Financial Statements include its: (i) wholly-owned foreign subsidiary located in Suzhou, China; and (ii) wholly-owned domestic subsidiary located in Lapeer, Michigan. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, each as promulgated by the Securities and Exchange Commission. The Company’s Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Balance Sheet as of March 31, 2015 presented herein was derived from the Company’s audited Consolidated Balance Sheet as of March 31, 2015. For additional information, please refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015 (“fiscal 2015”). In the opinion of management, all adjustments, including normal recurring accruals considered necessary for a fair presentation, have been included in the Company’s Condensed Consolidated Financial Statements.

The Company’s results of operations and cash flows for the three and nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the current fiscal year, which ends March 31, 2016 (“fiscal 2016”).

v3.3.1.900
Revenue Recognition
9 Months Ended
Dec. 31, 2015
Text Block [Abstract]  
Revenue Recognition

NOTE 2 – REVENUE RECOGNITION:

 

The Company recognizes revenue on all contracts with a planned manufacturing process in excess of four weeks (which approximates 575 direct labor hours) using the percentage-of-completion method. The majority of the Company’s revenue is recognized under this methodology. The Company has established the systems and procedures essential to developing the estimates required to account for contracts using the percentage-of-completion method. The percentage-of-completion method is determined by comparing actual labor incurred to a specific date to management’s estimate of the total labor to be incurred on each contract or completion of operational milestones assigned to each contract. Contracts in progress are reviewed monthly by management, and sales and earnings are adjusted in current accounting periods based on revisions in the contract value and estimated costs at completion. Losses on contracts are recognized immediately when evident to management.

Revenue on contracts not accounted for using the percentage-of-completion method is recognized utilizing the completed contract method. The majority of the Company’s contracts (as opposed to revenue) have a planned manufacturing process of less than four weeks and the results reported under this method do not vary materially from the percentage-of-completion method. The Company recognizes revenue and all related costs on these contracts upon substantial completion or shipment to the customer. Substantial completion is consistently defined as at least 95% complete with regard to direct labor hours. Customer acceptance is generally required throughout the construction process and the Company has no further material obligations under its contracts after the revenue is recognized.

Receivables billed but not paid under retainage provisions in the Company’s customer contracts were $1,863 and $1,751 at December 31, 2015 and March 31, 2015, respectively.

v3.3.1.900
Investments
9 Months Ended
Dec. 31, 2015
Investments, Debt and Equity Securities [Abstract]  
Investments

NOTE 3 – INVESTMENTS:

 

Investments consist solely of certificates of deposit with financial institutions. All investments have original maturities of greater than three months and less than one year and are classified as held-to-maturity, as the Company believes it has the intent and ability to hold the securities to maturity. The investments are stated at amortized cost which approximates fair value. All investments held by the Company at December 31, 2015 are scheduled to mature on or before November 10, 2016.

v3.3.1.900
Inventories
9 Months Ended
Dec. 31, 2015
Inventory Disclosure [Abstract]  
Inventories

NOTE 4 – INVENTORIES:

 

Inventories are stated at the lower of cost or market, using the average cost method. For contracts accounted for on the completed contract method, progress payments received are netted against inventory to the extent the payment is less than the inventory balance relating to the applicable contract. Progress payments that are in excess of the corresponding inventory balance are presented as customer deposits in the Condensed Consolidated Balance Sheets. Unbilled revenue in the Condensed Consolidated Balance Sheets represents revenue recognized that has not been billed to customers on contracts accounted for on the percentage-of-completion method. For contracts accounted for on the percentage–of–completion method, progress payments are netted against unbilled revenue to the extent the payment is less than the unbilled revenue for the applicable contract. Progress payments exceeding unbilled revenue are netted against inventory to the extent the payment is less than or equal to the inventory balance relating to the applicable contract, and the excess is presented as customer deposits in the Condensed Consolidated Balance Sheets.

Major classifications of inventories are as follows:

 

    

December 31,

2015

         

March 31,

2015

 

Raw materials and supplies

   $ 2,775          $ 2,763   

Work in process

     13,277            13,685   

Finished products

     666            689   
  

 

 

       

 

 

 
     16,718            17,137   

Less - progress payments

     4,915            3,143   
  

 

 

       

 

 

 

Total

   $ 11,803          $ 13,994   
  

 

 

       

 

 

 

v3.3.1.900
Intangible Assets
9 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

NOTE 5 – INTANGIBLE ASSETS:

 

Intangible assets are comprised of the following:

 

     Gross
Carrying
    Amount    
          Accumulated
    Amortization    
          Net
Carrying
    Amount    
 

At December 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 907          $ 1,793   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 

At March 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 772          $ 1,928   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 

Intangible assets are amortized on a straight line basis over their estimated useful lives. Intangible amortization expense for each of the three-month periods ended December 31, 2015 and 2014 was $45. Intangible amortization expense for each of the nine months ended December 31, 2015 and 2014 was $135. As of December 31, 2015, amortization expense is estimated to be $45 for the remainder of fiscal 2016 and $180 in each of the fiscal years ending March 31, 2017, 2018, 2019 and 2020.

v3.3.1.900
Stock-Based Compensation
9 Months Ended
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

NOTE 6 – STOCK-BASED COMPENSATION:

 

The Amended and Restated 2000 Graham Corporation Incentive Plan to Increase Shareholder Value provides for the issuance of up to 1,375 shares of common stock in connection with grants of incentive stock options, non-qualified stock options, stock awards and performance awards to officers, key employees and outside directors; provided, however, that no more than 250 shares of common stock may be used for awards other than stock options. Stock options may be granted at prices not less than the fair market value at the date of grant and expire no later than ten years after the date of grant.

