Albany Molecular Research
ALBANY MOLECULAR RESEARCH INC (Form: 10-Q, Received: 11/09/2015 15:19:57)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the Quarterly Period Ended September 30, 2015
     
     
¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to

 

Commission file number: 001-3356220

 

ALBANY MOLECULAR RESEARCH, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE   14-1742717
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

26 Corporate Circle

Albany, New York 12212

(Address of principal executive offices)

 

(518) 512-2000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 (§ 232.405 of this chapter) 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 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 ¨  

 

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

 

Yes    ¨   No    x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at October 30, 2015  
Common Stock, $.01 par value   35,501,776 excluding treasury shares of 5,510,320  

 

 

 

 

 

 

ALBANY MOLECULAR RESEARCH, INC.

INDEX

 

Part I. Financial Information 3
       
  Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
       
    Condensed Consolidated Statements of Operations 3
    Condensed Consolidated Statements of Comprehensive Loss 4
    Condensed Consolidated Balance Sheets 5
    Condensed Consolidated Statements of Cash Flows 6
    Notes to Condensed Consolidated Financial Statements 7
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
       
  Item 4. Controls and Procedures 35
       
Part II. Other Information 36
       
  Item 1. Legal Proceedings 36
       
  Item 1A. Risk Factors 36
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
       
  Item 6. Exhibits 37
       
Signatures   38
       
Exhibit Index    

 

  2  

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.       Condensed Consolidated Financial Statements (Unaudited)

 

Albany Molecular Research, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

    Three Months Ended     Nine Months Ended  
(Dollars in thousands, except for per share data)   September 30,
2015
    September 30,
2014
    September 30,
2015
    September 30,
2014
 
                         
Contract revenue   $ 101,348     $ 57,481     $ 261,706     $ 169,993  
Recurring royalties     3,231       4,990       14,238       19,978  
Total revenue     104,579       62,471       275,944       189,971  
                                 
Cost of contract revenue     80,204       56,414       203,011       143,062  
Technology incentive award     (6 )     260       554       1,277  
Research and development     1,903       568       2,778       775  
Selling, general and administrative     21,219       11,568       55,211       34,944  
Postretirement benefit plan settlement gain     -       -       -       (1,285 )
Restructuring charges     709       2,164       3,828       3,436  
Impairment charges     540       1,232       3,155       4,950  
Total operating expenses     104,569       72,206       268,537       187,159  
                                 
Income (loss) from operations     10       (9,735 )     7,407       2,812  
                                 
Interest expense, net     (6,318 )     (2,575 )     (12,532 )     (8,256 )
Other income, net     798       235       1,901       3  
                                 
Loss before income taxes     (5,510 )     (12,075 )     (3,224 )     (5,441 )
                                 
Income tax (benefit) expense     (1,340 )     (3,434 )     862       (4,024 )
                                 
Net loss   $ (4,170 )   $ (8,641 )   $ (4,086 )   $ (1,417 )
                                 
Basic loss per share   $ (0.12 )   $ (0.27 )   $ (0.12 )   $ (0.05 )
                                 
Diluted loss per share   $ (0.12 )   $ (0.27 )   $ (0.12 )   $ (0.05 )

 

See notes to unaudited condensed consolidated financial statements.

 

  3  

 

 

Albany Molecular Research, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Net loss   $ (4,170 )   $ (8,641 )   $ (4,086 )   $ (1,417 )
Foreign currency translation loss     (679 )     (1,475 )     (84 )     (467 )
Net actuarial gain of pension and postretirement benefits     124       112       432       298  
Total comprehensive  loss   $ (4,725 )   $ (10,004 )   $ (3,738 )   $ (1,586 )

 

See notes to unaudited condensed consolidated financial statements.

 

  4  

 

 

Albany Molecular Research, Inc.

Condensed Consolidated Balance Sheets

(unaudited) 

(Dollars and shares in thousands, except per share data)   September 30,
2015
    December 31,
2014
 
Assets                
Current assets:                
Cash and cash equivalents   $ 79,462     $ 46,995  
Restricted cash     2,963       4,052  
Accounts receivable, net     88,306       71,644  
Royalty income receivable     4,762       5,061  
Inventory     104,668       49,880  
Prepaid expenses and other current assets     19,887       11,037  
Deferred income taxes     2,249       2,343  
Property and equipment held for sale     1,132        
Total current assets     303,429       191,012  
                 
Property and equipment, net     213,686       165,475  
Notes hedges     63,220       58,928  
Goodwill     145,726       61,778  
Intangible assets and patents, net     86,814       32,548  
Deferred income taxes     3,644       4,884  
Other assets     3,349       1,243  
Total assets   $ 819,868     $ 515,868  
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable and accrued expenses   $ 63,311     $ 35,757  
Deferred revenue and licensing fees     10,908       11,171  
Arbitration reserve           327  
Income taxes payable     3,084       350  
Deferred income taxes     4,169        
Accrued pension benefits     585       638  
Current installments of long-term debt     15,129       447  
Other current liabilities     2,098        
Total current liabilities     99,284       48,690  
Long-term liabilities:                
Long-term debt, excluding current installments, net     344,373       155,895  
Notes conversion derivative     63,220       58,928  
Pension and postretirement benefits     7,465       8,167  
Income taxes payable     3,002        
Deferred income taxes     12,157        
Other long-term liabilities     1,630       2,366  
Total liabilities     531,131       274,046  
Commitments and contingencies                
Stockholders’ equity:                
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued or outstanding            
Common stock, $0.01 par value, 100,000 shares authorized, 41,008 shares issued as of September 30, 2015 and 38,098 shares issued as of December 31, 2014     410       381  
Additional paid-in capital     295,277       243,874  
Retained earnings     75,546       79,632  
Accumulated other comprehensive loss, net     (14,086 )     (14,434 )
      357,147       309,453  
Less, treasury shares at cost, 5,510 shares as of September 30, 2015 and 5,465 shares as of December 31, 2014     (68,410 )     (67,631 )
Total stockholders’ equity     288,737       241,822  
                 
Total liabilities and stockholders’ equity   $ 819,868     $ 515,868  

 

See notes to unaudited condensed consolidated financial statements.

 

  5  

 

 

Albany Molecular Research, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

    Nine Months Ended  
(Dollars in thousands)   September 30,
2015
    September 30,
2014
 
             
Operating activities                
Net loss   $ (4,086 )   $ (1,417 )
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and intangible amortization     18,670       13,066  
Deferred financing amortization     1,499       1,276  
Accretion of discount on long-term debt     4,628       4,280  
Deferred income taxes     (1,112 )     (2,487 )
Loss on disposal of property and equipment     101       124  
Impairment charges     3,155       4,950  
Allowance for bad debts     508       64  
Stock-based compensation expense     4,816       2,975  
Gain on settlement of post-retirement liability     -       (1,285 )
Excess tax benefit of stock option exercises     -       (1,456 )
Changes in operating assets and liabilities that provide (use) cash, net of impact of business combinations:                
Accounts receivable     12,442       3,054  
Royalty income receivable     299       2,536  
Inventory     (5,491 )     (14,107 )
Prepaid expenses and other assets     (4,331 )     (3,043 )
Accounts payable and accrued expenses     9,694       150  
Income taxes     2,052       (7,179 )
Deferred revenue and licensing fees     (2,416 )     2,465  
Pension and postretirement benefits     (375 )     (261 )
Other long-term liabilities     (1,558 )     209  
Net cash provided by operating activities     38,495       3,914  
                 
Investing activities                
Purchases of businesses, net of cash acquired     (145,656 )     (145,803 )
Purchases of property and equipment     (13,659 )     (12,013 )
Payments for patent applications and other costs     (54 )     (292 )
Proceeds from disposal of property and equipment     31       80  
Net cash used in investing activities     (159,338 )     (158,028 )
                 
Financing activities                
Borrowings on long-term debt     237,000       -  
Principal payments on long-term debt     (76,799 )     (5,027 )
Deferred financing costs     (8,274 )     (232 )
Change in restricted cash     1,089       (959 )
Proceeds from sale of common stock     2,818       2,135  
Purchases of treasury stock     (779 )     (541 )
Excess tax benefit of stock option exercises     -       1,456  
Net cash provided by (used in) financing activities     155,055       (3,168 )
                 
Effect of exchange rate changes on cash and cash equivalents     (1,745 )     (230 )
                 
Increase (decrease) in cash and cash equivalents     32,467       (157,512 )
                 
Cash and cash equivalents at beginning of period     46,995       175,928  
                 
Cash and cash equivalents at end of period   $ 79,462     $ 18,416  
                 
The following summarizes the Company’s supplemental cash flows information:                
Non-cash investing and financing activities:                
Issuance of common stock for business acquisition   $ (43,745 )   $ -  

 

See notes to unaudited condensed consolidated financial statements.

 

  6  

 

 

(All amounts in thousands, except per share amounts, unless otherwise noted)

 

Note 1 — Summary of Operations and Significant Accounting Policies

Nature of Business and Operations

 

Albany Molecular Research, Inc. (the “Company”) is a leading global contract research and manufacturing organization providing customers fully integrated drug discovery, development, and manufacturing services. We supply a broad range of services and technologies supporting the discovery and development of pharmaceutical products, the manufacturing of Active Pharmaceutical Ingredients (“API”) and the manufacturing of drug product for new and generic drugs, as well as research, development and manufacturing for the agrochemical and other industries. With locations in the United States, Europe, and Asia, we maintain geographic proximity to our customers and flexible cost models.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair statement of the results for the interim period have been included. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of September 30, 2015. All intercompany balances and transactions have been eliminated during consolidation. Assets and liabilities of non-U.S. operations are translated at period-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the period. Unrealized gains or losses resulting from translating non-U.S. currency financial statements are recorded in accumulated other comprehensive loss in the accompanying unaudited condensed consolidated balance sheets. When necessary, prior years’ unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation.

 

Use of Management Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates included in the accompanying consolidated financial statements include assumptions regarding the valuation of inventory, intangible assets, and long-lived assets and assumptions associated with our accounting for business combinations. Other significant estimates include assumptions utilized in determining actuarial obligations in conjunction with the Company’s pension and postretirement health plans, the amount and realizabilty of deferred tax assets, assumptions utilized in determining stock-based compensation, as well as those utilized in determining the value of both the notes hedges and the notes conversion derivative and the assumptions related to the collectability of receivables. Actual results can vary from these estimates.

 

Contract Revenue Recognition

 

The Company’s contract revenue consists primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts. Reimbursed expenses consist of chemicals and other project specific costs. The Company also seeks to include provisions in certain contracts that contain a combination of up-front licensing fees, milestone and royalty payments should the Company’s proprietary technology and expertise lead to the discovery of new products that become commercial. Generally, the Company’s contracts may be terminated by the customer upon 30 days’ to two years’ prior notice, depending on the terms and/or size of the contract. The Company analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single unit of accounting in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 605-25, “Revenue Arrangements with Multiple Deliverables,” and Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition”. Allocation of revenue to individual elements that qualify for separate accounting is based on the separate selling prices determined for each component, and total contract consideration is then allocated pro rata across the components of the arrangement. If separate selling prices are not available, the Company will use its best estimate of such selling prices, consistent with the overall pricing strategy and after consideration of relevant market factors.

 

The Company generates contract revenue under the following types of contracts:

 

  7  

 

 

Fixed-Fee . Under a fixed-fee contract, the Company charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title transfers to the customer, and collection is reasonably assured. In certain instances, the Company’s customers request that the Company retain materials produced upon completion of the project due to the fact that the customer does not have a qualified facility to store those materials or for other reasons. In these instances, the revenue recognition process is considered complete when project documents have been delivered to the customer, as required under the arrangement, or other customer-specific contractual conditions have been satisfied.

 

Full-time Equivalent (“FTE”).  An FTE agreement establishes the number of Company employees contracted for a project or a series of projects, the duration of the contract period, the price per FTE, plus an allowance for chemicals and other project specific costs, which may or may not be incorporated in the FTE rate. FTE contracts can run in one month increments, but typically have terms of six months or longer. FTE contracts typically provide for annual adjustments in billing rates for the scientists assigned to the contract.

 

These contracts involve the Company’s scientists providing services on a “best efforts” basis on a project that may involve a research component with a timeframe or outcome that has some level of unpredictability. There are no fixed deliverables that must be met for payment as part of these services. As such, the Company recognizes revenue under FTE contracts on a monthly basis as services are performed according to the terms of the contract.

 

Time and Materials.  Under a time and materials contract, the Company charges customers an hourly rate plus reimbursement for chemicals and other project specific costs. The Company recognizes revenue for time and material contracts based on the number of hours devoted to the project multiplied by the customer’s billing rate plus other project specific costs incurred.

 

Recurring Royalty and Milestone Revenues

 

Recurring Royalty Revenue . Recurring royalties have historically related to royalties under a license agreement with Sanofi based on the worldwide net sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, as well as on sales of Sanofi’s authorized or licensed generics and sales by certain authorized sub-licensees. These royalty payments ceased in May 2015 due to the expiration of patents under the license agreement. The Company currently receives royalties in conjunction with a Development and Supply Agreement with Allergan, plc (“Allergan”). These royalties are earned on net sales of generic products sold by Allergan. The Company records royalty revenue in the period in which the net sales of this product occur. Royalty payments from Allergan are due within 60 days after each calendar quarter and are determined based on sales of the qualifying products in that quarter. The company also receives royalties on certain other products.

 

Up-Front License Fees and Milestone Revenue . The Company recognizes revenue from up-front non-refundable licensing fees on a straight-line basis over the period of the underlying project. The Company will recognize revenue arising from a substantive milestone payment upon the successful achievement of the event, and the resolution of any uncertainties or contingencies regarding potential collection of the related payment, or if appropriate over the remaining term of the agreement.

 

In 2014, the Company entered into development and supply agreements with Genovi Pharmaceuticals Limited which have subsequently been transferred to HBT Labs, Inc. (“HBT”) to manufacture select generic parenteral drug products for registration and subsequent commercialization in the U.S., Europe, and select emerging markets. 

 

Under the terms of these HBT Agreements, the Company may receive milestone payments for each drug product candidate upon achievement of certain developments milestones including technology transfer activities, analytical development activities, and manufacture of regulatory submission batches.  Following U.S. Food and Drug Administration approval, the Company will supply generic parenteral drug products to HBT pursuant to the HBT Agreements and receive payments based on HBT's sales of such products.

 

The Company has determined these milestones payments to be substantive milestones in accordance with ASC 605-28-25, “Revenue Recognition – Milestone Method” (“ASC 605”). In evaluating these milestones, the Company considered the following:

 

  · The Company considered each individual milestone to be commensurate with the enhanced value of the underlying licensed intellectual property or drug product candidate as they are advanced from the development stage to a commercialized product, and considered them to be reasonable when evaluated in relation to the total agreement consideration, including other milestones.
  · The milestones are deemed to relate solely to past performance, as each milestone is payable to the Company only after the achievement of the related event defined in the agreement, and is not refundable if additional future success events do not occur.

 

For both the three months and nine months ended September 30, 2015 and 2014, no milestone revenue was recognized by the Company.

 

  8  

 

 

Proprietary Drug Development Arrangements

 

The Company has discovered and conducted the early development of several new drug candidates, with a view to out-licensing these candidates to partners for further development in return for a potential combination of up-front license fees, milestone payments and recurring royalty payments if compounds resulting from our intellectual property are successfully developed into new drugs and reach the market. The milestones included in the Company’s current license arrangements would not have a significant impact on the Company’s consolidated operating results, financial position, or cash flows.

 

Cash, Cash Equivalents and Restricted Cash

 

Cash equivalents consist of money market accounts and overnight deposits. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

Restricted cash balances at September 30, 2015 and December 31, 2014, are required as collateral for the letters of credit associated with our debt agreements.

 

Long-Lived Assets

 

The Company assesses the impairment of a long-lived asset group whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, among others, the following:

 

  · a significant change in the extent or manner in which a long-lived asset group is being used;

 

  · a significant change in the business climate that could affect the value of a long-lived asset group; or

 

  · a significant decrease in the market value of assets.

 

If the Company determines that the carrying value of long-lived assets may not be recoverable, based upon the existence of one or more of the above indicators of impairment, the Company compares the carrying value of the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows, an impairment charge is indicated. An impairment charge is recognized to the extent that the carrying amount of the asset group exceeds its fair value and will reduce only the carrying amounts of the long-lived assets.

 

Derivative Instruments and Hedging Activities

 

The Company accounts for derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or a liability measured at fair value. Additionally, changes in a derivative’s fair value shall be recognized currently in earnings unless specific hedge accounting criteria are met.

 

Recently Issued Accounting Pronouncements

 

In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”. ASU No. 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard is effective for fiscal years beginning after December 15, 2015 and for interim periods therein with early adoption permitted. The Company adopted this ASU effective July 1, 2015.

 

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

 

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. The ASU applies to entities that measure an investment’s fair value using the net asset per share (or an equivalent) practical expedient, while the amendments of the ASU eliminate the requirement to classify the investment within the fair value hierarchy. In addition, the requirement to make specific disclosures for all investments eligible to be assessed at fair value with the net asset value per share practical expedient has been removed. Instead, such disclosures are restricted only to investments that the entity has decided to measure using the practical expedient. The amendments in this ASU apply for fiscal years starting after December 15, 2015, and the interim periods within. The amendments are to be applied retrospectively to all periods offered, with early adoption permitted. The Company does not expect this ASU to have a material impact on its consolidated financial statements.

 

  9  

 

 

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which updated guidance to clarify the required presentation of debt issuance costs.   The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts.   Amortization of debt issuance costs is to be reported as interest expense.   The recognition and measurement guidance for debt issuance costs are not affected by the updated guidance. The update requires retrospective application and represents a change in accounting principles. The updated guidance is effective for reporting periods beginning after December 15, 2015, with early adoption permitted.   The Company has adopted this ASU in the third quarter of 2015 and has reflected $10,856 and $4,085 as reduction of long-term debt at September 30, 2015 and December 31, 2014, respectively. Previously, these costs were recorded as part of other assets.

 

In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company does not expect this ASU to have a material impact on its consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: (Topic 606)." This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of ASC Topic 360, "Property, Plant, and Equipment," and intangible assets within the scope of ASC Topic 350, "Intangibles-Goodwill and Other") are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of ASU 2014-09. This ASU is now effective for calendar years beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

 

Note 2 — Earnings Per Share

 

The shares used in the computation of the Company’s basic and diluted earnings per share are as follows:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Weighted average common shares outstanding – basic and diluted     34,087       31,631       32,700       31,468  

 

The Company has excluded certain outstanding stock options, non-vested restricted stock and warrants from the calculation of diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 because the net loss causes these amounts to be anti-dilutive. The weighted average number of anti-dilutive common equivalents outstanding (before the effects of the treasury stock method) was 11,962 and 13,050 for the three months ended September 30, 2015 and 2014, respectively, and 12,028 and 12,527 for the nine months ended September 30, 2015 and 2014, respectively. These amounts are not included in the calculation of weighted average common shares outstanding.

 

Note 3 – Business Acquisitions

 

On July 16, 2015 the Company completed the purchase of Gadea Grupo Farmaceutico, S.L. (“Gadea”), a contract manufacturer of complex active pharmaceutical ingredients (“APIs”) and finished drug product. Gadea is expected to continue to operate independently within the Company's  API and Drug Product Manufacturing (“DPM”) segments. The preliminary estimated aggregate net purchase price is $140,745, which included the issuance of 2,200 shares of common stock, valued at $43,745, with the balance comprised of $97,000 in cash. For the purposes of these pro forma financial statements, the estimated aggregate purchase price has been preliminarily allocated based on an estimate of the fair value of assets and liabilities acquired as of the acquisition date. The allocation of acquisition consideration for Gadea is based on estimates, assumptions, valuations and other studies which have not yet been finalized in order to make a definitive allocation. The following table summarizes the allocation of the preliminary aggregate purchase price to the estimated fair value of the net assets acquired:

 

  10  

 

 

    July 16,
2015
 
Assets Acquired        
Cash   $ 10,961  
Accounts receivable     23,756  
Prepaid expenses and other current assets     2,563  
Inventory     48,453  
Property and equipment     38,335  
Deferred tax assets     856  
Intangible assets     48,000  
Goodwill     51,365  
Other long term-assets     2,053  
Total assets acquired   $ 226,342  
         
Liabilities Assumed        
Accounts payable and accrued expenses   $ 16,561  
Debt     44,523  
Income taxes payable     5,920  
Deferred income taxes     17,050  
Other long-term liabilities     1,543  
Total liabilities assumed     85,597  
Net assets acquired   $ 140,745  

 

The Company has attributed the goodwill of $51,365 to an expanded global footprint and additional market opportunities that the Gadea business offers. The goodwill is not deductible for tax purposes.

 

On January 8, 2015 the Company completed the purchase of all of the outstanding equity interests of Aptuit's Glasgow, UK business (“Glasgow”) for total consideration of $23,952. The Glasgow facility will extend the Company’s capabilities to sterile injectable drug product pre-formulation, formulation and clinical stage manufacturing. Glasgow has been assigned to the DPM segment.

 

The following table summarizes the preliminary allocation of the purchase price to the fair value of the net assets acquired:

 

    January 8,
2015
 
Assets Acquired        
Accounts receivable   $ 3,381  
Prepaid expenses and other current assets     1,160  
Inventory     244  
Property and equipment     4,285  
Intangible assets     4,700  
Goodwill     13,816  
Deferred tax asset     1,405  
Other long term-assets     33  
Total assets acquired   $ 29,024  
         
Liabilities Assumed        
Accounts payable and accrued expenses   $ 1,510  
Deferred revenue     1,935  
Deferred tax liabilities     1,439  
Other long-term liabilities     188  
Total liabilities assumed     5,072  
Net assets acquired   $ 23,952  

 

The goodwill of $13,816 is primarily attributed to the synergies expected to arise after the acquisition and is not deductible for tax purposes.

 

  11  

 

 

On February 13, 2015 the Company completed the purchase of assets and assumed certain liabilities of Aptuit's Solid State Chemical Information/West Lafayette, Indiana business (“SSCI”) for total consideration of $35,850. SSCI brings extensive material science knowledge and technology and expands the Company’s capabilities in analytical testing to include peptides, proteins and oligonucleotides. SSCI has been assigned to the Discovery and Development Services (“DDS”) segment.

 

The following table summarizes the preliminary allocation of the purchase price to the fair value of the net assets acquired:

 

    February 13,
2015
 
Assets Acquired        
Accounts receivable   $ 2,327  
Prepaid expenses and other current assets     801  
Property and equipment     11,976  
Intangible assets     3,560  
Goodwill     18,055  
Total assets acquired   $ 36,719  
         
Liabilities Assumed        
Accounts payable and accrued expenses   $ 647  
Deferred revenue     222  
Total liabilities assumed     869  
Net assets acquired   $ 35,850  

 

The goodwill of $18,055 is primarily attributed to the synergies expected to arise after the acquisition and is deductible for tax purposes.

 

For Gadea, final valuations will be completed to determine the fair value of the acquired property and equipment and any identifiable intangibles, which may result in changes to the above preliminary estimated fair values, as well as changes to the allocated goodwill. For both Glasgow and SSCI, the valuations are considered to be preliminary as of September 30, 2015.

 

Revenue and operating income from Gadea for the period ended July 16, 2015 to September 30, 2015 was $19,059 and $1,123, respectively.

Revenue and operating income from Glasgow for the period January 9, 2015 to September 30, 2015 was $11,502 and $2,651, respectively. Revenue and operating income from SSCI for the period ended February 13, 2015 to September 30, 2015 was $10,686 and $2,228, respectively.  

 

The following table shows the unaudited pro forma statements of operations for the three and nine months ended September 30, 2015 and 2014, respectively, as if the Gadea, Glasgow and SSCI acquisitions had occurred on January 1, 2014. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisitions had occurred as of the date indicated or what such results would be for any future periods. 

 

    Three months
ended
September 30,
2015
    Three months
ended
September 30,
2014
    Nine
Months
Ended
September
30, 2015
    Nine
Months
Ended
September
30, 2014
 
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Total revenues   $ 108,253     $ 90,025     $ 325,673     $ 267,199  
Net (Loss) Income     (2,934 )     (2,816 )     1,144       (7,036 )
Pro forma weighted average shares – basic     34,454       33,821       34,289       33,668  
Pro forma weighted average shares – diluted     34,454       33,821       35,523       33,668  
Pro forma (loss) earnings per share:                                
Basic   $ (0.09 )   $ (0.08 )   $ 0.03     $ (0.21 )
Diluted   $ (0.09 )   $ (0.08 )   $ 0.03     $ (0.21 )

 

  12  

 

 

The following table shows the pro forma adjustments made to the weighted average shares outstanding for the periods noted:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Weighted average common shares outstanding – basic     34,087       31,631       32,700       31,468  
Pro forma impact of acquisition consideration     367       2,200       1,589       2,200  
Pro forma weighted average shares – basic     34,454       33,831       34,289       33,668  
Dilutive effect of warrants and share based compensation                 1,234        
Pro forma weighted average shares - diluted     34,454       33,831       35,523       33,668  

 

For the nine month periods ended September 30, 2015 and 2014, pre-tax net income was adjusted by reducing expenses by $985 for acquisition related costs and by increasing expenses by $985 for acquisition related costs, respectively.

 

For the three and nine months ended September 30, 2015 pre-tax net income was adjusted by increasing expenses by $144 and $2,346, respectively, for purchase accounting related depreciation and amortization. For the three and nine months ended September 30, 2014 pre-tax net income was adjusted by increasing expenses by $1,566 and $4,697, respectively, for purchase accounting related depreciation and amortization.

 

For the nine months ended September 30, 2014, the estimated acquisitions accounting adjustment of $17,803 was included in cost of contract revenue to show the proforma impact of the Gadea acquisition occurring on January 1, 2014. For the three and nine months ended September 30, 2015, a pro forma adjustment was made to reduce cost of revenue by $3,126.

 

The Company partially funded the acquisition of Gadea utilizing the proceeds from a $200,000 term loan that was provided for in conjunction with a $230,000 senior secured credit agreement (the “Credit Agreement”) with Barclays Bank PLC that was completed in July 2015 (see Note 5). The Company did not have sufficient cash on hand to complete the acquisition as of January 1, 2014. For the purposes of presenting the pro forma statements of operations for the three and nine months ended September 30, 2015 and 2014, the Company has assumed that it entered into a Credit Agreement on January 1, 2014 for an amount sufficient to fund the preliminary cash consideration to acquire Gadea as of that date. The pro forma statements of operations for the three and nine months ended September 30, 2015 and 2014 reflect the recognition of interest expense that would have been incurred on the Credit Agreement had it been entered into on January 1, 2014. The Company has recorded $520 and $7,921 of pro forma interest expense on the Credit Agreement for the purposes of presenting the pro forma statements of operations for the three and nine months ended September 30, 2015, and $3,057 and $9,171 for the three and nine months ended September 30, 2014, respectively.

 

The Company funded the acquisitions of SSCI and Glasgow utilizing the proceeds from a $75,000 senior secured credit agreement that was completed in October of 2014. The Company did not have sufficient cash on hand to complete these acquisitions as of January 1, 2014. For the purposes of presenting the pro forma statement of operations for the three and nine months ended September 30, 2014, the Company has included the assumption of bridge financing as of January 1, 2014 to fund the acquisition of SSCI and Glasgow as of that date. The pro forma statement of operations for the three and nine months reflects the recognition of interest expense on the assumed bridge financing for the period January 1, 2014 to September 30, 2014, using the rate of interest that the Company paid on its senior secured credit facility. For the three and nine months ended September 30, 2015, pre-tax net income was adjusted by $0 and $98 of pro forma interest expense on the senior secured facility to assume that the amount had been outstanding for the entire three and nine month periods. For the three and nine months ended September 30, 2014, pre-tax net income was adjusted by $375 and $1,125 of pro forma interest expense on the senior secured facility. 

