Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2011

or

 

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

For the transition period from              to             

Commission File No. 001-33202

 

 

LOGO

UNDER ARMOUR, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   52-1990078

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1020 Hull Street

Baltimore, Maryland 21230

  (410) 454-6428
(Address of principal executive offices) (Zip Code)   (Registrant’s telephone number, including area code)

 

 

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

As of July 31, 2011, there were 39,733,038 shares of Class A Common Stock and 11,822,000 shares of Class B Convertible Common Stock outstanding.

 

 

 


Table of Contents

UNDER ARMOUR, INC.

JUNE 30, 2011

INDEX TO FORM 10-Q

 

PART I.    FINANCIAL INFORMATION   

Item 1.

   Financial Statements:   
   Unaudited Consolidated Balance Sheets as of June 30, 2011, December 31, 2010 and June 30, 2010      1   
   Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010      2   
   Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010      3   
   Notes to the Unaudited Consolidated Financial Statements      4   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      11   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      21   

Item 4.

   Controls and Procedures      22   
PART II.    OTHER INFORMATION   

Item 1A.

   Risk Factors      23   

Item 6.

   Exhibits      23   
SIGNATURES         24   


Table of Contents

P ART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Under Armour, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

     June 30,
2011
     December 31,
2010
    June 30,
2010
 

Assets

       

Current assets

       

Cash and cash equivalents

   $ 119,684         $203,870         $ 156,089   

Accounts receivable, net

     139,590         102,034        96,314   

Inventories

     311,066         215,355        179,150   

Prepaid expenses and other current assets

     33,983         19,326        24,658   

Deferred income taxes

     17,004         15,265        11,339   
  

 

 

    

 

 

   

 

 

 

Total current assets

     621,327         555,850        467,550   

Property and equipment, net

     90,719         76,127        74,900   

Intangible assets, net

     3,449         3,914        4,657   

Deferred income taxes

     20,225         21,275        17,993   

Other long term assets

     30,469         18,212          4,999   
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 766,189         $675,378       $ 570,099   
  

 

 

    

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

       

Current liabilities

       

Accounts payable

   $ 118,237         $  84,679      $ 81,183   

Accrued expenses

     44,654         55,138        30,880   

Current maturities of long term debt

     5,567         6,865        8,174   

Current maturities of capital lease obligations

     —           —          12   

Other current liabilities

     4,095         2,465        2,634   
  

 

 

    

 

 

   

 

 

 

Total current liabilities

     172,553         149,147        122,883   

Long term debt, net of current maturities

     31,290         9,077        7,406   

Other long term liabilities

     23,880         20,188        16,695   
  

 

 

    

 

 

   

 

 

 

Total liabilities

     227,723         178,412        146,984   
  

 

 

    

 

 

   

 

 

 

Commitments and contingencies (see Note 5)

       

Stockholders’ equity

       

Class A Common Stock, $0.0003 1/3 par value; 100,000,000 shares authorized as of June 30, 2011, December 31, 2010 and June 30, 2010; 39,669,162 shares issued and outstanding as of June 30, 2011, 38,660,355 shares issued and outstanding as of December 31, 2010, 38,387,401 shares issued and outstanding as of June 30, 2010

     13         13        13   

Class B Convertible Common Stock, $0.0003 1/3 par value; 11,875,000 shares authorized, issued and outstanding as of June 30, 2011, 12,500,000 shares authorized, issued and outstanding as of December 31, 2010 and June 30, 2010

     4         4        4   

Additional paid-in capital

     247,597         224,887        206,898   

Retained earnings

     287,813         270,021        212,780   

Accumulated other comprehensive income

     3,039         2,041        3,420   
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     538,466         496,966        423,115   
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 766,189         $675,378      $ 570,099   
  

 

 

    

 

 

   

 

 

 

See accompanying notes.

 

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Under Armour, Inc. and Subsidiaries

Unaudited Consolidated Statements of Income

(In thousands, except per share amounts)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2011     2010     2011     2010  

Net revenues

   $ 291,336      $ 204,786      $ 604,035      $ 434,193   

Cost of goods sold

     156,557        104,860        324,205        226,636   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     134,779        99,926        279,830        207,557   

Selling, general and administrative expenses

     123,421        93,034        247,330        187,081   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     11,358        6,892        32,500        20,476   

Interest expense, net

     (297     (580     (876     (1,126

Other expense, net

     (362     (167     (872     (852
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     10,699        6,145        30,752        18,498   

Provision for income taxes

     4,458        2,643        12,372        7,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 6,241      $ 3,502      $ 18,380      $ 10,672   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available per common share

        

Basic

   $ 0.12      $ 0.07      $ 0.36      $ 0.21   

Diluted

   $ 0.12      $ 0.07      $ 0.35      $ 0.21   

Weighted average common shares outstanding

        

Basic

     51,585        50,764        51,514        50,592   

Diluted

     52,517        51,059        52,452        50,986   

See accompanying notes.

 

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Under Armour, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

     Six Months Ended  
     June 30,  
     2011     2010  

Cash flows from operating activities

    

Net income

   $ 18,380      $ 10,672   

Adjustments to reconcile net income to net cash used in operating activities

    

Depreciation and amortization

     16,730        15,349   

Unrealized foreign currency exchange rate (gains) losses

     (2,984     10,142   

Stock-based compensation

     7,134        6,268   

Loss on disposal of property and equipment

     19        21   

Deferred income taxes

     79        (4,031

Changes in reserves and allowances

     (3,700     (2,726

Changes in operating assets and liabilities:

    

Accounts receivable

     (30,938     (22,498

Inventories

     (95,802     (32,084

Prepaid expenses and other assets

     (7,698     (215

Accounts payable

     32,788        13,577   

Accrued expenses and other liabilities

     (9,385     (3,160

Income taxes payable and receivable

     (8,296     (3,640
  

 

 

   

 

 

 

Net cash used in operating activities

     (83,673     (12,325
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchase of property and equipment

     (30,183     (15,209

Purchase of trust-owned life insurance policies

     (552     (325

Purchase of long term investment

     (3,940     —     

Purchase of intangible asset

     (601     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (35,276     (15,534
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from term loan

     25,000        —     

Payments on long term debt

     (4,086     (4,546

Payments on capital lease obligations

     —          (85

Excess tax benefits from stock-based compensation arrangements

     6,260        1,445   

Payments of deferred financing costs

     (1,562     —     

Proceeds from exercise of stock options and other stock issuances

     9,056        2,310   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     34,668        (876

Effect of exchange rate changes on cash and cash equivalents

     95        (2,473
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (84,186     (31,208

Cash and cash equivalents

    

Beginning of period

     203,870        187,297   
  

 

 

   

 

 

 

End of period

   $ 119,684      $ 156,089   
  

 

 

   

 

 

 

Non-cash investing and financing activities

    

Purchase of property and equipment through certain obligations

   $ 1,656      $ 1,165   

See accompanying notes.

 

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Under Armour, Inc. and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements

1. Description of the Business

Under Armour, Inc. is a developer, marketer and distributor of branded performance apparel, footwear and accessories. These products are sold worldwide and worn by athletes at all levels, from youth to professional on playing fields around the globe, as well as by consumers with active lifestyles.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Under Armour, Inc. and its wholly owned subsidiaries (the “Company”). Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America for interim consolidated financial statements. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement of the financial position and results of operations were included. All intercompany balances and transactions were eliminated. The consolidated balance sheet as of December 31, 2010 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2010 (the “2010 Form 10-K”), which should be read in conjunction with these consolidated financial statements. The results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011 or any other portions thereof.

Concentration of Credit Risk

Financial instruments that subject the Company to a significant concentration of credit risk consist primarily of accounts receivable. The majority of the Company’s accounts receivable are due from large sporting goods retailers. Credit is extended based on an evaluation of the customer’s financial condition, and generally collateral is not required. The most significant customers that accounted for a large portion of net revenues and accounts receivable were as follows:

 

     Customer     Customer     Customer  
     A     B     C  

Net revenues

      

Six months ended June 30, 2011

     19.0     8.9     6.6

Six months ended June 30, 2010

     19.8     10.0     6.1

Accounts receivable

      

As of June 30, 2011

     25.2     11.7     8.5

As of December 31, 2010

     23.3     11.0     5.4

As of June 30, 2010

     25.1     12.8     9.1

Allowance for Doubtful Accounts

As of June 30, 2011, December 31, 2010 and June 30, 2010, the allowance for doubtful accounts was $3.6 million, $4.9 million and $4.8 million, respectively.

Shipping and Handling Costs

The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company includes the majority of outbound handling costs as a component of selling, general and administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling, general and administrative expenses, were $5.4 million and $3.4 million for the three months ended June 30, 2011 and 2010, respectively, and $10.2 million and $7.0 million for the six months ended June 30, 2011 and 2010, respectively. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold.

 

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Minority Investment

Beginning in January 2011, the Company has held a minority equity investment in Dome Corporation (“Dome”), its Japanese licensee. As of June 30, 2011, the carrying value of the Company’s investment was $16.1 million, and was included in other long term assets on the consolidated balance sheet. The investment is accounted for under the cost method and is subject to foreign currency exchange rate fluctuations as it is held by the Company’s European subsidiary.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recently Issued Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update which eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. It requires an entity to present total comprehensive income, which includes the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for financial statements issued for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company believes the adoption of this pronouncement will not have a material impact on its consolidated financial statements.

3. Inventories

Inventories consisted of the following:

 

     June 30,      December 31,      June 30,  

(In thousands)

   2011      2010      2010  

Finished goods

   $ 310,334         $214,524       $ 178,235   

Raw materials

     730         831         892   

Work-in-process

     2         —           23   
  

 

 

    

 

 

    

 

 

 

Total inventories

   $ 311,066         $215,355       $ 179,150   
  

 

 

    

 

 

    

 

 

 

4. Credit Facility and Long Term Debt

Credit Facility

In March 2011, the Company entered into a new $325.0 million credit facility with certain lending institutions and terminated its prior $200.0 million revolving credit facility in order to increase the Company’s available financing and to expand its lending syndicate. The credit facility has a term of four years and provides for a committed revolving credit line of up to $300.0 million, in addition to a $25.0 million term loan facility. The commitment amount under the revolving credit facility may be increased by an additional $50.0 million, subject to certain conditions and approvals as set forth in the credit agreement. The Company incurred and capitalized $1.6 million in deferred financing costs in connection with the credit facility.

In May 2011, the Company borrowed $25.0 million under the term loan facility to finance a portion of the purchase price for the acquisition of part of the Company’s corporate headquarters. The acquisition closed in July 2011.

The credit facility may be used for working capital and general corporate purposes and is collateralized by substantially all of the assets of the Company and certain of its domestic subsidiaries (other than their trademarks and the corporate headquarters that the Company purchased in July 2011) and by a pledge of 65% of the equity interests of certain of the Company’s foreign subsidiaries. Up to $5.0 million of the facility may be used to support letters of credit, of which none were outstanding as of June 30, 2011. The Company is required to maintain a certain leverage ratio and interest coverage ratio as set forth in the credit agreement. The credit agreement also provides the lenders with the ability to reduce the borrowing base, even if the Company is in compliance with all conditions of the credit agreement, upon a material adverse change to the business, properties, assets, financial condition or results of operations of the Company. The credit agreement contains a number of restrictions that limit the Company’s ability, among other things, and subject to certain limited

 

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exceptions, to incur additional indebtedness, pledge its assets as security, guaranty obligations of third parties, make investments, undergo a merger or consolidation, dispose of assets, or materially change its line of business. In addition, the credit agreement includes a cross default provision whereby an event of default under other debt obligations, as defined in the credit agreement, will be considered an event of default under the credit agreement.

Borrowings under the credit facility bear interest based on the daily balance outstanding at LIBOR (with no rate floor) plus an applicable margin (varying from 1.25% to 1.75%) or, in certain cases a base rate (based on a certain lending institution’s Prime Rate or as otherwise specified in the credit agreement, with no rate floor) plus an applicable margin (varying from 0.25% to 0.75%). The credit facility also carries a commitment fee equal to the available but unused borrowings multiplied by an applicable margin (varying from 0.25% to 0.35%). The applicable margins are calculated quarterly and vary based on the Company’s leverage ratio as set forth in the credit agreement.

Upon entering into the credit facility in March 2011, the Company terminated its prior $200.0 million revolving credit facility. The prior revolving credit facility was collateralized by substantially all of the Company’s assets, other than its trademarks, and included covenants, conditions and other terms similar to the Company’s new credit facility.

No balances were outstanding under the current credit facility or prior revolving credit facility during the three and six months ended June 30, 2011 and 2010, with the exception of the $25.0 million term loan facility previously mentioned. The interest rate on the $25.0 million term loan was 1.5% during the three and six months ended June 30, 2011. The maturity date of the $25.0 million term loan is March 2015, which is the end of the credit facility term.

Long Term Debt

The Company has long term debt agreements with various lenders to finance the acquisition or lease of qualifying capital investments. Loans under these agreements are collateralized by a first lien on the related assets acquired. As these agreements are not committed facilities, each advance is subject to approval by the lenders. Additionally, these agreements include a cross default provision whereby an event of default under other debt obligations, including the Company’s credit facility, will be considered an event of default under these agreements. These agreements require a prepayment fee if the Company pays outstanding amounts ahead of the scheduled terms. The terms of the credit facility limit the total amount of additional financing under these agreements to $40.0 million, of which $27.1 million was remaining as of June 30, 2011. At June 30, 2011, December 31, 2010 and June 30, 2010, the outstanding principal balance under these agreements was $11.9 million, $15.9 million and $15.6 million, respectively. Currently, advances under these agreements bear interest rates which are fixed at the time of each advance. The weighted average interest rate on outstanding borrowings was 3.9% and 5.9% for the three months ended June 30, 2011 and 2010, respectively, and 4.0% and 5.9% for the six months ended June 30, 2011 and 2010, respectively.

The Company monitors the financial health and stability of its lenders under the credit and long term debt facilities, however instability in the credit markets could negatively impact lenders and their ability to perform under their facilities.

Interest expense was $0.3 million and $0.6 million for the three months ended June 30, 2011 and 2010, respectively, and $0.9 million and $1.1 million for the six months ended June 30, 2011 and 2010, respectively. Interest expense includes the amortization of deferred financing costs and interest expense under the credit and long term debt facilities.

5. Commitments and Contingencies

In July 2011, in connection with the acquisition of part of its corporate headquarters, the Company assumed $38.6 million in debt attached to the acquired property. The remaining purchase price was funded through a $25.0 million term loan. Refer to Note 13 for a discussion of the assumed debt and Note 4 for a discussion of the term loan.

There were no additional significant changes to the contractual obligations reported in the 2010 Form 10-K other than those which occur in the normal course of business.

6. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value accounting guidance outlines a valuation framework, creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures, and prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to

 

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develop its own assumptions.

Financial assets and (liabilities) measured at fair value as of June 30, 2011 are set forth in the table below:

 

(In thousands)

   Level 1      Level 2     Level 3  

Derivative foreign currency forward contracts (refer to Note 8)

   $ —         $ (1,121      $ —     

Trust owned life insurance policies (“TOLI”) held by the Rabbi Trust

     —           4,278           —     

Deferred Compensation Plan obligations

     —           (3,664        —     

Fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through external sources, including third-party pricing services and brokers. The foreign currency forward contracts represent gains and losses on derivative contracts, which are the net difference between the currency to be received or paid at each contract’s settlement date and the value of the foreign currency to be sold or purchased at the current forward exchange rate. The fair value of the TOLI held by the Rabbi Trust is based on the cash-surrender value of the life insurance policies, which are invested primarily in mutual funds and a separately managed fixed income fund. These investments are in the same funds and purchased in substantially the same amounts as the selected investments of participants in the Deferred Compensation Plan, which represent the underlying liabilities to participants in this plan. Obligations under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments.

7. Stock-Based Compensation

In February 2011, 0.3 million performance-based restricted stock units were awarded to certain executives and key employees under the 2005 Plan. The performance-based restricted stock units have vesting that is tied to the achievement of a certain combined annual operating income target for 2012 and 2013. Upon the achievement of the combined operating income target, 50% of the restricted stock units will vest on February 15, 2014 and the remaining 50% will vest on February 15, 2015. If certain lower levels of combined operating income for 2012 and 2013 are achieved, fewer or no restricted stock units will vest at that time and one year later, and the remaining restricted stock units will be forfeited. As of June 30, 2011, the Company had not begun recording stock-based compensation expense for these performance-based restricted stock units as the Company determined the achievement of the combined operating income targets was not probable. The Company will assess the probability of the achievement of the operating income targets at the end of each reporting period. If it becomes probable that the performance targets related to these performance-based restricted stock units will be achieved, a cumulative adjustment will be recorded as if ratable stock-based compensation expense had been recorded since the grant date. Additional stock based compensation of up to $2.6 million would have been recorded through June 30, 2011 for these performance-based restricted stock units had the achievement of these operating income targets been deemed probable.

As of June 30, 2011, the Company had not begun recording stock-based compensation expense for a portion of the performance-based stock options granted during 2010 as the Company determined the achievement of certain combined operating income targets for 2011 and 2012 was not probable. Additional stock-based compensation of up to $2.1 million would have been recorded at June 30, 2011 had the achievement of these operating income targets been deemed probable.

8. Foreign Currency Risk Management and Derivatives

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions. From time to time, the Company may elect to enter into foreign currency forward contracts to reduce the risk associated with foreign currency exchange rate fluctuations on intercompany transactions and projected inventory purchases for its European and Canadian subsidiaries. In addition, the Company may elect to enter into foreign currency forward contracts to reduce the risk associated with foreign currency exchange rate fluctuations on Pound Sterling denominated balance sheet items.

As of June 30, 2011, the notional value of the Company’s outstanding foreign currency forward contract used to mitigate the foreign currency exchange rate fluctuations on its Canadian subsidiary’s intercompany transactions was $23.0 million with a contract maturity of 1 month. As of June 30, 2011, the notional value of the Company’s outstanding foreign currency forward contracts used to mitigate the foreign currency exchange rate fluctuations on its European subsidiary’s intercompany transactions was $45.0 million with contract maturities of 1 month. As of June 30, 2011, the notional value of the Company’s outstanding foreign currency forward contracts used to mitigate the foreign currency exchange rate fluctuations on Pounds Sterling denominated balance sheet items was $4.8 million with contract maturities of 1 month. The foreign currency forward contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in other expense, net. As of June 30, 2011 and December 31, 2010, the fair values of the Company’s foreign

 

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currency forward contracts were liabilities of $1.1 million and $0.6 million, respectively, and were included in accrued expenses on the consolidated balance sheets. As of June 30, 2010, the fair values of the Company’s foreign currency forward contracts were assets of $0.6 million, and were included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 6 for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency forward contracts:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(In thousands)

   2011     2010     2011     2010  

Unrealized foreign currency exchange rate gains (losses)

   $ 1,062      $ (6,652   $ 2,984      $ (10,142

Realized foreign currency exchange rate gains (losses)

     (133     689        322        782   

Unrealized derivative gains (losses)

     (520     944        (505     307   

Realized derivative gains (losses)

     (771     4,852        (3,673     8,201   

The Company enters into foreign currency forward contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the foreign currency forward contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.

9. Provision for Income Taxes

The Company recorded $4.5 million and $2.6 million of income tax expense for the three months ended June 30, 2011 and 2010, respectively, and $12.4 million and $7.8 million of income tax expense for the six months ended June 30, 2011 and 2010, respectively. The effective rates for income taxes were 40.2% and 42.3% for the six months ended June 30, 2011 and 2010, respectively. The effective tax rate for the six months ended June 30, 2011 was lower than the effective tax rate for the six months ended June 30, 2010 primarily due to decreased losses in foreign subsidiaries, federal tax credits forecasted in 2011 which were not forecasted during the second quarter of 2010 and a reduction in the portion of income subject to state taxes. The Company’s annual 2011 effective tax rate is expected to be approximately 40.0%.

10. Comprehensive Income

Comprehensive income by period is stated below:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

(In thousands)

   2011      2010      2011      2010  

Net income

   $ 6,241       $ 3,502       $ 18,380       $ 10,672   

Other comprehensive income

           

Changes in cumulative translation adjustment

     332         1,823         998         2,956   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

   $ 6,573       $ 5,325       $ 19,378       $ 13,628   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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11. Earnings per Share

The following represents a reconciliation from basic earnings per share to diluted earnings per share:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
(In thousands, except per share amounts)    2011     2010     2011     2010  

Numerator

        

Net income

   $ 6,241      $ 3,502      $ 18,380      $ 10,672   

Net income attributable to participating securities

     (44     (32     (147     (96
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders (1)

   $ 6,197      $ 3,470      $ 18,233      $ 10,576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

        

Weighted average common shares outstanding

     51,211        50,320        51,086        50,153   

Effect of dilutive securities

     932        295        938        394   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares and dilutive securities outstanding

     52,143        50,615        52,024        50,547   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share - basic

   $ 0.12      $ 0.07      $ 0.36      $ 0.21   

Earnings per share - diluted

   $ 0.12      $ 0.07      $ 0.35      $ 0.21   

 

(1)     Basic weighted average common shares outstanding

     51,211        50,320        51,086        50,153   

Basic weighted average common shares outstanding and participating securities

     51,585        50,764        51,514        50,592   

Percentage allocated to common stockholders

     99.3     99.1     99.2     99.1

Effects of potentially dilutive securities are presented only in periods in which they are dilutive. Stock options and restricted stock units representing 47.5 thousand and 82.0 thousand shares of common stock outstanding for the three and six months ended June 30, 2011, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. Stock options, restricted stock units and warrants representing 1.3 million shares of common stock outstanding for each of the three and six months ended June 30, 2010 were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

12. Segment Data and Related Information

The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information by geographic region based on the Company’s strategy to become a global brand. These geographic regions include North America; Latin America; Europe, the Middle East and Africa (“EMEA”); and Asia. The Company’s operating segments are based on these geographic regions. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel, footwear and accessories. Due to the insignificance of the EMEA, Latin America and Asia operating segments, they have been combined into other foreign countries for disclosure purposes.

The geographic distribution of the Company’s net revenues, operating income and total assets are summarized in the following tables based on the location of its customers and operations. Net revenues represent sales to external customers for each segment. In addition to net revenues, operating income is a primary financial measure used by the Company to evaluate performance of each segment. Intercompany balances were eliminated for separate disclosure and corporate expenses from North America have not been allocated to other foreign countries.

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

(In thousands)

   2011      2010      2011      2010  

Net revenues

           

North America

   $ 277,442       $ 196,008       $ 573,519       $ 411,766   

Other foreign countries

     13,894         8,778         30,516         22,427   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 291,336       $ 204,786       $ 604,035       $ 434,193   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(In thousands)

   2011     2010     2011     2010  

Operating income

        

North America

   $ 12,656      $ 6,211      $ 31,211      $ 18,974   

Other foreign countries

     (1,298     681        1,289        1,502   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

     11,358        6,892        32,500        20,476   

Interest expense, net

     (297     (580     (876     (1,126

Other expense, net

     (362     (167     (872     (852
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 10,699      $ 6,145      $ 30,752      $ 18,498   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,      December 31,      June 30,  

(In thousands)

   2011      2010      2010  

Total assets

        

North America

   $ 703,171         $613,515       $ 529,268   

Other foreign countries

     63,018         61,863         40,831   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 766,189         $675,378       $ 570,099   
  

 

 

    

 

 

    

 

 

 

Net revenues by product category are as follows:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

(In thousands)

   2011      2010      2011      2010  

Apparel

   $ 204,779       $ 150,205       $ 435,263       $ 322,841   

Footwear

     46,885         35,820         98,321         78,778   

Accessories

     32,393         8,857         55,930         16,375   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

     284,057         194,882         589,514         417,994   

License revenues

     7,279         9,904         14,521         16,199   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 291,336       $ 204,786       $ 604,035       $ 434,193   
  

 

 

    

 

 

    

 

 

    

 

 

 

13. Subsequent Event

The Company previously disclosed its intent to acquire approximately 400.0 thousand square feet of office space comprising part of its current corporate headquarters. In July 2011, the Company closed this acquisition for $62.6 million, which included the closing costs of the transaction and the acquisition of buildings, building equipment and improvements, as well as the assumption of third-party leases currently in place. Prior to the acquisition, the Company leased approximately 170.0 thousand square feet of the acquired space. The Company intends to use this space for future expansion of its corporate headquarters. In connection with the acquisition, the Company assumed $38.6 million in debt attached to the acquired property. The assumed debt has an original term of approximately ten years with a scheduled maturity date of March 1, 2013. The debt requires a balloon payment of $37.3 million at maturity. The debt has an interest rate of 6.73% and may not be prepaid. The remaining purchase price was funded through a $25.0 million term loan. Refer to Note 4 for a discussion of the term loan.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Some of the statements contained in this Form 10-Q and the documents incorporated herein by reference (if any) constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “outlook,” “potential,” the negative of these terms or other comparable terminology.

The forward-looking statements contained in this Form 10-Q and the documents incorporated herein by reference (if any) reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by these forward-looking statements, including, but not limited to, those factors described in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) (our “2010 Form 10-K”) or in this Form 10-Q under “Risk Factors”, if included herein, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). These factors include without limitation:

 

   

changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers;

 

   

our ability to effectively manage our growth and a more complex business;

 

   

our ability to effectively develop and launch new, innovative and updated products;

 

   

our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands;

 

   

increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share;

 

   

fluctuations in the costs of our products;

 

   

loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner;

 

   

changes in consumer preferences or the reduction in demand for performance apparel, footwear and other products;

 

   

our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results;

 

   

our ability to effectively market and maintain a positive brand image;

 

   

the availability, integration and effective operation of management information systems and other technology; and

 

   

our ability to attract and maintain the services of our senior management and key employees.

The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Overview

We are a leading developer, marketer and distributor of branded performance apparel, footwear and accessories. The brand’s moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.