There were no restricted stock awards granted in the three-month periods ended December 31, 2015 and 2014. Restricted stock awards granted in the nine-month periods ended December 31, 2015 and 2014 were 34 and 30, respectively. Restricted shares of 15 and 12 granted to officers in fiscal 2016 and fiscal 2015, respectively, vest 100% on the third anniversary of the grant date subject to the satisfaction of the performance metrics for the applicable three-year period. Restricted shares of 12 and 11 granted to officers and key employees in fiscal 2016 and fiscal 2015, respectively, vest 33 13% per year over a three-year term. Restricted shares of 7 and 7 granted to directors in fiscal 2016 and fiscal 2015, respectively, vest 100% on the first year anniversary of the grant date. There were no stock option awards granted in the three-month or nine-month periods ended December 31, 2015 and 2014.

During the three months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $148 and $166, respectively. The income tax benefit recognized related to stock-based compensation was $52 and $59 for the three months ended December 31, 2015 and 2014, respectively. During the nine months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs related to stock option and restricted stock awards of $505 and $435, respectively. The income tax benefit recognized related to stock-based compensation was $178 and $153 for the nine months ended December 31, 2015 and 2014, respectively.

The Company has an Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase shares of the Company’s common stock on the last day of a six-month offering period at a purchase price equal to the lesser of 85% of the fair market value of the common stock on either the first day or the last day of the offering period. A total of 200 shares of common stock may be purchased under the ESPP. During the three months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs of $14 and $16, respectively, related to the ESPP and $5 and $6, respectively, of related tax benefits. During the nine months ended December 31, 2015 and 2014, the Company recognized stock-based compensation costs of $35 and $46, respectively, related to the ESPP and $13 and $16, respectively, of related tax benefits.

v3.3.1.900
Income Per Share
9 Months Ended
Dec. 31, 2015
Earnings Per Share [Abstract]  
Income Per Share

NOTE 7 – INCOME PER SHARE:

 

Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted income per share is calculated by dividing net income by the weighted average number of common shares outstanding and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted income per share is presented below:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

    

2014

    

2015

    

2014

 

Basic income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   

Stock options outstanding

     5         22         8         23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and potential common shares outstanding

     9,927         10,149         10,059         10,142   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options to purchase a total of 54 and 12 shares of common stock were outstanding at December 31, 2015 and 2014, respectively, but were not included in the above computation of diluted income per share given their exercise prices as they would not be dilutive upon issuance.

v3.3.1.900
Product Warranty Liability
9 Months Ended
Dec. 31, 2015
Guarantees [Abstract]  
Product Warranty Liability

NOTE 8 – PRODUCT WARRANTY LIABILITY:

 

The reconciliation of the changes in the product warranty liability is as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Balance at beginning of period

   $ 504         $ 347      $ 653         $ 308   

(Income) expense for product warranties

     (158        436        (45        573   

Product warranty claims paid

     (11        (63     (273        (161
  

 

 

      

 

 

   

 

 

      

 

 

 

Balance at end of period

   $ 335         $ 720      $ 335         $ 720   
  

 

 

      

 

 

   

 

 

      

 

 

 

The income of $158 and $45 for product warranties in the three and nine months ended December 31, 2015, respectively, resulted from the reversal of provisions made that were no longer required due to lower claim experience.

The product warranty liability is included in the line item “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheets.

v3.3.1.900
Cash Flow Statement
9 Months Ended
Dec. 31, 2015
Supplemental Cash Flow Elements [Abstract]  
Cash Flow Statement

NOTE 9 – CASH FLOW STATEMENT:

 

Interest paid was $8 for each of the nine-month periods ended December 31, 2015 and 2014. In addition, income taxes paid for the nine months ended December 31, 2015 and 2014 were $4,348 and $4,497, respectively.

During the nine months ended December 31, 2015 and 2014, respectively, stock option awards were exercised and restricted stock awards vested. In connection with such stock option exercises and vesting, the related income tax benefit realized exceeded the tax benefit that had been recorded pertaining to the compensation cost recognized by $5 and $37, respectively, for such periods. This excess tax benefit has been separately reported under “Financing activities” in the Condensed Consolidated Statements of Cash Flows.

At December 31, 2015 and 2014, there were $20 and $35, respectively, of capital purchases that were recorded in accounts payable and are not included in the caption “Purchase of property, plant and equipment” in the Condensed Consolidated Statements of Cash Flows. During the nine months ended December 31, 2015 and 2014, capital expenditures totaling $113 and $0, respectively, were financed through the issuance of capital leases.

v3.3.1.900
Employee Benefit Plans
9 Months Ended
Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]  
Employee Benefit Plans

NOTE 10 – EMPLOYEE BENEFIT PLANS:

 

The components of pension benefit income are as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Service cost

   $ 130         $ 136      $ 391         $ 409   

Interest cost

     360           359        1,078           1,076   

Expected return on assets

     (795        (758     (2,385        (2,275

Amortization of:

              

Unrecognized prior service cost

     -           1        -           3   

Actuarial loss

     293           145        880           435   
  

 

 

      

 

 

   

 

 

      

 

 

 

Net pension benefit income

   $ (12      $ (117   $ (36      $ (352
  

 

 

      

 

 

   

 

 

      

 

 

 

The Company made no contributions to its defined benefit pension plan during the nine months ended December 31, 2015 and does not expect to make any contributions to the plan for the balance of fiscal 2016.