 

Note 4 — Inventory

 

Inventory consisted of the following as of September 30, 2015 and December 31, 2014:

 

    September 30,
2015
    December 31,
2014
 
Raw materials   $ 39,209     $ 24,298  
Work in process     39,382       4,563  
Finished goods     26,077       21,019  
Total inventories, at cost   $ 104,668     $ 49,880  

 

  13  

 

 

Note 5 –Debt

 

The following table summarizes long-term debt:

 

    September 30,
2015
    December 31,
2014
 
Convertible senior notes, net of unamortized debt discount   $ 127,325     $ 122,696  
Revolving credit facility     198,171       35,000  
Industrial development authority bond     2,080       2,390  
Bankia, S.A. euro-denominated loan – due May 2017     1,195       -  
Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due April 2017     1,955       -  
Banco Santander, S.A. euro-denominated loan – due May 2017     1,574       -  
Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due February 2019     9,581       -  
Banco Santander, S.A. euro-denominated loan – due February 2020     6,929       -  
Bankia, S.A. euro-denominated loan – due February 2020     12,628       -  
Caixabank, S.A. euro-denominated loan – due February 2020     3,362       -  
ADE euro denominated loan due  due August 2022     1,007       -  
Ministry of Economy and Competitiveness euro-denominated loan – due 2017     1,613       -  
Somacyl euro-denominated loan – due March 2016     1,714       -  
Capital leases – equipment & other     1,224       341  
      370,358       160,427  
Less deferred financing fees     (10,856 )     (4,085 )
Less current portion     (15,129 )     (447 )
Total long-term debt   $ 344,373     $ 155,895  

 

The aggregate maturities of long-term debt, exclusive of unamortized debt discount of $24,505 at September 30, 2015, are as follows:

 

2015 (remaining)   $ 3,527  
2016     14,970  
2017     11,943  
2018     354,189  
2019     6,092  
Thereafter     4,142  
Total   $ 394,863  

 

Term Loan and Revolving Credit Facility

 

In April 2012, the Company entered into a $20,000 credit facility consisting of a four-year, $5,000 term loan and a $15,000 revolving line of credit. In April 2014, the Company utilized the balance of restricted cash to pay off the balance of the term loan, thereby eliminating the term loan liability. In June 2014, the Company terminated the credit agreement while still maintaining the letters of credit, thus requiring the Company to continue to maintain restricted cash to collateralize these letters of credit.

 

The balance required to be maintained as restricted cash must be at least 110% of the maximum potential amount of the outstanding letters of credit.  As of September 30, 2015, the Company had $2,111 of outstanding letters of credit secured by restricted cash of $2,963 and $960 of outstanding letters of credit that were unsecured.

 

On October 24, 2014, the Company entered into a $50,000 senior secured credit agreement (the “Credit Agreement”) consisting of a three-year, $50,000 revolving credit facility, which includes a $15,000 sublimit for the issuance of standby letters of credit and a $5,000 sublimit for swing line loans. The Credit Agreement also included an accordion feature that, subject to securing additional commitments from existing lenders or new lending institutions, would have allowed the Company to increase the aggregate commitments under the Credit Agreement by up to $10,000. On December 23, 2014, the Credit Agreement was amended to increase the available commitment to $75,000, increasing and using the accordion feature in its entirety (“Amendment No 1. to Credit Agreement”).

 

On July 16, 2015, the Company entered into an Amendment and Restatement to the Credit Agreement (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement permitted the Company to repay the entire outstanding principal outstanding under Amendment No. 1 to Credit Agreement and to apply that prepayment on a non-pro rata basis among the lenders under Amendment No. 1 to Credit Agreement. The Company used the proceeds from borrowings under the Amended and Restated Credit Agreement to repay the entire outstanding principal outstanding under the Amendment No. 1 to Credit Agreement on July 16, 2015 and amended the Credit Agreement.

 

  14  

 

 

On August 19, 2015, the Company entered into the Second Amended and Restated Credit Agreement (the “Second Restated Credit Agreement”) with Barclays Bank PLC, as Administrative Agent, Collateral Agent, L/C Issuer and Swing Line Lender, and the other lenders party thereto.

 

The Second Restated Credit Agreement, increases the aggregate commitments under the Amended and Restated Credit Agreement by up to $50,000 (plus, to the extent utilized to effect an increase in the revolving credit facility an additional $20,000), plus an unlimited amount subject to compliance with a pro forma secured leverage ratio. The borrowings under the Second Restated Credit Agreement are prepayable at the option of the Company, subject to a 1.00% prepayment premium in certain circumstances if prepaid within the first twelve months after the date of the Second Restated Credit Agreement, and otherwise without premium or penalty (other than customary brokerage costs for Eurodollar loans).

 

The Second Restated Credit Agreement, subject to the terms and conditions set forth therein, provides for a $200,000 five-year term loan and a $30,000 five-year revolving credit facility, which includes a $10,000 sublimit for the issuance of standby letters of credit and a $5,000 sublimit for swingline loans. The Company used a portion of the proceeds to fund the acquisition of Gadea and expects to use future borrowings under the Second Restated Credit Agreement for working capital and other general corporate purposes of the Company and its subsidiaries, subject to the terms and conditions set forth in the Second Restated Credit Agreement.

 

At the Company’s election, term loans made under the Second Restated Credit Agreement initially bear interest at the Adjusted Eurodollar Rate (as defined below) plus 4.75% or the Base Rate (as defined below) plus 3.75%. Upon achievement of a certain senior secured leverage ratio, the rates will step down to 4.50% and 3.50%, respectively. The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus ½ of 1.00%, (ii) the prime rate in effect on such day and (iii) the Adjusted Eurodollar Rate for a one month interest period beginning on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00%; provided that, in the case of the term loans, the Base Rate shall at all times be deemed to be not less than the 2.00%. The Adjusted Eurodollar Rate means for the interest period for each Eurodollar loan comprising part of the same group, the quotient obtained (expressed as a decimal, carried out to five decimal places) by dividing (i) the applicable Eurodollar rate for such interest period by (ii) 1.00% minus the Eurodollar reserve percentage; provided that, in the case of the term loans only, the Adjusted Eurodollar Rate shall at all times be deemed to be not less than 1.00%.

 

The Second Restated Credit Agreement includes a springing maturity provision such that the loans under the Second Restated Credit Agreement will mature six months prior to the maturity date of the Notes if more than $25,000 of the Notes (as defined below) are outstanding and the secured leverage ratio is greater than 1.50 to 1.00 on such date.

  

The borrowings under the Second Restated Credit Agreement are prepayable at the option of the Company, subject to a 1.00% prepayment premium in certain circumstances if prepaid within the first twelve months, and otherwise without premium or penalty (other than customary breakage costs for Eurodollar loans). Amounts prepaid under the term loan facility are not available for reborrowing, but amounts prepaid under the revolving credit facility are available for reborrowing unless the Company decides to permanently reduce the commitments under the revolving credit facility, subject to the terms and conditions of the Second Restated Credit Agreement.

 

The obligations under the Second Restated Credit Agreement are guaranteed by certain domestic subsidiaries of the Company (each a “Guarantor”) and are secured by first priority liens on, and security interests in, substantially all of the present and after-acquired assets of the Company and each Guarantor subject to certain customary exceptions.

 

The Second Restated Credit Agreement contains customary representations and warranties relating to the Company and its subsidiaries. The Second Restated Credit Agreement also contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens, indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature of the business, transactions with affiliates and other matters customarily restricted in such agreements. The Second Restated Credit Agreement is also subject to certain customary “Market Flex” provisions, which, if utilized, could alter certain of the terms.

 

The components of the revolving credit facility were as follows:

 

    September 30,
2015
 
Principal amount   $ 200,000  
Unamortized debt discount     1,829  
Net carrying amount of revolving credit facility   $ 198,171  

 

Convertible Senior Notes

 

On December 4, 2013, the Company completed a private offering of $150,000 aggregate principal amount of 2.25% Cash Convertible Senior Notes (the “Notes”), between the Company and Wilmington Trust, National Association, as Trustee.  The Notes mature on November 15, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date and interest is paid in arrears semiannually on each May 15 and November 15 at an annual rate of 2.25% beginning on May 15, 2014. The Notes were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").

 

  15  

 

 

The Notes are not convertible into the Company's common stock or any other securities under any circumstances. Holders may convert their Notes solely into cash at their option at any time prior to the close of business on the business day immediately preceding May 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2013 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per thousand dollars principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes solely into cash at any time, regardless of the foregoing circumstances. Upon conversion, in lieu of receiving shares of the Company's common stock, a holder will receive, per thousand dollars principal amount of Notes, an amount in cash equal to the settlement amount, determined in the manner set forth in the indenture. The initial conversion rate is 63.9844 shares of the Company's common stock per thousand dollars principal amount of Notes (equivalent to an initial conversion price of approximately $15.63 per share of common stock). The conversion rate is subject to adjustment in some events as described in the Indenture but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company has agreed to pay a cash make-whole premium by increasing the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances as described in the indenture.

 

The Company may not redeem the Notes prior to the maturity date, and no sinking fund is provided for the Notes.

 

The cash conversion feature of the Notes (“Notes Conversion Derivative”) requires bifurcation from the Notes in accordance with ASC Topic 815, Derivatives and Hedging , and is accounted for as a derivative liability. The fair value of the Notes Conversion Derivative at the time of issuance of the Notes was $33,600 and was recorded as original debt discount for purposes of accounting for the debt component of the Notes. This discount is amortized as interest expense using the effective interest method over the term of the Notes. For the three and nine months ended September 30, 2015, the Company recorded $1,572 and $4,628, respectively, of amortization of the debt discount as interest expense based upon an effective rate of 7.69%.

 

The components of the Notes were as follows:

 

    September 30,
2015
    December 31,
2014
 
Principal amount   $ 150,000     $ 150,000  
Unamortized debt discount     22,675       27,304  
Net carrying amount of Notes   $ 127,325     $ 122,696  

 

In connection with the pricing of the Notes, on November 19, 2013, the Company entered into cash convertible note hedge transactions (“Notes Hedges”) relating to a notional number of shares of the Company's common stock underlying the Notes to be issued by the Company with two counterparties (the "Option Counterparties"). The Notes Hedges, which are cash-settled, are intended to reduce the Company’s exposure to potential cash payments that we are required to make upon conversion of the Notes in excess of the principal amount of converted notes if our common stock price exceeds the conversion price. The Notes Hedges are accounted for as a derivative instrument in accordance with ASC Topic 815. The aggregate cost of the note hedge transaction was $33,600.

 

At the same time, the Company also entered into separate warrant transactions with each of the Option Counterparties initially relating, in the aggregate, to 9,598 shares of the Company's common stock underlying the note hedge transactions. The cash convertible Note Hedges are intended to offset cash payments due upon any conversion of the Notes. However, the warrant transactions could separately have a dilutive effect to the extent that the market price per share of the Company's common stock (as measured under the terms of the warrant transactions) exceeds the applicable strike price of the warrants. The initial strike price of the warrants is $18.9440 per share, which was 60% above the last reported sale price of the Company's common stock of $11.84 on November 19, 2013 and proceeds of $23,100 were received from the Option Counterparties from the sale of the warrants.

 

Aside from the initial payment of a $33,600 premium to the Option Counterparties, the Company is not required to make any cash payments to the Option Counterparties under the Note Hedges and will be entitled to receive from the Option Counterparties an amount of cash, generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Note Hedges during the relevant valuation period. The strike price under the Note Hedges is initially equal to the conversion price of the Notes. Additionally, if the market price per share of the Company's common stock, as measured under the warrant transactions, exceeds the strike price of the warrants during the measurement period at the maturity of the warrants, the Company will be obligated to issue to the Option Counterparties a number of shares of the Company's common stock in an amount based on the excess of such market price per share of the Company's common stock over the strike price of the warrants. The Company will not receive any proceeds if the warrants are exercised.

 

  16  

 

 

Neither the Notes Conversion Derivative nor the Notes Hedges qualify for hedge accounting, thus any changes in the fair market value of the derivatives is recognized immediately in the statement of operations. As of September 30, 2015 and December 31, 2014, the changes in fair market value of the Notes Conversion Derivative and the Notes Hedges were equal, therefore there was no change in fair market value that was recognized in the statement of operations.

 

The following table summarizes the fair value and the presentation in the consolidated balance sheet:

 

    Location on Balance
Sheet
  September 30,
2015
    December 31,
2014
 
Notes Hedges   Other assets   $ 63,220     $ 58,928  
Notes Conversion Derivative   Other liabilities   $ (63,220 )   $ (58,928 )

 

Loans with various financial institutions

 

In connection with the Gadea acquisition, the Company assumed various debt instruments as part of the transaction as follows:

 

· Bankia, S.A. euro-denominated loan – due May 2017: Loan was granted under the “2014 ICO-Companies and Entrepreneurs” Financing Agreement, for initial amount of $4,110 and is repayable in 36 monthly installments.
· Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due April 2017: Loan was granted under the “2014 ICO-Companies and Entrepreneurs” Financing Agreement, for initial amount of $2,760 and is repayable in 36 monthly installments.
· Banco Santander, S.A. euro-denominated loan – due May 2017: Loan was granted under the “2014 EIB-SME-Medium-Sized-Enterprises” Financing Agreement, for $3,425 and is repayable in 36 monthly installments.
· Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due February 2019: Loan was granted for $11,350, repayable in 48 monthly installments.
· Banco Santander, S.A. euro-denominated loan – due February 2020: Loan was granted under the “BEI-Inversion 2012” Financing Agreement for an initial amount of $14,187 and is repayable in 20 quarterly installments.
· Bankia, S.A. euro-denominated loan – due February 2020: Loan was granted for $7,945, repayable in 60 monthly installments.
· Caixabank, S.A. euro-denominated loan – due February 2020: Loan was granted for $3,405, repayable in 10 biannual installments.

 

All of the above loans bear interest at a rate equivalent to the Euribor plus a market spread, with the exception of the Banco Santander, S.A. loan – February 2020, which bears interest at a fixed annual rate of 1.5%. The range of interest rates for the above loans is 1.48% to 2.21%. In the event the Banco Santander S.A loan – 2020 is repaid early, the Company must pay the financial institution an amount in compensation for any financial losses it suffers as a result of the early repayment, based on a pre-established formula. As of September 30, 2015, the Company does not intend to repay this loan early.

 

Loans granted by public bodies

 

· ADE euro denominated loan due August 2022 – Loan was granted by the Agency of Financing, Innovation and Business Internationalization (“ADE”) in 2013 for $1,170. It bears interest at a fixed annual rate of 2.11% and is payable in twelve bi-annual installments of $98 each, starting in August of 2016.
· Ministry of Economy and Competitiveness euro-denominated loan – due 2017 – Research and development loan was granted by the Ministry of Economy and Competitiveness in two installments, made in 2012 & 2013 for $2,254. The loan bears interest at 0.5% and is due in 2017.
· Somacyl euro-denominated loan – due March 2016 – Loan for the financing of a production plant in March 2014, with payments of principal and interest of 2.0% of 24 installments $13 from inception, then one payment of $1,826 in March 2016.

 

Note 6 — Restructuring and Impairment

 

In April 2015, the Company announced a restructuring plan with respect to certain operations in the UK, within its API business segment. In connection with the restructuring plan, the Company expects to cease all operations at its Holywell, UK facility effective in the fourth quarter of 2015. The Company recorded $253 and $2,729 in charges for reduction in force and termination benefits related to the UK facility during the three and nine months ended September 30, 2015, respectively. In conjunction with the Company’s actions to cease operations at its Holywell, UK facility, the Company also recorded property and equipment impairment charges of $540 and $3,090 in the API segment during the three and nine months ended September 30, 2015. These charges are included under the caption “impairment charges” on the consolidated statement of operations. Equipment that will not be transferred or recovered through sale is subject to accelerated depreciation over the remaining operating period of the facility.

 

  17  

 

 

In the third quarter of 2014, the Company recorded restructuring charges related to optimizing the Singapore facility’s footprint. In April 2014, the Company announced a restructuring plan transitioning Discovery and Development Services (“DDS”) activities at its Syracuse, NY site to other sites within the Company and ceased operations in Syracuse, NY at the end of June 2014. The actions taken are consistent with the Company’s ongoing efforts to consolidate its facility resources to more effectively utilize its DDS resource pool and to further reduce its facility cost structure.

 

Restructuring charges for the three and nine months ended September 30, 2015 were $709 and $3,828, respectively, consisting primarily of UK termination charges and costs associated with the transfer of continuing products from the Holywell, UK facility to our other manufacturing locations as well as, lease termination and other charges associated with the previously announced restructuring at the Company’s Syracuse, NY facility.

 

The following table displays the restructuring activity and liability balances for the nine month period ended as of September 30, 2015:

 

    Balance at
January 1,
2015
    Charges/
(reversals)
   

Amounts

Paid

    Foreign
Currency
Translation &
Other
Adjustments
   

Balance at
September
30,

2015

 
                                         
Termination benefits and personnel realignment   $ 226     $ 2,607       (715 )     (11 )   $ 2,107  
Lease termination and relocation charges     3,280       238       (1,627 )     (106 )     1,785  
Other     -      

983

      (983 )             -  
Total   $ 3,506     $ 3,828       (3,325 )     (117 )   $ 3,892  

 

Termination benefits and personnel realignment costs relate to severance packages, outplacement services, and career counseling for employees affected by the restructuring. Lease termination charges relate to estimated costs associated with exiting a facility, net of estimated sublease income.

 

Restructuring charges are included under the caption “Restructuring charges” in the consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “other long-term liabilities” on the consolidated balance sheets at September 30, 2015 and December 31, 2014.

 

Anticipated cash outflow related to the restructuring reserves as of September 30, 2015 for the remainder of 2015 is approximately $1,295.

 

The Company is currently marketing its Syracuse, NY facility for sale, within its DDS operating segment. The facility is classified as for held for sale in accordance with ASC Topic 360, “Property, Plant and Equipment”, as amended by ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Components of an Entity”. The long-lived assets associated with the Syracuse, NY facility have been segregated to a separate line item on the consolidated balance sheet until they are sold and depreciation expense on the location has ceased. The carrying value of the facility is $1,132 at September 30, 2015.

 

Note 7 — Goodwill and Intangible Assets

 

The changes in the carrying amount of goodwill for the nine months ended September 30, 2015 were as follows:

 

    DDS     API     DPM     Total  
Balance as of December 31, 2014   $ -     $ 16,899     $ 44,879     $ 61,778  
Goodwill acquired     18,055       51,365       13,816       83,236  
Foreign exchange translation     -       712       -       712  
Balance as of September 30, 2015   $ 18,055     $ 68,976     $ 58,695     $ 145,726  

 

The components of intangible assets are as follows:

 

    Cost     Impairment     Accumulated
Amortization
    Net     Amortization
Period
September 30, 2015                                    
Patents and Licensing Rights   $ 22,039     $ (2,508 )   $ (2,367 )   $ 17,164     2-16 years
Customer Relationships     63,705       -       (3,099 )     60,606     5-20 years
Tradename     7,300       -       -       7,300     indefinite
Trademarks     2,190       -       (446 )     1,744     5 years
Total   $ 95,234     $ (2,508 )   $ (5,912 )   $ 86,814      

 

  18  

 

 

    Cost     Impairment     Accumulated
Amortization
    Net     Amortization
Period
December 31, 2014                                    
Patents and Licensing Rights   $ 4,716     $ (2,443 )   $ (1,781 )   $ 492     2-16 years
Customer Relationships     32,315       -       (1,679 )     30,636     5-20 years
Trademarks     1,600       -       (180 )     1,420     5 years
Total   $ 38,631     $ (2,443 )   $ (3,640 )   $ 32,548      

 

Amortization expense related to intangible assets was $1,275 and $587 for the three months ended September 30, 2015 and 2014, respectively, and $2,702 and $979 for the nine months ended September 30, 2015 and 2014, respectively. The weighted average amortization period is 16.4 years.

 

The following chart represents estimated future annual amortization expense related to intangible assets:

 

Year  ending December 31,      
2015 (remaining)   $ 1,372  
2016     5,492  
2017     5,491  
2018     5,504  
2019     5,312  
Thereafter     56,343  
Total   $ 79,514  

 

Note 8 — Share-Based Compensation

 

During the three and nine months ended September 30, 2015, the Company recognized total share based compensation cost of $1,797 and $4,816, respectively, as compared to total share based compensation cost for the three and nine months ended September 30, 2014 of $1,018 and $2,975, respectively.

 

The Company grants share-based compensation, including restricted shares, under its 2008 Stock Option and Incentive Plan, as amended, as well as its 1998 Employee Stock Purchase Plan, as amended (“ESPP”). The 2008 Stock Option and Incentive Plan and ESPP are together referred to as the “Stock Option and Incentive Plans”.

 

Restricted Stock

 

A summary of unvested restricted stock activity during the nine months ended September 30, 2015 is presented below:

 

    Number of
Shares
    Weighted
Average Grant Date
Fair Value Per
Share
 
Outstanding, January 1, 2015     923     $ 10.81  
Granted     419     $ 16.66  
Vested     (211 )   $ 9.81  
Forfeited     (127 )   $ 9.98  
Outstanding, September 30, 2015     1,004     $ 13.58  

 

As of September 30, 2015, there was $10,514 of total unrecognized compensation cost related to unvested restricted shares. That cost is expected to be recognized over a weighted-average period of 2.91 years. Of the 1,004 restricted shares outstanding, the Company currently expects all shares to vest.

 

  19  

 

 

Stock Options

 

The fair value of each stock option award is estimated at the date of grant using the Black-Scholes valuation model based on the following assumptions:

 

    For the Nine Months Ended  
    September
30, 2015
    September
30, 2014
 
Expected life in years     5       5  
Risk free interest rate     1.59 %     1.52 %
Volatility     42 %     53 %
Dividend yield            

 

A summary of stock option activity under the Company’s Stock Option and Incentive Plans during the nine-month period ended September 30, 2015 is presented below:

 

    Number of
Shares
    Weighted
Average
Exercise
Price Per Share
    Weighted Average
Remaining
Contractual Term
(Years)
    Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2015     1,804     $ 6.18                  
Granted     266     $ 16.93                  
Exercised     (340 )   $ 5.15                  
Forfeited     (202 )   $ 6.85                  
Expired                            
Outstanding, September 30, 2015     1,528     $ 8.19       6.65     $ 14,090  
Options exercisable, September 30, 2015     988     $ 6.04       5.62     $ 11,243  

 

The weighted average fair value of stock options granted for the nine months ended September 30, 2015 and 2014 was $6.51 and $4.85, respectively. As of September 30, 2015, there was $2,019 of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted-average period of 2.62 years. Of the 1,528 stock options outstanding, the Company currently expects all options to vest.

 

Employee Stock Purchase Plan

 

During the nine months ended September 30, 2015 and 2014, 83 and 74 shares, respectively, were issued under the Company’s ESPP.

 

During the nine months ended September 30, 2015 and 2014, cash received from stock option exercises and employee stock purchases under the ESPP was $2,818 and $2,135, respectively. The excess tax benefit realized for the tax deductions from share based compensation was $0 and $1,456 for the nine months ended September 30, 2015 and 2014, respectively.

 

Note 9 — Operating Segment Data

 

The Company has organized its operations into the Discovery and Development Services (“DDS”), API (“API”) and Drug Product Manufacturing (“DPM”) segments. The DDS segment includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing. API includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing. DPM includes pre-formulation, formulation and process development through commercial scale production of complex liquid-filled and lyophilized injectable formulations. Corporate activities include sales and marketing and administrative functions, as well as research and development costs that have not been allocated to the operating segments.

The following table contains earnings data by operating segment, reconciled to totals included in the unaudited condensed consolidated financial statements:

 

For the three months ended September
30, 2015
  Contract
Revenue
    Milestone &
Recurring
Royalty
Revenue
    Income
(Loss) 
from
Operations
    Depreciation
and
Amortization
 
                               
DDS   $ 23,135     $ (63 )   $ 6,190     $ 2,013  
API     56,158       3,294       13,559       3,778  
DPM     22,055             1,480       1,117  
Corporate (b)                 (21,219 )      
Total   $ 101,348     $ 3,231     $ 10     $ 6,908  

 

  20  

 

 

For the three months ended September
30, 2014
  Contract
Revenue
    Milestone &
Recurring
Royalty
Revenue
    Income
(Loss) 
from
Operations
    Depreciation
and
Amortization
 
                               
DDS   $ 17,107     $ 2,603     $ 1,981     $ 1,525  
API     30,549       2,387       2,612       2,468  
DPM     9,825             (2,760 )     1,048  
Corporate (b)                 (11,568 )      
Total   $ 57,481     $ 4,990     $ (9,735 )   $ 5,041  

 

 

For the nine months ended September
30, 2015
  Contract
Revenue
    Milestone &
Recurring
Royalty
Revenue
    Income
(Loss) 
from
Operations
    Depreciation
and
Amortization
 
                               
DDS   $ 65,762     $ 5,541     $ 21,310     $ 5,973  
API     134,003       8,697       33,564       8,501  
DPM     61,941             7,744       4,196  
Corporate (b)                 (55,211 )      
Total   $ 261,706     $ 14,238     $ 7,407     $ 18,670  

 

For the nine months ended September
30, 2014
  Contract
Revenue (a)
    Milestone &
Recurring
Royalty
Revenue
    Income
(Loss) 
from
Operations
    Depreciation
and
Amortization
 
                               
DDS   $ 55,221     $ 12,817     $ 13,133     $ 5,210  
API     99,920       7,161       28,243       6,234  
DPM     14,852             (3,620 )     1,622  
Corporate (b)                 (34,944 )      
Total   $ 169,993     $ 19,978     $ 2,812     $ 13,066  

 

(a) A portion of the 2014 amounts were reclassified from DDS to API to better align business activities within the Company’s reporting segments. This reclassification impacted contract revenues for 2014.

 

(b) The Corporate entity consists primarily of the general and administrative activities of the Company.

 

The following table summarizes other information by segment as of and for the nine month period ended September 30, 2015:

 

    DDS     API     DPM     Total  
Long-lived assets   $ 80,922     $ 237,408     $ 127,896     $ 446,226  
Total assets     169,402       517,985       132,481       819,868  
Goodwill included in long-lived assets     18,055       68,976       58,695       145,726  
Investments in unconsolidated affiliates     956                   956  
Capital expenditures     5,419       5,819       2,421       13,659  

  

  21  

 

 

The following table summarizes other information by segment as of and for the nine month period ended September 30, 2014:

 

    DDS     API     DPM     Total  
Long-lived assets   $ 56,326     $ 100,363     $ 106,739     $ 263,428  
Total assets     133,709       266,461       132,866       533,036  
Goodwill included in long-lived assets           17,168       44,879       62,067  
Investments in unconsolidated affiliates     956                   956  
Capital expenditures     3,300       7,776       937       12,013  

 

Note 10 — Financial Information by Customer Concentration and Geographic Area

 

Total percentages of contract revenues by each segment’s three largest customers for the three and nine months ended September 30, 2015 and September 30, 2014 are indicated in the following table:

 

    Three Months Ended September 30,   Nine Months Ended September 30,
    2015   2014   2015   2014
DDS   10%, 9%, 4%   11%, 8%, 7%   10%, 9%, 4%   9%, 8%, 7%
API   21%, 7%, 6%   37%, 14%, 7%   23%, 11%, 8%   27%, 11%, 10%
DPM   19%, 13%, 3%   20%, 15%, 10%   17%, 12%, 5%   13%, 13%, 13%

 

Total contract revenue from GE Healthcare (“GE”), represented 12% of total contract revenue for both the three and nine months ended September 30, 2015. Total contract revenue from GE represented 19% and 16% of total contract revenue for the three and nine months ended September 30, 2014, respectively.