 

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We are a growth company as evidenced by the increase in net revenues to $1,063.9 million in 2010 from $430.7 million in 2006. We reported net revenues of $604.0 million for the first six months of 2011, which represented a 39.1% increase from the first six months of 2010. We believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the Under Armour brand in the marketplace. We plan to continue to increase our net revenues over the long term by increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution sales channel, growth in our direct to consumer sales channel and expansion in international markets. Our direct to consumer sales channel includes our factory house and specialty stores, website and catalog. New offerings for 2011 include hats and bags, as well as performance-based cotton products.

Our products are currently offered in over twenty four thousand retail stores worldwide. A large majority of our products are sold in North America; however we believe our products appeal to athletes and consumers with active lifestyles around the globe. Outside of North America, our products are offered primarily in Austria, France, Germany, Ireland and the United Kingdom, as well as in Japan through a licensee, and through distributors located in other foreign countries. We hold a minority investment in our licensee in Japan.

Our operating segments are geographic and include North America; Latin America; Europe, the Middle East and Africa (“EMEA”); and Asia. Due to the insignificance of the EMEA, Latin America and Asia operating segments, they have been combined into other foreign countries for disclosure purposes.

General

Net revenues comprise both net sales and license revenues. Net sales comprise sales from our primary product categories, which are apparel, footwear and accessories. Our license revenues consist of fees paid to us by our licensees in exchange for the use of our trademarks on core products of socks, eyewear, custom-molded mouth guards, other accessories and team uniforms, as well as the distribution of our products in Japan. Prior to 2011, hats and bags were sold by a licensee. We expect our net revenues to increase by approximately $70 million from 2010 to 2011 as a result of developing our own hats and bags, which includes an increase in accessories revenues and a decrease in our license revenues in 2011. In addition, we expect the related cost of goods sold to increase.

Cost of goods sold consists primarily of product costs, inbound freight and duty costs, outbound freight costs, handling costs to make products floor-ready to customer specifications, royalty payments to endorsers based on a predetermined percentage of sales of selected products and write downs for inventory obsolescence. The fabrics in many of our products are made of petroleum-based synthetic materials. Therefore our product costs, as well as our inbound and outbound freight costs, could be affected by long term pricing trends of oil. In general, as a percentage of net revenues, we expect cost of goods sold associated with our apparel and accessories to be lower than that of our footwear. No cost of goods sold is associated with license revenues.

We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $5.4 million and $3.4 million for the three months ended June 30, 2011 and 2010, respectively, and $10.2 million and $7.0 million for the six months ended June 30, 2011 and 2010, respectively.

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation and supply chain and corporate services. Personnel costs are included in these categories based on the employees’ function. Personnel costs include salaries, benefits, incentives and stock-based compensation related to the employee. Our marketing costs are an important driver of our growth. Marketing costs consist primarily of commercials, print ads, league, team, player and event sponsorships, amortization of footwear promotional rights and depreciation expense specific to our in-store fixture program. In addition, marketing costs include costs associated with our Special Make-Up Shop (“SMU Shop”) located at one of our distribution facilities where we manufacture a limited number of products primarily for our league, team, player and event sponsorships. Selling costs consist primarily of costs relating to sales through our wholesale channel, commissions paid to third parties and the majority of our direct to consumer sales channel costs, including the cost of factory house and specialty store leases. Product innovation and supply chain costs include our apparel, footwear and accessories product innovation, sourcing and development costs, distribution facility operating costs, and costs relating to our Hong Kong and Guangzhou, China offices which help support manufacturing, quality assurance and sourcing efforts. Corporate services primarily consist of corporate facility operating costs and company-wide administrative expenses.

Other expense, net consists of unrealized and realized gains and losses on our derivative financial instruments and unrealized and realized gains and losses on adjustments that arise from fluctuations in foreign currency exchange rates relating to transactions generated by our international subsidiaries.

 

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Results of Operations

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(In thousands)

   2011     2010     2011     2010  

Net revenues

   $ 291,336      $ 204,786      $ 604,035      $ 434,193   

Cost of goods sold

     156,557        104,860        324,205        226,636   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     134,779        99,926        279,830        207,557   

Selling, general and administrative expenses

     123,421        93,034        247,330        187,081   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     11,358        6,892        32,500        20,476   

Interest expense, net

     (297     (580     (876     (1,126

Other expense, net

     (362     (167     (872     (852
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     10,699        6,145        30,752        18,498   

Provision for income taxes

     4,458        2,643        12,372        7,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 6,241      $ 3,502      $ 18,380      $ 10,672   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

(As a percentage of net revenues)

   2011     2010     2011     2010  

Net revenues

     100.0     100.0     100.0     100.0

Cost of goods sold

     53.7        51.2        53.7        52.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     46.3        48.8        46.3        47.8   

Selling, general and administrative expenses

     42.4        45.4        40.9        43.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     3.9        3.4        5.4        4.7   

Interest expense, net

     (0.1     (0.3     (0.2     (0.2

Other expense, net

     (0.1     (0.1     (0.1     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3.7        3.0        5.1        4.3   

Provision for income taxes

     1.6        1.3        2.1        1.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2.1     1.7     3.0     2.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Results of Operations

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

Net revenues increased $86.5 million, or 42.3%, to $291.3 million for the three months ended June 30, 2011 from $204.8 million for the same period in 2010. Net revenues by product category are summarized below:

 

     Three Months Ended June 30,  

(In thousands)

   2011      2010      $ Change     % Change  

Apparel

   $ 204,779       $ 150,205       $ 54,574        36.3

Footwear

     46,885         35,820         11,065        30.9   

Accessories

     32,393         8,857         23,536        265.7   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

     284,057         194,882         89,175        45.8   

License revenues

     7,279         9,904         (2,625     (26.5
  

 

 

    

 

 

    

 

 

   

 

 

 

Total net revenues

   $ 291,336       $ 204,786       $ 86,550        42.3
  

 

 

    

 

 

    

 

 

   

 

 

 

Net sales increased $89.2 million, or 45.8%, to $284.1 million for the three months ended June 30, 2011 from $194.9 million during the same period in 2010 as noted in the table above. The increase in net sales primarily reflects:

 

   

$35.2 million, or 80.7%, increase in direct to consumer sales, which includes 27 additional stores, or a 60% increase, since June 30, 2010;

 

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unit growth driven by increased distribution and new offerings in multiple product categories, most significantly in our training (including the new performance-based cotton product), graphics, base layer, golf and running categories, along with running shoes; and

 

   

$20.6 million, or 333.2%, increase in wholesale accessories sales due to bringing hats and bags sales in-house effective January 1, 2011.

License revenues decreased $2.6 million, or 26.5%, to $7.3 million for the three months ended June 30, 2011 from $9.9 million during the same period in 2010. This decrease in license revenues was a result of reduced license revenues due to bringing hats and bags sales in-house and decreased license revenues from Dome, our Japanese licensee, due to the recent earthquake and tsunami. These decreases were partially offset by increased sales by our other licensees due to increased distribution and continued unit volume growth.

Gross profit increased $34.9 million to $134.8 million for the three months ended June 30, 2011 from $99.9 million for the same period in 2010. Gross profit as a percentage of net revenues, or gross margin, decreased 250 basis points to 46.3% for the three months ended June 30, 2011 compared to 48.8% during the same period in 2010. The decrease in gross margin percentage was primarily driven by the following:

 

   

decrease in license revenues due to bringing hats and bags sales in-house effective January 1, 2011 and decreases in Japanese license revenues due to the recent earthquake and tsunami, accounting for an approximate 120 basis point decrease;

 

   

less favorable apparel product mix and input costs, accounting for an approximate 120 basis point decrease; and

 

   

increased apparel sales allowances, accounting for an approximate 40 basis point decrease; partially offset by

 

   

increased direct to consumer higher margin sales, accounting for an approximate 45 basis point increase.

Selling, general and administrative expenses increased $30.4 million to $123.4 million for the three months ended June 30, 2011 from $93.0 million for the same period in 2010. As a percentage of net revenues, selling, general and administrative expenses decreased to 42.4% for the three months ended June 30, 2011 from 45.4% for the same period in 2010. These changes were primarily attributable to the following:

 

   

Marketing costs increased $6.7 million to $34.1 million for the three months ended June 30, 2011 from $27.4 million for the same period in 2010 primarily due to increased sponsorships of professional teams and athletes and increased television and digital campaign costs, including media campaigns for specific customers. As a percentage of net revenues, marketing costs decreased to 11.7% for the three months ended June 30, 2011 from 13.4% for the same period in 2010 primarily due to the increase in net revenues in the three months ended June 30, 2011 as compared to the same period in 2010.

 

   

Selling costs increased $9.5 million to $30.7 million for the three months ended June 30, 2011 from $21.2 million for the same period in 2010. This increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel and higher selling personnel costs. As a percentage of net revenues, selling costs increased slightly to 10.5% for the three months ended June 30, 2011 from 10.4% for the same period in 2010 primarily due to higher personnel and other costs incurred for the continued expansion of our factory house stores, partially offset by the increase in net revenues in the three months ended June 30, 2011 as compared to the same period in 2010.

 

   

Product innovation and supply chain costs increased $8.9 million to $31.1 million for the three months ended June 30, 2011 from $22.2 million for the same period in 2010 primarily due to higher distribution facilities operating and personnel costs to support our growth in net revenues and higher personnel costs for the design and sourcing of our expanding apparel, footwear and accessory lines. As a percentage of net revenues, product innovation and supply chain costs decreased slightly to 10.7% for the three months ended June 30, 2011 from 10.8% for the same period in 2010 due to the increase in net revenues, partially offset by higher distribution facilities costs as a percentage of net revenues.

 

   

Corporate services costs increased $5.3 million to $27.5 million for the three months ended June 30, 2011 from $22.2 million for the same period in 2010. This increase was attributable primarily to higher corporate personnel and facility costs and information technology initiatives necessary to support our growth. As a percentage of net revenues, corporate services costs decreased to 9.5% for the three months ended June 30, 2011 from 10.8% for the same period in 2010 primarily due to increase in net revenues in the three months ended June 30, 2011 as compared to the same period in 2010.

Income from operations increased $4.5 million, or 64.8%, to $11.4 million for the three months ended June 30, 2011 from $6.9 million for the same period in 2010. Income from operations as a percentage of net revenues increased to 3.9% for

 

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the three months ended June 30, 2011 from 3.4% for the same period in 2010. This increase was a result of the items discussed above.

Interest expense, net decreased $0.3 million to $0.3 million for the three months ended June 30, 2011 from $0.6 million for the same period in 2010. This decrease was primarily due to lower average balances on our long term debt facilities.

Other expense, net increased $0.2 million to $0.4 million for the three months ended June 30, 2011 from $0.2 million for the same period in 2010. This increase was due to higher net losses on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our derivative financial instruments as compared to the same period in 2010.

Provision for income taxes increased $1.9 million to $4.5 million during the three months ended June 30, 2011 from $2.6 million during the same period in 2010. For the three months ended June 30, 2011, our effective tax rate was 41.7% compared to 43.0% for the same period in 2010. The effective tax rate for the three months ended June 30, 2011 was lower than the effective tax rate for the three months ended June 30, 2010 primarily due to decreased losses in foreign subsidiaries, federal tax credits forecasted in 2011 which were not forecasted during the first and second quarters of 2010 and a reduction in the portion of income subject to state taxes.

Our annual 2011 effective tax rate is expected to be approximately 40.0%. In addition, we are pursuing certain tax incentives that, if realized in the third or fourth quarter of this year, could reduce the projected 2011 effective tax rate.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Net revenues increased $169.8 million, or 39.1%, to $604.0 million for the six months ended June 30, 2011 from $434.2 million for the same period in 2010. Net revenues by product category are summarized below:

 

     Six Months Ended June 30,  
     2011      2010      $ Change     % Change  

(In thousands)

                          

Apparel

   $ 435,263       $ 322,841       $ 112,422        34.8  % 

Footwear

     98,321         78,778         19,543        24.8   

Accessories

     55,930         16,375         39,555        241.6   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total net sales

     589,514         417,994         171,520        41.0   

License revenues

     14,521         16,199         (1,678     (10.4
  

 

 

    

 

 

    

 

 

   

 

 

 

Total net revenues

   $ 604,035       $ 434,193       $ 169,842        39.1  % 
  

 

 

    

 

 

    

 

 

   

 

 

 

Net sales increased $171.5 million, or 41.0%, to $589.5 million for the six months ended June 30, 2011 from $418.0 million during the same period in 2010 as noted in the table above. The increase in net sales primarily reflects:

 

   

$57.2 million, or 67.1%, increase in direct to consumer sales, which includes 27 additional stores, or a 60% increase, since June 30, 2010;

 

   

unit growth driven by increased distribution and new offerings in multiple product categories, most significantly in our training (including the new performance-based cotton product), graphics, base layer, golf and running categories; and

 

   

$35.2 million, or 331.7%, increase in wholesale accessories sales due to bringing hats and bags sales in-house effective January 1, 2011.

License revenues decreased $1.7 million, or 10.4%, to $14.5 million for the six months ended June 30, 2011 from $16.2 million during the same period in 2010. This decrease was a result of a reduction in license revenues due to bringing hats and bags sales in-house, partially offset by increased sales by our licensees due to increased distribution and continued unit volume growth.

Gross profit increased $72.2 million to $279.8 million for the six months ended June 30, 2011 from $207.6 million for the same period in 2010. Gross profit as a percentage of net revenues, or gross margin, decreased 150 basis points to 46.3% for the six months ended June 30, 2011 compared to 47.8% during the same period in 2010. The decrease in gross margin percentage was primarily driven by the following:

 

   

less favorable apparel product mix, input costs and sales allowances, accounting for an approximate 115 basis point decrease; and

 

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decrease in license revenues due to bringing hats and bags sales in-house effective January 1, 2011 and decreases in Japanese license revenues due to the recent earthquake and tsunami, accounting for an approximate 70 basis point decrease; partially offset by

 

   

increased direct to consumer higher margin sales, accounting for an approximate 25 basis point increase; and

 

   

decreased footwear markdown reserves, accounting for an approximate 20 basis point increase.

Selling, general and administrative expenses increased $60.2 million to $247.3 million for the six months ended June 30, 2011 from $187.1 million for the same period in 2010. As a percentage of net revenues, selling, general and administrative expenses decreased to 40.9% for the six months ended June 30, 2011 from 43.1% for the same period in 2010. These changes were primarily attributable to the following:

 

   

Marketing costs increased $17.0 million to $75.6 million for the six months ended June 30, 2011 from $58.6 million for the same period in 2010 primarily due to increased sponsorships of events and collegiate and professional teams and athletes; increased television and digital campaign costs, including media campaigns for specific customers; and additional personnel costs. As a percentage of net revenues, marketing costs decreased to 12.4% for the six months ended June 30, 2011 from 13.5% for the same period in 2010 primarily due to decreased sponsorships of collegiate and professional teams and decreased marketing costs for specific customers as a percentage of net revenues.

 

   

Selling costs increased $17.6 million to $58.5 million for the six months ended June 30, 2011 from $40.9 million for the same period in 2010. This increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel and higher selling personnel costs. As a percentage of net revenues, selling costs increased to 9.7% for the six months ended June 30, 2011 from 9.4% for the same period in 2010 primarily due to higher personnel and other costs incurred for the continued expansion of our factory house stores.

 

   

Product innovation and supply chain costs increased $16.1 million to $60.3 million for the six months ended June 30, 2011 from $44.2 million for the same period in 2010 primarily due to higher distribution facilities operating and personnel costs to support our growth in net revenues and higher personnel costs for the design and sourcing of our expanding apparel, footwear and accessory lines. As a percentage of net revenues, product innovation and supply chain costs decreased to 10.0% for the six months ended June 30, 2011 from 10.2% for the same period in 2010 due to decreased distribution facilities personnel costs as a percentage of net revenues.

 

   

Corporate services costs increased $9.5 million to $52.9 million for the six months ended June 30, 2011 from $43.4 million for the same period in 2010. This increase was attributable primarily to higher corporate personnel and facility costs and information technology initiatives necessary to support our growth. As a percentage of net revenues, corporate services costs decreased to 8.8% for the six months ended June 30, 2011 from 10.0% for the same period in 2010 primarily due to decreased corporate personnel and facility costs as a percentage of net revenues.

Income from operations increased $12.0 million, or 58.7%, to $32.5 million for the six months ended June 30, 2011 from $20.5 million for the same period in 2010. Income from operations as a percentage of net revenues increased to 5.4% for the six months ended June 30, 2011 from 4.7% for the same period in 2010. This increase was a result of the items discussed above.

Interest expense, net decreased $0.2 million to $0.9 million for the six months ended June 30, 2011 from $1.1 million for the same period in 2010. This decrease was primarily due to lower average balances on our long term debt facilities.

Other expense, net remained unchanged at $0.9 million for the six months ending June 30, 2011 and 2010.

Provision for income taxes increased $4.6 million to $12.4 million during the six months ended June 30, 2011 from $7.8 million during the same period in 2010. For the six months ended June 30, 2011, our effective tax rate was 40.2% compared to 42.3% for the same period in 2010. The effective tax rate for the six months ended June 30, 2011 was lower than the effective tax rate for the six months ended June 30, 2010 primarily due to decreased losses in foreign subsidiaries, federal tax credits forecasted in 2011 which were not forecasted during the first and second quarters of 2010 and a reduction in the portion of income subject to state taxes.

Our annual 2011 effective tax rate is expected to be approximately 40.0%. In addition, we are pursuing certain tax incentives that, if realized in the third or fourth quarter of this year, could reduce the projected 2011 effective tax rate.

 

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Segment Results of Operations

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

Net revenues by geographic region are summarized below:

 

     Three Months Ended June 30,  

(In thousands)

   2011      2010      $ Change      % Change  

North America

   $ 277,442       $ 196,008       $ 81,434         41.5  % 

Other foreign countries

     13,894         8,778         5,116         58.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 291,336       $ 204,786       $ 86,550         42.3  % 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenues in North America increased $81.4 million to $277.4 million for the three months ended June 30, 2011 from $196.0 million for the same period in 2010 primarily due to the items discussed above in the Consolidated Results of Operations. Net revenues in other foreign countries increased by $5.1 million to $13.9 million for the three months ended June 30, 2011 from $8.8 million for the same period in 2010 primarily due to increased unit sales in our EMEA operating segment as well as unit sales growth to our distributors in our Asia and Latin America operating segments, partially offset by decreased product distribution and associated license revenues by our licensee in Japan due to the recent earthquake and tsunami.

Operating income (loss) by geographic region is summarized below:

 

     Three Months Ended June 30,  

(In thousands)

   2011     2010      $ Change     % Change  

North America

   $ 12,656      $ 6,211       $ 6,445        103.8  % 

Other foreign countries

     (1,298     681         (1,979     (290.6
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating income

   $ 11,358      $ 6,892       $ 4,466        64.8  % 
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income in North America increased $6.5 million to $12.7 million for the three months ended June 30, 2011 from $6.2 million for the same period in 2010 primarily due to the items discussed above in the Consolidated Results of Operations. Operating loss in other foreign countries was $1.3 million, a decrease of $2.0 million, for the three months ended June 30, 2011 from operating income of $0.7 million for the same period in 2010 primarily due to decreased product distribution and associated higher margin license revenues by our licensee in Japan due to the recent earthquake and tsunami and increased costs associated with our continued investment to support our international expansion in Asia and Latin America.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Net revenues by geographic region are summarized below:

 

     Six Months Ended June 30,  

(In thousands)

   2011      2010      $ Change      % Change  

North America

   $ 573,519       $ 411,766       $ 161,753         39.3  % 

Other foreign countries

     30,516         22,427         8,089         36.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 604,035       $ 434,193       $ 169,842         39.1  % 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenues in North America increased $161.7 million to $573.5 million for the six months ended June 30, 2011 from $411.8 million for the same period in 2010 primarily due to the items discussed above in the Consolidated Results of Operations. Net revenues in other foreign countries increased by $8.1 million to $30.5 million for the six months ended June 30, 2011 from $22.4 million for the same period in 2010 primarily due to unit sales growth in our EMEA operating segment as well as unit sales growth to our distributors in our Asia and Latin America operating segments.

Operating income by geographic region is summarized below:

 

     Six Months Ended June 30,  

(In thousands)

   2011      2010      $ Change     % Change  

North America

   $ 31,211       $ 18,974       $ 12,237        64.5  % 

Other foreign countries

     1,289         1,502         (213     (14.2
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating income

   $ 32,500       $ 20,476       $ 12,024        58.7  % 
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Operating income in North America increased $12.1 million to $31.2 million for the six months ended June 30, 2011 from $19.0 million for the same period in 2010 primarily due to the items discussed above in the Consolidated Results of Operations. Operating income in other foreign countries decreased by $0.2 million to $1.3 million for the six months ended June 30, 2011 from $1.5 million for the same period in 2010 primarily due to increased costs related to our continued investment to support our international expansion in Asia and Latin America, partially offset by increased unit sales growth by our distributors in our Asia and EMEA operating segments and increased product distribution and associated higher margin license revenues by our licensee in Japan.

Seasonality

Historically, we have recognized a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced COLDGEAR ® line. Historically, a larger portion of our income from operations has been in the last two quarters of the year partially due to the shift in the timing of marketing investments to the first two quarters of the year. The majority of our net revenues were generated during the last two quarters in each of 2010 and 2009. The level of our working capital generally reflects the seasonality and growth in our business.

Financial Position, Capital Resources and Liquidity

Our cash requirements have principally been for working capital and capital expenditures. Working capital is primarily funded from cash flows provided by operating activities and cash and cash equivalents on hand. Our working capital requirements generally reflect the seasonality and growth in our business as we recognize the majority of our net revenues in the back half of the year. We fund our working capital, primarily inventory, and capital investments from cash flows provided by operating activities, cash and cash equivalents on hand and borrowings primarily available under our long term debt facilities. Our capital investments have included expanding our in-store fixture and branded concept shop program, improvements and expansion of our distribution and corporate facilities to support our growth, leasehold improvements to our new factory house and specialty stores, and investment and improvements in information technology systems. Our capital expenditures in 2011 will also include the acquisition of part of our corporate headquarters for $62.6 million along with approximately $2.4 million in additional related investments and improvements. In connection with the acquisition, we assumed $38.6 million of debt attached to the acquired property. The remaining purchase price was funded through a $25.0 million term loan.

Our focus remains on inventory management including improving our planning capabilities, managing our inventory purchases, reducing our production lead times and selling excess inventory through our factory house stores and other liquidation channels. However, several factors contributed to inventory growth in excess of net revenue growth in the first half of 2011. We increased our safety stock in core product offerings, primarily our Cold Gear products, and seasonal products to better meet anticipated consumer demand. Core product offerings are products that we generally plan to have available for sale for at least the next twelve months at full price. In addition, beginning in 2011, hats and bags are sold by us rather than by one of our licensees, which also contributed to our expected year over year inventory growth. We expect the inventory growth rate to be more in line with net revenue growth in the third and fourth quarters of 2011.

We believe our cash and cash equivalents on hand, cash from operations and borrowings available to us under our credit and long term debt facilities will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. We may require additional capital to meet our longer term liquidity and future growth needs. Although we believe we have adequate sources of liquidity over the long term, a prolonged economic recession or a slow recovery could adversely affect our business and liquidity. In addition, instability in or tightening of the capital markets could adversely affect our ability to obtain additional capital to grow our business and will affect the cost and terms of such capital.

 

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Cash Flows

The following table presents the major components of net cash flows provided by and used in operating, investing and financing activities for the periods presented:

 

     Six Months Ended
June 30,
 

(In thousands)

   2011     2010  

Net cash provided by (used in):

    

Operating activities

   $ (83,673   $ (12,325

Investing activities

     (35,276     (15,534

Financing activities

     34,668        (876

Effect of exchange rate changes on cash and cash equivalents

     95        (2,473
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

   $ (84,186   $ (31,208
  

 

 

   

 

 

 

Operating Activities

Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, unrealized foreign currency exchange rate gains and losses, losses on disposals of property and equipment, stock-based compensation, deferred income taxes and changes in reserves and allowances. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, income taxes payable and receivable, prepaid expenses and other assets, accounts payable and accrued expenses.

Cash used in operating activities increased $71.4 million to $83.7 million for the six months ended June 30, 2011 from $12.3 million during the same period in 2010. The increase in cash used in operating activities was due to increased net cash outflows from operating assets and liabilities of $71.3 million and adjustments to net income for non-cash items which decreased $7.8 million period over period, partially offset by additional net income of $7.7 million. The increase in cash outflows related to changes in operating assets and liabilities period over period was primarily driven by an increase in inventory investments of $63.7 million. In line with our expectations, inventory grew in the second quarter of 2011 at a rate higher than net revenue growth due to increased safety stock in core product offerings and seasonal products to better meet anticipated consumer demand and investments in new products including hats and bags.

Adjustments to net income for non-cash items decreased in the six months ended June 30, 2011 as compared to the same period of the prior year primarily due to unrealized foreign currency exchange rate gains in the 2011 period as compared to unrealized foreign currency exchange rate losses in the prior period.

Investing Activities

Cash used in investing activities, which includes capital expenditures and the purchase of trust owned life insurance policies, increased $19.8 million to $35.3 million for the six months ended June 30, 2011 from $15.5 million for the same period in 2010. This increase in cash used in investing activities is primarily due to increased investments in our direct to consumer sales channel, corporate and distribution facilities and our in-store fixture program. In addition, we invested in Dome Corporation, our Japanese licensee.

Capital expenditures for the full year 2011 are anticipated to be in the high end of our previously indicated range of $45.0 million to $50.0 million. Our capital expenditures in 2011 will also include the acquisition of part of our corporate headquarters for $62.6 million along with approximately $2.4 million in additional related investments and improvements. In connection with the acquisition, we assumed $38.6 million in debt attached to the acquired property. The remaining purchase price was funded through a $25.0 million term loan.