The components of the postretirement benefit cost (income) are as follows:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

         

2014

    

2015

         

2014

 

Service cost

   $ -          $ -       $ -          $ -   

Interest cost

     7            8         20            24   

Amortization of prior service benefit

     -            (26      -            (79

Amortization of actuarial loss

     10            10         30            30   
  

 

 

       

 

 

    

 

 

       

 

 

 

Net postretirement benefit cost (income)

   $ 17          $ (8    $ 50          $ (25
  

 

 

       

 

 

    

 

 

       

 

 

 

 

The Company paid benefits of $1 related to its postretirement benefit plan during the nine months ended December 31, 2015. The Company expects to pay benefits of approximately $91 for the balance of fiscal 2016.

The Company self-funds the medical insurance coverage it provides to its U.S. based employees. The Company has obtained a stop loss insurance policy in an effort to limit its exposure to claims. The liability of $273 and $446 on December 31, 2015 and March 31, 2015, respectively, related to the self-insured medical plan is primarily based upon claim history and is included in the caption “Accrued compensation” in the Condensed Consolidated Balance Sheets.

v3.3.1.900
Commitments and Contingencies
9 Months Ended
Dec. 31, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 11 – COMMITMENTS AND CONTINGENCIES:

 

The Company has been named as a defendant in lawsuits alleging personal injury from exposure to asbestos allegedly contained in or accompanying products made by the Company. The Company is a co-defendant with numerous other defendants in these lawsuits and intends to vigorously defend itself against these claims. The claims in the Company’s current lawsuits are similar to those made in previous asbestos suits that named the Company as defendant, which either were dismissed when it was shown that the Company had not supplied products to the plaintiffs’ places of work or were settled for immaterial amounts.

As of December 31, 2015, the Company was subject to the claims noted above, as well as other legal proceedings and potential claims that have arisen in the ordinary course of business.

Although the outcome of the lawsuits, legal proceedings or potential claims to which the Company is or may become a party cannot be determined and an estimate of the reasonably possible loss or range of loss cannot be made, management does not believe that the outcomes, either individually or in the aggregate, will have a material effect on the Company’s results of operations, financial position or cash flows.

v3.3.1.900
Income Taxes
9 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 12 – INCOME TAXES:

 

The Company files federal and state income tax returns in several domestic and international jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is subject to U.S. federal examination for the tax years 2013 through 2015 and examination in state tax jurisdictions for the tax years 2011 through 2015. The Company is subject to examination in the People’s Republic of China for tax years 2012 through 2015.

There was no liability for unrecognized tax benefits at each of December 31, 2015 and March 31, 2015.

v3.3.1.900
Changes in Accumulated Other Comprehensive Loss
9 Months Ended
Dec. 31, 2015
Equity [Abstract]  
Changes in Accumulated Other Comprehensive Loss

NOTE 13 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS:

 

The changes in accumulated other comprehensive loss by component for the nine months ended December 31, 2015 and 2014 are as follows:

 

     Pension and
Other
  Postretirement  
Benefit Items
          Foreign
  Currency  
Items
              Total      

Balance at April 1, 2015

   $ (9,462)          $ 406          $ (9,056)   

Other comprehensive income before reclassifications

     -            (184)            (184)   

Amounts reclassified from accumulated other comprehensive loss

     589            -            589   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     589            (184)            405   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2015

   $ (8,873)          $ 222          $ (8,651)   
  

 

 

       

 

 

       

 

 

 
     Pension and
Other
Postretirement
Benefit Items
          Foreign
Currency
Items
          Total  

Balance at April 1, 2014

   $   (6,168)          $ 403          $   (5,765)   

Other comprehensive income before reclassifications

     -            4            4   

Amounts reclassified from accumulated other comprehensive loss

     252            -            252   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     252            4            256   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2014

   $ (5,916)          $ (407)          $ (5,509)   
  

 

 

       

 

 

       

 

 

 

 

The reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended December 31, 2015 and 2014 are as follows:

 

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

Three Months
Ended

December 31, 2015

   

Three Months
Ended

December 31, 2014

     

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 25 (1)   

Amortization of actuarial loss

     (304 )(1)      (155 )(1)   
  

 

 

   

 

 

   
     (304     (130  

Income before provision for income taxes

     (107     (46  

Provision for income taxes

  

 

 

   

 

 

   
   $ (197   $ (84  

Net income

  

 

 

   

 

 

   

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

 

 

Nine Months

Ended

December 31, 2015

  

  

  

   

 

 

Nine Months

Ended

December 31, 2014

  

  

  

 

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 76 (1)   

Amortization of actuarial loss

     (911 )(1)      (465 )(1)   
  

 

 

   

 

 

   
     (911     (389  

Income before provision for income taxes

     (322     (137  

Provision for income taxes

  

 

 

   

 

 

   
   $ (589   $ (252  

Net income

  

 

 

   

 

 

   

 

(1) 

These accumulated other comprehensive loss components are included within the computation of net pension and other postretirement benefit costs. See Note 10.

v3.3.1.900
Purchase of Treasury Stock
9 Months Ended
Dec. 31, 2015
Equity [Abstract]  
Purchase of Treasury Stock

NOTE 14 – PURCHASE OF TREASURY STOCK:

 

On January 29, 2015, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program the Company is permitted to repurchase up to $18,000 of its common stock either in the open market or through privately negotiated transactions. Cash on hand has been used to fund all stock repurchases under the program. At December 31, 2015, the Company had purchased 328 shares at an aggregate cost of $5,852 under this program.

v3.3.1.900
Debt
9 Months Ended
Dec. 31, 2015
Debt Disclosure [Abstract]  
Debt

NOTE 15 – DEBT:

 

On December 2, 2015, the Company entered into a new revolving credit facility agreement with JPMorgan Chase Bank, N.A. that provides a $25,000 line of credit, including letters of credit and bank guarantees, expandable at the Company’s option at any time up to $50,000. The agreement has a five year term. This facility replaced a similar facility with Bank of America, N.A.