 

The Company’s total contract revenue for the three and nine months ended September 30, 2015 and 2014 was recognized from customers in the following geographic regions:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
                         
United States     56 %     62 %     64 %     65 %
Europe     32       27       27       22  
Asia     7       10       6       9  
Other     5       1       3       4  
                                 
Total     100 %     100 %     100 %     100 %

 

Long-lived assets by geographic region are as follows:

 

   

September 30,

2015

    December  31,
2014
 
United States   $ 153,584     $ 144,490  
Asia     14,161       14,986  
Europe     45,941       5,999  
Total long-lived assets   $ 213,686     $ 165,475  

 

Note 11 — Legal Proceedings and Other

 

The Company, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as noted below, the Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in the aggregate have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

On November 12, 2014, a purported class action lawsuit, John Gauquie v. Albany Molecular Research, Inc., et al. , No. 14-cv-6637, was filed against the Company and certain of its current and former officers in the United States District Court for the Eastern District of New York.  The complaint alleges claims under the Securities Exchange Act of 1934 arising from the Company’s August 5, 2014 announcement of its financial results for the second quarter of 2014, including that the OsoBio New Mexico facility experienced a power interruption in July 2014, which would have a material impact on the Company’s results.  The complaint alleges that the price of the Company’s stock was artificially inflated between August 5, 2014 and November 5, 2014, and seeks certification as a class action, unspecified monetary damages and attorneys’ fees and costs. The complaint was amended on March 31, 2015 to request certification of a class of investors during the period between August 5, 2014 and November 5, 2014. On October 2, 2015, the Company submitted a motion to dismiss the complaint, as amended.

 

  22  

 

 

Insurance Recovery

 

During the second quarter of 2015, the Company received a business interruption insurance recovery of $600, relating to the OsoBio facility. This amount was recorded as Other income in the Condensed Consolidated Statements of Operations. The Company has submitted additional claims related to this event, which are currently under evaluation by the carrier. The ultimate outcome of the claims are unknown at this time.

 

Note 12 – Fair Value

 

The Company uses a framework for measuring fair value in generally accepted accounting principles and making disclosures about fair value measurements.  A three-tiered fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value.  

 

These tiers include:  

Level 1 – defined as quoted prices in active markets for identical instruments;

Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

The Company determines the fair value of its financial instruments using the following methods and assumptions:

 

Cash and cash equivalents, restricted cash, receivables, and accounts payable:  The carrying amounts reported in the consolidated balance sheets approximate their fair value because of the short maturities of these instruments.

 

Convertible senior notes, derivatives and hedging instruments: The fair values of the Company’s Notes, which differ from their carrying values, are influenced by interest rates and the Company's stock price and stock price volatility and are determined by prices for the Notes observed in market trading, which are level 2 inputs. The estimated fair value of the Notes at September 30, 2015 was $184,500. The Notes Hedges and the Notes Conversion Derivative are measured at fair value using level 2 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable market data for all inputs, such as implied volatility of the Company's common stock, risk-free interest rate and other factors.

 

Interest rate swaps

 

At September 30, 2015, the Company had contracted a derivative financial instrument to reduce the impact of fluctuations in variable interest rates on a loan that a financial institution granted in February 2015, which is a level 2 input. The estimated fair value of the swap at September 30, 2015 was $39. The Company hedges the interest the risk of the initial amount of the aforementioned bank loan through an interest rate swap. In this arrangement, the interest rates are exchanged so that the Company receives from the financial institution a variable rate of the 3-month Euribor, in exchange for a fixed interest payment for the same nominal (0.3%). The variable interest rate received for the derivative offsets the interest payment on the hedged transaction, with the end result being a fixed interest payment on the hedged financing. At September 30, 2015, the derivative financial instrument had not been designated as a hedge.

 

To determine the fair value of the interest rate swap, the Company uses cash flow discounting based on the implicit rates determined by the euro interest rate curve, according to market conditions at the valuation date.

 

Instrument   Nominal Amount
at 9/30/2015
    Contract
Date
  Contract
Date
Expiration
  Interest
Rate
Payable
  Interest Rate
Recievable
Interest rate swap   $ 7,306     2/19/2015   2/19/2020   3-month Euribor   Fixed rate of 0.30%

 

Long-term debt, other than convertible senior notes:  The carrying value of long-term debt approximated fair value at September 30, 2015 due to the resetting dates of the variable interest rates.

 

Note 13 – Accumulated Other Comprehensive Loss, Net

 

The activity related to accumulated other comprehensive loss, net was as follows:

 

  23  

 

 

    Pension and
postretirement
benefit plans
    Foreign
currency
adjustments
    Total
Accumulated
Other
Comprehensive
Loss
 
Balance at December 31, 2014, net of tax   $ (6,374 )   $ (8,060 )   $ (14,434 )
Net current period change, net of tax     432       (84 )     348  
Balance at September 30, 2015, net of tax   $ (5,942 )     (8,144 )     (14,086 )

 

The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive loss, net:

 

    Three Months Ended     Nine Months Ended  
    September
30,

2015
    September
30,

2014
    September
30,

2015
    September
30,

2014
 
Actuarial losses before tax effect  (a)   $ 190     $ 148     $ 664     $ 460  
                                 
Tax benefit on amounts reclassified into earnings     (66 )     (53 )     (232 )     (162 )
    $ 124     $ 95     $ 432     $ 298  

 

(a)        Amounts represent amortization of net actuarial loss from shareholders’ equity into postretirement benefit plan cost. This amount was primarily recognized as cost of contract revenue in the consolidated statement of operations.

 

Note 14 – Employee Benefit Plans

 

In the first quarter of 2014, the union ratified an action to settle the medical component of the post-retirement plan, significantly reducing the level of benefits available to the participants. As a result, the Company recorded $1,285 of operating income in the first quarter of 2014 due to the settlement of this obligation.

 

  24  

 

 

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

 

Forward-Looking Statements

 

The following discussion of our results of operations and financial condition should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the Notes thereto included within this report. This quarterly report on Form 10-Q contains “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 may be identified by forward-looking words such as “may,” “could,” “should,” “would,” “will,” “intend,” “expect,” “anticipate,” “believe,” and “continue” or similar words, and include, but are not limited to, statements concerning the Company’s relationship with its largest customers, trends in pharmaceutical and biotechnology companies’ outsourcing of manufacturing services and chemical research and development, including softness in these markets, the effects of the reduction and cessation of royalties on Allegra products in 2015 and the expiration of such patents, the success of the sales of other products for which the Company receives royalties; the risk that the Company will not be able to replicate either in the short or long term the revenue stream that has been derived from the royalties payable under the Allegra® license agreements; the risk that clients may terminate or reduce demand under any strategic or multi-year deal; the Company’s ability to enforce its intellectual property and technology rights, expected benefits from past or future acquisitions, including Cedarburg Pharmaceuticals, Inc. (“Cedarburg”), the Glasgow, UK business (“Glasgow”), our SSCI/West Lafayette business (“SSCI”), Oso Biopharmaceuticals Manufacturing, LLC (“OsoBio”) and Gadea Grupo Farmaceutico, S.L. (“Gadea”), the Company’s ability to take advantage of proprietary technology and expand the scientific tools available to it, the ability of the company’s strategic investments and acquisitions to perform as expected, earnings, contract revenues, costs and margins, statements regarding pending litigation matters, government regulation, customer spending and business trends, foreign operations, including increasing options and solutions for customers, business growth and the expansion of the Company’s global market, clinical supply manufacturing, management’s strategic plans, drug discovery, product commercialization, license arrangements, research and development projects and expenses, revenue and expense expectations for future periods, long-lived asset impairment, pension and postretirement benefit costs, competition and tax rates. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that could cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on March 16, 2015, and Part II, Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this report, and we do not undertake to update any such forward-looking statements in the future, except as required by law. References to “AMRI”, the “Company,” “we,” “us,” and “our,” refer to Albany Molecular Research, Inc. and its subsidiaries, taken as a whole.

 

Overview

 

We are a leading global contract research and manufacturing organization providing customers fully integrated drug discovery, development, and manufacturing services. We supply a broad range of services and technologies supporting the discovery and development of pharmaceutical products, the manufacturing of active pharmaceutical ingredients and the manufacturing of drug product for new and generic drugs, as well as research, development and manufacturing for the agrochemical and other industries. With locations in the United States, Europe, and Asia, we maintain geographic proximity to our customers and flexible cost models.

 

We continue to integrate our research and manufacturing facilities worldwide, increasing our access to key global markets and enabling us to provide our customers with a flexible combination of high quality services and competitive cost structures to meet their individual outsourcing needs.  Our service offerings range from early stage discovery through formulation and manufacturing. We believe that the ability to partner with a single provider is of significant benefit to our customers as we are able to provide them with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market. Compounds discovered and/or developed in our contract research facilities can then be more easily transitioned to production at our large-scale manufacturing facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval.  

 

In addition to providing an integrated services model for outsourcing, we offer our customers the option of insourcing. With our world class expertise in managing high performing groups of scientists, this option allows us to embed our scientists into the customer’s facility allowing the customer to cost-effectively leverage their unused laboratory space.

 

As our customers continue to seek innovative new strategies for R&D efficiency and productivity, we are aggressively realigning our business and resources to address their needs. We use a cross-functional approach that maximizes the strengths of both insourcing and outsourcing, by leveraging the Company’s people, know-how, facilities, expertise and global project management to provide exactly what is needed across the discovery, development or manufacturing process. We have also streamlined our sales and marketing organization to optimize cross-selling opportunities and have enhanced our commitment to quality with the appointment of key personnel, underscoring our dedication to client service. Our improved organizational structure, combined with more focused marketing efforts, should enable us to continue to drive long term growth and profitability.

 

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Over the last few years, we have implemented a number of organizational and rationalization initiatives and acquired new businesses to better align our operations to most efficiently support our customer’s needs and grow our revenue and overall profitability. The goal of these restructuring activities has been to advance our strategy of increasing global competitiveness and managing costs by aligning resources to meet shifting customer demand and market preferences, while optimizing our location footprint. Our acquisitions enhance and complement our existing service offerings and are expected to contribute to our growth.

 

We may consider additional acquisitions that enhance or complement our existing service offerings. In addition to growing organically, any acquisitions would generally be expected to contribute to AMRI’s growth by integrating with and expanding our current services, or adding services within the drug discovery, development and manufacturing life cycle. During 2015, we have entered into acquisition transactions with Gadea in July, SSCI in February and Glasgow in January that contributed to our results of operations and will continue to contribute to our future operations.

 

Our backlog of open manufacturing orders and accepted service contracts was $190.3 million at September 30, 2015 as compared to $151.1 million at September 30, 2014. Our manufacturing and services contracts are completed over varying durations, from short to extended periods of time.

 

We believe our aggregate backlog as of any date is not necessarily a meaningful indicator of our future results for a variety of reasons. First, contracts vary in duration, and therefore the timing and amount of revenues recognized from backlog can vary from period to period. Second, the Company’s manufacturing and services contracts are of a nature that a customer may, at its option, cancel or delay the timing of delivery, which would change our projections concerning the timing and extent to which revenue may be recognized. In addition, the value of the Company’s services contracts that are conducted on a time and materials or full-time equivalent basis are based on estimates, from which actual revenue generated could vary. Finally, there is no assurance that projects included in backlog will not be terminated or delayed at any time by customers or regulatory authorities. We cannot provide any assurance that we will be able to realize all or most of the net revenues included in backlog or estimate the portion to be filled in the current year.

 

Results of Operations – Three and Nine Months ended September 30, 2015 Compared to Three and Nine Months Ended September 30, 2014

 

Our total revenue for the quarter ended September 30, 2015 was $104.6 million, which included $101.4 million from our contract service business and $3.2 million from royalties on sales of certain products. Consolidated gross margin was 20.9% for the quarter ended September 30, 2015 as compared to 1.9% for the quarter ended September 30, 2014. Our net loss was $4.2 million and $4.1 million during the three and nine months ended September 30, 2015, respectively.

 

During the nine months ended September 30, 2015, cash provided by operations was $38.5 million compared to cash provided by operations of $3.9 million for the same period of 2014. The increase in cash provided by operations was primarily driven by improvements in working capital management during the period. During the nine months ended September 30, 2015, we spent $13.7 million on capital expenditures, primarily related to growth and maintenance of our existing facilities. During the nine months ended September 30, 2015, we spent $23.9 million to acquire Glasgow, $35.8 million to acquire SSCI and $86.0 (net of cash acquired) to acquire Gadea.

 

Operating Segment Data

 

We’ve organized our operations into the Discovery and Development Services (“DDS”), API (“API”) and Drug Product Manufacturing (“DPM”) segments. DDS includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing. API includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing. DPM includes pre-formulation, formulation and process development through commercial scale production of complex liquid-filled and lyophilized injectable formulations. Corporate activities include sales and marketing and administrative functions, as well as research and development costs that have not been allocated to the operating segments. 

 

A portion of 2014 contract revenue and cost of revenue was reclassified from DDS to API to better align with the business activities within our reporting segments.  

 

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Revenue

 

Total contract revenue

 

Contract revenue consists primarily of fees earned under manufacturing or service contracts with third-party customers. Our contract revenues for each of our DDS, API and Drug Product segments were as follows:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2015     2014     2015     2014  
                         
DDS   $ 23,135     $ 17,107     $ 65,762     $ 55,221  
API     56,158       30,549       134,003       99,920  
DPM     22,055       9,825       61,941       14,852  
Total   $ 101,348     $ 57,481     $ 261,706     $ 169,993  

 

DDS contract revenue for the three and nine months ended September 30, 2015 increased primarily due to incremental revenue from our acquisition of the SSCI business in February 2015, which provided $4.6 million and $10.7 million, respectively, and increased demand in our U.S. small scale development and U.S. chemistry services. We currently expect DDS revenue for full year 2015 to increase from amounts in 2014 driven by improved facility utilization at all of our sites as well as incremental revenue from our acquisition of SSCI.

 

API contract revenue for the three months ended September 30, 2015 increased primarily from our acquisition of Gadea in July 2015, which provided incremental revenues of $17.8 million, increased demand of our commercial and clinical manufacturing services in the U.S and improved pricing. API contract revenue for the nine months ended September 30, 2015 increased from 2014 primarily due to $5.0 million of incremental revenue from the Cedarburg acquisition which we completed in April 2014, incremental revenues from our acquisition of Gadea, increased demand at our commercial and clinical manufacturing services in the U.S. and improved pricing. We currently expect continued growth in API contract revenue for full year 2015 due to on-going demand for our commercial and clinical manufacturing services worldwide, a full year of revenue from Cedarburg and incremental revenue from our acquisitions of Gadea.

 

DPM contract revenue for the three and nine months ended September 30, 2015 increased from 2014 due to $6.5 and $31.0 million, respectively, in incremental revenue from the July 2014 acquisition of OsoBio, $4.1 and $11.5 million, respectively, from our acquisition of the Glasgow, U.K. facility in January 2015, and increased demand at our Burlington, MA facility. Additionally, during the third quarter of 2014, DPM contract revenues at OsoBio were impacted due to a business interruption at the Albuquerque facility. We currently expect continued growth in DPM contract revenue for full year 2015 due to a full year of revenue from OsoBio, the incremental revenue from our Glasgow, U.K. facility and continued demand at our Burlington, MA facility and incremental revenue from our acquisition of Gadea in July 2015.

 

Recurring royalty revenue

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ 3,231     $ 4,990     $ 14,238     $ 19,978  

 

Our recurring royalties consist of worldwide sales of Allegra/Telfast and Sanofi over-the-counter product and authorized generics. Additionally, we earn recurring royalty revenue in conjunction with a Development and Supply Agreement with Allergan. During the third quarter of 2015, we began earning royalties under an agreement with a customer of Gadea. Recurring royalties decreased during the three and nine months ended September 30, 2015 as compared to 2014 as a result of patent expirations associated with Allegra/Telfast during the second quarter of 2015. These amounts were partially offset by an increase in the other royalties during the periods. We currently expect full year 2015 recurring royalties to decline due to the expiration of the patents underlying the Allegra royalties in the second quarter of 2015. 

 

The recurring royalties on the sales of Allegra/Telfast have historically provided a material portion of our revenues, earnings and operating cash flows. All patents covered by our license agreements have expired during the second quarter of 2015, and we will not receive any additional royalties on the sales of fexofenadine product in future periods. We continue to develop our business in an effort to supplement the revenues, earnings and operating cash flows that have historically been provided by Allegra/Telfast royalties.

 

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Costs and Expenses

 

Cost of contract revenue

 

Cost of contract revenue consists of compensation and associated fringe benefits for employees, chemicals, depreciation and other indirect project related costs. Cost of contract revenue for our DDS, API and DPM segments were as follows:

 

Segment   Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2015     2014     2015     2014  
                         
DDS   $ 16,742     $ 14,051     $ 48,936     $ 45,091  
API     43,410       29,778       100,427       79,499  
DPM     20,052       12,585       53,648       18,472  
Total   $ 80,204     $ 56,414     $ 203,011     $ 143,062  
                                 
DDS Gross Margin     27.6 %     17.9 %     25.6 %     18.3 %
API Gross Margin     22.7 %     2.5 %     25.1 %     20.4 %
DPM Gross Margin     9.1 %     (28.1 )%     13.4 %     (24.4 )%
Total Gross Margin     20.9 %     1.9 %     22.4 %     15.8 %

 

DDS contract revenue gross margin percentage increased for the three and nine months ended September 30, 2015 compared to the same periods in 2014. This increase is primarily due to cost reduction initiatives and facility optimization and also due to the addition of higher margin revenues at our SSCI facility. We currently expect DDS contract margin for full year 2015 to improve over amounts recognized in full year 2014 primarily due to the full year benefit of previous cost reduction initiatives and facility optimization as well as higher margin revenues from our acquisition of SSCI.

 

API contract revenue gross margin percentages increased for the three and nine months ended September 30, 2015 compared to the same periods in 2014 due our acquisition of Gadea in July of 2015 and higher margin commercial sales, a portion of which is attributable to a retroactive price adjustment which was effective in the third quarter of 2015. We currently expect improvement in API contract margins for full year 2015 over amounts recognized in 2014 driven by these factors and increases in capacity utilization at all of our large-scale facilities worldwide.

 

DPM contract revenue gross margin percentage increased for the three and nine months ended September 30, 2015 compared to the same periods in 2014 primarily due to the addition of revenue from OsoBio, which was acquired in July 2014, the benefit of the Glasgow business acquired in January 2015 and increased utilization at our Burlington, MA facility. Additionally, during the third quarter of 2014, DPM gross margins at OsoBio were impacted due to a business interruption at the Albuquerque facility. We currently expect continued improvement in DPM contract margins for full year 2015 driven by these factors and also by increased overall capacity utilization.

 

Technology incentive award

 

We maintain a Technology Development Incentive Plan, the purpose of which is to stimulate and encourage novel innovative technology developments by our employees. This plan allows eligible participants to share in a percentage of the net revenue earned by us relating to patented technology with respect to which the eligible participant is named as an inventor or made a significant intellectual contribution. To date, the royalties from Allegra are the main driver of the awards. These royalties from Allegra ceased during the second quarter of 2015 due to the expiration of underlying patents. The incentive awards were as follows:

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ (6 )   $ 260     $ 554     $ 1,277  

 

Technology incentive award expense decreased for the three and nine months ended September 30, 2015 as compared to the same periods in the prior year due to the decrease in Allegra recurring royalty revenue as discussed above.

 

Research and development

 

Research and development (“R&D”) expense consists of compensation and benefits for scientific personnel for work performed on proprietary technology R&D projects, costs of chemicals, materials, outsourced activities and other out of pocket costs and overhead costs.

 

Our R&D activities are primarily accounted for in our API segment and relate to the potential manufacture of new products, the development of processes for the manufacture of generic products with commercial potential, and the development of alternative manufacturing processes.

 

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Research and development expenses were as follows:

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ 1,903     $ 568     $ 2,778     $ 775  

 

R&D expense for the three and nine months ended September 30, 2015 increased compared to the same periods in 2014 relating primarily to development efforts towards new niche generic products. We currently expect full year 2015 R&D expense to be higher than 2014 in line with our strategy and due to our acquisition of Gadea.

 

Selling, general and administrative

 

Selling, general and administrative (“SG&A”) expenses consist of compensation and related fringe benefits for sales, marketing, operational and administrative employees, professional service fees, marketing costs and costs related to facilities and information services. SG&A expenses were as follows:

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ 21,219     $ 11,568     $ 55,211     $ 34,944  

 

SG&A expenses for the three and nine months ended September 30, 2015 increased compared to the same periods in 2014 primarily due to costs associated with investments made to grow the business, merger and acquisition activities, including the acquisitions of Glasgow, SSCI and Gadea, full period SG&A costs from our OsoBio and Cedarburg facilities, as well as incremental SG&A costs, including amortization of identifiable intangible assets, from the acquired businesses. We currently expect SG&A expenses for full year 2015 to increase due to a full year of operations at our Cedarburg and OsoBio locations and incremental costs as a result of the acquisitions of Glasgow and SSCI in early 2015 and Gadea in July 2015, but to remain relatively consistent as a percentage of revenue when compared to 2014.

 

Postretirement benefit plan settlement gain

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ -     $ -     $ -     $ (1,285 )

 

In the first quarter of 2014, we recognized a gain on settlement of post-retirement liability in the API segment.

 

Restructuring

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ 709     $ 2,164     $ 3,828     $ 3,436  

 

In the first quarter of 2015, we announced a proposal, subject to consultation with our U.K. workforce, to close our U.K. facility in Holywell, Wales, within the API segment. Following the consultation process, on April 2, 2015, we announced a restructuring plan and expectation to cease operations at the Holywell, U.K. facility by the fourth quarter of 2015. These actions taken are consistent with our ongoing efforts to consolidate our facility resources to more effectively utilize our resource pool and to further reduce our facility cost structure.

 

Restructuring charges for the three and nine months ended September 30, 2015 consisted primarily of U.K. termination charges and costs associated with the transfer of continuing products from the Holywell, U.K. facility to our other manufacturing locations as well as lease termination and other charges associated with the previously announced restructuring at our Syracuse, NY facility.

 

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Restructuring charges for the three and nine months ended September 30, 2014 consisted primarily of charges related to optimizing the Singapore facility’s footprint and of termination benefits and personnel realignment costs associated with the Syracuse, NY site. 

 

Impairment Charges

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ 540     $ 1,232     $ 3,155     $ 4,950  

 

During the three and nine months ended September 30, 2015, we recorded property and equipment impairment charges of $0.5 million and $3.2 million in our API segment associated with the Company’s decision to cease operations at our Holywell, U.K. facility.

 

In the third quarter of 2014, we recorded property and equipment charges of $1.2 million in our DDS segment associated with the Company’s consolidation of facility resources at our Singapore site. In the second quarter of 2014, we recorded property and equipment charges of $3.7 million in our DDS segment associated with the Company’s decision to cease operations at our Syracuse, New York facility.

 

Interest expense, net

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands)   2015     2014     2015     2014  
                         
Interest expense   $ (6,323 )   $ (2,575 )   $ (12,549 )   $ (8,259 )
Interest income     5       -       17       3  
Interest expense, net   $ (6,318 )   $ (2,575 )   $ (12,532 )   $ (8,256 )

 

Net interest expense increased for the three and nine months ended September 30, 2015 from the same period in 2014 primarily due to increased levels of outstanding debt used to finance our acquisitions as well as an increase in amortization of deferred financing costs related to our credit facility.

 

Other income (expense), net

  

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
$ 798     $ 235     $ 1,901     $ 3  

 

Other income for the three months ended September 30, 2015 was primarily related the fluctuation in exchange rates associated with foreign currency transactions. In addition, we had an insurance recovery of $0.6 million during the nine months ended September 30, 2015.

 

Income tax expense (benefit)

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2015     2014     2015     2014  
(in thousands)  
                             
$ (1,340 )   $ (3,434 )   $ 862     $ (4,024 )

 

Income tax expense for the three and nine months ended September 30, 2015 increased as compared to the same periods in 2014 due to a reversal in 2014 of a valuation allowance in on a new operating loss deferred tax asset for the Company’s U.K. operations of $2.8 million due to a change in estimate regarding the recoverability of those assets resulting from improved profitability.

 

Liquidity and Capital Resources

 

We have historically funded our business through operating cash flows and proceeds from borrowings. As of September 30, 2015, we had $82.4 million in cash, cash equivalents, and restricted cash and $394.9 million in bank and other related debt.

 

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During the first nine months of 2015, we generated cash of $38.5 million from operating activities, compared to cash provided by operations of $3.9 million during the same period in 2014. The increase was primarily driven by improvements in working capital accounts during 2015. 

 

During the nine months ended September 30, 2015, cash used in investing activities was $159.3 million, resulting primarily from the use of $86.0 million in cash (net of cash acquired and debt assumed) to acquire Gadea, $35.8 million in cash to acquire SSCI, $23.9 million to acquire the facility in Glasgow, U.K., and $13.7 million used for the acquisition of property and equipment. Additionally, during the nine months ended September 30, 2015, we generated cash of $155.0 million from financing activities, relating primarily from borrowings on our credit facility and proceeds from stock issuances resulting from exercises of stock options and employee stock purchase plan purchases.

 

Working capital, defined as current assets less current liabilities, was $204.1 million at September 30, 2015 as compared to $142.3 million as of December 31, 2014. This increase primarily relates to increased inventory and accounts receivable levels associated with the companies acquired in 2015.

 

Term Loan and Revolving Credit Facility

 

In April 2012, the Company entered into a $20.0 million credit facility consisting of a four-year, $5.0 million term loan and a $15.0 million revolving line of credit. In April 2014, we utilized the balance of restricted cash to pay off the balance of the term loan, thereby eliminating the term loan liability. In June 2014, we terminated the credit agreement while still maintaining the letters of credit, thus requiring us to continue to maintain restricted cash to collateralize these letters of credit.

 

The balance required to be maintained as restricted cash must be at least 110% of the maximum potential amount of the outstanding letters of credit.  As of September 30, 2015, the Company had $2.1 million of outstanding letters of credit secured by restricted cash of $2.9 million and $0.96 million of outstanding letters of credit that were unsecured.

 

On October 24, 2014, the Company entered into a $50.0 million senior secured credit agreement (the “Credit Agreement”) consisting of a three-year, $50.0 million revolving credit facility, which includes a $15.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for swing line loans. The Credit Agreement also included an accordion feature that, subject to securing additional commitments from existing lenders or new lending institutions, would have allowed us to increase the aggregate commitments under the Credit Agreement by up to $10.0 million. On December 23, 2014, the Credit Agreement was amended to increase the available commitment to $75.0 million, increasing and using the accordion feature in its entirety (“Amendment No 1. to the Credit Agreement”). On July 16, 2015, we entered into an Amendment and Restatement to the Credit Agreement (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement permitted the Company to repay the entire outstanding principal outstanding under Amendment No. 1 to Credit Agreement and to apply that prepayment on a non-pro rata basis among the lenders under Amendment No. 1 to Credit Agreement. The proceeds from borrowings under the Amended and Restated Credit Agreement were used to repay the entire outstanding principal outstanding under the Amendment No. 1 to Credit Agreement on July 16, 2015 and amended the Credit Agreement.