Financing Activities

Cash provided by financing activities increased $35.6 million to $34.7 million for the six months ended June 30, 2011 from cash used in financing activities of $0.9 million for the same period in 2010. This increase from the prior year period was primarily due to the term loan borrowed under the credit facility to partially fund the purchase of our corporate headquarters. In addition, we received higher proceeds from the exercise of stock options and additional excess tax benefits from stock-based compensation arrangements in the 2011 period as compared to the 2010 period.

 

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Credit Facility

In March 2011, we entered into a new $325.0 million credit facility with certain lending institutions and terminated our prior $200.0 million revolving credit facility in order to increase our available financing and to expand our lending syndicate.The credit facility has a term of four years and provides for a committed revolving credit line of up to $300.0 million in addition to a $25.0 million term loan facility. The commitment amount under the revolving credit facility may be increased by an additional $50.0 million, subject to certain conditions and approvals as set forth in the credit agreement. We incurred and capitalized $1.6 million in deferred financing costs in connection with the credit facility.

In May 2011, we borrowed $25.0 million under the term loan facility to finance a portion of the purchase price for the acquisition of part of our corporate headquarters. The acquisition closed in July 2011.

The credit facility may be used for working capital and general corporate purposes and is collateralized by substantially all of our assets and certain of our domestic subsidiaries (other than our trademarks and the corporate headquarters that we purchased in July 2011) and by a pledge of 65% of the equity interests of certain of our foreign subsidiaries. Up to $5.0 million of the facility may be used to support letters of credit, of which none were outstanding as of June 30, 2011. We are required to maintain a certain leverage ratio and interest coverage ratio as set forth in the credit agreement. The credit agreement also provides the lenders with the ability to reduce the borrowing base, even if we are in compliance with all conditions of the credit agreement, upon a material adverse change to our business, properties, assets, financial condition or results of operations. The credit agreement contains a number of restrictions that limit our ability, among other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guaranty obligations of third parties, make investments, undergo a merger or consolidation, dispose of assets, or materially change our line of business. In addition, the credit agreement includes a cross default provision whereby an event of default under other debt obligations, as defined in the credit agreement, will be considered an event of default under the credit agreement.

Borrowings under the credit facility bear interest based on the daily balance outstanding at LIBOR (with no rate floor) plus an applicable margin (varying from 1.25% to 1.75%) or, in certain cases a base rate (based on a certain lending institution’s Prime Rate or as otherwise specified in the credit agreement, with no rate floor) plus an applicable margin (varying from 0.25% to 0.75%). The credit facility also carries a commitment fee equal to the available but unused borrowings multiplied by an applicable margin (varying from 0.25% to 0.35%). The applicable margins are calculated quarterly and vary based on our leverage ratio as set forth in the credit agreement.

Upon entering into the credit facility in March 2011, we terminated our prior $200.0 million revolving credit facility. The prior revolving credit facility was collateralized by substantially all of our assets, other than our trademarks, and included covenants, conditions and other terms similar to our new credit facility.

No balances were outstanding under the current credit facility or prior revolving credit facility during the three and six months ended June 30, 2011 and 2010, with the exception of the $25.0 million term loan facility previously mentioned. The interest rate on the $25.0 million term loan was 1.5% for the three and six months ended June 30, 2011. The maturity date of the $25.0 million term loan is March 2015, which is the end of the credit facility term.

Long Term Debt

We have long term debt agreements with various lenders to finance the acquisition of or lease of qualifying capital investments. Loans under these agreements are collateralized by a first lien on the related assets acquired. As these agreements are not committed facilities, each advance is subject to approval by the lenders. Additionally, these agreements include a cross default provision whereby an event of default under other debt obligations, including our credit facility, will be considered an event of default under these agreements. In addition, these agreements require a prepayment fee if we pay outstanding amounts ahead of the scheduled terms. The terms of our credit facility limit the total amount of additional financing under these agreements to $40.0 million, of which $27.1 million was remaining as of June 30, 2011. At June 30, 2011, December 31, 2010 and June 30, 2010, the outstanding principal balances under these agreements were $11.9 million, $15.9 million and $15.6 million, respectively. Currently, advances under these agreements bear interest rates which are fixed at the time of each advance. The weighted average interest rate on outstanding borrowings was 3.9% and 5.9% for the three months ended June 30, 2011 and 2010, respectively, and 4.0% and 5.9% for the six months ended June 30, 2011 and 2010, respectively.

We monitor the financial health and stability of our lenders under our credit and long term debt facilities, however instability in the credit markets could negatively impact lenders and their ability to perform under these facilities.

Contractual Commitments and Contingencies

In July 2011, in connection with the acquisition of part of our corporate headquarters, we assumed $38.6 million in debt attached to the acquired property. The remaining purchase price was funded through a $25.0 million term loan. Refer

 

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to Note 13 of the consolidated financial statements for a discussion of the assumed debt and Note 4 of the consolidated financial statements for a further discussion on the term loan.

There were no additional significant changes to the contractual obligations reported in our 2010 Form 10-K other than those which occur in the normal course of business.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could be significantly different from these estimates. We believe the following discussion addresses the critical accounting policies that are necessary to understand and evaluate our reported financial results.

Our significant accounting policies are described in Note 2 of the audited consolidated financial statements included in our 2010 Form 10-K. The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies” section of the MD&A in our 2010 Form 10-K. There were no significant changes to our critical accounting policies during the six months ended June 30, 2011.

Recently Issued Accounting Standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update which eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. It requires an entity to present total comprehensive income, which includes the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for financial statements issued for fiscal years, and interim periods within those years, beginning after December 15, 2011. We believe the adoption of this pronouncement will not have a material impact on our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign Currency Exchange and Foreign Currency Risk Management and Derivatives

We currently generate a small amount of our consolidated net revenues in Canada and Europe. The reporting currency for our consolidated financial statements is the U.S. dollar. To date, net revenues generated outside of the United States have not been significant. However, as our net revenues generated outside of the United States increase, our results of operations could be adversely impacted by changes in foreign currency exchange rates. For example, if we recognize foreign revenues in local foreign currencies (as we currently do in Canada and Europe) and if the U.S. dollar strengthens, it could have a negative impact on our foreign revenues upon translation of those results into the U.S. dollar upon consolidation of our financial statements. In addition, we are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates on transactions generated by our foreign subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions. These exposures are included in other expense, net on the consolidated statements of income.

From time to time, we may elect to use foreign currency forward contracts to reduce the risk from exchange rate fluctuations on intercompany transactions and projected inventory purchases for our European and Canadian subsidiaries. In addition, we may elect to enter into foreign currency forward contracts to reduce the risk associated with foreign currency exchange rate fluctuations on Pound Sterling denominated balance sheet items. We do not enter into derivative financial instruments for speculative or trading purposes.

Based on the foreign currency forward contracts outstanding as of June 30, 2011, we receive US Dollars in exchange for Canadian Dollars at a weighted average contractual forward foreign currency exchange rate of 0.98 CAD per $1.00, US Dollars in exchange for Euros at a weighted average contractual foreign currency exchange rate of 0.70 EUR per $1.00 and Euros in exchange for Pounds Sterling at a weighted average contractual foreign currency exchange rate of 0.90 GBP per 1.00 EUR. As of June 30, 2011, the notional value of our outstanding foreign currency forward contracts for our Canadian subsidiary was $23.0 million with contract maturities of 1 month, and the notional value of our outstanding foreign currency

 

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forward contracts for our European subsidiary was $45.0 million with contract maturities of 1 month. As of June 30, 2011, the notional value of our outstanding foreign currency forward contracts used to mitigate the foreign currency exchange rate fluctuations on Pound Sterling denominated balance sheet items was $4.8 million with contract maturities of 1 month. The foreign currency forward contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in other expense, net on the consolidated statements of income. As of June 30, 2011 and December 31, 2010, the fair values of our foreign currency forward contracts were liabilities of $1.1 million and $0.6 million, respectively, and were included in accrued expenses on the consolidated balance sheets. As of June 30, 2010, the fair values of our foreign currency forward contracts were assets of $0.6 million, and were included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 6 of the consolidated financial statements for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency forward contracts:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(In thousands)

   2011     2010     2011     2010  

Unrealized foreign currency exchange rate gains (losses)

   $ 1,062      $ (6,652   $ 2,984      $ (10,142

Realized foreign currency exchange rate gains (losses)

     (133     689        322        782   

Unrealized derivative gains (losses)

     (520     944        (505     307   

Realized derivative gains (losses)

     (771     4,852        (3,673     8,201   

Although we have entered into foreign currency forward contracts to minimize some of the impact of foreign currency exchange rate fluctuations on future cash flows, we cannot be assured that foreign currency exchange rate fluctuations will not have a material adverse impact on our financial condition and results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

The Risk Factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010 have not materially changed.

ITEM 6. EXHIBITS

 

Exhibit
No.

      
  10.01    Third Amendment to the Office Lease by and between Hull Point LLC and the Company dated June 23, 2004 (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (re-filing previously filed exhibit to include all exhibits, schedules and attachments).
  10.02    Sixth Amendment to the Office Lease by and between Hull Point LLC and the Company dated May 1, 2007 (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (re-filing previously filed exhibit to include all exhibits, schedules and attachments).
  10.03    Credit Agreement among PNC Bank, National Association, as Administrative Agent, SunTrust Bank, as Syndication Agent, Compass Bank, as Documentation Agent, and the Lenders that are party thereto and the Company dated January 28, 2009 (re-filing previously filed exhibit to include all exhibits, schedules and attachments).
  10.04    Credit Agreement among PNC Bank, National Association, as Administrative Agent, SunTrust Bank, as Syndication Agent, Bank of America, N.A., as Documentation Agent, and the Lenders and the Guarantors that are party thereto and the Company dated March 29, 2011 (re-filing previously filed exhibit to include all exhibits, schedules and attachments).
  10.05    Form of Restricted Stock Unit Grant Agreement under the Amended and Restated 2005 Omnibus Long-Term Incentive Plan (re-filing exhibit under the correct description; exhibit was erroneously filed with Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2010).
  10.06    Form of Annual Restricted Stock Unit Grant Agreement under the Under Armour, Inc. 2010 Non-Employee Director Compensation Plan (re-filing exhibit under the correct description; exhibit was erroneously filed with Exhibit 10.19 to the Annual Report on Form 10-K for the year ended December 31, 2010).
  31.01    Section 302 Chief Executive Officer Certification.
  31.02    Section 302 Chief Financial Officer Certification.
  32.01    Section 906 Chief Executive Officer Certification.
  32.02    Section 906 Chief Financial Officer Certification.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

23


Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

  UNDER ARMOUR, INC.

Date: August 4, 2011

  By:  

/ S / B RAD D ICKERSON

   

Brad Dickerson

Chief Financial Officer

 

24

Exhibit 10.01

CONFIDENTIAL TREATMENT REQUESTED

WITH RESPECT OF CERTAIN PORTIONS

HEREOF DENOTED WITH “[***]”

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (this “Third Amendment”) is made as of June 23, 2004 by and between HULL POINT, LLC, a Maryland limited liability company (“Landlord”) and KP SPORTS, INC., a Maryland corporation, d/b/a Under Armour Performance Apparel (“Tenant”).

RECITALS

R.1 By that Office Lease dated March 29, 2002 by and between Landlord and Tenant, as amended by that First Amendment to Lease dated September 10, 2002 and that Second Amendment to Lease dated March 6, 2003 (collectively, the “Original Lease”), Landlord leased to Tenant and Tenant leased from Landlord certain space containing 31,880 rentable square feet of space on the third (3 rd ) floor of The Ivory Building and 4,661 rentable square feet on the fourth (4 th ) floor of The Ivory Building (the “Original Premises”) located at Tide Point, 1020 Hull Street, Baltimore, Maryland 21230 (the Original Lease together with this Third Amendment are referred to collectively as the “Lease”).

R.2 Landlord and Tenant desire to amend the terms and conditions of the Original Lease to reflect an expansion of the Original Premises of 483 rentable square feet of space comprising the bridge area between The Ivory Building and The Cascade Building as more particularly depicted on Exhibit A (the “Expansion Space”), to extend the term of the Original Lease, and to make certain other amendments as provided herein.

NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and sufficiency of which is mutually acknowledged, the parties agree as follows:

1. Recitals . All of the above-referenced Recitals are incorporated into and made a substantive part hereof.

2. Definitions . Unless otherwise defined herein, all capitalized terms herein shall have the meaning set forth in the Original Lease.

3. Amendments to Original Lease . The Original Lease is hereby amended as follows:

3.1. Lease Term . The Original Lease currently expires on April 30, 2005. Landlord hereby agrees to extend the Lease Term for an additional two (2) year period (the “Extension Period”). The Termination Date of the Lease shall occur on April 30, 2007.

3.2. Rent . Tenant shall pay Base Rent for the Original Premises during the Extension Period as follows:

 

Lease Year

  

Per Square Foot

           Monthly                      Annual          

5/1/05-4/30/06

   $[***] on 31,880 rentable square feet (3 rd floor)    $ [***]       $ [***]   
   $[***] on 4,661 rentable square feet (4 th floor)    $ [***]       $ [***]   

5/1/06-4/30/07

   $[***] on 31,880 rentable square feet (3 rd floor)    $ [***]       $ [***]   
   $[***] on 4,661 rentable square feet (4 th floor)    $ [***]       $ [***]   


3.3. Expansion Space .

(a) Delivery . Landlord shall deliver to the Tenant the Expansion Space on or about June 15, 2004 (the “Delivery Date”). On the date Landlord delivers the Expansion Space to Tenant, the definition of the term “Premises” shall include the Expansion Space, and the rentable square footage of the Premises shall be increased to 37,024 based on a core factor of [***] percent ([***]%).

(b) Construction of Expansion Space . Landlord shall construct the Expansion Space in accordance with plans and specifications agreed to by Landlord and Tenant. Corporate Healthcare Financing, Inc. t/a Performax (“Performax”), another tenant at the Project, shall contribute $41,000 towards the cost of constructing the Expansion Space as more particularly set forth in the Sublease Agreement dated June 1, 2004 between Tenant and Performax, as consented to by Landlord (the “Performax Sublease”). Landlord shall be responsible for all other costs of constructing the Expansion Space.

(c) Rent . Commencing on the Delivery Date, Tenant shall pay Base Rent for the Expansion Space as follows:

 

Lease Year

  

Per Square Foot

           Monthly                      Annual          

6/15/04-4/30/05

   $[***] on 483 rentable square feet (bridge area)    $ [***]       $ [***]   

5/1/05-4/30/06

   $[***] on 483 rentable square feet (bridge area)    $ [***]       $ [***]   

5/1/06-4/30/07

   $[***] on 483 rentable square feet (bridge area)    $ [***]       $ [***]   

3.4. Renewal . Section 3.3 of the Original Lease is hereby deleted. Landlord and Tenant hereby confirm Tenant’s renewal rights under the Lease as follows:

(a) Expansion Option Not Exercised . If Tenant fails to exercise its option to expand into the remainder of Performax’ s leased space at the Project in accordance with Section

 

2


10 of the Performax Sublease, Tenant shall have the option to renew the Term of the Lease (the “Non-Expansion Renewal Term”) for four (4) periods of one (1) year each (5/1/07-4/30/08, 5/1/08-4/30/09, 5/1/09-4/30/10 and 5/1/10-4/30/11) and one (1) period often months (5/1/11-2/28/12) (each, a “Non-Expansion Renewal Option”).

Except as otherwise expressly provided in this Lease, all terms, covenants, and conditions of the Lease shall remain in full force and effect during the Non-Expansion Renewal Term, except that the Rent applicable to the Non-Expansion Renewal Term shall be Market Rent (as defined below) for the first Non-Expansion Renewal Option set forth in the preceding paragraph and shall escalate by [***]% commencing on the first day of each subsequent Non-Expansion Renewal Option.

(b) Expansion Option Exercised . If Tenant exercises its option to expand into the remainder of Performax’s leased space at the Project in accordance with Section 10 of the Performax Sublease, Tenant shall have the option to renew the Term of the Lease (the “Expansion Renewal Term,” the Expansion Renewal Term and the Non-Expansion Renewal Term are each a “Renewal Term”) for one (1) period of one (1) year (5/1/07-4/30/08), one (1) period of two (2) years (5/1/08-4/30/10), and one (1) period of one (1) year and nine (9) months 5/1/10-2/28/12) (each, an “Expansion Renewal Option,” the Expansion Renewal Option and the Non-Expansion Renewal Option are each a “Renewal Option”).

Except as otherwise expressly provided in this Lease, all terms, covenants, and conditions of the Lease shall remain in full force and effect during the Expansion Renewal Term, except that the Rent applicable to the Expansion Renewal Term shall be Market Rent (as defined below) for the first Expansion Renewal Option set forth in the preceding paragraph and shall escalate by [***]% commencing on the first day each subsequent Expansion Renewal Option.

(c) Renewal Option Conditions . Tenant shall exercise each Renewal Option by providing written notice to Landlord of its election to exercise such Renewal Option no later than nine (9) months prior to the expiration of the applicable term, provided, however, that Tenant’s option to renew shall be subject to the condition that no default shall have occurred and be continuing after applicable notice and cure periods have expired as of the date of Tenant’s exercise of such option or as of the date of commencement of the Renewal Term; and provided further, that if Tenant’s estate hereunder shall terminate prior to the commencement of the Renewal Term, Tenant’s option to renew shall expire upon such termination. Tenant shall have no other right to renew this Lease after the Renewal Term.

In no event shall the Rent for the Renewal Term be less than the Rent in effect at the expiration of the immediately preceding Term of the Lease. If the Tenant fails to give notice exercising the foregoing option by the date required herein, or if at the time Tenant exercises such option or at commencement of the Renewal Term the Tenant is in default of any term of the Lease, or if the Lease is assigned by Tenant or the Premises is sublet in whole or part in violation of Section 14, then Tenant’s rights and options to renew shall be automatically terminated and of no further force or effect.

(d) Market Rent Defined . For purposes of this Section, “Market Rent” shall be the prevailing market rate of rent and all charges for comparable space at the end of the Term. If

 

3


Tenant exercises its option to renew hereunder, Tenant and Landlord shall make a good faith effort to agree on the Market Rent on or before a date (the “Outside Negotiation Date”) which is no later than six (6) months prior to the expiration of the Term, and prior to implementing the procedures set forth below if the parties are unable to agree. If Landlord and Tenant are unable to agree upon the Market Rent by the Outside Negotiation Date, then Landlord and Tenant shall determine the Market Rent in accordance with the appraisal procedure set forth herein. Within ten (10) days after the Outside Negotiation Date, the parties shall appoint an appraiser who shall be mutually agreeable to both Landlord and Tenant, shall have at least ten (10) years’ experience as a broker of commercial leasehold estates, and shall be knowledgeable in office rentals in the Baltimore, Maryland market. If the parties are unable to agree on an appraiser within such ten (10) day period, then each party, within five (5) days after the expiration of such ten (10) day period, shall appoint an appraiser (with the same qualifications) and the two (2) appraisers (or the one appraiser if either Landlord or Tenant fails timely to appoint an appraiser) shall together appoint a third appraiser with the same qualifications. The appraiser or appraisers so appointed then shall determine, within sixty (60) days after the appointment of such appraiser or appraisers, the then Market Rent for the Premises. Among the factors to be considered by the appraiser(s) in determining the fair market base rent for the Premises shall be those factors set out below. The figure arrived at by the appraiser (or the average of the figures arrived at by the three appraisers, if applicable) shall be used as the Market Rent for such renewal term. If the three appraiser method is chosen, then if any appraiser’s estimate of fair Market Rent is either (x) less than ninety percent (90%) of the average figure or (y) more than one hundred ten percent (110%) of such average, then the fair market rent will be either (1) the average of the remaining two (2) appraisal figures falling within such a range of percentages, (2) the remaining appraisal that is within such range of percentages or (3) if none of the figures are within such range, the average of the three (3) appraisals. Landlord and Tenant shall each bear the cost of its appraiser and shall share equally the cost of the third appraiser.

In determining the Market Rent, the parties hereto and such appraisers shall be guided by the following principles: the Market Rent shall be determined by reference to office buildings in the Baltimore metropolitan area most comparable to the quality, amenities, stature, reputation, visibility and services, excluding furniture, of the Building. The Market Rent shall take into account the length of the Renewal Term, the fact that there are no new tenant improvements to be constructed by Landlord nor other lease-up costs (except broker commissions, if any) and shall provide for updating the Base Year Operating Costs to the first year of each renewal term, if such factors are considered market concessions at such time. The valuation shall be conducted in accordance with the provisions of this Section and, to the extent not inconsistent herewith, in accordance with the then prevailing rules of the American Arbitration Association in Maryland (or any successor thereto). The final determination of such appraisers shall be in writing and shall be binding and conclusive on the parties, each of whom shall receive counterpart copies thereof. In rendering such decision the appraisers shall not add to, subtract from, or otherwise modify the provisions of this Lease. In determining the Market Rent, the appraisers shall consider all the items set forth above for consideration in determining the Market Rent, as well as any other factors that they deem relevant. Instructions to such effect shall be given to the appraisers.

3.5. Right of First Offer . Provided that both on the date of Tenant’s exercise of its option in regard hereto, and on the date upon which such space is to be occupied by Tenant

 

4


hereunder, (i) the Lease is in full force and effect, (ii) Tenant is not then in material default under the Lease, Tenant shall have the right, upon the conditions, and subject to the terms, set forth herein, to lease additional office space which may be available for leasing (as hereinafter defined) throughout the Project (the “Offer Space”). If any such Offer Space is available for leasing, the Landlord shall provide the Tenant with written notice (the “Landlord’s Offer Notice”), which notice shall describe the Offer Space expected to become available for occupancy by Tenant, the time of its availability and all of the terms, covenants, and conditions of such lease of the Offer Space, including the amount of the rent for such Offer Space.

In the event that Tenant desires to lease any such Offer Space, Tenant shall notify Landlord in writing within fifteen (15) business days following its receipt of the Landlord’s Offer Notice, of its desire to lease such Offer Space (the “Tenant’s Response Notice”). Time shall be of the essence with respect to the giving of any Tenant’s Response Notice. Tenant’s failure to timely deliver a Tenant’s Response Notice to Landlord shall be deemed a decision not to exercise, and also to waive, Tenant’s right to exercise such option with respect to such Offer Space but only for the occasion identified in such Landlord’s Offer Notice.

If, pursuant to the Tenant’s Response Notice, Tenant elects to lease the Offer Space, then and in such event, Landlord and Tenant shall enter into an amendment to this Lease, within thirty (30) days following the date of the Tenant’s Response Notice for the lease of such Offer Space, which amendment, among other terms, covenants and conditions therein contained, shall provide for the Offer Space to be incorporated into the Premises and the Base Rent and Tenant’s Proportionate Share to be modified to reflect the inclusion of the Offer Space. Any options to renew available to Tenant as to the Premises shall apply also to the Offer Space so incorporated into the Premises.

All Offer Space shall be leased to Tenant on an “AS IS” basis, in the state and condition in which the same shall be upon removal by the preceding occupant, if any, except that Landlord shall remove any items of personal property left by such occupant and shall deliver the Offer Space to Tenant in “broom clean” fashion. Tenant shall not be entitled to any abatement or reduction of rent by reason of such state and condition. Landlord makes no representations as to the condition of any Offer Space or as to any other thing or fact related thereto, and Landlord shall have no obligation to decorate, repair, alter, improve or otherwise prepare the Offer Space for Tenant’s occupancy.

If Landlord is unable to give possession of any Offer Space to Tenant because of the holding over or retention of possession thereof by any tenant, subtenant or other occupant or for any other reason, Landlord shall not be subject to any liability for failure to give possession and the validity of this Lease shall not be impaired under such circumstances, but in no event shall Tenant be obligated to pay rent on the Offer Space until the Landlord delivers possession thereof. The provisions of this paragraph shall survive the entry into by Landlord and Tenant of an amendment to the Lease which pertains to the subject portion of the Offer Space.

As used herein, the term “available for leasing” shall mean space which (1) has or is reasonably expected to become vacant, and (2) is or is reasonably expected to be available for leasing to tenants; it being understood and agreed that space “available for leasing” shall not include any space which, is vacant or occupied if such space is subject to a lease which grants

 

5


the tenant thereunder (“Existing Tenant”) any rights of, renewal or extension as to such space (“Existing Tenant Space”), or is as of the date hereof subject to any rights of first offer or first refusal, expansion or other options granted to another tenant in the Project. Landlord agrees that: (i) Existing Tenant Space shall be deemed “available for leasing” if the Existing Tenant having expansion or renewal rights relating thereto fails or loses the right under the applicable lease to act with respect to such Existing Tenant Space; and (ii) to advise the Tenant from time to time upon Tenant’s request of space “available for leasing”; and (iii) it has by a separate writing on or about the date hereof advised the Tenant of any rights of first offer or first refusal and any expansion, renewal and similar options that exist as of the date hereof for the benefit of other tenants (which information Tenant agrees to keep confidential).

3.6. Parking . Landlord agrees to construct, at Landlord’s sole cost and expense, a surface parking lot on a lot located on Hull Street and owned by Landlord (the ‘Parking Lot”) for the exclusive use of Tenant and its employees for the parking of motor vehicles. The Parking Lot will allow for up to forty-eight (48) parking spaces in accordance with the parking schematic attached hereto as Exhibit B (the Parking Schematic”). Landlord will provide Tenant with “UA Parking” hang tags to be displayed in each motor vehicle and a sign at the entrance of the Parking Lot specifying that the Parking Lot is for Tenant’s sole and exclusive use. Management of the efficient use and maximum capacity of the Parking Lot in accordance with the Parking Schematic shall be the responsibility of Tenant.