At the Company’s option, amounts outstanding under the agreement will bear interest at either: (i) a rate equal to the bank’s prime rate; or (ii) a rate equal to LIBOR plus a margin. The margin is based on the Company’s funded debt to earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) and may range from 1.75% to .95%. Amounts available for borrowing under the agreement are subject to an unused commitment fee of between 0.30% and 0.20%, depending on the above ratio.

Outstanding letters of credit under the agreement are subject to a fee of between 1.20% and 0.70%, depending on the Company’s ratio of funded debt to EBITDA. The agreement allows the Company to reduce the fee on outstanding letters of credit to a fixed rate of .40% by securing outstanding letters of credit with cash and cash equivalents. At December 31, 2015, there were no letters of credit outstanding on the new revolving credit facility and $10,042 outstanding with Bank of America, N.A., which were secured by cash and cash equivalents.

Under the new revolving credit facility, the Company covenants to maintain a maximum funded debt to EBITDA ratio of 3.5 to 1.0 and a minimum earnings before interest expense and income taxes to interest ratio of 4.0 to 1.0. The agreement also provides that the Company is permitted to pay dividends without limitation if it maintains a maximum funded debt to EBITDA ratio equal to or less than 2.0 to 1.0 and permits the Company to pay dividends in an amount equal to 25% of net income if it maintains a maximum funded debt to EBITDA ratio of greater than 2.0 to 1.0.

v3.3.1.900
Other Income
9 Months Ended
Dec. 31, 2015
Other Income and Expenses [Abstract]  
Other Income

NOTE 16 – OTHER INCOME:

 

During the three and nine months ended December 31, 2015, certain orders from customers were cancelled. The contracts for the cancelled orders included provisions that entitled the Company to cancellation charges. The amount of the cancellation charges were negotiated and settled with the customers. This income, net of costs incurred on the contracts, of $1,784 is presented in the caption “Other Income” in the Condensed Consolidated Statements of Operations and Retained Earnings for the three and nine months ended December 31, 2015.

v3.3.1.900
Accounting and Reporting Changes
9 Months Ended
Dec. 31, 2015
Accounting Changes and Error Corrections [Abstract]  
Accounting and Reporting Changes

NOTE 17 – ACCOUNTING AND REPORTING CHANGES:

 

In the normal course of business, Company management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission, the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting body to determine the potential impact they may have on the Company’s consolidated financial statements.

In May 2014, the FASB issued guidance related to the accounting for revenue from contracts with customers. This guidance establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers. The guidance requires companies to apply a five-step model when recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The guidance also includes a comprehensive set of disclosure requirements regarding revenue recognition. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the impact this guidance will have on its financial position, results of operations and cash flows. See Note 2 for a description of the Company’s current revenue recognition policy.

In June 2015, the FASB issued guidance covering a wide range of topics in the FASB Accounting Standards Codifications (the “Codification”). This guidance included changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and early adoption is permitted. The Company is currently assessing the impact this guidance will have on its financial position, results of operations, cash flows and disclosures.

In November 2015, the FASB issued guidance related to the balance sheet classification of deferred income taxes. This guidance simplifies the presentation of deferred income taxes and requires deferred tax liabilities and assets be offset and presented as a single noncurrent amount for all tax-paying components of an entity within a particular tax jurisdiction. The provisions of the guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlier application of the guidance is permitted as of the beginning of any interim or annual reporting period and may be applied prospectively or retrospectively to all periods presented. The provisions of the guidance were adopted by the Company during the third quarter of fiscal 2016, and the Company elected to apply the provisions retrospectively to all periods presented. The following table presents the impact of applying the provisions retrospectively on individual line items in the Company’s Condensed Consolidated Balance Sheet at March 31, 2015:

 

Balance Sheet Caption

  

Before Application

of Guidance

          Reclassification           After Application
of Guidance
 

Current deferred income tax asset

   $ 647          $ (647       $ -   

Other assets

   $ 150          $ (4       $ 146   

Current deferred income tax liability

   $ (164       $ 164          $ -   

Long-term deferred income tax liability

   $ (6,363       $ 487          $ (5,876

Management does not expect any other recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements.

v3.3.1.900
Inventories (Tables)
9 Months Ended
Dec. 31, 2015
Inventory Disclosure [Abstract]  
Major Classifications of Inventories

Major classifications of inventories are as follows:

 

    

December 31,

2015

         

March 31,

2015

 

Raw materials and supplies

   $ 2,775          $ 2,763   

Work in process

     13,277            13,685   

Finished products

     666            689   
  

 

 

       

 

 

 
     16,718            17,137   

Less - progress payments

     4,915            3,143   
  

 

 

       

 

 

 

Total

   $ 11,803          $ 13,994   
  

 

 

       

 

 

v3.3.1.900
Intangible Assets (Tables)
9 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Summary of Intangible Assets

Intangible assets are comprised of the following:

 

     Gross
Carrying
    Amount    
          Accumulated
    Amortization    
          Net
Carrying
    Amount    
 

At December 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 907          $ 1,793   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 

At March 31, 2015

              

Intangibles subject to amortization:

              

Customer relationships

   $ 2,700          $ 772          $ 1,928   
  

 

 

       

 

 

       

 

 

 

Intangibles not subject to amortization:

              

Permits

   $ 10,300          $ -          $ 10,300   

Tradename

     2,500            -            2,500   
  

 

 

       

 

 

       

 

 

 
   $ 12,800          $ -          $ 12,800   
  

 

 

       

 

 

       

 

 

 
v3.3.1.900
Income Per Share (Tables)
9 Months Ended
Dec. 31, 2015
Earnings Per Share [Abstract]  
Reconciliation of Numerators and Denominators of Basic and Diluted Income Per Share