 

On August 19, 2015, the Company entered into the Second Amended and Restated Credit Agreement (the “Second Restated Credit Agreement”) with Barclays Bank PLC, as Administrative Agent, Collateral Agent, L/C Issuer and Swing Line Lender, and the other lenders party thereto.

 

The Second Restated Credit Agreement, subject to the terms and conditions set forth therein, provides for a $200 million six-year term loan and a $30.0 million five-year revolving credit facility, which includes a $10.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for swingline loans. We expect to use the proceeds of any borrowings under the Second Restated Credit Agreement for working capital and other general corporate purposes of the Company and its subsidiaries, subject to the terms and conditions set forth in the Second Restated Credit Agreement.

 

The Second Restated Credit Agreement, subject to the terms and conditions set forth therein, provides for a $200.0 million five-year term loan and a $30.0 million five-year revolving credit facility, which includes a $10.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for swingline loans. The Company used a portion of the proceeds to fund the acquisition of Gadea and expects to use future borrowings under the Second Restated Credit Agreement for working capital and other general corporate purposes of the Company and its subsidiaries, subject to the terms and conditions set forth in the Second Restated Credit Agreement.

 

At the Company’s election, term loans made under the Second Restated Credit Agreement initially bear interest at the Adjusted Eurodollar Rate (as defined below) plus 4.75% or the Base Rate (as defined below) plus 3.75%. Upon achievement of a certain senior secured leverage ratio, the rates will step down to 4.50% and 3.50%, respectively. The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus ½ of 1.00%, (ii) the prime rate in effect on such day and (iii) the Adjusted Eurodollar Rate for a one month interest period beginning on such day (or, if such day is not a business day, the immediately preceding business day) plus 1.00%; provided that, in the case of the term loans, the Base Rate shall at all times be deemed to be not less than the 2.00%. The Adjusted Eurodollar Rate means for the interest period for each Eurodollar loan comprising part of the same group, the quotient obtained (expressed as a decimal, carried out to five decimal places) by dividing (i) the applicable Eurodollar rate for such interest period by (ii) 1.00% minus the Eurodollar reserve percentage; provided that, in the case of the term loans only, the Adjusted Eurodollar Rate shall at all times be deemed to be not less than 1.00%.

 

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The Second Restated Credit Agreement includes a springing maturity provision such that the loans under the Second Restated Credit Agreement will mature six months prior to the maturity date of the Notes (as defined below) if more than $25 million of the Notes are outstanding and the secured leverage ratio is greater than 1.50 to 1.00 on such date.

  

The borrowings under the Second Amended Credit Agreement are prepayable at our option, subject to a 1.00% prepayment premium in certain circumstances if prepaid within the first twelve months, and otherwise without premium or penalty (other than customary breakage costs for Eurodollar loans). Amounts prepaid under the term loan facility are not available for reborrowing, but amounts prepaid under the revolving credit facility are available for reborrowing unless we decide to permanently reduce the commitments under the revolving credit facility, subject to the terms and conditions of the Second Restated Credit Agreement.

 

The obligations under the Second Restated Credit Agreement are guaranteed by certain of our domestic subsidiaries (each a “Guarantor”) and are secured by first priority liens on, and security interests in, substantially all of the present and after-acquired assets of ours and each Guarantor subject to certain customary exceptions.

 

The Second Restated Credit Agreement contains customary representations and warranties relating to us and our subsidiaries. The Second Restated Credit Agreement also contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens, indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature of the business, transactions with affiliates and other matters customarily restricted in such agreements. The Second Restated Credit Agreement is also subject to certain customary “Market Flex” provisions, which, if utilized, could alter certain of the terms.

 

Convertible Senior Notes

 

On December 4, 2013, we completed a private offering of 2.25% Cash Convertible Senior Notes (the “Notes”), in the aggregate principal amount of $150 million, between us and Wilmington Trust, National Association, as Trustee.  The Notes mature on November 15, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date, and interest is paid in arrears semiannually on each May 15 and November 15 at an annual rate of 2.25% beginning on May 15, 2014. The Notes were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act").

  

The Notes are not convertible into our common stock or any other securities under any circumstances. Holders may convert their Notes solely into cash at their option at any time prior to the close of business on the business day immediately preceding May 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2013 (and only during such calendar quarter), if the last reported sale price of the our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per thousand dollars principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes solely into cash at any time, regardless of the foregoing circumstances. Upon conversion, in lieu of receiving shares of our common stock, a holder will receive, per thousand dollars principal amount of Notes, an amount in cash equal to the settlement amount, determined in the manner set forth in the indenture. The initial conversion rate is 63.9844 shares of our common stock per thousand dollars principal amount of Notes (equivalent to an initial conversion price of approximately $15.63 per share of common stock). The conversion rate is subject to adjustment in some events as described in the Indenture but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we have agreed to pay a cash make-whole premium by increasing the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances as described in the indenture.

 

We may not redeem the Notes prior to the maturity date, and no sinking fund is provided for the Notes.

 

Loans with other financial institutions

In connection with the Gadea acquisition, we assumed various debt instruments as part of the transaction as follows:

 

· Bankia, S.A. euro-denominated loan – due May 2017: Loan was granted under the “2014 ICO-Companies and Entrepreneurs” Financing Agreement, for initial amount of $4,110 and is repayable in 36 monthly installments.
· Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due April 2017: Loan was granted under the “2014 ICO-Companies and Entrepreneurs” Financing Agreement, for initial amount of $2,760 and is repayable in 36 monthly installments.
· Banco Santander, S.A. euro-denominated loan – due May 2017: Loan was granted under the “2014 EIB-SME-Medium-Sized-Enterprises” Financing Agreement, for $3,425 and is repayable in 36 monthly installments.

 

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· Banco Bilboa Vizcaya Argentaria, S.A. euro-denominated loan – due February 2019: Loan was granted for $11,350, repayable in 48 monthly installments.
· Banco Santander, S.A. euro-denominated loan – due February 2020: Loan was granted under the “BEI-Inversion 2012” Financing Agreement for an initial amount of $14,187 and is repayable in 20 quarterly installments.
· Bankia, S.A. euro-denominated loan – due February 2020: Loan was granted for $7,945, repayable in 60 monthly installments.
· Caixabank, S.A. euro-denominated loan – due February 2020: Loan was granted for $3,405, repayable in 10 biannual installments.

 

All of the above loans bear interest at a rate equivalent to the Euribor plus a market spread, with the exception of the Banco Santander, S.A. loan – February 2020, which bears interest at a fixed annual rate of 1.5%. The range of interest rates for the above loans is 1.48% to 2.21%. In the event the Banco Santander S.A loan – 2020 is repaid early, the Company must pay the financial institution an amount in compensation for any financial losses it suffers as a result of the early repayment, based on a pre-established formula. As of September 30, 2015, the Company does not intend to repay this loan early.

 

Loans granted by public bodies

 

· ADE euro denominated loan due August 2022 – Loan was granted by the Agency of Financing, Innovation and Business Internationalization (“ADE”) in 2013 for $1,170. It bears interest at a fixed annual rate of 2.11% and is payable in twelve bi-annual installments of $98 each, starting in August of 2016.
· Ministry of Economy and Competitiveness euro-denominated loan – due 2017 – Research and development loan was granted by the Ministry of Economy and Competitiveness in two installments, made in 2012 & 2013 for $2,254. The loan bears interest at 0.5% and is due in 2017.
· Somacyl euro-denominated loan – due March 2016 – Loan for the financing of a production plant in March 2014, with payments of principal and interest (of 2.0%) in 24 installments $13 from inception, then one payment of $1,826 in March 2016.

 

The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Outside of the borrowings on our senior secured credit agreement (the “Amended Credit Agreement”) as discussed under the liquidity section, we have identified additional obligations in the following table as a result of our acquisitions of SSCI, Glasgow and Gadea. As of September 30, 2015, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K.

 

The following table sets forth our long-term contractual obligations and commitments for our recently acquired entities of SSCI, Glasgow and Gadea as of September 30, 2015, to be used as a supplement to amounts previously provided in our Form 10-K for the fiscal year ended December 31, 2014:

 

Payments Due by Period (in thousands)

 

    Total     Under 1 Year     1-3 Years     4-5 Years     After 5  Years  
Long-Term Debt (principal)   $ 42,646     $ 15,129     $ 14,564     $ 9,552     $ 3,401  
Operating Leases   $ 391     $ 49     $ 98     $ 98     $ 146  
Purchase Commitments   $ 6,741     $ 6,741                    

 

We expect that additional future capital expansion and acquisition activities, if any, could be funded with cash on hand, cash from operations, borrowings under our credit facility and/or the issuance of equity or debt securities. There can be no assurance that attractive acquisition opportunities will be available to us or will be available at prices and upon such other terms that are attractive to us. We regularly evaluate potential acquisitions of other businesses, products and product lines and may hold discussions regarding such potential acquisitions. In addition, in order to meet our long-term liquidity needs or consummate future acquisitions, we may incur additional indebtedness or issue additional equity or debt securities, subject to market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to us or at all. The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to business combinations, inventories, goodwill and intangibles, other long-lived assets, derivative instruments and hedging activities, pension and postretirement benefit plans, income taxes and contingencies, among other effects. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

  33  

 

 

We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes or modifications to the policies since December 31, 2014.

 

Recently Issued Accounting Pronouncements              

 

In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”. ASU No. 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard is effective for fiscal years beginning after December 15, 2015 and for interim periods therein with early adoption permitted. The Company adopted this ASU effective July 1, 2015.

 

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are currently evaluating the impact this ASU will have on its consolidated financial statements.

 

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. The ASU applies to entities that measure an investment’s fair value using the net asset per share (or an equivalent) practical expedient, while the amendments of the ASU eliminate the requirement to classify the investment within the fair value hierarchy. In addition, the requirement to make specific disclosures for all investments eligible to be assessed at fair value with the net asset value per share practical expedient has been removed. Instead, such disclosures are restricted only to investments that the entity has decided to measure using the practical expedient. The amendments in this ASU apply for fiscal years starting after December 15, 2015, and the interim periods within. The amendments are to be applied retrospectively to all periods offered, with early adoption permitted. We do not this ASU to have a material impact on our consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which updated guidance to clarify the required presentation of debt issuance costs.   The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts.   Amortization of debt issuance costs is to be reported as interest expense.   The recognition and measurement guidance for debt issuance costs are not affected by the updated guidance. The update requires retrospective application and represents a change in accounting principle. The updated guidance is effective for reporting periods beginning after December 15, 2015, with early adoption permitted.   We adopted this ASU in the third quarter of 2015 and have reflected $10.9 million and $4.1 million as reduction of long-term debt at September 30, 2015 and December 31, 2014, respectively. Previously, these costs were recorded as part of other assets.

 

In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period, be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We do not expect this ASU to have a material impact on our consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: (Topic 606)." This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of ASC Topic 360, "Property, Plant, and Equipment," and intangible assets within the scope of ASC Topic 350, "Intangibles-Goodwill and Other") are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of ASU 2014-09. This ASU is now effective for calendar years beginning after December 15, 2017. Early adoption is not permitted. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

 

  34  

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes with respect to the information on Quantitative and Qualitative Disclosures about Market Risk appearing in Part II, Item 7A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

As required by rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the Company’s last fiscal quarter our management conducted an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer regarding the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the Company’s last fiscal quarter, our disclosure controls and procedures were effective in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. We intend to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

  35  

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Please refer to Part 1 – Note 11 to the condensed consolidated financial statements for details and history on outstanding litigation.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part II, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

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

 

The following table represents share repurchases during the three months ended September 30, 2015:

 

Period  

(a)

Total Number
of Shares
Purchased (1)

   

(b)

Average
Price
Paid Per
Share

   

(c)

Total
Number
of Shares
Purchased
as
Part of
Publicly
Announced
Plans or
Programs

   

(d)

Maximum
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Program

 
July 1, 2015 – July 31, 2015     2,044     $ 19.85       N/A       N/A  
August 1, 2015 – August 31, 2015     748     $ 21.03       N/A       N/A  
September 1, 2015 – September 30, 2015     5,573     $ 20.10       N/A       N/A  
Total     8,365     $ 20.12       N/A       N/A  

 

(1) Consists of shares repurchased by the Company for certain employee’s restricted stock that vested to satisfy minimum tax withholding obligations that arose on the vesting of the restricted stock.

 

  36  

 

 

Item 6.    Exhibits

 

Exhibit    
Number   Description
     
10.1  

First Amended and Restated Credit Agreement, dated as of July 16, 2015, among Albany Molecular Research, Inc., Barclays Bank PLC, as administrative agent, Collateral Agent, L/C Issuer and Swing Line Lender, and the other lenders party thereto (filed herein).

     
10.2  

Second Amended and Restated Credit Agreement, dated as of August 19, 2015, among Albany Molecular Research, Inc., Barclays Bank PLC, as administrative agent, Collateral Agent, L/C Issuer and Swing Line Lender, and the other lenders party thereto (filed herein).

     
10.3   Amendment No. 1 to Supply Agreement between GE Healthcare AS and AMRI Rensselaer, Inc. for Supply of Aminobisamide HCL, dated September 30, 2015 (filed herein with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission).
     
31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
     
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
     
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
101   XBRL (eXtensible Business Reporting Language).  The following materials from Albany Molecular Research, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) notes to consolidated financial statements.

 

 * This certification is not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.

 

  37  

 

 

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.

 

  ALBANY MOLECULAR RESEARCH, INC.
     
     
Date: November 9, 2015 By: /s/ Felicia I. Ladin  
    Felicia I. Ladin
    Senior Vice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer)

 

  38  

 

Exhibit 10.1

 

 

 

FIRST AMENDED AND RESTATED CREDIT AGREEMENT

 

dated as of July 16, 2015

 

among

 

ALBANY MOLECULAR RESEARCH, INC.,

as Borrower,

 

THE LENDERS AND L/C ISSUERS FROM TIME TO TIME PARTY HERETO,

 

BARCLAYS BANK PLC,

as Administrative Agent, Collateral Agent, L/C Issuer and Swing Line Lender,

 

and

 

BARCLAYS BANK PLC,

as Lead Arranger

 

 

 

  

Table of Contents

 

    Page
     
ARTICLE I.
 
DEFINITIONS AND ACCOUNTING TERMS
     
Section 1.01 Defined Terms 2
Section 1.02 Other Interpretative Provisions 51
Section 1.03 Accounting Terms and Determinations 52
Section 1.04 Rounding 54
Section 1.05 Times of Day 54
Section 1.06 Letter of Credit Amounts 54
Section 1.07 Classes and Types of Borrowings 54
     
ARTICLE II.
 
THE CREDIT FACILITIES
     
Section 2.01 Commitments To Lend 55
Section 2.02 Notice of Borrowings 57
Section 2.03 Notice to Lenders; Funding of Loans 58
Section 2.04 Evidence of Loans 60
Section 2.05 Letters of Credit 61
Section 2.06 Interest 70
Section 2.07 Extension and Conversion 71
Section 2.08 Maturity of Loans 72
Section 2.09 Prepayments 72
Section 2.10 Adjustment of Commitments 76
Section 2.11 Fees 76
Section 2.12 Pro rata Treatment 77
Section 2.13 Sharing of Payments by Lenders 78
Section 2.14 Payments Generally; Administrative Agent’s Clawback 79
Section 2.15 Increase in Commitments 80
Section 2.16 Cash Collateral. 83
Section 2.17 Defaulting Lenders 84
Section 2.18 Refinancing Amendments 86
Section 2.19 Discounted Prepayments 87
     
ARTICLE III.
 
TAXES, YIELD PROTECTION AND ILLEGALITY
     
Section 3.01 Taxes 92
Section 3.02 Illegality 95
Section 3.03 Inability To Determine Rates 95
Section 3.04 Increased Costs and Reduced Return; Capital Adequacy 96
Section 3.05 Compensation for Losses 97
Section 3.06 Base Rate Loans Substituted for Affected Eurodollar Loans 98
Section 3.07 Mitigation Obligations; Replacement of Lenders 98

 

 

 

  

Section 3.08 Survival 99
     
ARTICLE IV.
 
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
     
Section 4.01 Conditions to Initial Credit Extension 99
Section 4.02 Conditions to All Credit Extensions 102
     
ARTICLE V.
 
REPRESENTATIONS AND WARRANTIES
     
Section 5.01 Existence, Qualification and Power 103
Section 5.02 Authorization; No Contravention 103
Section 5.03 Governmental Authorization; Other Consents 104
Section 5.04 Binding Effect 104
Section 5.05 Financial Condition; No Material Adverse Effect 104
Section 5.06 Litigation 105
Section 5.07 Ownership of Property, Liens 105
Section 5.08 Environmental Matters 105
Section 5.09 Insurance 106
Section 5.10 Taxes 106
Section 5.11 ERISA; Foreign Pension Plans; Employee Benefit Arrangements 106
Section 5.12 Subsidiaries; Equity Interests 108
Section 5.13 Margin Regulations; Investment Company Act 108
Section 5.14 Disclosure 108
Section 5.15 Compliance with Law 109
Section 5.16 Intellectual Property 109
Section 5.17 Use of Proceeds 109
Section 5.18 Solvency 109
Section 5.19 Collateral Documents 109
Section 5.20 Senior Indebtedness 110
Section 5.21 Anti-Money Laundering and Economic Sanctions Laws 110
Section 5.22 Anti-Corruption Laws 111
Section 5.23 No Default 111
Section 5.24 Labor Relations 112
     
ARTICLE VI.
 
AFFIRMATIVE COVENANTS
     
Section 6.01 Financial Statements and Other Information 112
Section 6.02 Notices of Material Events 113
Section 6.03 Existence; Conduct of Business 113
Section 6.04 Payment of Obligations 114
Section 6.05 Maintenance of Properties; Insurance 114
Section 6.06 Books and Records; Inspection Rights 114
Section 6.07 Compliance with Laws 114
Section 6.08 Use of Proceeds 115
Section 6.09 Subsidiary Guarantors; Pledges; Additional Collateral; Further Assurances 115

 

 

 

  

Section 6.10 Designation of Subsidiaries 116
Section 6.11 Ratings 116
Section 6.12 Compliance with Environmental Laws 116
Section 6.13 Lender Calls 117
Section 6.14 Post-Closing Obligations 117
     
ARTICLE VII.
 
NEGATIVE COVENANTS
     
Section 7.01 Indebtedness 117
Section 7.02 Liens 120
Section 7.03 Fundamental Changes and Asset Sales 122
Section 7.04 Investments, Loans, Advances, Guarantees and Acquisitions 124
Section 7.05 Transactions with Affiliates 127
Section 7.06 Restricted Payments 127
Section 7.07 Restrictive Agreements 129
Section 7.08 Amendments to Subordinated Indebtedness Documents or Organization Documents; Prepayments of Indebtedness 130
Section 7.09 Sale/Leaseback Transactions 130
Section 7.10 Financial Covenant 131
Section 7.11 Anti-Corruption Laws; Sanctions 131
     
ARTICLE VIII.
 
EVENTS OF DEFAULT
     
Section 8.01 Events of Default 132
Section 8.02 Acceleration; Remedies 134
Section 8.03 Allocation of Payments After Event of Default 134
     
ARTICLE IX.
 
AGENCY PROVISIONS
     
Section 9.01 Appointment and Authority 137
Section 9.02 Rights as a Lender 137
Section 9.03 Exculpatory Provisions 137
Section 9.04 Reliance by Agents 138
Section 9.05 Delegation of Duties 138
Section 9.06 Indemnification of Agents 139
Section 9.07 Resignation of Agents 139
Section 9.08 Non-Reliance on Agents and Other Lenders 140
Section 9.09 No Other Duties, etc. 140
Section 9.10 Administrative Agent May File Proofs of Claim 140
Section 9.11 Collateral and Guaranty Matters 141
Section 9.12 Related Obligations 142
Section 9.13 Withholding Tax 143

 

 

 

  

ARTICLE X.
 
MISCELLANEOUS
     
Section 10.01 Amendments, etc. 143
Section 10.02 Notices 145
Section 10.03 No Waiver; Cumulative Remedies 149
Section 10.04 Expenses; Indemnity; Damage Waiver. 150
Section 10.05 Payments Set Aside 151
Section 10.06 Successors and Assigns 152
Section 10.07 Treatment of Certain Information; Confidentiality 155
Section 10.08 Right of Setoff 156
Section 10.09 Interest Rate Limitation 156
Section 10.10 Counterparts; Integration; Effectiveness 157
Section 10.11 Survival of Agreement 157
Section 10.12 Severability 157
Section 10.13 Governing Law; Jurisdiction; Service of Process; Waiver of Jury Trial 157
Section 10.14 PATRIOT Act 158
Section 10.15 No Advisory or Fiduciary Responsibility 159
Section 10.16 No Novation; Amendment and Restatement 159

 

 

 

 

Schedules:    
     
Schedule 2.01 - Lenders and Commitments
Schedule 5.12 - Subsidiaries
Schedule 6.14 - Post-Closing Obligations
Schedule 7.01 - Existing Indebtedness
Schedule 7.02 - Existing Liens
Schedule 7.04 - Investments
Schedule 7.05 - Affiliate Transactions
Schedule 7.07 - Existing Restrictions
Schedule 10.02 - Administrative Agent’s Office
     
Exhibits:    
     
Exhibit A-1 - Form of Notice of Borrowing
Exhibit A-2 - Form of Notice of Extension/Conversion
Exhibit A-3 - Form of Letter of Credit Request
Exhibit A-4 - Form of Swing Line Loan Request
Exhibit B-1 - Form of Revolving Note
Exhibit B-2 - Form of Term Note
Exhibit B-3 - Form of Swing Line Note
Exhibit C - Form of Assignment and Assumption
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Guaranty Agreement
Exhibit F - Form of U.S. Tax Compliance Certificates
Exhibit G - Form of Security Agreement
Exhibit H - Form of Intercompany Note
Exhibit I - Form of Intercompany Note Subordination Provisions
Exhibit J - Form of Perfection Certificate
Exhibit K - Form of Solvency Certificate
Exhibit L - Form of Specified Discount Prepayment Notice
Exhibit M - Form of Specified Discount Prepayment Response
Exhibit N - Form of Discount Range Prepayment Notice
Exhibit O - Form of Discount Range Prepayment Offer
Exhibit P - Form of Solicited Discounted Prepayment Notice
Exhibit Q - Form of Solicited Discounted Prepayment Offer
Exhibit R - Form of Acceptance and Prepayment Notice
Exhibit S - Form of Prepayment Notice

 

 

 

  

AMENDED AND RESTATED CREDIT AGREEMENT

 

This Amended and Restated Credit Agreement (as may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “ Agreement ”), is entered into as of July 16, 2015, by and among Albany Molecular Research, Inc., a Delaware corporation (the “ Borrower ”), the Lenders and L/C Issuers (each as hereinafter defined) from time to time party hereto and Barclays Bank PLC, as the Administrative Agent, the Collateral Agent, the Swing Line Lender (each as hereinafter defined) and a L/C Issuer.

 

PRELIMINARY STATEMENTS:

 

WHEREAS, the Borrower, through its indirect wholly-owned subsidiary EXIRISK SPAIN, S.L.U., a Spanish company, intends to acquire (the “ Acquisition ”) 100% of the Equity Interests of GADEA GRUPO FARMACÉUTICO, S.L., a Spanish company and its subsidiaries (collectively, the “ Acquired Business ”), pursuant to a Share Purchase Agreement, dated as of July 16, 2015 (including the exhibits and schedules thereto, the “ Acquisition Agreement ”), among the Borrower, EXIRISK SPAIN, S.L.U. and the various Vendors party thereto;

 

WHEREAS, the proceeds of the borrowings hereunder will be used to fund a portion of the Acquisition, the repayment of certain indebtedness of the Acquired Business, to provide ongoing working capital requirements of the Borrower and its Subsidiaries, for transaction costs associated with each of the foregoing and for other general corporate purposes of the Borrower and its Subsidiaries, including Permitted Acquisitions, other Investments permitted hereunder and Restricted Payments permitted hereunder;

 

WHEREAS, the Borrower, the lenders from time to time party thereto (the “ Existing Lenders ”), the letter of credit issuers from time to time party thereto and Barclays Bank PLC, as Administrative Agent, Collateral Agent, Swing Line Lender and L/C Issuer, entered into that certain Credit Agreement, dated as of October 24, 2014 (as may be amended, restated, amended and restated, supplemented or otherwise modified prior to the date hereof, the “ Existing Credit Agreement ”);

 

WHEREAS, certain Existing Lenders and each of the other parties hereto wish to and agree to amend and restate the Existing Credit Agreement on the terms and conditions set forth herein; and

 

WHEREAS, in connection with the foregoing, the Borrower has requested that the Lenders provide a senior-secured term loan facility in the amount of $200,000,000 and a senior-secured revolving credit facility in the amount of $30,000,000, and the Lenders have indicated their willingness to lend and each L/C Issuer has indicated its willingness to issue Letters of Credit, in each case, on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree that, effective as of the Closing Date, the Existing Credit Agreement shall be, and herein is, amended and restated in its entirety to read as follows:

 

 

 

  

ARTICLE I.

 

DEFINITIONS AND ACCOUNTING TERMS

 

Section 1.01          Defined Terms . As used in this Agreement, the following terms have the meanings set forth below:

 

Acceptable Discount ” has the meaning specified in Section 2.19(d)(ii) .

 

Acceptable Prepayment Amount ” has the meaning specified in Section 2.19(d)(iii) .

 

Acceptance and Prepayment Notice ” means an irrevocable written notice from the Borrower or any of its Subsidiaries accepting a Solicited Discounted Prepayment Offer to make a Discounted Term Loan Prepayment at the Acceptable Discount specified therein pursuant to Section 2.19(d) substantially the form of Exhibit R hereto.

 

Acceptance Date ” has the meaning specified in Section 2.19(d)(ii) .

 

Acquired Business ” has the meaning set forth in the Preliminary Statements.

 

Acquisition ” has the meaning set forth in the Preliminary Statements.

 

Acquisition Agreement ” has the meaning set forth in the Preliminary Statements.

 

Acquisition Consideration ” means the sum of the cash purchase price for any Permitted Acquisition payable at or prior to the closing date of such Permitted Acquisition (and which, for the avoidance of doubt, shall not include any purchase price adjustment, royalty, earnout, contingent payment, any other deferred payment of a similar nature or any other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any Person or business or any purchase price paid with Equity Interests or Equity Equivalents (other than Disqualified Capital Stock) in the Borrower) plus the aggregate principal amount of Indebtedness that is of the type described in clauses (a) , (b) and (e) and (to the extent relating to any such clause (a) , (b) or (e) ) clause (i) of the definition of “Indebtedness” hereunder assumed on such date in connection with such Permitted Acquisition.

 

Adjusted Eurodollar Rate ” means, for the Interest Period for each Eurodollar Loan comprising part of the same Group, the quotient obtained (expressed as a decimal, carried out to five decimal places) by dividing (i) the applicable Eurodollar Rate for such Interest Period by (ii) 1.00% minus the Eurodollar Reserve Percentage; provided that, in the case of the Term Loans only, the Adjusted Eurodollar Rate shall at all times be deemed to be not less than the Adjusted LIBOR Floor.

 

Adjusted LIBOR Floor ” means 1.00% per annum .

 

Administrative Agent ” means Barclays Bank PLC, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

 

Administrative Agent Fee Letter ” means the Administrative Agent Fee Letter, dated as of the date hereof, between the Borrower and the Administrative Agent.

 

Administrative Agent’s Office ” means the Administrative Agent’s address as set forth in Section 10.02(a) and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.

 

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

 

  2  

 

  

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

 

Agent ” means the Administrative Agent, the Collateral Agent and any successors and assigns in such capacity, and “Agents” means any two or more of them.