Beginning on the Substantial Completion Date (as defined below) and ending on the Termination Date, Tenant shall lease the entire Parking Lot from Landlord and shall pay rent for the Parking Lot in the amount of $50.00 per parking space per month. The “Substantial Completion Date” shall occur on that date that Landlord completes the striping of the Parking Lot. All monthly payments for the Parking Lot shall be deemed Additional Rent.

Landlord shall be responsible for all costs of operating the Parking Lot, including maintenance costs, electricity/lighting costs, real estate taxes, insurance costs, and snow removal costs.

Tenant shall indemnify, defend (at Tenant’s cost) and save harmless the Landlord, its members and employees, from and against any and all actions, claims or demands, suits at law, in equity, or before administrative tribunals, due to the negligence, intentional wrongful acts, or alleged negligence or intentional wrongful acts of Tenant, its officers, employees, sublessees, agents, contractors, business invitees or visitors (except to the extent caused by any intentional wrongful act or negligence of the Landlord, its members and employees) in connection with the use of the Parking Lot or in connection with any breach or default in performing any of the obligations under the provisions of this Third Amendment.

Landlord and Tenant acknowledge that the Parking Lot is a temporary part of the parking facilities at the Project. Upon such time that Landlord makes available another parking area for the tenants at the Project (the “Substitute Parking Area”), Landlord shall have the right to terminate Tenant’s parking rights in the Parking Lot and relocate Tenant’s parking spaces to the Substitute Parking Area, provided Landlord delivers written notice to Tenant at least six (6) months prior to relocation of such parking spaces. At the time of such notice, Landlord shall

 

6


determine the number of parking spaces in use by Tenant at the Parking Lot and shall provide for the same number of parking spaces in the Substitute Parking Area at market rates.

4. Miscellaneous .

4.1. The language of this Third Amendment shall be construed according to its normal and usual meaning and not strictly for or against either Landlord or Tenant.

4.2. The parties hereto hereby acknowledge and agree that, in connection with this Third Amendment hereunder, Landlord has used the services of Colliers Pinkard. Any and all commissions due such brokers shall be paid in accordance with the terms and conditions set forth in a separate written agreement between the Landlord and Colliers Pinkard. Subject to the foregoing, each party hereto hereby represents and warrants to the other that, in connection with such leasing, the party so representing and warranting has not dealt with any real estate broker, agent or finder, and there is no commission, charge or other compensation due on account thereof.

4.3. If any clause or provision of this Third Amendment is or becomes illegal, invalid, or unenforceable because of present or future laws or any rule or regulation of any governmental body or entity, effective during the Term (as extended hereby), the intention of the parties hereto is that the remaining parts of this Third Amendment shall not be affected thereby.

4.4. The captions appearing within the body of this Third Amendment have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Third Amendment or of any provision hereof.

4.5. This Third Amendment may be executed in several counterparts, all of which shall constitute one and the same instrument.

4.6. Any references in the Original Lease to the “Lease” or the “Agreement” shall be deemed to include the Original Lease as modified hereby. Except as modified hereby, all terms and conditions of the Original Lease shall continue in full force and effect.

IN WITNESS WHEREOF, the parties have caused this instrument to be executed as of the day and year first above written.

 

WITNESS

    LANDLORD  
    HULL POINT, LLC  
    By: Locust Tide Point LLC, Managing Member  

[illegible]

  By:  

/s/ Carl W. Struever

  (SEAL)
    Carl W. Struever  
    Manager Member  

 

7


WITNESS:

    TENANT  
    KP SPORTS, INC.  
   

/s/ J. Scott Plank

  (SEAL)
    Name: J. Scott Plank  

[illegible]

  By:   Title: CAO  

 

8


Exhibit A

Expansion Space


LOGO


Exhibit B

Parking Schematic


LOGO

Exhibit 10.02

Certain portions hereof denoted with “[***]” have been omitted pursuant to a Request for

Confidential Treatment and have been filed separately with the Commission

SIXTH AMENDMENT TO LEASE

THIS SIXTH AMENDMENT TO LEASE (this “ Amendment ”) is made as of this 1st day of May, 2007, by and between HULL POINT LLC, a Maryland limited liability company (“ Landlord ”) and UNDER ARMOUR, INC., a Maryland corporation (“ Tenant ”), formerly known as KP Sports, Inc.

R.1. By that Office Lease dated March 29, 2002 by and between Landlord and Tenant, as amended by: (a) that First Amendment to Lease dated September 10, 2002, (b) that Second Amendment to Lease dated March 6, 2003, (c) that Third Amendment to Lease dated June 23, 2004, (d) that Fourth Amendment to Lease dated October 12, 2006, and (e) that Fifth Amendment to Lease dated December 1, 2006 (collectively, the “ Existing Lease ”), Landlord leased to Tenant those certain premises consisting of: (i) 31,880 rentable square feet of space on the third floor, (ii) 4,661 rentable square feet of space on the fourth floor, (iii) 463 rentable square feet on the bridge of the Ivory Building, (iv) 8,581 rentable square feet of space on the second floor of the Dawn Building, and (v) 4,400 rentable square feet of space on the second floor bridge between the Tide and Ivory Buildings (the “ Existing Premises ”) located at Tide Point, 1020 Hull Street, Baltimore, Maryland 21230 (the Existing Lease together with this Amendment are referred collectively as the “ Lease ”).

R.2. Landlord and Tenant desire to amend the terms and conditions of the Existing Lease to reflect: (a) an expansion of the Existing Premises by (i) 5,000 rentable square feet of space on the second floor of the Tide Building (“ Suite 200 ”), (ii) 12,594 rentable square feet of space on the third floor of the Tide Building (“ Suite 300 ”), and (iii) 1,673 rentable square feet of space on the second floor of the Tide Building (“ Suite 210 ”), all as more particularly depicted on Exhibit A (referred to as the “ Expansion Space ”); and (b) to modify and extend the Term of the Lease as described below.

R.3. Landlord and Tenant desire to amend the Lease upon the terms and conditions set forth below.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows:

1. Definitions . All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Lease. May 1, 2007 will constitute the “ Effective Date .”

 

1


2. Amendments to Lease . The Lease is hereby amended as follows:

2.1 Lease Term . The Existing Lease currently has several expiration dates, each tied to a portion of the Existing Premises. All such expiration dates are hereby superceded and the Term of the Lease shall, unless otherwise provided in this Amendment or in the Lease, be until April 30, 2012. For purposes of establishing the Base Rent, the period from May 1, 2007 until April 30, 2008 shall be Lease Year 1, and each subsequent twelve calendar month period shall be the next succeeding Lease Year.

2.2 Rent .

(a) Through April 30, 2007, Tenant shall be responsible for paying Base Rent in accordance with the Existing Lease. As of the Effective Date, Base Rent will be determined in accordance with the following provisions of this Amendment, notwithstanding the various rent schedules applicable beyond that date set forth in the Fourth and Fifth Amendments.

(b) Tenant shall pay Base Rent for the Existing Premises and the 5,000 rentable square feet of Suite 200 as follows:

 

Lease Year

   Rent Per SF   Annual Amount

1

   $[***]   $[***]

2

   $[***]   $[***]

3

   $[***]   $[***]

4

   $[***]   $[***]

5

   $[***]   $[***]

(c) Tenant shall pay Base Rent for the 12,594 rentable square feet of Suite 300 as follows:

 

Lease Year

   Rent Per SF   Annual Amount

1

   $[***]   $[***]

2

   $[***]   $[***]

3

   $[***]   $[***]

4

   $[***]   $[***]

5

   $[***]   $[***]

 

2


(d) Tenant shall pay Base Rent for the 1,673 rentable square feet of Suite 210 as follows:

 

Lease Year

   Rent Per SF   Annual Amount

1

   $[***]   $[***]

2

   $[***]   $[***]

3

   $[***]   $[***]

4

   $[***]   $[***]

5

   $[***]   $[***]

2.3 Delivery of Expansion Spaces . Landlord shall deliver the Expansion Space to the Tenant on May 1, 2007. As of the delivery date above, the definition of the term “Premises” shall include the Expansion Space, and the rentable square footage of the Premises shall be increased to 69,272. Tenant shall accept the Expansion Space on an “as-is” basis with no further warranties or representations from the Landlord, except that Landlord warrants that, to its knowledge, the Expansion Space is free of hazardous materials.

2.4 Base Year and Base Taxes .

(a) As of the Effective Date of this Amendment, the Base Operating Costs for the Existing Premises, Suite 210 and Suite 200 of the Expansion Space shall mean Operating Costs incurred for the 2007 calendar year. As of the Effective Date of this Amendment, the Base Operating Costs for Suite 300 of the Expansion Space shall mean Operating Costs incurred for the 2000 calendar year. The 4% restriction on annual increases in Tenant’s Share of Operating Costs shall continue to apply to the Premises, and as to Suite 300, shall be calculated from the 2000 calendar year as if Tenant had been subject to such increases in each subsequent year. If less than 95% of the rentable square feet in the Project is occupied by tenants or Landlord is not supplying services to 95% of the rentable square feet of the Project at any time during any calendar year (including the Base Year), then Operating Costs for such calendar year shall be an amount equal to the Operating Costs which would normally be expected to be incurred using reasonable projections and reasonable extrapolations from existing cost data had 95% of the Project’s rentable square feet been occupied and had Landlord been supplying services to 95% of the Project’s rentable square feet throughout such calendar year. Furthermore, if after the Base Year, the Landlord provides additional services or incurs cost items in a category not otherwise covered in Operating Costs as defined herein, the Base Operating Costs shall be increased in a manner as reasonably determined by Landlord to include such additional matter.

(b) As of the Effective Date of this Amendment, Base Taxes for the Existing Premises, Suite 210 and Suite 200 of the the Expansion Space shall mean Taxes incurred for the

 

3


state fiscal tax year beginning July 1, 2007 and ending June 30, 2008. As of the Effective Date of this Amendment, Base Taxes for Suite 300 of the the Expansion Space shall mean Taxes incurred for the state fiscal tax year beginning July 1, 2000 and ending June 30, 2001.

2.5. Renewal .

(a) Tenant shall have the option to renew the Term of this Lease for one (1) period of two (2) years (the “ Renewal Term ”). Tenant shall exercise the option by providing written notice to Landlord of its election to exercise such option no later than twelve (12) months prior to the expiration of the Term (“ Initial Notice Period ”), provided, however, that Tenant’s option to renew shall be subject to the condition that no default shall have occurred and be continuing after applicable notice and cure periods have expired as of the date of Tenant’s exercise of such option or as of the date of commencement of the Renewal Term. Tenant shall have no other right to renew this Lease after the Renewal Term. Except as otherwise expressly provided in this Lease, all terms, covenants, and conditions of this Lease shall remain in full force and effect during the Renewal Term, except that the Rent applicable to the Renewal Term shall be as set forth in this Section below. In no event shall the Rent for the Renewal Term be less than the Rent in effect at the expiration of the immediately preceding Term of the Lease. If the Tenant fails to give notice exercising the foregoing option by the date required herein, or if at the time Tenant exercises such option or at commencement of the Renewal Term the Tenant is in default beyond applicable notice and cure periods of any term of this Lease, or if this Lease is assigned by Tenant or the Premises is sublet in whole or part, then Tenant’s rights and options to renew shall be automatically terminated and of no further force or effect.

(b) The Base Rent for the Renewal Term shall be the Market Rent as determined in subsection (c) below.

(c) The “ Market Rent ” shall be the prevailing market rate of rent and all charges for comparable space at the end of the Term as increased in accordance with market rate annual escalations. If Tenant exercises its option to renew hereunder, Tenant and Landlord shall make a good faith effort to agree on the Market Rent on or before a date (the “Outside Negotiation Date” ) which is no later than nine (9) months prior to the expiration of the Term, and prior to implementing the procedures set forth below if the parties are unable to agree. If Landlord and Tenant are unable to agree upon the Market Rent by the Outside Negotiation Date, then Landlord and Tenant shall determine the Market Rent in accordance with the appraisal procedure set forth herein. Within ten (10) days after the Outside Negotiation Date, the parties shall appoint a broker who shall be mutually agreeable to both Landlord and Tenant, shall have at least ten (10) years’ experience as a broker of commercial leasehold estates, and shall be knowledgeable in office rentals in the Baltimore, Maryland market. If the parties are unable to agree on a broker within such ten (10) day period, then each party, within five (5) days after the expiration of such ten (10) day period, shall appoint a broker (with the same qualifications) and the two (2) brokers (or the one broker if either Landlord or Tenant fails timely to appoint a broker) shall together appoint a third broker with the same qualifications. The broker or brokers so appointed then shall determine, within sixty (60) days after the appointment of such broker or brokers, the then

 

4


Market Rent for the Premises. Among the factors to be considered by the broker(s) in determining the fair market base rent for the Premises shall be those factors set out below. The figure arrived at by the broker (or the average of the figures arrived at by the three brokers, if applicable) shall be used as the Market Rent for such renewal term. If the three broker method is chosen, then if any broker’s estimate of fair Market Rent is either (x) less than ninety percent (90%) of the average figure or (y) more than one hundred ten percent (110%) of such average, then the fair market rent will be either (1) the average of the remaining two (2) appraisal figures falling within such a range of percentages, (2) the remaining appraisal that is within such range of percentages or (3) if none of the figures are within such range, the average of the three (3) appraisals. Landlord and Tenant shall each bear the cost of its broker and shall share equally the cost of the third broker.

(d) In determining the Market Rent, the parties hereto and such brokers shall be guided by the following principles: the Market Rent shall be determined by reference to newly finished built-out office space in office buildings in Baltimore, Maryland or neighborhoods in the Baltimore, Maryland metropolitan area most comparable to the quality, location, amenities, stature, reputation, visibility and services of the Building. The Market Rent shall take into account the fact that there are no new tenant improvements to be constructed by Landlord nor other lease-up costs (except broker commissions, if any) and shall provide for updating the Base Operating Costs to the first year of each renewal term, if such factors are considered market concessions at such time. The valuation shall be conducted in accordance with the provisions of this Section and, to the extent not inconsistent herewith, in accordance with the then prevailing rules of the American Arbitration Association in Maryland (or any successor thereto). The final determination of such brokers shall be in writing and shall be binding and conclusive on the parties, each of whom shall receive counterpart copies thereof. In rendering such decision the brokers shall not add to, subtract from, or otherwise modify the provisions of this Lease. In determining the Market Rent, the brokers shall consider all the items set forth above for consideration in determining the Market Rent. Instructions to such effect shall be given to the brokers.

(e) Notwithstanding the above, Tenant will have the right to rescind its renewal option at any time within ten (10) calendar days after a final written determination is made of the Market Rent in accordance with the above procedures.

2.6. Parking . In addition to the rights to parking spaces under the Existing Lease, Tenant shall have the non-exclusive right to use 58 additional on-site parking spaces. At Landlord’s request, Tenant shall provide license plate numbers for its employees and otherwise cooperate with Landlord’s management of the Parking Areas, which may include attended parking service. Tenant shall not obligated to pay any Additional Rent for any such parking spaces.

 

5


2.7. Limited Right of Termination .

(a) Tenant shall have a conditional right to terminate this Lease effective [***] (the “ Early Termination Date ”). If Tenant exercises its right hereunder, it shall give the Landlord written notice of its election to terminate (the “ Termination Notice ”) at least [***] months prior to the Early Termination Date (the “ Termination Period ”).

(b) [***]

(c) [***]

(d) If, and only if, Tenant delivers the Termination Notice within the Termination Period, and Tenant pays to Landlord the Termination Fee, if required, and further provided that Tenant is not in default of any term of this Lease beyond any applicable notice and cure period either on the date of the Termination Notice or on the Early Termination Date, then the Lease will terminate effective on the Early Termination Date.

2.8. Assignment and Subletting . The provisions of Section 14 of the Existing Lease will continue to apply to any assignment or subletting of the Premises, however no consent from Landlord will be required for an assignment or subletting of all or any portion of the Premises so long as Tenant remains obligated on the Lease and the percentage of profit that is payable for Landlord in accordance with Section 14.4 would increase to one hundred percent.

3. Survival and Conflict . The Lease shall remain in full force and effect, fully binding on Landlord and Tenant and unmodified except as expressly provided herein. In the event of any conflict between the terms of the Lease and the terms of this Amendment, the terms of this Amendment shall govern.

 

6


IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment on the date written first above.

 

LANDLORD:     HULL POINT LLC, a Maryland limited liability company  
/s/ Kathleen A. Hearn     By:   /s/ J. Martin Lastner   (SEAL)
Witness     Name:   J. Martin Lastner  
    Title:   VP Operating Properties  

 

TENANT:     UNDER ARMOUR, INC. (formerly known as KP SPORTS, INC.), a Maryland corporation  
/s/ Kathleen A. Hearn     By:   /s/ J. Scott Plank   (SEAL)
Witness     Name:   J. Scott Plank  
    Title:   Senior Vice President  

 

7


Exhibit A - Expansion Space

LOGO

 

8


EXHIBIT B

Drawing showing approximate location of Premises

LOGO

 

9


EXHIBIT B

Drawing showing approximate location of Premises

LOGO

 

10

Exhibit 10.03

Certain portions hereof denoted with “[***]” have been omitted pursuant to a Request for

Confidential Treatment and have been filed separately with the Commission

 

 

$180,000,000 REVOLVING CREDIT FACILITY

CREDIT AGREEMENT

by and among

UNDER ARMOUR, INC.,

THE LENDERS PARTY HERETO,

PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent,

SUNTRUST BANK, as Syndication Agent

and

COMPASS BANK, as Documentation Agent

Dated as of January 28, 2009

 

 

 

 


TABLE OF CONTENTS

 

               Page  

1.

   CERTAIN DEFINITIONS      1   
   1.1    Certain Definitions.      1   
   1.2    Construction.      18   
   1.3    Accounting Principles.      19   

2.

   REVOLVING CREDIT AND SWING LOAN FACILITIES      19   
   2.1    Revolving Credit Commitments.      19   
   2.2    Nature of Lenders’ Obligations with Respect to Revolving Credit Loans.      20   
   2.3    Commitment Fees.      20   
   2.4    Increase in Revolving Credit Commitments.      20   
   2.5    Revolving Credit Loan Requests; Swing Loan Requests.      22   
   2.6    Making Revolving Credit Loans and Swing Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans; Borrowings to Repay Swing Loans.      23   
   2.7    Notes.      24   
   2.8    Use of Proceeds.      24   
   2.9    Letter of Credit Subfacility.      24   

3.

   INTEREST RATES      29   
   3.1    Interest Rate Options.      29   
   3.2    Interest Periods.      30   
   3.3    Interest After Default.      30   
   3.4    LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.      31   
   3.5    Selection of Interest Rate Options.      32   

4.

   PAYMENTS      32   
   4.1    Payments.      32   
   4.2    Pro Rata Treatment of Lenders.      32   
   4.3    Sharing of Payments by Lenders.      32   
   4.4    Presumptions by Administrative Agent.      33   
   4.5    Interest Payment Dates.      33   
   4.6    Voluntary Prepayments.      33   
   4.7    Mandatory Prepayments.      34   
   4.8    Receipt and Application of Payment.      35   
   4.9    Collections; Administrative Agent’s Right to Notify Account Receivable Debtors.      35   
   4.10    Increased Costs.      35   
   4.11    Taxes.      37   
   4.12    Indemnity.      38   
   4.13    Settlement Date Procedures.      39   

 

i


5.

   REPRESENTATIONS AND WARRANTIES      39   
   5.1    Representations and Warranties.      39   
   5.2    Updates to Schedules Upon Borrowing.      42   

6.

   CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT      42   
   6.1    First Loans and Letters of Credit.      43   
   6.2    Each Loan or Letter of Credit.      44   

7.

   COVENANTS      44   
   7.1    Affirmative Covenants.      44   
   7.2    Negative Covenants.      46   
   7.3    Reporting Requirements.      48   

8.

   DEFAULT      50   
   8.1    Events of Default.      50   
   8.2    Consequences of Event of Default.      51   

9.

   THE ADMINISTRATIVE AGENT      53   
   9.1    Appointment and Authority.      53   
   9.2    Rights as a Lender.      53   
   9.3    Exculpatory Provisions.      53   
   9.4    Reliance by Administrative Agent.      54   
   9.5    Delegation of Duties.      54   
   9.6    Resignation of Administrative Agent.      55   
   9.7    Non-Reliance on Administrative Agent and Other Lenders.      55   
   9.8    No Other Duties, etc.      56   
   9.9    Administrative Agent’s Fee.      56   
   9.10    Authorization to Release Collateral and Guarantors.      56   
   9.11    No Reliance on Administrative Agent’s Customer Identification Program.      56   

10.

   MISCELLANEOUS      56   
   10.1    Modifications, Amendments or Waivers.      56   
   10.2    No Implied Waivers; Cumulative Remedies.      57   
   10.3    Expenses; Indemnity; Damage Waiver.      57   
   10.4    Holidays.      58   
   10.5    Notices; Effectiveness; Electronic Communication.      59   
   10.6    Severability.      59   
   10.7    Duration; Survival.      59   
   10.8    Successors and Assigns.      60   
   10.9    Confidentiality.      62   
   10.10    Counterparts; Integration; Effectiveness.      63   
   10.11    CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.      63   
   10.12    USA Patriot Act Notice.      64   

 

ii


LIST OF SCHEDULES AND EXHIBITS

 

SCHEDULES

     

SCHEDULE 1.1(A)

   -    PRICING GRID

SCHEDULE 1.1(B)

   -    COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES

SCHEDULE 1.1(C)

   -    QUALIFIED ACCOUNTS RECEIVABLE

SCHEDULE 1.1(D)

   -    QUALIFIED INVENTORY

SCHEDULE 1.1(P)

   -    PERMITTED LIENS

SCHEDULE 5.1.1

   -    QUALIFICATIONS TO DO BUSINESS

SCHEDULE 5.1.2

   -    EXISTING SUBSIDIARIES

SCHEDULE 5.1.5

   -    LITIGATION

SCHEDULE 5.1.10

   -    PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.

SCHEDULE 5.1.14

   -    ENVIRONMENTAL DISCLOSURES

SCHEDULE 6.1.1

   -    OPINION OF COUNSEL

SCHEDULE 7.1.3

   -    INSURANCE REQUIREMENTS RELATING TO COLLATERAL

SCHEDULE 7.2.1

   -    PERMITTED INDEBTEDNESS

SCHEDULE 7.1.11

   -    POST-CLOSING LANDLORD’S WAIVERS

EXHIBITS

     

EXHIBIT 1.1(A)

   -    ASSIGNMENT AND ASSUMPTION AGREEMENT

EXHIBIT 1.1(G)(1)

   -    GUARANTOR JOINDER

EXHIBIT 1.1(G)(2)

   -    GUARANTY AGREEMENT

EXHIBIT 1.1(I)(1)

   -    INDEMNITY AGREEMENT

EXHIBIT 1.1(I)(2)

   -    INTERCOMPANY SUBORDINATION AGREEMENT

EXHIBIT 1.1(L)

   -    LOCKBOX AGREEMENT

EXHIBIT 1.1(N)(1)

   -    REVOLVING CREDIT NOTE

EXHIBIT 1.1(N)(2)

   -    SWING LOAN NOTE

EXHIBIT 1.1(P)(2)

   -    PLEDGE AGREEMENT

EXHIBIT 1.1(S)

   -    SECURITY AGREEMENT

EXHIBIT 2.4

   -    LENDER JOINDER

EXHIBIT 2.5

   -    LOAN REQUEST

EXHIBIT 2.5.2

   -    SWING LOAN REQUEST

EXHIBIT 6.1.1(i)

   -    BORROWING BASE CERTIFICATE

EXHIBIT 6.1.1(xiii)

   -    LANDLORD’S WAIVER

EXHIBIT 7.3.4

   -    QUARTERLY COMPLIANCE CERTIFICATE

 

iii


CREDIT AGREEMENT

THIS CREDIT AGREEMENT (as hereafter amended, the “Agreement”) is dated as of January 28, 2009 and is made by and among UNDER ARMOUR, INC., a Maryland corporation (the “Borrower”), each of the GUARANTORS (as hereinafter defined), the LENDERS (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders under this Agreement (hereinafter referred to in such capacity as the “Administrative Agent”), SUNTRUST BANK, as Syndication Agent, and COMPASS BANK, as Documentation Agent.

The Borrower has requested the Lenders to provide a revolving credit facility to the Borrower in an aggregate principal amount not to exceed $180,000,000. In consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1. CERTAIN DEFINITIONS

1.1 Certain Definitions . In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

Account Receivable shall mean, individually, a Domestic Account Receivable, a Domestic Credit Card Account Receivable or a Domestic Royalty Account Receivable, as applicable. All Accounts Receivable, whether Qualified Accounts Receivable or not, shall be subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any .

Account Receivable Debtor shall mean any Person who is or who may become obligated to a Loan Party under, with respect to, or on account of, an Account Receivable.

Administrative Agent shall mean PNC Bank, National Association, and its successors and assigns.

Administrative Agent’s Fee shall have the meaning specified in Section 9.9 [Administrative Agent’s Fee].

Administrative Agent’s Letter shall have the meaning specified in Section 9.9 [Administrative Agent’s Fee].

Affiliate as to any Person any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 10% or more of any class of the voting or other equity interests of such Person, or (iii) 10% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Notwithstanding anything to the contrary herein, with respect to the Borrower, the term “Affiliate” shall not include any party identified as beneficially owning or controlling more than 5% of any class of the voting shares of the Borrower or any Person that directly or indirectly controls, is controlled by, or is under common control with such Person; provided , however , that Kevin A. Plank and J. Scott Plank shall constitute Affiliates of the Borrower.

Anti-Terrorism Laws shall mean any Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).

Applicable Commitment Fee Rate shall mean the percentage rate per annum based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Commitment Fee”.


Applicable Letter of Credit Fee Rate shall mean the percentage rate per annum based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Letter of Credit Fee”.