 A reconciliation of the numerators and denominators of basic and diluted income per share is presented below:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

    

2014

    

2015

    

2014

 

Basic income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

           

Numerator:

           

Net income

   $ 1,274       $ 3,992       $ 5,611       $ 10,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding

     9,922         10,127         10,051         10,119   

Stock options outstanding

     5         22         8         23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and potential common shares outstanding

     9,927         10,149         10,059         10,142   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income per share

   $ .13       $ .39       $ .56       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.3.1.900
Product Warranty Liability (Tables)
9 Months Ended
Dec. 31, 2015
Guarantees [Abstract]  
Reconciliation of the Changes in Product Warranty Liability

The reconciliation of the changes in the product warranty liability is as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Balance at beginning of period

   $ 504         $ 347      $ 653         $ 308   

(Income) expense for product warranties

     (158        436        (45        573   

Product warranty claims paid

     (11        (63     (273        (161
  

 

 

      

 

 

   

 

 

      

 

 

 

Balance at end of period

   $ 335         $ 720      $ 335         $ 720   
  

 

 

      

 

 

   

 

 

      

 

 

v3.3.1.900
Employee Benefit Plans (Tables)
9 Months Ended
Dec. 31, 2015
Pension Plans, Defined Benefit [Member]  
Components of Postretirement Benefit Cost (Income) and Pension Benefit Income

The components of pension benefit income are as follows:

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
    

2015

        

2014

   

2015

        

2014

 

Service cost

   $ 130         $ 136      $ 391         $ 409   

Interest cost

     360           359        1,078           1,076   

Expected return on assets

     (795        (758     (2,385        (2,275

Amortization of:

              

Unrecognized prior service cost

     -           1        -           3   

Actuarial loss

     293           145        880           435   
  

 

 

      

 

 

   

 

 

      

 

 

 

Net pension benefit income

   $ (12      $ (117   $ (36      $ (352
  

 

 

      

 

 

   

 

 

      

 

 

 
Other Postretirement Benefit Plans [Member]  
Components of Postretirement Benefit Cost (Income) and Pension Benefit Income

The components of the postretirement benefit cost (income) are as follows:

 

     Three Months Ended
December 31,
     Nine Months Ended
December 31,
 
    

2015

         

2014

    

2015

         

2014

 

Service cost

   $ -          $ -       $ -          $ -   

Interest cost

     7            8         20            24   

Amortization of prior service benefit

     -            (26      -            (79

Amortization of actuarial loss

     10            10         30            30   
  

 

 

       

 

 

    

 

 

       

 

 

 

Net postretirement benefit cost (income)

   $ 17          $ (8    $ 50          $ (25
  

 

 

       

 

 

    

 

 

       

 

 

 

v3.3.1.900
Changes in Accumulated Other Comprehensive Loss (Tables)
9 Months Ended
Dec. 31, 2015
Equity [Abstract]  
Changes in Accumulated Other Comprehensive Loss by Component

The changes in accumulated other comprehensive loss by component for the nine months ended December 31, 2015 and 2014 are as follows:

 

     Pension and
Other
  Postretirement  
Benefit Items
          Foreign
  Currency  
Items
              Total      

Balance at April 1, 2015

   $ (9,462)          $ 406          $ (9,056)   

Other comprehensive income before reclassifications

     -            (184)            (184)   

Amounts reclassified from accumulated other comprehensive loss

     589            -            589   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     589            (184)            405   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2015

   $ (8,873)          $ 222          $ (8,651)   
  

 

 

       

 

 

       

 

 

 
     Pension and
Other
Postretirement
Benefit Items
          Foreign
Currency
Items
          Total  

Balance at April 1, 2014

   $   (6,168)          $ 403          $   (5,765)   

Other comprehensive income before reclassifications

     -            4            4   

Amounts reclassified from accumulated other comprehensive loss

     252            -            252   
  

 

 

       

 

 

       

 

 

 

Net current-period other comprehensive income

     252            4            256   
  

 

 

       

 

 

       

 

 

 

Balance at December 31, 2014

   $ (5,916)          $ (407)          $ (5,509)   
  

 

 

       

 

 

       

 

 

 
Reclassifications Out of Accumulated Other Comprehensive Loss by Component

The reclassifications out of accumulated other comprehensive loss by component for the three and nine months ended December 31, 2015 and 2014 are as follows:

 

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

Three Months
Ended

December 31, 2015

   

Three Months
Ended

December 31, 2014

     

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 25 (1)   

Amortization of actuarial loss

     (304 )(1)      (155 )(1)   
  

 

 

   

 

 

   
     (304     (130  

Income before provision for income taxes

     (107     (46  

Provision for income taxes

  

 

 

   

 

 

   
   $ (197   $ (84  

Net income

  

 

 

   

 

 

   

Details about Accumulated Other

    Comprehensive Loss Components    

  

Amount Reclassified from

Accumulated Other

Comprehensive Loss

   

Affected Line Item in the Condensed

Consolidated Statements of Operations

and Retained Earnings

    

 

 

Nine Months

Ended

December 31, 2015

  

  

  

   

 

 

Nine Months

Ended

December 31, 2014

  

  

  

 

Pension and other postretirement benefit items:

      

Amortization of unrecognized prior service benefit

   $ - (1)    $ 76 (1)   

Amortization of actuarial loss

     (911 )(1)      (465 )(1)   
  

 

 

   

 

 

   
     (911     (389  

Income before provision for income taxes

     (322     (137  

Provision for income taxes

  

 

 

   

 

 

   
   $ (589   $ (252  

Net income

  

 

 

   

 

 

   

 

(1) 

These accumulated other comprehensive loss components are included within the computation of net pension and other postretirement benefit costs. See Note 10.