 

Agent Related Persons ” means each Agent, together with its Related Parties.

 

Aggregate Commitments ” means at any date the Commitments of all the Lenders.

 

Agreement ” has the meaning specified in the preamble.

 

Anti-Money Laundering Laws ” means any and all laws, judgments, orders, executive orders, decrees, ordinances, rules, regulations, statutes, case law or treaties applicable to a Loan Party, its Subsidiaries or Affiliates related to terrorism financing or money laundering, including any applicable provision of Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001 (Title III of Pub. L. 107-56) and The Currency and Foreign Transactions Reporting Act (also known as the “ Bank Secrecy Act ”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959).

 

Applicable ECF Percentage ” has the meaning specified in Section 2.08(c)(ii) .

 

Applicable Margin ” means a percentage per annum equal to:

 

(a)          for purposes of calculating Term Loans, (i) for Term Loans that are Eurodollar Loans, 4.75% and (ii) for Term Loans that are Base Rate Loans, 3.75%; and

 

(b)          for purposes of calculating (A) the applicable interest rate for any day for any Revolving Loan or Swing Line Loan or (B) the applicable rate of the Letter of Credit Fee for any day for purposes of Section 2.11(b)(i) , the applicable percentage per annum set forth below corresponding to the Secured Leverage Ratio as of the most recent Calculation Date:

 

Pricing
Level
  Secured
Leverage
Ratio
  Letter of Credit Fee
and Applicable
Margin for Revolving
Loans that are
Eurodollar Loans
    Applicable Margin for
Swing Line Loans and
Revolving Loans that
are Base Rate Loans
 
I   ≥ 1.75:1.00     4.75 %     3.75 %
II   < 1.75:1.00     4.50 %     3.50 %

 

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Each Applicable Margin shall be determined and adjusted quarterly on the date (each a “ Calculation Date ”) two (2) Business Days after the earlier of the actual delivery date by which the Borrower provides, or the required delivery date by which the Borrower is required to provide, the consolidated financial information required by Section 6.01(a) or (b) , as applicable, and the Compliance Certificate required by Section 6.01(c) for the fiscal quarter or year of the Borrower most recently ended prior to the Calculation Date; provided , however , that with respect to (A) any Revolving Loan or Swing Line Loan or (B) the Letter of Credit Fee, the Applicable Margin shall be deemed to be (i) in Pricing Level I (x) from the Closing Date until the first Calculation Date occurring after the first full fiscal quarter of the Borrower subsequent to the Closing Date and (y) at any time during the existence of an Event of Default under Sections 8.01(a) , (h) or (i) and (ii) if the Borrower fails to provide the consolidated financial information required by Section 6.01(a) or (b) , as applicable, or the Compliance Certificate required by Section 6.01(c) for more than two (2) Business Days’ following the due date thereof for the most recently ended fiscal quarter or year of the Borrower preceding any applicable Calculation Date, each Applicable Margin from such Calculation Date shall be based on Pricing Level I until such time as such consolidated financial information and an appropriate Officer’s Certificate is provided.

 

In the event that the Administrative Agent and the Borrower determine in good faith that any financial statement or Compliance Certificate delivered pursuant to Section 6.01 is inaccurate (regardless of whether this Agreement or the Revolving Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected would have led to a higher Applicable Margin for any period (an “ Applicable Period ”) than the Applicable Margin applied for such Applicable Period, then (i) the Borrower shall immediately deliver to the Administrative Agent a correct Compliance Certificate for such Applicable Period, (ii) the Applicable Margin shall be determined by reference to the corrected Compliance Certificate (but in no event shall the Lenders owe any amounts to the Borrower) and (iii) the Borrower shall within five (5) Business Days of demand therefor by the Administrative Agent pay to the Administrative Agent the additional interest owing as a result of such increased Applicable Margin for such Applicable Period, which payment shall be promptly applied by the Administrative Agent in accordance with the terms hereof. Upon receipt of such corrected payment (within such time period), any Event of Default under Section 8.01(a) based on failure to pay will be deemed automatically and immediately cured and no longer ongoing.

 

Applicable Percentage ” means, with respect to any Lender at any time, the percentage of the Aggregate Commitments represented by the aggregate of such Lender’s Revolving Commitment Percentage and its Term Commitment Percentage at such time, in each case subject to adjustment as provided in Section 2.15 or 2.17 ; provided that if the Commitments of each Lender to make Loans and the obligation of each L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender of each Class and for all Classes is set forth opposite the name of such Lender on Schedule 2.01 under the caption “Commitments” of the applicable Class or under the caption “Aggregate Commitment Percentage,” as applicable, or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

 

Applicable Prepayment ” has the meaning specified in Section 2.09(f) .

 

Approved Fund ” means any Fund that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

 

Arranger Fee Letter ” means the Fee Letter, dated as of the date hereof, among the Borrower and the Lead Arranger.

 

Asset Disposition ” means any Disposition (or series of related Dispositions) of any assets by the Borrower or any of its Restricted Subsidiaries in respect of which either the fair market value of such property or the Net Cash Proceeds payable to the Borrower or any of its Restricted Subsidiaries exceeds $2,000,000, excluding any Disposition by way of Casualty or Condemnation.

 

  4  

 

 

Assignee Group ” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor or by Affiliated investment advisors.

 

Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b) and/or the definition of “Eligible Assignee”), and accepted by the Administrative Agent, substantially in the form of Exhibit C or any other form approved by the Administrative Agent and the Borrower.

 

Auction Agent ” means (a) the Administrative Agent or (b) any other financial institution or advisor engaged by the Borrower or any of its Subsidiaries (whether or not an Affiliate of the Administrative Agent) to act as an arranger in connection with a Discounted Term Loan Prepayment pursuant to Section 2.19 ; provided that neither the Borrower nor any of its Subsidiaries shall designate the Administrative Agent as the Auction Agent without the written consent of the Administrative Agent (it being understood that the Administrative Agent shall be under no obligation to agree to act as the Auction Agent).

 

Auto-Extension Letter of Credit ” has the meaning specified in Section 2.05(c)(iii) .

 

Available Amount ” means, at any date, an amount equal to:

 

(a)          the sum of (without duplication):

 

(i)          $10,000,000;

 

(ii)         the Net Cash Proceeds received after the Closing Date and on or prior to such date from any issuance of Qualified Capital Stock by the Borrower;

 

(iii)        the Net Cash Proceeds received after the Closing Date and on or prior to such date by the Borrower or any Restricted Subsidiary from the issuance of convertible or exchangeable debt securities that have been converted into or exchanged for Qualified Capital Stock of the Borrower;

 

(iv)        the Net Cash Proceeds received by the Borrower or any Restricted Subsidiary from the sale of the Equity Interests of any Unrestricted Subsidiary or any minority Investments (other than any such sale to the Borrower or a Restricted Subsidiary);

 

(v)         any dividend or other distribution by an Unrestricted Subsidiary or received in respect of minority Investments;

 

(vi)        any interest, returns of principal, repayments and similar payments by such Unrestricted Subsidiary or received in respect of any minority Investments (other than to the extent the Investment in such Unrestricted Subsidiary or minority Investment was made pursuant to Section 7.04(r) or the last sentence of the definition of “Permitted Acquisition” with then unused Available Amount);

 

(vii)       any unused Rejected Amount accrued since after the Closing Date;

 

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(viii)      to the extent not duplicative of any other provision herein, (x) the proceeds of sales of Investments funded with the Available Amount and (y) an amount equal to any returns in cash and cash equivalents; and

 

(ix)         Cumulative Excess Cash Flow as of such date, in each case, that has not been applied to prepay Loans, or, would not be required to be applied to prepay Loans pursuant to Section 2.09(c)(ii) ; minus

 

(b)          the amount of any usage of such Available Amount pursuant to Section 7.04(r) , Section 7.06(i) , Section 7.08(b) and the last sentence of the definition of “Permitted Acquisition”, in each case prior to such date.

 

Available Amount Conditions ” means, except in connection with proceeds of the Available Amount under clauses (ii) and (iii) of the definition thereof, in which case the following conditions shall not apply, prior to and after giving effect to any usage of the Available Amount, no Event of Default shall have occurred and be continuing and, solely with respect to Restricted Payments made pursuant to Section 7.06(i) and Junior Debt Payments made pursuant to Section 7.08(b) , the Secured Leverage Ratio, as of the end of the most recently completed Test Period, shall be less than or equal to 2.50 to 1.00 on a Pro Forma Basis in accordance with Section 1.03(c) .

 

Bankruptcy Code ” means Title 11 of the United States Code, as now and hereafter in effect, or any successor statute.

 

Bankruptcy Law ” means the Bankruptcy Code and all other liquidation, receivership, moratorium, conservatorship, assignment for the benefit of creditors, insolvency, examinership or similar federal, state or foreign law for the relief of debtors.

 

Base Rate ” means, for any day, a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate plus ½ of 1.00%, (ii) the Prime Rate in effect on such day and (iii) the Adjusted Eurodollar Rate for a one month Interest Period beginning on such day (or, if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%; provided that, in the case of the Term Loans, the Base Rate shall at all times be deemed to be not less than the Base Rate Floor. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Rate, respectively.

 

Base Rate Floor ” means 2.00% per annum .

 

Base Rate Loan ” means a Loan that bears interest based on the Base Rate.

 

Board of Directors ” means, with respect to any Person, (i) in the case of any corporation, the board of directors of such Person, (ii) in the case of any limited liability company, the board of managers or managing member of such Person, (iii) in the case of any partnership, the board of directors of the general partner of such Person and (iv) in any other case, the functional equivalent of the foregoing.

 

Bona Fide Debt Fund ” shall mean any bona fide debt fund, investment vehicle, regulated banking entity or non-regulated lending entity that is primarily engaged in making, purchasing, holding or otherwise investing in commercial loans or bonds and/or similar extensions of credit in the ordinary course of business.

 

Borrower ” has the meaning specified in the preamble.

 

  6  

 

  

Borrower Materials ” has the meaning specified in Section 10.02 .

 

Borrowing ” has the meaning specified in Section 1.07 .

 

Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in New York are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located, except that (i) when used in Section 2.05 with respect to any action taken by or with respect to any L/C Issuer, the term “Business Day” shall not include any day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the jurisdiction where such L/C Issuer’s Lending Office is located and (ii) when used in connection with a Eurodollar Loan, the term “ Business Day ” means any such day that is also a day on which dealings in Dollar deposits are conducted by and between banks in the London interbank market.

 

Calculation Date ” has the meaning specified in the definition of “Applicable Margin”.

 

Capital Lease ” of any Person means any lease of (or other arrangement conveying the right to use) property (whether real, personal or mixed) by such Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of such Person; provided that any lease or other arrangement that, under GAAP as in effect on the Closing Date, would not be required to be accounted for as a capital lease shall not constitute a “Capital Lease” hereunder.

 

Capital Lease Obligations ” means, with respect to any Person, all obligations of such Person as lessee under Capital Leases, which, as of any time of determination, shall be equal to the amount of liability under such Capital Leases required at such time to be capitalized and reflected as a liability on a balance sheet of such Person (excluding the footnotes thereto) prepared in accordance with GAAP.

 

Cash Collateralize ” means to pledge and deposit with or deliver to the Collateral Agent, for the benefit of the Administrative Agent, any L/C Issuer or any Swing Line Lender (as applicable) and the Lenders, as collateral for L/C Obligations, Senior Credit Obligations in respect of Swing Line Loans, or obligations of Lenders to fund participations in respect of either thereof (as the context may require), cash, deposit account balances or, if the applicable L/C Issuer or Swing Line Lender, as applicable, benefiting from such collateral shall agree in its sole discretion, other credit support (including a backup letter of credit), in each case pursuant to documentation (including as to stated amount in the case of a backup letter of credit which shall not be more than 103%) in form and substance reasonably satisfactory to (a) the Administrative Agent, (b) the Collateral Agent and (c) the applicable L/C Issuer or Swing Line Lender (as applicable) (which documents are hereby consented to by the Lenders). “ Cash Collateral ” and “ Cash Collateralization ” shall have meanings correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

 

Cash Management Agreement ” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, purchasing cards, electronic funds transfer and other cash management arrangements.

 

Cash Management Bank ” means any Person that at the request of a Loan Party is designated a “Cash Management Bank” and that is a Lender, an Agent or an Affiliate of a Lender or an Agent (i) at the time it entered into a Cash Management Agreement with a Loan Party or (ii) is designated as a “Cash Management Bank” (so long as, upon such designation, a Cash Management Agreement exists between such Person and a Loan Party), in each case, even if such Person for any reason ceases for any reason after the execution of such agreement or such designation to be a Lender, an Agent or an Affiliate of a Lender or an Agent.

 

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Cash Management Obligations ” means all obligations under any Secured Cash Management Agreements.

 

Casualty ” means any casualty, damage, destruction or other similar loss with respect to real or personal property or improvements.

 

Casualty Event ” means any involuntary loss of title, any involuntary loss of, damage to or any destruction of, or any condemnation or other taking (including by any Governmental Authority) of, any property of the Borrower or any of its Subsidiaries. “Casualty Event” shall include but not be limited to any taking of all or any part of any real property of any person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any requirement of Law, or by reason of the temporary requisition of the use or occupancy of all or any part of any real property of any person or any part thereof by any Governmental Authority, civil or military, or any settlement in lieu thereof.

 

CFC ” means a Person that is a controlled foreign corporation under Section 957 of the Internal Revenue Code of 1986.

 

Change in Law ” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any applicable law, rule, regulation or treaty, (b) any change in any applicable law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case, pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted, promulgated or issued.

 

Change of Control ” means (a) the acquisition of beneficial ownership (within the meaning of the Exchange Act and the rules of the SEC thereunder as in effect on the date hereof) by any Person or group (within the meaning of the Exchange Act and the rules of the SEC thereunder) of Equity Interests representing more than 40% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower or (b) the occurrence of a change of control, or other similar provision, as defined in any agreement or instrument evidencing any Material Indebtedness (triggering a default or mandatory prepayment, which default or mandatory prepayment has not been waived in writing).

 

Class ” has the meaning specified in Section 1.07 .

 

Closing Date ” means July 16, 2015.

 

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

 

Collateral ” means all of the property, which includes Mortgaged Property and all other property of whatever kind and nature, which is subject or is purported to be subject to the Liens granted by any of the Collateral Documents.

 

Collateral Agent ” means Barclays Bank PLC, in its capacity as collateral agent for the Finance Parties under the Collateral Documents, its successor or successors in such capacity.

 

  8  

 

  

Collateral Documents ” means, collectively, the Security Agreement, the Mortgages, any additional pledges, security agreements, patent, trademark or copyright filings or mortgages or deeds of trust required to be delivered pursuant to the Loan Documents and any instruments of assignment or other similar instruments or agreements executed pursuant to the foregoing.

 

Commitment ” means (i) with respect to each Lender, its Revolving Commitment, Term Commitment, Incremental Revolving Commitment, Incremental Term Loan Commitment, Other Revolving Commitment or Other Term Commitment, as and to the extent applicable, (ii) with respect to each L/C Issuer, its L/C Commitment and (iii) with respect to the Swing Line Lender, the Swing Line Commitment, in each case as set forth on Schedule 2.01 or in the applicable Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as its Commitment of the applicable Class, as any such amount may be adjusted from time to time in accordance with this Agreement.

 

Commitment Fee ” has the meaning specified in Section 2.11(a) .

 

Commitment Fee Percentage ” means a percentage per annum equal to:

 

Pricing
Level
  Secured Leverage
Ratio
  Commitment Fee Percentage  
I   ≥ 1.75:1.00     0.500 %
II   < 1.75:1.00     0.375 %

 

The Commitment Fee Percentage shall be determined and adjusted quarterly on each Calculation Date two (2) Business Days after the earlier of the actual delivery date by which the Borrower provides, or the required delivery date by which the Borrower is required to provide, the consolidated financial information required by Section 6.01(a) or (b) , as applicable, and the Compliance Certificate required by Section 6.01(c) for the fiscal quarter or year of the Borrower most recently ended prior to the Calculation Date; provided , however , that the Commitment Fee Percentage shall be deemed to be (i) in Pricing Level I (x) from the Closing Date until the first Calculation Date occurring after the first full fiscal quarter of the Borrower subsequent to the Closing Date and (y) at any time during the existence of an Event of Default under Sections 8.01(a) , (h) or (i) and (ii) if the Borrower fails to provide the consolidated financial information required by Section 6.01(a) or (b) , as applicable, or the Compliance Certificate required by Section 6.01(c) for more than two (2) Business Days’ following the due date thereof for the most recently ended fiscal quarter or year of the Borrower preceding any applicable Calculation Date, each Commitment Fee Percentage from such Calculation Date shall be based on Pricing Level I until such time as such consolidated financial information and an appropriate Officer’s Certificate is provided.

 

In the event that the Administrative Agent and the Borrower determine in good faith that any financial statement or Compliance Certificate delivered pursuant to Section 6.01 is inaccurate (regardless of whether this Agreement or the Revolving Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected would have led to a higher Commitment Fee Percentage for any Applicable Period than the Commitment Fee Percentage applied for such Applicable Period, then (i) the Borrower shall immediately deliver to the Administrative Agent a correct Compliance Certificate for such Applicable Period, (ii) the Commitment Fee Percentage shall be determined by reference to the corrected Compliance Certificate (but in no event shall the Lenders owe any amounts to the Borrower) and (iii) the Borrower shall within five (5) Business Days of demand therefor by the Administrative Agent pay to the Administrative Agent the additional fees owing as a result of such increased Commitment Fee Percentage for such Applicable Period, which payment shall be promptly applied by the Administrative Agent in accordance with the terms hereof. Upon receipt of such corrected payment (within such time period), any Event of Default under Section 8.01(a) based on failure to pay will be deemed automatically and immediately cured and no longer ongoing.

 

  9  

 

  

Communications ” has the meaning specified in Section 10.02(d) .

 

Competitor ” means any person that is an operating company directly and primarily engaged in substantially similar business operations as a Borrower or its Subsidiaries.

 

Competitor Controller ” means any (a) direct or indirect parent company of a Competitor and (b) Person that is a controlled affiliate of such Competitor.

 

Compliance Certificate ” means a certificate, duly executed by a Responsible Officer, appropriately completed and substantially in the form of Exhibit D .

 

Condemnation ” means any taking or expropriation by a Governmental Authority of property or assets, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation or in any other manner.

 

Condemnation Award ” means all proceeds of any Condemnation or transfer in lieu thereof.

 

Consolidated Capital Expenditures ” means, without duplication, any expenditures for any purchase or other acquisition of any asset that would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries prepared in accordance with GAAP but excluding (i) expenditures constituting consideration for any Permitted Acquisitions, (ii) expenditures constituting interest capitalized during such period, (iii) expenditures that are accounted for as capital expenditures of such Person and that actually are paid for by a third party in cash.

 

Consolidated Current Assets ” means, as of the date of any determination thereof, the aggregate amount of accounts receivables (net of allowances), royalty receivables and inventory of the Borrower and its Restricted Subsidiaries as calculated in accordance with GAAP on a consolidated basis as of the end of the most recently completed Test Period.

 

Consolidated Current Liabilities ” means at any date, the consolidated current liabilities of the Borrower and its Restricted Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP, but excluding the current portion of Consolidated Funded Indebtedness, outstanding Revolving Loans and Swing Line Loans, the current portion of interest expense (other than interest expense that is due and unpaid), accrued Taxes and accrued dividends.

 

  10  

 

  

Consolidated EBITDA ” means, with reference to any period, Consolidated Net Income for such period plus , without duplication and to the extent deducted (and not otherwise added back) or (in the case of clause (ix) below) not included in determining Consolidated Net Income for such period, the sum of (i) Consolidated Interest Expense, (ii) expense for Taxes paid or accrued (including in respect of repatriated funds and any future taxes or other levies which replace or are intended to be in lieu of such taxes and any penalties and interest related to such taxes or arising from tax examinations), (iii) depreciation, (iv) amortization (including amortization of deferred financing fees or costs), (v) non-cash expenses or losses, (vi) non-cash expenses related to stock based compensation, (vii) any non-recurring charges, costs, fees and expenses directly incurred or paid directly as a result of discontinued operations (other than such charges, costs, fees and expenses to the extent constituting losses arising from such discontinued operations), (viii) any other extraordinary, unusual or non-recurring cash charges or expenses, (ix) the amount of “run rate” cost savings, operating expense reductions and synergies projected by the Borrower in good faith to be realized as a result of any Investment, Disposition or internal cost-savings initiative or the Acquisition, in each case within the six consecutive fiscal quarters following the end of the relevant period consummation of such Investment, Disposition or initiative or the Acquisition (or following the consummation of the squeeze-out merger in the case of an acquisition structured as a two-step transaction), calculated as though such cost savings and synergies had been realized on the first day of such period and net of the amount of actual benefits received during such period from such Investment, Disposition or initiative or the Acquisition; provided that (A) a duly completed certificate signed by a Responsible Officer of the Borrower shall be delivered to the Administrative Agent certifying that such cost savings and synergies are reasonably expected and factually supportable in the good faith judgment of the Borrower, (B) no cost savings or synergies shall be added pursuant to this clause (ix) to the extent duplicative of any expenses or charges otherwise added to Consolidated EBITDA, whether through a pro forma adjustment or otherwise, for such period and (C) the aggregate amount of cost savings and synergies added back pursuant to this clause (ix) shall not exceed 20% of Consolidated EBITDA for the four quarter period ending on any date of determination (prior to giving effect to the addback of such items pursuant to this clause (ix) ), (x) adjustments relating to purchase price allocation accounting, (xi) losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business), (xii) any loss relating to amounts paid in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income for such period, (xiii) any loss resulting from a change in accounting principles during such period to the extent included in Consolidated Net Income, (xiv) any Transaction Costs incurred during such period, (xv) any fees and expenses (including any transaction or retention bonus or similar payment) incurred during such period, or any amortization thereof for such period, in connection with any acquisition, including, but not limited to, the Acquisition, non-recurring costs to acquire equipment to the extent not capitalized in accordance with GAAP, Investment, recapitalization, asset disposition, non-competition agreement, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of or waiver or consent relating to any debt instrument (in each case, including the Transaction Costs and any such transaction consummated prior to the Closing Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful (including, for the avoidance of doubt, the effects of expensing all transaction-related expenses in accordance with FASB Accounting Standards Codification 805 and gains or losses associated with FASB Accounting Standards Codification 460), (xvi) restructuring charges or expenses, whether or not classified as restructuring charges or expenses under GAAP (including integration costs, restructuring costs related to acquisitions and to closure or consolidation of facilities or locations, facilities’ opening costs and other business optimization expenses, curtailments or modifications to pension and post-retirement employee benefit plans retention or completion bonuses and any expense related to any reconstruction, de-commissioning or reconfiguration of fixed assets for alternate use), (xvii) proceeds of business interruption insurance, (xviii) charges, losses or expenses to the extent indemnified or insured by a third party to the extent such Person has notified such third party of such amount and such third party has not denied their reimbursement obligation, and (xix) the amount of any expense or reduction of Consolidated Net Income consisting of Restricted Subsidiary income attributable to minority interests or non-controlling interests of third parties in any non-wholly owned Restricted Subsidiary, excluding cash distributions in respect thereof, minus , without duplication and to the extent included (and not otherwise deducted) in determining Consolidated Net Income for such period, the sum of (l) interest income (to the extent not netted against interest expense in the calculation of Consolidated Interest Expense), (2) income tax credits and refunds (to the extent not netted from Tax expense), (3) any cash payments made during such period in respect of items described in clause (v) above subsequent to the applicable Test Period in which the relevant non-cash expenses or losses were incurred, (4) any non-recurring income or gains directly as a result of discontinued operations, (5) any unrealized income or gains in respect of Swap Agreements (to the extent not included in clause (1) above or netted against interest expense in the calculation of Consolidated Interest Expense), (6) extraordinary, unusual or non-recurring income or gains, (7) gains on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business), (8) any gain relating to amounts paid in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income for such period and (9) any gain resulting from a change in accounting principles during such period to the extent included in Consolidated Net Income, each as determined for the Borrower and its Restricted Subsidiaries in accordance with GAAP on a consolidated basis. For the avoidance of doubt, the foregoing additions to, and subtractions from, Consolidated EBITDA shall not give effect to any items attributable to the Unrestricted Subsidiaries. For the purposes of calculating Consolidated EBITDA for any Test Period, (I) if at any time during such Test Period, the Borrower or any Restricted Subsidiary shall have made any Material Disposition or converted any Restricted Subsidiary into an Unrestricted Subsidiary, the Consolidated EBITDA for such Test Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition or to such conversion for such Test Period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such Test Period, (II) if during such Test Period, the Borrower or any Restricted Subsidiary shall have converted any Unrestricted Subsidiary into a Restricted Subsidiary, Consolidated EBITDA for such Test Period shall be calculated after giving pro forma effect thereto in accordance with Section 1.03(c) as if such conversion occurred on the first day of such Test Period and (III) if during such Test Period, the Borrower or any Restricted Subsidiary shall have consummated a Permitted Acquisition or other Investment permitted hereunder, Consolidated EBITDA for such Test Period shall be calculated as if such Permitted Acquisition or other Investment were consummated on the first day of such Test Period. Notwithstanding anything to the contrary contained herein, for purposes of determining Consolidated EBITDA under this Agreement for any period that includes any of the fiscal quarters ended September 30, 2014, December 31, 2014 and March 31, 2015, Consolidated EBITDA for such fiscal quarters shall be $9,553,480, $25,172,146 and $20,420,337, respectively, in each case (which amounts, for the avoidance of doubt, shall be subject to add backs and adjustments pursuant to clause (ix) above occurring or identified after the Closing Date and not otherwise included in the calculation of the foregoing amounts).

 

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Consolidated Funded Indebtedness ” means at any date, the Funded Indebtedness of the Borrower and its Restricted Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP.

 

Consolidated Interest Expense ” means, with reference to any period, the interest expense (including without limitation interest expense under Capital Lease Obligations that is treated as interest in accordance with GAAP) of the Borrower and its Restricted Subsidiaries calculated on a consolidated basis for such period with respect to all outstanding Indebtedness of the Borrower and its Restricted Subsidiaries allocable to such period in accordance with GAAP (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing and net costs and benefits under interest rate Swap Agreements to the extent such net costs and benefits are allocable to such period in accordance with GAAP). In the event that the Borrower or any Restricted Subsidiary shall have completed a Material Disposition since the beginning of the relevant period, Consolidated Interest Expense shall be determined for such period on a pro forma basis as if such disposition, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period.

 

Consolidated Net Income ” means, with reference to any period, the net income (or loss) of the Borrower and its Restricted Subsidiaries calculated in accordance with GAAP on a consolidated basis (without duplication) for such period; provided that there shall be excluded the income of any Restricted Subsidiary (other than a Loan Party) to the extent that the declaration or payment of dividends or other distributions by such Restricted Subsidiary of that income is not at the time permitted by any of its Organization Documents, a requirement of Law or any agreement or instrument applicable to such Restricted Subsidiary, except that the amount of cash dividends or other cash distributions actually paid to any Loan Party by any such Restricted Subsidiary during such period shall be included; provided , further , that there shall be excluded any income (or loss) of any Person other than the Borrower or a Restricted Subsidiary, but any such income so excluded may be included in such period or any later period to the extent of any cash dividends or distributions actually paid in the relevant period to the Borrower or any wholly-owned Restricted Subsidiary of the Borrower.

 

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Consolidated Secured Debt ” means, as of any date of determination, Consolidated Total Indebtedness outstanding on such date that is secured by a Lien on any assets of the Borrower or any of its Restricted Subsidiaries.