Applicable Margin shall mean, as applicable:

(A) the percentage spread to be added to the Base Rate applicable to Revolving Credit Loans under the Base Rate Option based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit Base Rate Spread”, or

(B) the percentage spread to be added to the LIBOR Rate applicable to Revolving Credit Loans under the LIBOR Rate Option based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit LIBOR Rate Spread”.

Approved Fund shall mean any fund that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Assignment and Assumption means an assignment and assumption entered into by a Lender and an assignee permitted under Section 10.8 [Successors and Assigns], in substantially the form of Exhibit 1.1(A) .

Authorized Officer shall mean, with respect to any Loan Party, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Treasurer or Assistant Treasurer of such Loan Party or such other individuals, designated by written notice to the Administrative Agent from the Borrower, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrower may amend such list of individuals from time to time by giving written notice of such amendment to the Administrative Agent.

Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (a) the Federal Funds Open Rate plus 50 basis points (0.5%), (b) the Prime Rate, (c) the Daily LIBOR Rate plus 100 basis points (1.0%), and (iv) 225 basis points (2.25%). Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs. Interest on Loans at the Base Rate shall be calculated based on a year of 360 days and actual days elapsed.

Base Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(i) [Revolving Credit Base Rate Option].

Borrowing Base shall mean at any time the sum of (i) 80% of Qualified Accounts Receivable (“Accounts Portion”), plus (ii) 50% of Qualified Inventory (“Inventory Portion”), but in no event shall the Inventory Portion exceed 50% of the Borrowing Base. Notwithstanding anything to the contrary herein, upon the occurrence and during the existence of any Material Adverse Change, the Required Lenders may, in their sole discretion, at any time hereafter, decrease the advance percentage for Qualified Accounts Receivable and Qualified Inventory, or increase the level of any reserves or ineligibles, or define or maintain such other reserves or ineligibles, as the Required Lenders may deem necessary or appropriate. Any such change shall become effective immediately upon written notice from the Administrative Agent to the Borrower for the purpose of calculating the Borrowing Base hereunder.

Borrowing Base Certificate shall mean a certificate in substantially the form of Exhibit 6.1.1(i) .

Borrower shall mean Under Armour, Inc., a corporation organized and existing under the laws of the State of Maryland.

 

- 2 -


Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.

Borrowing Tranche shall mean specified portions of Loans outstanding as follows: (i) any Loans to which a LIBOR Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche.

Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and if the applicable Business Day relates to any Loan to which the LIBOR Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market.

Cash Collateral Account shall have the meaning assigned to that term in Section 4.8.

Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation or application thereof by any Official Body or (c) the making or issuance of any request, guideline or directive (whether or not having the force of Law) by any Official Body.

Change of Control shall mean the occurrence of any of the following: (a) the failure of Kevin Plank and/or any of the Kevin Plank Family Entities, at any time, to own and control, directly or indirectly, of record and beneficially, voting securities or other interests constituting at least fifty-one percent (51%) of the votes entitled to be cast for the election of directors of the Borrower; or (b) within a period of twelve (12) consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower unless such new directors were selected by the then-incumbent directors.

Closing Date shall mean the Business Day on which the first Loan may be made, which shall be January 28, 2009.

Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Collateral shall mean the collateral under the (i) Security Agreement and (ii) Pledge Agreement.

Commitment shall mean as to any Lender the aggregate of its Revolving Credit Commitment and, in the case of the Agent, its Swing Loan Commitment, and Commitments shall mean the aggregate of the Revolving Credit Commitments and Swing Loan Commitment of all of the Lenders.

Commitment Fee shall have the meaning specified in Section 2.3 [Commitment Fees].

Compliance Certificate shall have the meaning specified in Section 7.3.4 [Certificate of the Borrower].

Complying Lender shall mean any Lender which is not a Non-Complying Lender.

Consolidated EBITDA for any period of determination shall mean (a) the sum of (i) net income (excluding extraordinary items), (ii) depreciation expense, (iii) amortization expense, (iv) all other non-cash charges to net income, (v) taxes and (vi) interest expense minus (b) non-cash credits to net income, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP.

 

- 3 -


Copyrights shall mean all of the Loan Parties’ present and hereafter acquired copyrights, copyright registrations, recordings, applications, designs, styles, licenses, marks, prints and labels bearing any of the foregoing, all reissues and renewals thereof, all licenses thereof, all other general intangible, intellectual property and other rights pertaining to any of the foregoing, together with the goodwill associated therewith, and all income, royalties and other proceeds of any of the foregoing.

Daily LIBOR Rate shall mean, for any day, the rate per annum determined by the Administrative Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the LIBOR Reserve Percentage on such day.

Depository shall have the meaning assigned to that term in Section 4.8.

Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America.

Domestic Account Receivable shall mean any account, contract right, general intangible, chattel paper, instrument or document representing any right to payment for goods sold or services rendered, whether or not earned by performance and whether or not evidenced by a contract, instrument or document, which is now owned or hereafter acquired by a Loan Party. All Domestic Accounts Receivable, whether Qualified Accounts Receivable or not, shall be subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any .

Domestic Credit Card Account Receivable shall mean any amounts due to any of the Loan Parties from Amex, MasterCard, Discover and Visa, in relation to purchases made by customers using credit cards. All Domestic Credit Card Accounts Receivable, whether Qualified Accounts Receivable or not, shall be subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any .

Domestic Royalty Account Receivable shall mean any account receivable of any of the Loan Parties arising from the licensing by the Loan Parties of any Trademarks owned by any of the Loan Parties. All Domestic Royalty Accounts Receivable, whether Qualified Accounts Receivable or not, shall be subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any .

Drawing Date shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Environmental Laws shall mean all applicable federal, state, local, tribal, territorial and foreign Laws (including common law), constitutions, statutes, treaties, regulations, rules, ordinances and codes and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with a governmental authority pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health or the environment from exposure to regulated substances; (iii) protection of the environment and/or natural resources; (iv) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, packaging, sale, transport, storage, collection, distribution, disposal or release or threat of release of regulated substances; (v) the presence of contamination; (vi) the protection of endangered or threatened species; and (vii) the protection of environmentally sensitive areas.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

ERISA Affiliate shall mean, at any time, any trade or business (whether or not incorporated) under common control with the Borrower and are treated as a single employer under Section 414 of the Code.

 

- 4 -


ERISA Event means (a) a reportable event (under Section 4043 of ERISA and regulations thereunder) with respect to a Pension Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

ERISA Group shall mean, at any time, the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

Event of Default shall mean any of the events described in Section 8.1 [Events of Default] and referred to therein as an “Event of Default.”

Excluded Taxes shall mean, with respect to the Administrative Agent, any Lender, the Issuing Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 4.11.5 [Taxes – Status of Lenders], except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 4.11.1 [Taxes – Payment Free of Taxes].

Executive Order No. 13224 shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

Existing Credit Agreement shall mean the Third Amended and Restated Financing Agreement among CIT Group/Commercial Services, Inc., as Agent, Wachovia Bank, National Association, as Documentation Agent, SunTrust Bank, as Syndication Agent and the Lenders that are party thereto and the Borrower dated December 22, 2006.

Existing Credit Obligations shall mean “Obligations” as such term is defined under the Existing Credit Agreement.

Expiration Date shall mean, with respect to the Revolving Credit Commitments, January 28, 2012.

Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the

 

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Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided , if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

Federal Funds Open Rate shall mean, for any day, the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by the Administrative Agent (an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error); provided , however , that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day. The rate of interest charged shall be adjusted as of each Business Day based on changes in the Federal Funds Open Rate without notice to the Borrower.

Fixed Charge Coverage Ratio shall mean the ratio of (A) Consolidated EBITDA to (B) Fixed Charges (i) for the four fiscal quarters then ending if such date is a fiscal quarter end or (ii) for the four fiscal quarters most recently ended if such date is not a fiscal quarter end.

Fixed Charges shall mean for any period of determination the sum of interest expense, income taxes, scheduled principal installments on Indebtedness, dividends, unfinanced capital expenditures and payments under capitalized leases, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP.

Foreign Lender shall mean any Lender that is organized under the Laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

Foreign Subsidiary shall mean, with respect to any Person, a Subsidiary of such Person, which Subsidiary is not incorporated or otherwise organized under the laws of a state of the United States of America or the District of Columbia.

GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3 [Accounting Principles], and applied on a consistent basis both as to classification of items and amounts.

Guarantor shall mean each of the parties to this Agreement which is designated as a “Guarantor” on the signature page hereof and each other Person which joins this Agreement as a Guarantor after the date hereof.

Guarantor Joinder shall mean a joinder by a Person as a Guarantor under the Loan Documents in the form of Exhibit 1.1(G)(1) .

Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance

 

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bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business.

Guaranty Agreement shall mean the Continuing Agreement of Guaranty and Suretyship in substantially the form of Exhibit 1.1(G)(2) executed and delivered by each of the Guarantors.

Increasing Lender shall have the meaning assigned to that term in Section 2.4(i).

Indebtedness shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money; (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility; (iii) reimbursement obligations (contingent or otherwise) under any currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device; (iv) Letter of Credit Obligations; (v) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than sixty (60) days past due); or (vi) any Guaranty of Indebtedness for borrowed money.

Indemnified Taxes shall mean Taxes other than Excluded Taxes.

Indemnitee shall have the meaning specified in Section 10.3.2 [Indemnification by the Borrower].

Indemnity shall mean the Indemnity Agreement in the form of Exhibit 1.1(I)(1) relating to possible environmental liabilities associated with any of the owned or leased real property of the Loan Parties or their Subsidiaries.

Information shall mean all information made available to the Administrative Agent or Lenders relating to the Loan Parties or any of such Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the Issuing Lender on a non-confidential basis prior to disclosure by the Loan Parties or any of their Subsidiaries, provided that, in the case of information received from the Loan Parties or any of their Subsidiaries after the date of this Agreement, such information is clearly identified at the time of delivery as confidential.

Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion of its creditors; undertaken under any Law.

Intercompany Subordination Agreement shall mean a Subordination Agreement among the Loan Parties in the form attached hereto as Exhibit 1.1(I)(2) .

Interest Period shall mean the period of time selected by the Borrower in connection with (and to apply to) any election permitted hereunder by the Borrower to have Revolving Credit Loans bear interest under the LIBOR Rate Option. Subject to the last sentence of this definition, such period shall be one, two, three or six Months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (i) the Borrowing Date if the Borrower is requesting new Loans, or (ii) the date of renewal of or conversion to the LIBOR Rate Option if the Borrower is renewing or converting to

 

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the LIBOR Rate Option applicable to outstanding Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (B) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date.

Interest Rate Hedge shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by the Loan Parties or their Subsidiaries in order to provide protection to, or minimize the impact upon, the Borrower, the Guarantor and/or their Subsidiaries of increasing floating rates of interest applicable to Indebtedness.

Interest Rate Option shall mean any LIBOR Rate Option or Base Rate Option.

Inventory shall mean any and all goods, merchandise and other personal property, including, without limitation, goods in transit, wheresoever located and whether now owned or hereafter acquired by any Loan Party which are or may at any time be held as raw materials, finished goods, work-in-process, supplies or materials used or consumed in the such Loan Party’s business or held for sale or lease, including, without limitation, (a) all such property the sale or other disposition of which has given rise to Accounts Receivable and which has been returned to or repossessed or stopped in transit by such Loan Party, and (b) all packing, shipping and advertising materials relating to all or any such property. All Inventory, whether Qualified Inventory or not, shall be subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any.

IRS shall mean the Internal Revenue Service.

Issuing Lender means PNC Bank, in its individual capacity as issuer of Letters of Credit hereunder, and any other Lender that Borrower, Administrative Agent and such other Lender may agree may from time to time issue Letters of Credit hereunder.

Joint Venture shall mean a corporation, partnership, limited liability company or other entities in which any Person other than the Loan Parties and their Subsidiaries holds, directly or indirectly, an equity interest.

Kevin Plank Family Entity shall mean (i) any not-for-profit corporation controlled by Kevin Plank, his wife or children, or any combination thereof, (ii) any other corporation if at least 66% of the value and voting power of its outstanding equity is owned by Kevin Plank, his wife or children, or any combination thereof; (iii) any partnership if at least 66% of the value and voting power of its partnership interests are owned by Kevin Plank, his wife or children, or any combination thereof; (iv) any limited liability or similar company if at least 66% of the value and voting power of the company and its membership interests are owned by Kevin Plank, his wife or children; or (v) any trust the primary beneficiaries of which are Kevin Plank, his wife, children and/or charitable organizations, which if the trust is a wholly charitable trust, at least 66% of the trustees of such trust are appointed by Kevin Plank or his wife.

Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Official Body.

Lender Provided Interest Rate Hedge shall mean an Interest Rate Hedge which is provided by any Lender or its Affiliate and with respect to which the Administrative Agent confirms: (i) is documented in a standard International Swap Dealer Association Agreement, (ii) provides for the method of calculating the reimbursable amount of the provider’s credit exposure in a reasonable and customary manner, and (iii) is entered into for hedging (rather than speculative) purposes. The Administrative Agent agrees to review these promptly to determine whether (i) applies.

 

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Lenders shall mean the financial institutions named on Schedule 1.1(B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender. For the purpose of any Loan Document which provides for the granting of a security interest or other Lien to the Lenders or to the Administrative Agent for the benefit of the Lenders as security for the Obligations, “Lenders” shall include any Affiliate of a Lender to which such Obligation is owed.

Letter of Credit shall have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

Letter of Credit Borrowing shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Letter of Credit Fee shall have the meaning specified in Section 2.9.2 [Letter of Credit Fees].

Letter of Credit Obligation means, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit on such date (if any Letter of Credit shall increase in amount automatically in the future, such aggregate amount available to be drawn shall currently give effect to any such future increase) plus the aggregate Reimbursement Obligations and Letter of Credit Borrowings on such date.

Letter of Credit Sublimit shall have the meaning specified in Section 2.9.1 [Letter of Credit Subfacility].

Leverage Ratio shall mean, as of the end of any date of determination, the ratio of (A) Total Debt on such date to (B) Consolidated EBITDA (i) for the four fiscal quarters then ending if such date is a fiscal quarter end or (ii) for the four fiscal quarters most recently ended if such date is not a fiscal quarter end.

LIBOR Rate shall mean, with respect to the Loans comprising any Borrowing Tranche to which the LIBOR Rate Option applies for any Interest Period, the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Administrative Agent which has been approved by the British Bankers’ Association as an authorized information vendor for the purpose of displaying rates at which US dollar deposits are offered by leading banks in the London interbank deposit market (an “Alternate Source”), at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error)), by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage. LIBOR may also be expressed by the following formula:

 

Average of London interbank offered rates quoted      
by Bloomberg or appropriate successor as shown on
LIBOR =   Bloomberg Page BBAM1
  1.00 - LIBOR Reserve Percentage      

provided, that in no event shall the LIBOR Rate be less than 125 basis points (1.25%).

The LIBOR Rate shall be adjusted with respect to any Loan to which the LIBOR Rate Option applies that is outstanding on the effective date of any change in the LIBOR Reserve Percentage

 

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as of such effective date. The Administrative Agent shall give prompt notice to the Borrower of the LIBOR Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

LIBOR Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms set forth in Section 3.1.1(ii) [Revolving Credit LIBOR Rate Option].

LIBOR Reserve Percentage shall mean as of any day the maximum percentage in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency Liabilities”).

Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).

Loan Documents shall mean this Agreement, the Administrative Agent’s Letter, the Guaranty Agreement, the Indemnity, the Intercompany Subordination Agreement, the Notes, the Pledge Agreement, the Security Agreement, and any other instruments, certificates or documents delivered in connection herewith or therewith.

Loan Parties shall mean the Borrower and the Guarantors.

Loan Request shall have the meaning specified in Section 2.5 [Revolving Credit Loan Requests].

Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans and Swing Loans or any Revolving Credit Loan or Swing Loan.

Lockbox Agreement shall mean the Lockbox Agreement in substantially the form attached hereto as Exhibit 1.1(L) executed and delivered by the applicable Loan Parties to the Administrative Agent.

Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition or results of operations of the Loan Parties taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Loan Parties taken as a whole to duly and punctually pay or perform its Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Administrative Agent or any of the Lenders, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document.

Month , with respect to an Interest Period under the LIBOR Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any LIBOR Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.

Multiemployer Plan shall mean any employee benefit plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions.

 

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New Lender shall have the meaning assigned to that term in Section 2.4(i).

Non-Complying Lender shall mean any Lender which has failed to fund any Loan which it is required to fund, or pay any other amount which it is required to pay to the Administrative Agent or any other Lender pursuant to the Loan Documents, within one (1) Business Day of the due date therefor.

Non-Consenting Lender shall have the meaning specified in Section 10.1 [Modifications, Amendments or Waivers].

Notes shall mean, collectively, the promissory notes in the form of Exhibit 1.1(N)(1) evidencing the Revolving Credit Loans and in the form of Exhibit 1.1(N)(2) evidencing the Swing Loan.

Notices shall have the meaning specified in Section 10.5 [Notices; Effectiveness; Electronic Communication].

Obligation shall mean any obligation or liability of any of the Loan Parties, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with (i) this Agreement, the Notes, the Letters of Credit, the Administrative Agent’s Letter or any other Loan Document whether to the Administrative Agent, any of the Lenders or their Affiliates or other persons provided for under such Loan Documents, (ii) any Lender Provided Interest Rate Hedge and (iii) any Other Lender Provided Financial Service Product.

Official Body shall mean the government of the United States of America 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).

Other Lender Provided Financial Service Product shall mean agreements or other arrangements under which any Lender or Affiliate of a Lender provides any of the following products or services to any of the Loan Parties: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) foreign currency exchange.

Other Taxes shall mean all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

Participant has the meaning specified in Section 10.8.4 [Participations].

Participation Advance shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Patents shall mean all of the Loan Parties’ present and hereafter acquired patents, patent applications, registrations, all reissues and renewals thereof, all licenses thereof, all inventions and improvements claimed thereunder, all general intangible, intellectual property and other rights of any Loan Party with respect thereto, and all income, royalties and other proceeds of the foregoing.

Payment Date shall mean the first day of each calendar quarter after the date hereof and on the Expiration Date or upon acceleration of the Notes.

Payment In Full shall mean payment in full in cash of the Loans and other Obligations hereunder, termination of the Commitments and expiration or termination of all Letters of Credit.

PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

 

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Pension Plan means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any times during the immediately preceding five plan years.

Permitted Indebtedness shall mean:

(i) Indebtedness under the Loan Documents;

(ii) Existing Indebtedness as of the Closing Date as set forth on Schedule 7.2.1 (including any extensions or renewals thereof); provided there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on Schedule 7.2.1 ;

(iii) Capitalized leases and Indebtedness secured by Purchase Money Security Interests not exceeding $35,000,000 in the aggregate;

(iv) Indebtedness of a Loan Party to another Loan Party or to a Subsidiary of a Loan Party;

(v) Any (i) Lender Provided Interest Rate Hedge, (ii) other Interest Rate Hedge approved by the Administrative Agent or (iii) Indebtedness under any Other Lender Provided Financial Services Product;

(vi) Guarantee obligations of a Loan Party or any Subsidiary of a Loan Party for any Indebtedness otherwise permitted by this Agreement;

(vii) Indebtedness of the Borrower or any of its Subsidiaries arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn by the Borrower or such Subsidiary in the ordinary course of business against insufficient funds, in the maximum amount outstanding from time to time of $50,000, so long as such Indebtedness is repaid within five (5) Business Days of the creation of such condition;

(viii) Additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $2,500,000 at any one time outstanding;

(ix) Indebtedness of the Borrower or any of its Subsidiaries in respect of workers’ compensation claims, property casualty or liability insurance, take-or-pay obligations in supply arrangements, self-insurance obligations, performance, bid and surety bonds and completion guaranties, in each case in the ordinary course of business; and

(x) Indebtedness of any Loan Party or Subsidiary for refinancings, replacements, modifications, refundings, renewals or extensions of Indebtedness that constitutes Permitted Indebtedness, provided that (i) there is no increase in the principal amount (or accrued value) thereof (excluding accrued interest, fees, discounts, premiums and expenses), (ii) the weighted average life to maturity of such Indebtedness is greater than or equal to the shorter of (A) the weighted average life to maturity of the Indebtedness being refinanced and (B) the weighted average life to maturity that would result if all payments of principal on the Indebtedness being refinanced that were due on or after the date that is one year following the Expiration Date were instead due one year following the Expiration Date, (iii) if the Indebtedness being refinanced, refunded, modified, renewed or extended is subordinated in right of payment to the Obligations, such refinancing, refunding, modification, renewal or extension is subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being refinanced, refunded, modified, renewed or extended, (iv) the terms and conditions (including, if applicable, as to collateral) of any such

 

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refinanced, refunded, modified, renewed or extended Indebtedness are not materially less favorable to the Lenders than the terms and conditions of the Indebtedness being modified, refinanced, refunded, renewed or extended, (v) no Event of Default shall have occurred and be continuing or no Event of Default or Potential Default would result from any such refinancing, refunding, modification, renewal or extension and (vi) with respect to any such Indebtedness that is secured, no Loan Party shall be an obligor or guarantor of any such refinancings, replacements, refundings, renewals or extensions except to the extent that such Person was such an obligor or guarantor in respect of the applicable Indebtedness on the date hereof.

Permitted Investments shall mean:

(i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or any state or municipality thereof or the District of Columbia having maturities of not more than twelve (12) months from the date of acquisition, and certificates of deposit and time deposits having maturities of not more than twelve (12) months from the date of acquisition, banker’s acceptances having maturities of not more than twelve (12) months from the date of acquisition and overnight bank deposits which at the time of acquisition are rated A–1 or better by S&P or P–1 or better by Moody’s, or by a Lender;

(ii) investments in negotiable instruments acquired in the ordinary course of business for collection;

(iii) investments received in settlement of Accounts Receivable arising in the ordinary course of business or owing to a Loan Party as a result of any dispute with customers or suppliers or upon the foreclosure or enforcement of any lien in favor of a Loan Party as security for an Account Receivable, and investments made in exchange for Accounts Receivable arising in the ordinary course of business which have not been collected for 120 days and which are, in the good faith judgment of the Loan Parties, substantially uncollectible, in each case for so long as any instrument evidencing such investment is, promptly upon receipt, duly endorsed to the order of and delivered to the Administrative Agent to be held as security for the Obligations;

(iv) trade credit extended on usual and customary terms in the ordinary course of business;

(v) advances to employees to meet reasonable expenses incurred by such employees in the ordinary course of business;

(vi) reasonable loans or advances (including, without limitation, to employees or suppliers) so long as the aggregate amount of such loans and advances outstanding by the Loan Party and their Subsidiaries does not exceed the sum of $2,000,000 at any time;

(vii) loans, advances, capital contributions or investments in other Loan Parties or their Subsidiaries;

(viii) loans or equity investments not exceeding $10,000,000 in the aggregate to joint ventures formed by a Loan Party or any Subsidiary to develop, enhance, research, manufacture or market any new technology or to develop, enhance or research any new product, process or technology;

(ix) investments in Subsidiaries permitted to be formed by Section 7.2.8 hereof;

(x) any money market or similar fund the assets of which are comprised exclusively of any of the items specified in clause (i) above and as to which withdrawals are permitted daily;

(xi) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (i) above entered into with any financial institution meeting the qualifications specified in clause (i); and

 

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(xii) commercial paper having at the time of investment therein or a contractual commitment to invest therein a rating of A–1 or better by S&P or P–1 or better by Moody’s, and having a maturity within six (6) months after the date of acquisition thereof.

Permitted Liens shall mean:

(i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(ii) Pledges or deposits made in the ordinary course of business to secure payment of workmen’s compensation, or to participate in any fund in connection with workmen’s compensation, unemployment insurance, old-age pensions or other social security programs;

(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default;

(iv) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business;

(v) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use;

(vi) Liens, security interests and mortgages in favor of the Administrative Agent for the benefit of the Lenders and their Affiliates securing the Obligations including Other Lender Provided Financial Services Obligations;

(vii) Liens on property leased by any Loan Party or Subsidiary of a Loan Party under capital leases permitted as Permitted Indebtedness securing obligations of such Loan Party or Subsidiary to the lessor under such leases and precautionary Uniform Commercial Code financing statements in respect thereof;

(viii) Any Lien existing on the date of this Agreement and described on Schedule 1.1(P) , provided that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien;

(ix) Purchase Money Security Interests permitted in clause (iii) of the definition of Permitted Indebtedness;

(x) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not adversely affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents:

(1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty; provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien;

(2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property other than the Collateral, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits;

 

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(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; or

(4) Liens resulting from final judgments or orders described in Section 8.1.6 [Final Judgments or Orders];

(xi) liens or rights of setoff against credit balances of a Loan Party with any credit card issuers or processors or amounts owing by credit card issuers or processors to a Loan Party in the ordinary course of business to secure the obligations of such Loan Party to such credit card issuer or processor as a result of any fees and chargebacks; and

(xii) liens or rights of setoff of any bank to secure fees and charges in connection with returned items or fees and charges in connection with any deposit account maintained by any Loan Party at such bank up to an aggregate, at any one time, of $50,000;

(xiii) licenses of Trademarks, Patents and Copyrights in the ordinary course of business;

(xiv) any liens or rights of setoff of any bank or securities intermediary to secure fees, charges and commissions in connections with any investment account maintained by the Loan Parties or their respective subsidiaries up to an aggregate, at any one time, of $50,000; and

(xv) other liens (except liens securing Taxes) securing indebtedness or obligations not to exceed $500,000 outstanding at any one time.

Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

Plan shall mean at any time an “employee pension benefit plan” as such term is defined in Section 3(2) of ERISA (including a multiple employer or other plan described in Section 4064 of ERISA, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group.