v3.3.1.900
Accounting and Reporting Changes (Tables)
9 Months Ended
Dec. 31, 2015
Accounting Changes and Error Corrections [Abstract]  
Schedule of Effects of Retrospective Application of Provision in Condensed Consolidated Balance Sheet

The following table presents the impact of applying the provisions retrospectively on individual line items in the Company’s Condensed Consolidated Balance Sheet at March 31, 2015:

 

Balance Sheet Caption

  

Before Application

of Guidance

          Reclassification           After Application
of Guidance
 

Current deferred income tax asset

   $ 647          $ (647       $ -   

Other assets

   $ 150          $ (4       $ 146   

Current deferred income tax liability

   $ (164       $ 164          $ -   

Long-term deferred income tax liability

   $ (6,363       $ 487          $ (5,876

v3.3.1.900
Revenue Recognition - Additional Information (Detail) - USD ($)
$ in Thousands
9 Months Ended
Dec. 31, 2015
Mar. 31, 2015
Revenue Recognition [Abstract]    
Company recognizes planned manufacturing process 28 days  
Direct labor hours worked on contracts 575 hours  
Substantial completion of manufacturing process 95.00%  
Receivables billed but not paid under retainage provisions in its customer contracts $ 1,863 $ 1,751
v3.3.1.900
Investments - Additional Information (Detail)
9 Months Ended
Dec. 31, 2015
Minimum [Member]  
Schedule of Held-to-maturity Securities [Line Items]  
Treasury with original maturities period 3 months
Maximum [Member]  
Schedule of Held-to-maturity Securities [Line Items]  
Investment maturity date range end Nov. 10, 2016
Treasury with original maturities period 1 year
v3.3.1.900
Inventories - Major Classifications of Inventories (Detail) - USD ($)
$ in Thousands
Dec. 31, 2015
Mar. 31, 2015
Inventory Disclosure [Abstract]    
Raw materials and supplies $ 2,775 $ 2,763
Work in process 13,277 13,685
Finished products 666 689
Inventory Gross 16,718 17,137
Less - progress payments 4,915 3,143
Total $ 11,803 $ 13,994
v3.3.1.900
Intangible Assets - Summary of Intangible Assets (Detail) - USD ($)
$ in Thousands
Dec. 31, 2015
Mar. 31, 2015
Schedule Of Intangible Assets [Line Items]    
Indefinite Lived Intangible Assets, Gross Carrying Amount $ 12,800 $ 12,800
Indefinite Lived Intangible Assets, Accumulated Amortization 0 0
Indefinite Lived Intangible Assets, Net Carrying Amount 12,800 12,800
Permits [Member]    
Schedule Of Intangible Assets [Line Items]    
Indefinite Lived Intangible Assets, Gross Carrying Amount 10,300 10,300
Indefinite Lived Intangible Assets, Accumulated Amortization 0 0
Indefinite Lived Intangible Assets, Net Carrying Amount 10,300 10,300
Tradename [Member]    
Schedule Of Intangible Assets [Line Items]    
Indefinite Lived Intangible Assets, Gross Carrying Amount 2,500 2,500
Indefinite Lived Intangible Assets, Accumulated Amortization 0 0
Indefinite Lived Intangible Assets, Net Carrying Amount 2,500 2,500
Customer Relationships [Member]    
Schedule Of Intangible Assets [Line Items]    
Finite-Lived Intangible Assets, Gross Carrying Amount 2,700 2,700
Finite-Lived Intangible Assets, Accumulated Amortization 907 772
Finite-Lived Intangible Assets, Net Carrying Amount $ 1,793 $ 1,928
v3.3.1.900
Intangible Assets - Additional Information (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]        
Intangible amortization expense $ 58 $ 59 $ 175 $ 171
Customer Relationships [Member]        
Finite-Lived Intangible Assets [Line Items]        
Intangible amortization expense 45 $ 45 135 $ 135
Future amortization expenses, 2016 45   45  
Future amortization expenses, 2017 180   180  
Future amortization expenses, 2018 180   180  
Future amortization expenses, 2019 180   180  
Future amortization expenses, 2020 $ 180   $ 180  
v3.3.1.900
Stock-Based Compensation - Additional Information (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Employee Stock Purchase Plan [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares authorized 200,000   200,000  
Stock based compensation expense $ 14 $ 16 $ 35 $ 46
Income tax benefit to stock based compensation $ 5 $ 6 $ 13 $ 16
Discounted purchase price of common stock percentage on fair market value     85.00% 85.00%
Amended and Restated 2000 Incentive Plan [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares authorized 1,375,000   1,375,000  
Amended and Restated 2000 Incentive Plan [Member] | Restricted Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Number of shares authorized 250,000   250,000  
Restricted stock awards 0 0 34,000 30,000
Amended and Restated 2000 Incentive Plan [Member] | Employee Stock Option [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock options maximum term     10 years  
Stock option awards granted 0 0 0 0
Amended and Restated 2000 Incentive Plan [Member] | Performance Vested Restricted Stock [Member] | Officer [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Restricted stock awards     15,000 12,000
Share-based compensation vesting percentage     100.00% 100.00%
Vesting period     3 years 3 years
Amended and Restated 2000 Incentive Plan [Member] | Time Vested Restricted Stock [Member] | Director [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Restricted stock awards     7,000 7,000
Share-based compensation vesting percentage     100.00% 100.00%
Vesting period   1 year 1 year 1 year
Amended and Restated 2000 Incentive Plan [Member] | Time Vested Restricted Stock [Member] | Officers and Key Employees [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Restricted stock awards     12,000 11,000
Vesting period     3 years 3 years
Amended and Restated 2000 Incentive Plan [Member] | Time Vested Restricted Stock [Member] | Officers and Key Employees [Member] | Share-based Compensation Award, Tranche One [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation vesting percentage     33.33% 33.33%