 

Consolidated Subsidiary ” means with respect to any Person at any date any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date in accordance with GAAP.

 

Consolidated Total Assets ” means, as of the date of any determination thereof, total assets of the Borrower and its Restricted Subsidiaries calculated in accordance with GAAP on a consolidated basis as of the end of the most recently completed Test Period.

 

Consolidated Total Indebtedness ” means, as of the date of any determination thereof, (a) the sum, without duplication, of (x) the aggregate Indebtedness of the Borrower and its Restricted Subsidiaries that is of the type described in clauses (a) , (b) and (e) and (to the extent relating to any such clause (a) , (b) or (e) ) clause (i) of the definition of Indebtedness hereunder and (y) Indebtedness of the type referred to in clause (x) hereof of another Person guaranteed by the Borrower or any of its Restricted Subsidiaries or secured by the assets of the Borrower or any of its Restricted Subsidiaries; provided that Consolidated Total Indebtedness shall not include Indebtedness in respect of any letter of credit or bank guaranty, except to the extent of unreimbursed obligations in respect of any drawn letter of credit or bank guaranty less (b) the lesser of $45,000,000 and the aggregate amount of Unrestricted Cash at such time, which aggregate amount of Unrestricted Cash shall exclude the cash proceeds of any Indebtedness incurred on such date.

 

Consolidated Working Capital ” means, as at any date, the excess of Consolidated Current Assets over Consolidated Current Liabilities.

 

Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

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

 

Convertible Senior Notes ” means the 2.25% Cash Convertible Senior Notes in aggregate principal amount of $150,000,000 offered pursuant to that certain Indenture dated as of November 25, 2013, by and between the Borrower and Wilmington Trust, National Association, as Trustee.

 

Copyrights ” means any and all rights in any works of authorship, including (i) copyrights and moral rights, (ii) copyright registrations and recordings thereof and all applications in connection therewith, (iii) income, license fees, royalties, damages, and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (iv) the right to sue for past, present, and future infringements thereof and (v) all of each Borrower’s and each Loan Party’s rights corresponding thereto throughout the world.

 

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Credit Agreement Refinancing Indebtedness ” means (a) Indebtedness or (b) Other Revolving Commitments, in each case, issued, incurred or otherwise obtained (including by means of the extension or renewal of existing Indebtedness) to Refinance, in whole or in part, existing Term Loans, existing Incremental Term Loans, outstanding Revolving Loans (and Revolving Commitments), outstanding Incremental Revolving Loans (and Incremental Revolving Commitments) or any outstanding Credit Agreement Refinancing Indebtedness (“ Refinanced Debt ”); provided that (i) such Indebtedness (including, if such Indebtedness includes any Other Revolving Commitments, the unused portion of such Other Revolving Commitments) is in an original aggregate principal amount (or accreted value, if applicable) not greater than the aggregate principal amount (or accreted value, if applicable) of the Refinanced Debt (and, in the case of Refinanced Debt consisting, in whole or in part, of unused Revolving Commitments, Incremental Revolving Commitments or Other Revolving Commitments, the amount thereof) (except by an amount equal to accrued and unpaid interest and premium thereon, including tender premium, and underwriting and original issue discounts, fees, commissions, and expenses associated in connection with such extending, renewing, replacement or refinancing), (ii) such Indebtedness has a maturity equal to or later than, and a Weighted Average Life to Maturity equal to or greater than, the Refinanced Debt, (iii) the Refinanced Debt shall be repaid, defeased or satisfied and discharged (and to the extent that the Refinanced Debt consists, in whole or in part, of Revolving Commitments, Incremental Revolving Commitments, Other Revolving Commitments (or Revolving Loans, Incremental Revolving Loans, Other Revolving Loans, or Swing Line Loans incurred pursuant to any Revolving Commitments, Incremental Revolving Commitments or Other Revolving Commitments), such Revolving Commitments, Incremental Revolving Commitments or Other Revolving Commitments, as applicable, shall be terminated), and all accrued interest, fees and premiums (if any) in connection therewith shall be paid, substantially concurrently with the issuance, incurrence or obtaining of such Credit Agreement Refinancing Indebtedness, (iv) in the case of Credit Agreement Refinancing Indebtedness in the form of notes, such Credit Agreement Refinancing Indebtedness does not contain any mandatory prepayment provisions (other than related to customary asset sale and change of control offers or cash or net share conversion settlement provisions in the case of convertible notes) that could result in mandatory prepayments of such notes, in whole or in part, prior to the Refinanced Debt, (v) such Indebtedness shall not be guaranteed by any Persons other than all or a portion of the Loan Parties, (vi) such Indebtedness (if secured and not obtained pursuant to a Refinancing Amendment) shall be subject to a First Lien Intercreditor Agreement or Second Lien Intercreditor Agreement, as applicable and (vii) the other terms and conditions of such Credit Agreement Refinancing Indebtedness (excluding pricing, fees, rate floors and optional prepayment or redemption terms) are substantially identical to, or less favorable to the investors providing such Credit Agreement Refinancing Indebtedness than, those applicable to the Refinanced Debt (except for covenants or other provisions applicable only to periods after the Latest Maturity Date).

 

Credit Exposure ” means, as applied to each Lender and with respect to each Class of its Commitments and/or Loans:

 

(i)          at any time prior to the termination of the Commitments of the Lenders in respect of such Class, the sum, as applicable, of (A) the Revolving Commitment Percentage of such Lender multiplied by the Revolving Committed Amount plus (B) the Incremental Revolving Commitment Percentage of the relevant Class of such Lender multiplied by the total Incremental Revolving Commitments of such Class plus (C) the Other Revolving Commitment Percentage of the relevant Class of such Lender multiplied by the total Other Revolving Commitments of such Class plus (D) the Term Commitment Percentage of such Lender multiplied by the Term Committed Amount of such Class plus (E) the Other Term Commitment Percentage of the relevant Class of such Lender multiplied by the total Other Term Commitments of such Class plus (F) the Incremental Term Loan Commitment Percentage of the relevant Class of such Lender multiplied by the total Incremental Term Loan Commitments of such Class; and

 

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(ii)         at any time after the termination of the Commitments of the Lenders in respect of such Class, the sum, as applicable, of (A) the principal balance of the outstanding Loans of such Lender of such Class plus (B) in the case of the termination of the Revolving Commitments, any Class of Incremental Revolving Commitments or any Class of Other Revolving Commitments, in each case, such Lender’s Participation Interests in all L/C Obligations and Swing Line Loans issued under the relevant terminated Class.

 

Credit Extension ” means a Borrowing or an L/C Credit Extension.

 

Cumulative Excess Cash Flow ” means, at any time, an amount (not to be less than zero) equal to the sum of Excess Cash Flow for each Excess Cash Flow Period ended prior to such time.

 

Debt Issuance ” means the incurrence, issuance or assumption by the Borrower or any of its Restricted Subsidiaries of any Indebtedness.

 

Default ” means any condition or event that constitutes an Event of Default or that, with the giving of notice, the passage of applicable grace periods, or both, would be an Event of Default.

 

Default Rate ” means (i) overdue principal amounts (to the extent legally permitted) shall bear interest at a rate per annum that is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto plus 2.00% or (y) in the case of Reimbursement Obligations, the rate applicable to a Revolving Loan that is a Base Rate Loan plus 2.00% and (ii) any overdue interest payable on any Loan or Reimbursement Obligation or any overdue Commitment Fee or other overdue amount payable hereunder shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus 2.00%, in each case, with respect to clauses (i) and (ii) above, from the date such amount was due until such overdue amount is paid in full (after as well as before judgment).

 

Defaulting Lender ” means, subject to Section 2.17(b) , any Lender that (a) has failed to (i) fund all or any portion of its Loans or participations in respect of an L/C Obligation within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (which conditions precedent, together with the applicable default, if any, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any L/C Issuer, any Swing Line Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swing Line Loans) within two Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any L/C Issuer or Swing Line Lender that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such notice or public statement relates to such Lenders’ obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with the applicable default, if any, shall be specifically identified in such notice or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, after the date of this Agreement, (i) become the subject of a proceeding under any Bankruptcy Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.17(b) ) upon delivery of written notice of such determination to the Borrower, each L/C Issuer, each Swing Line Lender and each Lender.

 

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Designated Jurisdiction ” means any country or territory to the extent that such country or territory itself is the subject of any Sanction.

 

Discharge of Senior Credit Obligations ” means (i) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such interest is, or would be, allowed in such Insolvency or Liquidation Proceeding) and premium, if any, on all Indebtedness outstanding under the Loan Documents and termination of all commitments to lend or otherwise extend credit under the Loan Documents, (ii) payment in full in cash of all other Finance Obligations under the Loan Documents that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (including legal fees and other expenses, costs or charges accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such fees, expenses, costs or charges is, or would be, allowed in such Insolvency or Liquidation Proceeding), other than Cash Management Obligations and Swap Obligations not yet due and payable and (iii) termination, cancellation or Cash Collateralization of all Letters of Credit issued or deemed issued under the Loan Documents.

 

Discount Prepayment Accepting Lender ” has the meaning specified in Section 2.19(b)(ii) .

 

Discount Range ” has the meaning specified in Section 2.19(c)(i) .

 

Discount Range Prepayment Amount ” has the meaning specified in Section 2.19(c)(i) .

 

Discount Range Prepayment Notice ” means a written notice of a Solicitation of Discount Range Prepayment Offers made pursuant to Section 2.19(c)(i) substantially in the form of Exhibit N hereto.

 

Discount Range Prepayment Offer ” means the irrevocable written offer by a Term Lender, substantially in the form of Exhibit O hereto, submitted in response to an invitation to submit offers following the Auction Agent’s receipt of a Discount Range Prepayment Notice.

 

Discount Range Prepayment Response Date ” has the meaning specified in Section 2.19(c)(i) .

 

Discount Range Proration ” has the meaning specified in Section 2.19(c)(iii) .

 

Discounted Prepayment Determination Date ” has the meaning specified Section 2.19(d)(iii) .

 

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Discounted Prepayment Effective Date ” means in the case of an Offer of Specified Discount Prepayment, Solicitation of Discount Range Prepayment Offer or Solicitation of Discounted Prepayment Offer, five (5) Business Days following the receipt by each relevant Term Lender of notice from the Auction Agent in accordance with Section 2.19(b) , Section 2.19(c) or Section 2.19(d) , as applicable unless a shorter period is agreed between the Borrower or any of its Subsidiaries and Auction Agent.

 

Discounted Term Loan Prepayment ” has the meaning specified in Section 2.19(a) .

 

Disposition ” means, with respect to any Person, a sale, transfer, lease or disposition of any asset of such Person (including any such transaction effected by way of merger or consolidation and including any issuance of any of Equity Interests in a Subsidiary of such Person). “ Dispose ” and “ Disposed ”, as to any asset subject to the Disposition, shall have meanings correlative to the foregoing.

 

Disqualified Capital Stock ” means any Equity Interest of any Person that is not Qualified Capital Stock.

 

Disqualified Institutions ” means any Person that is (a) designated by the Borrower, by written notice delivered to the Administrative Agent on or prior to July 15, 2015, as a disqualified institution, (b) a Competitor or Competitor Controller identified from time to time by written notice delivered to the Administrative Agent or (c) clearly identifiable, solely on the basis of such Person’s name, as an Affiliate of any Person referred to in clause (a) or (b) above; provided , however , Disqualified Institutions shall (A) exclude any Person that the Borrower has designated as no longer being a Disqualified Institution by written notice delivered to the Administrative Agent from time to time and (B) include (I) any Person that is added as a Disqualified Institution under clause (a) hereof and (II) any Person that is clearly identifiable, solely on the basis of such Person’s name, as an Affiliate of any Person referred to in clause (B)(I), pursuant to a written supplement to the list of Disqualified Institutions, that is delivered by the Borrower Representative after July 15, 2015 to the Administrative Agent, if such supplemented list is approved by the Administrative Agent (which approval shall not be unreasonably withheld or delayed). Such supplement shall become effective immediately upon delivery to the Administrative Agent, but which shall not apply retroactively to disqualify any Persons that have previously acquired an assignment or participation interest in the Loans and/or Commitments as permitted herein. In no event shall a Bona Fide Debt Fund be a Disqualified Institution unless such Bona Fide Debt Fund is identified under clause (a) or (b) above.

 

Dollars ” and “ $ ” means, lawful money of the United States.

 

Domestic Guarantor ” means each Guarantor that is a Domestic Subsidiary.

 

Domestic Subsidiary ” means, with respect to any Person, any Subsidiary that is organized under the laws of a jurisdiction in the United States, any State thereof or the District of Columbia.

 

Economic Sanctions Laws ” refers to applicable U.S. Laws regarding economic sanctions or embargoes including the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et. seq., the Trading with the Enemy Act, 50 U.S.C. §§ 1 et. seq., and any regulations promulgated thereunder imposing economic sanctions or embargoes.

 

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Eligible Assignee ” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund and (iv) any other bank, business development company, finance company or other financial institution that provides loans in the ordinary course of its business approved by, solely in the case of this clause (iv) , the Administrative Agent (and, in the case of any assignment of a Revolving Commitment and/or a Revolving Loan, the L/C Issuers and the Swing Line Lender) and unless a payment or bankruptcy Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably (other than in the case of any assignment to a competitor of the Borrower) withheld or delayed; provided that, with respect to any Borrower consent that is required, 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 ten (10) Business Days after the Borrower has received notice thereof); provided that notwithstanding the foregoing (but, for the avoidance of doubt, subject to the provisions of Section 2.19 ), “Eligible Assignee” shall not include the Borrower or any of its Subsidiaries. For the avoidance of doubt, under no circumstances will a Disqualified Institution be an Eligible Assignee.

 

Embargoed Person ” refers to any Person that is identified on the Specially Designated Nationals List maintained by OFAC.

 

Employee Benefit Arrangements ” means in any jurisdiction the material benefit schemes or arrangements in respect of any employees or past employees operated, maintained or contributed to by the Borrower or any of its Restricted Subsidiaries or in which the Borrower or any of its Restricted Subsidiaries participates and which provide benefits on ill-health, injury, death or voluntary withdrawal from or termination of employment, including termination indemnity payments and life assurance and post-retirement medical benefits, other than Plans or Foreign Pension Plans.

 

Enforceability Limitations ” has the meaning specified Section 5.04 .

 

Environment ” means ambient air, indoor air, surface water, groundwater, land and subsurface strata and natural resources such as wetlands, flora and fauna.

 

Environmental Laws ” means all Laws, Environmental Permits or governmental restrictions relating to pollution or the protection of the Environment, including those relating to the generation, use, transportation, distribution, storage, treatment, disposal, presence, Release or threat of Release of any Hazardous Materials.

 

Environmental Liability ” means any liability, contingent or otherwise, of the Borrower or any of its Restricted Subsidiaries resulting from or based on (i) violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage or treatment of any Hazardous Material, (iii) exposure to any Hazardous Material, (iv) the presence, Release or threatened Release of any Hazardous Material into the Environment or (v) any contract or agreement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

Environmental Permit ” means any permit, license, approval, registration, notification, exemption, consent or other authorization required by or from a Governmental Authority under Environmental Law.

 

Equity Equivalents ” means with respect to any Person any rights, warrants, options, convertible securities, exchangeable securities, indebtedness or other rights, in each case exercisable for or convertible or exchangeable into, directly or indirectly, Equity Interests of such Person or securities exercisable for or convertible or exchangeable into Equity Interests of such Person, whether at the time of issuance or upon the passage of time or the occurrence of some future event, but excluding any Indebtedness convertible into Equity Interests.

 

Equity Interests ” means all shares of capital stock, partnership interests (whether general or limited), limited liability company membership interests, beneficial interests in a trust and any other interest or participation that confers on a Person the right to receive a share of profits or losses, or distributions of assets, of an issuing Person, but excluding any Indebtedness convertible into such Equity Interests.

 

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ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulation promulgated thereunder.

 

ERISA Affiliate ” means each entity that together with the Borrower or any of its Restricted Subsidiaries, 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, with respect to any Plan:

 

(i)          a reportable event as defined in Section 4043 of ERISA and the regulations issued under such Section with respect to a Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event;

 

(ii)         the requirements of Section 4043(b) of ERISA apply with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of any Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days;

 

(iii)        the failure to meet the minimum funding standard of Section 412 of the Code with respect to any Plan (whether or not waived in accordance with Section 412 of the Code), the application for a minimum funding waiver under Section 302(c) of ERISA with respect to any Plan, the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan, the determination that any Plan is, or is reasonably expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code);

 

(iv)        (A) the incurrence of any material liability by the Borrower or any of its Restricted Subsidiaries pursuant to Title I of ERISA or to the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), or the occurrence or existence of any event, transaction or condition that could reasonably be expected to result in the incurrence of any such liability by the Borrower or any of its Restricted Subsidiaries pursuant to Title I of ERISA or to such penalty or excise tax provisions of the Code; or (B) the incurrence of any material liability by the Borrower or any of its Restricted Subsidiaries or an ERISA Affiliate pursuant to Title IV of ERISA (other than for PBGC premiums due but not delinquent) or the occurrence or existence of any event, transaction or condition that could reasonably be expected to result in the incurrence of any such material liability or imposition of any lien on any of the rights, properties or assets of the Borrower or any of its Restricted Subsidiaries or any ERISA Affiliate pursuant to Title IV of ERISA or to Section 412 of the Code;

 

(v)         the provision by the administrator of any Plan of a notice pursuant to Section 4041(a)(2) of ERISA (or the reasonable expectation of such provision of notice) of intent to terminate such Plan in a distress termination described in Section 4041(c) of ERISA, the institution by the PBGC of proceedings to terminate any Plan or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of a Plan by the PBGC, or the appointment of a trustee by the PBGC to administer any Plan;

 

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(vi)        the withdrawal of the Borrower or any of its Restricted Subsidiaries or ERISA Affiliate in a complete or partial withdrawal (within the meaning of Section 4203 and 4205 of ERISA) from any Multiemployer Plan if it would reasonably be expected to result in liability therefor, or the receipt by the Borrower or any of its Restricted Subsidiaries or ERISA Affiliate of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or is in “endangered” or “critical” status (within the meaning of Section 432 of the Code or Section 305 of ERISA), or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;

 

(vii)       the imposition of liability (or the reasonable expectation thereof) on the Borrower or any of its Restricted Subsidiaries or ERISA Affiliate pursuant to Section 4062, 4063, 4064 or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA;

 

(viii)      the assertion of a material claim (other than routine claims for benefits) against any Plan (other than a Multiemployer Plan) or the assets thereof, or against the Borrower or any of its Restricted Subsidiaries in connection with any Plan;

 

(ix)         the receipt by the Borrower or any of its Restricted Subsidiaries from the United States Internal Revenue Service of notice of (x) the failure of any Plan (or any Employee Benefit Arrangement intended to be qualified under Section 401(a) of the Code) to qualify under Section 401 (a) of the Code, or (y) the failure of any trust forming part of any Plan or Employee Benefit Arrangement to qualify for exemption from taxation under Section 501(a) of the Code (excluding, for purposes of this clause (ix) , plan document or operational failures that are eligible for correction under the Employee Plans Compliance Resolution System and are corrected pursuant thereto); and

 

(x)          the establishment or amendment by the Borrower or any of its Restricted Subsidiaries of any Welfare Plan that provides post-employment welfare benefits in a manner that would reasonably be expected to result in a Material Adverse Effect, other than as may be required under applicable law.

 

Eurodollar Loan ” means at any date a Loan which bears interest at a rate based on the Adjusted Eurodollar Rate.

 

Eurodollar Rate ” means, for any Interest Period as to any Eurodollar Rate Loan, (i) the rate per annum determined by the Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (such page currently being the LIBOR01 page) (the “ LIBO Rate ”) for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time), two Business Days prior to the commencement of such Interest Period or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays the LIBO Rate for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time) two Business Days prior to the commencement of such Interest Period; provided that if LIBO Rates are quoted under either of the preceding clauses (i) or (ii) , but there is no such quotation for the Interest Period elected, the LIBO Rate shall be equal to the Interpolated Rate; provided , further , that if any such rate determined pursuant to the preceding clauses (i) or (ii) is below zero, the Eurodollar Rate will be deemed to be zero.

 

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Eurodollar Reserve Percentage ” means for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any other entity succeeding to the functions currently performed thereby) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Adjusted Eurodollar Rate for each outstanding Eurodollar Loan shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage.

 

Event of Default ” has the meaning specified in Section 8.01 .

 

Excess Cash Flow ” means, for any period, without duplication:

 

(a)          the sum of:

 

(i)          Consolidated Net Income (or loss) for such period, plus

 

(ii)         the aggregate amount of all non-cash charges deducted (less the amount of all non-cash credits included) in arriving at such Consolidated Net Income (or loss), plus

 

(iii)        the difference, if positive, of the amount of Consolidated Working Capital at the end of the prior Excess Cash Flow Period (or the beginning of the Excess Cash Flow Period in the case of the first Excess Cash Flow Period) over the amount of Consolidated Working Capital at the end of such Excess Cash Flow Period, disregarding, for the avoidance of doubt any third-party indemnification payments received by the Borrower or any of its Subsidiaries, plus

 

(iv)        the net amount of any non-cash loss (less any non-cash gain) incurred in connection with the receipt of Net Cash Proceeds (other than sales of inventory and other Dispositions in the ordinary course of business) of the type described in clause (i) of the definition of Net Cash Proceeds to the extent included in arriving at such Consolidated Net Income (or loss), plus

 

(v)         the aggregate amount of cash dividends and other cash distributions received during such period by the Borrower or any Restricted Subsidiary in respect of minority Equity Interests in any Person, less

 

(b)          the sum of:

 

(i)          the aggregate amount of Consolidated Capital Expenditures (A) made or paid by the Borrower and its Restricted Subsidiaries in cash during such period solely to the extent permitted by this Agreement and (B) excluding any amount funded with proceeds from the issuance of Funded Indebtedness (other than revolving Indebtedness) or Equity Interests, plus

 

(ii)         the aggregate amount of Investments, Restricted Payments and all fees and expenses associated therewith (other than Restricted Payments made under Section 7.06(h) ) (A) made, paid or committed to be made by the Borrower and its Subsidiaries in cash within the period ending on the date of delivery of the Compliance Certificate required to be delivered for such period to the extent permitted by this Agreement and (B) excluding any amount funded (I) with the proceeds from the issuance of Funded Indebtedness (other than revolving Indebtedness) or Equity Interests or (II) out of the Available Amount, plus

 

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(iii)        the aggregate amount of all regularly scheduled and other mandatory principal payments of Consolidated Funded Indebtedness made during such period, excluding any amount funded with proceeds from the issuance of Funded Indebtedness (other than revolving Indebtedness), Capital Leases or Equity Interests, plus

 

(iv)        the aggregate principal amount of all optional prepayments or repurchases (if such repurchases are made at a discount, the amount paid for such repurchases) of Consolidated Funded Indebtedness (other than Term Loans, Other Term Loans, Incremental Term Loans, Credit Agreement Refinancing Indebtedness and Consolidated Funded Indebtedness that is revolving in nature) made during such period, excluding any amount funded through (I) proceeds from the issuance of Funded Indebtedness (other than revolving Indebtedness), Capital Leases or Equity Interests, (II) proceeds from any Asset Disposition or (III) proceeds of any Casualty or Condemnation, plus

 

(v)         the absolute value of the difference, if negative, of the amount of Consolidated Working Capital at the end of the prior Excess Cash Flow Period (or the beginning of the Excess Cash Flow Period in the case of the first Excess Cash Flow Period) over the amount of Consolidated Working Capital at the end of such Excess Cash Flow Period, plus

 

(vi)        any premium, make-whole or penalty payments paid in cash during such period in connection with the prepayment, redemption, purchase, defeasance or other satisfaction prior to scheduled maturity of Indebtedness permitted to be prepaid, redeemed, purchased, defeased or satisfied hereunder to the extent such premium, make-whole or penalty payments are not expensed during such period or otherwise deducted in calculating Consolidated Net Income, excluding any amount funded (I) with proceeds from the issuance of Funded Indebtedness (other than revolving Indebtedness) or Equity Interests, (II) with proceeds from any Asset Disposition, or (III) with the proceeds of any Casualty or Condemnation, plus

 

(vii)       the aggregate amount of net income in respect of minority Equity Interests in any Person for such period included in arriving at such Consolidated Net Income (or loss), plus

 

(viii)      cash payments during such period permitted hereunder in respect of long-term liabilities (other than Indebtedness) to the extent such payments are not expensed during such period or are not deducted in calculating Consolidated Net Income, except to the extent financed with the proceeds of long-term Indebtedness of the Borrower or the Restricted Subsidiaries, plus

 

(ix)         the aggregate amount of any payments in respect of purchase price adjustments or earn-outs made in cash during such period by Borrower or its Subsidiaries or committed to be made within the period ending on the date of delivery of the Compliance Certificate required to be delivered for such period and in connection with any Permitted Acquisition or other Investment permitted hereunder, plus

 

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(x)          all non-cash income or gains increasing Consolidated Net Income for such period, including for the items referred to in clauses (1) through (9) of the definition of “Consolidated EBITDA” (excluding any such non-cash income or gains to the extent it represents the reversal of an accrual or reserve for potential cash gain made in any prior period).

 

Excess Cash Flow Period ” means each fiscal year of the Borrower beginning with the Fiscal Year ending on December 31, 2016.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Excluded Communications ” has the meaning specified in Section 10.02(d) .

 

Excluded Property ” means “Excluded Property” as defined in the Security Agreement.

 

Excluded Subsidiary ” means (a) any Subsidiary that is prohibited by any Law or by any Contractual Obligation existing on the Closing Date from Guaranteeing the Senior Credit Obligations or any Subsidiary that would require consent, approval, license or authorization of any Governmental Authority in order to Guarantee the Senior Credit Obligations unless such consent, approval, license or authorization has been received, (b) any Subsidiary that is a CFC or any Domestic Subsidiary that holds no material assets other than Equity Interests in one or more CFCs, (c) any Subsidiary that is not a Wholly Owned Subsidiary of the Borrower, (d) any Immaterial Subsidiary, (e) any not-for-profit Subsidiary and (f) any captive insurance company.

 

Excluded Swap Obligation ” means, with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Loan Party of, or the grant under a Loan Document by such Loan Party of a security interest to secure, such Swap Obligation (or any guaranty thereof) is or becomes illegal or unlawful under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Loan Party, or grant by such Loan Party of a security interest, becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one Swap Agreement, such exclusion shall apply to only the portion of such Swap Obligations that is attributable to Swap Agreements for which such Guarantee or security interest becomes illegal or unlawful.

 

Excluded Taxes ” means, with respect to the Administrative Agent, any Lender Party or any other recipient of any payment made by or on account of any obligation of any Loan Party under any Loan Document,

 

(a)          Taxes imposed on (or measured by) overall net income, and franchise Taxes imposed (in lieu of net income Taxes), by the United States or by the jurisdiction under the laws of which such recipient is organized or in which its office is located or, in the case of any Lender, in which its Lending Office is located, or as a result of a present or former connection between such recipient and the jurisdiction (or any political subdivision thereof) of the Governmental Authority imposing such Tax (other than a connection arising solely from such recipient having executed, delivered, performed its obligations or received a payment under, received or perfected a security interest under, having been a party to, having enforced, or having engaged in any other transaction pursuant to this Agreement or any other Loan Document);

 

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(b)          any branch profits Taxes under Section 884(a) of the Code or any similar Taxes imposed by a jurisdiction described in clause (a) of this definition;

 

(c)          any U.S. federal withholding Taxes imposed on or with respect to amounts payable to a Non-U.S. Lender by a law in effect on the date on which such Non-U.S. Lender becomes a party hereto (or designates a new Lending Office), except (i) to the extent that such Non-U.S. Lender (or its assignor) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the applicable Loan Party with respect to such withholding Tax pursuant to Section 3.01 , or (ii) if such Non-U.S. Lender is an assignee pursuant to a request by the Borrower under Section 3.07 ;

 

(d)          any U.S. federal withholding Taxes attributable to such recipient’s failure to comply with Section 3.01(f) ; or

 

(e)          any U.S. federal Taxes imposed under FATCA.