Pledge Agreement shall mean the Pledge Agreement in substantially the form of Exhibit 1.1(P)(2) executed and delivered by each of the Borrower and its Subsidiaries pledging 65% of the Subsidiary Equity Interests of each Foreign Subsidiary held by the Borrower and such Subsidiaries to the Administrative Agent for the benefit of the Lenders.

PNC Bank shall mean PNC Bank, National Association, its successors and assigns.

Potential Default shall mean any event or condition which with notice or passage of time, or both, would constitute an Event of Default.

Prime Rate shall mean the interest rate per annum announced from time to time by the Administrative Agent at its Principal Office as its then prime rate, which rate may not be the lowest rate then being charged commercial borrowers by the Administrative Agent.

Principal Office shall mean the main banking office of the Administrative Agent in Pittsburgh, Pennsylvania.

Prior Security Interest shall mean a valid and enforceable perfected first-priority security interest under the Uniform Commercial Code in the Collateral which is subject only to statutory Liens for taxes not yet due and payable or Purchase Money Security Interests.

 

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Published Rate shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the eurodollar rate for a one month period as published in another publication selected by the Administrative Agent, and the identity of which the Administrative Agent shall notify Borrower within a reasonable time thereafter).

Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property.

Qualified Accounts Receivable shall mean any Accounts Receivable, which the Administrative Agent in its sole discretion determines to have met all of the minimum requirements set forth on Schedule 1.1(C) , but shall specifically exclude Reserves for Sales Returns for Domestic Accounts Receivable.

Qualified Inventory shall mean any Inventory which the Administrative Agent in its sole discretion determines to have met all of the minimum requirements set forth on Schedule 1.1(D) , but shall specifically exclude (i) all raw materials, (ii) all work-in-progress Inventory and (iii) all Inventory subject to reserves, including reserves for obsolescence.

Ratable Share shall mean the proportion that a Lender’s Commitment (excluding the Swing Loan Commitment) bears to the Commitments (excluding the Swing Loan Commitment) of all of the Lenders. If the Commitments have terminated or expired, the Ratable Shares shall be determined based upon the Commitments (excluding the Swing Loan Commitment) most recently in effect, giving effect to any assignments.

Reimbursement Obligation shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Related Parties shall mean, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

Relief Proceeding shall mean any proceeding seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in a voluntary or involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, or an assignment for the benefit of its creditors.

Requested Increase shall have the meaning assigned to that term in Section 2.4(i).

Required Lenders shall mean (i) if there are no Loans, Reimbursement Obligations or Letter of Credit Borrowings outstanding, Complying Lenders whose Commitments (excluding the Swing Loan Commitments) aggregate at least 51% of the Commitments (excluding the Swing Loan Commitments) of all of the Complying Lenders, or (ii) if there are Loans, Reimbursement Obligations, or Letter of Credit Borrowings outstanding, any group of Complying Lenders if the sum of the Loans (excluding the Swing Loans), Reimbursement Obligations and Letter of Credit Borrowings of such Lenders then outstanding aggregates at least 51% of the total principal amount of all of the Loans (excluding the Swing Loans), Reimbursement Obligations and Letter of Credit Borrowings of all of the Complying Lenders then outstanding.

Required Share shall have the meaning assigned to such term in Section 4.13.

 

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Reserves for Sales Returns for Domestic Accounts Receivable shall mean the amount estimated by the Borrower from time to time in a manner consistent with the disclosures contained in the Borrower’s Forms 10-K and 10-Q as the portion of Accounts Receivable which may be expected to not be collected as a consequence of the goods represented therein being returned by the Accounts Receivable Debtor to the Loan Parties.

Revolving Credit Commitment shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled “Amount of Commitment for Revolving Credit Loans,” as such Commitment is thereafter assigned or modified and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Lenders.

Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lenders or one of the Lenders to the Borrower pursuant to Section 2.1 [Revolving Credit Commitments] or 2.9.3 [Disbursements, Reimbursement].

Revolving Facility Usage shall mean at any time the sum of (i) the outstanding Revolving Credit Loans, (ii) the outstanding Swing Loans and (iii) the Letter of Credit Obligations.

Schedule of Accounts Receivable shall mean an aged trial balance summary report by account debtor of all then existing Accounts Receivable in form and substance reasonably satisfactory to Administrative Agent, specifying in each case the names of, amounts due from, each Account Receivable Debtor obligated on an Account Receivable so listed and, if requested by the Administrative Agent, copies of proof of delivery and customer statements and the original copy of all documents, including, without limitation, repayment histories and present status reports, and such other matters and information relating to the status of the Accounts Receivable and/or the Account Receivable Debtors so scheduled as the Administrative Agent may from time to time reasonably request.

Schedule of Inventory shall mean a current schedule of Inventory in form and substance reasonably satisfactory to the Administrative Agent, itemizing and describing the kind, type, quality and quantity of Inventory, as derived from physical counts, the Loan Parties’ costs therefor and selling price thereof.

Security Agreement shall mean the Security Agreement in substantially the form of Exhibit 1.1(S) executed and delivered by each of the Loan Parties to the Administrative Agent for the benefit of the Lenders.

Settlement Date shall mean any Business Day on which the Agent elects to effect settlement pursuant to Section 4.13.

Significant Subsidiary shall mean a Subsidiary of a Loan Party with total assets, determined as of the end of the immediately preceding fiscal year, of more than $1,000,000.

Solvent shall mean, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the

 

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amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Standard & Poor’s shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

Statements shall have the meaning specified in Section 5.1.6(i) [ Historical Statements ].

Subsidiary of any Person at any time shall mean any corporation, trust, partnership, any limited liability company or other business entity (i) of which 50% or more of the outstanding voting securities or other interests normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person’s Subsidiaries, or (ii) which is controlled or capable of being controlled by such Person or one or more of such Person’s Subsidiaries.

Subsidiary Equity Interests shall have the meaning specified in Section 5.1.2 [Subsidiaries and Owners; Investment Companies].

Swing Loan Commitment shall mean PNC Bank’s commitment to make Swing Loans to the Borrower pursuant to Section 2.1.2 hereof in an aggregate principal amount up to $10,000,000.

Swing Loan Note shall mean the Swing Loan Note of the Borrower in the form of Exhibit [1.1(N)(2)] evidencing the Swing Loans, together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part.

Swing Loan Request shall mean a request for Swing Loans made in accordance with Section 2.5.2 hereof.

Swing Loans shall mean collectively and Swing Loan shall mean separately all Swing Loans or any Swing Loan made by PNC Bank to the Borrower pursuant to Section [2.1.2] hereof.

Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Official Body, including any interest, additions to tax or penalties applicable thereto.

Total Debt for the fiscal quarter then ending shall mean all Indebtedness of the Borrower and its Subsidiaries (other than inter-company guarantees).

Trademarks shall mean all of the Loan Parties’ present and hereafter acquired trademarks, trademark registrations, recordings, applications, tradenames, trade styles, corporate names, business names, service marks, logos and any other designs or sources of business identities, prints and labels (on which any of the foregoing may appear), all reissues and renewals thereof, all licenses thereof, all other general intangible, intellectual property and other rights pertaining to any of the foregoing, together with the goodwill associated therewith, and all income, royalties and other proceeds of any of the foregoing.

USA Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

1.2 Construction . Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: (i) references to the plural include the singular, the plural, the part and the whole and the words “include,”

 

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“includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (ii) the words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole; (iii) article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; (iv) reference to any Person includes such Person’s successors and assigns; (v) reference to any agreement, including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto, document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; (vi) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding,” and “through” means “through and including”; (vii)  t he words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (viii) section headings herein and in each other Loan Document are included for convenience and shall not affect the interpretation of this Agreement or such Loan Document, and (ix) unless otherwise specified, all references herein to times of day shall be references to Eastern Standard Time .

1.3 Accounting Principles . Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided , however , that all accounting terms used in Section 7.2 [Negative Covenants] (and all defined terms used in the definition of any accounting term used in Section 7.2 [Negative Covenants] shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing Statements referred to in Section 5.1.6(i) [Historical Statements]. In the event of any change after the date hereof in GAAP, and if such change would affect the computation of any of the financial covenants set forth in Section 7.2 [Negative Covenants], then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would preserve the original intent thereof, but would allow compliance therewith to be determined in accordance with the Borrower’s financial statements at that time, provided that , until so amended such financial covenants shall continue to be computed in accordance with GAAP prior to such change therein.

2. REVOLVING CREDIT AND SWING LOAN FACILITIES

2.1 Revolving Credit Commitments .

2.1.1 Revolving Credit Loans .

Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, each Lender severally agrees to make Revolving Credit Loans to the Borrower at any time or from time to time on or after the date hereof to the Expiration Date; provided that after giving effect to such Loan (i) the aggregate amount of Loans from such Lender shall not exceed such Lender’s Revolving Credit Commitment minus such Lender’s Ratable Share of the Letter of Credit Obligations and (ii) the Revolving Facility Usage shall not exceed the lesser of the Revolving Credit Commitments or the Borrowing Base. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.

2.1.2 Swing Loan Commitment .

Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, and in order to facilitate loans and repayments between Settlement Dates, PNC Bank may, at its option, cancelable at any time for any reason whatsoever, make swing loans (the “Swing Loans”) to the Borrower at any time or from time to time after the date hereof to, but not

 

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including, the Expiration Date, in an aggregate principal amount up to but not in excess of $10,000,000 (the “Swing Loan Commitment”), provided that the Revolving Facility Usage shall not exceed the lesser of the Revolving Credit Commitments or the Borrowing Base. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.2.

2.2 Nature of Lenders’ Obligations with Respect to Revolving Credit Loans . Each Lender shall be obligated to participate in each request for Revolving Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests] in accordance with its Ratable Share. The aggregate of each Lender’s Revolving Credit Loans outstanding hereunder to the Borrower at any time shall never exceed its Revolving Credit Commitment minus its Ratable Share of the Letter of Credit Obligations. The obligations of each Lender hereunder are several. The failure of any Lender to perform its obligations hereunder shall not affect the Obligations of the Borrower to any other party nor shall any other party be liable for the failure of such Lender to perform its obligations hereunder. The Lenders shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date.

2.3 Commitment Fees . Accruing from the date hereof until the Expiration Date, the Borrower agrees to pay to the Administrative Agent for the account of each Lender according to its Ratable Share, a nonrefundable commitment fee (the “Commitment Fee”) equal to the Applicable Commitment Fee Rate (computed on the basis of a year of 360 days and actual days elapsed) times the average daily difference between the amount of (i) the Revolving Credit Commitments (for purposes of this computation, PNC Bank’s Swing Loans shall be deemed to be borrowed amounts under its Revolving Credit Commitment, but only to the extent any Swing Loans are then outstanding) and the (ii) the Revolving Facility Usage. All Commitment Fees shall be payable in arrears on each Payment Date.

2.4 Increase in Revolving Credit Commitments .

(i) Increasing Lenders . The Borrower may, at any time after the Closing Date, request that the current Lenders increase their Revolving Credit Commitments by providing written notice to the Administrative Agent (the “Requested Increase”). Each Lender shall have the right at any time within the fifteen (15) day period following receipt by the Agent of such written request to increase its Revolving Credit Commitment by its Ratable Share of the Requested Increase (any current Lender which elects to increase its Revolving Credit Commitment shall be referred to as an “Increasing Lender”). If Lenders elect to increase their Revolving Credit Commitment within the 15-day period specified in the preceding sentence but such increases, in the aggregate, do not equal the Requested Increase, then the Administrative Agent shall, immediately after the expiration of such period, send written notice to the Increasing Lenders. Each Increasing Lender shall have the right to increase its Revolving Credit Commitment by all or any part of the balance of the Requested Increase. In the event there are two or more such Increasing Lenders that choose to so increase their Revolving Credit Commitment, the balance of the Requested Increase shall be allocated to such Increasing Lenders pro rata based on their Ratable Share. Each Lender acknowledges and agrees that up to $20,000,000 may be loaned by an additional Lender within sixty (60) Days of the Closing Date (the “Post-Closing Loan”). The terms and conditions set forth in this Section 2.4, including, without limitation, Section 2.4(iii), shall not apply to the Post-Closing Loan, except that the Borrower shall execute and deliver to such Lender a revolving credit Note reflecting the amount of such Lender’s Revolving Credit Commitment and such Lender shall execute a lender joinder in substantially the form of Exhibit 2.4 pursuant to which such Lender shall join and become a party as a “Lender” to this Agreement and the other Loan Documents with a Revolving Credit Commitment in the amount set forth in such lender joinder.

(ii) New Lenders . If there is a balance of the Requested Increase remaining after completion of the process set forth in Section 2.4(i) above, one or more new lenders (each a “New

 

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Lender”) shall have the right to join this Agreement and provide a Revolving Credit Commitment hereunder.

(iii) Terms and Conditions Any increases by Increasing Lenders or new Revolving Credit Commitments by New Lenders, as applicable, are subject to the following terms and conditions:

(a) No Obligation to Increase . No current Lender shall be obligated to increase its Revolving Credit Commitment and any increase in the Revolving Credit Commitment by any current Lender shall be in the sole discretion of such current Lender.

(b) Defaults . There shall exist no Events of Default or Potential Default on the effective date of such increase after giving effect to such increase.

(c) Aggregate Revolving Credit Commitments . After giving effect to such increase, the total Revolving Credit Commitments shall not exceed $250,000,000.

(d) Minimum Revolving Credit Commitments . After giving effect to such increase, the amount of the Revolving Credit Commitments provided by each of the New Lenders shall be at least $5,000,000.

(e) Resolutions; Opinion . The Loan Parties shall deliver to the Administrative Agent on or before the effective date of such increase the following documents in a form reasonably acceptable to the Administrative Agent: (1) certifications of their corporate secretaries with attached resolutions certifying that the increase in the Revolving Credit Commitment has been approved by such Loan Parties; and (2) an opinion of counsel addressed to the Administrative Agent and the Lenders addressing the authorization and execution of the Loan Documents by, and enforceability of the Loan Documents against, the Loan Parties.

(f) Notes . The Borrower shall execute and deliver (1) to each Increasing Lender a replacement revolving credit Note reflecting the new amount of such Increasing Lender’s Revolving Credit Commitment after giving effect to the increase (and the prior Note issued to such Increasing Lender shall be deemed to be terminated and the original thereof shall be returned by such Increasing Lender to the Borrower) and (2) to each New Lender a revolving credit Note reflecting the amount of such New Lender’s Revolving Credit Commitment.

(g) Approval of New Lenders . Any New Lender shall be subject to the approval of the Borrower and the Administrative Agent.

(h) Increasing Lenders . Each Increasing Lender shall confirm its agreement to increase its Revolving Credit Commitment pursuant to an acknowledgement in a form reasonably acceptable to the Administrative Agent, signed by it and the Borrower and delivered to the Administrative Agent at least five (5) days before the effective date of such increase.

(i) New Lenders–Joinder . Each New Lender shall execute a lender joinder in substantially the form of Exhibit 2.4 pursuant to which such New Lender shall join and become a party as a “Lender” to this Agreement and the other Loan Documents with a Revolving Credit Commitment in the amount set forth in such lender joinder.

 

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(iv) Treatment of Outstanding Loans and Letters of Credit.

(a) Repayment of Outstanding Loans; Borrowing of New Loans . On the effective date of such increase, the Borrower shall repay all Loans then outstanding, subject to the Borrower’s indemnity obligations under Section 4.12 [Indemnity]; provided that it may borrow new Loans to satisfy in full all Loans outstanding with such new Loans having a Borrowing Date on such date. Each of the Lenders shall participate in any new Loans made on or after such date in accordance with their respective Ratable Shares after giving effect to the increase in Revolving Credit Commitments contemplated by this Section 2.4.

(b) Outstanding Letters of Credit; Repayment of Outstanding Loans; Borrowing of New Loans . On the effective date of such increase, each Increasing Lender and each New Lender (i) will be deemed to have purchased a participation in each then outstanding Letter of Credit equal to its Ratable Share of such Letter of Credit and the participation of each other Lender in such Letter of Credit shall be adjusted accordingly and (ii) will acquire, (and will pay to the Administrative Agent, for the account of each Lender, in immediately available funds, an amount equal to) its Ratable Share of all outstanding Participation Advances.

2.5 Revolving Credit Loan Requests; Swing Loan Requests .

2.5.1 Revolving Credit Loan Requests.

Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request the Lenders to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans, by delivering to the Administrative Agent, not later than 10:00 a.m., (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the LIBOR Rate Option applies or the conversion to or the renewal of the LIBOR Rate Option for any Loans; and (ii) on the Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5 or a request by telephone or electronic mail immediately confirmed in writing by letter, facsimile or telex in the case of a request by telephone in such form (each, a “Loan Request”), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify the aggregate amount of the proposed Loans comprising each Borrowing Tranche, and, if applicable, the Interest Period, which amounts shall be in integral multiples of $500,000 and not less than $1,000,000 for each Borrowing Tranche under the LIBOR Rate Option and shall be in integral multiples of $100,000 and not less than $500,000 for each Borrowing Tranche under the Base Rate Option.

2.5.2 Swing Loan Requests .

Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request PNC Bank to make Swing Loans by delivery to PNC Bank not later than 12.00 p.m. Pittsburgh time on the proposed Borrowing Date of a duly completed request therefor substantially in the form of Exhibit 2.5.2 hereto or a request by telephone immediately confirmed in writing by letter, electronic mail, facsimile or telex (each, a “Swing Loan Request”), it being understood that the Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Swing Loan Request shall be irrevocable and shall specify the proposed Borrowing Date and the principal amount of such Swing Loan, which shall be in integral multiples of $100,000 and not less than $100,000.

 

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2.6 Making Revolving Credit Loans and Swing Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans; Borrowings to Repay Swing Loans .

2.6.1 Making Revolving Credit Loans . The Administrative Agent shall, promptly after receipt by it of a Loan Request pursuant to Section 2.5 [Revolving Credit Loan Requests], notify the Lenders of its receipt of such Loan Request specifying the information provided by the Borrower and the apportionment among the Lenders of the requested Revolving Credit Loans as determined by the Administrative Agent in accordance with Section 2.2 [Nature of Lenders’ Obligations with Respect to Revolving Credit Loans]. Each Lender shall remit the principal amount of each Revolving Credit Loan to the Administrative Agent such that the Administrative Agent is able to, and the Administrative Agent shall, to the extent the Lenders have made funds available to it for such purpose and subject to Section 6.2 [Each Loan or Letter of Credit], fund such Revolving Credit Loans to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 p.m., on the applicable Borrowing Date; provided that if any Lender fails to remit such funds to the Administrative Agent in a timely manner, the Administrative Agent may elect in its sole discretion to fund with its own funds the Revolving Credit Loans of such Lender on such Borrowing Date, and such Lender shall be subject to the repayment obligation in Section 2.6.2 [Presumptions by the Administrative Agent].

2.6.2 Presumptions by the Administrative Agent . Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Loan, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.6.1 [Making Revolving Credit Loans] and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Loan available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to Loans under the Base Rate Option. If such Lender pays its share of the applicable Loan to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

2.6.3 Making Swing Loans .

So long as PNC Bank elects to make Swing Loans, PNC Bank shall, after receipt by it of a Swing Loan Request pursuant to Section 2.5.2, fund such Swing Loan to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 p.m. Pittsburgh time on the Borrowing Date.

2.6.4 Repayment of Revolving Credit Loans . The Borrower shall repay the Revolving Credit Loans together with all outstanding interest thereon on the Expiration Date.

2.6.5 Borrowings to Repay Swing Loans .

PNC Bank may, at its option, exercisable at any time for any reason whatsoever, demand repayment of the Swing Loans, and each Lender shall make a Revolving Credit Loan in an amount equal to such Lender’s Ratable Share of the aggregate principal amount of the outstanding Swing Loans, plus, if PNC Bank so requests, accrued interest thereon, provided that no Lender shall be obligated in any event to make Revolving Credit Loans in excess of its Revolving Credit Commitment. Revolving

 

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Credit Loans made pursuant to the preceding sentence shall bear interest at the Base Rate Option and shall be deemed to have been properly requested in accordance with Section 2.5.1 without regard to any of the requirements of that provision. PNC Bank shall provide notice to the Lenders (which may be telephonic or written notice by letter, facsimile or telex) that such Revolving Credit Loans are to be made under this Section 2.6.5 and of the apportionment among the Lenders, and the Lenders shall be unconditionally obligated to fund such Revolving Credit Loans (whether or not the conditions specified in Section 2.5.1 are then satisfied) by the time PNC Bank so requests, which shall not be earlier than 3:00 p.m. Pittsburgh time on the Business Day next after the date the Lenders receive such notice from PNC Bank.

2.7 Notes . The Obligation of the Borrower to repay the aggregate unpaid principal amount of the Revolving Credit Loans and Swing Loans made to it by each Lender, together with interest thereon, shall be evidenced by a revolving credit Note and a swing Note, dated the Closing Date payable to the order of such Lender in a face amount equal to the Revolving Credit Commitment or Swing Loan Commitment, as applicable, of such Lender.

2.8 Use of Proceeds . The proceeds of the Loans shall be used to refinance the Existing Credit Obligations, payment of fees, costs and expenses in connection with this Agreement and the financing of Borrower’s working capital and for other general corporate purposes.

2.9 Letter of Credit Subfacility .

2.9.1 Issuance of Letters of Credit . Borrower may at any time prior to the Expiration Date request the issuance of a standby letter of credit (each a “Letter of Credit”) on behalf of itself or another Loan Party, or the amendment or extension of an existing Letter of Credit, by delivering or having such other Loan Party deliver to the Issuing Lender (with a copy to the Administrative Agent) a completed application and agreement for letters of credit, or request for such amendment or extension, as applicable, in such form as the Issuing Lender may specify from time to time by no later than 10:00 a.m. at least five (5) Business Days, or such shorter period as may be agreed to by the Issuing Lender, in advance of the proposed date of issuance. Promptly after receipt of any letter of credit application, the Issuing Lender shall confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit application and if not, such Issuing Lender will provide Administrative Agent with a copy thereof. Unless the Issuing Lender has received notice from any Lender, Administrative Agent or any Loan Party, at least one day prior to the requested date of issuance, amendment or extension of the applicable Letter of Credit, that one or more applicable conditions in Section 6 [Conditions of Lending and Issuance of Letters of Credit] is not satisfied, then, subject to the terms and conditions hereof and in reliance on the agreements of the other Lenders set forth in this Section 2.9, the Issuing Lender or any of the Issuing Lender’s Affiliates will issue a Letter of Credit or agree to such amendment or extension, provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, and (B) in no event expire later than the Expiration Date and provided further that in no event shall (i) the Letter of Credit Obligations exceed, at any one time, $5,000,000 (the “Letter of Credit Sublimit”) or (ii) the Revolving Facility Usage exceed, at any one time, the Revolving Credit Commitments. Each request by the Borrower for the issuance, amendment or extension of a Letter of Credit shall be deemed to be a representation by the Borrower that it shall be in compliance with the preceding sentence and with Section 6 [Conditions of Lending and Issuance of Letters of Credit] after giving effect to the requested issuance, amendment or extension of such Letter of Credit. Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to the beneficiary thereof, the applicable Issuing Lender will also deliver to Borrower and Administrative Agent a true and complete copy of such Letter of Credit or amendment.

2.9.2 Letter of Credit Fees . The Borrower shall pay (i) to the Administrative Agent for the ratable account of the Lenders a fee (the “Letter of Credit Fee”) equal to the Applicable Letter of

 

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Credit Fee Rate, and (ii) to the Issuing Lender for its own account a fronting fee equal to 0.25% per annum (in each case computed on the basis of a year of 360 days and actual days elapsed), which fees shall be computed on the daily average Letter of Credit Obligations and shall be payable quarterly in arrears on each Payment Date following issuance of each Letter of Credit. The Borrower shall also pay to the Issuing Lender for the Issuing Lender’s sole account the Issuing Lender’s then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Issuing Lender may generally charge or incur from time to time in connection with the issuance, maintenance, amendment (if any), assignment or transfer (if any), negotiation, and administration of Letters of Credit.

2.9.3 Disbursements, Reimbursement . Immediately upon the Issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Lender a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Lender’s Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively.

2.9.3.1 In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Lender will promptly notify the Borrower and the Administrative Agent thereof. Provided that it shall have received such notice, the Borrower shall reimburse (such obligation to reimburse the Issuing Lender shall sometimes be referred to as a “Reimbursement Obligation”) the Issuing Lender prior to 12:00 noon, Pittsburgh time on each date that an amount is paid by the Issuing Lender under any Letter of Credit (each such date, a “Drawing Date”) by paying to the Administrative Agent for the account of the Issuing Lender an amount equal to the amount so paid by the Issuing Lender. In the event the Borrower fails to reimburse the Issuing Lender (through the Administrative Agent) for the full amount of any drawing under any Letter of Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Administrative Agent will promptly notify each Lender thereof, and the Borrower shall be deemed to have requested that Revolving Credit Loans be made by the Lenders under the Base Rate Option to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Credit Commitment and subject to the conditions set forth in Section 6.2 [Each Additional Loan] other than any notice requirements. Any notice given by the Administrative Agent or Issuing Lender pursuant to this Section 2.9.3.1 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

2.9.3.2 Each Lender shall upon any notice pursuant to Section 2.9.3.1 make available to the Administrative Agent for the account of the Issuing Lender an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Lenders shall (subject to Section 2.9.3 [Disbursement; Reimbursement]) each be deemed to have made a Revolving Credit Loan under the Base Rate Option to the Borrower in that amount. If any Lender so notified fails to make available to the Administrative Agent for the account of the Issuing Lender the amount of such Lender’s Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the Drawing Date, then interest shall accrue on such Lender’s obligation to make such payment, from the Drawing Date to the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three (3) days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Loans under the Revolving Credit Base Rate Option on and after the fourth day following the Drawing Date. The Administrative Agent and the Issuing Lender will promptly give notice (as described in Section 2.9.3.1 above) of the occurrence of the Drawing Date, but failure of the Administrative Agent or the Issuing Lender to give any such notice on the Drawing Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligation under this Section 2.9.3.2.