Amended and Restated 2000 Incentive Plan [Member] | Time Vested Restricted Stock [Member] | Officers and Key Employees [Member] | Share-based Compensation Award, Tranche Two [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation vesting percentage     33.33% 33.33%
Amended and Restated 2000 Incentive Plan [Member] | Time Vested Restricted Stock [Member] | Officers and Key Employees [Member] | Third Anniversary [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share-based compensation vesting percentage     33.33% 33.33%
Amended and Restated 2000 Incentive Plan [Member] | Stock Option and Restricted Stock Awards [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock based compensation expense $ 148 $ 166 $ 505 $ 435
Income tax benefit to stock based compensation $ 52 $ 59 $ 178 $ 153
v3.3.1.900
Income Per Share - Reconciliation of Numerators and Denominators of Basic and Diluted Income Per Share (Detail) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Summary Of Basic And Diluted Earnings Per Share [Abstract]        
Net income $ 1,274 $ 3,992 $ 5,611 $ 10,570
Denominator:        
Weighted average common shares outstanding 9,922 10,127 10,051 10,119
Basic income per share $ 0.13 $ 0.39 $ 0.56 $ 1.04
Denominator:        
Weighted average common shares outstanding 9,922 10,127 10,051 10,119
Stock options outstanding 5 22 8 23
Weighted average common and potential common shares outstanding 9,927 10,149 10,059 10,142
Diluted income per share $ 0.13 $ 0.39 $ 0.56 $ 1.04
v3.3.1.900
Income Per Share - Additional Information (Detail) - shares
shares in Thousands
9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Earnings Per Share [Abstract]    
Antidilutive securities excluded from computation of earnings per share 54 12
v3.3.1.900
Product Warranty Liability - Reconciliation of the Changes in Product Warranty Liability (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Guarantees [Abstract]        
Balance at beginning of period $ 504 $ 347 $ 653 $ 308
(Income) expense for product warranties (158) 436 (45) 573
Product warranty claims paid (11) (63) (273) (161)
Balance at end of period $ 335 $ 720 $ 335 $ 720
v3.3.1.900
Product Warranty Liability - Additional Information (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Guarantees [Abstract]        
Income (expense) for product warranties $ 158 $ (436) $ 45 $ (573)
v3.3.1.900
Cash Flow Statement - Additional Information (Detail) - USD ($)
$ in Thousands
9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Supplemental Cash Flow Elements [Abstract]    
Interest paid $ 8 $ 8
Income taxes paid 4,348 4,497
Excess tax benefit on stock awards 5 37
Capital expenditures incurred but not yet paid 20 35
Capital leases $ 113 $ 0
v3.3.1.900
Employee Benefit Plans - Components of Postretirement Benefit Cost (Income) and Pension Benefit Income (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Pension Plans, Defined Benefit [Member]        
Defined Benefit Plan Disclosure [Line Items]        
Service cost $ 130 $ 136 $ 391 $ 409
Interest cost 360 359 1,078 1,076
Expected return on assets (795) (758) (2,385) (2,275)
Amortization of prior service benefit   1   3
Amortization of actuarial loss 293 145 880 435
Net pension benefit income and postretirement benefit cost (income) (12) (117) (36) (352)
Other Postretirement Benefit Plans [Member]        
Defined Benefit Plan Disclosure [Line Items]        
Interest cost 7 8 20 24
Amortization of prior service benefit   (26)   (79)
Amortization of actuarial loss 10 10 30 30
Net pension benefit income and postretirement benefit cost (income) $ 17 $ (8) $ 50 $ (25)
v3.3.1.900
Employee Benefit Plans - Additional Information (Detail) - USD ($)
9 Months Ended
Dec. 31, 2015
Mar. 31, 2015
Defined Benefit Plan Disclosure [Line Items]    
Self-Insured medical plan liability $ 273,000 $ 446,000
Pension Plans, Defined Benefit [Member]    
Defined Benefit Plan Disclosure [Line Items]    
Contributions to its defined benefit pension plan 0  
Contributions to the plan for the balance of fiscal 2016 0  
Other Postretirement Benefit Plans [Member]    
Defined Benefit Plan Disclosure [Line Items]    
Post retirement benefit plan 1,000  
Defined benefit plan, benefit expected to pay for the balance of fiscal 2016 $ 91,000  
v3.3.1.900
Income Taxes - Additional Information (Detail) - USD ($)
9 Months Ended
Dec. 31, 2015
Mar. 31, 2015
Income Tax Contingency [Line Items]    
Liability unrecognized tax benefits $ 0 $ 0
Latest Tax Year [Member] | Federal Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2015  
Latest Tax Year [Member] | State Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2015  
Latest Tax Year [Member] | International Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2015  
Earliest Tax Year [Member] | Federal Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2013  
Earliest Tax Year [Member] | State Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2011  
Earliest Tax Year [Member] | International Tax Jurisdictions [Member]    
Income Tax Contingency [Line Items]    
Open tax year 2012  
v3.3.1.900
Changes in Accumulated Other Comprehensive Loss - Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]        
Accumulated other comprehensive income/(loss), beginning balance     $ (9,056) $ (5,765)
Other comprehensive income before reclassifications     (184) 4
Amounts reclassified from accumulated other comprehensive loss     589 252
Total other comprehensive income $ 124 $ 44 405 256
Accumulated other comprehensive income/(loss), ending balance (8,651) (5,509) (8,651) (5,509)
Pension and Other Postretirement Benefits Items [Member]        
Accumulated Other Comprehensive Income (Loss) [Line Items]        