 

Existing Credit Agreement ” has the meaning set forth in the Preliminary Statements.

 

Existing Lenders ” has the meaning set forth in the Preliminary Statements.

 

Existing Loan Documents ” means “Loan Documents” as defined in the Existing Credit Agreement.

 

Failed Loan ” has the meaning specified in Section 2.03(d) .

 

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) and any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code, and any intergovernmental agreements entered into by the United States that implement or modify the foregoing (together with the portions of any law implementing such intergovernmental agreements).

 

FCPA ” has the meaning set forth in Section 5.22 .

 

Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next succeeding Business Day as so published on the next succeeding Business Day and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1.00%) charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent.

 

Finance Document ” means (i) each Loan Document, (ii) each Swap Agreement between one or more Loan Parties and a Swap Creditor evidencing Swap Obligations and (iii) each Secured Cash Management Agreement, and “ Finance Documents ” means all of them, collectively.

 

Finance Obligations ” means, at any date, (i) all Senior Credit Obligations, (ii) all Swap Obligations of a Loan Party permitted hereunder owed or owing to any Swap Creditor and (iii) all Cash Management Obligations; provided , however , that the “Finance Obligations” of a Loan Party shall exclude any Excluded Swap Obligations with respect to such Loan Party.

 

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Finance Party ” means each Lender, the Swing Line Lender, each L/C Issuer, each Swap Creditor, each Cash Management Bank, each Agent and each Indemnitee and their respective successors and assigns, and “ Finance Parties ” means any two or more of them, collectively.

 

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

 

First Lien Intercreditor Agreement ” means a First Lien Intercreditor Agreement among the Administrative Agent and one or more Senior Representatives for holders of Indebtedness secured by Liens on the Collateral that are pari passu with the Liens on the Collateral securing the Senior Credit Obligations, in form and substance reasonably satisfactory to the Administrative Agent.

 

Foreign Benefit Event ” means, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable Law or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable Law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan, or alleging the insolvency or any such Foreign Pension Plan, (d) the incurrence of any liability by the Company or any Subsidiary under applicable Law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein or (e) the occurrence of any transaction that is prohibited under any applicable Law and that would reasonably be expected to result in the incurrence of any liability by the Company or any of the Subsidiaries, or the imposition on the Company or any of the Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable Laws.

 

Foreign Pension Plan ” means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any Restricted Subsidiary primarily for the benefit of employees of the Borrower or any Restricted Subsidiary residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code; provided that, for the avoidance of doubt, any governmental plan or program requiring the mandatory payment of social insurance taxes or similar contributions to a governmental fund with respect to the wages of an employee will not be considered a “Foreign Pension Plan”.

 

Foreign Subsidiary ” means any Subsidiary that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia.

 

Fronting Exposure ” means, at any time there is a Defaulting Lender, (a) with respect to the L/C Issuers, such Defaulting Lender’s Applicable Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to any Swing Line Lender, such Defaulting Lender’s Applicable Percentage of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Lenders or Cash Collateralized in accordance with the terms of Section 2.17(a)(iv) .

 

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Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

 

Funded Indebtedness ” means, with respect to any Person, all Indebtedness of such Person that by its terms matures more than one year after the date of determination or incurrence or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, including, without limitation, all amounts of Funded Indebtedness of such Person required to be paid or prepaid within one year after the date of its creation.

 

GAAP ” means, subject to Section 1.03(b) , United States generally accepted accounting principles as in effect as of the date of determination thereof.

 

Government Acts ” has the meaning specified in Section 2.05(l) .

 

Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

 

Group ” means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Loans which are Eurodollar Loans having the same Interest Period at such time.

 

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 or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the lesser of (i) the stated or determinable amount of the primary payment obligation in respect of which such Guarantee is made and (ii) the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary payment obligation and the maximum amount for which such guaranteeing Person may be liable are not stated or determinable, in which case the amount of the Guarantee shall be such guaranteeing Person’s maximum reasonably possible liability in respect thereof as reasonably determined by the Borrower in good faith.

 

Guarantor ” means collectively, (A) each Restricted Subsidiary of the Borrower (except the Borrower and any Excluded Subsidiary) and (B) each Subsidiary of the Borrower that becomes a party to the Guaranty Agreement or other guaranty agreement after the Closing Date required pursuant to Section 6.09 , and “ Guarantors ” means any two or more of them.

 

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Guaranty Agreement ” means the Guaranty, substantially in the form of Exhibit E hereto, by the Borrower and the Subsidiary Guarantors in favor of the Administrative Agent, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof and of this Agreement.

 

Hazardous Materials ” means all materials, chemicals, substances, wastes, pollutants, contaminants, compounds, mixtures and constituents in any form, including petroleum or petroleum products, asbestos or asbestos-containing materials, polychlorinated biphenyls or radon gas, regulated pursuant to, or which can give rise to liability under, any Environmental Law.

 

Honor Date ” has the meaning specified in Section 2.05(e)(i) .

 

Identified Participating Lenders ” has the meaning specified in Section 2.19(c)(iii) .

 

Identified Qualifying Lenders ” has the meaning specified in Section 2.19(d)(iii) .

 

Immaterial Subsidiary ” means, as of any date of determination, any direct or indirect Subsidiary of the Borrower that has been designated by the Borrower to the Administrative Agent in writing (and not redesignated as a Material Subsidiary as provided below) as an “Immaterial Subsidiary”; provided that (i) for purposes of this Agreement, at no time shall the revenues for all Immaterial Subsidiaries equal or exceed, in the aggregate, 7.5% of the consolidated revenues of the Borrower and its Restricted Subsidiaries for such Test Period, (ii) the Borrower shall not designate any new Immaterial Subsidiary if such designation would not comply with the provisions set forth in clause (i) above, (iii) if the revenues of all Subsidiaries so designated by the Borrower as “Immaterial Subsidiaries” (and not redesignated as “Material Subsidiaries”) shall at any time exceed the limit set forth in clause (i) above, then the Borrower (or in the event the Borrower has failed to do so concurrently with the delivery of financial statements required for such Test Period by Section 6.01(a) or (b) , the Administrative Agent) shall redesignate one or more Immaterial Subsidiaries as Material Subsidiaries such that, as a result thereof, the revenues of all Subsidiaries still designated as “Immaterial Subsidiaries” do not exceed such limit and (iv) neither the Borrower nor any direct or indirect parent company of the Borrower may be designated as an “Immaterial Subsidiary”; provided , further , that the Borrower may designate and re-designate a Subsidiary as an Immaterial Subsidiary at any time, subject to the terms set forth in this definition. Notwithstanding the foregoing, for any determination made as of or prior to the date any Person becomes an indirect or direct Subsidiary of the Borrower, such determination and designation shall be made based on financial statements provided by or on behalf of such Person in connection with the acquisition by the Borrower of such Person or such Person’s assets.

 

Increase Effective Date ” has the meaning set forth in Section 2.15(a) .

 

Increase Joinder ” has the meaning set forth in Section 2.15(c) .

 

Incremental Facilities ” has the meaning set forth in Section 2.15(a) .

 

Incremental Loans ” means, collectively, the Incremental Term Loans and Incremental Revolving Loans.

 

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Incremental Revolving Commitment Percentage ” means, for each Lender, the percentage of the aggregate Incremental Revolving Commitments represented by such Lender’s Incremental Revolving Commitment at such time and identified as its Incremental Revolving Commitment Percentage in any Increase Joinder, as such percentage may be modified in connection with any Assignment and Assumption made in accordance with the provisions of Section 10.06(b) .

 

Incremental Revolving Commitments ” has the meaning set forth in Section 2.15(a) .

 

Incremental Revolving Increase ” has the meaning set forth in Section 2.15(a) .

 

Incremental Revolving Loans ” has the meaning set forth in Section 2.15(a) .

 

Incremental Term Facility ” has the meaning set forth in Section 2.15(a) .

 

Incremental Term Loan Commitment Percentage ” means, for each Lender, the percentage of the aggregate Incremental Term Loan Commitments represented by such Lender’s Incremental Term Loan Commitment at such time and identified as its Incremental Term Loan Commitment Percentage in any Increase Joinder, as such percentage may be modified in connection with any Assignment and Assumption made in accordance with the provisions of Section 10.06(b) .

 

Incremental Term Loan Commitments ” has the meaning set forth in Section 2.15(a) .

 

Incremental Term Loans ” has the meaning set forth in Section 2.15(a) .

 

Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person (excluding trade accounts payable and accrued expenses arising in the ordinary course of business and licenses in the ordinary course of business), (d) all obligations of such Person in respect of the deferred purchase price of property or services (but excluding (i) trade accounts and accrued expense payable not more than 90 days overdue incurred in the ordinary course of business, (ii) payroll liabilities and deferred compensation and (iii) any purchase price adjustment, royalty, earnout, contingent payment or deferred payment of a similar nature incurred in connection with an acquisition), (e) all Capital Lease Obligations and Synthetic Lease Obligations of such Person, (f) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and surety bonds, (g) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (h) 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; provided that, if such Person has not assumed or otherwise become liable in respect of such Indebtedness, such obligations shall be deemed to be in an amount equal to the lesser of (i) the unpaid amount of such Indebtedness and (ii) fair market value of such property at the time of determination (in the Borrower’s good faith estimate), (i) all Guarantees by such Person of Indebtedness of others and (j) all Disqualified Capital Stock. 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 any Taxes other than Excluded Taxes.

 

Indemnitee ” has the meaning specified in Section 10.04(b) .

 

Information ” has the meaning specified in Section 10.07 .

 

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Insolvency or Liquidation Proceeding ” means (i) any voluntary or involuntary case or proceeding under the Bankruptcy Code or any other Bankruptcy Law with respect to any Loan Party, (ii) any other voluntary or involuntary insolvency, examinership, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Loan Party or with respect to a material portion of their respective assets, (iii) any liquidation, dissolution, examinership, reorganization or winding up of any Loan Party whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (iv) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of any Loan Party.

 

Insurance Proceeds ” means all insurance proceeds (other than business interruption insurance proceeds), damages, awards, claims and rights of action with respect to any Casualty.

 

Intellectual Property ” means any and all Patents, Copyrights, Trademarks, trade secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including source code and object code), processes, product designs, industrial designs, blueprints, drawings, data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs, literature, and any other forms of technology or proprietary information of any kind, including all rights therein and all applications for registration or registrations thereof.

 

Intercompany Note ” means a promissory note (x) contemplated by Section 7.04(d) , substantially in the form of Exhibit H hereto or (y) listed on Schedule 7.04(2) .

 

Interest Payment Date ” means (i) as to Base Rate Loans, the last Business Day of each March, June, September and December (commencing September 30, 2015) and the Maturity Date for Loans of the applicable Class and (ii) as to Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date for Loans of the applicable Class, and in addition where the applicable Interest Period for a Eurodollar Loan is greater than three months, then also the respective dates that fall every three months after the beginning of such Interest Period.

 

Interest Period ” means with respect to each Eurodollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Extension/Conversion and ending one (1), three (3) or six (6) (or if agreed by all relevant Lenders, twelve (12)) months thereafter, as the Borrower may elect in the applicable notice; provided that:

 

(i)          any Interest Period which would otherwise end on a day which is not a Business Day shall, subject to clause (iv) below, be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

 

(ii)         any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month;

 

(iii)        if so provided in a written notice to the Borrower by the Administrative Agent at the direction of the Required Lenders, no Interest Period in excess of one month may be selected at any time when an Event of Default is then in existence; and

 

(iv)        no Interest Period may be selected which would end after the Maturity Date for Loans of the applicable Class.

 

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Interpolated Rate ” means, in relation to the LIBO Rate for any Loan, the rate which results from interpolating on a linear basis between: (a) the applicable LIBO Rate for the longest period (for which that LIBO Rate is available) which is less than the Interest Period of that Loan and (b) the applicable LIBO Rate for the shortest period (for which that LIBO Rate is available) which exceeds the Interest Period of that Loan, each as of approximately 11:00 a.m. (London, England time) two Business Days prior to the commencement of such Interest Period of that Loan.

 

Investment ” means, any transaction to (i) purchase, hold or acquire (including pursuant to any merger or consolidation with any Person that was not a Wholly Owned Restricted Subsidiary prior to such merger) any Equity Interest, 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 (ii) purchase or otherwise acquire (in one transaction or a series of transactions) substantially all the assets of any Person or any assets of any other Person constituting a business unit, division or line of business of such Person.

 

ISP ” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

 

Junior Debt Payment ” means (i) any payment to voluntarily redeem, purchase, prepay, retire, defease or otherwise acquire for value prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Indebtedness or unsecured Indebtedness for borrowed money, or set aside any funds for such purpose, except any purchase, prepayment, retirement, defeasance or acquisition of such Indebtedness in connection with a refinancing of such Indebtedness with Permitted Refinancing Indebtedness thereof (it being understood that any customary provision requiring an offer or requirement to purchase such Indebtedness as a result of a change of control or asset sale and any cash settled or net share settled conversion obligations shall not violate the foregoing restriction) and (ii) any cash interest payment in respect of Subordinated Indebtedness (other than (x) regularly scheduled interest payments as and when due in respect of Subordinated Indebtedness permitted under this Agreement, (y) AHYDO payments and (z) any conversion of such Indebtedness into Equity Interests, if such payments are not then prohibited by the subordination provisions thereof, which shall be permitted).

 

L/C Borrowing ” means a Revolving Borrowing made pursuant to Section 2.05(e)(iv) and (v) to refinance Unreimbursed Amounts in respect of drawn Letters of Credit.

 

L/C Commitment ” means the commitment of each L/C Issuer to issue Letters of Credit in an aggregate face amount at any one time outstanding (together with the amounts of any unreimbursed drawings thereon) of up to its L/C Issuer Sublimit.

 

L/C Credit Extension ” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

 

L/C Disbursement ” means a payment or disbursement made by an L/C Issuer pursuant to a Letter of Credit.

 

L/C Documents ” means, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any Letter of Credit Application and any agreements, instruments, Guarantee or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations.

 

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L/C Issuer ” means (i) Barclays Bank PLC, in its capacity as issuer of Letters of Credit under Section 2.05(a) , and its successor or successors in such capacity and (ii) any other Revolving Lender (or, if reasonably satisfactory to the Administrative Agent, an Affiliate of any Revolving Lender) which the Borrower shall have designated as a “L/C Issuer” by notice to the Administrative Agent with the consent of such other Revolving Lender or Affiliate of a Revolving Lender, as applicable. Notwithstanding anything herein to the contrary, neither Barclays Bank PLC nor any of its branches or Affiliates shall be required to issue any commercial letters of credit hereunder.

 

L/C Issuer Fees ” has the meaning specified in Section 2.11(b)(iii) .

 

L/C Issuer Sublimit ” means, with respect to Barclays Bank PLC, an amount equal to $10,000,000 and, with respect to any other L/C Issuer, such amount as may be mutually agreed among the Borrower, such other L/C Issuer and Barclays Bank PLC. The L/C Issuer Sublimit is a part of, and not in addition to, the Revolving Committed Amount or the L/C Sublimit.

 

L/C Obligations ” means at any time, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all Unreimbursed Amounts not then paid by the Borrower as provided in Section 2.05(e)(ii) , (iii) , (iv) or (v) to the applicable L/C Issuer in respect of drawings under Letters of Credit, including any portion of any such obligation to which a Lender has become subrogated pursuant to Section 2.05(e)(vi) . For all purposes of this Agreement and all other Loan Documents, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

 

L/C Sublimit ” means an amount equal to $15,000,000. The L/C Sublimit is a part of, and not in addition to, the Revolving Committed Amount.

 

Latest Maturity Date ” means, at any date of determination, the latest maturity or termination date applicable to any Loan or Commitment hereunder at such time, including the latest maturity or expiration date of any Other Term Loan, any Other Term Commitment, any Other Revolving Loan or any Other Revolving Commitment in each case as extended in accordance with this Agreement from time to time.

 

Laws ” means, collectively, all applicable international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directives, licenses, authorizations and permits of any Governmental Authority.

 

LCT Election ” shall have the meaning provided in Section 1.03(d) .

 

LCT Test Date ” shall have the meaning provided in Section 1.03(d) .

 

Lead Arranger ” means Barclays Bank PLC, in its capacity as lead arranger and bookrunner, or any successor lead arranger.

 

Leases ” means any and all leases, subleases, tenancies, options, concession agreements, rental agreements, occupancy agreements, franchise agreements, access agreements and any other agreements (including all amendments, extensions, replacements, renewals, modifications and/or guarantees thereof), whether or not of record and whether now in existence or hereafter entered into, affecting the use or occupancy of all or any portion of any real property.

 

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Lender ” means a Revolving Lender, Term Lender and each Eligible Assignee that becomes a Lender pursuant to Section 10.06(b) and their respective permitted successors and shall include, as the context may require, the Swing Line Lender in such capacity and each L/C Issuer in such capacity.

 

Lender Party ” means any Lender, L/C Issuer or Swing Line Lender.

 

Lending Office ” means (i) with respect to any Lender and for each Type of Loan, the “Lending Office” of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan in such Lender’s Administrative Questionnaire or in any applicable Assignment and Assumption pursuant to which such Lender became a Lender hereunder or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained and (ii) with respect to any L/C Issuer and for each Letter of Credit, the “Lending Office” of such L/C Issuer (or of an Affiliate of such L/C Issuer) designated on the signature pages hereto or such other office of such L/C Issuer (or of an Affiliate of such L/C Issuer) as such L/C Issuer may from time to time specify to the Administrative Agent and the Borrower as the office by which its Letters of Credit are to be issued and maintained.

 

Letter of Credit ” means any standby letter of credit issued hereunder by an L/C Issuer on or after the Closing Date.

 

Letter of Credit Application ” means an application and agreement for the issuance or amendment of a Letter of Credit in the form and from time to time in use by the applicable L/C Issuer.

 

Letter of Credit Expiration Date ” means the fifth Business Day prior to the Revolving Termination Date then in effect.

 

Letter of Credit Fee ” has the meaning specified in Section 2.11(b)(i) .

 

Letter of Credit Request ” has the meaning specified in Section 2.05(c) .

 

LIBO Rate ” has the meaning specified in the definition of “Eurodollar Rate”.

 

Lien ” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, easement, right-of-way or other encumbrance on title, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing); provided that any operating lease or license, and any filing of a UCC financing statement that is a protective lease filing in respect of an operating lease and any filings with the Governmental Authority in respect of any license do not constitute Liens.

 

Limited Condition Transaction ” means (i) any Permitted Acquisition or other permitted acquisition whose consummation is not conditioned on the availability of, or on obtaining, third party financing and (ii) any redemption, repurchase, defeasance, satisfaction and discharge or repayment of Indebtedness requiring irrevocable notice in advance of such redemption, repurchase, defeasance, satisfaction and discharge or repayment.

 

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Loan ” means a Revolving Loan, a Term Loan, an Incremental Term Loan, an Other Term Loan, an Incremental Revolving Loan, an Other Revolving Loan or a Swing Line Loan (or a portion of any Revolving Loans, Term Loans, Incremental Term Loans, Other Term Loans, Incremental Revolving Loans, Other Revolving Loans or Swing Line Loans), individually or collectively as appropriate; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Extension/Conversion, the term “Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

 

Loan Documents ” means this Agreement, the Notes, the Guaranty Agreement, the Collateral Documents, the Administrative Agent Fee Letter, the Arranger Fee Letter, each L/C Document and any agreement creating or perfecting rights in cash collateral pursuant to the provisions of Section 2.16 of this Agreement, collectively, in each case as the same may be amended, modified or supplemented from time to time, and all other related agreements and documents executed by a Loan Party in favor of, and delivered to, any Senior Credit Party in connection with or pursuant to any of the foregoing, but for the avoidance of doubt, excluding any Swap Agreements and any Cash Management Agreements.

 

Loan Parties ” means the Borrower and the Guarantors, and “Loan Party” means any of the foregoing.

 

Margin Stock ” means “margin stock” as such term is defined in Regulation U.

 

Material Adverse Effect ” means (a) a material adverse effect on the business, property, results of operations, or financial condition of the Borrower and its Subsidiaries, taken as a whole (after taking into account any applicable insurance and any applicable indemnification (to the extent the provider of such insurance or indemnification has the financial ability to support its obligations with respect thereto and is not disputing or refusing to acknowledge the same)); or (b) material adverse effect on the rights of or benefits or remedies available to the Lenders or the Collateral Agent under any Loan Document.

 

Material Disposition ” means any Disposition of property or series of related Dispositions of property that involves payment of aggregate Net Cash Proceeds to the Borrower and its Restricted Subsidiaries in excess of $10,000,000.

 

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 Borrower and its Restricted Subsidiaries in an aggregate principal amount exceeding $30,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Restricted Subsidiary in respect of any Swap Agreement at any time shall be the termination value (giving effect to any netting agreements) that the Borrower or such Restricted Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

 

Material Restricted Subsidiary ” means each Restricted Subsidiary (i) which, as of the most recent fiscal quarter of the Borrower, for the period of four consecutive fiscal quarters then ended for which financial statements have been delivered pursuant to Section 6.01 , contributed greater than 5.0% of Consolidated EBITDA for such period or (ii) which contributed greater than 5.0% of Consolidated Total Assets as of such date; provided that, if at any time the aggregate amount of Consolidated EBITDA or Consolidated Total Assets attributable to all Restricted Subsidiaries (other than Excluded Subsidiaries) that are not Material Restricted Subsidiaries exceeds 10.0% of Consolidated EBITDA for any such period or 10.0% of Consolidated Total Assets as of the end of any such fiscal quarter, the Borrower (or, in the event the Borrower has failed to do so concurrently with the delivery of financial statements for such period or quarter required pursuant to Section 6.01(a) or (b) , the Administrative Agent) shall designate sufficient Restricted Subsidiaries (other than Excluded Subsidiaries) as “Material Restricted Subsidiaries” to eliminate such excess, and such designated Subsidiaries shall for all purposes of this Agreement constitute Material Restricted Subsidiaries.

 

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Material Subsidiary ” means, at any date of determination, each Subsidiary of the Borrower that is not an Immaterial Subsidiary (but including, in any case, any Subsidiary that has been designated as a Material Subsidiary as provided in, or has been designated as an Immaterial Subsidiary in a manner that does not comply with, the definition of “Immaterial Subsidiary”).

 

Maturity Date ” means (i) as to the Revolving Loans and Swing Line Loans, the Revolving Termination Date and (ii) as to Term Loans, the Term Loan Maturity Date.

 

Maximum Rate ” has the meaning specified in Section 10.09 .

 

Minimum Collateral Amount ” means, at any time, (a) as to Cash Collateral consisting of cash or deposit account balances, an amount equal to 103% of the Fronting Exposure of all L/C Issuers with respect to Letters of Credit issued and outstanding at such time and (b) otherwise, an amount determined by the Administrative Agent and the L/C Issuers in their sole discretion.

 

MNPI ” has the meaning set forth in Section 2.19(a) .

 

Moody’s ” means Moody’s Investors Service, Inc., a Delaware corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

 

Mortgage ” means each mortgage, deed of trust or other agreement that conveys or evidences a Lien in favor of the Collateral Agent, for the benefit of the Collateral Agent and the Finance Parties, on the Mortgaged Property in form and substance reasonably acceptable to the Collateral Agent, including any amendment, restatement, modification or supplement thereto.

 

Mortgage Instruments ” means such title reports, title insurance, “Life-of-Loan” flood certifications and flood insurance, opinions of counsel, surveys, appraisals, environmental reports, acknowledged borrower notices of flood insurance requirements and other similar information and related certifications as are customary for the jurisdiction of the applicable Mortgaged Property and in form and substance reasonably acceptable to the Administrative Agent; provided that, Mortgage Instruments may include a “Life-of-Loan” Federal Emergency Standard Flood Hazard Determination (together with a notice about special flood hazard area status and flood disaster assistance duly executed by the Borrower and each Loan Party relating thereto), and if such Mortgaged Property is located in a special flood hazard area, evidence of flood insurance confirming that such insurance has been obtained to the extent required by this Agreement.

 

Mortgaged Property ” means each fee interest in any real property located in the U.S. (other than Excluded Property), if any, owned or acquired after the Closing Date by any Loan Party.

 

Multiemployer Plan ” means a “multiemployer plan” as defined in Section 3(37) or 4001(a)(3) of ERISA.

 

Net Cash Proceeds ” means:

 

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(i)          with respect to any Asset Disposition (other than the issuance of Equity Interests by any Subsidiary), Casualty or Condemnation, (A) the gross amount of all cash proceeds (including cash Insurance Proceeds and cash Condemnation Awards) in the case of any Casualty or Condemnation) actually paid to or actually received by the Borrower or any of its Restricted Subsidiaries in respect of such Asset Disposition, Casualty or Condemnation (including any cash proceeds received as proceeds of any disposition of noncash proceeds of any Asset Disposition, Casualty or Condemnation as and when received), less (B) the sum of (1) the amount, if any, of all customary fees, legal fees, accounting fees, brokerage fees, commissions, costs and other expenses that are incurred in connection with such Asset Disposition, Casualty or Condemnation and are payable by the Borrower or any of its Restricted Subsidiaries, but only to the extent not already deducted in arriving at the amount referred to in clause (i)(A) above, (2) Taxes paid or reasonably estimated to be payable in connection therewith (including Taxes imposed on the distribution or repatriation of any such Net Cash Proceeds), (3) in the case of any Disposition by, or Condemnation or Casualty affecting, a non-Wholly Owned Restricted Subsidiary, the pro rata portion of the Net Cash Proceeds thereof (calculated without regard to this clause (3) ) attributable to minority interests and not available for distribution to or for the account of the Borrower or a Wholly Owned Restricted Subsidiary as a result thereof, (4) appropriate amounts that must be set aside as a reserve in accordance with GAAP against any indemnities, liabilities (contingent or otherwise) associated with such Asset Disposition, Casualty or Condemnation, (5) if applicable, the principal amount of any Indebtedness secured by a Permitted Lien that has been repaid or refinanced in accordance with its terms with the proceeds of such Asset Disposition, Casualty or Condemnation (6) any payments to be made by the Borrower or any of its Restricted Subsidiaries as agreed between the Borrower or such Restricted Subsidiary and the purchaser of any assets subject to an Asset Disposition, Casualty or Condemnation in connection therewith and (7) any portion of such proceeds deposited in an escrow account or other appropriate amounts that must be set aside as a reserve in accordance with GAAP against any indemnities, liabilities (contingent or otherwise) associated with such Asset Disposition, Casualty or Condemnation; and

 

(ii)         with respect to any Debt Issuance or issuance of Equity Interests or Equity Equivalents, the gross amount of cash proceeds paid to or received by the Borrower or any of its Restricted Subsidiaries in respect of such Debt Issuance or issuance of Equity Interests or Equity Equivalents, less the sum of underwriting discounts and commissions or placement fees, investment banking fees, legal fees, consulting fees, accounting fees and other customary fees and expenses incurred by the Borrower or any of its Restricted Subsidiaries in connection therewith.

 

New Loan Party ” has the meaning specified in Section 6.09(a) .

 

Non-Consenting Lender ” means any Lender that does not approve any amendment, waiver or consent that (a) requires the approval of all affected Lenders, or all the Lenders with respect to a certain Class of Loans, in accordance with the terms of Section 10.01 and (b) has been approved by the Required Lenders.