2.9.3.3 With respect to any unreimbursed drawing that is not converted into Revolving Credit Loans under the Base Rate Option to the Borrower in whole or in part as

 

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contemplated by Section 2.9.3.1, because of the Borrower’s failure to satisfy the conditions set forth in Section 6.2 [Each Additional Loan] other than any notice requirements, or for any other reason, the Borrower shall be deemed to have incurred from the Issuing Lender a borrowing (each a “Letter of Credit Borrowing”) in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Revolving Credit Loans under the Base Rate Option. Each Lender’s payment to the Administrative Agent for the account of the Issuing Lender pursuant to Section 2.9.3 [Disbursements, Reimbursement] shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing (each a “Participation Advance”) from such Lender in satisfaction of its participation obligation under this Section 2.9.3.

2.9.4 Repayment of Participation Advances .

2.9.4.1 Upon (and only upon) receipt by the Administrative Agent for the account of the Issuing Lender of immediately available funds from the Borrower (i) in reimbursement of any payment made by the Issuing Lender under the Letter of Credit with respect to which any Lender has made a Participation Advance to the Administrative Agent, or (ii) in payment of interest on such a payment made by the Issuing Lender under such a Letter of Credit, the Administrative Agent on behalf of the Issuing Lender will pay to each Lender, in the same funds as those received by the Administrative Agent, the amount of such Lender’s Ratable Share of such funds, except the Administrative Agent shall retain for the account of the Issuing Lender the amount of the Ratable Share of such funds of any Lender that did not make a Participation Advance in respect of such payment by the Issuing Lender.

2.9.4.2 If the Administrative Agent is required at any time to return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of any payment made by any Loan Party to the Administrative Agent for the account of the Issuing Lender pursuant to this Section in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent for the account of the Issuing Lender the amount of its Ratable Share of any amounts so returned by the Administrative Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time.

2.9.5 Documentation . Each Loan Party agrees to be bound by the terms of the Issuing Lender’s application and agreement for letters of credit and the Issuing Lender’s written regulations and customary practices relating to letters of credit, though such interpretation may be different from such Loan Party’s own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Issuing Lender shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party’s instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

2.9.6 Determinations to Honor Drawing Requests . In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit.

2.9.7 Nature of Participation and Reimbursement Obligations . Each Lender’s obligation in accordance with this Agreement to make the Revolving Credit Loans or Participation Advances, as contemplated by Section 2.9.3 [Disbursements, Reimbursement], as a result of a drawing under a Letter of Credit, and the Obligations of the Borrower to reimburse the Issuing Lender upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed

 

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strictly in accordance with the terms of this Section 2.9 under all circumstances, including the following circumstances:

(i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender or any of its Affiliates, the Borrower or any other Person for any reason whatsoever, or which any Loan Party may have against the Issuing Lender or any of its Affiliates, any Lender or any other Person for any reason whatsoever;

(ii) the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 2.1 [Revolving Credit Commitments], 2.5 [Revolving Credit Loan Requests], 2.6 [Making Revolving Credit Loans] or 6.2 [Each Additional Loan] or as otherwise set forth in this Agreement for the making of a Revolving Credit Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section 2.9.3 [Disbursements, Reimbursement];

(iii) any lack of validity or enforceability of any Letter of Credit;

(iv) any claim of breach of warranty that might be made by any Loan Party or any Lender against any beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right which any Loan Party or any Lender may have at any time against a beneficiary, successor beneficiary any transferee or assignee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), the Issuing Lender or its Affiliates or any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured);

(v) the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provision of services relating to a Letter of Credit, in each case even if the Issuing Lender or any of its Affiliates has been notified thereof;

(vi) payment by the Issuing Lender or any of its Affiliates under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;

(vii) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

(viii) any failure by the Issuing Lender or any of its Affiliates to issue any Letter of Credit in the form requested by any Loan Party, unless the Issuing Lender has received written notice from such Loan Party of such failure within three Business Days after the Issuing Lender shall have furnished such Loan Party and the Administrative Agent a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

(ix) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party;

(x) any breach of this Agreement or any other Loan Document by any party thereto;

 

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(xi) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party;

(xii) the fact that an Event of Default or a Potential Default shall have occurred and be continuing beyond any applicable grace or cure period;

(xiii) the fact that the Expiration Date shall have passed or this Agreement or the Commitments hereunder shall have been terminated; and

(xiv) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

2.9.8 Indemnity . The Borrower hereby agrees to protect, indemnify, pay and save harmless the Issuing Lender and any of its Affiliates that has issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Issuing Lender or any of its Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Issuing Lender as determined by a final non-appealable judgment of a court of competent jurisdiction or (B) the wrongful dishonor by the Issuing Lender or any of Issuing Lender’s Affiliates of a proper demand for payment made under any Letter of Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority.

2.9.9 Liability for Acts and Omissions . As between any Loan Party and the Issuing Lender, or the Issuing Lender’s Affiliates, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender shall not be responsible for any of the following, including any losses or damages to any Loan Party or other Person or property relating therefrom: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Issuing Lender or its Affiliates shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Lender or the its Affiliates, as applicable, including any act or omission of any governmental authority, and none of the above shall affect or impair, or prevent the vesting of, any of the Issuing Lender’s or its Affiliates rights or powers hereunder. Nothing in the preceding sentence shall relieve the Issuing Lender from liability for the Issuing Lender’s gross negligence or willful misconduct in connection with actions or omissions described in such clauses (i) through (viii) of such sentence. In no event shall the Issuing Lender or its Affiliates be liable to any Loan Party for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without

 

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limitation attorneys’ fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

Without limiting the generality of the foregoing, the Issuing Lender and each of its Affiliates: (i) may rely on any oral or other communication believed in good faith by the Issuing Lender or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit; (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit (unless such dishonor was pursuant to a court order), to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Issuing Lender or its Affiliate; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on the Issuing Lender or its Affiliate in any way related to any order issued at the applicant’s request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Lender or its Affiliates under any resulting liability to the Borrower or any Lender.

2.9.10 Issuing Lender Reporting Requirements. Each Issuing Lender shall, on the first business day of each month, provide to Administrative Agent and Borrower a schedule of the Letters of Credit issued by it, in form and substance satisfactory to Administrative Agent, showing the date of issuance of each Letter of Credit, the account party, the original face amount (if any), and the expiration date of any Letter of Credit outstanding at any time during the preceding month, and any other information relating to such Letter of Credit that the Administrative Agent may request.

3. INTEREST RATES

3.1 Interest Rate Options . The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option or LIBOR Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrower may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche; provided that there shall not be at any one time outstanding more than six (6) Borrowing Tranches in the aggregate among all of the Loans; provided further that if an Event of Default or Potential Default exists and is continuing beyond any applicable cure period, the Borrower may not request, convert to, or renew the LIBOR Rate Option for any Loans and the Required Lenders may demand that all existing Borrowing Tranches bearing interest under the LIBOR Rate Option shall be converted immediately to the Base Rate Option, subject to the obligation of the Borrower to pay any indemnity under Section 4.12 [Indemnity] in connection with such conversion. If at any time the

 

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designated rate applicable to any Loan made by any Lender exceeds such Lender’s highest lawful rate, the rate of interest on such Lender’s Loan shall be limited to such Lender’s highest lawful rate.

3.1.1 Revolving Credit Interest Rate Options; Swing Line Interest Rate . The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:

(i) Revolving Credit Base Rate Option : A fluctuating rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or

(ii) Revolving Credit LIBOR Rate Option : A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the LIBOR Rate plus the Applicable Margin.

Subject to Section 3.3, only the Base Rate Option applicable to Revolving Credit Loans shall apply to the Swing Loans.

3.1.2 Rate Quotations . The Borrower may call the Administrative Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Administrative Agent or the Lenders nor affect the rate of interest which thereafter is actually in effect when the election is made.

3.2 Interest Periods . At any time when the Borrower shall select, convert to or renew a LIBOR Rate Option, the Borrower shall notify the Administrative Agent thereof at least three (3) Business Days prior to the effective date of such LIBOR Rate Option by delivering a Loan Request. The notice shall specify an Interest Period during which such Interest Rate Option shall apply. Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a LIBOR Rate Option:

3.2.1 Amount of Borrowing Tranche . Each Borrowing Tranche of Loans under the LIBOR Rate Option shall be in integral multiples of $500,000 and not less than $1,000,000; and

3.2.2 Renewals . In the case of the renewal of a LIBOR Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day. For the elimination of any doubt, in the case of the renewal of a LIBOR Rate Option at the end of an Interest Period, interest shall be deemed to accrue for the last day of the preceding Interest Period only, and shall not be deemed to accrue for the first day of the new Interest Period.

3.3 Interest After Default . To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived:

3.3.1 Letter of Credit Fees, Interest Rate . The Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or Section 3.1 [Interest Rate Options], respectively, shall be increased by 2.0% per annum;

3.3.2 Other Obligations . Each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Revolving Credit Base Rate Option plus an additional 2.0% per annum from the time such Obligation becomes due and payable and until it is paid in full; and

3.3.3 Acknowledgment . The Borrower acknowledges that the increase in rates referred to in this Section 3.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lenders are entitled to additional

 

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compensation for such risk; and all such interest shall be payable by Borrower upon demand by Administrative Agent.

3.4 LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available .

3.4.1 Unascertainable . If on any date on which a LIBOR Rate would otherwise be determined, the Administrative Agent shall have reasonably determined that:

(i) adequate and reasonable means do not exist for ascertaining such LIBOR Rate, or

(ii) a contingency has occurred which materially and adversely affects the London interbank eurodollar market relating to the LIBOR Rate,

then the Administrative Agent shall have the rights specified in Section 3.4.3 [Administrative Agent’s and Lender’s Rights].

3.4.2 Illegality; Increased Costs; Deposits Not Available . If at any time any Lender shall have reasonably determined that:

(i) the making, maintenance or funding of any Loan to which a LIBOR Rate Option applies has been made impracticable or unlawful by compliance by such Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or

(ii) such LIBOR Rate Option will not adequately and fairly reflect the cost to such Lender of the establishment or maintenance of any such Loan, or

(iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan, or to banks generally, to which a LIBOR Rate Option applies, respectively, are not available to such Lender with respect to such Loan, or to banks generally, in the interbank eurodollar market,

then the Administrative Agent shall have the rights specified in Section 3.4.3 [Administrative Agent’s and Lender’s Rights].

3.4.3 Administrative Agent’s and Lender’s Rights . In the case of any event specified in Section 3.4.1 [Unascertainable] above, the Administrative Agent shall promptly so notify the Lenders and the Borrower thereof, and in the case of an event specified in Section 3.4.2 [Illegality; Increased Costs; Deposits Not Available] above, such Lender shall promptly so notify the Administrative Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Administrative Agent shall promptly send copies of such notice and certificate to the other Lenders and the Borrower. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (A) the Lenders, in the case of such notice given by the Administrative Agent, or (B) such Lender, in the case of such notice given by such Lender, to allow the Borrower to select, convert to or renew a LIBOR Rate Option shall be suspended until the Administrative Agent shall have later notified the Borrower, or such Lender shall have later notified the Administrative Agent, of the Administrative Agent’s or such Lender’s, as the case may be, determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Administrative Agent makes a determination under Section 3.4.1 [Unascertainable] and the Borrower has previously notified the Administrative Agent of its selection of, conversion to or renewal of a LIBOR Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. If any Lender notifies the Administrative Agent of a determination under Section 3.4.2 [Illegality; Increased Costs; Deposits Not Available], the Borrower shall, subject to the Borrower’s indemnification Obligations under Section 4.12 [Indemnity], as to any Loan of the Lender to which a LIBOR Rate Option

 

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applies, on the date specified in such notice either convert such Loan to the Base Rate Option otherwise available with respect to such Loan or prepay such Loan in accordance with Section 4.6 [Voluntary Prepayments]. Absent due notice from the Borrower of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Loan upon such specified date.

3.5 Selection of Interest Rate Options . If the Borrower fails to select a new Interest Period to apply to any Borrowing Tranche of Loans under the LIBOR Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 3.2 [Interest Periods], the Borrower shall be deemed to have converted such Borrowing Tranche to the Revolving Credit Base Rate Option commencing upon the last day of the existing Interest Period.

4. PAYMENTS

4.1 Payments . All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Letter of Credit Fees, Administrative Agent’s Fee or other fees or amounts due from the Borrower hereunder shall be payable prior to 11:00 a.m. on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Administrative Agent at the Principal Office for the account of PNC Bank with respect to the Swing Loans and for the ratable accounts of the Lenders with respect to the Revolving Credit Loans in U.S. Dollars and in immediately available funds, and the Administrative Agent shall promptly distribute such amounts to the Lenders in immediately available funds; provided that in the event payments are received by 11:00 a.m. by the Administrative Agent with respect to the Loans and such payments are not distributed to the Lenders on the same day received by the Administrative Agent, the Administrative Agent shall pay the Lenders the Federal Funds Effective Rate with respect to the amount of such payments for each day held by the Administrative Agent and not distributed to the Lenders. The Administrative Agent’s and each Lender’s statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an “account stated.”

4.2 Pro Rata Treatment of Lenders . Each borrowing shall be allocated to each Lender according to its Ratable Share, and each selection of, conversion of or renewal of any Interest Rate Option and each payment or prepayment by the Borrower with respect to principal, interest, Commitment Fees, Letter of Credit Fees, or other fees (except for the Administrative Agent’s Fee) or amounts due from the Borrower hereunder to the Lenders with respect to the Loans, shall (except as provided in Section 3.4.3 [Administrative Agent’s and Lender’s Rights] in the case of an event specified in Section 3.4 [LIBOR Rate Unascertainable; Etc.] or 4.6.2 [Replacement of a Lender] or 4.10 [Increased Costs; Indemnity]) be made in proportion to the applicable Loans outstanding from each Lender and, if no such Loans are then outstanding, in proportion to the Ratable Share of each Lender. Notwithstanding any of the foregoing, each borrowing or payment or prepayment by the Borrower of principal, interest, fees or other amounts from the Borrower with respect to Swing Loans shall be made by or to PNC Bank according to Section 2.6.5.

4.3 Sharing of Payments by Lenders . If any Lender shall, by exercising any right of setoff, counterclaim or banker’s lien, by receipt of voluntary payment, by realization upon security, or by any other non-pro rata source, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such obligations greater than its Ratable Share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans

 

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and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:

(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by Law (including court order) to be paid by the Lender or the holder making such purchase; and

(ii) the provisions of this Section 4.3 shall not be construed to apply to (x) any payment made by the Loan Parties pursuant to and in accordance with the express terms of the Loan Documents or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or Participation Advances to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 4.3 shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Loan Party in the amount of such participation.

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

4.5 Interest Payment Dates . Interest on Loans to which the Base Rate Option applies shall be due and payable in arrears on each Payment Date. Interest on Loans to which the LIBOR Rate Option applies shall be due and payable on the last day of each Interest Period for those Loans and, if such Interest Period is longer than three (3) Months, also on the 90th day of such Interest Period. Interest on mandatory prepayments of principal under Section 4.7 [Mandatory Prepayments] shall be due on the date such mandatory prepayment is due. Interest on the principal amount of each Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated Expiration Date, upon acceleration or otherwise).

4.6 Voluntary Prepayments .

4.6.1 Right to Prepay . The Borrower shall have the right at its option from time to time to prepay the Loans in whole or part without premium or penalty (except as provided in Section 4.6.2 [Replacement of a Lender] below, in Section 4.10 [Increased Costs] and Section 4.12 [Indemnity]). Whenever the Borrower desires to prepay any part of the Loans, it shall provide a prepayment notice to the Administrative Agent by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment of the Revolving Credit Loans or no later than 12:00 noon, Pittsburgh time, on the date of prepayment of Swing Loans, setting forth the following information:

 

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(x) the date, which shall be a Business Day, on which the proposed prepayment is to be made;

(y) a statement indicating the application of the prepayment between the Revolving Credit Loans and Swing Loans; and

(z) the total principal amount of such prepayment, which shall not be less than $100,000 for any Swing Loan or $500,000 for any Revolving Credit Loan.

All prepayment notices shall be irrevocable. The principal amount of the Loans for which a prepayment notice is given, together with interest on such principal amount except with respect to Loans to which the Base Rate Option applies, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 3.4.3 [Administrative Agent’s and Lender’s Rights], if the Borrower prepays a Loan but fails to specify the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment shall be applied first to Loans to which the Base Rate Option applies, then to Loans to which the LIBOR Rate Option applies. Any prepayment hereunder shall be subject to the Borrower’s Obligation to indemnify the Lenders under Section 4.12 [Indemnity].

4.6.2 Replacement of a Lender . In the event (a) PNC Bank resigns as Administrative Agent pursuant to Section 9.6 [Resignation of Administrative Agent] or (b) any Lender (i) gives notice under Section 3.4 [LIBOR Rate Unascertainable, Etc.], (ii) requests compensation under Section 4.10 [Increased Costs], or requires the Borrower to pay any additional amount to any Lender or any Official Body for the account of any Lender pursuant to Section 4.11 [Taxes], (iii) is a Non-Complying Lender or otherwise, (iv) becomes subject to the control of an Official Body (other than normal and customary supervision), or (v) is a Non-Consenting Lender referred to in Section 10.1 [Modifications, Amendments or Waivers] then in any such event the Borrower may, at its sole expense, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.8[Successors and Assigns]), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.8 [Successors and Assigns];

(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and Participation Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 4.12 [Indemnity]) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(iii) in the case of any such assignment resulting from a claim for compensation under Section 4.10.1 [Increased Costs Generally] or payments required to be made pursuant to Section 4.11 [Taxes], such assignment will result in a reduction in such compensation or payments thereafter; and

(iv) such assignment does not conflict with applicable Law.

Except in the case of an assignment required by Section 9.6 [Resignation of Administrative Agent], a Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

4.7 Mandatory Prepayments . Whenever the outstanding principal balance of Revolving Credit Loans by the Lenders plus the aggregate undrawn face amount of outstanding Letters of Credit

 

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issued pursuant to Section 2.9 plus the outstanding principal balance of the Swing Loans exceed the Borrowing Base, the Borrower shall make, within one (1) Business Day after the Borrower learns of such excess and whether or not the Administrative Agent has given notice to such effect, a mandatory prepayment of principal equal to the excess of the outstanding principal balance of the Revolving Credit Loans plus the aggregate undrawn face amount of outstanding Letters of Credit plus the outstanding principal balance of the Swing Loans over the Borrowing Base, together with accrued interest on such principal amounts.

4.8 Receipt and Application of Payment . If an Event of Default shall have occurred and be continuing beyond any applicable grace or cure period, and upon three (3) Business Days prior written notice to the Borrower from the Administrative Agent, the Borrower shall notify all Account Receivable Debtors to make all payments due from them to the Borrower directly to a lockbox for collection pursuant to the Lockbox Agreement (the “Cash Collateral Account”). In the event the Borrower (or any of its Affiliates, shareholders, directors, officers, employees, Administrative Agents or those Person acting for or in concert with the Borrower) shall receive any cash, checks, notes, drafts or other similar items of payment relating to or constituting the Collateral (or proceeds thereof), no later than the first Business Day following receipt thereof, the Borrower shall (i) deposit or cause the same to be deposited, in kind, in the Cash Collateral Account established by the Borrower with the Administrative Agent or such other depository as may be designated in writing by the Administrative Agent (the “Depository”), from which account the Administrative Agent alone shall have sole power of withdrawal, and with respect to which the Depository shall waive any rights of set off, and (ii) forward to the Administrative Agent on a daily basis, a collection report in form and substance reasonably satisfactory to the Administrative Agent and, at the Administrative Agent’s request, copies of all such items and deposit slips related thereto. All cash, notes, checks, drafts or similar items of payment by or for the account of the Borrower shall be the sole and exclusive property of the Lenders immediately upon the earlier of the receipt of such items by the Administrative Agent or the Depository or the receipt of such items by the Borrower; provided , however , that for the purpose of computing interest hereunder such items shall be deemed to have been collected and shall be applied by the Administrative Agent on account of the Loans one (1) Business Day after receipt by the Administrative Agent (subject to correction for any items subsequently dishonored for any reason whatsoever). All funds in the Cash Collateral Account, including all payments made by or on behalf of and all credits due the Borrower, may be applied and reapplied in whole or in part to any of the Loans to the extent and in the manner the Administrative Agent deems advisable.

4.9 Collections; Administrative Agent’s Right to Notify Account Receivable Debtors . The Borrower hereby authorizes the Administrative Agent, now and at any time or times hereafter, to (i) after the occurrence and during the continuation of any Event of Default and beyond any applicable grace or cure period, notify any or all Account Receivable Debtors that the Accounts Receivable have been assigned to the Lenders and that the Lenders have a security interest therein, and (ii) direct such Account Receivable Debtors to make all payments due from them to the Borrower upon the Accounts Receivable directly to the Administrative Agent or to a lockbox designated by the Administrative Agent. The Administrative Agent shall promptly furnish the Borrower with a copy of any such notice sent. Any such notice, in the Administrative Agent’s sole discretion, may be sent on the Borrower’s stationery, in which event the Borrower shall co-sign such notice with the Administrative Agent. To the extent that any Law or custom or any contract or agreement with any Account Receivable Debtor requires notice to or the approval of the Account Receivable Debtor in order to perfect such assignment of a security interest in Accounts Receivable, the Borrower agrees to give such notice or use commercially reasonable efforts to obtain such approval.

4.10 Increased Costs .

4.10.1 Increased Costs Generally . If any Change in Law shall:

 

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(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBOR Rate) or the Issuing Lender;

(ii) subject any Lender or the Issuing Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Loan under the LIBOR Rate Option made by it, or change the basis of taxation of payments to such Lender or the Issuing Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 4.11 [Taxes] and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the Issuing Lender); or

(iii) impose on any Lender or the Issuing Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Loan under the LIBOR Rate Option made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan under the LIBOR Rate Option (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the Issuing Lender of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing Lender hereunder (whether of principal, interest or any other amount) in each case, in an amount deemed to be material by such Lender or Issuing Lender, then, upon request of such Lender or the Issuing Lender, the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered.

4.10.2 Capital Requirements . If any Lender or the Issuing Lender reasonably determines that any Change in Law affecting such Lender or the Issuing Lender or any lending office of such Lender or such Lender’s or the Issuing Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy), in each case, in an amount deemed to be material by such Lender or Issuing Lender, then from time to time the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company for any such reduction suffered.

4.10.3 Certificates for Reimbursement; Repayment of Outstanding Loans; Borrowing of New Loans . A certificate of a Lender or the Issuing Lender reasonably setting forth in sufficient detail for calculation the amount or amounts necessary to compensate such Lender or the Issuing Lender or its holding company, as the case may be, as specified in Sections 4.10.1 [Increased Costs Generally] or 4.10.2 [Capital Requirements] and delivered to the Borrower shall be conclusive absent manifest error. In determining such amounts, a Lender or Issuing Lender may use reasonable averaging or attribution methods. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

4.10.4 Delay in Requests . Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or

 

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the Issuing Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the Issuing Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine (9) months prior to the date that such Lender or the Issuing Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period referred to above shall be extended to include the period of retroactive effect thereof).

4.11 Taxes .

4.11.1 Payments Free of Taxes . Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required by applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, each Lender or Issuing Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Official Body in accordance with applicable Law.

4.11.2 Payment of Other Taxes by the Borrower . Without limiting the provisions of Section 4.11.1 [Payments Free of Taxes] above, the Borrower shall timely pay any Other Taxes to the relevant Official Body in accordance with applicable Law.

4.11.3 Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Lender, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Official Body. A certificate as to the amount of such payment or liability and reasonably describing the basis for such determination delivered to the Borrower by a Lender or the Issuing Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Lender, shall be conclusive absent manifest error.

4.11.4 Evidence of Payments . As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Official Body, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Official Body evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

4.11.5 Status of Lenders . Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a duplicate original or copy as requested by the Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. Notwithstanding the submission of a such documentation claiming a reduced rate of or exemption from U.S. withholding tax, the Administrative Agent shall be entitled to withhold United States federal income taxes at the full 30% withholding rate if in its reasonable judgment

 

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it is required to do so under the due diligence requirements imposed upon a withholding agent under § 1.1441-7(b) of the United States Income Tax Regulations. Further, the Administrative Agent is indemnified under § 1.1461-1(e) of the United States Income Tax Regulations against any claims and demands of any Lender or assignee or participant of a Lender for the amount of any tax it deducts and withholds in accordance with regulations under § 1441 of the Internal Revenue Code. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States of America, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of originals or copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i) duly completed copies of IRS Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

(ii) duly completed copies of IRS Form W-8ECI,

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of IRS Form W-8BEN, or

(iv) any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower to determine the withholding or deduction required to be made.

4.12 Indemnity . In addition to the compensation or payments required by Section 4.10 [Increased Costs] or Section 4.11 [Taxes], the Borrower shall indemnify each Lender against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by a Lender to fund or maintain Loans subject to a LIBOR Rate Option) which such Lender sustains or incurs as a consequence of any:

(i) payment, prepayment, conversion or renewal of any Loan to which a LIBOR Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due),

(ii) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 [Revolving Credit Loan Requests] or Section 3.2 [Interest Periods] or notice relating to prepayments under Section 4.6 [Voluntary Prepayments], or

(iii) default by the Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrower

 

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to pay when due (by acceleration or otherwise) any principal, interest, Commitment Fee or any other amount due hereunder.

If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination and shall be conclusive and binding absent manifest error. Such amount shall be due and payable by the Borrower to such Lender ten (10) Business Days after such notice is given.