Accumulated other comprehensive income/(loss), beginning balance     (9,462) (6,168)
Amounts reclassified from accumulated other comprehensive loss     589 252
Total other comprehensive income     589 252
Accumulated other comprehensive income/(loss), ending balance (8,873) (5,916) (8,873) (5,916)
Foreign Currency Items [Member]        
Accumulated Other Comprehensive Income (Loss) [Line Items]        
Accumulated other comprehensive income/(loss), beginning balance     406 403
Other comprehensive income before reclassifications     (184) 4
Total other comprehensive income     (184) 4
Accumulated other comprehensive income/(loss), ending balance $ 222 $ (407) $ 222 $ (407)
v3.3.1.900
Changes in Accumulated Other Comprehensive Loss - Reclassifications Out of Accumulated Other Comprehensive Loss by Component (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]        
Income before provision for income taxes $ 1,638 $ 5,668 $ 8,027 $ 15,566
Provision for income taxes 364 1,676 2,416 4,996
Net income 1,274 3,992 5,611 10,570
Reclassifications Out of Accumulated Other Comprehensive Loss [Member] | Amortization of Unrecognized Prior Service Benefit [Member]        
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]        
Income before provision for income taxes   25   76
Reclassifications Out of Accumulated Other Comprehensive Loss [Member] | Amortization of Actuarial Loss [Member]        
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]        
Income before provision for income taxes (304) (155) (911) (465)
Reclassifications Out of Accumulated Other Comprehensive Loss [Member] | Pension and Other Postretirement Benefits Items [Member]        
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]        
Income before provision for income taxes (304) (130) (911) (389)
Provision for income taxes (107) (46) (322) (137)
Net income $ (197) $ (84) $ (589) $ (252)
v3.3.1.900
Purchase of Treasury Stock - Additional Information (Detail) - USD ($)
shares in Thousands
9 Months Ended 11 Months Ended
Dec. 31, 2015
Dec. 31, 2015
Jan. 29, 2015
Equity, Class of Treasury Stock [Line Items]      
Stock repurchase program authorized amount     $ 18,000,000
Aggregate cost of shares purchased during period $ 5,852,000    
Stock Repurchase Program [Member]      
Equity, Class of Treasury Stock [Line Items]      
Number of shares purchased during period   328  
Aggregate cost of shares purchased during period   $ 5,852,000  
v3.3.1.900
Debt - Additional Information (Detail) - 2015 Revolving Agreement [Member] - USD ($)
9 Months Ended
Dec. 31, 2015
Dec. 02, 2015
Revolving credit facility [Member]    
Debt Instrument [Line Items]    
Line of credit   $ 25,000,000
Maximum limit of credit facility   $ 50,000,000
Term period of agreement 5 years  
Interest rate description Interest at either (i) a rate equal to the bank's prime rate; or (ii) a rate equal to LIBOR plus a margin.  
Fix rate to reduce fee on outstanding 0.40%  
Letters of credit outstanding amount $ 0  
Debt instrument, covenant description Under the new revolving credit facility, the Company covenants to maintain a maximum funded debt to EBITDA ratio of 3.5 to 1.0 and a minimum earnings before interest expense and income taxes to interest ratio of 4.0 to 1.0. The agreement also provides that the Company is permitted to pay dividends without limitation if it maintains a maximum funded debt to EBITDA ratio equal to or less than 2.0 to 1.0 and permits the Company to pay dividends in an amount equal to 25% of net income if it maintains a maximum funded debt to EBITDA ratio of greater than 2.0 to 1.0.  
Maximum funded debt to EBITDA ratio 350.00%  
Percentage of net income to be paid as dividend if EBITDA ratio is greater than 2.0 to 1 25.00%  
Minimum earnings to interest ratio 400.00%  
Revolving credit facility [Member] | Maximum [Member]    
Debt Instrument [Line Items]    
Unused commitment fee for borrowing 0.30%  
Fee for outstanding letters of credit 1.20%  
Revolving credit facility [Member] | Minimum [Member]    
Debt Instrument [Line Items]    
Unused commitment fee for borrowing 0.20%  
Fee for outstanding letters of credit 0.70%  
Revolving credit facility [Member] | Dividend Payment Covenant [Member] | Maximum [Member]    
Debt Instrument [Line Items]    
Maximum funded debt to EBITDA ratio 200.00%  
Revolving credit facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]    
Debt Instrument [Line Items]    
Debt instrument, basis spread on variable rate 1.75%  
Revolving credit facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]    
Debt Instrument [Line Items]    
Debt instrument, basis spread on variable rate 0.95%  
Bank of America, N.A. [Member]    
Debt Instrument [Line Items]    
Letters of credit outstanding amount $ 10,042,000  
v3.3.1.900
Other Income - Additional Information (Detail) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 31, 2015
Dec. 31, 2015
Other Income and Expenses [Abstract]    
Other income $ 1,784 $ 1,784
v3.3.1.900
Accounting and Reporting Changes - Schedule of Effects of Retrospective Application of Provision in Condensed Consolidated Balance Sheet (Detail) - USD ($)
$ in Thousands
Dec. 31, 2015
Mar. 31, 2015
Income Taxes [Line Items]    
Other assets $ 186 $ 146
Long-term deferred income tax liability $ (6,784) (5,876)
Scenario, Previously Reported [Member]    
Income Taxes [Line Items]    
Current deferred income tax asset   647
Other assets   150
Current deferred income tax liability   (164)
Long-term deferred income tax liability   (6,363)
Reclassification [Member]    
Income Taxes [Line Items]    
Current deferred income tax asset   (647)
Other assets   (4)
Current deferred income tax liability   164
Long-term deferred income tax liability   $ 487
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