 

Non-Extension Notice Date ” has the meaning specified in Section 2.05(c)(iii) .

 

Non-U.S. Lender ” means any Lender Party that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code.

 

Note ” means a Revolving Note, a Term Note or a Swing Line Note, and “ Notes ” means the foregoing collectively.

 

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Notice of Borrowing ” means a request by the Borrower for a Borrowing, substantially in the form of Exhibit A-1 hereto.

 

Notice of Extension/Conversion ” has the meaning specified in Section 2.07(a) .

 

OFAC ” means the U.S. Treasury Department Office of Foreign Assets Control.

 

Offer of Specified Discount Prepayment ” means the offer by the Borrower or any of its Subsidiaries to make a voluntary prepayment of Term Loans at a discount to par pursuant to Section 2.19(b) .

 

Offered Amount ” has the meaning specified in Section 2.19(d)(i) .

 

Offered Discount ” has the meaning specified in Section 2.19(d)(i) .

 

Officer’s Certificate ” means a certificate executed by the chief executive officer, the president, any vice president, secretary or one of the Financial Officers, each in his or her official (and not individual) capacity.

 

OID ” has the meaning specified in Section 2.15(c)(iii) .

 

Organization Documents ” means (i) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-United States jurisdiction); (ii) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement (or equivalent or comparable constitutive documents with respect to any non-United States jurisdiction); and (iii) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization (or equivalent or comparable constitutive documents with respect to any non-United States jurisdiction) and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

Other Revolving Commitment Percentage ” means, for each Lender, for each Class of Other Revolving Commitments, the percentage of the aggregate Other Revolving Commitments of such Class represented by such Lender’s Other Revolving Commitment of such Class at such time and identified as its Other Revolving Commitment Percentage of such Class in the relevant Refinancing Amendment, as such percentage may be modified in connection with any Assignment and Assumption made in accordance with the provisions of Section 10.06(b) .

 

Other Revolving Commitments ” means one or more Classes of revolving credit commitments hereunder that result from a Refinancing Amendment.

 

Other Revolving Loans ” means the Revolving Loans made pursuant to any Other Revolving Commitment.

 

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Other Taxes ” means all present or future stamp, court, documentary, intangible, recording, or filing Taxes, or any other excise, property 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.

 

Other Term Commitment Percentage ” means, for each Lender, for each Class of Other Term Commitments, the percentage of the aggregate Other Term Commitments of such Class represented by such Lender’s Other Term Commitment of such Class at such time and identified as its Other Term Commitment Percentage of such Class in the relevant Refinancing Amendment, as such percentage may be modified in connection with any Assignment and Assumption made in accordance with the provisions of Section 10.06(b) .

 

Other Term Commitments ” means one or more Classes of term loan commitments hereunder that result from a Refinancing Amendment.

 

Other Term Loans ” means one or more Classes of Term Loans that result from a Refinancing Amendment.

 

Outstanding Amount ” means, with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date, including any L/C Borrowings outstanding on such date, but after giving effect to any reimbursements of outstanding unpaid drawings under any Letters of Credit (including any refinancing of outstanding unpaid drawings under Letters of Credit or L/C Borrowings as a Revolving Borrowing) or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on or before such date.

 

Participant ” has the meaning specified in Section 10.06(d) .

 

Participant Register ” has the meaning specified in Section 10.06(d) .

 

Participating Lender ” has the meaning specified in Section 2.19(c)(ii) .

 

Participation Interest ” means a Credit Extension by a Lender by way of a purchase of a participation interest in Letters of Credit or L/C Obligations as provided in Section 2.05(e) , in Swing Line Loans as provided in Section 2.01(c)(vi) or in any Loans as provided in Section 2.13 .

 

Patents ” means patents and patent applications, including (i) all continuations, divisionals, continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (iii) the right to sue for past, present, and future infringements thereof and (iv) all of each Loan Party’s rights corresponding thereto throughout the world.

 

Patriot Act ” has the meaning set forth in Section 10.14 .

 

PBGC ” means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any entity succeeding to any or all of its functions under ERISA.

 

Perfection Certificate ” means with respect to any Loan Party a certificate, substantially in the form of Exhibit J to this Agreement, completed and supplemented with the schedules and attachments contemplated thereby and duly executed on behalf of such Loan Party by a Responsible Officer of such Loan Party.

 

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Permitted Acquisition ” means the purchase or other acquisition by the Borrower or any Restricted Subsidiary of Equity Interests in, or all or substantially all the assets of (or all or substantially all the assets constituting a business unit, division or line of business of) any Person, in a single transaction or a series of related transactions if (a) (i) in the case of any purchase or other acquisition of Equity Interests in a Person, such Person (including each Subsidiary of such Person), upon the consummation of such purchase or acquisition, will be a Restricted Subsidiary (including as a result of a merger or consolidation between the Borrower or any Restricted Subsidiary and such Person, with, in the case of a merger or consolidation involving the Borrower, the Borrower being the surviving entity) or (ii) in the case of any purchase or other acquisition of other assets, such assets will be owned by the Borrower or a Wholly Owned Restricted Subsidiary; (b) the business of such Person, or the business conducted with such assets, as the case may be, constitutes a business permitted by Section 7.03(b) ; and (c) at the time of and immediately after giving effect (including pro forma effect) to any such purchase or other acquisition, (i) no Event of Default shall have occurred and be continuing, unless such purchase or other acquisition is a Limited Condition Transaction and is financed in whole with Incremental Loans, in which case such Event of Default condition shall be tested on the date of execution of the relevant acquisition or purchase agreement (giving pro forma effect to the relevant transactions in accordance with Section 1.03(d)) and (ii) if the Acquisition Consideration with respect thereto exceeds $35,000,000 (other than to the extent financed with the proceeds of the issuance of paid in Equity Interests or Equity Equivalents (other than Disqualified Capital Stock) of the Borrower), the Borrower shall have delivered to the Administrative Agent a certificate of a Financial Officer, certifying that all the requirements set forth in this definition have been satisfied, or will be satisfied upon consummation of the purchase or other acquisition, with respect to such purchase or other acquisition. Notwithstanding anything in the contrary contained in (a)(i) above, the aggregate amount of Acquisition Consideration paid by the Borrower or any other Restricted Subsidiary for all Permitted Acquisitions of Restricted Subsidiaries that do not become Loan Parties shall not exceed the greater of (x) $25,000,000 and (y) 25% of Consolidated EBITDA for the most recently completed Test Period, in each case plus the Available Amount so long as the Available Amount Conditions have been met.

 

Permitted Encumbrances ” means:

 

(a)          Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 6.04 and Liens for unpaid utility charges;

 

(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 sixty (60) days or are being contested in compliance with Section 6.04 ;

 

(c)          pledges and deposits made (i) in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations or employment laws or to secure other public, statutory or regulatory obligations and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of the Borrower or any Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (c)(i) above;

 

(d)          pledges and deposits (i) 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 and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of the Borrower or any Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (d)(i) above;

 

(e)          judgment Liens in respect of judgments that do not constitute an Event of Default under Section 8.01(k) or securing appeal or surety bonds related to such judgments;

 

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(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 Restricted Subsidiary; and

 

(g)          banker’s liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with depository institutions; provided that such deposit accounts or funds are not established or deposited for the purpose of providing collateral for any Indebtedness.

 

Permitted Indebtedness ” means unsecured Indebtedness (including Subordinated Indebtedness) of any Loan Party and any Permitted Refinancing Indebtedness in respect of any such Indebtedness; provided that (i) both immediately prior to and after giving effect thereto, no Event of Default shall exist or result therefrom, (ii) such Indebtedness matures on or after, and does not require any scheduled amortization or other scheduled payments of principal prior to, the date that is 91 days after the Latest Maturity Date (it being understood that any provision requiring an offer or requirement to purchase or prepay such Indebtedness as a result of a change of control or asset sale and any cash settled or net share settled conversion obligations shall not violate the foregoing restriction), (iii) such Indebtedness is not guaranteed by any Restricted Subsidiary of the Borrower other than the Subsidiary Guarantors (which guarantees, if such Indebtedness is subordinated, shall be expressly subordinated to the Finance Obligations on terms not less favorable to the Lenders than the subordination terms of such Subordinated Indebtedness) and (iv) both immediately prior to and after giving effect to the increase of such Indebtedness (on a Pro Forma Basis in accordance with Section 1.03(c) ), the Total Leverage Ratio as the end of the most recently completed Test Period shall not exceed 5.50 to 1.00.

 

Permitted Investments ” means:

 

(a)          direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), 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)          certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, demand deposits, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic or foreign commercial bank having capital and surplus of not less than $500,000,000 in the case of U.S. banks and $250,000,000 (or the Dollar equivalent as of the date of determination) in the case of non-U.S. banks;

 

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

 

(e)          marketable short-term money market and similar liquid funds having a rating of at least P-2 or A-2 from either Moody’s or S&P, respectively (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency);

 

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(f)          Investments with average maturities of 12 months or less from the date of acquisition in money market funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moody’s (or, if at any time neither Moody’s nor S&P shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency);

 

(g)          investment funds investing substantially all of their assets in securities of the types described in clauses (a) through (f) above;

 

(h)          in the case of the Borrower or any Subsidiary, other short-term investments that are analogous to the foregoing, are of comparable credit quality and are customarily used by companies in the jurisdiction of the Borrower for cash management purposes;

 

(i)          investments permitted pursuant to the Borrower’s investment policy as approved by the Board of Directors (or committee thereof) of the Borrower from time to time; and

 

(j)          Dollars, Euros, Pounds or such other currencies held by it from time to time in the ordinary course of business.

 

Permitted Liens ” has the meaning assigned to such term in Section 7.02 .

 

Permitted Refinancing Indebtedness ” means any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “ Refinance ”) other Indebtedness; provided that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so refinanced (plus unpaid accrued interest and premium (including tender, extension or prepayment premium) thereon, any committed or undrawn amounts and underwriting and original issue discounts, fees, commissions and expenses, associated with such Permitted Refinancing Indebtedness), (b) the final maturity date of such Permitted Refinancing Indebtedness is no earlier than the maturity date of the Indebtedness being Refinanced (it being understood that, in each case, any provision requiring prepayment or an offer to purchase such Indebtedness as a result of a change of control or asset sale shall not violate the foregoing restriction), (c) if the Indebtedness (including any Guarantee thereof) being Refinanced is by its terms subordinated in right of payment to the Finance Obligations, such Permitted Refinancing Indebtedness (including any Guarantee thereof) shall be subordinated in right of payment to the Finance Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being Refinanced, taken as a whole (as determined in good faith by the Board of Directors of the Borrower), (d) no Permitted Refinancing Indebtedness shall have obligors or contingent obligors that were not obligors or contingent obligors (or that would not have been required to become obligors or contingent obligors) in respect of the Indebtedness being Refinanced and (e) if the Indebtedness being Refinanced is secured, such Permitted Refinancing Indebtedness may be secured on terms no less favorable, taken as a whole, to the Loan Parties than those contained in the documentation (including any intercreditor agreement) governing the Indebtedness being Refinanced (reasonably determined in good faith by the Board of Directors of the Borrower).

 

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

 

Plan ” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code maintained by or contributed to by the Borrower or any of its Restricted Subsidiaries or any ERISA Affiliate, other than a Multiemployer Plan or a Foreign Pension Plan.

 

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Platform ” has the meaning specified in Section 10.02 .

 

Pledged Securities ” means “Pledged Securities” as defined in the Security Agreement.

 

Prime Rate ” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent).

 

Principal Amortization Payment ” means a scheduled principal payment on the Term Loans pursuant to Section 2.08(b) (including the remaining payment due on the Term Loan Maturity Date).

 

Principal Amortization Payment Date ” means (i) the last Business Day of each calendar quarter, commencing with December 31, 2015 and (ii) the Term Loan Maturity Date.

 

Pro Forma Basis ” has the meaning assigned to such term in Section 1.03(c) .

 

Pro rata Share ” has the meaning assigned to such term in Section 8.03(b) .

 

Qualified Capital Stock ” means Equity Interests of the Borrower that do not include a cash dividend (other than dividends that are solely payable as and when declared by the Board of Directors of the Borrower) and are not mandatorily redeemable by the Borrower or any of its Restricted Subsidiaries or redeemable at the option of the holder of such Equity Interests, in each case prior to the 91st day following the Term Loan Maturity Date; provided , however , that an Equity Interest in any Person that is issued to any employee or to any plan for the benefit of employees or by any such plan to such employees shall constitute Qualified Capital Stock notwithstanding any obligation of the Borrower or any Subsidiary to repurchase such Equity Interest in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.

 

Qualifying Lender ” has the meaning specified in Section 2.19(d)(iii) .

 

Refinance ” has the meaning set forth in the definition of “Permitted Refinancing Indebtedness”. “ Refinanced ” and “ Refinancing ” shall have meanings correlative to the foregoing.

 

Refinanced Debt ” has the meaning set forth in the definition of “Credit Agreement Refinancing Indebtedness.”

 

Refinancing Amendment ” means an amendment to this Agreement in form and substance reasonably satisfactory to the Administrative Agent and the Borrower executed by each of (a) the Borrower, (b) the Administrative Agent and (c) each Eligible Assignee and Lender that agrees to provide any portion of the Credit Agreement Refinancing Indebtedness being incurred pursuant thereto, in accordance with Section 2.18 .

 

Refunded Swing Line Loans ” has the meaning specified in Section 2.01(c)(iii) .

 

Register ” has the meaning specified in Section 10.06(c) .

 

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Regulation T, U or X ” means Regulation T, U or X, respectively, of the Board of Governors of the Federal Reserve System as amended, or any successor regulation.

 

Reimbursement Obligations ” means the Borrower’s obligation under Section 2.05(e) to reimburse L/C Disbursements.

 

Reinvestment Funds ” means, with respect to any Net Cash Proceeds of Insurance Proceeds, any Condemnation Award or any Asset Disposition in respect of the single event or series of related events giving rise thereto, that portion of such funds expected to be reinvested (or to which the Borrower or any Restricted Subsidiary expects to enter into a binding commitment for any such reinvestment) within twelve months after the occurrence of the Casualty, Condemnation or Asset Disposition giving rise thereto (or if some or all of such Net Cash Proceeds are scheduled to be received at a later date than the date of such occurrence, within twelve (12) months following the receipt of such Net Cash Proceeds) in assets or other property (including Equity Interests) useful in the business of the Borrower and its Restricted Subsidiaries; provided that, if any such Net Cash Proceeds are not actually so reinvested within twelve (12) months or eighteen (18) months if committed for such purpose within twelve (12) months of such Casualty, Condemnation or Asset Disposition (or twelve months of such Casualty, Condemnation or Asset Disposition if not so committed on or prior to the last day of such twelve-month period), such unreinvested portion shall no longer constitute Reinvestment Funds and shall be applied on the last day of such period as a mandatory prepayment as provided in Section 2.09(c)(iii) .

 

Rejected Amount ” has the meaning specified in Section 2.09(f) .

 

Rejection Deadline ” has the meaning set forth in the Section 2.09(f) .

 

Rejection Notice ” has the meaning specified in Section 2.09(f) .

 

Related Obligations ” has the meaning specified in Section 9.12 .

 

Related Parties ” means, with respect to any Person, such Person’s Affiliates and the partners, trustees, directors, officers, employees and agents of such Person and of such Person’s Affiliates.

 

Release ” means any spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the Environment or within, upon, or from or into any building, structure, facility or fixture.

 

Representative ” has the meaning specified in Section 10.07 .

 

Repricing Transaction ” means (i) any prepayment or repayment of Loans under the Term Facility (including by means of a Refinancing Amendment) with the proceeds of, or any conversion of Term Loans into, any new or replacement term loans with the primary purpose of reducing the effective interest yield less than the effective interest yield applicable to the Term Facility and (ii) any amendment to the Term Facility with the primary purpose of reducing the effective interest yield applicable to the Loans thereunder (in each case of clauses (i) and (ii) , such effective interest yield shall take into account margins, the Adjusted LIBOR Floor or Base Rate Floor, OID and upfront fees, which OID and upfront fees being equated to interest margins based on an assumed four-year average life to maturity (e.g., 25 basis points of interest margin equal 100 basis points in OID and upfront fees payable on the principal amount of debt)); provided, that any refinancing or repricing of the Term Loans in connection with a transaction that would result in a Change of Control or is an acquisition that is not a Permitted Acquisition shall not constitute a Repricing Transaction.

 

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Required Lenders ” means, at any time of determination, Lenders whose aggregate Credit Exposure constitutes more than 50% of the Credit Exposure of all Lenders at such time; provided , however , that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders such Lender and its Credit Exposure at such time.

 

Required Revolving Lenders ” means, at any time of determination, Lenders whose aggregate Revolving Credit Exposure constitutes more than 50% of the Revolving Credit Exposure of all Lenders at such time; provided , however , that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Revolving Lenders such Lender and the aggregate principal amount of Revolving Credit Exposure of such Lender at such time.

 

Required Term Lenders ” means, at any time of determination, Lenders whose aggregate Term Credit Exposure constitutes more than 50% of the Term Credit Exposure of all Lenders at such time; provided , however , that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Term Lenders such Lender and its Term Credit Exposure at such time.

 

Responsible Officer ” means the chief executive officer, president, senior vice president, vice president, chief financial officer, treasurer or controller of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

 

Restricted Payment ” means (i) any dividend or other distribution (whether in cash, securities or other property), direct or indirect, on account of any class of Equity Interests or Equity Equivalents of the Borrower or any Restricted Subsidiary, now or hereafter outstanding and (ii) 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, termination or similar payment, purchase or other acquisition for value, direct or indirect, of any class of Equity Interests or Equity Equivalents of the Borrower or any Restricted Subsidiary, now or hereafter outstanding.

 

Restricted Subsidiary ” means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.

 

Revolving Availability Period ” means the period from and including the Closing Date to the earliest of (i) the Revolving Termination Date, (ii) the date of the termination of the Commitments pursuant to Section 2.10 and (iii) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuers to make L/C Credit Extensions pursuant to Section 8.02 .

 

Revolving Borrowing ” means a Borrowing comprised of Revolving Loans and identified as such in the Notice of Borrowing with respect thereto.

 

Revolving Commitment ” means, with respect to any Lender, the commitment of such Lender, in an aggregate principal amount at any time outstanding of up to such Lender’s Revolving Commitment Percentage of the Revolving Committed Amount, (i) to make Revolving Loans in accordance with the provisions of Section 2.01(a) , (ii) to purchase Participation Interests in Swing Line Loans in accordance with the provisions of Section 2.01(c)(iv) and (iii) to purchase Participation Interests in Letters of Credit in accordance with the provisions of Section 2.05(d) .

 

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Revolving Commitment Percentage ” means, for each Lender, the percentage of the aggregate Revolving Commitments represented by such Lender’s Revolving Commitment at such time and identified as its Revolving Commitment Percentage on Schedule 2.01 hereto, as such percentage may be (i) increased pursuant to Section 2.15 or reduced pursuant to Section 2.10 and (ii) modified in connection with any assignment made in accordance with the provisions of Section 10.06(b) .

 

Revolving Committed Amount ” means $30,000,000 or such lesser amount to which the Revolving Committed Amount may be reduced pursuant to Section 2.10 .

 

Revolving Credit Exposure ” means, as applied to each Lender and with respect to each Class of its Commitments and/or Loans:

 

(i)          at any time prior to the termination of the Commitments of the Lenders in respect of such Class, the sum, as applicable, of (A) the Revolving Commitment Percentage of such Lender multiplied by the Revolving Committed Amount plus (B) the Incremental Revolving Commitment Percentage of the relevant Class of such Lender multiplied by the total Incremental Revolving Commitments of such Class plus (C) the Other Revolving Commitment Percentage of the relevant Class of such Lender multiplied by the total Other Revolving Commitments of such Class; and

 

(ii)         at any time after the termination of the Commitments of the Lenders in respect of such Class, the sum, as applicable, of (A) the principal balance of the outstanding Loans of such Lender of such Class plus (B) in the case of the termination of the Revolving Commitments, any Class of Incremental Revolving Commitments or any Class of Other Revolving Commitments, in each case, such Lender’s Participation Interests in all L/C Obligations and Swing Line Loans issued under the relevant terminated Class.

 

Revolving Lender ” means each Lender identified in Schedule 2.01 as having a Revolving Commitment and each Eligible Assignee which acquires a Revolving Commitment or Revolving Loan pursuant to Section 10.06(b) and their respective permitted successors.

 

Revolving Loan ” means the revolving loans made by the Revolving Lenders to the Borrower pursuant to Section 2.01(a) .

 

Revolving Note ” means a promissory note, substantially in the form of Exhibit B-1 hereto, evidencing the obligation of the Borrower to repay outstanding Revolving Loans, as such note may be amended, modified, supplemented, extended, renewed or replaced from time to time.

 

Revolving Outstandings ” means at any date the aggregate outstanding principal amount of all Revolving Loans and Swing Line Loans plus the aggregate Outstanding Amount of all L/C Obligations.

 

Revolving Termination Date ” means the date which is the fifth anniversary of the Closing Date (or, if such day is not a Business Day, the next succeeding Business Day) or such earlier date upon which the Revolving Commitments shall have been terminated in their entirety in accordance with this Agreement; provided that the Revolving Termination Date shall be the date that is six (6) months prior to the scheduled maturity date of the Convertible Senior Notes if on such date both (a) more than $25,000,000 of the Convertible Senior Notes shall remain outstanding and (b) the Secured Leverage Ratio shall be greater than 1.50 to 1.00.

 

S&P ” means Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., a New York corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

 

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Sale/Leaseback Transaction ” means any direct or indirect arrangement with any Person or to which any such Person is a party providing for the leasing to the Borrower or any of its Restricted Subsidiaries of any property, whether owned by the Borrower or any of its Restricted Subsidiaries as of the Closing Date or later acquired, which has been or is to be sold or transferred by the Borrower or any of its Restricted Subsidiaries to such Person from whom funds have been, or are to be, advanced by such Person on the security of such property.

 

Sanction ” means any sanction administered or enforced by the United States Government (including, without limitation, the U.S. Department of Treasury’s Office of Foreign Assets Control), the United Nations Security Council, the European Union or Her Majesty’s Treasury.

 

SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

 

Second Lien Intercreditor Agreement ” means a Second Lien Intercreditor Agreement among the Administrative Agent and one or more Senior Representatives for holders of Indebtedness secured by Liens on the Collateral that are junior to the Liens on the Collateral securing the Finance Obligations, in form and substance reasonably satisfactory to the Administrative Agent.

 

Secured Cash Management Agreement ” means any Cash Management Agreement that is entered into by and between any Loan Party and any Cash Management Bank.

 

Secured Leverage Ratio ” means, as of any date of determination, the ratio of (a) Consolidated Secured Debt as of such date to (b) Consolidated EBITDA for the most recently ended Test Period.

 

Security Agreement ” means the Security Agreement, substantially in the form of Exhibit G hereto, dated as of the date hereof, among the Borrower, the Domestic Guarantors and the Collateral Agent, as the same may be amended, modified or supplemented from time to time.

 

Senior Credit Obligations ” means, with respect to each Loan Party, without duplication:

 

(i)          in the case of the Borrower, all principal of and interest (including, without limitation, any interest which accrues after the commencement of any proceeding under any Insolvency or Liquidation Proceeding with respect to the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any Loan or L/C Obligation under, or any Note issued pursuant to, this Agreement or any other Loan Document;

 

(ii)         all fees, expenses, indemnification obligations and other amounts of whatever nature now or hereafter payable by such Loan Party (including, without limitation, any amounts which accrue after the commencement of any proceeding under any Insolvency or Liquidation Proceeding with respect to such Loan Party, whether or not allowed or allowable as a claim in any such proceeding) pursuant to this Agreement or any other Loan Document;

 

(iii)        all expenses of the Agents as to which one or more of the Agents have a right to reimbursement by such Loan Party under Section 10.04(a) of this Agreement or under any other similar provision of any other Loan Document, including, without limitation, any and all sums advanced by the Collateral Agent to preserve the Collateral or preserve its security interests in the Collateral to the extent permitted under any Loan Document or applicable Law;

 

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(iv)        all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement by such Loan Party under Section 10.04(b) of this Agreement or under any other similar provision of any other Loan Document; and

 

(v)         in the case of the Borrower and each Guarantor, all amounts now or hereafter payable by the Borrower or such Guarantor and all other obligations or liabilities now existing or hereafter arising or incurred (including, without limitation, any amounts which accrue after the commencement of any proceeding under any Insolvency or Liquidation Proceeding with respect to the Borrower or such Guarantor, whether or not allowed or allowable as a claim in any such proceeding) on the part of such Guarantor pursuant to this Agreement, the Guaranty Agreement or any other Loan Document;

 

together in each case with all renewals, modifications, consolidations or extensions thereof.

 

Senior Credit Party ” means each Lender, each L/C Issuer, the Administrative Agent, the Collateral Agent and each Indemnitee and their respective successors and assigns.

 

Senior Representative ” means, with respect to any series of Indebtedness, the trustee, administrative agent, collateral agent, security agent or similar agent under the indenture or agreement pursuant to which such Indebtedness is issued, incurred or otherwise obtained, as the case may be, and each of their successors in such capacities.

 

Solicitation of Discount Range Prepayment Offers ” means the solicitation by the Borrower or any of its Subsidiaries of offers for, and the corresponding acceptance by a Term Lender of, a voluntary prepayment of Term Loans at a specified range at a discount to par pursuant to Section 2.19(c) .

 

Solicitation of Discounted Prepayment Offers ” means the solicitation by the Borrower or any of its Subsidiaries of offers for, and the corresponding acceptance, if any, by a Term Lender of, a voluntary prepayment of Term Loans at a discount to par pursuant to Section 2.19(d) .

 

Solicited Discount Proration ” has the meaning specified in Section 2.19(d)(iii) .

 

Solicited Discounted Prepayment Amount ” has the meaning specified in Section 2.19(d)(i) .

 

Solicited Discounted Prepayment Notice ” means an irrevocable written notice of a Solicitation of Discounted Prepayment Offers made pursuant to Section 2.19(d)(i) substantially in the form of Exhibit P hereto.

 

Solicited Discounted Prepayment Offer ” means an irrevocable written offer by each Term Lender, substantially in the form of Exhibit Q hereto, submitted following the Auction Agent’s receipt of a Solicited Discounted Prepayment Notice.

 

Solicited Discounted Prepayment Response Date ” has the meaning specified in Section 2.19(d)(i) .

 

Solvent ” means, with respect to the Borrower and its Subsidiaries (on a consolidated basis) as of a particular date, that on such date (i) the fair value of the assets of the Borrower and its Subsidiaries, on a consolidated basis, exceeds, on a consolidated basis, their debts and liabilities, subordinated, contingent or otherwise, (ii) the present fair saleable value of the property of the Borrower and its Subsidiaries, on a consolidated basis, is greater than the amount that will be required to pay the probable liability, on a consolidated basis, of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries, on a consolidated basis, will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries, on a consolidated basis, are not engaged in, and are not about to engage in, business for which they have unreasonably small capital.

 

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Specified Discount Prepayment Amount ” has the meaning specified in Section 2.19(b)(i) .

 

Specified Discount Prepayment Notice ” means an irrevocable written notice of the Borrower or any of its Subsidiaries of a Specified Discount Prepayment made pursuant to Section 2.19(b)(i) substantially in the form of Exhibit L hereto.

 

Specified Discount Prepayment Response ” means the irrevocable written response by each Term Lender, substantially in the form of Exhibit M hereto, to a Specified Discou