4.13 Settlement Date Procedures . In order to minimize the transfer of funds between the Lenders and the Agent, the Borrower may borrow, repay and reborrow Swing Loans and PNC Bank may make Swing Loans as provided in Section 2.1.2 hereof during the period between Settlement Dates. Not later than 1:00 p.m. on each Settlement Date, the Agent shall notify each Lender of its Ratable Share of the total of the Revolving Credit Loans and the Swing Loans (each a “Required Share”). Prior to 2:00 p.m., Pittsburgh time, on such Settlement Date, each Lender shall pay to the Agent the amount equal to the difference between its Required Share and its Revolving Credit Loans, and the Agent shall pay to each Lender its Ratable Share of all payments made by the Borrower to the Administrative Agent with respect to the Revolving Credit Loans. The Administrative Agent shall also effect settlement in accordance with the foregoing sentence on the proposed Borrowing Dates for Revolving Credit Loans and on dates of repayment pursuant to Section 4.7 [Mandatory Prepayments] and may at its option effect settlement on any other Business Day. These settlement procedures are established solely as a matter of administrative convenience, and nothing contained in this Section 4.13 shall relieve the Lender of their obligations to fund Revolving Credit Loans on dates other than a Settlement Date pursuant to Section 2.1.2. The Agent may at any time at its option for any reason whatsoever require each Lender to pay immediately to the Agent such Lender’s Ratable Share of the outstanding Revolving Credit Loans and each Lender may at any time require the Agent to pay immediately to such Lender its Ratable Share of all payments made by the borrower to the Agent with respect to the Revolving Credit Loans.

5. REPRESENTATIONS AND WARRANTIES

5.1 Representations and Warranties . The Loan Parties, jointly and severally, represent and warrant to the Administrative Agent and each of the Lenders as follows:

5.1.1 Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default . Each Loan Party and each Subsidiary of each Loan Party (i) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct, (iii) is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 5.1.1 and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary, (iv) has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part, (v) is in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 5.1.14 [Environmental Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so would not constitute a Material Adverse Change, and (vi) has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are

 

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reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens. No Event of Default or Potential Default exists or is continuing.

5.1.2 Subsidiaries and Owners; Investment Companies . Schedule 5.1.2 states (i) the name of each of the Borrower’s Subsidiaries, its jurisdiction of organization and the amount, percentage and type of equity interests in such Subsidiary (the “Subsidiary Equity Interests”), and (ii) any options, warrants or other rights outstanding to purchase any such equity interests referred to in clause (i). The Borrower and each Subsidiary of the Borrower has good and marketable title to all of the Subsidiary Equity Interests it purports to own, free and clear in each case of any Lien and all such Subsidiary Equity Interests been validly issued, fully paid and nonassessable. None of the Loan Parties or Subsidiaries of any Loan Party is an “investment company” registered or required to be registered under the Investment Company Act of 1940 or under the “control” of an “investment company” as such terms are defined in the Investment Company Act of 1940 and shall not become such an “investment company” or under such “control.”

5.1.3 Validity and Binding Effect . This Agreement and each of the other Loan Documents (i) has been duly and validly executed and delivered by each Loan Party, and (ii) constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto, enforceable against such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and the implied covenants of good faith and fair dealing.

5.1.4 No Conflict; Material Agreements; Consents . Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than Liens granted under the Loan Documents). There is no default under such material agreement (referred to above) and none of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which could result in a Material Adverse Change. No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents.

5.1.5 Litigation . Except as set forth in Schedule 5.1.5 , there are no actions, suits, proceedings or investigations pending or, to the actual knowledge of any Loan Party, threatened in writing against such Loan Party or any Subsidiary of such Loan Party at law or in equity before any Official Body which individually or in the aggregate may reasonably be expected to result in any Material Adverse Change. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which may reasonably be expected to result in any Material Adverse Change.

5.1.6 Financial Statements .

(i) Historical Statements . The Borrower has delivered to the Administrative Agent copies of its audited consolidated year-end financial statements for and as of the end of the three (3)

 

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fiscal years ended December 31, 2007. In addition, the Borrower has delivered to the Administrative Agent copies of its unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended September 30, 2008 (all such annual and interim statements being collectively referred to as the “Statements”). The Statements were compiled from the books and records maintained by the Borrower’s management, are correct and complete and fairly represent, in all material respects, the consolidated financial condition of the Borrower and its Subsidiaries as of the respective dates thereof and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the interim statements) to normal year-end audit adjustments.

(ii) Accuracy of Financial Statements . Neither the Borrower nor any Subsidiary of the Borrower has any liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of the Borrower or any Subsidiary of the Borrower which may cause a Material Adverse Change. Since December 31, 2007, no Material Adverse Change has occurred.

5.1.7 Margin Stock . None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U, T or X as promulgated by the Board of Governors of the Federal Reserve System). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.

5.1.8 Full Disclosure . Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Administrative Agent or any Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading.

5.1.9 Taxes . All federal, state, local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made.

5.1.10 Patents, Trademarks, Copyrights, Licenses, Etc . Except as disclosed on Schedule 5.1.10 , each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material Patents, Trademarks, service marks, trade names, Copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without actually known possible, alleged or actual material conflict with the rights of others.

5.1.11 Liens in the Collateral . Except to the extent disclosed on Schedule 1.1(P) and subject to Permitted Liens, the Liens in the Collateral granted to the Administrative Agent for the benefit of the Lenders pursuant to the Pledge Agreement and the Security Agreement (collectively, the

 

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“Collateral Documents”) constitute and will continue to constitute first priority perfected Liens. All filing fees and other expenses in connection with the perfection of such Liens have been or will be paid by the Borrower.

5.1.12 Insurance . The properties of each Loan Party and each of its Subsidiaries are insured pursuant to policies and other bonds which are valid and in full force and effect and which provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each such Loan Party and Subsidiary in accordance with prudent business practice in the industry of such Loan Parties and Subsidiaries.

5.1.13 ERISA Compliance . (i) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(ii) No ERISA Event has occurred or is reasonably expected to occur; (a) no Pension Plan has any unfunded pension liability (i.e. excess of benefit liabilities over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan for the applicable plan year); (b) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (c) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (d) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

5.1.14 Environmental Matters . Each Loan Party is and, to the actual knowledge of each respective Loan Party, each of its Subsidiaries is and has been in compliance in all material respects with applicable Environmental Laws except as disclosed on Schedule 5.1.14 ; provided that such matters so disclosed could not in the aggregate result in a Material Adverse Change.

5.2 Updates to Schedules Upon Borrowing . Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrower shall provide the Administrative Agent in writing with such revisions or updates to such Schedule as may be reasonably necessary or appropriate to update or correct same together with any request for a Revolving Credit Loan, a request for a Swing Line Loan, a request for a Letter of Credit or the delivery of any Compliance Certificate; provided , however , that no Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Required Lenders, in their reasonable discretion, shall have accepted in writing such revisions or updates to such Schedule.

6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

The obligation of each Lender to make Loans and of the Issuing Lender to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:

 

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6.1 First Loans and Letters of Credit .

6.1.1 Deliveries . On the Closing Date, the Administrative Agent shall have received each of the following in form and substance satisfactory to the Administrative Agent:

(i) A Borrowing Base Certificate prepared as of the last Business Day of the month immediately preceding the Closing Date, showing total unused availability under the Revolving Credit Commitments, after giving effect to the Loans to be made on the Closing Date and consummation of the transactions contemplated hereby.

(ii) A certificate of each of the Loan Parties signed by an Authorized Officer, dated the Closing Date stating that: (a) the representations and warranties hereunder are true and correct in all material respects; (b) the Loan Parties are in compliance with each of the covenants and conditions hereunder; (c) no Event of Default or Potential Default exists; and (d) no Material Adverse Change has occurred since the date of the last audited financial statements of the Borrower delivered to the Administrative Agent.

(iii) A certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (a) all action taken by each Loan Party in connection with this Agreement and the other Loan Documents; (b) the names of the Authorized Officers authorized to sign the Loan Documents and their true signatures; and (c) copies of its organizational documents as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party in each state where organized or qualified to do business.

(iv) This Agreement and each of the other Loan Documents signed by an Authorized Officer and all appropriate financing statements and appropriate stock powers and certificates evidencing the pledged Collateral.

(v) A written opinion of counsel for the Loan Parties, dated the Closing Date and as to the matters set forth in Schedule 6.1.1 .

(vi) Evidence that adequate insurance required to be maintained under this Agreement is in full force and effect, with additional insured, mortgagee and lender loss payable special endorsements attached thereto in form and substance satisfactory to the Administrative Agent and its counsel naming the Administrative Agent as additional insured, mortgagee and lender loss payee.

(vii) A duly completed Compliance Certificate as of the last day of the fiscal quarter of Borrower most recently ended prior to the Closing Date, signed by an Authorized Officer of Borrower.

(viii) Evidence that (a) the Existing Credit Agreement has been terminated, (b) all Existing Credit Obligations have been paid and (c) all Liens securing such Existing Credit Obligations have been released.

(ix) All fees and expenses of the Lenders and the Agent required to be paid by the Loan Parties, including, without limitation, those fees set forth in the Administrative Agent’s Letter.

(x) Certification that no claim, litigation, suit or other proceeding has been made in writing against Borrower which, in the opinion of the Borrower is in an amount in excess of $2,000,000 other than as previously disclosed to the Administrative Agent.

(xi) Evidence in form and substance satisfactory to the Administrative Agent and its counsel as to the amount and nature of all Tax, ERISA, employee retirement benefit and other contingent liabilities to which the Borrower and its Subsidiaries may be subject.

 

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(xii) Financial projections in form and substance reasonably satisfactory to the Administrative Agent for the period beginning January 1, 2009 and ending on the Expiration Date.

(xiii) An executed Landlord’s Waiver in substantially the form of Exhibit 6.1.1(xiii) from the lessor for each leased Collateral location required under the Security Agreement.

(xiv) Such other documents in connection with such transactions as the Administrative Agent or its counsel may reasonably request.

6.1.2 Payment of Fees . The Borrower shall have paid all fees payable on or before the Closing Date.

6.2 Each Loan or Letter of Credit . At the time of making any Loans or issuing any Letters of Credit and after giving effect to the proposed extensions of credit the Administrative Agent shall have received each of the following:

(i) A Borrowing Base Certificate, in form and substance satisfactory to the Administrative Agent, prepared as of the last Business Day of the month immediately preceding the month in which the request is made, showing total unused availability under the Revolving Credit Commitments, after giving effect to the Loans to be made or the Letters of Credit to be issued.

(ii) Satisfaction of the conditions set forth in Section 6.1.1(ii), (ix), (x) and (xi).

(iii) The making of the Loans or issuance of such Letter of Credit shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Lenders.

(iv) A duly executed and completed Loan Request or to the Issuing Lender an application for a Letter of Credit, as the case may be, each in a form and substance satisfactory to the Administrative Agent.

(v) Any update to Schedules required by Section 5.2 [Updates to Schedules Upon Borrowing].

7. COVENANTS

The Loan Parties, jointly and severally, covenant and agree that until Payment in Full, the Loan Parties shall comply at all times with the following covenants:

7.1 Affirmative Covenants .

7.1.1 Preservation of Existence, Etc . Subject to Schedule 7.2.8 , each Loan Party shall, and shall cause each of its Significant Subsidiaries to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 7.2.5 [Liquidations, Mergers, Etc.].

7.1.2 Payment of Liabilities, Including Taxes, Etc . Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made.

7.1.3 Maintenance of Insurance . Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its properties and assets against loss or damage by fire and such other insurable

 

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hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers’ compensation, public liability and business interruption insurance) and against other risks in such amounts as such party reasonably deems appropriate with reputable and financially sound insurers, including self-insurance to the extent customary, all subject to the reasonable discretion of the Administrative Agent. The Loan Parties shall comply with the covenants and provide the endorsement set forth on Schedule 7.1.3 relating to property and related insurance policies covering the Collateral.

7.1.4 Maintenance of Properties and Leases . Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate repairs, renewals or replacements thereof.

7.1.5 Visitation Rights . Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Administrative Agent or any of the Lenders to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times during customary business hours and as often as any of the Lenders may reasonably request, provided that each Lender shall provide the Borrower and the Administrative Agent with reasonable notice prior to any visit or inspection. In the event any Lender desires to conduct an audit of any Loan Party, such Lender shall make a reasonable effort to conduct such audit contemporaneously with any audit to be performed by the Administrative Agent.

7.1.6 Keeping of Records and Books of Account . The Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs.

7.1.7 Compliance with Laws; Use of Proceeds . Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all material respects; provided that it shall not be deemed to be a violation of this Section 7.1.7 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. The Loan Parties will use the Letters of Credit and the proceeds of the Loans only in accordance with Section 2.8 [Use of Proceeds] and as permitted by applicable Law.

7.1.8 Further Assurances . Each Loan Party shall, from time to time, at its expense, faithfully preserve and protect the Administrative Agent’s Lien on and Prior Security Interest, subject to Permitted Liens, if any, in the Collateral whether now owned or hereafter acquired as a continuing first priority perfected Lien, subject only to Permitted Liens, and shall do such other acts and things as the Administrative Agent in its sole discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral.

7.1.9 Anti-Terrorism Laws . None of the Loan Parties is or shall be (i) a Person with whom any Lender is restricted from doing business under Executive Order No. 13224 or any other Anti-Terrorism Law, (ii) engaged in any business involved in making or receiving any contribution of funds, goods or services to or for the benefit of such a Person or in any transaction that evades or avoids, or has the purpose of evading or avoiding, the prohibitions set forth in any Anti-Terrorism Law, or (iii) otherwise in violation of any Anti-Terrorism Law. The Loan Parties shall provide to the Lenders any

 

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certifications or information that a Lender reasonably requests to confirm compliance by the Loan Parties with Anti-Terrorism Laws.

7.1.10 Pledge of equity Interest in Under Armour Europe BV and Under Armour France S.a.r.l . Within [thirty (30) days] of the Closing Date, the Borrower shall cause sixty-five percent (65%) of the issued and outstanding equity interests, whether capital stock, shares, securities, member interests or partnership interests, of each of Under Armour Europe BV and Under Armour France S.a.r.l to be pledged to the Administrative Agent for the benefit of the Lenders to secure the Obligations.

7.1.11 Landlord’s Waiver . Within [thirty (30) days] of the Closing Date, the Borrower shall deliver, or cause to be delivered, to the Administrative Agent, a Landlord’s Waiver for each of the leased locations set forth on Schedule 7.1.11.

7.2 Negative Covenants .

7.2.1 Indebtedness . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except Permitted Indebtedness.

7.2.2 Liens . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so (specifically including, for the avoidance of doubt, all of the Trademarks of the Loan Parties), except Permitted Liens.

7.2.3 Guaranties . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for (i) Guaranties of Indebtedness of the Loan Parties permitted hereunder and (ii) guarantees of indebtedness or other obligations of any other Loan Parties or Subsidiaries of Loan Parties otherwise permitted hereunder.

7.2.4 Loans and Investments . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except Permitted Investments.

7.2.5 Liquidations, Mergers, Consolidations, Acquisitions . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person; provided that any Loan Party other than the Borrower may consolidate or merge into another Loan Party which is wholly-owned by one or more of the other Loan Parties. By way of clarification, a Loan Party may merge with and into the Borrower.

7.2.6 Dispositions of Assets or Subsidiaries . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except:

(i) transactions involving the sale or other disposition of inventory in the ordinary course of business;

 

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(ii) any sale, transfer, lease, or other disposition of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party’s or such Subsidiary’s business;

(iii) any sale, transfer or lease of assets by any wholly owned Subsidiary of such Loan Party to another Loan Party; provided that the documents necessary to grant and perfect Prior Security Interests, subject to Permitted Liens, if any, to the Administrative Agent for the benefit of the Lenders in the equity interests of, and Collateral held by, such wholly owned Subsidiary are executed by the Loan Party to whom the assets are being transferred;

(iv) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of Permitted Indebtedness; provided such substitute assets are subject to the Lenders’ Prior Security Interest, subject to Permitted Liens, if any; or

(v) provided no Potential Default or Event of Default exists, transfers to one or more Foreign Subsidiaries of a Loan Party of those Trademarks of the Loan Parties solely used in connection with sales of such Foreign Subsidiaries outside of the United States of America; provided , that simultaneously with such transfer, the Loan Parties shall cause the applicable Foreign Subsidiaries to grant to the Administrative Agent, for the benefit of the Lenders, a license to use the transferred Trademarks on the same basis as set forth in Section 8.2.4.

7.2.7 Affiliate Transactions . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) with an Affiliate of such Person unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm’s-length terms and conditions and is in accordance with all applicable Law.

7.2.8 Subsidiaries . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to own or create directly or indirectly any Subsidiaries other than (i) any Subsidiary which has joined this Agreement as Guarantor on the Closing Date; (ii) any Subsidiary formed after the Closing Date which, within thirty (30) days of formation, joins this Agreement as a Guarantor by delivering to the Administrative Agent (A) a signed Guarantor Joinder; (B) documents in the forms described in Section 6.1 [First Loans] modified as appropriate; and (C) documents necessary to grant and perfect Prior Security Interests, subject to Permitted Liens, if any, to the Administrative Agent for the benefit of the Lenders in the equity interests of, and Collateral held by, such Subsidiary, and (iii) subsidiaries not formed under the state or federal laws of the United States, 65% of whose Subsidiary Equity Interests are pledged to the Administrative Agent for the benefit of the Lenders within thirty (30) days of its formation pursuant to the Pledge Agreement.

7.2.9 Continuation of or Change in Business . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, engage in any business other than the design, development, marketing, sale and distribution of branded performance products and related businesses, substantially as conducted and operated by such Loan Party or Subsidiary during the present fiscal year, and such Loan Party or Subsidiary shall not permit any material change in such business.

7.2.10 Fiscal Year . The Borrower shall not, and shall not permit any Subsidiary of the Borrower to, change its fiscal year from the twelve-month period beginning January 1 and ending December 31; provided , however , that any Subsidiary formed pursuant to Section 7.2.8 may, if permitted by applicable Law, extend its first taxable year beyond December 31 of the year in which it was formed and into the next year, so long as its fiscal year shall end on December 31 of the next succeeding year and every year thereafter.

 

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7.2.11 Changes in Organizational Documents . Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents in any way that would be adverse to the Lenders as determined by the Administrative Agent in its reasonable discretion without obtaining the prior written consent of the Administrative Agent; provided , however , that a change of the name of a Loan Party or a Subsidiary shall not be considered adverse to the Lenders hereunder unless and until such Loan Party or Subsidiary fails to give notice thereof to the Administrative Agent within ten (10) Business Days of any such change.

7.2.12 Minimum Fixed Charge Coverage Ratio . The Loan Parties shall not permit the Fixed Charge Coverage Ratio, calculated as of the end of each fiscal quarter for the fiscal quarter then ended, to be less than 1.25 to 1.0.

7.2.13 Maximum Leverage Ratio . The Loan Parties shall not at any time permit the Leverage Ratio to exceed 2.5 to 1.0.

7.3 Reporting Requirements . The Loan Parties will furnish or cause to be furnished to the Administrative Agent and each of the Lenders.

7.3.1 Borrowing Base Certificates, Schedules of Accounts Receivable and Inventory .

Within twenty (20) calendar days after the end of each calendar month so long as any Loan is outstanding or each fiscal quarter if no Loan is outstanding, (a) a Borrowing Base Certificate as of the last day of the immediately preceding month in the form of Exhibit 6.1.1(i) hereto, appropriately completed, executed and delivered by an Authorized Officer; (b) a Schedule of Accounts Receivable and Schedule of Inventory as of the end of the immediately preceding month; and (c) the Schedule of Payables.

7.3.2 Quarterly Financial Statements . As soon as available and in any event within forty-five (45) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of the Borrower, consisting of a consolidated and consolidating balance sheet as of the end of such fiscal quarter and related consolidated and consolidating statements of income, stockholders’ equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by any of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Borrower as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.

7.3.3 Annual Financial Statements . As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower, financial statements of the Borrower consisting of a consolidated and consolidating balance sheet as of the end of such fiscal year (which consolidating balance sheets are unaudited but derived from the audited consolidated statements), and related consolidated and consolidating statements of income, stockholders’ equity and cash flows for the fiscal year then ended (which consolidating statements of income, stockholders’ equity and cash flows are unaudited but derived from the audited consolidated statements), all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and, in the case of consolidated statements only, certified by independent certified public accountants of nationally recognized standing satisfactory to the Administrative Agent. The certificate or report of accountants shall include any management letters submitted to the Borrower by such independent accountants in connection with the audit and shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of any Loan Party under any of the Loan Documents.

 

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7.3.4 Certificate of the Borrower . Concurrently with the financial statements of the Borrower furnished to the Administrative Agent and to the Lenders pursuant to Sections 7.3.2 [Quarterly Financial Statements] and 7.3.3 [Annual Financial Statements], a certificate (each a “Compliance Certificate”) of the Borrower signed by any of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Borrower, in the form of Exhibit 7.3.4 .

7.3.5 Notices

7.3.5.1 Default . Promptly after any officer of any Loan Party has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by an Authorized Officer setting forth the details of such Event of Default or Potential Default and the action which such Loan Party proposes to take with respect thereto.

7.3.5.2 Litigation . Promptly after the commencement thereof, written notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party which relate to the Collateral, involve a claim or series of claims in excess of $5,000,000 or which if adversely determined would constitute a Material Adverse Change.

7.3.5.3 Organizational Documents . Within ten (10) Business Days of any amendment to the organizational documents of any Loan Party.

7.3.5.4 Erroneous Financial Information . Immediately in the event that the Borrower or its accountants conclude or advise that any previously issued financial statement, audit report or interim review should no longer be relied upon or that disclosure should be made or action should be taken to prevent future reliance.

7.3.5.5 ERISA Event . Immediately upon the occurrence of any ERISA Event.

7.3.5.6 Qualified Accounts Receivable . Promptly after any Accounts Receivable have been determined by the Administrative Agent not to meet the requirements set forth on Schedule 1.1(C)(ii)(d) , the Borrower shall provide to each of the Lenders the Schedule of Accounts Receivable and other documentation providing the basis for such determination and the anticipated concentration level of the Accounts Receivable owed by such individual Account Debtor for the six (6) months following the date of such determination.

7.3.5.7 Other Reports . Promptly upon their becoming available to the Borrower:

(i) Annual Budget . The annual budget and any forecasts or projections of the Borrower, to be supplied not later than thirty (30) days prior to commencement of the fiscal year to which any of the foregoing may be applicable;

(ii) Management Letters . Any reports including management letters submitted to the Borrower by independent accountants in connection with any annual, interim or special audit;

(iii) SEC Reports; Shareholder Communications . Reports, including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses and other shareholder communications, filed by the Borrower with the Securities and Exchange Commission; and

(iv) Other Information . Such other reports and information as any of the Lenders may from time to time reasonably request.

 

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8. DEFAULT

8.1 Events of Default . An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law):

8.1.1 Payments Under Loan Documents . The Borrower shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity), Reimbursement Obligation or Letter of Credit or Obligation or any interest on any Loan , Reimbursement Obligation or Letter of Credit Obligation or any other amount owing hereunder or under the other Loan Documents within five (5) Business Days of the date on which such principal, interest or other amount becomes due in accordance with the terms hereof or thereof;

8.1.2 Breach of Warranty . Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished;

8.1.3 Breach of Negative Covenants . Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 7.2 [Negative Covenants];

8.1.4 Breach of Other Covenants . Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of thirty (30) days beyond written notice of same by the Administrative Agent;

8.1.5 Defaults in Other Agreements or Indebtedness . A material default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or guarantor in excess of $2,000,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any Indebtedness when due (whether at stated maturity, by acceleration or otherwise) or such breach or default permits or causes the acceleration of any Indebtedness or the termination of any commitment to lend;

8.1.6 Final Judgments or Orders . Any final judgments or orders for the payment of money in excess of $5,000,000 in the aggregate (other than a judgment which is covered by effective insurance) shall be entered against any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry (or, if stayed pending appeal, shall not have been discharged within thirty (30) days after the entry of a final order of affirmance on appeal);

8.1.7 Loan Document Unenforceable . Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party’s successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby, provided , however , that this Section 8.1.7 shall not apply if such Loan Document ceases to be legal, valid and binding due to action of an Official Body of general application;

8.1.8 Uninsured Losses; Proceedings Against Assets . There shall occur any material uninsured damage to or loss, theft or destruction (other than in the ordinary course of business or the write down or write off of assets, inventory or accounts receivable in the ordinary course of business) of any of the Collateral in excess of $5,000,000 or the Collateral or any other of the Loan Parties’ or any of their

 

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Subsidiaries’ material assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter;

8.1.9 Events Relating to Plans and Benefit Arrangements . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $1,000,000, or (ii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $1,000,000, and such condition remains uncured for a period of thirty (30) days from the date of occurrence;

8.1.10 Change of Control . A Change of Control shall have occurred; and

8.1.11 Relief Proceedings .

(i) A Relief Proceeding shall have been instituted against any Loan Party or Subsidiary of a Loan Party and such Relief Proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such Relief Proceeding, (ii) any Loan Party or Subsidiary of a Loan Party institutes, or takes any action in furtherance of, a Relief Proceeding, or (iii) any Loan Party or any Significant Subsidiary of a Loan Party ceases to be Solvent or admits in writing its inability to pay its debts as they mature.

8.2 Consequences of Event of Default .

8.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings . If an Event of Default specified under Sections 8.1.1 through 8.1.10 shall occur and be continuing beyond any applicable grace or cure period, the Lenders and the Administrative Agent shall be under no further obligation to make Loans and the Issuing Lender shall be under no obligation to issue Letters of Credit and the Administrative Agent may, and upon the request of the Required Lenders, shall (i) by written notice to the Borrower, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Administrative Agent for the benefit of each Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrower to, and the Borrower shall thereupon, deposit in a non-interest-bearing account with the Administrative Agent, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Administrative Agent and the Lenders, and grants to the Administrative Agent and the Lenders a security interest in, all such